Form 8-K FRONTIER COMMUNICATIONS For: Jan 07

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January 7, 2015 4:06 PM EST

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�

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

�

FORM 8-K

�

CURRENT REPORT

Pursuant to Section�13 or 15(d)

of the Securities Exchange Act of 1934

Date of Report (date of earliest event reported): January�7, 2015

�

Frontier Communications Corporation

(Exact name of registrant as specified in its charter)

�

Delaware

(State or other jurisdiction

of incorporation)

�


001-11001	�	06-0619596
(Commission File Number)	�	(IRS Employer Identification No.)

3 High Ridge Park, Stamford, Connecticut	�	06905
(Address of principal executive offices)	�	(Zip Code)

(203) 614-5600

(Registrant�s telephone number, including area code)

�

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

�

�	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

�

�	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

�

�	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

�

�	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

�

Item 8.01 Other Events

As previously announced, on December�16, 2013, Frontier Communications Corporation (the �Company�) entered into an agreement (such agreement as amended, the �Stock Purchase Agreement�) to acquire the wireline properties of AT&T Inc. (�AT&T�) in Connecticut for a purchase price of $2.0 billion in cash. Pursuant to the Stock Purchase Agreement, the Company agreed to acquire all of the issued and outstanding capital stock of The Southern New England Telephone Company and SNET America, Inc. (the �Transferred Companies�) from AT&T. Prior to the closing of the AT&T Transaction (as defined below), (i)�AT&T transferred to the Transferred Companies certain assets and caused the Transferred Companies to assume certain liabilities relating to the business to be acquired and (ii)�the Transferred Companies transferred to AT&T certain assets, and AT&T assumed certain liabilities of the Transferred Companies, to be retained by AT&T following the closing (the Transferred Companies, after giving effect to such transactions, being referred to as the �Connecticut Operations�). References to the �AT&T Transaction� refer to our acquisition of the Connecticut Operations from AT&T on October�24, 2014 pursuant to the Stock Purchase Agreement.

The Company is filing this Current Report on Form 8-K to present (i)�the combined financial statements of the Connecticut Operations for the nine months ended September�30, 2014 and 2013 and as of September�30, 2014, which is filed as Exhibit 99.1 hereto and (ii)�the unaudited pro forma condensed combined financial statements of the Company, after giving effect to the AT&T Transaction, for the nine months ended September�30, 2014 and as of September�30, 2014 and for the year ended December�31, 2013, which are filed as Exhibit 99.2 hereto.

Item 9.01 Financial Statements and Exhibits

�

(d)

Exhibits

�

99.1

Combined financial statements of the AT&T Connecticut Wireline Operations (A Business Unit of AT&T Inc.) for the nine months ended September�30, 2014 and 2013 and as of September�30, 2014 and December�31, 2013.

�

99.2

Unaudited pro forma condensed combined financial statements of the Company, after giving effect to the AT&T Transaction, for the nine months ended September�30, 2014 and as of September�30, 2014 and for the year ended December�31, 2013.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

�


	�	�	FRONTIER COMMUNICATIONS CORPORATION

Date: January 7, 2015	�	�	By:	�	/s/ David G. Schwartz
	�	�	David G. Schwartz
	�	�	Vice President, Corporate Counsel and Assistant Secretary

Exhibit 99.1

AT&T Connecticut Wireline Operations

(A Business Unit of AT&T Inc.)

Combined Financial Statements (Unaudited)

Nine Months Ended September�30, 2014 and 2013

Contents

�



Combined Statements of Income (Unaudited)	��	�	1	�
Combined Balance Sheets (Unaudited)	��	�	2	�
Combined Statements of Cash Flows (Unaudited)	��	�	3	�
Combined Statements of Changes in Parent�s Equity (Unaudited)	��	�	4	�
Notes to Combined Financial Statements (Unaudited)	��	�	5	�

AT&T Connecticut Wireline Operations

(A Business Unit of AT&T Inc.)

Combined Statements of Income (Unaudited)

(In Thousands)

�

��

Nine Months Ended
September�30

�

Three Months Ended
September�30

�

��

2014

�

��

2013

�

2014

�

��

2013

�

Operating revenues (including revenue from AT&T affiliates of $193,770 and $192,774 for the nine months ended and $63,820 and $72,614 for the three months ended September�30, 2014 and 2013, respectively):

��

�

��

Voice

��

312,397

��

354,514

��

�

99,358

��

115,821

��

Data

��

�

623,239

��

�

601,046

��

�

212,411

��

�

202,724

��

Other

��

�

79,651

��

�

94,233

��

�

23,722

��

�

34,341

��

�

��

�

��

�

Total operating revenues

��

�

1,015,287

��

�

1,049,793

��

�

335,491

��

�

352,886

��

Operating expenses:

��

�

��

Cost of services and sales (including costs charged by AT&T affiliates of $200,578 and $161,380 for the nine months ended and $71,319 and $54,969 for the three months ended September�30, 2014 and 2013, respectively)

��

�

432,220

��

�

413,073

��

�

141,955

��

�

141,856

��

Selling, general, and administrative

��

�

333,169

��

�

323,580

��

�

110,790

��

�

109,056

��

Depreciation and amortization

��

�

119,118

��

�

123,487

��

�

40,380

��

�

42,000

��

�

��

�

��

�

Total operating expenses

��

�

884,507

��

�

860,140

��

�

293,125

��

�

292,912

��

�

��

�

��

�

Operating income

��

�

130,780

��

�

189,653

��

�

42,366

��

�

59,974

��

Other income (expense):

��

�

��

Interest income (expense), net

��

�

3,170

��

�

(624

)�

�

3,609

��

�

(210

)�

Other income (expense), net

��

�

717

��

�

637

��

�

221

��

�

(462

)�

��

�

��

�

��

�

Total other income (expense)

��

�

3,887

��

�

��

�

3,830

��

�

(672

)�

��

�

��

�

��

�

Income before income taxes

��

�

134,667

��

�

189,666

��

�

46,196

��

�

59,302

��

Income tax expense

��

�

53,971

��

�

72,677

��

�

19,988

��

�

22,422

��

�

��

�

��

�

Net income

��

80,696

��

116,989

��

�

26,208

��

36,880

��

�

��

�

��

�

The accompanying notes are an integral part of these unaudited combined financial statements.

�

AT&T Connecticut Wireline Operations

(A Business Unit of AT&T Inc.)

