What changed in this filing

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Item 9A. Controls and Procedures

2021-02-25 compared with 2020-02-26 · 441 added, 417 removed, 654 unchanged (57% of the section changed)

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Evaluation of Disclosure Controls and Procedures

Our Chief Executive Officer, Chief Financial Officer, and Chief Accounting Officer (“certifying officers”) have conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) as of December 31, 2019.

Our Chief Executive Officer, Chief Financial Officer, and Chief Accounting Officer (the certifying officers) have conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) as of December 31, 2020.

Our certifying officers concluded that, as a result of the material weaknesses in internal control over financial reporting as described below, our disclosure controls and procedures were not effective as of December 31, 2020.

Per Rule 13a-15(e) and 15d-15(e), the term disclosure controls and procedures means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act (15 U.S.C.

Per Rules 13a-15(e) and 15d-15(e), the term disclosure controls and procedures means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act (15 U.S.C.

78a et seq.) is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms.

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Changes in Internal Control over Financial Reporting

As disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, the Company previously identified material weaknesses that extended to all process areas and all components of internal control over financial reporting, as defined by the Committee of Sponsoring Organizations of the Treadway Commission.

Management believes that a remediation effort of this magnitude will most likely extend over multiple years.

We therefore revised our remediation strategy to prioritize a manageable number of process areas, and implemented the following changes and improvements during 2019, including in the fourth quarter, under this phased approach:

We increased the number of resources with skills and expertise in technical accounting and internal control over financial reporting, and leveraged external consultants to provide needed capacity in these areas.

Within each priority process area, we performed risk assessment procedures and designed and implemented control activities to address identified risks.

The new control activities were designed to address the completeness and accuracy of the data used as well as other information and communication considerations.

We further implemented new monitoring controls to verify that new controls in these priority process areas were consistently executed.

We successfully executed this remediation strategy on the priority process areas of revenue, leases, journal entries, income taxes, segment reporting, impairment, and intangible assets.

We implemented new software solutions and tools in the areas of leases, customer life estimation, asset capitalization, bank reconciliations, and asset retirement obligations.

We enhanced our monitoring activities by performing more rigorous period-over-period variance analyses of the Company’s financial results.

We enhanced our information and communication activities by having more frequent discussions with operational personnel regarding significant business transactions and the potential impact of these

transactions on the Company’s financial reporting, and improving communication to employees regarding their responsibilities for ensuring that effective internal controls are maintained.

We performed and documented a detailed review of key accounting policies.

However, resource constraints, as described below, could impact our ability to simultaneously maintain the improvements in our priority process areas and effectively continue our phased remediation strategy.

As disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, the Company is pursuing a phased approach to remediate its material weaknesses, and management believes that a remediation effort of this magnitude will most likely extend over multiple years.

We implemented the following changes and improvements during 2020, including in the fourth quarter, under this phased approach:

• We added resources with skills and expertise in technical accounting and internal control over financial reporting to establish a resource complement that is commensurate with our baseline accounting, reporting, and information technology maintenance requirements.

• We successfully executed our remediation strategy on the treasury process, which includes cash, debt, interest expense, derivatives, and benefit obligations.

• We made significant progress towards remediation of the property, plant, and equipment and depreciation expense process, including:

• Completion of risk assessment procedures and initiation of control design activities over property, plant, and equipment and depreciation expense.

• Implementation of a redesigned process and various software tools to account for projects under construction.

We have designed and are implementing internal controls over this new process.

When the sale of our Wireless segment became probable late in the third quarter of 2020, we began to revise our risk assessment process and recalibrate ongoing control activities in relation to our smaller continuing operations.

The significant and incremental effort required by this recalibration, potential strategic transactions, and a volume of ongoing software development projects have led us to conclude that it is no longer feasible to complete our remediation plan by the end of 2021, as we had previously targeted.

Further, we need to complete scheduled updates to our enterprise resourcing planning (ERP) system over the next two years, which also places significant demands on our available resources.

While we have established a resource complement that is commensurate with our baseline accounting, reporting, and information technology maintenance requirements, such resource complement is not adequate to absorb the significant and incremental effort associated with these efforts while simultaneously continuing our phased remediation approach.

Accordingly, we will prioritize the recalibration of controls over our continuing operations and our ERP upgrade as we continue our phased remediation approach.

As a result of the changes described above, management identified various immaterial errors, some of which were corrected during 2020.

We also commenced risk assessment activities in other process areas and have designed and implemented new control activities;

however, our evaluation and documentation of key accounting policies, risk assessment activities, and related design and implementation of control activities in those processes is on-going.

Other than the changes and improvements that occurred in the fourth quarter, which are included among the items discussed above, there have been no other changes in the Company’s internal control over financial reporting that occurred during the quarter ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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In order to evaluate the effectiveness of internal control over financial reporting, under the direction of our certifying officers, we conducted an assessment using the criteria established in Internal Control - Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Based on this assessment, our certifying officers concluded that the Company’s internal control over financial reporting was not effective as of December 31, 2019 due to a material weakness in our control environment whereby the Company did not have a sufficient number of trained resources with expertise in technical accounting, internal control over financial reporting, and the design and implementation of information technology solutions.

As a result, we were unable to maintain effective risk assessment and information and communication processes, placed excess reliance on third party consultants, and did not have effective process-level control activities over the following areas:

Based on this assessment, our certifying officers concluded that the Company’s internal control over financial reporting was not effective as of December 31, 2020 due to a material weakness in our control environment whereby the Company did not have a sufficient number of trained resources with expertise in technical accounting, internal control over financial reporting, and the design and implementation of information technology solutions to complete its remediation efforts.

As a result, we were unable to maintain effective information and communication processes, and did not have effective process-level control activities over the following areas:

• Property, plant, and equipment and depreciation expense

• Purchasing (current liabilities and operating expenses)

Treasury (cash, debt, interest expense, derivatives, and benefit obligations)

The control deficiencies described above created a reasonable possibility that a material misstatement to the consolidated financial statements would not be prevented or detected on a timely basis and therefore we concluded that the deficiencies represent material weaknesses in the Company’s internal control over financial reporting and our internal control over financial reporting was not effective as of December 31, 2020.

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The following steps will continue to be executed until remediation of the material weaknesses is achieved:

Hire, train, and retain individuals with the appropriate skills and experience related to technical accounting, internal control over financial reporting, and the design and implementation of information technology solutions.

Enhance risk assessment and prioritize remediation activities that most significantly reduce the risk that a material misstatement to the consolidated financial statements would not be prevented or detected on a timely basis.

Implement and monitor our phased approach to remediation of control activities in additional process areas.

• Retain and train individuals with the appropriate skills and experience related to technical accounting, internal control over financial reporting, and the design and implementation of information technology solutions.

Monitor and adjust resourcing as further assessments are completed.

• Enhance information and communication processes through information technology solutions to ensure that information needed for financial reporting is accurate, complete, relevant and reliable, and communicated in a timely manner.

• Strengthen project management over the design and implementation of information technology solutions to improve throughput.

• Extend the successful implementation of our phased approach to remediation of control activities over property, plant, and equipment and depreciation expense and purchasing.

• Report regularly to the audit committee on the progress and results of the remediation plan, including the identification, status, and resolution of internal control deficiencies.

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Outstanding options and the number of shares available for future issuance as of December 31, 2020 were as follows:

Number of securities to be issued upon exercise of outstanding options

Weighted average exercise price of outstanding options

Number of securities remaining available for future issuance

Number of securities to be issued upon exercise of outstanding options Weighted average exercise price of outstanding options Number of securities remaining available for future issuance

2005 Stock Incentive Plan 14,874 $ 6.64 —

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Consolidated Balance Shee ts as of December 31, 2020 and 2019

Consolidated Statements of Comprehensive Income for the years ended December 31, 2019, 2018 and 2017

Consolidated Statements of Comprehensive Income for the years ended December 31, 2020, 2019 and 2018 F- 7

Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2020, 2019 and 2018

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Financial Statement Schedule

Valuation and Qualifying Accounts

Valuation and Qualifying Accounts F- 29

Report of Independent Registered Public Accounting Firm

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As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for leases as of January 1, 2019 due to the adoption of Accounting Standards Update 2016-02, Leases (Topic 842), and all related amendments.

Additionally, as discussed in Note 3 to the consolidated financial statements, the Company has changed its method of accounting for revenue from contracts with customers as of January 1, 2018 due to the adoption of Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606) , and all related amendments.

Basis for Opinion

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The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgment.

The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

Determination of costs capitalized into property, plant, and equipment

As discussed in Notes 2 and 5 to the consolidated financial statements, the property, plant, and equipment, net balance as of December 31, 2019 was $700.1 million.

As discussed in Notes 2, 3, and 6 to the consolidated financial statements, the property, plant, and equipment, net balance (including property, plant, and equipment held for sale) as of December 31, 2020 was $740.1 million.

The determination to capitalize, rather than expense, costs increases operating income and net income.

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The nature of evidence provided, such as third-party invoices, can lack specificity of the item acquired or activity performed and required complex judgment to determine that the costs qualified for capitalization.

The primary procedures we performed to address this critical audit matter included the following.

For a sample of costs capitalized, we inspected the related invoice.

The following are the primary procedures we performed to address this critical audit matter.

For a sample of costs capitalized, we inspected the related invoice(s).

For those invoices lacking specificity, we inspected additional support, such as project documentation or contracts.

In certain instances, we also used a firm professional with specialized skills and knowledge to understand the nature of the project.

In certain instances, we also involved a professional with specialized skills and knowledge in the telecommunications industry, who assisted in evaluating the nature of the project and related costs.

The combination of these procedures was used to independently assess the Company’s determination that such costs qualified for capitalization.

We have served as the Company’s auditor since 2001.

McLean, Virginia

February 25, 2021

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We have audited Shenandoah Telecommunications Company and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

In our opinion, because of the effect of the material weakness, described below, on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

In our opinion, because of the effect of the material weaknesses, described below, on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2020 and 2019, the related consolidated statements of comprehensive income, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2020, and the related notes and financial statement schedule II – Valuation and Qualifying Accounts (collectively, the consolidated financial statements), and our report dated February 25, 2021 expressed an unqualified opinion on those consolidated financial statements.

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The following material weaknesses have been identified and included in management’s assessment:

The Company’s control environment was not effective, because it did not have a sufficient number of trained resources with expertise in technical accounting, internal control over financial reporting, and the design and implementation of information technology solutions.

As a result, the Company was unable to maintain effective risk assessment and information and communication processes, placed excess reliance on third-party consultants, and did not have effective process-level control activities over the following areas:

The Company’s control environment was not effective, because the Company did not have a sufficient number of trained resources with expertise in technical accounting, internal control over financial reporting, and the design and implementation of information technology solutions to complete its remediation efforts.

As a result, the Company was unable to maintain an effective information and communication process, and did not have effective process-level control activities over the following areas:

• Property, plant, and equipment and depreciation expense

• Purchasing (current liabilities and operating expenses)

Treasury (cash, debt, interest expense, derivatives, and benefit obligations)

The material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2020 consolidated financial statements, and this report does not affect our report on those consolidated financial statements.

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Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit

preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

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Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

McLean, Virginia

February 25, 2021

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Accounts receivable, net of allowance for doubtful accounts of $ 614 and $ 533 , respectively

70,393 63,641

Income taxes receivable — 10,306

Inventory, net of allowances of $66 and $113, respectively

Prepaid expenses and other 9,631 11,178

Current assets held for sale 1,133,294 55,077

Total current assets 1,408,715 241,853

Investments 13,769 12,388

Property, plant and equipment, net 440,427 363,087

Intangible assets, net

Goodwill and Intangible assets, net 106,759 88,241

Operating lease right-of-use assets 50,387 42,568

Deferred charges and other assets 11,650 9,267

Non-current assets held for sale — 1,141,498

Total assets 2,031,707 1,898,902

LIABILITIES AND SHAREHOLDERS’ EQUITY

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Accrued compensation 16,413 10,075

Income taxes payable 6,951 —

Current operating lease liabilities 1,970 1,731

Accrued liabilities and other 13,869 7,556

Current liabilities held for sale 452,202 53,912

Total current liabilities 1,208,061 153,577

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Deferred income taxes 150,652 137,567

Deferred lease

Asset retirement obligations 4,955 6,152

Benefit plan obligations 14,645 12,675

Noncurrent operating lease liabilities

Non-current operating lease liabilities 46,095 42,625

Other liabilities 24,905 16,991

Non-current liabilities held for sale — 368,423

Total other long-term liabilities 241,252 584,433

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Retained earnings 539,783 430,010

Accumulated other comprehensive income, net of taxes

Accumulated other comprehensive (loss) income, net of taxes ( 4,706 ) 308

Total shareholders’ equity 582,394 472,428

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Service revenue and other $ 220,775 $ 206,862 $ 192,683

Equipment revenue

Total revenue

Operating expenses:

Cost of services 88,203 82,949 80,418

Cost of goods sold

Selling, general and administrative 85,016 77,846 70,844

Acquisition, integration and migration expenses

Depreciation and amortization 48,703 46,786 44,390

Total operating expenses 221,922 207,581 195,652

Operating income

Other income (expense):

Interest expense

Operating loss ( 1,147 ) ( 719 ) ( 2,969 )

Other income:

Other income, net 3,187 3,280 3,703

Income before income taxes 2,040 2,561 734

Income tax expense (benefit)

Income tax (benefit) expense ( 586 ) 173 ( 1,343 )

Income from continuing operations 2,626 2,388 2,077

Income from discontinued operations, net of tax 124,097 53,568 44,518

Net income 126,723 55,956 46,595

Other comprehensive income:

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

Unrealized (loss) income on interest rate hedge, net of tax ( 5,014 ) ( 7,972 ) 50

Comprehensive income $ 121,709 $ 47,984 $ 46,645

Net income per share, basic and diluted:

Basic - Income from continuing operations $ 0.05 $ 0.05 $ 0.04

Basic - Income from discontinued operations, net of tax $ 2.49 $ 1.07 $ 0.90

Basic net income per share $ 2.54 $ 1.12 $ 0.94

Diluted - Income from continuing operations $ 0.05 $ 0.05 $ 0.04

Diluted - Income from discontinued operations, net of tax $ 2.48 $ 1.07 $ 0.89

Diluted net income per share $ 2.53 $ 1.12 $ 0.93

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(in thousands, except per share amounts)

Shares of Common Stock (no par value)

Additional Paid in Capital

Retained Earnings

Accumulated Other Comprehensive Income (Loss)

Shares of Common Stock (no par value) Additional Paid in Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total

Balance, December 31, 2017 49,328 $ 44,787 $ 299,190 $ 8,230 $ 352,207

Net income — — 46,595 — 46,595

Change in accounting principle - adoption of accounting standard — — 56,097 — 56,097

Other comprehensive gain, net of tax — — — 50 50

Dividends declared ($ 0.27 per share)

— — ( 13,386 ) — ( 13,386 )

Dividends reinvested in common stock 11 520 — — 520

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Balance, December 31, 2018 49,630 47,456 388,496 8,280 444,232

Change in accounting principle - adoption of accounting standard (Note 3)

Other comprehensive gain, net of tax

Net income — — 55,956 — 55,956

Other comprehensive loss, net of tax — — — ( 7,972 ) ( 7,972 )

Dividends declared ($ 0.29 per share)

— — ( 14,442 ) — ( 14,442 )

Dividends reinvested in common stock 14 499 — — 499

Share repurchases ( 200 ) ( 7,231 ) — — ( 7,231 )

Stock based compensation 184 4,182 — — 4,182

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Balance, December 31, 2019 49,671 42,110 430,010 308 472,428

Net income — — 126,723 — 126,723

Other comprehensive gain (loss), net of tax — — — ( 5,014 ) ( 5,014 )

Dividends declared ($ 0.34 per share)

— — ( 16,950 ) — ( 16,950 )

Dividends reinvested in common stock — ( 2 ) — — ( 2 )

Share repurchases

Stock based compensation 156 6,833 — — 6,833

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Common stock issued 1 31 — — 31

Annual dividend reinvestment 12 526 — 526

Shares retired for settlement of employee taxes upon issuance of vested equity awards ( 48 ) ( 2,217 ) — — ( 2,217 )

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Cash flows from operating activities:

Net income $ 126,723 $ 55,956 $ 46,595

Income from discontinued operations, net of tax 124,097 53,568 44,518

Income from continuing operations 2,626 2,388 2,077

Adjustments to reconcile net income to net cash provided by operating activities:

Amortization of intangible assets

Depreciation 47,964 46,313 44,213

Amortization 739 473 176

Accretion of asset retirement obligations 333 410 319

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Gain from patronage and investments ( 1,311 ) ( 4,769 ) ( 3,112 )

Amortization of long-term debt issuance costs

Changes in assets and liabilities:

Accounts receivable ( 7,318 ) ( 74 ) 8

Inventory, net

Current income taxes ( 15,896 ) ( 16,675 ) ( 5,200 )

Operating lease right-of-use assets 3,980 7,593 —

Waived management fee

Other assets ( 3,959 ) 162 ( 6,576 )

Accounts payable ( 663 ) ( 8,426 ) 12,203

Lease liabilities ( 3,067 ) ( 4,987 ) —

Deferred lease

Other deferrals and accruals 7,494 ( 2,037 ) ( 494 )

Net cash provided by operating activities - continuing operations 53,359 42,329 54,199

Net cash provided by operating activities - discontinued operations 249,508 216,816 211,448

Net cash provided by operating activities 302,867 259,145 265,647

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Cash disbursed for acquisitions ( 1,890 ) ( 10,000 ) —

Cash disbursed for FCC spectrum licenses

Cash disbursed for deposit on FCC spectrum leases ( 16,118 ) ( 16,742 ) —

Proceeds from sale of assets and other 370 112 541

Net cash used in investing activities - continuing operations ( 138,088 ) ( 93,678 ) ( 56,090 )

Net cash used in investing activities - discontinued operations ( 17,500 ) ( 71,656 ) ( 131,710 )

Net cash used in investing activities ( 155,588 ) ( 165,334 ) ( 187,800 )

Cash flows from financing activities:

Principal payments on long-term debt

Dividends paid, net of dividends reinvested ( 16,424 ) ( 13,943 ) ( 12,863 )

Repurchase of common stock

Proceeds from revolving credit facility borrowings

Proceeds from credit facility borrowings

Principal payments on revolving credit facility

Share repurchases — ( 7,231 ) —

Taxes paid for equity award issuances ( 2,217 ) ( 2,910 ) ( 3,245 )

Payments for debt issuance costs

Proceeds from exercise of stock options and other

Payments for financing arrangements and other ( 769 ) 36 ( 2 )

Net cash used in financing activities - continuing operations ( 19,410 ) ( 24,048 ) ( 16,110 )

Net cash used in financing activities - discontinued operations ( 34,123 ) ( 53,198 ) ( 55,236 )

Net cash used in financing activities ( 53,533 ) ( 77,246 ) ( 71,346 )

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Nature of Operations

Shenandoah Telecommunications Company and its subsidiaries (collectively, the “Company”) is organized into three reporting segments, which provide the following telecommunication services:

Our Wireless segment operates as a Sprint affiliate.

We provide wireless network services to Sprint through our affiliate agreement in the Mid-Atlantic region of the U.S.

Our Broadband segment provides broadband, video and voice services to residential and commercial customers in portions of Virginia, West Virginia, Maryland, and Kentucky, via fiber optic and hybrid fiber coaxial (“HFC”) cable.

The Broadband segment also leases dark fiber and provides Ethernet and Wavelength fiber optic services to enterprise and wholesale customers throughout the entirety of our service area.

The Broadband segment also provides voice and digital subscriber line (“DSL”) telephone services to customers in Virginia’s Shenandoah County as a Rural Local Exchange Carrier (“RLEC”).

Shenandoah Telecommunications Company and its subsidiaries (collectively, the “Company”) provide broadband data, video and voice services to residential and commercial customers in portions of Virginia, West Virginia, Maryland, Pennsylvania and Kentucky, via fiber optic, hybrid fiber coaxial cable, and fixed wireless networks.

We also lease dark fiber and provide Ethernet and Wavelength fiber optic services to enterprise and wholesale customers throughout the entirety of our service area.

The Broadband segment also provides voice and DSL telephone services to customers in Virginia’s Shenandoah County and portions of adjacent counties as a Rural Local Exchange Carrier (“RLEC”).

These integrated networks are connected by a fiber network.

This fiber optic network also supports our Wireless segment operations and these intercompany transactions are reported at their market value.

Our Tower segment leases space on 225 owned cell towers to the Company’s Wireless segment and to other wireless communications providers.

Refer to Note 14 , Segment Reporting , for additional information.

All of these operations are contained within our Broadband reporting segment.

Our Tower segment owns 223 cell towers and leases colocation space on those towers to wireless communications providers, including our discontinued wireless operation, refer to Note 3, Discontinued Operations , and Note 15, Segment Reporting , for additional information.

Revision of Prior Period Financial Statements

In connection with the preparation of our unaudited condensed consolidated financial statements for the three months ended March 31, 2020, we determined that certain errors existed in our previously issued financial statements.

Specifically:

• Prepaid and other assets, a component of current assets held for sale, as of December 31, 2019, were understated by $ 2.7 million, deferred tax liabilities were understated by $ 0.7 million, and retained earnings were understated by $ 2.0 million as the result of a failure to properly account for handsets that were utilized as demo phones in certain wireless retail stores within our area of operation.

All of the impact to retained earnings is attributable to 2017 and prior years.

• Property, plant and equipment, net, classified as held for sale, and deferred income tax liabilities, as of December 31, 2019 were understated by $ 1.4 million and $ 0.4 million, respectively.

Depreciation, contained within discontinued operations, was overstated by $ 1.4 million for the year and quarter ended December 31, 2019.

Income tax expense and net income were understated by $ 0.4 million and $ 1.0 million, respectively, for the year and quarter ended December 31, 2019.

We evaluated these errors under the U.S.

Securities and Exchange Commission's ("SEC's") authoritative guidance on materiality and the quantification of the effect of prior period misstatements on financial statements, and we have determined that the impact of these errors on our prior period consolidated financial statements is immaterial.

However, since the correction of these errors in the first quarter of 2020 could have become material to our results of operations for the year ending December 31, 2020, we revised our prior period financial statements to correct these errors herein.

For the year and quarter ended December 31, 2019, the correction of these errors resulted in a $ 0.02 increase in both basic and diluted earnings per share from discontinued operations.

Summary of Significant Accounting Policies

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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.

All intercompany accounts and transactions for continuing operations have been eliminated in consolidation.

Use of estimates:

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Cash and cash equivalents:

Cash equivalents may include all investments with an original maturity of three months or less.

Cash equivalents include all investments with an original maturity of three months or less.

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 is stated at cost less accumulated depreciation.

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.

The Company capitalizes all costs associated with the purchase, deployment and installation of property, plant and equipment, including

interest costs and internal labor 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.

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Leasehold improvements are depreciated over the lesser of their useful lives or respective lease terms.

Land is not depreciated.

Refer to Note 6, Property, Plant and Equipment , for additional information.

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Cable franchise rights provide us with the non-exclusive right to provide video services in a specified area.

Spectrum licenses are issued by the Federal Communications Commission (“FCC”) which provide us the exclusive right to utilize designated radio frequency spectrum within specific geographic service areas to provide wireless communication services.

Spectrum licenses are issued by the Federal Communications Commission (“FCC”) and provide us with either an exclusive or priority access right to utilize designated radio frequency spectrum within specific geographic service areas to provide wireless communication services.

While some cable franchises and spectrum licenses are issued for a fixed time (generally ten years and up to fifteen years, respectively), renewals have been granted routinely and at nominal costs.

The Company believes it will be able to meet all requirements necessary to secure renewal of its cable franchise rights and spectrum licenses.

Moreover, the Company has determined that there are currently no legal, regulatory, contractual, competitive, economic or other factors that

limit the useful lives of our cable franchises or spectrum licenses and as a result, we account for cable franchise rights and spectrum licenses as indefinite-lived intangible assets.

Moreover, the Company has determined that there are currently no legal, regulatory, contractual, competitive, economic or other factors that limit the useful lives of our cable franchises or spectrum licenses and as a result, we account for cable franchise rights and spectrum licenses as indefinite-lived intangible assets.

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.

These assets are evaluated for impairment based on the identification of reporting units.

Our reporting units effectively align with our new reporting segments.

We evaluated our reporting units for impairment both before and after our realignment of reporting segments and reporting units during the fourth quarter of 2019 on the basis of qualitative factors.

Our reporting units align with our reporting segments.

We evaluated our reporting units for impairment during the fourth quarter of 2020, 2019 and 2018, respectively, on the basis of qualitative factors.

Our consideration of qualitative factors included but was not limited to macroeconomic conditions, industry and market conditions, company specific events, changes in circumstances, after tax cash flows and market capitalization trends.

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These assets are evaluated for impairment based on the identification of asset groups.

Our asset groups align with our new reporting segments.

We evaluated our asset groups for impairment both before and after our realignment of reporting segments and asset groups during the fourth quarter of 2019.

Our asset groups align with our reporting segments.

We evaluated our asset groups for impairment during the fourth quarter of 2020.

We concluded that there were no indicators that an asset group impairment had been triggered during the years ended December 31, 2020, 2019, or 2018.

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Advertising expense for the years ended December 31, 2020, 2019 and 2018 was $ 2.7 million, $ 3.5 million and $ 2.6 million, respectively.

The Wireless segment's advertising of Sprint products drove the majority of these advertising expenses, at $ 10.8 million , $ 12.6 million and $ 13.5 million for the years ended December 31, 2019 , 2018 and 2017 , respectively.

Benefit Obligations:

The Benefit obligations caption includes the following plans:

($ in thousands)

December 31, 2019

December 31, 2018

nTelos Pension Plan

The nTelos Pension Plan was assumed in the 2016 acquisition of nTelos.

This frozen plan covers certain employees who met eligibility requirements and were employed by nTelos prior to October 1, 2003.

($ in thousands) December 31, 2020 December 31, 2019

Pension Plan $ 7,961 $ 6,824

Postretirement Plan 3,997 3,573

SERP Plan 2,687 2,278

Total $ 14,645 $ 12,675

The pension plan is frozen and covers certain employees who were employed by nTelos prior to October 1, 2003.

Benefits under the plan 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 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.

This plan was amended on December 31, 2012, to freeze future benefit plan accruals for participants.

As of December 31, 2020 and 2019, the fair value of our Pension Plan assets were $ 27.0 million and $ 24.1 million, respectively.

These investments are held in index funds, and are valued based the net asset value per share.

These investments are held in index funds, and are valued based on the net asset value per share.

Our Pension Plan's projected benefit obligation was $ 34.9 million and $ 30.9 million, at December 31, 2020 and 2019, respectively.

The Pension Plan liability was discounted at 2.41 % and 3.16 % at December 31, 2020 and 2019, respectively.

The nTelos postretirement benefit plan was assumed in the 2016 acquisition of nTelos.

This frozen plan covers certain health care benefits for certain nTelos retired employees that meet eligibility requirements.

This is a defined benefit plan that is unfunded.

Our OPEB Plan liability was discounted at 3.12 % and 4.15 % at December 31, 2019 and 2018 , respectively.

The postretirement benefit plan is a frozen, unfunded, defined benefit plan.

It covers certain health care benefits for certain retirees who were employed by an acquiree and meet eligibility requirements.

The postretirement plan liability was discounted at 2.32 % and 3.12 % at December 31, 2020 and 2019, respectively.

The service component of defined benefit plan expense is immaterial and is included in selling, general, and administrative expense.

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The benefit obligation to participants is always equal to the value of the SERP assets under ASC 710 Compensation.

Changes to the investments’ fair

value are presented in Other income (expense), while the reciprocal changes in the liability are presented in selling, general and administrative expense

Changes to the investments’ fair value are presented in Other income (expense), while the reciprocal changes in the liability are presented in selling, general and administrative expense.

Share Repurchase Program :

On November 4, 2019, our program to repurchase up to $ 80 million of common stock became effective.

On November 4, 2019, our program to repurchase up to $ 80 million of common stock became effective and expired on the 2020 anniversary.

During the fourth quarter of 2019, we repurchased 200,410 shares under the program at an average price of $ 36.08 ;

The program is expected to be executed over a twelve month period subject to market conditions and we are not obligated to repurchase the full amount allowed under the program.

there were no repurchases made during the year ended December 31, 2020.

Our common shares have zero par value and our policy is to record the entire repurchase as a reduction of additional paid-in capital.

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New Accounting Standards

The Company adopted ASU No.

2016-13, Financial Instruments - Credit Losses ("ASC 326"):

Measurement of Credit Losses on Financial Instruments , as of January 1, 2020 using the modified retrospective transition method.

ASC 326 requires the application of a current expected credit loss (“CECL”) impairment model to financial assets measured at amortized cost including trade accounts receivable, net investments in leases, and certain off-balance-sheet credit exposures.

Under the CECL model, lifetime expected credit losses on such financial assets are measured and recognized at each reporting date based on historical, current, and forecasted information.

