(3) Acquisitions:

The Verizon Acquisition

On April 1, 2016, Frontier acquired the wireline operations of Verizon Communications, Inc. in California, Texas and Florida for a purchase price of $10,540 million in cash and assumed debt (the Verizon Acquisition), pursuant to the February 5, 2015 Securities Purchase Agreement, as amended. In addition, Frontier and Verizon settled the working capital and net debt adjustments with $15 million paid to Frontier in October 2016. As a result of the Verizon Acquisition, Frontier now operates these former Verizon properties, which included approximately 2.6 million total customers, 2.1 million broadband subscribers, and 1.2 million FiOS video subscribers as of April 1, 2016 (the CTF Operations).

Our consolidated statement of operations for the nine months ended September 30, 2016 includes $2,494 million of revenue and $454 million of operating income related to the six months of operating results of the CTF Operations since April 1, 2016.

The allocation of the purchase price presented below, which is preliminary and subject to change, represents the effect of recording the estimates of the fair value of assets acquired and liabilities assumed as of the date of the Verizon Acquisition, based on the total transaction cash consideration of $9,886 million at September 30, 2016, as adjusted for the $15 million settlement payment discussed above. These current estimates will be revised in future periods for information that is currently not available to us, primarily related to certain legal and tax accruals and contingencies; accounts receivable; property, plant and equipment; customer list and other intangibles; deferred income tax assets and liabilities; pension assets and liabilities, as well as other assumed postretirement benefit obligations, pending completion of actuarial studies and the related transfer of pension assets. 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.



($ in millions)

Current assets	$	388
Property, plant & equipment		6,315
Goodwill		2,341
Other intangibles - primarily customer list		2,189
Current liabilities		(488)
Long-term debt		(544)
Other liabilities		(330)
Total net assets acquired	$	9,871

The total consideration exceeded the net estimated fair value of the assets acquired and liabilities assumed by $2,341 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 Verizon Acquisition of $1,912 million is deductible for income tax purposes.

The fair value estimates related to the allocation of the purchase price to Property, plant & equipment and Other intangibles were revised and updated during the third quarter of 2016 from the initial estimates as of June 30, 2016. The allocation that was reported as of June 30, 2016 for Property, plant & equipment decreased $1,378 million, from $7,693 million to $6,315 million, and for Other intangibles increased $1,029 million, from $1,160 million to $2,189 million. These adjustments resulted in lower depreciation expense during the third quarter ($57 million of which is attributable to the second quarter) and higher amortization expense during the third quarter ($62 million of which is attributable to the second quarter).

The Securities Purchase Agreement provides for a post-closing adjustment for both pension liabilities and pension assets. Frontier and Verizon have not finalized the results of these calculations. Such calculations will be completed in accordance with the terms of the Securities Purchase Agreement.

The following unaudited pro forma financial information presents the combined results of operations of Frontier and the CTF Operations as if the Verizon Acquisition had occurred as of January 1, 2015. The pro forma information is not necessarily indicative of what the financial position or results of operations actually would have been had the Verizon Acquisition been completed as of January 1, 2015. 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 Verizon Acquisition.



	(Unaudited)
	For the three months ended			For the nine months ended September 30,
($ in millions, except per share amounts)	September 30, 2015			2016			2015

Revenue		$	2,797		$	7,846		$	8,346

Operating income		$	396		$	1,129		$	1,129

Net loss attributable to Frontier common shareholders		$	(32)		$	(164)		$	(152)

Basic and diluted net loss attributable to
Frontier common shareholders per share		$	(0.03)		$	(0.14)		$	(0.13)

During 2015, we completed our financing activities associated with the Verizon Acquisition, which included: 1) a private debt offering of $6,600 million of unsecured senior notes in September 2015, 2) the 2015 Credit Agreement (as defined below) for a senior secured delayed-draw term loan facility in August 2015 and 3) a registered offering of $2,750 million of preferred and common stock in June 2015. Net proceeds from these debt and equity offerings together with the proceeds received from the delayed draw term loan facility and cash on hand were used to fund the Verizon Acquisition and pay related fees and expenses.

The Connecticut Acquisition

On October 24, 2014, Frontier acquired the wireline properties of AT&T Inc. in Connecticut (the Connecticut Acquisition) for a purchase price of $2,018 million in cash, pursuant to the stock purchase agreement dated December 16, 2013, as amended.

Acquisition and Integration Costs

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 operating expenses related to the Verizon Acquisition and the Connecticut Acquisition, as follows:


	For the three months ended September 30,				For the nine months ended September 30,
($ in millions)	2016		2015		2016		2015

Acquisition costs:
Verizon Acquisition	$	-	$	2	$	23	$	37
Connecticut Acquisition		-		-		-		1
		-		2		23		38
Integration costs:
Verizon Acquisition		122		44		364		75
Connecticut Acquisition		-		12		-		37
		122		56		364		112
Total acquisition and
integration costs	$	122	$	58	$	387	$	150

We also invested $99 million and $78 million in capital expenditures related to the Verizon Acquisition during the nine months ended September 30, 2016 and 2015, respectively. In connection with the Connecticut Acquisition, Frontier invested $23 million in capital expenditures during the nine months ended September 30, 2015. In connection with the Verizon Acquisition, we will incur additional operating expenses and capital expenditures in 2016 related to integration activities.