UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q



x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September~~March 3031, ~~2014~~2017



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Exact name of registrantas specified in its charter	State or other jurisdiction of incorporation or organization	CommissionFile Number	I.R.S. Employer Identification No.
Windstream Holdings, Inc.	Delaware	001-32422	46-2847717
Windstream Corporation	Delaware	001-36093	20-0792300
Windstream Services, LLC	Delaware	001-36093	20-0792300




4001 Rodney Parham Road
Little Rock, Arkansas			72212
(Address of principal executive offices)			(Zip Code)

		(501) 748-7000
	(Registrants’ telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Windstream Holdings, Inc. ý YES ¨ NO Windstream ~~Corporation~~Services, LLC ý YES ¨ NO

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Windstream Holdings, Inc. ý YES ¨ NO Windstream ~~Corporation~~Services, LLC ý YES ¨ NO

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or aan ~~smaller~~emerging ~~reporting~~growth company. See ~~definition~~the definitions of “large accelerated filer”, “accelerated filer”, ~~and “~~smaller reporting company”, and emerging growth company in Rule 12b-2 of the Exchange Act~~. (Check one)~~:

Windstream Holdings, Inc. Large accelerated filer ý Accelerated filer ¨ Non-accelerated filer ¨ (Do not check if a smaller reporting company) Smaller reporting company ¨ Emerging growth company ¨ Windstream ~~Corporation~~Services, LLC Large accelerated filer ý¨ Accelerated filer ¨ Non-accelerated filer ¨ý (Do not check if a smaller reporting company) Smaller reporting company ¨ Emerging growth company ¨

~~Windstream~~If ~~Holdings~~an emerging growth company, ~~Inc.~~indicate ¨by ~~YES~~check ýmark NOif ~~Windstream~~the ~~Corporation~~registrant ¨has ~~YES~~elected ýnot NOto use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

~~As of October 31, 2014, 602,763,234 shares of common stock of~~ Windstream Holdings, Inc. ~~and~~¨ ~~1,000~~YES ~~shares~~¨ ofNO ~~common stock of~~ Windstream ~~Corporation were outstanding. All of Windstream Corporation’s outstanding common stock~~Services, ~~for~~LLC ~~which~~¨ ~~there~~YES is¨ ~~no trading market, is held by Windstream Holdings, Inc.~~NO

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).

~~This Form 10-Q is a combined quarterly report being filed separately by two registrants:~~ Windstream Holdings, Inc. ~~and~~¨ ~~Windstream~~YES ~~Corporation.~~ý ~~Windstream~~NO ~~Corporation is a direct, wholly-owned subsidiary of~~ Windstream ~~Holdings~~Services, ~~Inc.~~LLC ~~Accordingly,~~¨ ~~Windstream~~YES ~~Corporation~~ý meets the conditions set forth in general instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this form with the reduced disclosure format. Unless the context indicates otherwise, the use of the terms “Windstream,” “we,” “us” or “our” shall refer to Windstream Holdings, Inc. and its subsidiaries, including Windstream Corporation, and the term “Windstream Corp.” shall refer to Windstream Corporation and its subsidiaries.NO

~~The~~As ~~Exhibit~~of ~~Index~~May is4, ~~located~~2017, on190,494,304 ~~page~~shares 74of common stock of Windstream Holdings, Inc.were outstanding. Windstream Holdings, Inc. holds a 100 percent interest in Windstream Services, LLC.

This Form 10-Q is a combined quarterly report being filed separately by two registrants: Windstream Holdings, Inc. and Windstream Services, LLC. Windstream Services, LLC is a direct, wholly-owned subsidiary of Windstream Holdings, Inc. Accordingly, Windstream Services, LLC meets the conditions set forth in general instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this form with the reduced disclosure format. Unless the context indicates otherwise, the use of the terms “Windstream,” “we,” “us” or “our” shall refer to Windstream Holdings, Inc. and its subsidiaries, including Windstream Services, LLC, and the term “Windstream Services” shall refer to Windstream Services, LLC and its subsidiaries.



The Exhibit Index is located on page 81.

Table of Contents

WINDSTREAM HOLDINGS, INC.

WINDSTREAM ~~CORPORATION~~SERVICES, LLC

FORM 10-Q

TABLE OF CONTENTS

		Page No.
PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements
	Windstream Holdings, Inc. Consolidated Financial Statements
	Consolidated Statements of Income (Unaudited)	2
	Consolidated Statements of Operations (Unaudited)	2
	Consolidated Statements of Comprehensive Income (Unaudited)	3
	Consolidated Statements of Comprehensive Income (Loss) (Unaudited)	3
	Consolidated Balance Sheets (Unaudited)	4
	Consolidated Statements of Cash Flows (Unaudited)	5
	Consolidated Statements of Shareholders' Equity (Unaudited)	6
	Consolidated Statement of Shareholders' Equity (Unaudited)	6
	Windstream Corporation Consolidated Financial Statements
	Windstream Services, LLC Consolidated Financial Statements
	Consolidated Statements of Income (Unaudited)	7
	Consolidated Statements of Operations (Unaudited)	7
	Consolidated Statements of Comprehensive Income (Unaudited)	8
	Consolidated Statements of Comprehensive Income (Loss) (Unaudited)	8
	Consolidated Balance Sheets (Unaudited)	9
	Consolidated Statements of Cash Flows (Unaudited)	10
	Consolidated Statements of Shareholders’ Equity (Unaudited)	11
	Consolidated Statement of Member Equity (Unaudited)	11
	Notes to Unaudited Interim Consolidated Financial Statements	12
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4645
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	7075
Item 4.	Controls and Procedures	7176
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	7278
Item 1A.	Risk Factors	7278
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	*
Item 3.	Defaults Upon Senior Securities	*
Item 4.	Mine Safety Disclosures	*
Item 5.	Other Information	*79
Item 6.	Exhibits	7279

_____________


*	No reportable information under this item.

Table of Contents

WINDSTREAM HOLDINGS, INC.

WINDSTREAM ~~CORPORATION~~SERVICES, LLC

FORM 10-Q

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

WINDSTREAM HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF ~~INCOME~~OPERATIONS (UNAUDITED)

	Three Months EndedSeptember 30,								Nine Months EndedSeptember 30,
		Three Months EndedMarch 31,
(Millions, except per share amounts)	~~2014~~	2017			~~2013~~	2016			~~2014~~			~~2013~~
Revenues and sales:
Service revenues:
Service revenues		$	1,344.4			$	1,340.6
Business	$	902.4			$	917.6			$	2,716.2		$	2,747.7
Product sales		21.3				32.8
Consumer	321.3				322.3				951.1			975.0
Total revenues and sales		1,365.7				1,373.4
Wholesale	131.5				147.8				414.2			450.4
Costs and expenses:
Other	54.4				55.1				165.5			166.4
Cost of services (exclusive of depreciation and amortization included below)		682.4				668.8
Total service revenues	1,409.6				1,442.8				4,247.0			4,339.5
Cost of products sold		20.8				28.9
Product sales	45.9				55.7				139.4			157.2
Selling, general and administrative		213.3				203.8
Total revenues and sales	1,455.5				1,498.5				4,386.4			4,496.7
Depreciation and amortization		338.5				304.8
Costs and expenses:
Merger, integration and other costs		57.3				5.0
Cost of services (exclusive of depreciation and amortization included below)	670.9				644.8				1,967.8			1,932.6
Restructuring charges		7.4				4.4
Cost of products sold	39.0				46.2				120.1			138.2
Total costs and expenses		1,319.7				1,215.7
Selling, general and administrative	231.9				243.1				734.7			717.6
Operating income		46.0				157.7
Depreciation and amortization	348.5				338.2				1,031.4			999.7
Dividend income on Uniti common stock		—				17.6
Merger and integration costs	10.0				5.8				26.0			17.8
Other income (expense), net		0.7				(1.2		)
Restructuring charges	3.6				0.8				19.8			8.3
Net loss on early extinguishment of debt		(3.2		)		(35.4		)
Total costs and expenses	1,303.9				1,278.9				3,899.8			3,814.2
Other-than-temporary impairment loss on investment in Uniti common stock		—				(181.9		)
Operating income	151.6				219.6				486.6			682.5
Interest expense		(211.8		)		(219.7		)
Other (expense) income, net	(0.1		)		(5.6		)		0.1			(5.0		)
Loss before income taxes		(168.3		)		(262.9		)
Loss on early extinguishment of debt	—				(14.7		)		—			(28.5		)
Income tax benefit		(57.0		)		(31.0		)
Interest expense	(143.4		)		(148.8		)		(427.8		)	(479.7		)
Net loss		$	(111.3	)		$	(231.9	)
Income from continuing operations before income taxes	8.1				50.5				58.9			169.3
Basic and diluted loss per share:
Income taxes	0.1				19.9				20.9			47.4
Net loss			($.89	)			($2.52	)
Income from continuing operations	8.0				30.6				38.0			121.9
Discontinued operations	—				—				—			0.7
Net income	$	8.0			$	30.6			$	38.0		$	122.6
Basic and diluted earnings per share:
From continuing operations		$.01				$.05				$.06			$.20
From discontinued operations	—				—				—			—
Net income		$.01				$.05				$.06			$.20

See the accompanying notes to the unaudited interim consolidated financial statements.

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WINDSTREAM HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

	Three Months EndedSeptember 30,								Nine Months EndedSeptember 30,
		Three Months EndedMarch 31,
(Millions)	~~2014~~	2017			~~2013~~	2016			~~2014~~			~~2013~~
Net income	$	8.0			$	30.6			$	38.0		$	122.6
Net loss		$	(111.3	)		$	(231.9	)
Other comprehensive income (loss):
Interest rate swaps:
Available-for-sale securities:
Changes in designated interest rate swaps	6.3				(6.9		)		(13.6		)	21.6
Unrealized holding gain arising during the period		—				104.6
Amortization of unrealized losses on de-designated interest rate swaps	3.9				6.0				12.2			31.6
Other-than-temporary impairment loss recognized in the period		—				181.9
Income tax (expense) benefit	(3.9		)		0.4				0.5			(20.3		)
Change in available-for-sale securities		—				286.5
Unrealized holding gain (loss) on interest rate swaps	6.3				(0.5		)		(0.9		)	32.9
Interest rate swaps:
Postretirement and pension plans:
Unrealized gain (loss) on designated interest rate swaps		3.4				(8.3		)
Change in net actuarial gain for postretirement plan	0.4				—				3.3			4.2
Amortization of net unrealized losses on de-designated interest rate swaps		1.5				1.2
Plan curtailment	—				(6.5		)		(9.5		)	(31.8		)
Income tax (expense) benefit		(1.9		)		2.7
Amounts included in net periodic benefit cost:
Change in interest rate swaps		3.0				(4.4		)
Amortization of net actuarial loss	0.1				0.5				0.1			1.3
Postretirement and pension plans:
Amortization of prior service credits	(1.6		)		(2.2		)		(4.4		)	(7.0		)
Plan curtailment		—				(5.5		)
Income tax benefit	0.4				3.2				4.0			13.0
Amounts included in net periodic benefit cost:
Change in postretirement and pension plans	(0.7		)		(5.0		)		(6.5		)	(20.3		)
Amortization of net actuarial loss		—				0.1
Other comprehensive income (loss)	5.6				(5.5		)		(7.4		)	12.6
Amortization of prior service credits		(0.2		)		(0.5		)
Comprehensive income	$	13.6			$	25.1			$	30.6		$	135.2
Income tax benefit		0.1				2.3
Change in postretirement and pension plans		(0.1		)		(3.6		)
Other comprehensive income		2.9				278.5
Comprehensive (loss) income		$	(108.4	)		$	46.6

See the accompanying notes to the unaudited interim consolidated financial statements.

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WINDSTREAM HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(Millions, except par value)	~~September~~March 3031, ~~2014~~2017			December 31, ~~2013~~2016
Assets
Current Assets:
Cash and cash equivalents	$	~~103~~51.75		$	4859.21
Restricted cash	7.7			9.7
Accounts receivable (less allowance for doubtful
accounts of $40.2 and $40.0, respectively)	617.3			635.3
accounts of $23.7 and $27.1, respectively)	654.8			618.6
Inventories	6887.10			6777.75
Deferred income taxes	69.5			241.5
Prepaid expenses and other	169.8			111.7
Prepaid income taxes	21.0			29.7
Total current assets	963.1			866.9
Prepaid expenses and other	140.8			152.7
Goodwill	4,690.2			4,213.6
Total current assets	1,028.1			1,184.8
Other intangibles, net	1,577.7			1,320.5
Goodwill	4,331.4			4,331.4
Net property, plant and equipment	5,575.6			5,283.5
Other intangibles, net	1,825.7			2,020.1
Other assets	97.6			85.5
Net property, plant and equipment	5,456.3			5,702.6
Total Assets	$	12,904.2		$	11,770.0
Other assets	190.1			205.7
Total Assets	$	12,831.6		$	13,444.6
Liabilities and Shareholders’ Equity
Current Liabilities:
Current maturities of long-term debt	$	9219.53		$	8514.09
Current portion of interest rate swaps	29.4			30.0
Current portion of long-term lease obligations	172.9			168.7
Accounts payable	~~356~~335.58			~~385~~390.92
Advance payments and customer deposits	~~216~~215.71			~~223~~178.51
Accrued dividends	152.7			151.1
Accrued taxes	80.9			78.0
Accrued taxes	97.6			104.2
Accrued interest	96.0			58.1
Accrued interest	169.8			103.5
Other current liabilities	381.0			366.6
Other current liabilities	288.7			362.4
Total current liabilities	1,301.0			1,254.6
Total current liabilities	1,403.9			1,445.6
Long-term debt	5,459.8			4,848.7
Long-term debt	8,568.6			8,622.2
Long-term lease obligations	4,787.1			4,831.9
Deferred income taxes	~~1,872~~98.52			~~2,038~~151.35
Other liabilities	~~527~~535.7			~~498~~513.3
Total liabilities	12,~~372~~181.78			1211,~~604~~600.40
Commitments and Contingencies (See Note 6)
Commitments and Contingencies (See Note 15)
Shareholders’ Equity:
Common stock, $0.0001 par value, 1,000.0 shares authorized,
Common stock, $.0001 par value, 375.0 shares authorized,
602.6 and 596.2 shares issued and outstanding, respectively	0.1			0.1
190.4 and 96.3 shares issued and outstanding, respectively	—			—
Additional paid-in capital	~~437~~1,220.75			~~811~~559.67
Accumulated other comprehensive income	218.18			~~28.~~5.9
Retained earnings	—			—
Accumulated deficit	(506.9		)	(395.6		)
Total shareholders’ equity	~~458~~722.94			~~840~~170.20
Total Liabilities and Shareholders’ Equity	$	12,~~831~~904.62		$	1311,~~444~~770.60

See the accompanying notes to the unaudited interim consolidated financial statements.

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WINDSTREAM HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)



	Three Months Ended March 31,
(Millions)	2017			2016
Cash Flows from Operating Activities:
Net loss	$	(111.3	)	$	(231.9	)
Adjustments to reconcile net loss to net cash provided from operations:
Depreciation and amortization	338.5			304.8
Provision for doubtful accounts	9.6			9.7
Share-based compensation expense	16.8			13.7
Deferred income taxes	(55.2		)	(27.5		)
Noncash portion of net loss on early extinguishment of debt	(15.1		)	(7.4		)
Other-than-temporary impairment loss on investment in Uniti common stock	—			181.9
Amortization of unrealized losses on de-designated interest rate swaps	1.5			1.2
Plan curtailment	—			(5.5		)
Other, net	0.7			(15.3		)
Changes in operating assets and liabilities, net
Accounts receivable	33.8			(2.0		)
Prepaid income taxes	(5.6		)	(5.8		)
Prepaid expenses and other	(30.5		)	(6.0		)
Accounts payable	(61.5		)	(100.2		)
Accrued interest	29.9			39.8
Accrued taxes	(2.3		)	(12.5		)
Other current liabilities	(5.3		)	4.2
Other liabilities	2.4			(10.0		)
Other, net	(13.9		)	(4.0		)
Net cash provided from operating activities	132.5			127.2
Cash Flows from Investing Activities:
Additions to property, plant and equipment	(243.4		)	(263.8		)
Proceeds from the sale of property	—			6.2
Cash acquired from EarthLink	5.0			—
Other, net	(2.5		)	—
Net cash used in investing activities	(240.9		)	(257.6		)
Cash Flows from Financing Activities:
Dividends paid to shareholders	(23.7		)	(14.9		)
Proceeds from issuance of stock	9.6			—
Repayments of debt and swaps	(1,133.4		)	(985.3		)
Proceeds of debt issuance	1,315.6			1,278.0
Debt issuance costs	(7.0		)	(10.7		)
Stock repurchases	—			(28.9		)
Payments under long-term lease obligations	(40.6		)	(36.8		)
Payments under capital lease obligations	(8.7		)	(19.8		)
Other, net	(11.0		)	(7.9		)
Net cash provided from financing activities	100.8			173.7
(Decrease) increase in cash and cash equivalents	(7.6		)	43.3
Cash and Cash Equivalents:
Beginning of period	59.1			31.3
End of period	$	51.5		$	74.6
Supplemental Cash Flow Disclosures:
Interest paid, net of interest capitalized	$	168.9		$	178.6
Income taxes (refunded) paid, net	$	(0.2	)	$	6.5

	Nine Months EndedSeptember 30,
(Millions)	2014			2013
Cash Provided from Operations:
Net income	$	38.0		$	122.6
Adjustments to reconcile net income to net cash provided from operations:
Depreciation and amortization	1,031.4			1,000.3
Provision for doubtful accounts	38.8			49.8
Share-based compensation expense	38.3			34.0
Deferred income taxes	10.8			59.6
Unamortized net premium on retired debt	—			(38.1		)
Amortization of unrealized losses on de-designated interest rate swaps	12.2			31.6
Plan curtailment and other, net	11.5			(18.5		)
Changes in operating assets and liabilities, net
Accounts receivable	(20.8		)	(70.5		)
Prepaid income taxes	8.7			4.3
Prepaid expenses and other	(4.1		)	(23.7		)
Accounts payable	(49.2		)	25.8
Accrued interest	64.8			39.5
Accrued taxes	(6.6		)	—
Other current liabilities	(0.8		)	(47.0		)
Other liabilities	(38.3		)	(16.4		)
Other, net	(22.1		)	7.4
Net cash provided from operations	1,112.6			1,160.7
Cash Flows from Investing Activities:
Additions to property, plant and equipment	(552.7		)	(666.0		)
Broadband network expansion funded by stimulus grants	(11.6		)	(28.8		)
Changes in restricted cash	2.0			13.0
Grant funds received for broadband stimulus projects	25.8			53.5
Grant funds received from Connect America Fund	26.0			—
Network expansion funded by Connect America Fund	(2.0		)	—
Net cash used in investing activities	(512.5		)	(628.3		)
Cash Flows from Financing Activities:
Dividends paid to shareholders	(451.6		)	(444.6		)
Repayments of debt and swaps	(1,049.0		)	(4,093.2		)
Proceeds of debt issuance	985.0			3,997.5
Debt issuance costs	—			(29.7		)
Payments under capital lease obligations	(19.8		)	(13.8		)
Other, net	(9.2		)	(7.2		)
Net cash used in financing activities	(544.6		)	(591.0		)
Increase (decrease) in cash and cash equivalents	55.5			(58.6		)
Cash and Cash Equivalents:
Beginning of period	48.2			132.0
End of period	$	103.7		$	73.4
Supplemental Cash Flow Disclosures:
Interest paid	$	358.3		$	417.4
Income taxes paid, net	$	4.0		$	4.4

See the accompanying notes to the unaudited interim consolidated financial statements.

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WINDSTREAM HOLDINGS, INC.

CONSOLIDATED ~~STATEMENTS~~STATEMENT OF SHAREHOLDERS’ EQUITY (UNAUDITED)

(Millions, except per share amounts)	Common Stockand AdditionalPaid-InCapital			AccumulatedOtherComprehensiveIncome			~~RetainedEarnings~~Accumulated Deficit			Total
Balance at December 31, 2013	$	811.7		$	28.5		$	—		$	840.2
Balance at December 31, 2016	$	559.7		$	5.9		$	(395.6	)	$	170.0
Net income	—			—			38.0			38.0
Net loss	—			—			(111.3		)	(111.3		)
Other comprehensive (loss) income, net of tax:
Other comprehensive income (loss), net of tax:
Change in postretirement and pension plans	—			(60.51		)	—			(60.51		)
Amortization of unrealized losses on de-designated interest rate swaps	—			70.59			—			70.59
Changes in designated interest rate swaps	—			(8.4		)	—			(8.4		)
Change in designated interest rate swaps	—			2.1			—			2.1
Comprehensive (loss) income	—			(7.4		)	38.0			30.6
Comprehensive income (loss)	—			2.9			(111.3		)	(108.4		)
Share-based compensation expense (See Note 8)	19.9			—			—			19.9
Share-based compensation	10.7			—			—			10.7
Stock options exercised	1.4			—			—			1.4
Stock issued for pension contribution (See Note 7)	9.6			—			—			9.6
Stock issued for management incentive compensation plans	0.8			—			—			0.8
Stock issued to employee savings plan (See Note 7)	22.7			—			—			22.7
Stock issued to employee savings plan (See Note 7)	21.6			—			—			21.6
Stock issued in merger with EarthLink (See Note 2)	646.9			—			—			646.9
Stock issued to qualified pension plan (See Note 7)	8.3			—			—			8.3
Taxes withheld on vested restricted stock and other	(8.8		)	—			—			(8.8		)
Taxes withheld on vested restricted stock and other	(11.1		)	—			—			(11.1		)
Dividends of $.15 per share declared to shareholders	(20.3		)	—			—			(20.3		)
Dividends of $0.75 per share declared to shareholders	(414.8		)	—			(38.0		)	(452.8		)
Balance at March 31, 2017	$	1,220.5		$	8.8		$	(506.9	)	$	722.4
Balance at September 30, 2014	$	437.8		$	21.1		$	—		$	458.9

See the accompanying notes to the unaudited interim consolidated financial statements.

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WINDSTREAM ~~CORPORATION~~SERVICES, LLC

CONSOLIDATED STATEMENTS OF ~~INCOME~~OPERATIONS (UNAUDITED)

	Three Months EndedSeptember 30,								Nine Months EndedSeptember 30,
		Three Months EndedMarch 31,
(Millions)	~~2014~~	2017			~~2013~~	2016			~~2014~~			~~2013~~
Revenues and sales:
Service revenues:
Service revenues		$	1,344.4			$	1,340.6
Business	$	902.4			$	917.6			$	2,716.2		$	2,747.7
Product sales		21.3				32.8
Consumer	321.3				322.3				951.1			975.0
Total revenues and sales		1,365.7				1,373.4
Wholesale	131.5				147.8				414.2			450.4
Costs and expenses:
Other	54.4				55.1				165.5			166.4
Cost of services (exclusive of depreciation and amortization included below)		682.4				668.8
Total service revenues	1,409.6				1,442.8				4,247.0			4,339.5
Cost of products sold		20.8				28.9
Product sales	45.9				55.7				139.4			157.2
Selling, general and administrative		213.0				203.3
Total revenues and sales	1,455.5				1,498.5				4,386.4			4,496.7
Depreciation and amortization		338.5				304.8
Costs and expenses:
Merger, integration and other costs		57.3				5.0
Cost of services (exclusive of depreciation and amortization included below)	670.9				644.8				1,967.8			1,932.6
Restructuring charges		7.4				4.4
Cost of products sold	39.0				46.2				120.1			138.2
Total costs and expenses		1,319.4				1,215.2
Selling, general and administrative	231.5				243.1				732.7			717.6
Operating income		46.3				158.2
Depreciation and amortization	348.5				338.2				1,031.4			999.7
Dividend income on Uniti common stock		—				17.6
Merger and integration costs	10.0				5.8				26.0			17.8
Other income (expense), net		0.7				(1.2		)
Restructuring charges	3.6				0.8				19.8			8.3
Net loss on early extinguishment of debt		(3.2		)		(35.4		)
Total costs and expenses	1,303.5				1,278.9				3,897.8			3,814.2
Other-than-temporary impairment loss on investment in Uniti common stock		—				(181.9		)
Operating income	152.0				219.6				488.6			682.5
Interest expense		(211.8		)		(219.7		)
Other (expense) income, net	(0.1		)		(5.6		)		0.1			(5.0		)
Loss before income taxes		(168.0		)		(262.4		)
Loss on early extinguishment of debt	—				(14.7		)		—			(28.5		)
Income tax benefit		(56.9		)		(30.8		)
Interest expense	(143.4		)		(148.8		)		(427.8		)	(479.7		)
Net loss		$	(111.1	)		$	(231.6	)
Income from continuing operations before income taxes	8.5				50.5				60.9			169.3
Income taxes	0.3				19.9				21.7			47.4
Income from continuing operations	8.2				30.6				39.2			121.9
Discontinued operations	—				—				—			0.7
Net income	$	8.2			$	30.6			$	39.2		$	122.6

See the accompanying notes to the unaudited interim consolidated financial statements.

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WINDSTREAM ~~CORPORATION~~SERVICES, LLC

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

	Three Months EndedSeptember 30,								Nine Months EndedSeptember 30,
		Three Months EndedMarch 31,
(Millions)	~~2014~~	2017			~~2013~~	2016			~~2014~~			~~2013~~
Net income	$	8.2			$	30.6			$	39.2		$	122.6
Net loss		$	(111.1	)		$	(231.6	)
Other comprehensive income (loss):
Interest rate swaps:
Available-for-sale securities:
Changes in designated interest rate swaps	6.3				(6.9		)		(13.6		)	21.6
Unrealized holding gain arising during the period		—				104.6
Amortization of unrealized losses on de-designated interest rate swaps	3.9				6.0				12.2			31.6
Other-than-temporary impairment loss recognized in the period		—				181.9
Income tax (expense) benefit	(3.9		)		0.4				0.5			(20.3		)
Change in available-for-sale securities		—				286.5
Unrealized holding gain (loss) on interest rate swaps	6.3				(0.5		)		(0.9		)	32.9
Interest rate swaps:
Postretirement and pension plans:
Unrealized gain (loss) on designated interest rate swaps		3.4				(8.3		)
Change in net actuarial gain for postretirement plan	0.4				—				3.3			4.2
Amortization of net unrealized losses on de-designated interest rate swaps		1.5				1.2
Plan curtailment	—				(6.5		)		(9.5		)	(31.8		)
Income tax (expense) benefit		(1.9		)		2.7
Amounts included in net periodic benefit cost:
Change in interest rate swaps		3.0				(4.4		)
Amortization of net actuarial loss	0.1				0.5				0.1			1.3
Postretirement and pension plans:
Amortization of prior service credits	(1.6		)		(2.2		)		(4.4		)	(7.0		)
Plan curtailment		—				(5.5		)
Income tax benefit	0.4				3.2				4.0			13.0
Amounts included in net periodic benefit cost:
Change in postretirement and pension plans	(0.7		)		(5.0		)		(6.5		)	(20.3		)
Amortization of net actuarial loss		—				0.1
Other comprehensive income (loss)	5.6				(5.5		)		(7.4		)	12.6
Amortization of prior service credits		(0.2		)		(0.5		)
Comprehensive income	$	13.8			$	25.1			$	31.8		$	135.2
Income tax benefit		0.1				2.3
Change in postretirement and pension plans		(0.1		)		(3.6		)
Other comprehensive income		2.9				278.5
Comprehensive (loss) income		$	(108.2	)		$	46.9

See the accompanying notes to the unaudited interim consolidated financial statements.

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WINDSTREAM ~~CORPORATION~~SERVICES, LLC

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(Millions, except number of shares)	September 30, 2014			December 31, 2013
(Millions)	March 31, 2017			December 31, 2016
Assets
Current Assets:
Cash and cash equivalents	$	~~103~~51.75		$	4859.21
Restricted cash	7.7			9.7
Accounts receivable (less allowance for doubtful
accounts of $40.2 and $40.0, respectively)	617.3			635.3
accounts of $23.7 and $27.1, respectively)	654.8			618.6
Inventories	6887.10			6777.75
Deferred income taxes	69.5			241.5
Prepaid expenses and other	169.8			111.7
Prepaid income taxes	21.0			29.7
Total current assets	963.1			866.9
Prepaid expenses and other	140.8			152.7
Goodwill	4,690.2			4,213.6
Total current assets	1,028.1			1,184.8
Other intangibles, net	1,577.7			1,320.5
Goodwill	4,331.4			4,331.4
Net property, plant and equipment	5,575.6			5,283.5
Other intangibles, net	1,825.7			2,020.1
Other assets	97.6			85.5
Net property, plant and equipment	5,456.3			5,702.6
Total Assets	$	12,904.2		$	11,770.0
Other assets	190.1			205.7
Liabilities and Member Equity
Total Assets	$	12,831.6		$	13,444.6
Liabilities and Shareholders’ Equity
Current Liabilities:
Current maturities of long-term debt	$	9219.53		$	8514.09
Current portion of interest rate swaps	29.4			30.0
Current portion of long-term lease obligations	172.9			168.7
Accounts payable	~~356~~335.58			~~385~~390.92
Advance payments and customer deposits	~~216~~215.71			~~223~~178.51
Payable to Windstream Holdings, Inc.	~~152~~11.73			~~150~~15.70
Accrued taxes	9780.69			~~104~~78.30
Accrued interest	~~169~~96.80			~~103~~58.51
Other current liabilities	~~288~~369.7			~~362~~351.46
Total current liabilities	1,~~403~~301.90			1,~~445~~254.36
Long-term debt	85,~~568~~459.68			84,~~622~~848.27
Deferred income taxes	1,872.5			2,038.3
Long-term lease obligations	4,787.1			4,831.9
Other liabilities	527.7			498.3
Deferred income taxes	98.2			151.5
Total liabilities	12,372.7			12,604.1
Other liabilities	535.7			513.3
Commitments and Contingencies (See Note 6)
Total liabilities	12,181.8			11,600.0
Shareholders’ Equity:
Commitments and Contingencies (See Note 15)
Common stock, 1,000 shares issued and outstanding (See Note 1)	—			—
Member Equity:
Additional paid-in capital	~~437~~1,216.87			~~812~~556.01
Accumulated other comprehensive income	218.18			~~28.~~5.9
Retained earnings	—			—
Accumulated deficit	(503.1		)	(392.0		)
Total shareholders’ equity	458.9			840.5
Total member equity	722.4			170.0
Total Liabilities and Shareholders’ Equity	$	12,831.6		$	13,444.6
Total Liabilities and Member Equity	$	12,904.2		$	11,770.0

See the accompanying notes to the unaudited interim consolidated financial statements.

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WINDSTREAM ~~CORPORATION~~SERVICES, LLC

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	Nine Months EndedSeptember 30,
	Three Months EndedMarch 31,
(Millions)	~~2014~~2017			~~2013~~2016
Cash Provided from Operations:
Cash Flows from Operating Activities:
Net income	$	39.2		$	122.6
Net loss	$	(111.1	)	$	(231.6	)
Adjustments to reconcile net income to net cash provided from operations:
Adjustments to reconcile net loss to net cash provided from operations:
Depreciation and amortization	~~1,031~~338.45			~~1,000~~304.38
Provision for doubtful accounts	389.86			499.87
Share-based compensation expense	3816.38			3413.07
Deferred income taxes	10(55.82		)	59(27.65		)
Unamortized net premium on retired debt	—			(38.1		)
Noncash portion of net loss on early extinguishment of debt	(15.1		)	(7.4		)
Amortization of unrealized losses on de-designated interest rate swaps	12.2			31.6
Other-than-temporary impairment loss on investment in Uniti common stock	—			181.9
Plan curtailment and other, net	11.5			(18.5		)
Amortization of unrealized losses on de-designated interest rate swaps	1.5			1.2
Plan curtailment	—			(5.5		)
Other, net	0.7			(15.3		)
Changes in operating assets and liabilities, net
Accounts receivable	~~(20~~33.8		)	(702.50		)
Prepaid income taxes	8(5.76		)	4(5.38		)
Prepaid expenses and other	(430.15		)	(236.70		)
Accounts payable	(4961.25		)	25(100.82		)
Accrued interest	6429.89			39.58
Accrued taxes	(62.73		)	—(12.5		)
Other current liabilities	(06.81		)	~~(47~~4.02		)
Other liabilities	~~(38~~2.34		)	(1610.40		)
Other, net	(2213.19		)	7.(4.0		)
Net cash provided from operations	1,113.7			1,160.7
Net cash provided from operating activities	131.9			127.5
Cash Flows from Investing Activities:
Additions to property, plant and equipment	(~~552~~243.74		)	(~~666~~263.08		)
Broadband network expansion funded by stimulus grants	(11.6		)	(28.8		)
Proceeds from the sale of property	—			6.2
Changes in restricted cash	2.0			13.0
Cash acquired from EarthLink	5.0			—
Grant funds received for broadband stimulus projects	25.8			53.5
Other, net	(2.5		)	—
Grant funds received from Connect America Fund	26.0			—
Net cash used in investing activities	(240.9		)	(257.6		)
Network expansion funded by Connect America Fund	(2.0		)	—
Net cash used in investing activities	(512.5		)	(628.3		)
Cash Flows from Financing Activities:
Dividends paid to shareholders	—			(444.6		)
Distributions to Windstream Holdings, Inc.	(24.3		)	(44.1		)
Distributions to Windstream Holdings, Inc.	(452.4		)	—
Contribution from Windstream Holdings, Inc.	9.6			—
Repayments of debt and swaps	(1,~~049~~133.04		)	(~~4,093~~985.23		)
Proceeds of debt issuance	~~985~~1,315.06			31,~~997~~278.50
Debt issuance costs	—(7.0		)	(2910.7		)
Payments under capital lease obligations	(19.8		)	(13.8		)
Payments under long-term lease obligations	(40.6		)	(36.8		)
Other, net	(9.5		)	(7.2		)
Payments under capital lease obligations	(8.7		)	(19.8		)
Net cash used in financing activities	(545.7		)	(591.0		)
Other, net	(9.8		)	(7.9		)
Increase (decrease) in cash and cash equivalents	55.5			(58.6		)
Net cash provided from financing activities	101.4			173.4
(Decrease) increase in cash and cash equivalents	(7.6		)	43.3
Cash and Cash Equivalents:
Beginning of period	4859.21			~~132~~31.03
End of period	$	~~103~~51.75		$	7374.46
Supplemental Cash Flow Disclosures:
Interest paid	$	358.3		$	417.4
Interest paid, net of interest capitalized	$	168.9		$	178.6
Income taxes paid, net	$	4.0		$	4.4
Income taxes (refunded) paid, net	$	(0.2	)	$	6.5

See the accompanying notes to the unaudited interim consolidated financial statements.

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WINDSTREAM ~~CORPORATION~~SERVICES, LLC

CONSOLIDATED ~~STATEMENTS~~STATEMENT OF ~~SHAREHOLDERS’~~MEMBER EQUITY (UNAUDITED)

(Millions, except per share amounts)	Common Stockand AdditionalPaid-InCapital			AccumulatedOtherComprehensiveIncome			RetainedEarnings			Total
(Millions)	AdditionalPaid-InCapital			AccumulatedOtherComprehensiveIncome			Accumulated Deficit			Total
Balance at December 31, 2013	$	812.0		$	28.5		$	—		$	840.5
Balance at December 31, 2016	$	556.1		$	5.9		$	(392.0	)	$	170.0
Net income	—			—			39.2			39.2
Net loss	—			—			(111.1		)	(111.1		)
Other comprehensive (loss) income, net of tax:
Other comprehensive income (loss), net of tax:
Change in postretirement and pension plans	—			(60.51		)	—			(60.51		)
Amortization of unrealized losses on de-designated interest rate swaps	—			70.59			—			70.59
Changes in designated interest rate swaps	—			(8.4		)	—			(8.4		)
Change in designated interest rate swaps	—			2.1			—			2.1
Comprehensive (loss) income	—			(7.4		)	39.2			31.8
Comprehensive income (loss)	—			2.9			(111.1		)	(108.2		)
Share-based compensation expense (See Note 8)	19.9			—			—			19.9
Share-based compensation	10.7			—			—			10.7
Stock options exercised	1.4			—			—			1.4
Contributions from Windstream Holdings, Inc.:
Stock issued for management incentive compensation plans	0.8			—			—			0.8
Cash contribution to pension plan (See Note 7)	9.6			—			—			9.6
Stock issued to employee savings plan (See Note 7)	21.6			—			—			21.6
Stock contribution to employee savings plan (See Note 7)	22.7			—			—			22.7
Stock issued to qualified pension plan (See Note 7)	8.3			—			—			8.3
Stock contribution for merger with EarthLink (See Note 2)	646.9			—			—			646.9
Taxes withheld on vested restricted stock and other	(118.18		)	—			—			(118.18		)
Distributions payable to Windstream Holdings, Inc.	(~~415~~20.15		)	—			~~(39.2~~—		)	(~~454~~20.35		)
Balance at September 30, 2014	$	437.8		$	21.1		$	—		$	458.9
Balance at March 31, 2017	$	1,216.7		$	8.8		$	(503.1	)	$	722.4

See the accompanying notes to the unaudited interim consolidated financial statements.