Furthermore, the CECL model requires financial assets with similar risk characteristics to be analyzed on a collective basis.

There was no significant impact to consolidated financial statements upon adoption.

The Company adopted ASU No.

2018-15, Intangibles - Goodwill and Other - Internal-Use Software ("ASC 350"):

Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract, as of January 1, 2020.

This standard aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software.

Upon adoption of the standard, implementation costs were capitalized in the period incurred and will be amortized over the term of the hosting arrangement.

There was no significant impact to consolidated financial statements upon adoption.

In March 2020, the FASB issued ASU 2020-04 “ Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting.

” This accounting update provides optional accounting relief to entities with contracts, hedge accounting relationships or other transactions that reference London Interbank Offering Rate (LIBOR) or other interest rate benchmarks for which the referenced rate is expected to be discontinued or replaced.

This optional relief generally allows for contract modifications solely related to the replacement of the reference rate to be accounted for as a continuation of the existing contract instead of as an extinguishment of the contract, and therefore would not require reassessment of a previous accounting determination.

The Company's Credit Agreement and interest rate swaps have LIBOR as a reference rate.

We plan to apply the accounting relief as relevant contract modifications are made to our Credit Agreement and interest rate swap contracts during the course of the reference rate reform transition period.

The optional relief can be applied beginning January 1, 2020, and ending December 31, 2022.

We implemented Accounting Standards Codification ("ASC") 842- Leases, ("ASC 842"), on January 1, 2019 using the modified retrospective method and thus did not retroactively adjust prior periods.

ASC 842 replaced previous leasing guidance with a comprehensive lease measurement and recognition standard and expanded disclosure requirements.

The new standard required lessees to recognize most leases on their balance sheet as liabilities, with corresponding right-of-use, or ROU assets.

The new standard required lessees to recognize most leases on their balance sheet as liabilities, along with the corresponding right-of-use, or ROU, assets.

See Note 9, Leases for more information.

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2018-02- Income Statement - Reporting Comprehensive Income, ("ASC 220"), as of January 1, 2019.

We elected not to reclassify stranded income tax effects from accumulated other comprehensive income (OCI) to retained earnings and have implemented this election as its accounting policy as of January 1, 2019.

The Company utilizes the portfolio approach as its policy to release the income tax effects from accumulated OCI as the entire portfolio is liquidated, sold, or extinguished.

We implemented ASC 606- Revenue from Contracts with Customers, ("ASC 606"), on January 1, 2018 using the modified retrospective method and thus did not retroactively adjust prior periods.

This new pronouncement provided us with a single revenue recognition model for recognizing revenue from contracts with customers and significantly expanded the disclosure requirements for revenue arrangements.

We have disclosed our results under both the new and old standards for the first year after adoption.

See Note 3 , Revenue from Contracts with Customers for more information.

In June 2016, the FASB issued ASU No.

2016-13, Financial Instruments - Credit Losses ("ASC 326"):

Measurement of Credit Losses on Financial Instruments , which requires the application of a current expected credit loss (“CECL”) impairment model to financial assets measured at amortized cost (including trade accounts receivable), net investments in leases, and certain off-balance-sheet credit exposures.

Under the CECL model, lifetime expected credit losses on such financial assets are measured and recognized at each reporting date based on historical, current, and forecasted information.

Furthermore, the CECL model requires financial assets with similar risk characteristics to be analyzed on a collective basis.

ASC 326 is effective for fiscal years beginning after December 15, 2019 and interim periods within those years.

The Company intends to adopt this standard as of January 1, 2020.

The Company does not expect there to be a significant impact to consolidated financial statements upon the adoption.

Revenue from Contracts with Customers

Refer to Note 14 , Segment Reporting , for a summary of our revenue streams, which are discussed further below.

Wireless Segment Revenue

Under the terms of our affiliate agreement with Sprint, we are the exclusive provider to build and operate a portion of Sprint’s nationwide wireless network in a contiguous portion of the Mid-Atlantic states and are licensed to use Sprint’s trademark and FCC spectrum licenses in this Sprint Affiliate Area.

In return, we receive a substantial portion of Sprint’s net billings to its subscribers in our Sprint Affiliate Area.

Our revenue from this agreement is fully variable and thus our economic risks and rewards under this model are very similar to those of any other wireless carrier.

Under ASC 606, we concluded that Sprint is our customer, rather than Sprint's subscribers.

Our sole performance obligation to Sprint under this arrangement is to provide Sprint a series of continuous network access services.

All of our consideration for this performance obligation is variable based upon Sprint’s net billings to its subscribers who either originated in, or otherwise use our network in the Affiliate Area, less the 8 % management and 8.6 % service fees that are retained by Sprint.

Our variable revenue from those subscriber billings is further reduced by customer credits, and write-off of Sprint’s subscriber receivables.

In the case of Sprint’s prepaid subscribers, our revenue represents the subscriber’s bill reduced by costs to acquire and support those subscribers, based upon national averages from Sprint’s prepaid programs, and a 6 % management fee.

We reimburse Sprint for the cost of subsidized handsets that Sprint sells through its national channel in our Sprint Affiliate Area.

Similarly, we also reimburse Sprint for commissions that Sprint pays to third-party dealers in our Sprint Affiliate Area.

reimbursements to Sprint represent consideration payable to our customer, and are thus recorded as a contract asset that amortizes against revenue over the estimated life of Sprint’s relationship with its subscribers in our affiliate area, which ranges from 21 to 53 months.

Also included within our contract asset is an allowance for variable consideration, which essentially represents our share of Sprint’s allowance for doubtful accounts due from Sprint’s subscribers.

Below is a summary of the Wireless segment contract asset:

We elected not to reclassify stranded income tax effects from accumulated other comprehensive income (OCI) to retained earnings.

We utilize the portfolio approach as our policy to release the income tax effects from accumulated OCI as the entire portfolio is liquidated, sold, or extinguished.

Discontinued Operations

On August 26, 2020, Sprint Corporation ("Sprint"), an indirect subsidiary of T-Mobile US, Inc., ("T-Mobile"), on behalf of and as the direct or indirect owner of Sprint PCS, delivered notice to the Company exercising its option to purchase the assets and operations of our Wireless operations for 90 % of the “Entire Business Value” (as defined under our affiliate agreement and determined pursuant to the appraisal process set forth therein).

Shortly thereafter, the Company committed to a plan to sell the discontinued Wireless operations.

The final and binding appraisal process was completed on February 1, 2021.

Expected sale proceeds are $ 1.95 billion based upon the appraisal process and other agreements between the parties.

We expect to enter into a definitive asset purchase agreement with T-Mobile during the first quarter 2021 and expect that the transaction will close during the second quarter 2021, subject to customary closing conditions and required regulatory approvals.

The assets and liabilities that are expected to transfer in the sale are presented as held for sale within our Consolidated Balance Sheets.

This disposal group excludes the accounts receivable and certain current liabilities generated by our Wireless operations because they are expected to be settled separately from the sale.

Such accounts receivable totaled $ 51.7 million and $ 51.0 million at December 31, 2020 and December 31, 2019, respectively, and such current liabilities totaled $ 6.1 million and $ 27.7 million at December 31, 2020 and December 31, 2019, respectively.

During the fourth quarter of 2020 and subsequent thereto, the parties agreed that our pension and postretirement plan liabilities due to certain current and former Wireless employees would not transfer in the sale.

Our identification of assets and liabilities held for sale as of December 31, 2020 and 2019 has been updated accordingly, and could change again based on the terms of the final asset purchase agreement.

The transaction is structured as an asset sale for income tax purposes.

As a result, no current or deferred tax assets or liabilities are included within the disposal group.

While our long-term debt does not transfer in the sale, its provisions require us to repay all of the debt upon consummation of the sale.

Our debt is therefore presented outside of the disposal group as a current liability at December 31, 2020.

Our related interest rate swap liabilities are also presented outside of the disposal group as a current liability at December 31, 2020 because management intends to settle it at consummation.

The expected divestiture of our Wireless operations represents a strategic shift in the Company’s business and qualifies as a discontinued operation.

Accordingly, the operating results and cash flows from our Wireless operations have been reflected as discontinued operations in our Consolidated Statements of Comprehensive Income and the Consolidated Statements of Cash Flows.

Similarly, the results of our Wireless operations are no longer presented as a reporting segment.

Because repayment of the debt is contractually triggered by the sale, the related interest expense is presented within discontinued operations under the relevant authoritative guidance.

Consistent with the internal reporting provided to our chief operating decision maker, we previously allocated certain corporate management overhead costs to the former Wireless segment which may no longer be allocated to discontinued operations under the relevant authoritative guidance.

Accordingly, we elected to recast our segment reporting note, to reflect the reattribution of these expenses in all presented periods in a manner that is also consistent with our updated internal reporting.

The carrying amounts of the major classes of assets and liabilities, which are classified as held for sale in the consolidated balance sheets, are as follows:

(in thousands) December 31,

2020 December 31,

Inventory $ 5,746 $ 5,728

Prepaid expenses and other 47,003 49,349

Property, plant and equipment, net 299,647 —

Intangible assets, net 176,459 —

Goodwill 146,383 —

Operating lease right-of-use assets 421,586 —

Deferred charges and other assets 36,470 —

Current assets held for sale $ 1,133,294 $ 55,077

Property, plant and equipment, net $ — $ 338,427

Intangible assets, net — 228,593

Goodwill — 146,383

Operating lease right-of-use assets — 384,010

Deferred charges and other assets — 44,085

Non-current assets held for sale $ — $ 1,141,498

Total assets held for sale $ 1,133,294 $ 1,196,575

Current operating lease liabilities $ 409,887 $ 47,077

Accrued liabilities and other 8,770 6,835

Asset retirement obligations 33,545 —

Current liabilities held for sale $ 452,202 $ 53,912

Non-current operating lease liabilities $ — $ 337,661

Asset retirement obligations — 30,762

Non-current liabilities held for sale $ — $ 368,423

Total liabilities held for sale $ 452,202 $ 422,335

Income from discontinued operations, net of tax in the consolidated statements of comprehensive income consist of the following for the years ended December 31, 2020, 2019 and 2018:

(in thousands)

Beginning Balance

Contract payments

Contract amortization against revenue

Ending Balance

The Wireless segment also sells cell phones and other equipment to Sprint, who in-turn immediately re-sells this equipment to their subscriber, generally under Sprint's equipment financing plan.

Shentel is the principal in these transactions, as we control and bear the risk of ownership of the inventory prior to sale.

Accordingly, our equipment revenue and cost of equipment sold are presented gross.

Under our affiliate agreement with Sprint, we have historically earned and recognized monthly revenue of $ 1.5 million for providing service to Sprint customers who pass through our network area ("travel revenue").

While we continue to provide these services to Sprint, the agreed upon payments were suspended by Sprint on April 30, 2019.

Accordingly, we have ceased recognizing revenue for the services provided after that date until a new prospective fee can be agreed.

We have triggered the final dispute resolution option with Sprint which we expect will lead to a resolution for travel fee revenue in the second quarter of 2020

Total Wireless revenue resulting from our relationship with Sprint accounted for 70 % , 71 % , and 72 % of our total consolidated revenue for 2019, 2018, and 2017, respectively.

Approximately 80 % of our accounts receivable were due from Sprint at the end of both 2019 and 2018.

Broadband Segment Revenue

Our Broadband segment’s largest source of revenue is the provision of unregulated broadband, video and voice services to residential and small and medium business (“SMB”) customers in portions of Virginia, West Virginia, Maryland, and Kentucky, via fiber optic and hybrid fiber coaxial cable.

The Broadband segment also provides voice and digital subscriber line (“DSL”) telephone services to customers in Virginia’s Shenandoah County as a regulated Rural Local Exchange Carrier (“RLEC”).

2020 2019 2018

Service revenue and other $ 401,035 $ 375,730 $ 382,948

Equipment revenue 41,338 67,659 67,510

Total revenue 442,373 443,389 450,458

Operating expenses:

Cost of services 116,394 128,482 125,082

Cost of goods sold 40,642 65,148 63,583

Selling, general and administrative 34,011 39,128 43,563

Depreciation and amortization 62,930 111,467 122,014

Total operating expenses 253,977 344,225 354,242

Operating income 188,396 99,164 96,216

Other (expense) income:

Interest expense ( 20,455 ) ( 29,286 ) ( 34,838 )

Income before income taxes 167,941 69,878 61,378

Income tax expense 43,844 16,310 16,860

Income from discontinued operations, net of tax $ 124,097 $ 53,568 $ 44,518

Our Broadband and Tower segments recognize revenue for their respective provision of cell site backhaul service and leased colocation space to the discontinued Wireless operations.

That revenue is earned under contracts executed at our estimate of fair market value, which will transfer upon consummation of the sale.

Accordingly, we expect to have a level of continuing involvement with the discontinued operations via these pre-existing contractual arrangements.

Revenue recognized within continuing operations pursuant to these agreements is disclosed in Note 15, Segment Reporting .

Because the right to use space on our owned cell towers and the related lease liability will be transferred in the sale, they have been included in our disposal group under the relevant authoritative guidance.

These right of use assets and lease liabilities were previously eliminated within our consolidated financial statements.

Total assets and total liabilities as of December 31, 2019 therefore increased by $ 34 million as a result.

Under the relevant authoritative guidance, consummation of the sale will trigger or accelerate the recognition of certain expense related to contingent deal advisory fees, severance costs, recognition of our interest rate swap losses in net income, and loss on debt extinguishment.

Our estimate of the related range of reasonably possible expense extends from $ 0 if the sale is not consummated to $ 35.9 million.

Revenue from Contracts with Customers

Our Broadband segment provides broadband data, video and voice services to residential and commercial customers in portions of Virginia, West Virginia, Maryland, Pennsylvania and Kentucky, via fiber optic, hybrid fiber coaxial cable, and fixed wireless networks.

The Broadband segment also provides voice and DSL telephone services to customers in Virginia’s Shenandoah County and portions of adjacent counties as a Rural Local Exchange Carrier (“RLEC”).

These contracts are generally cancellable at the customer’s discretion without penalty at any time.

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We generally recognize 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.

Installation fees are allocated to services and are recognized ratably over the longer of the contract term or the period in which the unrecognized fee remains material to the contract, typically about one year.

The Broadband segment incurs commission and installation costs related to in-house and third-party vendors which are capitalized as contract acquisition and fulfillment costs and recognized in selling, general and administrative expense and cost of services, respectively, on a straight-line basis over the expected weighted average customer life of approximately four years .

Below is a summary of Broadband’s capitalized contract acquisition costs:

Installation fees, charged upfront without transfer of commensurate goods or services to the customer, are allocated to services and are recognized ratably over the longer of the contract term or the period in which the unrecognized fee remains material to the contract, which we estimate to be about one year.

Additionally, the Company incurs commission and installation costs related to in-house and third-party vendors which are capitalized and amortized over the expected weighted average customer life which is approximately five years .

Our Broadband segment also provides Ethernet and Wavelength fiber optic services to commercial fiber customers under capacity agreements, and the related revenue is recognized over time.

In some cases, non-refundable upfront fees are charged for connecting commercial fiber customers to our fiber network.

Those amounts are recognized ratably over the longer of the contract term or the period in which the unrecognized fee remains material to the respective contract.

A related contract liability of $ 2.8 million was recognized at December 31, 2020, which we expect to recognize into revenue at the rate of approximately $ 0.8 million per year.

The Broadband segment also leases dedicated fiber optic strands to customers as part of “dark fiber” agreements, which are accounted for as leases under ASC 842.

Our Tower segment leases space on owned cell towers to our Wireless and Broadband segments, and to other wireless carriers.

Revenue from these leases is accounted for under ASC 842.

Refer to Note 15, Segment Reporting , for a summary of these revenue streams.

Below is a summary of the Broadband segment's capitalized contract acquisition and fulfillment costs:

(in thousands) 2020 2019

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Ending Balance $ 14,669 $ 11,005

Our Broadband segment also provides Ethernet and Wavelength fiber optic services to enterprise and wholesale customers under capacity agreements, and the related revenue is recognized over time under ASC 606.

The Broadband segment also leases dedicated

fiber optic strands to enterprise and wholesale customers as part of “dark fiber” agreements, which are accounted for as operating leases under ASC 842 Leases .

Future performance obligations

On December 31, 2019 , the Company had approximately $ 3.4 million allocated to unsatisfied performance obligations that will be satisfied at the rate of approximately $ 0.8 million per year.

ASC 606 Adoption Impacts

The Company adopted ASC 606 and all related amendments effective January 1, 2018, using the modified retrospective method.

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 was not retrospectively modified and the impact of the adoption of ASC 606 on the consolidated statements of comprehensive income was as follows:

Year Ended December, 31 2018

(in thousands)

Balances without Adoption of ASC 606

Effect of Change Higher/(Lower)

Service revenue and other

Equipment revenue

Operating expenses:

Cost of services

Cost of goods sold

Selling, general and administrative

As of December 31, 2018

(in thousands)

Balances without Adoption of ASC 606

Effect of Change Higher/(Lower)

Prepaid expenses and other

Deferred charges and other assets, net

Advanced billing and customer deposits

Deferred income taxes

Other long-term liabilities

Retained earnings

Investments consist of the following:

(in thousands)

December 31, 2019

(in thousands) December 31,

2020 December 31,

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SERP Investments at Fair Value:

As noted above, the SERP’s investments were designated as trading securities and will be liquidated and paid out to the participants following their retirement.

Changes to the investments’ fair value are presented in Other income (expense).

The SERP’s investments are held in index funds for which the net asset value is used as a practical expedient for fair value.

The Supplemental Executive Retirement Plan (“SERP”) is a benefit plan that provides deferred compensation to certain employees.

The Company holds the related investments in a rabbi trust as a source of funding for future payments under the plan.

The SERP’s investments were designated as trading securities and will be liquidated and paid out to the participants upon retirement.

The benefit obligation to participants is always equal to the value of the SERP assets under ASC 710, Compensation .

Changes to the investments' fair value are presented in Other income (expense), while the reciprocal changes in the liability are presented in selling, general and administrative expense.

Cost Method Investments :

Our investment in CoBank’s Class A common stock represented substantially all of our cost method investments with a balance of $ 9.8 million and $ 8.7 million at December 31, 2020 and 2019, respectively.

We invested in the CoBank cooperative in connection with our Credit Facility discussed in Note 9 , Long-Term Debt .

We receive equity-based patronage distributions in the form of both equity and cash, which are recognized in Other income (expense) and totaled $ 4.2 million in 2019 and $ 2.8 million in both 2018 and 2017.

Historically, approximately 75 % of the patronage distributions are received in cash and 25 % in additional shares of common stock.

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.

We recognized approximately $ 4.2 million, $ 4.2 million and $ 2.8 million of patronage income in Other income (expense) in 2020, 2019 and 2018, respectively.

Historically, approximately 75 % of the patronage distributions were collected in cash and 25 % in equity.

Equity Method Investments:

We hold small investments in certain partnerships and unconsolidated corporations where the Company can exert significant influence.

At December 31, 2019, the Company had a 23.2 % ownership interest in Virginia Independent Telephone Alliance and a 20.0 % ownership interest in Valley Network Partnership (“ValleyNet”).

At December 31, 2020, the Company had a 20.0 % ownership interest in Valley Network Partnership (“ValleyNet”).

The Company and ValleyNet purchase capacity on one another’s fiber network.

