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, which has subsequently merged with Verizon Communications Inc. ("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 September 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 the authoritative guidance for segment presentation, 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 II 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 provides phone, high-speed Internet and digital television services. The Company also offers a wide range of IP-based voice and data services and advanced phone systems and equipment to businesses and government agencies. The Company has approximately 2.9 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 third quarter of 2009:

• The Company added approximately 25,900 high-speed Internet services customers, increasing its high-speed Internet customer base to 1,050,500. Additionally, the Company lost approximately 26,800 access lines. Access lines declined 5.2 percent during the twelve months ended September 30, 2009.

• Revenues and sales decreased $59.8 million, as compared to the third quarter of 2008, primarily due to the decline in access lines, declines in product sales associated with the disposition of the out of territory product distribution operations during the third quarter of 2009, and general declines 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 $45.2 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 $740.0 million for the nine months ended September 30, 2009. Cash flows from operations were used to fund capital expenditures of $206.8 million, to pay $328.6 million in dividends to shareholders and to repay $150.0 million in debt outstanding under the revolving line of credit. Additionally, the Company repurchased 1.1 million of its common shares at a cost of $10.7 million during the third quarter of 2009. As of September 30, 2009, the Company had $156.2 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 September 30, 2009, all of the Company's access lines had wireless competition and approximately 63 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 September 30, 2008. Residential lines decreased 5.4 percent during the twelve months ended September 30, 2009, 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. During the same period, business lines decreased 4.9 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. Operating trends for access lines and high-speed Internet customers were favorably impacted during the third quarter of 2009 by the Company's latest bundle promotion, which offers a price for life guarantee and package discount on its local telephone, unlimited national calling and high-speed Internet bundle.

In addition, during the second quarter of 2009, we began offering bundle discounts to businesses that choose to bundle their voice, high-speed Internet 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.

• High-speed Internet: Growth in high-speed Internet sales, together with the continued migration to higher speeds, are expected to continue to offset some of the revenue declines from the unfavorable access line trends discussed above. During the nine months ended September 30, 2009, the Company added approximately 71,700 high-speed Internet customers. As of September 30, 2009, the Company had 1,050,500 high-speed Internet customers, which represents an approximate 9 percent increase from September 30, 2008. As of September 30, 2009, Windstream provided high-speed Internet service to 36 percent of total access lines in service, and 53 percent of primary residential access lines in service. As of September 30, 2009, approximately 75 percent of total access lines had high-speed Internet competition primarily from cable service providers, which is relatively unchanged from September 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.

• Business data and special access: Wireline revenues and sales are expected 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 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 work force reduction in the third quarter of 2009. In conjunction

• Pension expenses and funding: During the nine months ended September 30, 2009, the fair market value of Windstream's pension plan assets have increased 9.8 percent from approximately $654.0 million to $718.3 million. This increase is primarily attributable to a 20.5 percent, or $133.9 million, increase in the market value of assets held and contributions of $2.5 million, partially offset by routine benefit payments of $37.3 million, lump sum distributions of $32.1 million and administrative expenses. The Company does not expect to be required to make any further contributions in 2009 or 2010. In 2008, the fair market value of the Company's pension investments declined 34.7 percent 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 $70.0 million for the nine months ended September 30, 2009 as compared to the same period in 2008.

The amount and timing of future contributions will depend on various factors including the finalization of funding regulations, future investment performance, changes in future discount rates and changes in demographics of the population participating in the Company's qualified pension plan.

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 Transactions

On November 2, 2009, Windstream entered into a definitive agreement to acquire all of the issued and outstanding shares of common stock of NuVox, Inc. ("NuVox"), a privately held competitive local exchange carrier based in Greenville, South Carolina, in a transaction valued at approximately $643.0 million. Under the terms of the agreement, Windstream expects to issue approximately 18.7 million fixed shares of common stock valued at approximately $183.0 million and pay approximately $280.0 million in cash as part of the transaction. Windstream will assume estimated net debt of $180.0 million and intends to finance the acquisition with existing cash on hand and borrowings available under the Company's revolving line of credit. The acquisition will add approximately 90,000 business customers in complementary markets in 16 states across the southeast and midwest, significantly advancing Windstream's strategy to increase high-speed Internet and business revenues. The acquisition is expected to close in the first half of 2010, subject to certain conditions including the necessary approvals from federal and state regulators and NuVox shareholders.

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") in a transaction valued at approximately $350.0 million as of September 30, 2009. 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 September 30, 2009, D&E had outstanding approximately 14.4 million shares of common stock and approximately $180.8 million of long-term debt, including current maturities. Including the early extinguishment of debt, cash consideration to be paid at closing was estimated to be approximately $256.0 million as of September 30, 2009. The acquisition of D&E will significantly increase Windstream's presence in Pennsylvania. As of September 30, 2009, D&E had approximately 114,000 incumbent local exchange carrier access lines, 47,000 competitive local exchange carrier access lines and about 46,000 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 is expected to close on November 10, 2009.

On September 8, 2009 the Company entered into a definitive agreement to acquire Lexcom, Inc., ("Lexcom") based in Lexington, North Carolina, for approximately $141.0 million in cash, net of working capital to be acquired. The acquisition will increase Windstream's presence in North Carolina. As of September 30, 2009, Lexcom had approximately 23,000 ILEC access lines, 9,000 high-speed Internet customers and 12,000 cable television customers in North Carolina. In addition, we expect this acquisition to generate opportunities for operating efficiencies with contiguous Windstream markets. The acquisition has received Lexcom shareholder approval and is expected to close in the fourth quarter of 2009, subject to certain conditions including the necessary approvals from federal regulators.

