Basis of Presentation

The interim condensed consolidated financial statements of Shenandoah Telecommunications Company and Subsidiaries (collectively, the “Company”) are unaudited. In the opinion of management, all adjustments necessary for a fair presentation of the interim results have been reflected therein in accordance with accounting principles generally accepted in the United States ("GAAP") for interim financial reporting and as required by Rule 10-01 of Regulation S-X. Accordingly, the unaudited condensed consolidated financial statements may not include all of the information and notes required by GAAP for audited financial statements. The information contained herein should be read in conjunction with the audited financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2017.

Immaterial Prior Period Adjustment.

During the three months ended September 30, 2018, the Company determined that the unaudited condensed consolidated financial statements for the three months ended March 31, 2018, and the three and six months ended June 30, 2018, contained an immaterial misstatement. Excess amortization of deferred contract costs that are recognized as a reduction of revenue, as described in Note 2, resulted in an understatement of revenue for the three months ended March 31, 2018, and the three and six months ended June 30, 2018. Additionally, amounts recorded upon the adoption of ASU No. 2014-09, Revenue from Contracts with Customers ("Topic 606", or "the new revenue recognition standard"), on January 1, 2018 were misstated. The Company evaluated the materiality of the prior period adjustment quantitatively and qualitatively, under the SEC’s authoritative guidance on materiality, and concluded that the prior period adjustment was not material to the financial statements of any of the impacted unaudited 2018 periods. The Company elected to correct the prior period adjustment by revising the prior period financial statements.

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



	As of January 1, 2018
(in thousands)	As Reported		Correction of Error			As Adjusted
Prepaid expenses and other	$	53,688	$	(6,701	)	$	46,987
Deferred charges and other assets, net	29,797		14,964			44,761
Deferred income taxes	119,030		2,201			121,231
Retained earnings	347,240		6,062			353,302

The following table presents the effects of the immaterial prior period adjustment on the unaudited condensed consolidated balance sheet as of March 31, 2018 and June 30, 2018:



	As of March 31, 2018
(in thousands)	As Reported		Correction of Error			As Adjusted
Prepaid expenses and other	$	64,200	$	(5,741	)	$	58,459
Deferred charges and other assets, net	33,934		16,410			50,344
Deferred income taxes	115,809		2,853			118,662
Retained earnings	352,069		7,816			359,885



	As of June 30, 2018
(in thousands)	As Reported		Correction of Error			As Adjusted
Prepaid expenses and other	$	64,163	$	(4,756	)	$	59,407
Deferred charges and other assets, net	34,021		17,896			51,917
Deferred income taxes	111,125		3,522			114,647
Retained earnings	359,893		9,618			369,511

The following tables present the effects of the immaterial prior period adjustment on the unaudited condensed consolidated statements of operations and comprehensive income (loss) for the three months ended March 31, 2018 and the three and six months ended June 30, 2018:



	For the Three Months Ended March 31, 2018
(in thousands)	As Reported		Correction of Error		As Adjusted
Service revenue and other	$	134,153	$	2,406	$	136,559
Income tax expense (benefit)	1,176		652		1,828
Net income (loss)	4,829		1,754		6,583
Earnings per share - basic	$	0.10	$	0.03	$	0.13
Earnings per share - diluted	$	0.10	$	0.03	$	0.13



	For the Three Months Ended June 30, 2018
(in thousands)	As Reported		Correction of Error		As Adjusted
Service revenue and other	$	138,021	$	2,471	$	140,492
Income tax expense (benefit)	2,862		669		3,531
Net income (loss)	7,824		1,802		9,626
Earnings per share - basic	$	0.16	$	0.03	$	0.19
Earnings per share - diluted	$	0.16	$	0.03	$	0.19



	For the Six Months Ended June 30, 2018
(in thousands)	As Reported		Correction of Error		As Adjusted
Service revenue and other	$	272,174	$	4,877	$	277,051
Income tax expense (benefit)	4,038		1,321		5,359
Net income (loss)	12,653		3,556		16,209
Earnings per share - basic	$	0.26	$	0.07	$	0.33
Earnings per share - diluted	$	0.25	$	0.07	$	0.32

Adoption of New Accounting Principles

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

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

In February 2016, the Financial Accounting Standards Board (FASB) issued ASU No. 2016-02, Leases (Topic 842), which requires lessees to recognize a right-of-use asset and a lease liability for all leases with terms greater than 12 months. The standard also requires disclosures by lessees and lessors about the amount, timing and uncertainty of cash flows arising from leases, as well as changes in the categorization of rental costs, from rent expense to interest and depreciation expense. Other effects may occur depending on the types of leases and the specific terms of them utilized by particular lessees. The ASU is effective for the Company on January 1, 2019, and early application is permitted. Modified retrospective application is required. The Company expects that the most notable impact to its financial statements upon the adoption of this ASU will be the recognition of a material right-of-use asset and a lease liability for its real estate and equipment leases. The Company is continuing to assess potential impacts that the standard may have on our consolidated financial statements.

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