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Property, plant and equipment consisted of the following:

($ in thousands)

Estimated Useful Lives

Buildings and structures

10 - 40 years

Cable and fiber

15 - 40 years

Equipment and software

($ in thousands) Estimated Useful Lives December 31,

2020 December 31,

Land $ 3,909 $ 3,677

Land improvements 10 years

Buildings and structures 10 - 40 years

91,335 85,835

Cable and fiber 15 - 30 years

390,209 334,260

Equipment and software 4 - 8 years

331,047 278,873

Plant in service 819,410 705,265

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Property, plant and equipment, net $ 440,427 $ 363,087

The Company prospectively changed the estimated useful life of certain towers, antenna, and fiber assets during 2019 based on the Company's experience as well as observable examples in the industry.

Depreciation expense was approximately $ 3.0 million lower as a result for the year ended December 31, 2019.

Goodwill and Intangible Assets

Goodwill by segment consisted of the following:

(in thousands)

December 31, 2019

December 31, 2018

Total Goodwill

We acquired Big Sandy Broadband, Inc.

(“Big Sandy”) on February 28, 2019.

The $ 10 million acquisition price was allocated as follows:

$ 4.6 million of property, plant and equipment;

$ 2.8 million of subscriber relationships;

and $ 2.6 million of goodwill.

Other i ntangible assets consisted of the following:

December 31, 2019

December 31, 2018

(in thousands)

Accumulated Amortization and Other

Other intangible assets consisted of the following:

December 31, 2020 December 31, 2019

(in thousands) Gross

Amount Accumulated Amortization and Other Net Gross

Amount Accumulated Amortization and Other Net

Goodwill - Broadband $ 3,244 $ — $ 3,244 $ 2,687 $ — $ 2,687

Indefinite-lived intangibles:

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Finite-lived intangibles:

Sprint affiliate contract expansion - Wireless

FCC spectrum licenses 6,811 ( 340 ) 6,471 4,659 ( 97 ) 4,562

Favorable leases - Wireless

Acquired subscribers - Cable

Subscriber relationships 28,425 ( 26,000 ) 2,425 28,065 ( 25,600 ) 2,465

Other intangibles 463 ( 277 ) 186 463 ( 250 ) 213

Total finite-lived intangibles 35,699 ( 26,617 ) 9,082 33,187 ( 25,947 ) 7,240

Total intangible assets

In 2016, we acquired nTelos Holdings Corp.

and immediately transferred certain of the acquired assets to Sprint in an interrelated nonmonetary exchange.

In the exchange, we received a corresponding expansion of our Sprint Affiliate Area, future billings associated with Sprint subscribers already in that expanded area, and an increase in the price that Sprint would pay to buy our Wireless asset group in the event that either party chooses not to renew the affiliate agreement.

Sprint also agreed to waive up to $ 4.2 million of our monthly management fee, not to exceed $ 255.6 million in total, over a multi-year period.

We accounted for these collective rights as an ACE intangible, which is amortized over the expected benefit period and further reduced as management fees are waived by Sprint.

We realized management fee waivers of $ 38.8 million , $ 37.8 million and $ 36.1 million for the years ended December 31, 2019 , 2018 and 2017 , respectively, and $ 137.2 million since the date of the business combination.

During 2017 and 2018, we entered into purchase agreements with Sprint to further expand our affiliate territory to include areas around Parkersburg, West Virginia, and Richmond, Virginia, respectively.

The relevant portion of these payments were also capitalized as ACE intangible assets.

Amounts paid in connection with the acquisition of a business are presented as amortization expense in our income statement.

Amounts paid to Sprint outside of a business combination are accounted for as consideration paid to a customer with amortization presented as a reduction of Service and other revenue in our consolidated statements of comprehensive income.

Total goodwill and intangible assets $ 133,376 $ ( 26,617 ) $ 106,759 $ 114,188 $ ( 25,947 ) $ 88,241

We acquired Canaan Cable ("Canaan") on December 31, 2020.

The $ 2.1 million acquisition price was allocated as follows:

$ 1.1 million of property, plant and equipment;

$ 0.4 million to subscriber relationships;

and $ 0.6 million of goodwill.

We remitted $ 1.89 million of the acquisition price at closing.

The remaining $ 210 thousand was accrued and represents a non-cash investing and financing activity.

During the third quarter of 2020, the Company completed the purchase of certain indefinite-lived CBRS spectrum licenses for an aggregate cost of $ 16.1 million, within our Broadband segment.

Spectrum licenses in the CBRS band are issued by the Federal Communications Commission (“FCC”) and provide us priority access rights over general access users other than incumbents, in that specific band, in accordance with the FCC’s three-tier CBRS band spectrum sharing framework to utilize designated radio frequency spectrum within specific geographic service areas to provide wireless communication services.

During the third quarter of 2019, the Company purchased certain indefinite-lived spectrum licenses for $ 13.8 million and finite-lived spectrum licenses for $ 4.7 million.

For the years ended December 31, 2019 , 2018 and 2017 , amortization of intangible assets was approximately $ 20.5 million , $ 24.6 million and $ 27.5 million , respectively.

We acquired Big Sandy Broadband, Inc.

(“Big Sandy”) on February 28, 2019.

The $ 10 million acquisition price was allocated as follows:

$ 4.6 million of property, plant and equipment;

$ 2.8 million of subscriber relationships;

and $ 2.6 million of goodwill.

For the years ended December 31, 2020, 2019 and 2018, amortization expense was approximately $ 0.7 million, $ 0.5 million and $ 0.2 million, respectively.

Our finite-lived intangible assets are amortized over the following estimated useful lives:

Estimated Useful Life

Affiliate contract expansion - Wireless

FCC spectrum licenses

18 - 20 years

Acquired subscribers - Broadband

Other intangibles

15 - 20 years

FCC spectrum licenses 18 - 30 years

Subscriber relationships 3 - 10 years

Other intangibles 15 - 20 years

The following table summarizes expected amortization of intangible assets at December 31, 2020:

(in thousands)

Amortization of Intangible Assets (1)

_______________________________________________________

(1) The Company expects to further reduce affiliate contract expansion by approximately $ 118.4 million as waived management fees are received from Sprint.

(in thousands) Amortization of Intangible Assets

Thereafter 5,176

Total $ 9,082

Other Assets and Accrued Liabilities

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

(in thousands)

(in thousands) December 31,

2020 December 31,

Prepaid maintenance expenses $ 4,018 $ 3,065

Interest rate swaps

Wireless contract asset

Broadband contract acquisition and fulfillment costs 4,417 4,898

Interest rate swaps — 1,382

Other 1,196 1,833

Prepaid expenses and other $ 9,631 $ 11,178

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

(in thousands)

(in thousands) December 31,

2020 December 31, 2019

Interest rate swaps

Wireless contract asset

Broadband contract acquisition and fulfillment costs $ 10,252 $ 6,107

Prepaid expenses and other 1,398 1,908

Interest rate swaps — 1,252

Deferred charges and other assets $ 11,650 $ 9,267

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

(in thousands)

December 31, 2019

December 31, 2018

Sales and property taxes payable

Asset retirement obligations

(in thousands) December 31, 2020 December 31, 2019

Interest rate swaps $ 4,048 $ —

Accrued programming costs 2,868 3,023

Financing leases

FCC spectrum license obligations

Sales and property taxes payable 1,072 919

Other current liabilities 5,881 3,614

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

(in thousands)

(in thousands) December 31,

2020 December 31, 2019

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Noncurrent portion of financing leases 1,492 1,591

Other 881 1,252

Other liabilities $ 24,905 $ 16,991

Asset Retirement Obligations:

Our asset retirement obligations arise from certain of our leases and generally require us to remove our network equipment from colocation sites, and to remove our towers from ground leases.

Our asset retirement obligations arise from certain of our leases and generally require us to remove our towers from ground leases.

Below is a summary:

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Changes to prior estimates ( 1,633 ) ( 3,659 ) 2,568

Payments — — —

Accretion expense 332 410 348

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In those circumstances where the Company is the lessee, we elected to account for non-lease components associated with our leases (e.g., maintenance costs) and lease components as a single lease component for substantially all of our asset classes.

We lease various cell sites, warehouses, retail stores, and office facilities for use in our business.

We lease various telecommunications sites, warehouses, retail stores, and office facilities for use in our business.

These agreements include fixed rental payments as well as variable rental payments, such as those based on relevant inflation indices.

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The Company uses the observable unsecured borrowing rate and risk-adjusts that rate to approximate a collateralized rate.

At December 31, 2019, our operating leases had a weighted average remaining lease term of nine years and a weighted average discount rate of 4.3 % .

Our finance leases had a weighted average remaining lease term of fifteen years and a weighted average discount rate of 5.1 % .

Under the new lease standard, leases are remeasured upon certain events or modifications.

Adoption of the new lease standard did not materially impact the Company's consolidated net earnings, cash flows, liquidity, or loan covenants.

The cumulative effect of the changes made to the consolidated January 1, 2019 balance sheet for the adoption of the new lease standard was as follows:

(in thousands)

December 31, 2018 As Previously Reported

Effect of the Adoption of ASC 842 (Leases)

January 1, 2019

Prepaid expenses and other

Property, plant and equipment, net

Operating lease right-of-use assets

Intangible assets, net

Current operating lease liabilities

Accrued liabilities and other

Deferred Lease

Noncurrent operating lease liabilities

Other liabilities

In addition to recognizing the operating lease liabilities and right-of-use assets, ASC 842 also reclassified prepaid and deferred rent balances, off-market leases, and lease incentives into the right-of-use assets.

At December 31, 2020, our operating leases had a weighted average remaining lease term of twenty-three years and a weighted average discount rate of

Our finance leases had a weighted average remaining lease term of fourteen years and a weighted average discount rate of 5.2 %.

During 2020, we recognized $ 6.6 million of operating lease expense and $ 0.6 million of interest and depreciation expense on finance leases.

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We remitted $ 4.4 million of operating lease payments during 2020.

