Historical

(Thousands, except par value)

CS&L

PEG Bandwidth LLC

Pro Forma Adjustments

Pro Forma Combined

Assets:

Net real estate investments

$

2,321,124

$

-

$

-

$

2,321,124

Network and other property, net

-

294,513

9,947

(A)

304,460

Cash and cash equivalents

165,340

5,786

6,000

(C)

177,126

Accounts receivable, net

832

6,718

-

7,550

Intangible assets, net

11,190

1,635

33,865

(A)

46,690

Straight-line rent receivable

16,117

-

-

16,117

Goodwill

-

-

124,841

(A)

124,841

Other assets

3,312

5,088

-

8,400

Total Assets

$

2,517,915

$

313,740

$

174,653

$

3,006,308

Liabilities and Shareholders’ Deficit:

Accounts payable, accrued expenses and

   other liabilities

$

8,596

$

9,461

$

-

$

18,057

Accrued interest payable

53,340

1,059

(1,059

)

(B)

53,340

Deferred revenue

99,260

14,905

-

114,165

Derivative liability

45,869

-

-

45,869

Dividends payable

90,621

-

-

90,621

Deferred income taxes

5,498

-

-

5,498

Capital lease obligations

-

41,231

-

41,231

Notes and other debt

3,503,642

208,320

112,680

(C)

3,824,642

Total liabilities

3,806,826

274,976

111,621

4,193,423

Convertible preferred stock, $87,500

   liquidation value

-

-

78,566

(D)

78,566

Redeemable Equity

-

161,031

(161,031

)

(E)

-

Common Stock

15

-

-

(D)

15

Additional paid-in capital

3,407

1,921

21,309

(F)

26,637

Accumulated other comprehensive loss

(45,789

)

-

-

(45,789

)

Distributions in excess of accumulated

   earnings

(1,246,544

)

(124,188

)

124,188

(G)

(1,246,544

)

Total shareholders' deficit

(1,288,911

)

(122,267

)

145,497

(1,265,681

)

Total Liabilities and Shareholders’ Deficit

$

2,517,915

$

313,740

$

174,653

$

3,006,308

Historical

CS&L

PEG Bandwidth, LLC

Pro Forma

Pro Forma

(Thousands, except per share data)

Adjustments

Combined

Revenues:

Rental revenues

$

168,641

$

-

$

-

$

168,641

Service revenues

-

20,260

-

20,260

Consumer CLEC

6,034

-

-

6,034

Total revenues

174,675

20,260

-

194,935

Costs and Expenses:

Interest expense

66,049

6,141

(3,061

)

(H)

69,129

Depreciation and amortization

86,340

8,209

615

(I)

95,164

General and administrative expense

5,189

3,755

(159

)

(J)

8,785

Operating expenses

4,707

7,577

(8

)

(J)

12,276

Other expenses, net

-

19

-

19

Acquisition and transaction related costs

3,910

-

(2,756

)

(K)

1,154

Total costs and expenses

166,195

25,701

(5,369

)

186,527

Income before income taxes

8,480

(5,441

)

5,369

8,408

Income tax expense

444

-

-

444

Net income

8,036

(5,441

)

5,369

7,964

Participating securities’ share in earnings

(355

)

-

-

(355

)

Accretion of preferred units to redemption value

-

(2,758

)

2,758

(L)

-

Preferred stock dividends

-

-

(656

)

(M)

(656

)

Accretion of preferred stock to liquidation value

-

-

(744

)

(N)

(744

)

Net income applicable to common shareholders

$

7,681

$

(8,199

)

$

6,727

$

6,209

Earnings per common share:

Basic

$

0.05

$

0.04

Diluted

$

0.05

$

0.04

Weighted-average number of common shares outstanding

Basic

149,918

1,000

(O)

150,918

Diluted

149,984

1,000

(O)

