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

On May 6, 2016, the Company completed its previously announced acquisition of NTELOS Holdings Corp. (“nTelos”) for $663.7 million in cash, net of cash acquired. The purchase price was financed by a credit facility arranged by CoBank, ACB (see Note 14). The Company has included the operations of nTelos for financial reporting purposes for the period subsequent to the acquisition. The Company has accounted for the acquisition of nTelos under the acquisition method of accounting, in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805, “Business Combinations”, and will account for any measurement period adjustments under Accounting Standards Update (“ASU”) 2015-16, “Simplifying the Accounting for Measurement Period Adjustments”. Under the acquisition method of accounting, the total purchase price is allocated to the tangible and intangible assets acquired and liabilities assumed in connection with the acquisition based on their estimated fair values.

The preliminary allocation of the purchase price was based upon management’s preliminary valuation of the fair value of tangible and intangible assets acquired and liabilities assumed of nTelos, with the excess recorded as goodwill. (in thousands):

Accounts receivable	$	48,476
Inventory		3,810
Restricted cash		2,167
Investments		1,501
Prepaids expenses and other assets		14,835
Building held for sale		4,950
Property, plant and equipment		223,900
Spectrum licenses		198,200
Customer based contract rights		198,200
Contract based intangible assets		11,000
Goodwill		151,627
Other long term assets		10,288
Total assets acquired	$	868,954

Accounts payable	$	8,648
Advanced billings and customer deposits		12,477
Accrued expenses		25,230
Capital lease liability		418
Deferred tax liabilities		124,964
Retirement benefits		19,461
Other long-term liabilities		14,056
Total liabilities assumed		205,254

Net assets acquired	$	663,700

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

Immediately after acquiring nTelos, Shenandoah Personal Communications, LLC, (“PCS”) a wholly-owned subsidiary of the Company, completed its previously announced transaction with SprintCom, Inc., an affiliate of Sprint Corporation (“Sprint”). Pursuant to this transaction, among other things, the Company exchanged spectrum licenses valued at $198.2 million and customer based contract rights, valued at $198.2 million, acquired from nTelos with Sprint, and received an expansion of its affiliate service territory to include most of the service area served by nTelos, valued at $258.1 million, as well as additional customer based contract rights, valued at $138.3 million, relating to nTelos’ and Sprint’s legacy customers in the Company’s affiliate service territory. These exchanges were accounted for in accordance with ASC 845, “Nonmonetary Transactions”.

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

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an increase in the price to be paid by Sprint from 80% to 90% of the entire business value of PCS if the affiliate agreement is not renewed;

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extension of the affiliate agreement with Sprint by five years to 2029;

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expanded territory in the nTelos service area;

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rights to serve all future Sprint customers in the affiliate service territory;

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the Company’s commitment to upgrade certain coverage and capacity in its newly acquired service area; and

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a reduction of the management fee charged by Sprint under the amended affiliate agreement; not to exceed $4.2 million in an individual month until the total waived fee equals $251.8 million, as well as an additional waiver of the management fee charged with respect to the former nTelos customers until the earlier of migration to the Sprint back-office billing and related systems or six months following the acquisition; not to exceed $5.0 million.

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

	Useful Life	Basis
Affiliate contract agreement	14 years	$	258,100
Customer based contract rights	4-10 years		138,300
Contract based intangible assets	3-19 years		11,000

The affiliate contract agreement intangible asset will be amortized on a straight-line basis and recorded as a contra-revenue over the 14 year contract term. The other contract based intangible assets will be amortized on a straight-line basis and recorded through amortization expense. The customer based contract rights will be amortized over the life of the customers, gradually decreasing over the expected life of this asset, and recorded through amortization expense.

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

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

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

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

Following are the unaudited pro forma results of the Company for the three and six months ended June 30, 2016 and 2015 as if the acquisition of nTelos had occurred at the beginning of each of the periods presented (in millions):

	Three Months Ended June 30,
	2016			2015
Operating revenues	$	161.1		$	170.1
Income (loss) before income taxes	$	(7.5	)	$	13.6

	Six Months Ended June 30,
	2016		2015
Operating revenues	$	334.4	$	342.8
Income before income taxes	$	9.4	$	37.1

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

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changes in nTelos’ reported revenues from cancelling nTelos’ wholesale contract with Sprint;

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the incorporation of the Sprint-homed customers formerly serviced under the wholesale agreement into the Company’s affiliate service territory under the Company’s affiliate agreement with Sprint;

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the effect of other changes to revenues and expenses due to various provisions of the affiliate agreement, including fees charged under the affiliate agreement on revenues from former nTelos customers, a reduction of the net service fee charged by Sprint, the straight-line impact of the waived management fee, and the amortization of the affiliate agreement expansion intangible asset; and the elimination of non-recurring transaction related expenses incurred by the Company and nTelos;

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the elimination of certain nTelos operating costs associated with billing and care that are covered under the fees charged by Sprint under the affiliate agreement;

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historical depreciation expense was reduced for the fair value adjustment decreasing the basis of property, plant and equipment; this decrease was offset by a shorter estimated useful life to conform to the Company’s standard policy and the acceleration of depreciation on certain equipment; and

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incremental amortization due to the customer-based contract rights associated with acquired customers.

In connection with these transactions, the Company committed to Sprint to migrate the former nTelos customers to devices which can interact with the Sprint billing and network systems and to maintain the nTelos billing, customer care and switching systems until the migration is complete, and expects to incur a total of between $106 million and $126 million of integration and acquisition expenses associated with this transaction, excluding approximately $24 million of debt issuance costs. These costs include the nTelos back office staff and support functions until the nTelos legacy customers are migrated to the Sprint billing platform; cost of handsets to be provided to nTelos legacy customers as they migrate to the Sprint billing platform; severance costs for back office and other former nTelos employees who will not be retained permanently; and transaction related fees. The Company has incurred $22.4 million and $22.7 million of these costs in the three months and six months ended June 30, 2016, respectively, including $0.3 million reflected in cost of goods and services and $2.0 million reflected in selling, general and administrative costs in both the three and six month periods ended June 30, 2016.

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

Former nTelos stockholders who held approximately one million shares of nTelos’ common stock have exercised their appraisal rights under Delaware law with respect to the merger consideration of $9.25 per share paid pursuant to the nTelos acquisition. The Company has recorded a payable for the $9.3 million aggregate remaining purchase price due based upon the terms of the merger agreement with nTelos. At this time, the Company is unable to determine an estimate of any final outcome of the appraisal action or the expected timing of resolving the appraisal action. Under Delaware law, the former nTelos stockholders will be entitled to interest at the rate of 6.1% per annum on the unpaid amount when the appraisal action is resolved.