Basis of Presentation

The following is a discussion and analysis of the historical results of operations and financial condition of Windstream Corporation ("Windstream", "we", or the "Company"). Windstream was formed on July 17, 2006 through the spin off from Alltel Corporation ("Alltel") of its wireline telecommunications division and the immediate merger with and into Valor Communications Group, Inc. ("Valor"). This discussion should be read in conjunction with the unaudited consolidated financial statements, including the notes thereto, for the interim periods ended June 30, 2009 and 2008 and Windstream's Annual Report on Form 10-K for the year ended December 31, 2008 filed with the Securities and Exchange Commission ("SEC") on February 19, 2009.

In the first quarter of 2009, the Company reorganized its operations to integrate the sales and administrative functions of the product distribution segment into its wireline operations. As a result of this change, the chief operating decision maker no longer reviews the financial statements of the product distribution operations on a stand alone basis, and the Company operates as a single reporting segment. As required by Statement of Financial Accounting Standards ("SFAS") No. 131 "Disclosures about Segments of an Enterprise and Related Information", segment results of operations have been retrospectively adjusted to reflect a single segment presentation for all periods presented. As such, separate segment reporting is no longer required, and thus not included. Additionally, certain amounts previously reported have been reclassified to conform to the current year presentation of the consolidated financial statements. These changes and reclassifications did not impact net income.

Management believes that the assumptions underlying the Company's financial statements are reasonable. These financial statements, however, may not be necessarily indicative of future results of operations, financial position or cash flows. Certain statements set forth below under this caption constitute forward-looking statements. See "Forward-Looking Statements" at the end of this discussion for additional factors relating to such statements, and see "Risk Factors" in Item 1A of Part I herein and in Windstream's Annual Report on Form 10-K, for a discussion of certain risk factors applicable to our business, financial condition, business trends and results of operations.

EXECUTIVE SUMMARY

Windstream is a customer-focused telecommunications company that delivers a full range of communication products and services that include voice and related features, high-speed Internet, long distance, network access and video services to approximately 3.0 million customers primarily located in rural areas in 16 states. Our strategy is to enhance the value of these customer relationships by providing one-stop shopping for all of our customer's communications needs and delivering superior customer service. Among the highlights in the second quarter of 2009:

• The Company added approximately 15,000 high-speed Internet services customers, increasing its high-speed Internet customer base to 1,024,600. Additionally, the Company lost approximately 41,000 access lines. Access lines declined 5.5 percent during the twelve months ended June 30, 2009.

• Revenues and sales decreased $47.0 million, as compared to the second quarter of 2008, primarily due to the decline in access lines and a decline in product sales to business customers. Partially offsetting these decreases were increases attributable to growth in high-speed Internet customers as discussed above. Operating income decreased $44.5 million primarily due to the increase in pension expense, the impact of continued access line losses and the amortization of franchise rights.

• The Company generated cash flows from operations of approximately $500.0 million for the six months ended June 30, 2009. Cash flows from operations were used to fund capital expenditures of $139.5 million, to pay $219.4 million in dividends to shareholders and to repay $150.0 million in debt outstanding under the revolving line of credit. Additionally, the Company repurchased 1.5 million of its common shares at a cost of $12.1 million during the second quarter of 2009. As of June 30, 2009, the Company had $166.9 million in remaining capacity under the $400.0 million stock repurchase program announced in February 2008, which expires at the end of 2009.

During the remainder of 2009, the Company will continue to face significant challenges resulting from competition in the telecommunications industry. In addressing competition, the Company will continue to focus its efforts on improving customer service, increasing high-speed Internet penetration and expanding its service offerings and distribution channels.

Business Trends

The following is a discussion of trends affecting Windstream's operations:

• Access line losses: Wireline voice and switched access revenues are expected to continue to be adversely impacted by future declines in access lines due to competition in the telecommunications industry from cable television providers, wireless communications providers, and providers using other emerging technologies. As of June 30, 2009, all of the Company's access lines had wireless competition and approximately 62 percent of the Company's access lines had fixed line voice competition, which represented an increase in fixed line competition of approximately 3 percent from June 30, 2008. Residential lines decreased 6.2 percent primarily due to the effects of competition and weakness in the general economic environment, which we believe has accelerated line losses by limiting consumer purchasing power causing some households to migrate exclusively to wireless voice service. Business lines decreased 4.3 percent due to competitive pressures, the migration of services to larger circuits with enhanced functionality representing lost access lines but not a lost customer relationship, and weakness in the general economic environment. We believe weakness in the economic environment has caused some businesses to close or reduce staff, which has had a corresponding impact on the demand for business access lines. Continued weakness in the general economic environment may contribute to further acceleration of line losses.