Combined Balance Sheets

(In Thousands)

�


�	��	September�30, 2014		�	��	December�31, 2013		�
�	��	(Unaudited)		�	��	�		�
Assets	��				��
Current assets:	��				��
Accounts receivable, net of allowance for uncollectibles of $4,704 and $5,425	��	$	116,697	��	��	$	118,592	��
Accounts receivable from affiliates	��	�	21,987	��	��	�	37,035	��
Current deferred income taxes	��	�	25,398	��	��	�	29,254	��
Other current assets	��	�	9,673	��	��	�	5,120	��
	��	�	�	�	��	�	�	�
Total current assets	��	�	173,755	��	��	�	190,001	��

Net property, plant, and equipment	��	�	1,318,069	��	��	�	1,318,568	��

Other assets:	��				��
Non-current deferred income taxes	��	�	20,020	��	��	�	18,525	��
Other assets	��	�	19,089	��	��	�	18,121	��
	��	�	�	�	��	�	�	�
Total other assets	��	�	39,109	��	��	�	36,646	��
	��	�	�	�	��	�	�	�
Total assets	��	$	1,530,933	��	��	$	1,545,215	��
	��	�	�	�	��	�	�	�

Liabilities and parent�s equity	��				��
Current liabilities:	��				��
Accounts payable to affiliates	��	$	142,719	��	��	$	143,869	��
Accounts payable and accrued expenses	��	�	36,040	��	��	�	37,536	��
Advance billings and customer deposits	��	�	38,252	��	��	�	36,274	��
Accrued compensated absences	��	�	6,619	��	��	�	7,527	��
Other current liabilities	��	�	4,490	��	��	�	6,172	��
	��	�	�	�	��	�	�	�
Total current liabilities	��	�	228,120	��	��	�	231,378	��

Deferred credits and other non-current liabilities:	��				��
Non-current unrecognized tax benefits	��	�	70,205	��	��	�	66,138	��
Unamortized investment tax credits	��	�	2,675	��	��	�	2,897	��
Other non-current liabilities and deferred credits	��	�	15,049	��	��	�	22,021	��
	��	�	�	�	��	�	�	�
Total deferred credits and other non-current liabilities	��	�	87,929	��	��	�	91,056	��

Commitments and contingencies	��				��

Parent�s equity	��	�	1,214,884	��	��	�	1,222,781	��
	��	�	�	�	��	�	�	�
Total liabilities and parent�s equity	��	$	1,530,933	��	��	$	1,545,215	��
	��	�	�	�	��	�	�	�

The accompanying notes are an integral part of these unaudited combined financial statements.

�

AT&T Connecticut Wireline Operations

(A Business Unit of AT&T Inc.)

Combined Statements of Cash Flows (Unaudited)

(In Thousands)

�


�	��	Nine Months Ended September�30						�
�	��	2014		�	�	2013		�
Operating activities	��				�
Net income	��	$	80,696	��	�	$	116,989	��
Adjustments to reconcile net income to net cash provided by operating activities:	��				�
Depreciation and amortization	��	�	119,118	��	�	�	123,487	��
Provision for uncollectible accounts	��	�	4,415	��	�	�	4,102	��
Pension costs funded by parent	��	�	2,111	��	�	�	12,300	��
Deferred income taxes	��	�	2,361	��	�	�	4,617	��
Changes in operating assets and liabilities:	��				�
Accounts receivable	��	�	(2,520	)�	�	�	(6,340	)�
Accounts receivable from affiliates	��	�	15,048	��	�	�	22,645	��
Other current assets	��	�	(4,553	)�	�	�	(619	)�
Accounts payable to affiliates	��	�	(1,150	)�	�	�	(80,195	)�
Accounts payable and accrued liabilities	��	�	(2,108	)�	�	�	(14,942	)�
Other, net	��	�	(4,095	)�	�	�	(24,271	)�
	��	�	�	�	�	�	�	�
Net cash provided by operating activities	��	�	209,323	��	�	�	157,773	��

Investing activities	��				�
Construction and capital expenditures	��	�	(129,372	)�	�	�	(104,594	)�
Proceeds from sales of assets to affiliates	��	�	10,753	��	�	�	11,066	��
	��	�	�	�	�	�	�	�
Net cash used in investing activities	��	�	(118,619	)�	�	�	(93,528	)�

Financing activities	��				�
Distribution to parent, net	��	�	(90,704	)�	�	�	(64,245	)�
	��	�	�	�	�	�	�	�
Net cash used in financing activities	��	�	(90,704	)�	�	�	(64,245	)�
	��	�	�	�	�	�	�	�

Net change in cash and cash equivalents	��				�
Cash and cash equivalents, beginning of quarter	��	�	��	��	�	�	��	��
	��	�	�	�	�	�	�	�
Cash and cash equivalents, end of quarter	��	$	��	��	�	$	��	��
	��	�	�	�	�	�	�	�

Cash paid during the nine months ended	��				�
Income tax	��	$	11	��	�	$	50	��
	��	�	�	�	�	�	�	�
Interest	��	$	��	��	�	$	779	��
	��	�	�	�	�	�	�	�

The accompanying notes are an integral part of these unaudited combined financial statements.

�

AT&T Connecticut Wireline Operations

(A Business Unit of AT&T Inc.)

Combined Statements of Changes in Parent�s Equity (Unaudited)

(In Thousands)

�


Balance at January�1, 2013	��	$	1,170,812	��
Net income	��	�	237,636	��
Pension gains funded by parent	��	�	(113,405	)�
Distribution to parent, net	��	�	(72,262	)�
	��	�	�	�
Balance at December�31, 2013	��	�	1,222,781	��
Net income	��	�	80,696	��
Pension costs funded by parent	��	�	2,111	��
Distribution to parent, net	��	�	(90,704	)�
	��	�	�	�
Balance at September�30, 2014	��	$	1,214,884	��
	��	�	�	�

The accompanying notes are an integral part of these unaudited combined financial statements.

�

AT&T Connecticut Wireline Operations

(A Business Unit of AT&T Inc.)

Notes to Combined Financial Statements (Unaudited)

September�30, 2014

1. Business and Basis of Presentation

AT&T Connecticut Wireline Operations (the Business) comprises the combined operations of The Southern New England Telephone Company (SNET); SNET America, Inc.; and Direct Broadcast Satellite. Both SNET and SNET America, Inc. are wholly owned subsidiaries of AT&T Inc. (AT&T) and comprise AT&T�s wireline operations business unit in Connecticut. The Business provides telecommunications services in Connecticut, including local telephone, long distance, data, and video services.