We also obtained $ 74.8 million of leased assets in exchange for new operating lease liabilities during 2019.

We also obtained $ 6.8 million of leased assets in exchange for new operating lease liabilities recognized during 2020.

The following table summarizes the expected maturity of lease liabilities at December 31, 2020:

(in thousands)

Operating Leases

Finance Leases

(in thousands) Operating Leases Finance Leases Total

2021 $ 4,046 $ 174 $ 4,220

2022 4,282 174 4,456

2023 3,826 174 4,000

2024 3,477 174 3,651

2025 3,250 174 3,424

2026 and thereafter 64,739 1,354 66,093

Total lease payments 83,620 2,224 85,844

Interest 35,555 636 36,191

Present value of lease liabilities $ 48,065 $ 1,588 $ 49,653

Our commitments under leases existing as of December 31, 2018 were approximately $ 55.1 million for the year ending December 31, 2019, $ 104.4 million in total for the years ending December 31, 2020 and 2021, $ 97.6 million in total for the years ending December 31, 2022 and 2023 and $ 168.5 million in total for years thereafter.

The Company's finance lease liabilities are presented in the accrued liabilities and other and the other liabilities lines of the consolidated balance sheets.

The related finance lease assets are included in the property, plant and equipment line.

We recognized $ 9.1 million of operating lease revenue during 2020 related to the cell site colocation space and dedicated fiber optic strands that we lease to our customers, which is included in Service and other revenue in the consolidated statements of comprehensive income.

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Below is a summary of our minimum rental receipts under the lease agreements in place at December 31, 2020:

(in thousands)

Operating Leases

(in thousands) Operating Leases

2026 and thereafter 3,805

Long-Term Debt

Total $ 22,681

Our syndicated Credit Agreement includes a $ 75 million, five-year undrawn revolving credit facility, as well as the following term loans:

(in thousands)

(in thousands) December 31,

2020 December 31,

Term loan A-1 $ 229,437 $ 258,571

Term loan A-2 468,481 473,469

697,918 732,040

unamortized loan fees 9,455 11,926

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Our cash payments for interest were $ 18.6 million and $ 27.6 million during 2020 and 2019, respectively.

The Credit Agreement is fully secured by a pledge and unconditional guarantee from the Company of its wholly owned subsidiaries as collateral, other than Shenandoah Telephone Company.

The Credit Agreement is fully secured by a pledge and unconditional guarantee from the Company and all of its subsidiaries, except Shenandoah Telephone Company.

This provides the lenders a security interest in substantially all of the assets of the Company.

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As shown below, as of December 31, 2020, the Company was in compliance with the financial covenants in its credit agreements.

Covenant Requirement

Total leverage ratio

Debt service coverage ratio

2.0 or Higher

Minimum liquidity balance (in millions)

$25.0 or Higher

Term Loan A-1 requires quarterly principal repayments of $ 7.3 million 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.

Term Loan A-2 requires quarterly principal repayments of $ 1.2 million through September 30, 2025, with the remaining balance due November 8, 2025.

These scheduled payments are also summarized below:

(in thousands)

The estimated fair value of our variable-rate Credit Facility approximates its carrying value due to its floating interest rate structure.

Actual Covenant Requirement

Total leverage ratio 2.0 3.25 or Lower

Debt service coverage ratio 6.6 2.0 or Higher

Minimum liquidity balance (in millions) $ 270.4 $ 25.0 or Higher

Rate quotations provided by a group of banks that sustain LIBOR will no longer be required after 2021.

As a result, it is uncertain whether LIBOR will continue to be quoted after 2021.

Our term loans and interest rate swaps identify LIBOR as a reference rate and mature after 2021.

Alternative reference rates that replace LIBOR may not yield the same or similar economic results over the terms of the financial instruments.

The transition from LIBOR could result in us paying higher or lower interest rates on our current LIBOR-indexed term loans, affect the fair value of the derivative instruments we hold, or affect our ability to effectively use interest rate swaps to manage interest rate risk.

Our Credit Agreement includes provisions that provide for the identification of a LIBOR replacement rate.

Due to the uncertainty regarding the transition from LIBOR-indexed financial instruments, including when it will happen, and the manner in which an alternative reference rate will apply, we cannot yet reasonably estimate the expected financial impact of the LIBOR transition.

As discussed in Note 3, Discontinued Operations , the terms of our long term debt agreements require us to repay all of our debt upon consummation of the sale of our Wireless operations, which is expected to occur during the first half of 2021.

Management also intends to settle the related interest rate swaps upon consummation.

Both are therefore presented outside of the disposal group as a current liability at December 31, 2020.

Derivatives and Hedging

In May 2016, the Company entered into certain pay-fixed ( 1.16 % ), receive-variable (one month LIBOR) interest rate swaps that were designated as a cash flow hedge.

The Company is hedging approximately 46 % of its outstanding debt through these instruments with outstanding notional amounts totaling $ 339.8 and $ 384.0 million December 31, 2019 and 2018 , respectively.

The hedge was determined to be highly effective and therefore all of the change in its fair value is recognized through Other comprehensive income.

The Company's interest rate swaps are pay-fixed ( 1.16 %), receive-variable (one month LIBOR) that hedged approximately 41 % of outstanding debt with outstanding notional amounts totaling $ 289.4 million and $ 339.8 million December 31, 2020 and 2019, respectively.

The fair value of these instruments was estimated using an income approach and observable market inputs.

They were presented as follows:

(in thousands)

The hedge was determined to be highly effective and therefore all of the change in its fair value was recognized through other comprehensive income.

Derivative balances are presented as follows in our consolidated balance sheet:

(in thousands) December 31,

2020 December 31,

Balance sheet location of derivative financial instruments:

Prepaid expenses and other $ — $ 1,382

Deferred charges and other assets, net

Deferred charges and other assets — 1,252

Accrued liabilities and other 4,048 —

Total derivatives designated as hedging instruments $ 4,048 $ 2,634

Market expectations of the projected LIBOR decreased significantly during 2020, which drove the fair value of our interest rate swaps to a liability.

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

(in thousands)

Gains (Losses) on

(in thousands) Gains (Losses) on

Hedges Income Tax

Benefit Accumulated

Comprehensive

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Balance as of December 31, 2019 $ 2,634 $ ( 2,326 ) $ 308

Net change in unrealized gain (loss)

Net change in unrealized (loss) gain ( 8,444 ) 2,806 ( 5,638 )

Amounts reclassified from accumulated other comprehensive income (loss) to interest expense 1,762 ( 1,138 ) 624

Net current period other comprehensive income (loss)

Net current period other comprehensive (loss) income ( 6,682 ) 1,668 ( 5,014 )

Balance as of December 31, 2020 $ ( 4,048 ) $ ( 658 ) $ ( 4,706 )

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Federal taxes $ ( 13,748 ) $ ( 16,393 ) $ ( 6,033 )

State taxes ( 2,148 ) ( 282 ) 833

Total current provision ( 15,896 ) ( 16,675 ) ( 5,200 )

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Federal taxes 13,729 16,453 4,433

State taxes 1,581 395 ( 576 )

Total deferred provision 15,310 16,848 3,857

Income tax expense (benefit)

Income tax (benefit) expense $ ( 586 ) $ 173 $ ( 1,343 )

Effective tax rate ( 28.7 ) % 6.8 % ( 183.0 ) %

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Excess tax benefit from share based compensation and other, net ( 1,068 ) ( 380 ) ( 535 )

Income tax expense (benefit)

The effective tax rate in 2019 decreased slightly from 2018, primarily as a result of the larger discrete excess tax benefit from share based compensation and other, net.

Deferred taxes were revalued in 2017 to reflect the change from a 35% federal statutory rate to 21% as a result of the 2017 Tax Cut and Jobs Act.

As a result, the effective tax rate in 2017 is not meaningful.

Income tax (benefit) expense $ ( 586 ) $ 173 $ ( 1,343 )

The effective tax rate in 2020 decreased from 2019, primarily as a result of higher excess tax benefits from share based compensation.

The Company's cash payments for income taxes were $ 11.2 million in the year ended December 31, 2020.

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Deferred tax assets and liabilities are measured using enacted tax rates that are expected to apply in the year of reversal or settlement and arise from temporary differences between the US GAAP and tax bases of the following assets and liabilities:

(in thousands)

(in thousands) December 31,

2020 December 31,

Deferred tax assets:

Leases $ 123,129 $ 106,564

Asset retirement obligations 10,403 9,957

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Accruals and stock based compensation 3,093 1,935

Other 5,002 1,408

Total gross deferred tax assets 153,218 133,096

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Property, plant and equipment 127,602 110,676

Leases 126,458 105,475

Intangible assets 25,722 27,201

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The Company's returns are generally open to examination from 2017 forward and the net operating losses acquired from nTelos are open to examination from 2002 forward.

Stock Compensation

Earnings per Share & 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.

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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.

The Company granted approximately 96 thousand restricted stock units (RSUs) to employees and directors during 2020 at an average market price of $ 49.02 .

The Company also granted, approximately 40 thousand Relative Total Shareholder Return (“RTSR”) awards to employees at an average value of $ 56.32 during 2020.

Restricted stock units generally have service requirements only or performance and service requirements with vesting periods ranging from one year for directors to four years for employees.

RTSR awards vest over three years .

The performance factor applied to the RTSR awards is based upon the Company's stock performance compared to a group of peer companies.

The actual number of shares to be issued and can range from 0 % to 150 % of the awards granted.

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 related expense is recorded using the straight-line method consistent with the recipient's respective service period.

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Stock compensation expense, net $ 5,907 $ 3,367 $ 4,745

As of December 31, 2019 and 2018 , there was $ 3.7 million and $ 2.7 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 2.4 years .

As of both December 31, 2020 and 2019, there was $ 3.7 million of total unrecognized compensation cost related to non-vested incentive awards that are expected to be recognized over a weighted average period of 2.6 years.