• Product bundles: To combat competitive pressures, the Company continues to emphasize its bundled products and services. Our residential customers can bundle local voice, high-speed Internet, long distance and video services. These bundles provide customers with one convenient location to obtain all their communications and entertainment needs, a convenient billing solution, and bundle discounts. In addition, during the second quarter of 2009, we began offering bundle discounts to businesses that choose to bundle their voice, broadband and long distance services with Windstream. We believe that product bundles positively impact our customer retention, and the associated discounts provide our customers the best value for their communications and entertainment dollar. Our goal is to continue selling additional services to existing customers and migrate new and existing customers onto bundle plans, which will lead to an increase in average revenue per customer per month ("ARPU"). As of June 30, 2009, ARPU was $80.14, which represented a slight increase over the ARPU at June 30, 2008.

• High-speed Internet: Growth in high-speed Internet sales are expected to continue to offset some of the revenue declines from the unfavorable access line trends discussed above. During the six months ended June 30, 2009, the Company added approximately 46,000 high-speed Internet customers. As of June 30, 2009, the Company had 1,024,600 high-speed Internet customers, which represents an approximate 10 percent increase from June 30, 2008. As of June 30, 2009, Windstream provided high-speed Internet service to 35 percent of total access lines in service, and 47 percent of residential access lines in service. As of June 30, 2009, approximately 75 percent of total access lines had broadband competition primarily from cable service providers, which is relatively unchanged from June 30, 2008. We expect the pace of high-speed Internet customer growth to slow as the number of households without high-speed Internet service continues to shrink. Competitive expansions, primarily from cable facilities, into our service areas are expected to slow in 2009, but we could experience some increased competition from high-speed Internet offerings of wireless competitors.

• Data and special access: Wireline revenues and sales are expected to continue to be favorably impacted by growth in next generation data services provided to business customers. As the data needs of our business customers continue to grow, our virtual local area network, virtual private network and data service revenues are expected to grow. Likewise, due to continued trends toward increasing data traffic, we expect growth in special access revenues from the provisioning of large circuits to wireless and other carriers. However, weakness in the general economic environment may have the effect of suppressing near term growth in these revenues.

• Operational efficiencies: We continue to evaluate our operating structure to identify opportunities for increased operational efficiency and effectiveness. Among other things, this involves evaluating opportunities for task automation, network efficiency and the balancing of our workforce based on the current needs of our customers. As part of this effort, the Company announced a small work force reduction in the second quarter of 2009. In addition, 2009 expenses have been favorably impacted by the work force reduction announced in the fourth quarter of 2008.

• Pension expenses and funding: The fair market value of the Company's pension investments declined 34.7 percent in 2008 from approximately $1,001.0 million to $654.0 million, due to declines in the market value of assets held as well as benefit payments. As a result, pension expense has increased by approximately $46.0 million for the six months ended June 30, 2009 as compared to the same period in 2008. During the six months ended June 30, 2009, the assets of Windstream's pension plan have declined 2.0 percent from approximately $654.0 million to $640.9 million primarily due to routine benefit payments of $26.5 million and lump sum distributions of $30.7 million, partially offset by increases in the market value of assets held of approximately $44.1 million. The Company does not expect to make any cash

We expect the combined impact of the items noted above to result in lower revenues and operating income during 2009. However, these trends may be materially impacted, favorably or unfavorably, by changes in the overall economic environment.

STRATEGIC TRANSACTIONS

Pending Transaction

On May 10, 2009 the Company entered into a definitive agreement to acquire all of the outstanding shares of common stock of D&E Communications, Inc. ("D&E"). Under the terms of the agreement, D&E shareholders will receive 0.650 shares of Windstream common stock and $5.00 in cash per each share of D&E common stock. As of June 30, 2009, D&E had outstanding approximately 14.4 million shares of common stock and approximately $185.0 million of long-term debt, including current maturities. Including the early extinguishment of debt, estimated cash consideration to be paid at closing was estimated to be $260.0 million as of June 30, 2009. The acquisition of D&E will significantly increase Windstream's presence in Pennsylvania by adding approximately 118,000 incumbent local exchange carrier access lines, 47,000 competitive local exchange carrier access lines and about 44,000 high-speed Internet customers in central Pennsylvania. In addition, we expect this acquisition to generate significant opportunities for operating efficiencies with contiguous Windstream markets. The acquisition has received federal approval and is expected to close in the fourth quarter of 2009, subject to certain conditions, including necessary approvals from state regulators and D&E shareholders.

Disposition

On November 21, 2008, Windstream completed the sale of its wireless business to AT&T Mobility II, LLC for approximately $56.7 million. The completion of this transaction resulted in the divestiture of approximately 52,000 wireless customers, spectrum licenses and cell sites covering a four-county area of North Carolina with a population of approximately 450,000, and six retail locations. The operating results of the wireless business have been separately presented as discontinued operations in the accompanying unaudited interim consolidated statements of income (see Note 3).

