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Acquisitions
3 Months Ended
Mar. 31, 2015
Acquisitions [Abstract]  
Acquisitions

(3)   Acquisitions:

The Connecticut Acquisition 

On October 24, 2014, pursuant to the stock purchase agreement dated December 16, 2013, as amended, the Company acquired the wireline properties of AT&T Inc. (AT&T) in Connecticut (the Connecticut Acquisition) for a purchase price of $2,018 million in cash. Following the Connecticut Acquisition, Frontier now owns and operates the wireline business and fiber optic network servicing residential, commercial and wholesale customers in Connecticut. The Company also acquired the AT&T U-verse® video and DISH® satellite TV customers in Connecticut.

 

In connection with the Connecticut Acquisition, the Company incurred $21 million of operating expenses, consisting of $1 million and $20 million of acquisition and integration costs, respectively, and $10 million in capital expenditures during the three months ended March 31, 2015. The Company incurred $11 million of operating expenses, consisting of $2 million and $9 million of acquisition and integration costs, respectively, and $10 million in capital expenditures related to the Connecticut Acquisition during the three months ended March 31, 2014.

 

Our consolidated statement of operations for the three months ended March 31, 2015 includes $264 million of revenue and $15 million of operating income related to the results of the Connecticut operations.

 

The preliminary allocation of the purchase price presented below represents the effect of recording the preliminary estimates of the fair value of assets acquired, liabilities assumed and related deferred income taxes as of the date of the Connecticut Acquisition, based on the total transaction consideration of $2,018 million. These preliminary estimates will be revised in future periods for information that is currently not available to us, primarily related to the tax basis of assets acquired, certain accruals and contingencies, pension assets and liabilities, as well as other assumed postretirement benefit obligations. The revisions may affect the presentation of our consolidated financial results. Any changes to the initial estimates of the fair value of the assets and liabilities will be recorded as adjustments to those assets and liabilities and residual amounts will be allocated to goodwill.

 

The most significant items subject to change include: legal and tax accruals; accounts receivable; property, plant and equipment; customer list intangibles; deferred income tax assets and liabilities, pending AT&T providing us with tax values for the assets and liabilities of the Connecticut operations; and pension and other postretirement liabilities, pending completion of actuarial studies.

 

 

 

 

 

 

 

 

 

 

($ in millions)

 

 

    

 

 

 

Current assets

 

73 

Property, plant & equipment

 

 

1,450 

Goodwill

 

 

875 

Other intangibles - customer list

 

 

590 

Current liabilities

 

 

(103)

Deferred income taxes

 

 

(648)

Other liabilities

 

 

(219)

Total net assets acquired

 

$

2,018 

 

 

 

 

 

The stock purchase agreement provides for a post-closing adjustment for pension liabilities transferred and pension assets. Frontier and AT&T have not finalized the results of these calculations. Such calculations will be completed in accordance with the terms of the stock purchase agreement.

 

The following unaudited pro forma financial information presents the combined results of operations of Frontier and the Connecticut operations as if the Connecticut Acquisition had occurred as of January 1, 2014. The pro forma information is not necessarily indicative of what the financial position or results of operations actually would have been had the Connecticut Acquisition been completed as of January 1, 2014. In addition, the unaudited pro forma financial information is not indicative of, nor does it purport to project, the future financial position or operating results of Frontier. The unaudited pro forma financial information excludes acquisition and integration costs and does not give effect to any estimated and potential cost savings or other operating efficiencies that may result from the Connecticut Acquisition.

 

 

 

 

 

 

 

 

 

 

 

 

($ in millions, except per share amounts)

 

(Unaudited)

 

 

 

For the three months ended

 

 

 

March 31, 2014

 

    

 

 

 

 

Revenue

 

1,463 

 

 

 

 

 

 

Operating income

 

245 

 

 

 

 

 

 

Net income

 

36 

 

 

 

 

 

 

Basic and diluted net income per

 

 

 

 

common share

 

0.04 

 

 

 

 

 

 

 

The Verizon Transaction

On February 5, 2015, we entered into an agreement with Verizon Communications Inc. (Verizon) to acquire Verizon’s wireline operations that provide services to residential, commercial and wholesale customers in California, Florida and Texas for a purchase price of $10.54 billion in cash and assumed debt (the Verizon Transaction), with adjustments for working capital.  Upon completion of the pending Verizon Transaction, Frontier will operate Verizon properties which included 3.7 million voice connections, 2.2 million broadband connections, and 1.2 million FiOS® video connections as of December 31, 2014.  Subject to regulatory approval, the transaction is expected to close in the first half of 2016. 

 

The Company incurred $36 million of operating expenses, consisting of $33 million and $3 million of acquisition and integration costs, respectively, related to the pending Verizon Transaction during the three months ended March 31, 2015.

 

Frontier has received a commitment for bridge financing from J.P. Morgan, Bank of America Merrill Lynch and Citibank for the Verizon Transaction. See Note 8 for further discussion related to financing the pending Verizon Transaction.