On December�16, 2013, AT&T announced entry into a stock purchase agreement with Frontier Communications Corporation (Frontier Communications), a Delaware corporation, to sell the Business for $2.0 billion in cash through the purchase of all the outstanding shares in AT&T�s wholly owned subsidiaries SNET and SNET America, Inc. The transaction was subject to review by the U.S. Department of Justice, the Federal Communications Commission, and the Connecticut Public Utilities Regulatory Authority and other state regulatory authorities. The transaction closed on October�24, 2014.

Basis of Presentation

The unaudited combined financial statements have been prepared on the same basis as the audited combined financial statements for the year ended December�31, 2013. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) have been omitted. The results for the nine months ended September�30, 2014 and 2013, are not necessarily indicative of those for the full year. These combined financial statements should be read in conjunction with the audited combined financial statements and accompanying notes for the year ended December�31, 2013.

The unaudited combined financial statements have been prepared on a carve-out basis in accordance with U.S. GAAP and reflect the historical financial position, results of operations, and cash flows of the Business for the periods presented. The historical financial statements reflect the amounts from the Business� combined financial statements, and the amounts that have been carved out from AT&T�s consolidated financial statements. They reflect assumptions and allocations made by AT&T to separate the Business on a stand-alone basis. As a result, the combined financial statements may not be indicative of the financial position, results of operations, and cash flows that would have been presented if the Business had been a stand-alone entity. Therefore, the historical financial information is not necessarily indicative of what the results of operations, financial position, and cash flows will be in the future.

�

AT&T Connecticut Wireline Operations

(A Business Unit of AT&T Inc.)

Notes to Combined Financial Statements (Unaudited) (continued)

�

1. Business and Basis of Presentation (continued)

�

The historical combined financial statements were prepared using AT&T�s historical basis in the assets and liabilities of the Business, and its historical combined financial statements include all revenue, costs, assets, and liabilities directly attributable to the Business. Historically, AT&T provided certain corporate services to the Business and costs associated with these functions have been allocated to the Business. See Note 6, �Related-Party Transactions.� Management believes these expenses have been allocated using reasonable allocation methodologies to the services provided, primarily based on relative percentage of total net sales, relative percentage of headcount, or specific identification.

The allocations may not reflect the expense the Business would have incurred as a stand-alone company for the periods presented. Actual costs that may have been incurred if the Business had been a stand-alone company would depend on a number of factors, including the chosen organizational structure, what functions were outsourced or performed by employees, and strategic decisions made in certain areas.

The total parent�s equity represents AT&T�s interest in the Business� recorded net assets.

2. Summary of Significant Accounting Policies

Principles of Combination

All significant intercompany transactions within the Business have been eliminated. All significant transactions between the Business and AT&T and its subsidiaries are included in the combined financial statements.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the combined financial statements and accompanying notes, including estimates of probable losses and expenses. Actual results could differ from those estimates.

Comprehensive Income

Comprehensive income is the same as net income for all periods presented.

�

AT&T Connecticut Wireline Operations

(A Business Unit of AT&T Inc.)

Notes to Combined Financial Statements (Unaudited) (continued)

�

2. Summary of Significant Accounting Policies (continued)

�

Operating Segments

The Business operates as one segment.

Income Taxes

The Business is included in AT&T�s consolidated federal income tax return. Federal income taxes are provided for in accordance with the provisions of the Tax Allocation Agreement (the Agreement) between the Business and AT&T. In general, the Business� income tax provision under the Agreement utilizes a method that allocates current and deferred taxes to the Business assuming the financial consequences of income, deductions, and credits, which could be utilized on a separate return basis or in consolidation with AT&T and are assured of realization. Ultimate realization of these items will be through settlement with AT&T following their inclusion in the consolidated tax return. The Business provides deferred income taxes for temporary differences between computed tax basis in assets and liabilities and the carrying amounts of assets and liabilities. The tax basis of assets and liabilities are based on amounts that meet the recognition threshold and are measured pursuant to the enacted tax rates the Business expects will be in effect when the Business actually pays or recovers taxes. Deferred income tax assets represent amounts available to reduce income taxes the Business will pay on taxable income in future years; however, in some cases these deferred tax benefits would remain with the AT&T consolidated group and its existing members upon any member�s departure.

Investment tax credits earned prior to their repeal by the Tax Reform Act of 1986 are amortized as reductions in income tax expense over the lives of the assets that gave rise to the credits.

The Business reports, on a net basis, taxes imposed by governmental authorities on revenue-producing transactions between the Business and its customers in the combined statements of income.

�

AT&T Connecticut Wireline Operations

(A Business Unit of AT&T Inc.)

Notes to Combined Financial Statements (Unaudited) (continued)

�

2. Summary of Significant Accounting Policies (continued)

�

Revenue Recognition

Revenues derived from local telephone, long distance, data, and video services are recognized when services are provided. This is based upon either usage (e.g., minutes of traffic or bytes of data processed), period of time (e.g., monthly service fees), or other established fee schedules. The Business� revenues are either billed in advance or arrears.

Revenues and associated expenses related to nonrefundable, up-front wireline service activation fees are deferred and recognized over the average customer life of three or four years depending on the product sold. Expenses, when exceeding revenue, are only deferred to the extent of revenue.

For contracts that involve the bundling of services, revenue is allocated to the services based on their relative selling price, subject to the requirement that revenue recognized is limited to the amounts already received from the customer that are not contingent upon the delivery of additional products or services to the customer in the future.

Accounts Receivable and Allowance for Uncollectible Accounts

Accounts receivable consist primarily of trade accounts receivable from customers and are generally unsecured and have monthly payment terms. The Business� bad debt allowance is estimated primarily based on an analysis of history and future expectations of the Business� retail and wholesale customers. For retail customers, estimates are based on the Business� actual historical write-offs, net of recoveries, and the aging of accounts receivable balances. Management�s assumptions are reviewed at least quarterly, and adjustments are made to the bad debt allowance as appropriate. For wholesale customers, the Business uses a statistical model based on the aging of accounts receivable balances. The risk categories, risk percentages, and reserve balance assumptions built into the model are reviewed monthly, and the bad debt allowance is adjusted accordingly.

�

AT&T Connecticut Wireline Operations

(A Business Unit of AT&T Inc.)

Notes to Combined Financial Statements (Unaudited) (continued)

�

2. Summary of Significant Accounting Policies (continued)

�

Property, Plant, and Equipment

Property, plant, and equipment are stated at cost. The cost of additions and substantial improvements to property, plant, and equipment is capitalized. The cost of maintenance and repairs of property, plant, and equipment is charged to operating expenses as incurred. Management follows composite group depreciation methodology for assets other than buildings and software; accordingly, when a portion of the Business� depreciable property, plant, and equipment is retired in the ordinary course of business, the gross book value is reclassified to accumulated depreciation, and no gain or loss is recognized on the asset�s disposition.

Property, plant, and equipment are reviewed for recoverability whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss shall be recognized only if the carrying amount of a long-lived asset is not recoverable and exceeds its fair value.

The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset.

Property, plant, and equipment are depreciated using the straight-line method over the estimated useful life of the assets as follows:

�


�	��	Useful�Lives (Years)

Buildings	��	35�45
Central office equipment	��	3�10
Cable, wiring, and conduit	��	10�50
Other equipment	��	5�15
Software	��	3�5

Depreciation expense for the three months ended September�30, 2014 and 2013, was $40.2 million and $41.6 million, respectively, and $118.3 million and $122.3 million for the nine months ended September�30, 2014 and 2013, respectively. Amortization expense for the three months ended September�30, 2014 and 2013, was $0.2 million and $0.4 million, respectively, and $0.8 million and $1.2 million for the nine months ended September�30, 2014 and 2013, respectively.

�

AT&T Connecticut Wireline Operations

(A Business Unit of AT&T Inc.)

Notes to Combined Financial Statements (Unaudited) (continued)

�

2. Summary of Significant Accounting Policies (continued)

�

Software Costs

It is the Business� policy to capitalize certain costs incurred in connection with developing or obtaining internal-use software. Capitalized software costs are included in property, plant, and equipment and are primarily amortized over five years. In addition, there is certain network software that allows the equipment to provide the features and functions unique to the Business network, which management includes in the cost of equipment categories for financial reporting purposes. Software costs that do not meet capitalization criteria are expensed immediately.

Advertising Costs

Advertising costs for advertising products and services or promoting the Business� corporate image are expensed as incurred. The Business had advertising expense of $14.9 million and $15.4 million for the nine months ended September�30, 2014 and 2013, respectively.

Employee Separations

The Business established obligations for expected termination benefits provided under existing plans to former or inactive employees after employment but before retirement. The Business had severance accruals of $0 million and $4.0 million at September�30, 2014 and December�31, 2013, respectively.

Materials and Supplies

New and reusable materials are carried principally at average original cost, except that specific cost is used in the case of large individual items. Non-reusable materials are carried at estimated salvage value.

Concentration of Credit Risk

Financial instruments that potentially subject the Business to concentrations of credit risk consist primarily of trade receivables. Concentrations of credit risk with respect to trade receivables are limited due to the large number of customers in the Business� customer base.

�

AT&T Connecticut Wireline Operations

(A Business Unit of AT&T Inc.)

Notes to Combined Financial Statements (Unaudited) (continued)

�

2. Summary of Significant Accounting Policies (continued)

�

New Accounting Standards

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No.�2014-09, Revenue from Contracts with Customers (Topic 606) (ASU 2014-09), which replaces existing revenue recognition rules with a comprehensive revenue measurement and recognition standard and expanded disclosure requirements. The FASB will allow two adoption methods under ASU 2014-09. Under one method, a company will apply the rules to contracts in all reporting periods presented, subject to certain allowable exceptions. Under the other method, a company will apply the rules to all contracts existing as of January�1, 2017, recognizing in beginning retained earnings an adjustment for the cumulative effect of the change and provide additional disclosures comparing results to previous rules. The Business continues to evaluate the impact of the new standard and available adoption methods.

3. Income Tax

For each interim period, the Business estimates the effective tax rate expected to be applicable for the full year and applies that rate to the operating income before income taxes for the period. Income tax expense was recorded at an effective rate of 40.1% and 38.3% in the nine months ended September�30, 2014 and 2013, respectively.

The components of income tax expense are as follows for the nine months ended September�30, 2014 and 2013:

�


�	��	Nine Months Ended September�30						�
�	��	2014		�	�	2013		�
�	��	(In Thousands)						�
Federal	��				�
Current	��	$	42,816	��	�	$	55,530	��
Deferred	��	�	(1,661	)�	�	�	3,657	��
	��	�	�	�	�	�	�	�
Total federal	��	�	41,155	��	�	�	59,187	��

State	��				�
Current	��	�	8,794	��	�	�	12,530	��
Deferred	��	�	4,022	��	�	�	960	��
	��	�	�	�	�	�	�	�
Total state	��	�	12,816	��	�	�	13,490	��
	��	�	�	�	�	�	�	�
Total income tax expense	��	$	53,971	��	�	$	72,677	��
	��	�	�	�	�	�	�	�

�

AT&T Connecticut Wireline Operations

(A Business Unit of AT&T Inc.)

Notes to Combined Financial Statements (Unaudited) (continued)

�

4. Pension and Postretirement Benefits

AT&T sponsors numerous employee benefit plans, which substantially all employees of the Business participated in as discussed below.

Pension Benefits and Postretirement Benefits

Substantially all employees of the Business are covered by one of AT&T�s non-contributory pension and death benefit plans. Additionally, AT&T provides certain medical, dental, and life insurance benefits to certain of the Business� retired employees under various plans. The Business� participation in AT&T�s defined pension and postretirement benefit plans is accounted for as a multi-employer plan in the Business� combined financial statements, in accordance with Accounting Standards Codification (ASC) 715-30, Defined Benefit Plans � Pension and ASC 715-60, Defined Benefit Plans � Other Postretirement. ASC 715, Compensation � Retirement Benefits, provides that an employer that participates in a multi-employer defined benefit plan is not required to report a liability beyond the contributions currently due and unpaid to the plan. Therefore, no assets or liabilities related to these plans have been included in the combined balance sheets. Costs associated with these plans and benefits are allocated by AT&T to their participating subsidiaries, including the Business, based on each subsidiary�s proportionate share of the overall cost of the plans and benefits. Allocated costs of these plans and benefits included in the combined statements of income were $0.4 million and $4.1 million for the three months ended September�30, 2014 and 2013, respectively, and $2.1 million and $12.3 million for the nine months ended September�30, 2014 and 2013, respectively.

5. Commitments and Contingencies

In October 2014, SNET was served with a complaint by Connecticut Light�& Power (CL&P) for indirect storm recovery costs of approximately $10.5 million. The Business does not agree that it is responsible for indirect costs under its joint line agreement with CL&P and does not expect the ultimate resolution of this claim for historical indirect storm recovery costs to have a material adverse effect on the combined financial statements. During the Public Utility Regulatory Authority hearings, Frontier Communications agreed to pay for indirect storm recovery costs on a going forward basis, but the dispute over the $10.5 million remains unresolved.