RESULTS OF OPERATIONS

The following table reflects the Company's operating results as of June 30:



                                                  Three Months Ended               Six Months Ended
                                                       June 30,                        June 30,
(Millions)                                       2009            2008            2009            2008
Revenues and sales:
Voice service                                  $   281.4       $   302.5       $   569.1       $   606.9
Long distance                                       64.2            66.9           128.6           134.4
Data and special access                            204.9           187.9           405.7           376.2
Switched access and USF                            129.0           153.2           261.8           310.2
Miscellaneous                                       35.0            42.2            70.1            85.1
Product sales                                       38.4            47.2            72.6            87.1

Total revenues and sales                           752.9           799.9         1,507.9         1,599.9
Costs and expenses:
Cost of services (exclusive of depreciation
included below)                                    249.7           250.8           500.9           504.3
Cost of products sold                               33.6            43.5            63.9            78.5
Selling, general, administrative and other          90.4            88.3           179.4           179.7
Depreciation and amortization                      133.3           123.3           265.3           244.9
Restructuring charges                                0.1             0.5              -              1.1
Merger and integration costs                         1.4             4.6             1.4             6.2

Total costs and expenses                           508.5           511.0         1,010.9         1,014.7
Operating income                                   244.4           288.9           497.0           585.2

Other income, net                                    0.6             3.0             1.4             8.6
Interest expense                                   (97.8 )        (103.6 )        (197.5 )        (208.6 )


Income from continuing operations before
income taxes                                       147.2           188.3           300.9           385.2
Income taxes                                        56.4            70.4           121.9           145.4


Income from continuing operations                   90.8           117.9           179.0           239.8
Discontinued operations, net of tax                   -            (15.9 )            -            (14.1 )


Net income                                     $    90.8       $   102.0       $   179.0       $   225.7
Basic and diluted earnings per share:
Income from continuing operations                   $.21            $.27            $.41            $.53
Loss from discontinued operations                     -             (.04 )            -             (.03 )

Net income                                          $.21            $.23            $.41            $.50

(Access lines and customers in thousands)
Access lines in service (excludes
high-speed Internet lines):
Residential                                      1,932.2         2,059.6
Business                                           886.9           927.2
Wholesale (a)                                       18.5            22.3
Special circuits                                   115.1           115.1

Total access lines in service                    2,952.7         3,124.2

Average access lines in service                  2,971.7         3,140.7         2,993.6         3,161.7
Average service revenue per customer per
month (b)                                         $80.14          $79.89          $79.91          $79.75
High-speed Internet customers                    1,024.6           934.3
Digital satellite television customers             311.6           231.1
Long distance customers                          1,936.6         2,049.7

(a) Wholesale units include unbundled network elements and pay stations.

(b) Average service revenue per customer per month is calculated by dividing service revenues by average access lines in service for the period.

Voice Service Revenues

Voice service revenues consist of traditional telephone services provided to
both residential and business customers. These revenues primarily represent
monthly recurring charges for basic services such as local dial-tone and
enhanced services such as caller identification, voicemail and call waiting.

Voice service

                                                 Three Months Ended               Six Months Ended
                                                   June 30, 2009                   June 30, 2009
                                                Increase                         Increase
(Millions)                                     (Decrease)           %           (Decrease)          %
Due to decreases in ala carte calling
features (a)                                  $        (6.1 )                 $        (10.7 )
Due to access line losses and other (b)               (15.0 )                          (27.1 )
Total voice revenues                          $       (21.1 )       (7 )%     $        (37.8 )      (6 )%

(a) Decreases in ala carte features, which includes caller identification, call waiting, call forwarding, voice mail, and other similar services, were attributable to the decline in access lines as well as customers electing to discontinue these enhanced services.

(b) Decrease in voice service revenues is primarily due to the overall decline in access lines discussed above.

Long Distance Revenues

Long distance revenues are generated from switched interstate and intrastate
long distance, long distance calling cards, international calls and operator
services. The following table reflects the primary drivers of year-over-year
changes in long distance revenues:

Long distance

                                                 Three Months Ended                Six Months Ended
                                                    June 30, 2009                   June 30, 2009
                                                 Increase                         Increase
(Millions)                                      (Decrease)           %           (Decrease)          %
Due to increases in packaged plans (a)        $          2.3                   $          5.2
Due to decreases in one plus calling and
other (b)                                               (5.0 )                          (11.0 )
Total long distance                           $         (2.7 )       (4 )%     $         (5.8 )      (4 )%

(a) Increases in packaged plans have resulted from migrations to plans that offer a defined number of minutes or unlimited toll calling for a fixed monthly fee instead of usage-based one plus calling. As of June 30, 2009, 52 percent of our long distance customers selected packaged plan options as compared to 48 percent for the same period of 2008.

(b) Decreases in one plus calling are primarily due to the decline in access lines and declines in usage-based long distance billings as customers migrate to packaged plans.

Data and Special Access Revenues

Data and special access revenues primarily consist of retail high-speed Internet services, the provision of virtual private network, virtual local area network, dedicated Internet access and other next generation data services to business customers, and the provision of special access services to wholesale customers. The following table reflects the primary drivers of year-over-year changes in data and special access revenues:

Data and special access
                                                   Three Months Ended           Six Months Ended
                                                      June 30, 2009              June 30, 2009
                                                     Increase                    Increase
(Millions)                                          (Decrease)        %         (Decrease)       %
Due to increases in high-speed Internet
customers, as previously discussed                $          12.2             $         23.4
Due to increases in next generation data
services (a)                                                  2.3                        4.6
Due to increases in special access and other
(b)                                                           2.5                        1.5
Total data and special access                     $          17.0     9 %     $         29.5     8 %

(a) Increases in next generation data services resulted from the launch of these services in several markets last year. The Company expects revenues for next generation data services to continue to increase as we expand this offering into additional markets.

(b) Increases in special access were primarily attributable to the demand from wireless and other carriers.

Switched Access and USF Revenues

Switched access revenues include usage sensitive charges to long distance companies and other local exchange carriers for access to the Company's network in connection with the completion of interstate and intrastate long distance calls, as well as reciprocal compensation revenues received from wireless and other local connecting carriers for the use of our facilities. USF revenues include receipts from federal and state universal service funds that subsidize the cost of providing wireline services to high cost rural markets. The following table reflects the primary drivers of year-over-year changes in switched access and USF revenues:

Switched access and USF
                                                    Three Months Ended           Six Months Ended
                                                      June 30, 2009                June 30, 2009
                                                   Increase                     Increase
(Millions)                                        (Decrease)          %        (Decrease)         %
Due to decreases in switched access revenues
(a)                                               $     (12.3 )                $     (28.7 )
Due to decreases in federal USF surcharges (b)           (3.3 )                       (8.0 )
Due to decreases in federal USF support (c)              (5.6 )                       (5.6 )
Due to decreases in state universal service
support (d)                                              (3.0 )                       (6.1 )

(a) The decrease in switched access revenues is predominately due to the decline in minutes of use, which can be attributed to a decline in access lines and reduced long distance usage by our enterprise customers. A reduction in switched access rates implemented July 1, 2008, discussed further below, contributed $1.2 million and $2.6 million to the year-over-year decline in these revenues for the three and six month periods ending June 30, 2009, respectively.

(b) Decreases in the federal USF surcharge were primarily due to the elimination of contribution requirements for high-speed Internet services effective with the conversion to price-cap regulations on July 1, 2008, and changes in the USF surcharge rate, which resets quarterly. The surcharge rate was 9.5 percent and 11.3 percent during first and second quarters of 2009, respectively, as compared to 10.2 percent and 11.3 percent in the same periods of 2008. Both the rate reduction and the elimination of the surcharge on high-speed Internet services resulted in a proportionate reduction in USF contribution expense.

(c) The decrease in federal universal service support was due to the conversion to price-cap regulation as further discussed below. Additionally, the decrease in federal universal service support was attributable to the increase in recoverable costs in the three months ended June 30, 2008.

(d) The decrease in state universal service support revenues in both the three and six month periods were attributable to declines in recoverable costs and access line losses.

The conversion to price-cap regulation on July 1, 2008 resulted in the transition of support received under the interstate common line support ("ICLS") program to a fixed monthly dollar amount of support per access line. Historically that support was based largely on the recovery of costs and network investments. As a result of this change, future receipts from this program are expected to decline in proportion to future access line losses.

Also as a result of converting to price-cap regulation, the Company initiated a phased reduction of its interstate access rates to achieve an ultimate rate of $0.0065 per minute by 2012. On July 1, 2009, the Company implemented another phase of rate reductions bringing its current composite interstate access rate to $0.0090. As a result of this change, access revenues are expected to decline by approximately $4.7 million over the next twelve months. Smaller reductions will be required in subsequent years.

Miscellaneous Revenues

Miscellaneous revenues primarily consist of charges for service fees, rentals,
billing and collections services, and commissions earned from activations of
digital satellite television service. The following table reflects the primary
drivers of year-over-year changes in miscellaneous revenues:



Miscellaneous
                                                  Three Months Ended              Six Months Ended
                                                     June 30, 2009                 June 30, 2009
                                                 Increase                       Increase
(Millions)                                      (Decrease)           %         (Decrease)          %
. . .