150,984

Historical

Historical

CS&L

Consumer CLEC

Pro Forma

PEG Bandwidth

Pro Forma

Pro Forma

(Thousands, except per share data)

April 24 - December 31, 2015

January 1 - April 24, 2015

CS&L Adjustments

LLC

Adjustments

Combined

Revenues:

Rental revenues

$

458,614

$

-

$

209,424

(P)

$

-

$

-

$

668,038

Service revenues

-

-

-

76,143

-

76,143

Consumer CLEC

17,700

10,149

-

-

-

27,849

Total revenues

476,314

10,149

209,424

76,143

-

772,030

Costs and Expenses:

Interest expense

181,797

-

82,548

(Q)

22,414

(11,083

)

(H)

275,676

Depreciation and

   amortization

238,748

1,283

108,400

(R)

30,888

1,950

(I)

381,269

General and

   administrative expense

11,208

22

5,026

(S)

14,415

(758

)

(J)

29,913

Operating expenses

13,743

5,552

2,328

(T)

31,128

(36

)

(J)

52,715

Other expenses, net

-

-

-

619

-

619

Acquisition and

   transaction related costs

5,210

-

-

-

(3,137

)

(K)

2,073

Total costs and expenses

450,706

6,857

198,302

99,464

(13,064

)

742,265

Income before income taxes

25,608

3,292

11,122

(23,321

)

13,064

29,765

Income tax expense

738

-

463

(U)

-

-

1,201

Net income

24,870

3,292

10,659

(23,321

)

13,064

28,564

Participating securities’

   share in earnings

(1,152

)

-

-

-

-

(1,152

)

Accretion of preferred

   units to redemption

   value

-

-

-

(10,508

)

10,508

(L)

-

Preferred stock dividends

-

-

-

-

(2,625

)

(M)

(2,625

)

Accretion of preferred

   stock to liquidation

   value

-

-

-

-

(2,872

)

(N)

(2,872

)

Net income applicable to

   common shareholders

$

23,718

$

3,292

$

10,659

$

(33,829

)

$

18,075

$

21,915

Earnings per common

   share:

Basic

$

0.16

$

0.15

Diluted

$

0.16

$

0.15

Weighted-average number

   of common shares

   outstanding

Basic

149,835

1,000

(O)

150,835

Diluted

149,835

1,000

(O)

150,835

(Thousands)

Cash transferred⁽¹⁾

$

315,000

Fair value of CS&L Series A Convertible Preferred Stock Issued⁽²⁾

78,566

Fair value of CS&L common stock issued⁽³⁾

23,230

Total value of consideration transferred

$

416,796

(1)

The cash transferred of $315 million was funded through borrowings on CS&L’s revolving credit facility.

(2)

The liquidation value of our Series A Convertible Preferred Stock is $87.5 million.  The fair value was estimated using an income approach framework, including valuing the conversion feature using a Black-Scholes model.

(3)

The fair value of the CS&L common shares of $23.2 million was calculated by multiplying the 1 million CS&L common shares by $23.23, the closing trading price of CS&L common stock on April 29, 2016.  

(Thousands)

Network and other property

$

304,460

Cash and cash equivalents

5,786

Accounts receivable

6,718

Other assets

5,088

Trade name

12,500

Customer relationships

23,000

Accounts payable, accrued expenses and other liabilities

(9,461

)

Deferred revenue

(14,905

)

Capital lease obligations

(41,231

)

Net assets acquired

$

291,955

Goodwill

$

124,841

(A)

To reflect preliminary purchase accounting adjustments as noted in the schedule above.

(B)

To reflect removal of accrued interest expense related to PEG’s loan payable to its parent.

(C)

To reflect the borrowings under CS&L’s revolving credit facility to fund the cash portion of the purchase consideration, offset by the retirement of PEG’s loan payable to its parent and removal of deferred financing costs, computed as follows:

(Thousands)

CS&L revolving credit facility

$

321,000

PEG loan payable to parent

(211,043

)

PEG loan payable to parent deferred financing costs

2,723

Net increase in notes and other debt, net

$

112,680

(D)

To reflect the fair value of the Convertible Preferred stock, with a liquidation value of $87.5 million, and the impact of the issuance of 1 million shares of Common Stock as purchase consideration for the acquisition of PEG.

(E)

To reflect the removal of PEG’s redeemable equity.

(F)

The adjustment to additional paid-in capital includes the impact of the issuance of 1 million shares of the Company’s common stock, which had a closing price of $23.23 as of April 29, 2016.

(Thousands)

Remove PEG's additional paid-in capital

$

(1,921

)

Issuance of 1 million shares of CS&L common stock

23,230

Net increase in additional paid-in capital

$

21,309

(G)

To reflect the removal of PEG’s distributions in excess of accumulated earnings.

(H)

To reflect the adjustment to interest expense related to borrowings on CS&L’s revolving credit facility, offset by removal of interest expense related to PEG’s loan from parent, calculated as follow:

(Thousands)

Three Months Ended March 31, 2016

Year Ended

December 31, 2015

Revolving credit facility (Libor + 2.25%)

$

2,151

$

7,865

Remove PEG interest expense on loan from parent

(4,812

)

(17,428

)

Remove PEG amortization of deferred financing costs and debt discount

(400

)

(1,520

)

Net adjustment to interest expense

$

(3,061

)

$

(11,083

)

(I)

To reflect impact on depreciation and amortization of step-up in net assets acquired.

(J)

To reflect removal of PEG stock-based compensation expense, as all PEG stock-based awards were cancelled at closing in accordance with the purchase agreement.

(K)

To remove acquisition and transaction costs directly attributable to the acquisition of PEG.

(L)

To remove the impact of the accretion of PEG preferred units to their redemption value, as CS&L acquired 100% of the interests in PEG.

(M)

To reflect preferred stock dividends related to the issuance of 87,500 shares of Convertible Preferred Stock, with a liquidation preference of $87.5 million.

(N)

To reflect accretion of the estimated fair value of the Convertible Preferred Stock issued in partial consideration for the acquisition of PEG to its liquidation value.  The difference is amortized, using the effective interest rate method, over the expected term of the Convertible Preferred Stock, which is estimated at 3 years. Based on the estimated fair value of the Convertible Preferred stock, the accretion was calculated assuming a 3.66% effective interest rate.

(O)

To reflect the issuance of 1 million shares of Common Stock in partial consideration for the acquisition of PEG.

(P)

To reflect rental income associated with the Master Lease with Windstream for the period from January 1, 2015 to the Spin-Off, recognized on a straight-line basis to include the effects of base rent escalations over the initial term of the Master Lease.  

(Q)

To reflect interest expense for the period January 1, 2015 to the Spin-Off on the $3.65 billion of long-term debt issued in connection with the Spin-Off.  Interest expense for the period was computed as follows:

(Thousands)

Senior secured term loan B – variable rate

$

41,372

Senior secured notes – 6.00%

7,600

Senior unsecured notes – 8.25%

28,999

Amortization of debt discounts and debt costs

4,577

Net increase in interest expense

$

82,548

(R)

To reflect depreciation expense for the period January 1, 2015 to the Spin-Off, related to the Distribution System assets transferred to CS&L by Windstream.

(S)

To reflect general and administrative expense of CS&L from January 1, 2015 to the Spin-Off.

(T)

To adjust CLEC operating expense to reflect the removal of interconnection costs incurred by the Consumer CLEC business for the period January 1, 2015 to the Spin-Off, offset by costs incurred under the Wholesale Master Services Agreement between CS&L and Windstream, pursuant to which Windstream and its affiliates provide CS&L network transport services for the Consumer CLEC business.

(U)

To reflect federal and state income tax expense related to the operations of our leasing business and Consumer CLEC business for the period January 1, 2015 to the Spin-Off.