Frontier Communications 2010 Annual Report Download - page 72

Our consolidated statement of operations for the year ended December 31, 2010 includes $1,748.1 million
of revenue and $231.5 million of operating income related to the results of operations of the Acquired Business
from the date of its acquisition on July 1, 2010.
The allocation of the purchase price of the Acquired Business is based on the fair value of assets acquired
and liabilities assumed as of July 1, 2010, the effective date of the Merger. Our assessment of fair value is
preliminary, and will be adjusted 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, and other assumed
postretirement benefit obligations.
The fair value amounts recorded for the allocation of the purchase price as of July 1, 2010 are preliminary
and certain items are subject to change. The most significant items include: legal and tax accruals, including
sales and utility tax liabilities for the states of Washington and Indiana, pending the finalization of
examinations and valuations of various cases; other accrued liabilities pending receipt of supporting
documentation; deferred income tax assets and liabilities, pending Verizon providing us with tax values for the
assets and liabilities of the Acquired Business; and pension and other postretirement liabilities, pending
completion of actuarial studies and the related transfer of pension assets.
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 Merger, based on the total transaction consideration of $5.4 billion. The following
allocation of purchase price includes minor revisions to the initial preliminary allocation that was reported as of
September 30, 2010. These preliminary estimates will be revised in future periods and the revisions may
materially affect the presentation of our consolidated financial results. Any changes to the initial estimates of
the fair value of the assets and liabilities will be recorded as adjustments to those assets and liabilities and
residual amounts will be allocated to goodwill.
($ in thousands)
Total transaction consideration: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $5,411,705
Current assets......................................... $ 479,993
Property, plant & equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,417,567
Goodwill.............................................. 3,649,871
Other intangibles—primarily customer list . . . . . . . . . . . . . . 2,537,100
Other assets........................................... 75,092
Current liabilities...................................... (509,234)
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,303,626)
Long-term debt........................................ (3,456,782)
Other liabilities........................................ (478,276)
Total net assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,411,705
The Transaction provides for a post-closing adjustment for working capital, pension liabilities transferred
and pension assets. Frontier and Verizon have not finalized the results of these calculations. If an adjustment is
made for the working capital “true-up,” the purchase price allocation will be revised.
The fair value of the total consideration issued to acquire the Acquired Business amounted to $5.4 billion
and included $5.2 billion for the issuance of Frontier common shares and cash payments of $105.0 million. As
a result of the Merger, Verizon stockholders received 678,530,386 shares of Frontier common stock.
Immediately after the closing of the Merger, Verizon stockholders owned approximately 68.4% of the
combined company’s outstanding equity, and existing Frontier stockholders owned approximately 31.6% of the
combined company’s outstanding equity.
The following unaudited pro forma financial information presents the combined results of operations of
Frontier and the Acquired Business as if the acquisition had occurred as of January 1, 2009. The pro forma
information is not necessarily indicative of what the financial position or results of operations actually would
have been had the acquisition been completed as of January 1, 2009. In addition, the unaudited pro forma
F-13
FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements