Acquisitions

Sprint Territory Expansion

Effective February 1, 2018, the Company signed an expansion agreement with Sprint to expand its wireless service coverage area to include certain areas in Kentucky, Pennsylvania, Virginia and West Virginia, (the “Expansion Area”). The agreement includes certain network build out requirements in the Expansion Area, and the ability to utilize Sprint’s spectrum in the Expansion Area. Pursuant to the expansion agreement, Sprint agreed to, among other things, transition the provision of network coverage in the Expansion Area from Sprint to the Company. The expansion agreement required a payment of $52.0 million for the right to service the Expansion Area pursuant to the Affiliate Agreements plus an additional payment of up to $5.0 million after acceptance of certain equipment at the Sprint cell sites in the Expansion Area. The transaction was accounted for as an asset acquisition.

The Company recorded the following in the wireless segment:



($ in thousands)	Estimated Useful Life (in years)	February 1, 2018
Affiliate contract expansion	12	$	45,148
Prepayment of tangible assets	N/A	6,497
Off-market leases - favorable	16.5	3,665
Off-market leases - unfavorable	4.2	(3,310		)
Total		$	52,000

Estimated useful lives are approximate and represent the average of the remaining useful lives as of the acquisition date. Prepayment of tangible assets will be depreciated over the asset life when the underlying assets are placed in service.

The Company allocated the purchase price to the components identified in the table above based on the relative fair value of each component. The fair value of the components was determined using an income and cost approach.

Acquisition of "Parkersburg" Expansion Area

On April 6, 2017, the Company expanded its affiliate service territory, under its agreements with Sprint, to include certain areas in North Carolina, Kentucky, Maryland, Ohio and West Virginia, for total consideration of $6.0 million. The expanded territory includes the Parkersburg, WV, Huntington, WV, and Cumberland, MD, basic trading areas. Approximately 25,000 Sprint retail and former nTelos postpaid and prepaid subscribers in the new basic trading areas became Sprint-branded affiliate customers managed by the Company.

Acquisition of NTELOS Holdings Corp. and Exchange with Sprint

On May 6, 2016, (the "acquisition date"), the Company completed its acquisition of NTELOS Holdings Corp. nTelos, was a regional provider of wireless telecommunications solutions and was acquired to expand the Company's wireless service area and subscriber base, thus strengthening the Company's relationship with Sprint.

Pursuant to the terms of the Agreement and Plan of Merger between the Company and nTelos (the "Merger Agreement"), nTelos became a direct wholly owned subsidiary of the Company. Pursuant to the terms of the Merger Agreement, the Company acquired all of the issued and outstanding capital stock of nTelos for an aggregate purchase price of $667.8 million. The purchase price was financed by a credit facility arranged by CoBank, ACB, Royal Bank of Canada, Fifth Third Bank, Bank of America, N.A., Capital One, National Association, Citizens Bank N.A., and Toronto Dominion (Texas) LLC.

Transaction costs in connection with the acquisition were expensed as incurred and are included in acquisition, integration and migration expenses in the consolidated statement of operations. The results of operations related to nTelos are included in our consolidated statements of operations beginning from the acquisition date.

The Company accounted for the acquisition of nTelos under the acquisition method of accounting, in accordance with FASB's ASC 805, Business Combinations, and has accounted for measurement period adjustments under ASU 2015-16, Simplifying the Accounting for Measurement Period Adjustments. Estimates of fair value included in the consolidated financial statements, in conformity with ASC 820, Fair Value Measurements and Disclosures, represent the Company's best estimates and valuations. In accordance with ASC 805, Business Combinations, the allocation of the consideration value was subject to adjustment until the Company completed its analysis, in a period of time, but not to exceed one year after the date of acquisition, or May 6, 2017, in order to provide the Company with the time to complete the valuation of its assets and liabilities. The Company's allocation of the consideration value to assets acquired and liabilities assumed incorporated all measurement period adjustments.