�

AT&T Connecticut Wireline Operations

(A Business Unit of AT&T Inc.)

Notes to Combined Financial Statements (Unaudited) (continued)

�

5. Commitments and Contingencies (continued)

�

In addition to issues specifically discussed elsewhere, the Business is party to numerous lawsuits, regulatory proceedings, and other matters arising in the ordinary course of business. In management�s opinion, although the outcomes of these proceedings are uncertain, they should not have a material adverse effect on the Business� financial position, results of operations, or cash flows.

6. Related-Party Transactions

The Business provides telecommunications services, including local and access services to AT&T and its subsidiaries (AT&T affiliates), as well as non-telecommunications services such as customer service. These services are recorded either as revenues or as a reduction of the cost incurred to provide such services, as appropriate. These revenues from affiliates totaled $63.8 million and $72.6 million for the three months ended September�30, 2014 and 2013, respectively, and $193.8 million and $192.8 million for the nine months ended September�30, 2014 and 2013, respectively. In addition, AT&T and its subsidiaries provide the Business with direct and indirect services, which it records as expenses. These costs totaled $147.7 million and $123.5 million for the three months ended September�30, 2014 and 2013, respectively, and $415.6 million and $361.1 million for the nine months ended September�30, 2014 and 2013, respectively.

These affiliate costs relate to allocated functions including information technology, finance and accounting, human resources, network support, advertising and marketing, and other services. The total amounts of allocated costs were $128.4 million and $101.7 million for the three months ended September�30, 2014 and 2013, respectively, and $353.2 million and $295.0 million for the nine months ended September�30, 2014 and 2013, respectively. Affiliate costs also include $11.1 million and $11.3 million of royalty expense for the three months ended September�30, 2014 and 2013, respectively, and $32.9 million and $33.5 million for the nine months ended September�30, 2014 and 2013, respectively, for the use of trademarks owned by AT&T affiliates (intercompany royalties), and $1.0 million and $1.1 million of intercompany lease payments related to buildings and equipment for three months ended September�30, 2014 and 2013, respectively, and $3.2 million and $3.0 million for the nine months ended September�30, 2014 and 2013, respectively.

�

AT&T Connecticut Wireline Operations

(A Business Unit of AT&T Inc.)

Notes to Combined Financial Statements (Unaudited) (continued)

�

6. Related-Party Transactions (continued)

�

Allocated affiliate costs include overhead costs related to the support functions as well as costs associated with office facilities, corporate insurance coverage and medical, pension, post retirement, and other health plan costs for employees participating in the AT&T sponsored plans. These costs are allocated to the Business based on several factors, including number of employees, marketing costs, and a composite based on our proportionate share of certain direct and allocated charges. In the opinion of management, the expense and cost allocations have been determined on a basis considered to be a reasonable reflection of the utilization of services provided or the benefit received by the Business during the years presented.

The amounts that would have been or will be incurred on a stand-alone basis could differ from the amounts allocated due to economies of scale, differences in management judgment, staffing levels, or other factors. Certain costs at AT&T deemed to be redundant to the operations of the Business have not been allocated to these financial statements. All affiliate charges have been deemed to have been incurred and settled by the Business in the year in which the costs were recorded.

The Business participates in AT&T�s pool of funds for borrowing and investing that are reflected as contributions from or distributions to the parent in the combined financial statements.

7. Subsequent Events

We have evaluated subsequent events after the balance sheet date of September�30, 2014 through December�1, 2014, which is the date the unaudited combined financial statements were available to be issued.

�

Exhibit 99.2

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

The following unaudited pro forma condensed combined financial information is based upon the historical consolidated financial information of Frontier and the historical combined financial information of the AT&T Connecticut Wireline Operations (the �Connecticut Operations�) and has been prepared to reflect the AT&T Transaction based on the acquisition method of accounting. The unaudited pro forma condensed combined financial information presents the combination of the historical financial statements of Frontier and the historical financial statements of the Connecticut Operations, adjusted to give effect to (1)�the transfer of specified assets and liabilities from AT&T to the Connecticut Operations that are not included in the Connecticut Operations� historical balance sheet as of September�30, 2014, and the retention of specified assets and liabilities by AT&T that are included in the Connecticut Operations� historical balance sheet as of September�30, 2014, as more fully described in note 3(a) below, (2)�the drawdown of the CoBank AT&T Transaction Facility, as more fully described in note 3(b) below, (3)�the payment by Frontier to AT&T of $2.0 billion in cash (excluding any potential working capital purchase price adjustment as set forth in the Stock Purchase Agreement) as more fully described in note 3(c) below and (4)�the consummation of the transactions contemplated by the Stock Purchase Agreement, with Frontier considered the accounting acquirer, based on the assumptions and adjustments described in the accompanying notes to the unaudited pro forma condensed combined financial information. The historical financial information has been adjusted to give effect to events that are directly attributable to the AT&T Transaction and factually supportable and, in the case of the statements of income information that are expected to have a continuing impact.

The unaudited pro forma condensed combined balance sheet information has been prepared as of September�30, 2014, and gives effect to the AT&T Transaction and other events described above as if they had occurred on that date. The unaudited pro forma condensed combined statements of income information, which have been prepared for the nine months ended September�30, 2014 and for the year ended December�31, 2013, give effect to the AT&T Transaction and other events described above as if they had occurred on January�1, 2013.

The unaudited pro forma condensed combined financial information was prepared using, and should be read in conjunction with, (1)�the unaudited interim condensed combined financial statements of the Connecticut Operations as of and for the nine months ended September�30, 2014, (2)�the audited combined financial statements of the Connecticut Operations as of and for the year ended December�31, 2013, (3)�the unaudited interim condensed consolidated financial statements of Frontier as of and for the nine months ended September�30, 2014, and (4)�the audited consolidated financial statements of Frontier as of and for the year ended December�31, 2013.

The unaudited pro forma condensed combined financial information is presented for informational purposes only and is not necessarily indicative of the financial position or results of operations that would have been achieved had the AT&T Transaction and other events described above been completed at the dates indicated. In addition, the unaudited pro forma condensed combined financial information does not purport to project the future financial position or results of operations of Frontier after completion of the AT&T Transaction. In the opinion of Frontier�s management, all adjustments considered necessary for a fair presentation have been included.

The unaudited pro forma condensed combined financial information does not give effect to any potential cost savings or other operating efficiencies that could result from the AT&T Transaction. In addition, the fair value of the assets acquired and liabilities assumed are based upon estimates. The final allocation is dependent upon valuations and other studies that have not yet been completed. Accordingly, the purchase price allocation pro forma adjustments are preliminary and are subject to further adjustments as additional information becomes available and additional analyses are performed, and each further adjustment may be material. Such adjustments have been made solely for the purpose of providing unaudited pro forma condensed combined financial information.

�

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET INFORMATION

AS OF SEPTEMBER 30, 2014

($ in millions)

�

��

�

��

Connecticut Operations

�

��

�

��

�

��

Frontier

�

��

Connecticut
Operations

�

��

Additional
Transfer
of
Assets
and
Liabilities
to/from
AT&T
(3a)

�

Connecticut
Operations,
as
Adjusted

�

��

Incurrence
of
New Debt
(3b)

�

��

Pro Forma
Adjustments
(3c)

�

Pro
Forma
Combined

�

ASSETS

��

�

��

�

Cash and cash equivalents

��

809

��

�

��

350

��

(481

)^��(i)�

�

678

��

Accounts receivable, net

��

�

462

��

�

139

��

�

(33

)�

�

106

��

�

��

�

��

�

568

��

Other current assets

��

�

1,657

��

�

��

�

(20

)�

�

��

�

��

�

(1,519

)^��(i)�

�

153

��

�

��

�

��

�

��

�

��

�

Total current assets

��

�

2,928

��

�

174

��

�

(53

)�

�

121

��

�

350

��

�

(2,000

)�

�

1,399

��

Property, plant and equipment, net

��

�

7,152

��

�

1,318

��

�

)�

�

1,313

��

�

��

�

��

�

8,465

��

Goodwill

��

�

6,338

��

�

��

�

��

�

��

�

��

�

781

^{��(ii)}�

�

7,119

��

Other intangibles, net

��

�

997

��

�

��

�

��

�

��

�

��

�

525

^{��(iii)}�

�

1,522

��

Other assets

��

�

225

��

�

��

�

(30

)�

�

��

�

��

�

��

�

234

��

�

��

�

��

�

��

�

��

�

Total assets

��

17,640

��

1,531

��

(88

)�

�

1,443

��

350

��

(694

)�

�

18,739

��

�

��

�

��

�

��

�

��

�

LIABILITIES AND EQUITY

��

�

��

�

Long-term debt due within one year

��

263

��

�

��

�

263

��

Accounts payable and other current liabilities

��

�

1,075

��

�

228

��

�

(162

)�

�

��

�

��

�

^{��(iv)}�

�

1,151

��

�

��

�

��

�

��

�

��

�

Total current liabilities

��

�

1,338

��

�

228

��

�

(162

)�

�

��

�

��

�

��

�

1,414

��

Deferred income taxes

��

�

2,306

��

�

��

�

266

��

�

266

��

�

��

�

188

^��(v)�

�

2,760

��

Other liabilities

��

�

917

��

�

��

�

141

��

�

229

��

�

��

�

��

�

1,146

��

Long-term debt

��

�

9,186

��

�

��

�

��

�

��

�

350

��

�

��

�

9,536

��

Equity

��

�

3,893

��

�

1,215

��

�

(333

)�

�

882

��

�

��

�

(892

)^��(vi)�

�

3,883

��

�

��

�

��

�

��

�

��

�

Total liabilities and equity

��

17,640

��

1,531

��

(88

)�

�

1,443

��

350

��

(694

)�

�

18,739

��

�

��

�

��

�

��

�

��

�

See notes to unaudited pro forma condensed combined financial information.

�

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME INFORMATION

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014

($ in millions, except per share amounts)

�

��

Frontier

�

��

Connecticut
Operations

�

Pro Forma
Adjustments

�

Pro
Forma
Combined

�

Revenue

��

3,442

��

1,015

��

�

)^��(4a)�

�

4,366

��

�

(38

)^��(4b)�

�

��

�

(46

)^��(4c)�

�

��

�

)^��(4d)�

�

Cost and expenses (exclusive of depreciation and amortization)

��

�

1,907

��

�

765

��

�

)^��(4c)�

�

2,611

��

�

)^��(4d)�

�

��

�

(12

)^��(4e)�

�

��

�

^{��(4f)}�

�

��

�

(15

)^��(4g)�

�

��

�

(33

)^��(4h)�

�

Depreciation and amortization

��

�

816

��

�

119

��

�

^{��(4e)}�

�

1,011

��

�

^{��(4i)}�

�

Acquisition and integration costs

��

�

��

�

��

�

(72

)^��(4k)�

�

��

�

��

�

Total operating expenses

��

�

2,795

��

�

884

��

�

(57

)�

�

3,622

��

�

��

�

Operating income

��

�

647

��

�

131

��

�

(34

)�

�

744

��

Investment and other income, net

��

�

��

�

��

�

��

�

��

Interest expense

��

�

509

��

�

)�

�

^{��(4j)}�

�

577

��

Income tax expense

��

�

��

�

��

�

(40

)^��(4l)�

�

��

�

��

�

Net income attributable to common shareholders of Frontier

��

119

��

�

(65

)�

�

135

��

�

��

�

Basic and diluted net income per common share

��

0.12

��

�

0.14

��

�

��

�

See notes to unaudited pro forma condensed combined financial information.

�

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME INFORMATION

FOR THE YEAR ENDED DECEMBER 31, 2013

($ in millions, except per share amounts)

�

��

Frontier

�

Connecticut
Operations

�

��

Pro Forma
Adjustments

�

Pro
Forma
Combined

�

Revenue

��

4,762

��

�

1,394

��

)^��(4a)�

�

6,011

��

�

��

�

(52

)^��(4b)�

�

��

�

��

�

(82

)^��(4c)�

�

��

�

��

�

)^��(4d)�

�

Cost and expenses (exclusive of depreciation and amortization)

��

�

2,616

��

�

850

��

�

)^��(4c)�

�

3,529

��

�

��

�

)^��(4d)�

�

��

�

��

�

(13

)^��(4e)�

�

��

�

��

�

153

^{��(4f)}�

�

��

�

��

�

(20

)^��(4g)�

�

��

�

��

�

(45

)^��(4h)�

�

Depreciation and amortization

��

�

1,170

��

�

166

��

�

^{��(4e)}�

�

1,448

��

�

��

�

^{��(4i)}�

�

Acquisition and integration costs

��

�

��

�

��

�

(10

)^��(4k)�

�

��

�

��

�

Total operating expenses

��

�

3,796

��

�

1,016

��

�

165

��

�

4,977

��

�

��

�

Gain on sale of Mohave partnership interest

��

�

��

�

��

�

��

�

��

�

��

�

Operating income

��

�

981

��

�

378

��

�

(310

)�

�

1,049

��

Investment and other income (expense), net

��

�

(151

)�

�

��

�

��

�

(150

)�

Interest expense

��

�

667

��

�

��

�

129

^{��(4j)}�

�

796

��

Income tax expense

��

�

��

�

141

��

�

(171

)^��(4l)�

�

��

�

��

�

Net income

��

�

116

��

�

238

��

�

(268

)�

�

��

Less: Income attributable to the noncontrolling interest in a partnership

��

�

��

�

��

�

��

�

��

�

��

�

Net income attributable to common shareholders of Frontier

��

113

��

�

238

��

(268

)�

�

��

�

��

�

Basic and diluted net income per common share

��

0.11

��

�

��

�

0.08

��

�

��

�

See notes to unaudited pro forma condensed combined financial information.

�

Notes to Unaudited Pro Forma Condensed

Combined Financial Information

1. Description of the AT&T Transaction

On October�24, 2014, pursuant to the stock purchase agreement dated December�16, 2013, as amended (the �Stock Purchase Agreement�), the Company acquired the wireline properties of AT&T in Connecticut for a purchase price of $2 billion in cash, excluding adjustments for working capital. Following the AT&T Transaction, 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 U-verse^� video and DISH satellite TV customers in Connecticut.

The unaudited pro forma condensed combined financial information was prepared using the accounting standard regarding business combinations. For purposes of the unaudited pro forma condensed combined financial information, the aggregate estimated transaction costs (other than debt incurrence fees in connection with the drawdown of the CoBank AT&T Transaction Facility, as set forth in note 3(b)), which are charged as an expense of Frontier as they are incurred, are expected to be approximately $24 million and include estimated costs associated with investment banker advisory fees, legal fees, and regulatory and auditor services of Frontier. Approximately $4 million and $10 million of transaction costs were recognized by Frontier for the nine months ended September�30, 2014 and the year ended December�31, 2013, respectively, and the balance of approximately $10 million is reflected as an accrual in the Pro Forma Adjustments column on the unaudited pro forma condensed combined balance sheet as of September�30, 2014. These costs, along with integration costs, are eliminated as a pro forma adjustment in the unaudited pro forma condensed combined statements of income for the nine months ended September�30, 2014 and the year ended December�31, 2013. In addition, the combined company will incur integration costs primarily related to information systems, network and process conversions (including hardware and software costs). Integration costs have been incurred in part in advance of the consummation of the AT&T Transaction on October�24, 2014, and are recorded based on the nature and timing of the specific action. For purposes of the unaudited pro forma condensed combined financial information, it was assumed that no amounts would be paid, payable or forgone by AT&T pursuant to orders or settlements issued or entered into in order to obtain governmental approvals in the State of Connecticut that were required to complete the AT&T Transaction.

Frontier is considered the accounting acquirer for purposes of the preparation of the unaudited pro forma condensed combined financial information. This conclusion is based upon Frontier�s consideration of all relevant factors included in the accounting standard regarding business combinations, including the purchase of common stock of The Southern New England Telephone Company and SNET America, Inc. pursuant to the Stock Purchase Agreement.

2. Basis of Purchase Price Allocation

The estimated purchase price has been allocated to the tangible and intangible assets acquired and liabilities assumed on a preliminary basis as follows (dollars in�millions):

�


Estimated transaction consideration:	��				�	$	2,000	��
	��				�	�	�	�
Current assets	��	$	121	��	�
Property, plant�& equipment	��	�	1,313	��	�
Goodwill	��	�	781	��	�
Other intangibles�Customer list	��	�	525	��	�
Other assets	��	�	9	��	�
Current liabilities	��	�	(66	)�	�
Deferred income taxes	��	�	(454	)�	�
Other liabilities	��	�	(229	)�	�
	��	�	�	�	�
Total net assets acquired	��	$	2,000	��	�
	��	�	�	�	�

The allocation of the purchase price to assets and liabilities is preliminary. The final allocation of the purchase price will be based on the fair values of the assets acquired and liabilities assumed as of the date of the AT&T Transaction, as determined by third-party valuation for certain assets and liabilities. The valuation will be completed after the consummation of the AT&T Transaction. There can be no assurance that the actual allocation will not differ significantly from the preliminary allocation.

�

The above noted preliminary allocation includes deferred taxes that are established at acquisition. Deferred taxes represent the tax effect at 37.73% of the non-deductible step-up in value portion of the customer list asset (($499 million x 37.73%) = $188 million). Frontier and AT&T have agreed to make a joint election under Section�338(h)(10) of the Internal Revenue Code, and comparable state and local tax code provisions, with regard to $26 million of intangible assets that will retain their tax basis. The offsetting entry to establish the deferred tax liability is recorded as goodwill.

3. Pro Forma Balance Sheet Adjustments:

�

(a)

The Connecticut Operations are adjusted to (1)�exclude assets and liabilities that will be retained by AT&T that are included in the Connecticut Operations� financial statements and (2)�give effect to certain assets and liabilities relating to the business to be contributed by AT&T to these entities in connection with the AT&T Transaction. A brief description of these items follows (dollars in�millions):

�


Balance	��	Amount		�	�	Reason
Accounts receivable, net	��	$	(22	)�	�	Intercompany receivables retained by AT&T
	��	�	(11	)�	�	Receivables related to businesses retained by AT&T
	��	�	�	�	�
	��	$	(33	)�	�
	��	�	�	�	�
Other current assets	��	$	(25	)�	�	Removal of intercompany tax balances retained by AT&T
	��	�	5	��	�	Reclassification to inventory of balances recorded in property, plant and equipment, net
	��	�	�	�	�
	��	$	(20	)�	�
	��	�	�	�	�
Property, plant and equipment, net	��	$	(5	)�	�	Reclassification of balances that should have been recorded as inventory
	��	�	�	�	�
Other assets	��	$	(20	)�	�	Removal of income tax balances
	��	�	(10	)�	�	Removal of intangible assets related to the AT&T sale of a business to a third party
	��	�	�	�	�
	��	$	(30	)�	�
	��	�	�	�	�
Accounts payable and other current liabilities	��	$	(143	)�	�	Intercompany payables retained by AT&T
	��	�	(15	)�	�	Removal of accrued liabilities to be retained by AT&T
	��	�	(4	)�	�	Payables related to businesses retained by AT&T
	��	�	�	�	�
	��	$	(162	)�	�
	��	�	�	�	�
Deferred income taxes	��	$	266	��	�	Deferred income tax adjustments
	��	�	�	�	�
Other liabilities	��	$	214	��	�	To establish liabilities for post employment benefits
	��	�	22	��	�	To establish liabilities for workers� compensation claims
	��	�	(22	)�	�	Liabilities to be retained by AT&T
	��	�	(73	)�	�	Removal of accrued uncertain tax position liabilities and credits retained by AT&T
	��	�	�	�	�
	��	$	141	��	�
	��	�	�	�	�
Equity	��	$	(333	)�	�	Reflects the aggregate impact of the above noted entries
	��	�	�	�	�

The pension and other postretirement employee benefits adjustments are based on amounts recorded by AT&T whereby the pension and OPEB obligations related to active employees only will be transferred to Frontier and pension obligations will be fully funded as of the closing date of the AT&T Transaction. An actuarial evaluation will be completed subsequent to the completion of the AT&T Transaction and may be different from that reflected in the unaudited pro forma condensed combined financial information. This difference, including the related impact on deferred taxes, may be material.

The deferred income tax adjustments reflect the impact on fixed assets, net of the pension and OPEB liabilities for active employees and depreciation.

�

(b)	On June�2, 2014, we entered into a credit agreement for a $350 million senior unsecured delayed draw term loan facility (the �CoBank AT&T Transaction Facility�). The facility was drawn upon closing of the AT&T Transaction with proceeds used to partially finance the acquisition.

The pro forma adjustment to cash reflects the CoBank AT&T Transaction Facility.

�

(c)	(i)�These adjustments in the total amount of $2.0 billion reflect the cash that was paid at closing of the AT&T Transaction (excluding any potential working capital purchase price adjustment as set forth in the Stock Purchase Agreement). The

�

Company financed the acquisition with (i)�the net proceeds of $1,519 million from its registered debt offerings in September 2014, which had been placed in escrow pending the close of the acquisition, (ii)�a drawdown of $350 million under its senior unsecured delayed draw term loan facility with CoBank, ACB, as administrative agent, lead arranger and a lender, and the other lenders from time to time party thereto, as described in 3(b) above, and (iii)�cash on hand of $131 million for the remainder of the purchase price.

(ii) This adjustment in the amount of $781 million reflects the goodwill associated with the excess of the AT&T Transaction consideration issued over the preliminary estimated fair value of the underlying identifiable net tangible and intangible assets at September�30, 2014, and reflects the impact of the deferred taxes established in (v)�below.

(iii) This adjustment in the amount of $525 million reflects the preliminary fair value of the identifiable intangible asset (customer list) which was estimated by Frontier�s management primarily based on the fair values assigned to similar assets in recently completed acquisitions (a market approach). A third party valuation firm is being utilized to help determine the final fair value after the AT&T Transaction is completed, but this determination is not yet final. There can be no assurance that the actual fair value determination will not differ significantly from the preliminary fair value determination. For purposes of the preliminary fair value determination, the estimated useful life of the customer list asset was assumed to be ten years.

(iv) This adjustment in the amount of $10 million records the estimated unpaid non-recurring costs for acquisition related transaction costs, primarily bankers, lawyers and consulting advisory fees.

(v) This adjustment in the amount of $188 million reflects the deferred taxes associated with the nondeductible step-up in value portion of the customer list asset ($499 million x 37.73% = $188 million) based on an assumed tax rate of 37.73%.

(vi) This adjustment in the amount of $892 million eliminates the �as adjusted� net equity of the Connecticut Operations ($882�million) and recognizes unpaid estimated transaction costs of $10 million as of September�30, 2014.

4. Pro Forma Income Statement Adjustments:

�

(a)	This adjustment reflects results of operations related to contracts, primarily with unaffiliated third parties, that will not be transferred to Frontier in the AT&T Transaction.

�

(b)	This adjustment reflects the incremental change related to contracts with AT&T affiliates that will be transferred to Frontier under modified terms.

�

(c)	This adjustment reflects results of operations related to certain operations (substantially with AT&T affiliates) that will not continue after the closing of the AT&T Transaction.

�

(d)	This adjustment reflects the reclassification of bad debt expense from cost and expenses to revenue.

�

(e)	This adjustment reflects the reclassification of allocated depreciation and amortization from cost and expenses to depreciation and amortization.

�

(f)

This adjustment reflects pension, other postretirement employee benefits of retirees and postemployment benefits retained by AT&T based on the terms of the Stock Purchase Agreement whereby the pension and OPEB obligations related to active employees only will be transferred to Frontier and pension obligations will be fully funded as of the closing date of the AT&T Transaction. The adjustment for the year ended December�31, 2013 also reflects the reversal of $131 million in actuarial gains that were recorded in income by AT&T in order to conform to Frontier�s accounting policy for pension and other postretirement benefits.

�

(g)	This adjustment reflects the removal of costs related to employee headcount that will not be transferred to Frontier associated with the adjustment described in 4(c) above.

�

(h)	This adjustment reflects the removal of royalty expense charged by AT&T for the use of its name and trademark that will not continue after the AT&T Transaction.

�

(i)

This adjustment reflects amortization expense associated with the customer list asset estimated in note 3(c) above assuming an accelerated method of amortization and an estimated useful life of ten years which corresponds to an increase in depreciation and amortization of $64 million and $99 million for the nine months ended September�30, 2014 and the year ended December�31, 2013, respectively. No adjustment has been reflected for depreciation expense.

�

The actual depreciation and amortization expense will be based on the final fair value attributed to the identifiable tangible and intangible assets based upon the results of the third-party valuation of the acquired assets. The depreciation and amortization rates may also change based on the results of this third-party valuation. There can be no assurance that the actual depreciation and amortization expense will not differ significantly from the pro forma adjustment presented.

�

(j)

This adjustment reflects additional interest expense on the $1,550 million aggregate principal amount of senior notes related to the debt offering in September 2014 and the $350 million CoBank AT&T Transaction Facility ($71 million and $129 million for the nine months ended September�30, 2014 and the year ended December�31, 2013, respectively), based on an assumed weighted average interest rate of 6.68% for the nine months ended September�30, 2014 and 6.73% for the year ended December�31, 2013 and the elimination of interest expense related to a bridge loan agreement.

�

(k)	This adjustment reflects the removal of acquisition and integration expenses related to costs incurred by Frontier in connection with the AT&T Transaction.

�

(l)	This adjustment reflects the income tax effect of the pro forma adjustments described in notes 4(a) through 4(k) above, using an estimated effective income tax rate of 38%.

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Form 8-K FRONTIER COMMUNICATIONS For: Jan 07

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