Dispositions

On August 21, 2009, Windstream completed the sale of its out of territory product distribution operations to Walker and Associates of North Carolina, Inc. ("Walker") for approximately $5.3 million in total consideration. The out of territory product distribution operations primarily consisted of product inventory with a carrying value of $4.9 million and customer relationships outside of Windstream's telecommunications operating territories. These operations were not central to the Company's strategic goals in its core communications business. Product revenues from these operations totaled $8.2 million and $38.5 million during the three and nine month periods ended September 30, 2009, respectively, with related cost of products sold of $7.6 million and $34.3 million for the same periods in 2009. In conjunction with this transaction, Windstream recognized a gain of $0.4 million in other income, net in its consolidated statements of income for the three and nine month periods ended September 30, 2009.

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 September 30:



                                                  Three Months Ended               Nine Months Ended
                                                     September 30,                   September 30,
(Millions)                                          2009            2008            2009            2008
Revenues and sales:
Voice service                                  $   274.5       $   295.6       $   843.6       $   902.5
Long distance                                       63.5            66.7           192.1           201.1
Data and special access                            203.4           192.5           609.1           568.7
Switched access and USF                            130.4           147.7           392.2           457.9
Miscellaneous                                       33.1            39.4           103.2           124.5
Product sales                                       29.4            52.2           102.0           139.3

Total revenues and sales                           734.3           794.1         2,242.2         2,394.0
Costs and expenses:
Cost of services (exclusive of depreciation
included below)                                    253.0           255.9           753.9           760.2
Cost of products sold                               26.0            49.5            89.9           128.0
Selling, general, administrative and other          87.6            93.3           267.0           273.0
Depreciation and amortization                      133.8           123.8           399.1           368.7
Restructuring charges                                7.5             1.0             7.5             2.1
Merger and integration costs                         1.0              -              2.4             6.2

Total costs and expenses                           508.9           523.5         1,519.8         1,538.2
Operating income                                   225.4           270.6           722.4           855.8

Other income, net                                   (2.2 )           0.5            (0.8 )           9.1
Interest expense                                   (97.5 )        (103.3 )        (295.0 )        (311.9 )


Income from continuing operations before
income taxes                                       125.7           167.8           426.6           553.0
Income taxes                                        45.7            63.5           167.6           208.9


Income from continuing operations                   80.0           104.3           259.0           344.1
Discontinued operations, net of tax                   -              1.6              -            (12.5 )


Net income                                     $    80.0       $   105.9       $   259.0       $   331.6
Basic and diluted earnings per share:
Income from continuing operations                   $.18            $.24            $.59            $.77
Income from discontinued operations                   -               -               -             (.03 )

Net income                                          $.18            $.24            $.59            $.74

(Access lines and customers in thousands)
Access lines in service (excludes
high-speed Internet lines):
Residential                                      1,919.2         2,028.1
Business                                           875.5           921.0
Wholesale (a)                                       17.1            21.3
Special circuits                                   114.1           115.8

Total access lines in service                    2,925.9         3,086.2

Average access lines in service                  2,937.4         3,105.8         2,975.4         3,143.0
Average service revenue per customer per
month (b)                                         $79.99          $79.63          $79.92          $79.71
High-speed Internet customers                    1,050.5           962.7
Digital satellite television customers             322.7           251.7
Long distance customers                          1,918.7         2,039.0

(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.



                                                 Three Months Ended              Nine Months Ended
                                                 September 30, 2009              September 30, 2009
                                                Increase                        Increase
(Millions)                                     (Decrease)           %          (Decrease)           %
Due to decreases in ala carte calling
features (a)                                  $        (5.5 )                 $       (16.2 )
Due to access line losses and other                   (15.6 )                         (42.7 )
Total voice revenues                          $       (21.1 )       (7 )%     $       (58.9 )       (7 )%

(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.

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:



                                                 Three Months Ended               Nine Months Ended
                                                 September 30, 2009               September 30, 2009
                                                 Increase                        Increase
(Millions)                                      (Decrease)           %          (Decrease)           %
Due to increases in packaged plans (a)        $          4.2                   $        14.4
Due to decreases in one plus calling and
other (b)                                               (7.4 )                         (23.4 )
Total long distance                           $         (3.2 )       (5 )%     $        (9.0 )       (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 September 30, 2009, 40 percent of our long distance customers selected packaged plan options, which represents an increase in packaged plans of approximately 3 percent from September 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 have migrated 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:

                                                   Three Months Ended           Nine Months Ended
                                                   September 30, 2009          September 30, 2009
                                                  Increase                       Increase
(Millions)                                       (Decrease)          %          (Decrease)        %
Due to increases in high-speed Internet
customers, as previously discussed               $      10.2                  $          33.7
Due to increases in next generation data
services                                                 1.9                              6.5
Due to changes in special access and other              (1.2 )                            0.2
Total data and special access                    $      10.9          6 %     $          40.4     7 %

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.

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:

                                                    Three Months Ended           Nine Months Ended
                                                    September 30, 2009           September 30, 2009
                                                   Increase                     Increase
(Millions)                                        (Decrease)          %        (Decrease)          %
Due to decreases in switched access revenues
(a)                                               $     (11.2 )                $     (39.9 )
Due to decreases in state universal service
support (b)                                              (2.9 )                       (9.0 )
Due to decreases in federal USF support (c)              (3.1 )                       (8.7 )
Due to decreases in federal USF surcharges (d)           (0.1 )                       (8.1 )
Total switched access and USF                     $     (17.3 )      (12 )%    $     (65.7 )      (14 )%

. . .