We utilize the treasury stock method to calculate the impact on diluted earnings per share that potentially dilutive stock-based compensation awards have.

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Calculation of net income per share:

Income from continuing operations $ 2,626 $ 2,388 $ 2,077

Income from discontinued operations, net of tax $ 124,097 $ 53,568 $ 44,518

Net income $ 126,723 $ 55,956 $ 46,595

Basic weighted average shares outstanding 49,901 49,811 49,542

Basic net income per share - continuing operations $ 0.05 $ 0.05 $ 0.04

Basic net income per share - discontinued operations $ 2.49 $ 1.07 $ 0.90

Basic net income per share $ 2.54 $ 1.12 $ 0.94

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Diluted weighted average shares outstanding 50,024 50,101 50,063

Diluted net income per share - continuing operations $ 0.05 $ 0.05 $ 0.04

Diluted net income per share - discontinued operations $ 2.48 $ 1.07 $ 0.89

Diluted net income per share $ 2.53 $ 1.12 $ 0.93

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Segment Reporting

Effective November 30, 2019, we realigned our reporting segment structure to align with how our CEO and chief operating decision maker (“CODM”) allocates resources and evaluates operating performance.

These changes follow an organizational shift during 2019 from a business line to a functional structure, better delineate between our key products, and better enable peer comparisons by both our CODM and our investors.

Refer to Note 1 , Nature of Operations for a description of the business activities pursued by each of our reporting segments.

The tables below reflect the results of operations of the Company’s reportable segments consistent with internal reporting used by the Company.

The prior year periods have been recast to reflect the segment changes.

The expected divestiture of our Wireless operations represents a strategic shift in the Company’s business and qualifies as a discontinued operation.

As a result, the operating results and cash flows related to the Wireless segment have been reflected as discontinued operations in our Consolidated Statements of Comprehensive Income and the Consolidated Statements of Cash Flows.

Similarly, the results of our Wireless operations are no longer presented as a reporting segment.

Accordingly, we have recast our reporting of the remaining segments to reflect the reattribution of these expenses in all presented periods in a manner consistent with our updated internal reporting.

The tables below reflect the results of operations of the Company's reportable segments in continuing operations, consistent with internal reporting used by the Company.

Year ended December 31, 2020:

(in thousands)

Corporate & Eliminations

(in thousands) Broadband Tower Corporate & Eliminations Consolidated

External revenue

Cable, residential and SMB

Fiber, enterprise and wholesale

Rural local exchange carrier

Travel, installation, and other

Residential & SMB $ 154,956 $ — $ — $ 154,956

Commercial Fiber 24,431 — — 24,431

RLEC & Other 15,971 — — 15,971

Tower lease — 7,402 — 7,402

Service revenue and other 195,358 7,402 — 202,760

Total external

Revenue from other segments

Revenue for service provided to the discontinued Wireless operations 8,989 9,653 ( 627 ) 18,015

Total revenue 204,347 17,055 ( 627 ) 220,775

1 unchanged sentence

Cost of services 83,439 4,896 ( 132 ) 88,203

Cost of goods sold

Selling, general and administrative 39,472 1,430 44,114 85,016

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Year ended December 31, 2019:

(in thousands)

Corporate & Eliminations

(in thousands) Broadband Tower Corporate & Eliminations Consolidated

External revenue

Cable, residential and SMB

Fiber, enterprise and wholesale

Rural local exchange carrier

Travel, installation, and other

Residential & SMB $ 142,290 $ — $ — $ 142,290

Commercial Fiber 23,004 — — 23,004

RLEC & Other 18,257 — — 18,257

Tower lease — 6,965 — 6,965

Service revenue and other 183,551 6,965 — 190,516

Total external

Revenue from other segments

Revenue for service provided to the discontinued Wireless operations 10,392 6,020 ( 66 ) 16,346

Total revenue 193,943 12,985 ( 66 ) 206,862

1 unchanged sentence

Cost of services 79,235 3,777 ( 63 ) 82,949

Cost of goods sold

Selling, general and administrative 33,545 937 43,364 77,846

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Year ended December 31, 2018:

(in thousands)

Corporate & Eliminations

(in thousands) Broadband Tower Corporate & Eliminations Consolidated

External revenue

Cable, residential and SMB

Fiber, enterprise and wholesale

Rural local exchange carrier

Travel, installation, and other

Residential & SMB $ 131,512 $ — $ — $ 131,512

Commercial Fiber 22,090 — — 22,090

RLEC & Other 19,612 — — 19,612

Tower lease — 7,180 — 7,180

Service revenue and other 173,214 7,180 — 180,394

Total external

Revenue from other segments

Revenue for service provided to the discontinued Wireless operations 9,906 5,016 ( 2,633 ) 12,289

Total revenue 183,120 12,196 ( 2,633 ) 192,683

1 unchanged sentence

Cost of services 76,731 3,687 — 80,418

Cost of goods sold

Selling, general and administrative 28,103 704 42,037 70,844

Integration and acquisition expenses

Depreciation and amortization 35,992 2,406 5,992 44,390

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(in thousands) 2020 2019 2018

Total consolidated operating income

Interest expense

Income before income taxes

Total consolidated operating loss $ ( 1,147 ) $ ( 719 ) $ ( 2,969 )

Other income, net 3,187 3,280 3,703

Income from continuing operations before income taxes $ 2,040 $ 2,561 $ 734

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, accordingly total assets by segment are not provided.

As of January 1, 2018, the Company records stock compensation expense to Corporate.

Previously, stock compensation expense was allocated among all segments.

Quarterly Results (unaudited)

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Three Months Ended

(in thousands, except per share data)

March 31, 2019

September 30, 2019

December 31, 2019

Operating income

Net income per share - basic

Net income per share - diluted

(in thousands, except per share data) March 31, 2020 June 30, 2020 September 30, 2020 December 31, 2020

Revenue $ 53,134 $ 54,336 $ 55,173 $ 58,132

Operating (loss) income ( 1,364 ) ( 1,867 ) 470 1,614

Income (loss) from continuing operations 150 ( 536 ) 1,412 1,600

Income from discontinued operations, net of tax 13,129 29,784 33,509 47,675

Net income 13,279 29,248 34,921 49,275

Basic - (Loss) income from continuing operations $ — $ ( 0.01 ) $ 0.03 $ 0.03

Basic - Income from discontinued operations, net of tax $ 0.27 $ 0.59 $ 0.67 $ 0.96

Basic net income per share $ 0.27 $ 0.58 $ 0.70 $ 0.99

Diluted - (Loss) income from continuing operations $ — $ ( 0.01 ) $ 0.03 $ 0.03

Diluted - Income from discontinued operations, net of tax $ 0.27 $ 0.59 $ 0.67 $ 0.95

Diluted net income per share $ 0.27 $ 0.58 $ 0.70 $ 0.98

Three Months Ended

(in thousands except per share data)

March 31, 2018

September 30, 2018

December 31, 2018

Operating income

Net income per share - basic

Net income per share - diluted

(in thousands except per share data) March 31, 2019 June 30, 2019 September 30, 2019 December 31, 2019

Revenue $ 49,895 $ 51,551 $ 51,814 $ 53,602

Operating (loss) income ( 1,765 ) 915 681 ( 550 )

Income (loss) from continuing operations 607 1,509 1,168 ( 896 )

Income from discontinued operations, net of tax 13,303 11,640 13,186 15,439

Net income 13,910 13,149 14,354 14,543

Basic - Income (loss) from continuing operations $ 0.01 $ 0.03 $ 0.02 $ ( 0.01 )

Basic - Income from discontinued operations, net of tax $ 0.27 $ 0.23 $ 0.27 $ 0.30

Basic net income per share $ 0.28 $ 0.26 $ 0.29 $ 0.29

Diluted - Income (loss) from continuing operations $ 0.01 $ 0.03 $ 0.02 $ ( 0.01 )

Diluted - Income from discontinued operations, net of tax $ 0.27 $ 0.23 $ 0.27 $ 0.30

Diluted net income per share $ 0.28 $ 0.26 $ 0.29 $ 0.29

Valuation and Qualifying Accounts

Changes in the Company’s allowance for doubtful accounts for accounts receivable for the years ended December 31, 2020, 2019 and 2018 are summarized below:

(in thousands)

Balance at Beginning of Year

Recoveries added to allowance

Bad debt expense

Balance at End of Year

(in thousands) Balance at Beginning of Year Recoveries added to allowance Bad debt expense Write-offs Balance at End of Year

Year Ended December 31, 2020

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(101) Formatted in XBRL (Extensible Business Reporting Language)

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SHENANDOAH TELECOMMUNICATIONS COMPANY

February 26, 2020

/S/ CHRISTOPHER E.

February 25, 2021 /S/ CHRISTOPHER E.

Christopher E.

3 unchanged sentences

/s/CHRISTOPHER E.

President & Chief Executive Officer,

February 26, 2020

Director (Principal Executive Officer)

FRENCH President & Chief Executive Officer,

February 25, 2021 Director (Principal Executive Officer)

Christopher E.

Senior Vice President – Chief Financial Officer

February 26, 2020

(Principal Financial Officer)

Vice President - Chief Accounting Officer

February 26, 2020

(Principal Accounting Officer)

VOLK Senior Vice President – Chief Financial Officer

February 25, 2021 (Principal Financial Officer)

STOBBE Vice President - Chief Accounting Officer

February 25, 2021 (Principal Accounting Officer)

BECKETT Director

February 25, 2021

/s/TRACY FITZSIMMONS

/s/TRACY FITZSIMMONS Director

February 25, 2021

Tracy Fitzsimmons

FLORA Director

February 25, 2021

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/s/KENNETH L.

QUAGLIO Director

February 25, 2021

/s/LEIGH ANN SCHULTZ

/s/LEIGH ANN SCHULTZ Director

February 25, 2021

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures