(3) Acquisitions:

The Connecticut Acquisition

On October 24, 2014, pursuant to the stock purchase agreement dated December 16, 2013, as amended, Frontier 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. Frontier also acquired the AT&T U-verse® video (Frontier TV®) and DISH® satellite TV customers in Connecticut. See Note 7 for further discussion related to financing the Connecticut Acquisition.

In connection with the Connecticut Acquisition, Frontier incurred $40 million of operating expenses, consisting of $1 million and $39 million of acquisition and integration costs, respectively, and $24 million in capital expenditures related to the Connecticut Acquisition during 2015. Frontier incurred $142 million of operating expenses, consisting of $15 million and $127 million of acquisition and integration costs, respectively, and $116 million in capital expenditures related to the Connecticut Acquisition during 2014. Frontier incurred $10 million of acquisition costs related to the Connecticut Acquisition during the fourth quarter of 2013.

Our consolidated statements of operations for the years ended December 31, 2015 and 2014 include $1,049 million and $216 million of revenue, respectively, and $100 million and $38 million of operating income, respectively, related to the results of the Connecticut operations.

The final allocation of the purchase price presented below represents the effect of recording 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.



($ in millions)

Current assets	$	69
Property, plant & equipment		1,459
Goodwill		815
Other intangibles - customer base		570
Current liabilities		(94)
Deferred income taxes		(576)
Other liabilities		(225)
Total net assets acquired	$	2,018

The total consideration exceeded the net estimated fair value of the assets acquired and liabilities assumed by $815 million, which we recognized as goodwill. This goodwill is attributable to strategic benefits, including enhanced financial and operational scale, market diversification and leveraged combined networks that we expect to realize. Of this amount, goodwill associated with the Connecticut Acquisition of $75 million is deductible for income tax purposes.

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, 2013. 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, 2013. 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 year ended December 31,
		2014		2013

Revenue	$	5,775	$	6,011

Operating income	$	985	$	1,049

Net income attributable to Frontier
common shareholders	$	191	$	83

Basic and diluted net income per
share attributable to Frontier
common shareholders	$	0.19	$	0.08

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 $10,540 million 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 that included 3.3 million voice connections, 2.1 million broadband connections, and 1.2 million FiOS® video connections. The transaction is expected to close at the end of the first quarter of 2016 subject to the completion of operational matters.

Frontier received regulatory approvals from the FCC, the Public Utilities Commission of Texas and the California Public Utilities Commission. Frontier reached agreement with the Communications Workers of America and the International Brotherhood of Electrical Workers, representing employees that support operations in California, Florida and Texas, to extend their existing collective bargaining agreements. In addition, Verizon has conditionally accepted $49 million in annual support in California and Texas under the CAF Phase II program.

Acquisition costs include legal, financial advisory, accounting, regulatory and other related costs. Integration costs include expenses incurred to integrate the network and information technology platforms and to enable other integration initiatives. Frontier incurred $196 million of operating expenses, consisting of $44 million of acquisition costs and $152 million of integration costs, related to the pending Verizon Transaction during the year ended December 31, 2015. We also invested $129 million in capital expenditures related to the Verizon Transaction during the year ended December 31, 2015.

During 2015, we completed our financing activities associated with the Verizon Transaction, which include: 1) a private debt offering of $6,600 million of unsecured senior notes in September 2015 2) a credit agreement for a new $1,500 million senior secured delayed-draw term loan facility in August 2015, 3) a preferred and common stock issuance of $2,750 million in June 2015. Net proceeds from these debt and equity offerings in the amount of $8,440 million are included in “Restricted cash” in the consolidated balance sheet as of December 31, 2015, and together with the proceeds to be received from the delayed draw term loan facility and cash on hand will be sufficient to finance the Verizon Transaction and pay related fees and expenses. See Notes 7 and 9 for further discussion. Restricted cash also includes $4 million of interest income on those net proceeds.