The following table summarizes the final purchase price allocation to assets acquired and liabilities assumed, including measurement period adjustments:



(in thousands)	Purchase Price Allocation
Accounts receivable	$	47,234
Inventory	4,572
Restricted cash	2,167
Investments	1,501
Prepaid expenses and other assets	14,835
Building held for sale	4,950
Property, plant and equipment	227,247
Spectrum licenses	198,200
Acquired subscribers - wireless	205,946
Favorable lease intangible assets	17,029
Goodwill	146,383
Other long term assets	10,843
Total assets acquired	$	880,907

Accounts payable	8,543
Advanced billings and customer deposits	12,477
Accrued expenses	23,141
Capital lease liability	418
Deferred tax liabilities	129,291
Retirement benefits	19,198
Other long-term liabilities	20,085
Total liabilities assumed	$	213,153

Net assets acquired	$	667,754

Concurrently with acquiring nTelos, the Company completed its previously announced transaction with SprintCom, Inc., a subsidiary of Sprint. Pursuant to this transaction, among other things, the Company exchanged spectrum licenses, valued at

$198.2 million and wireless subscribers, valued at $205.9 million, acquired from nTelos with Sprint, and received an expansion of its affiliate service territory valued at approximately $405.0 million. These exchanges were accounted for in accordance with ASC 845, Nonmonetary Transactions. The expansion intangible was measured at fair valued using an income based model, the Excess Earnings Method, and considered cash flows to be generated from current and future Sprint subscribers. Further, as the value of assets provided to Sprint exceeded the value of assets received in the non-monetary exchange, the Company and Sprint agreed to waive management fees in an amount of approximately $255.6 million. The cash flow savings associated with the management fee waiver is incorporated in the fair value estimate.

Goodwill is the excess of the consideration transferred over the net assets recognized and represents the future economic benefits, primarily as a result of other assets acquired that could not be individually identified and separately recognized. The Company has recorded goodwill in its Wireless segment as a result of the nTelos acquisition. Goodwill is not amortized. The goodwill that arose from the acquisition of nTelos is not deductible for tax purposes.

Since the acquisition of nTelos occurred, the Company incurred a total of approximately $75.7 million of acquisition, integration and migration expenses associated with this transaction, excluding approximately $23.0 million of debt issuance costs. Such costs included support of back office staff and support functions required while the nTelos legacy customers were migrated to the Sprint billing platform; cost of the handsets that were provided to nTelos legacy customers as they migrated to the Sprint billing platform; severance costs for back office and other former nTelos employees who were not retained permanently; and transaction related fees. The Company incurred $17.5 million and $54.7 million of these costs during the years ended December 31, 2017 and 2016, respectively. These costs include $1.8 million and $1.3 million reflected in cost of goods and services and $4.7 million and $11.1 million reflected in selling, general and administrative costs in the years ended December 31, 2017 and 2016, respectively.

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

The following table presents the unaudited pro forma information, based on estimates and assumptions that the Company believes to be reasonable, for the Company as if the acquisition of nTelos had occurred at the beginning of the period presented:

The pro forma information provided in the table above is not necessarily indicative of the consolidated results of operations for future periods or the results that actually would have been realized had the acquisition been completed at the beginning of the period presented.

The pro forma information provided in the table above is based upon estimated valuations of the assets acquired and liabilities assumed as well as estimates of depreciation and amortization charges thereon. Other estimated pro forma adjustments include the following:


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


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


•	the effect of other changes to revenues and expenses due to various provisions of the affiliate agreement and the elimination of non-recurring transaction related expenses incurred by the Company and nTelos;


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


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


•	incremental amortization due to the affiliate contract expansion intangible asset.

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


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


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


•	expanded territory in the nTelos service area;


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


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


•	a reduction of the management fee charged by Sprint under the amended affiliate agreement; not to exceed $4.2 million in an individual month until the total waived fee equals approximately $255.6 million.

(in thousands)

Year Ended
December 31, 2016

Operating revenues

Income (loss) before income taxes