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NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

1. Preparation of Interim Financial Statements:

In these consolidated financial statements, unless the context requires otherwise, the use of the terms “Windstream,” “we,” “us” or “our” shall refer to Windstream Holdings, Inc. and its subsidiaries, including Windstream ~~Corporation~~Services, LLC, and the term “Windstream ~~Corp.~~Services” shall refer to Windstream ~~Corporation~~Services, LLC and its subsidiaries.

Organizational Structure – Windstream Holdings, Inc. (“Windstream Holdings”) is a publicly traded holding company incorporated in the state of Delaware on May 23, 2013, and the parent of Windstream ~~Corporation~~Services, LLC (“Windstream ~~Corp.~~Services”), a Delaware limited liability company organized on March 1, 2004. Windstream Holdings common stock trades on the ~~Nasdaq~~NASDAQ Global Select Market (“NASDAQ”) under the ticker symbol “WIN”. Windstream ~~Corp.~~Holdings ~~common~~owns ~~stock,~~a ~~consisting~~100 ofpercent ~~1,000~~interest ~~shares~~in ~~outstanding, all of which are held by~~ Windstream ~~Holdings, does not trade on any stock market~~Services. Windstream ~~Corp.~~Services and its guarantor subsidiaries are the sole obligors of all outstanding debt obligations and, as a result also file periodic reports with the Securities and Exchange Commission (“SEC”). Windstream Holdings is not a guarantor of nor subject to the restrictive covenants included in any of Windstream ~~Corp.~~Services’s debt agreements. The Windstream Holdings board of directors and officers oversee both companies.

Description of Business – We are a leading provider of advanced network communications and technology solutions for consumers, ~~including~~businesses, ~~managed~~enterprise ~~services~~organizations and ~~cloud~~wholesale ~~computing,~~customers toacross ~~businesses~~the ~~nationwide~~United States. InWe ~~addition~~provide ~~to business services~~data, wecloud ~~offer broadband~~solutions, ~~voice~~unified communications and ~~video~~managed services to ~~consumers~~small ~~primarily~~business inand ~~rural~~enterprise ~~markets~~clients. We ~~have~~also ~~operations~~offer inbundled 48services, ~~states~~including broadband, security solutions, voice and ~~the~~digital ~~District~~television ofto ~~Columbia,~~consumers. We supply core transport solutions on a local and long-haul fiber network spanning approximately ~~118~~147,000 miles~~, a robust business sales division and 27 data centers offering managed services and cloud computing~~.

Consumer service revenues are generated from the provisioning of high-speed Internet, voice and video services to consumers. Business service revenues include revenues from integrated voice and data services, advanced data, and traditional voice and long-distance services provided to enterprise and small- business customers,. ~~and~~Wholesale revenues include revenues from other ~~carriers~~communications services providers for special access circuits and fiber connections., ~~Consumer~~voice ~~service~~and ~~revenues~~data ~~are~~transport ~~generated~~services, and revenues from the ~~provisioning~~reselling of ~~high-speed~~our ~~Internet, voice and video~~ services ~~to consumers~~. ~~Wholesale~~Regulatory ~~service~~ revenues include switched access revenues, federal and state Universal Service Fund (“USF”) revenues and ~~voice~~amounts ~~and~~received ~~data~~from ~~services~~Connect ~~sold~~America onFund a- ~~wholesale~~Phase ~~basis~~II. Other service revenues include ~~USF surcharge~~ revenues, ~~other~~from ~~miscellaneous~~USF ~~services~~surcharges and ~~consumer~~other ~~revenues~~miscellaneous ~~generated in markets where we lease the connection to the customer premise~~services. ~~We no longer offer new consumer service in those areas.~~

Basis of Presentation – The accompanying unaudited consolidated financial statements have been prepared based upon SEC rules that permit reduced disclosure for interim periods. Certain information and footnote disclosures have been condensed or omitted in accordance with those rules and regulations. The accompanying consolidated balance sheet as of December 31, ~~2013~~2016, was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States. In our opinion, these financial statements reflect all adjustments that are necessary for a fair ~~presentation~~statement of results of operations and financial condition for the interim periods ~~shown~~presented including normal recurring accruals and other items. The results for the interim periods are not necessarily indicative of results for the full year. For a more complete discussion of significant accounting policies and certain other information, this report should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, ~~2013~~2016, which was filed with the SEC on ~~February~~March 271, ~~2014~~2017.

~~The~~Windstream ~~preparation~~Holdings ofand ~~financial~~its ~~statements~~domestic subsidiaries, inincluding ~~accordance~~Windstream ~~with~~Services, ~~accounting~~file ~~principles~~a ~~generally~~consolidated ~~accepted~~federal inincome ~~the~~tax ~~United States (“U~~return.S. ~~GAAP”)~~As such, ~~requires~~Windstream ~~management~~Services toand ~~make~~its ~~estimates~~subsidiaries ~~and~~are ~~assumptions~~not ~~that~~separate ~~affect~~taxable ~~the~~entities ~~reported~~for ~~amounts~~federal ofand ~~assets,~~certain ~~liabilities,~~state ~~revenues~~income ~~and~~tax ~~expenses~~purposes. ~~and~~In ~~disclosure~~instances ofwhen ~~contingent~~Windstream ~~assets~~Services ~~and~~does ~~liabilities.~~not ~~The~~file ~~estimates~~a ~~and~~separate ~~assumptions~~return, ~~used~~income intaxes as presented within the accompanying consolidated financial statements ~~are~~attribute ~~based~~current ~~upon~~and ~~management’s~~deferred ~~evaluation~~income taxes of ~~the~~Windstream ~~relevant~~Holdings ~~facts~~to Windstream Services and ~~circumstances~~its assubsidiaries ofin ~~the~~a ~~date~~manner ofthat is systematic, rational and consistent with the ~~consolidated~~asset ~~financial~~and ~~statements~~liability method. ~~Actual~~Income ~~results~~tax ~~may~~provisions ~~differ~~presented ~~from~~for ~~the~~Windstream ~~estimates~~Services and ~~assumptions~~its ~~used~~subsidiaries inare ~~preparing~~prepared under the ~~accompanying~~“separate ~~consolidated~~return ~~financial~~method.” ~~statements,~~The separate return method represents a hypothetical computation assuming that the reported revenue and ~~such~~expenses ~~differences~~of ~~could~~Windstream beServices ~~material~~and its subsidiaries were incurred by separate taxable entities.

There are no significant differences between the consolidated results of operations, financial condition, and cash flows of Windstream Holdings and those of Windstream Corp. other than for certain expenses incurred directly by Windstream Holdings principally consisting of audit, legal and board of director fees, Nasdaq listing fees, other shareholder-related costs, income taxes, common stock activity, and payables from Windstream Corp. to Windstream Holdings. Earnings per share data has not been presented for Windstream Corp., because that entity has not issued publicly held common stock as defined in U.S. GAAP. Unless otherwise indicated, the note disclosures included herein pertain to both Windstream Holdings and Windstream Corp.

Certain prior year amounts have been reclassified to conform to the current year financial statement presentation. These changes and reclassifications did not impact net income or comprehensive income.

NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

____

1. Preparation of Interim Financial Statements, Continued:

~~Recently~~The ~~Issued~~preparation ~~Authoritative~~of ~~Guidance~~financial statements, in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”), requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and disclosure of contingent assets and liabilities. The estimates and assumptions used in the accompanying consolidated financial statements are based upon management’s evaluation of the relevant facts and circumstances as of the date of the consolidated financial statements. Actual results may differ from the estimates and assumptions used in preparing the accompanying consolidated financial statements, and such differences could be material.

~~Revenue~~There ~~Recognition~~are –no Insignificant ~~May~~differences ~~2014,~~between the ~~Financial~~consolidated ~~Accounting~~results ~~Standards~~of ~~Board~~operations, ~~(“FASB”)~~financial ~~issued Accounting Standards Update No. 2014-09~~condition, Revenue from Contracts with Customers (“ASU 2014-09”). The standard outlines a single comprehensive revenue recognition model for entities to follow in accounting for revenue from contracts with customers and ~~supersedes~~cash ~~most~~flows ~~current revenue recognition guidance, including industry-specific guidance. The core principle~~ of ~~the~~Windstream ~~revenue~~Holdings ~~model~~and isthose ~~that an entity should recognize revenue for the transfer~~ of ~~promised~~Windstream ~~goods~~Services orother ~~services~~than ~~to customers in an amount that reflects the consideration to which the entity expects to be entitled to receive~~ for ~~those~~certain ~~goods~~expenses orincurred ~~services.~~directly ~~ASU~~by ~~2014-09~~Windstream ~~also~~Holdings ~~includes~~principally ~~new~~consisting ~~accounting~~of ~~principles~~audit, ~~related~~legal ~~to the deferral~~ and ~~amortization~~board of ~~contract~~director ~~acquisition~~fees, ~~and~~NASDAQ ~~fulfillment~~listing ~~costs.~~fees, ~~ASU~~other ~~2014~~shareholder-09related iscosts, ~~effective~~income ~~for~~taxes, ~~annual~~common ~~periods~~stock ~~beginning after December 15~~activity, ~~2016~~ and ~~interim~~payables ~~periods~~from ~~within~~Windstream ~~those~~Services ~~annual~~to ~~periods.~~Windstream ~~Early adoption is not permitted~~Holdings. ~~ASU~~Earnings ~~201-09~~per ~~may~~share bedata ~~adopted~~has bynot ~~applying~~been ~~the provisions of the new standard on a retrospective basis to all periods~~ presented infor ~~the~~Windstream ~~financial~~Services, ~~statements~~because orthat onentity ahas ~~modified~~not ~~retrospective~~issued ~~basis~~publicly ~~which~~held ~~would~~common ~~result~~stock inas ~~the~~defined ~~recognition of a cumulative effect adjustment~~ in ~~the~~accordance ~~year~~with ofU.S. ~~adoption~~GAAP. WeUnless ~~are~~otherwise inindicated, the ~~process~~note ofdisclosures ~~determining~~included ~~the~~herein ~~method~~pertain ofto ~~adoption~~both ~~and~~Windstream ~~assessing~~Holdings ~~the~~and ~~impact~~Windstream ~~the new standard will have on our consolidated financial statements~~Services.

~~Discontinued~~Change ~~Operations~~in –Accounting InEstimate ~~April 2014,~~– ~~the~~The ~~FASB~~calculation ~~issued~~of ~~revised~~depreciation ~~guidance~~and toamortization ~~reduce~~expense ~~diversity~~is inbased ~~practice~~on ~~for~~the ~~reporting~~estimated ~~discontinued~~economic ~~operations.~~useful ~~Under~~lives of the ~~previous~~underlying ~~guidance~~property, ~~any~~plant ~~component~~and ofequipment anand ~~entity~~finite-lived ~~that~~intangible ~~was~~assets. aWe ~~reportable~~periodically ~~segment,~~obtain anupdated ~~operating~~depreciation ~~segment,~~studies ato ~~reporting~~evaluate ~~unit,~~whether acertain ~~subsidiary,~~useful orlives anremain ~~asset~~appropriate ~~group~~in ~~was~~accordance ~~eligible~~with ~~for~~authoritative ~~discontinued~~guidance. ~~operations~~With ~~presentation.~~the ~~The~~assistance ~~revised~~of ~~guidance~~a ~~only~~third-party ~~allows~~valuation ~~disposals~~advisor, ofwe ~~components~~completed analyses of anthe ~~entity~~depreciable ~~that~~lives ~~represent~~of aassets ~~strategic~~held ~~shift~~for ~~(e.g.,~~use ~~disposal~~ of acertain ~~major~~subsidiaries ~~geographical~~during ~~area,~~2016. aBased ~~major~~on ~~line~~the results of ~~business~~the analyses, awe ~~major~~implemented ~~equity~~new ~~method~~depreciation ~~investment,~~rates orin ~~other~~the ~~major~~fourth ~~parts~~quarter of an2016, ~~entity)~~the ~~and~~effects ~~that~~of ~~have~~which aresulted ~~major~~in ~~effect~~an onincrease ato ~~reporting~~depreciation ~~entity’s~~expense. ~~operations~~Additionally, ~~and~~in ~~financial~~the ~~results~~fourth toquarter beof ~~reported~~2016, aswe ~~discontinued~~reassessed ~~operations.~~the ~~The~~estimated ~~revised~~useful ~~guidance~~lives ~~also~~of ~~requires~~certain ~~expanded~~fiber ~~disclosure~~assets, inextending the ~~financial~~useful ~~statements~~life ~~for~~of ~~discontinued~~such ~~operations~~assets asfrom ~~well~~20 asto ~~for~~25 ~~disposals~~years. ofThe ~~significant~~net ~~components~~impact of anthese ~~entity~~changes ~~that~~resulted doin ~~not~~an ~~qualify~~increase ~~for~~to ~~discontinued~~depreciation ~~operations~~expense ~~presentation~~of $8.8 ~~The~~million ~~updated~~and ~~guidance~~an isincrease ~~effective~~in ~~for~~our ~~the~~reported ~~fiscal~~net ~~years,~~loss ~~and~~of ~~interim~~$5.8 ~~periods~~million ~~within~~or ~~those~~$.05 ~~years,~~per ~~beginning~~share ~~after~~for ~~December~~the ~~15,~~three ~~2014.~~month ~~Early~~period ~~adoption~~ended isMarch ~~permitted~~31, 2017. ~~The~~We ~~adoption~~anticipate ofthe ~~this~~net ~~guidance~~impact isof ~~not~~these ~~expected~~changes to ~~have~~increase adepreciation ~~material~~expense ~~effect~~by on$26.5 ~~our~~million ~~consolidated~~during ~~results~~the remainder of ~~operations, financial position or liquidity~~2017.

2.Recently ~~Goodwill~~Adopted ~~and~~Accounting ~~Other Intangible Assets:~~Standards

~~Goodwill~~Valuation ~~represents~~of ~~the~~Inventory ~~excess~~– ofIn ~~cost~~July ~~over~~2015, the ~~fair~~Financial ~~value~~Accounting ofStandards ~~net~~Board ~~identifiable~~(“FASB”) ~~tangible~~issued ~~and~~Accounting ~~intangible~~Standards ~~assets~~Update ~~acquired~~(“ASU”) ~~through various business combinations~~No. ~~The~~2015-11, ~~cost~~Inventory of(Topic ~~acquired~~330): ~~entities~~Simplifying at the ~~date~~Measurement of ~~the~~Inventory ~~acquisition~~(“ASU ~~is allocated to identifiable assets, and the excess of the total purchase price over the amounts assigned to identifiable assets has been recorded as goodwill~~2015-11”). In ~~accordance~~The ~~with~~updated ~~authoritative~~ guidance, ~~goodwill~~requires isthat toan beentity ~~assigned~~should tomeasure ainventory ~~company’s~~valued ~~reporting units and tested for impairment at least annually~~ using a ~~consistent measurement date~~first-in, ~~which~~first-out ~~for~~or usaverage iscost ~~January 1st~~method ~~of each year. Goodwill is tested~~ at the ~~reporting~~lower ~~unit level. A reporting unit is an operating segment or one level below an operating segment, referred to as a component. A component~~ of ancost ~~operating segment is a reporting unit for which discrete financial information is available~~ and ~~our~~net ~~executive~~realizable ~~management team regularly reviews the operating results of that component~~value. ~~Additionally,~~Net ~~components~~realizable ofvalue anis ~~operating~~defined ~~segment can be combined~~ as ~~a single reporting unit if~~ the ~~components~~estimated ~~have~~selling ~~similar~~price ~~economic~~in ~~characteristics. If~~ the ~~fair~~ordinary ~~value~~course of ~~the reporting unit exceeds its carrying value~~business, ~~goodwill~~less isreasonably ~~not~~predictable ~~impaired~~costs ~~and no further testing is performed. If the carrying value~~ of ~~the reporting unit exceeds its fair value~~completion, ~~then a second step must be performed~~disposal, and ~~the~~transportation. ~~implied~~ASU ~~fair~~2015-11 ~~value~~should ~~of the reporting unit’s goodwill must~~ be ~~determined~~applied ~~and~~on ~~compared to the carrying value of the reporting unit’s goodwill. If the carrying value of~~ a ~~reporting~~prospective ~~unit’s~~basis ~~goodwill~~and ~~exceeds~~is ~~its~~effective ~~implied~~for ~~fair~~fiscal ~~value~~years, ~~then~~and aninterim ~~impairment~~periods ~~loss~~within ~~equal~~those toyears, ~~the~~beginning ~~difference~~after ~~will~~December be15, ~~recorded~~2016. ~~Prior~~As ~~to performing the two step evaluation~~required, anwe ~~entity~~adopted ~~has~~ASU ~~the~~2015-11 ~~option~~in ~~to perform a qualitative assessment to determine whether it is more likely than not that~~ the ~~fair~~first ~~value~~quarter of ~~a reporting unit exceeds the carrying value~~2017. ~~Under~~The ~~the~~adoption ~~qualitative~~of ~~assessment,~~ASU if2015-11 andid ~~entity determines that it is more likely than~~ not ~~that~~have a ~~reporting~~material ~~unit’s~~impact ~~fair~~to ~~value~~our ~~exceeds~~consolidated ~~its~~results ~~carrying~~of ~~value~~operations, ~~then~~financial ~~the~~position ~~entity~~or iscash ~~not required to complete the two step goodwill impairment evaluation~~flows.

~~During~~Derivatives ~~the fourth quarter of 2013, in connection with the disposal of our software business~~ and ~~changes~~Hedging in– ~~certain~~In ~~management~~March ~~responsibilities~~2016, wethe ~~reassessed~~FASB ~~our~~issued ~~reporting~~ASU ~~unit~~No. ~~structure as of November 30~~2016-05, ~~2013~~Derivatives and ~~performed~~Hedging a(Topic ~~quantitative~~815): ~~analysis~~Effect as of ~~that~~Derivative ~~date. We~~Contract ~~estimated~~Novations ~~the~~on ~~fair~~Existing ~~value~~Hedge ofAccounting ~~our~~Relationships ~~reporting~~(a ~~units~~consensus ~~using~~of anthe ~~income~~Emerging ~~approach~~Issues ~~supplemented~~Task ~~with~~Force) a(“ASU ~~market approach~~2016-05”). ~~The~~ASU ~~income~~2016-05 ~~approach~~clarifies isthat ~~based~~a onchange in the ~~present~~counterparty ~~value~~to ~~of projected cash flows and~~ a ~~terminal~~derivative ~~value,~~instrument ~~which~~that ~~represents~~has ~~the~~been ~~expected~~designated ~~normalized~~as ~~cash flows of~~ the ~~reporting~~hedging ~~unit~~instrument ~~beyond~~does ~~the~~not, ~~cash~~in ~~flows~~and ~~from the discrete projection period~~ of ~~five~~itself, ~~years.~~require Wede-designation ~~discounted the estimated cash flows for each~~ of ~~the~~that ~~reporting~~hedging ~~units~~relationship ~~using~~provided ~~a rate~~ that ~~represents~~all aother ~~market~~hedge ~~participant’s~~accounting ~~weighted~~criteria ~~average~~continue ~~cost~~to ofbe ~~capital commensurate with the reporting unit’s underlying business operations~~met. ~~Results~~ASU of2016-05 ~~the~~is ~~income~~effective ~~approach~~for ~~were~~fiscal ~~corroborated~~years ~~with~~beginning ~~estimated~~after ~~fair~~December ~~values~~15, ~~derived~~2016. ~~from~~As arequired, ~~market~~we ~~approach,~~adopted ~~which~~ASU ~~primarily~~2016-05 ~~included~~in the ~~use~~first ofquarter ~~comparable multiples~~ of ~~publicly traded companies operating in businesses similar to ours~~2017. WeThe ~~also~~adoption ~~reconciled~~of ~~the~~ASU ~~estimated~~2016-05 ~~fair~~did ~~value~~not ofhave ~~our~~a ~~reporting~~material ~~units~~impact to our ~~total~~consolidated ~~market~~results ~~capitalization.~~of ~~Goodwill~~operations, ~~was~~financial ~~assigned~~position toor ~~the~~cash ~~reporting units using a relative fair value allocation approach~~flows.

NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

____

21. ~~Goodwill~~Preparation ~~and~~of ~~Other~~Interim ~~Intangible~~Financial ~~Assets~~Statements, Continued:

AsEmployee ofShare-Based ~~January~~Payment 1,Accounting ~~2014~~– In March 2016, wethe ~~have~~FASB ~~three~~issued ~~reporting~~ASU ~~units~~No. 2016-09, ~~excluding~~Compensation ~~corporate~~-~~level~~ ~~activities.~~Stock ~~After~~Compensation ~~considering~~(Topic ~~changes~~718): Improvements to ~~assumptions~~Employee ~~used~~Share-Based inPayment ~~our~~Accounting ~~most~~(“ASU ~~recent~~2016-09”), ~~quantitative~~which ~~testing~~simplifies ~~completed~~several asaspects of ~~November~~the ~~30,~~accounting ~~2013~~for employee share-based payment transactions, including ~~general~~the ~~economic~~accounting ~~conditions,~~for ~~capital~~income ~~markets~~taxes, ~~telecommunications~~forfeitures, ~~industry~~and ~~competition~~statutory ~~and~~tax ~~trends~~withholding requirements, ~~changes~~as well as classification in ~~common~~the ~~stock~~statement ~~prices~~of cash flows. Under the new guidance all excess tax benefits and tax deficiencies, ~~our~~including ~~results~~tax benefits of ~~operations~~dividends on share-based payment awards, ~~and~~should be recognized as income tax expense or benefit in the ~~magnitude~~income ofstatement, eliminating the ~~excess~~notion of the ~~fair~~APIC ~~value~~pool. ~~over~~The ~~the~~excess ~~carrying~~tax ~~value~~benefits will be classified as operating activities along with other income tax cash flows rather than financing activities in the statement of ~~each~~cash flows. The tax effects of ~~our~~exercised ~~reporting~~or ~~units~~vested awards should be treated as ~~determined~~discrete items in ~~our~~the ~~most~~reporting ~~recent~~period ~~quantitative~~in ~~testing,~~which wethey ~~concluded~~occur. ASU 2016-09 also allows entities to elect to either estimate the total number of awards that itare isexpected ~~more~~to ~~likely~~vest ~~than~~or ~~not~~account for forfeitures when they occur. Additionally, ASU 2016-09 clarifies that ~~the~~cash ~~fair~~payments ~~value~~to tax authorities in connection with shares withheld to meet statutory tax withholding requirements should be presented as a financing activity in the statement of ~~our~~cash ~~reporting~~flows. ~~units~~ASU 2016-09 is ~~not~~effective ~~less~~for ~~than~~annual ~~their~~reporting ~~respective~~periods ~~carrying~~beginning ~~values~~after ~~and~~December 15, ~~therefore~~2016. We adopted this standard effective January 1, we2017 and maintained our past practice of estimating the total number of awards expected to vest. The adoption of ASU 2016-09 did not ~~perform~~have a ~~quantitative~~material ~~analysis~~impact to our consolidated results of operations, financial position or cash flows.

Goodwill Impairment – In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other ~~intangible~~(Topic ~~assets~~350): ~~arising~~Simplifying the Test for Goodwill Impairment (“ASU 2017-04”) simplifying the subsequent measurement of goodwill by eliminating the second step from ~~business~~the ~~combinations~~goodwill ~~are~~impairment ~~initially~~test. ~~recorded~~The atsecond ~~estimated~~step ~~fair~~requires the measurement of a goodwill impairment by comparing the implied value of a reporting unit’s goodwill and ~~amortized~~the goodwill’s carrying amount. Under the amendments, the goodwill impairment will be measured as the excess of the reporting unit’s carrying amount over its fair value. An impairment charge should be recognized for the ~~estimated~~amount ~~useful~~by ~~lives~~which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. ASU 2017-04 also eliminates the requirement for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform the second step of the goodwill impairment test. Therefore, the same impairment assessment applies to all reporting units. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. As permitted, we early adopted this standard effective January 1, 2017.

~~Intangible~~Recently ~~assets~~Issued ~~were~~Authoritative ~~as follows at:~~Guidance

	September 30, 2014							December 31, 2013
(Millions)	GrossCost		AccumulatedAmortization			Net CarryingValue		GrossCost		AccumulatedAmortization			Net CarryingValue
Franchise rights	$	1,285.1	$	(232.6	)	$	1,052.5	$	1,285.1	$	(200.4	)	$	1,084.7
Customer lists	1,914.0		(1,152.8		)	761.2		1,914.0		(991.9		)	922.1
Cable franchise rights	39.8		(27.9		)	11.9		39.8		(27.0		)	12.8
Other	37.9		(37.8		)	0.1		37.9		(37.4		)	0.5
Balance	$	3,276.8	$	(1,451.1	)	$	1,825.7	$	3,276.8	$	(1,256.7	)	$	2,020.1

Revenue Recognition – In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). The standard outlines a single comprehensive revenue recognition model for entities to follow in accounting for revenue from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The core principle of the revenue model is that an entity should recognize revenue for the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to receive for those goods or services. ASU 2014-09 also includes new accounting principles related to the deferral and amortization of contract acquisition and fulfillment costs. ASU 2014-09 may be adopted by applying the provisions of the new standard on a retrospective basis to all periods presented in the financial statements or on a modified retrospective basis which would result in the recognition of a cumulative effect adjustment in the year of adoption. When issued, ASU 2014-09 was to be effective for annual periods beginning after December 15, 2016 and interim periods within those annual periods. Early adoption was not permitted.

~~Intangible~~In ~~asset~~July ~~amortization~~2015, ~~methodology~~the ~~and~~FASB ~~useful~~deferred ~~lives~~the ~~were~~effective asdate ~~follows~~of asASU 2014-09 by one year to December 15, 2017 for annual reporting periods beginning after that date, or January 1, 2018, for calendar companies like Windstream. Entities are permitted to early adopt the standard, but not before the original effective date of ~~September 30~~December 15, ~~2014:~~2016.

Intangible Assets	Amortization Methodology	Estimated Useful Life
Franchise rights	straight-line	30 years
Customer lists	sum-of-years-digits	9 - 15 years
Cable franchise rights	straight-line	15 years
Other	straight-line	1 - 3 years

In 2016, the FASB issued the following updates to the revenue recognition guidance:

~~Amortization~~• ~~expense~~ASU ~~for intangible assets subject to amortization was $63~~No.7 ~~million and $194.4 million for the three and nine month periods ended September 30~~2016-08, ~~2014,~~Revenue asfrom ~~compared~~Contracts towith ~~$72.5~~Customers ~~million~~(Topic ~~and~~606): ~~$220.8~~Principal ~~million~~versus ~~for~~Agent ~~the~~Considerations ~~same~~(Reporting ~~periods~~Revenue inGross ~~2013.~~versus ~~Amortization~~Net) ~~expense for intangible assets subject~~ to ~~amortization~~improve ~~was~~the ~~estimated~~operability toand beunderstandability ~~as follows for each~~ of the ~~twelve~~implementation ~~month~~guidance ~~periods~~on ~~ended~~principal ~~September 30:~~versus agent considerations.

Year	(Millions)
2015	$	229.0
2016	194.5
2017	164.1
2018	136.9
2019	110.2
Thereafter	991.0
Total	$	1,825.7


•	ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing to provide more detailed guidance with respect to identifying performance obligations and accounting for licensing arrangements, including intellectual property licenses, royalties, license restrictions and renewals.

NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

____

31. ~~Long-term~~Preparation ~~Debt~~of ~~and~~Interim ~~Lease~~Financial ~~Obligations~~Statements, Continued:

~~Windstream~~• ~~Holdings~~ASU ~~has~~No. no2016-11, ~~debt~~Revenue ~~obligations.~~Recognition ~~All~~(Topic ~~debt,~~605) ~~including~~and ~~the~~Derivatives ~~senior~~and ~~secured~~Hedging ~~credit~~(Topic ~~facility~~815): ~~described~~Rescission ~~below,~~of ~~have~~SEC ~~been~~Guidance ~~incurred~~Because byof ~~Windstream~~Accounting ~~Corp.~~Standards Updates 2014-09 and ~~its~~2014-16 ~~subsidiaries. Windstream~~Pursuant ~~Holdings~~to isStaff ~~neither~~Announcements aat ~~guarantor~~the ofMarch ~~nor~~3, ~~subject~~2016 EITF Meeting to ~~the~~rescind ~~restrictive~~several ~~covenants~~SEC ~~imposed~~Staff announcements that are codified in Topic 605: Revenue Recognition, including, among other items, guidance relating to accounting for consideration given by ~~such~~a ~~debt~~vendor to a customer, as well as accounting for shipping and handling fees and freight services.

~~Long~~• ASU No. 2016-~~term~~12, ~~debt~~Revenue ~~was~~from asContracts ~~follows~~with atCustomers (Topic 606): Narrow-Scope Improvements and Practical Expedients to provide clarification to Topic 606 on how to assess collectability, present sales tax, treat noncash consideration, and account for completed and modified contracts at the time of transition. This guidance also clarifies that an entity retrospectively applying the guidance in Topic 606 is not required to disclose the effect of the accounting change in the period of adoption.

(Millions)	September 30, 2014			December 31, 2013
Issued by Windstream Corp.:
Senior secured credit facility, Tranche A3 – variable rates, due December 30, 2016	$	355.0		$	387.3
Senior secured credit facility, Tranche A4 – variable rates, due August 8, 2017	262.5			277.5
Senior secured credit facility, Tranche B4 – variable rates, due January 23, 2020	1,321.5			1,331.6
Senior secured credit facility, Tranche B5 – variable rates, due August 8, 2019	585.6			590.0
Senior secured credit facility, Revolving line of credit – variable rates, due December 17, 2015	610.0			590.0
Debentures and notes, without collateral:
2017 Notes – 7.875%, due November 1, 2017	1,100.0			1,100.0
2018 Notes – 8.125%, due September 1, 2018	400.0			400.0
2020 Notes – 7.750%, due October 15, 2020	700.0			700.0
2021 Notes – 7.750%, due October 1, 2021	950.0			950.0
2022 Notes – 7.500%, due June 1, 2022	500.0			500.0
2023 Notes – 7.500%, due April 1, 2023	600.0			600.0
2023 Notes – 6.375%, due August 1, 2023	700.0			700.0
Issued by subsidiaries of Windstream Corp.:
Windstream Holdings of the Midwest, Inc. – 6.75%, due April 1, 2028	100.0			100.0
Cinergy Communications Company – 6.58%, due January 1, 2022	1.9			2.0
Debentures and notes, without collateral:
PAETEC 2018 Notes – 9.875%, due December 1, 2018	450.0			450.0
Premium on long-term debt, net	24.6			28.8
	8,661.1			8,707.2
Less current maturities	(92.5		)	(85.0		)
Total long-term debt	$	8,568.6		$	8,622.2


•	ASU No. 2016-20, Technical Corrections and Improvements to Topic 606: Revenue from Contracts with Customers to provide additional clarification and guidance with respect to a number of issues including impairment testing for capitalized contract costs, losses on construction and production-type contracts, and disclosures of prior-period and remaining performance obligations.

~~Senior~~The ~~Secured~~effective ~~Credit~~date ~~Facility~~and transition requirements for each of these amendments are the same as the effective date and transition requirements of ASU 2014-09.

OnWe ~~January 23,~~will ~~2013,~~adopt ~~Windstream~~this ~~Corp.~~standard ~~incurred~~effective ~~new~~January ~~borrowings of $~~1,~~345.0~~ ~~million~~2018 ~~under~~utilizing ~~Tranche~~the B4modified ofretrospective ~~the~~basis. ~~senior~~We ~~secured~~have ~~credit~~established ~~facility~~a ~~due~~cross-functional ~~January 23,~~team ~~2020;~~to implement the ~~proceeds~~standard ofand ~~which~~have ~~were~~identified ~~used~~and toare ~~repay~~in ~~$19.5~~the ~~million~~process of ~~Tranche~~implementing A2changes ~~and~~to ~~$280.9~~our ~~million~~systems, ofprocesses ~~Tranche~~and Binternal ~~due~~controls into ~~July~~meet ~~2013~~the standard’s reporting and ~~$1,042~~disclosure requirements.9 ~~million~~While ofwe ~~Tranche~~have B2not offully quantified the ~~senior~~effects ~~secured~~of ~~credit~~the ~~facility~~standard ~~due~~on inour ~~December~~consolidated ~~2015~~financial statements, ~~plus~~we ~~accrued~~have ~~interest.~~determined ~~Debt~~that ~~issuance~~due ~~costs~~to ~~associated~~changes ~~with~~in the ~~Tranche~~timing B4of ~~borrowings~~recognition ~~were~~of ~~$11.9~~certain ~~million.~~installation Ofservices ~~this~~and ~~amount~~discounts, ~~$5.7~~promotional ~~million~~credits ~~was~~and ~~recorded~~price inguarantees ~~other~~given to customers, we will recognize contract assets and liabilities in ~~the~~our consolidated balance ~~sheet~~sheets. In ~~and~~addition, isthe ~~amortized~~requirement ~~into~~to ~~interest~~defer ~~expense~~incremental ~~over~~contract ~~the~~acquisition ~~life~~costs, ofincluding ~~the~~sales ~~borrowings.~~commissions, ~~The~~and ~~remaining~~recognize ~~$6.2~~such ~~million~~costs ofover ~~debt~~the ~~issuance~~contract ~~costs~~period ~~were~~or ~~charged~~expected tocustomer ~~interest~~life ~~expense~~will result in the ~~first~~recognition ~~quarter~~ of ~~2013~~a indeferred ~~accordance~~charge ~~with~~within ~~debt~~our ~~modification~~consolidated ~~accounting~~balance sheets.

~~Revolving~~Leases ~~Line~~– ofIn ~~Credit~~February -2016, ~~During~~ the ~~first~~FASB ~~nine~~issued ~~months~~ASU of2016-02, ~~2014~~Leases (Topic 842), ~~Windstream~~which ~~Corp.~~will ~~borrowed~~require anthat ~~additional~~virtually ~~$985.0~~all ~~million~~lease ~~under~~arrangements ~~the~~that ~~revolving~~do ~~line~~not meet the criteria of ~~credit~~a inshort-term ~~its~~lease ~~senior~~be ~~secured~~presented ~~credit~~on ~~facility~~the lessee’s balance sheet by recording a right-of-use asset and ~~repaid~~a ~~$965.0~~lease ~~million~~liability equal to the present value of ~~these~~the ~~borrowings~~related ~~through~~future ~~September 30,~~lease ~~2014~~payments. ~~Letters~~The income statement impacts of ~~credit~~the ~~are~~leases ~~deducted~~will independ ~~determining~~on the ~~total~~nature ~~amount~~of ~~available~~the ~~for~~leasing ~~borrowing~~arrangement ~~under~~and ~~the~~will ~~revolving~~be ~~line~~similar ofto ~~credit~~existing accounting for operating and capital leases. ~~Accordingly,~~The ~~the~~new ~~total~~standard ~~amount~~does ~~outstanding~~not ~~under~~substantially change the ~~letters~~accounting offor ~~credit~~lessors. The new standard will also require additional disclosures regarding an entity’s leasing arrangements and ~~the~~will ~~indebtedness~~be ~~incurred~~effective ~~under~~for the ~~revolving~~first ~~line~~interim ofreporting ~~credit~~period ~~may~~within ~~not~~annual ~~exceed~~periods $1beginning after December 15,~~250.0~~ ~~million~~2018, although early adoption is permitted. ~~Considering~~Lessees ~~letters~~and oflessors ~~credit~~will ofbe ~~$21.1~~required ~~million,~~to apply the ~~amount~~new ~~available~~standard ~~for~~at ~~borrowing~~the ~~under~~beginning of the ~~revolving~~earliest ~~line~~period ofpresented ~~credit~~in ~~was~~the ~~$618.9~~financial ~~million~~statements atin ~~September 30~~which they first apply the new guidance, ~~2014~~using a modified retrospective transition method. We are currently assessing the timing of adoption and the impact the new standard will have on our consolidated financial statements.

Financial Instruments - Credit Losses – In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). This standard introduces a new forward-looking approach, based on expected losses, to estimate credit losses on certain types of financial instruments, including trade receivables. The estimate of expected credit losses will require entities to incorporate considerations of historical information, current information and reasonable and supportable forecasts. This new standard also expands the disclosure requirements to enable users of financial statements to understand the entity’s assumptions, models and methods for estimating expected credit losses. ASU 2016-13 is effective for annual and interim reporting periods beginning after December 15, 2019, and the guidance is to be applied using a modified retrospective transition approach. Early adoption is permitted for annual and interim reporting periods beginning after December 15, 2018. We are currently assessing the timing of adoption and the impact the new standard will have on our consolidated financial statements.

NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

____

31. ~~Long-term~~Preparation ~~Debt~~of ~~and~~Interim ~~Lease~~Financial ~~Obligations~~Statements, Continued:

~~During~~Statement ~~the~~of ~~first~~Cash ~~nine~~Flows ~~months~~–In ofAugust ~~2014~~2016, the ~~variable~~FASB ~~interest~~issued ~~rate~~ASU onNo. ~~the~~2016-15, ~~revolving~~Statement ~~line~~of Cash Flows (Topic 230): Classification of ~~credit~~Certain ~~ranged~~Cash ~~from~~Receipts ~~2.41~~and ~~percent~~Cash toPayments 4(“ASU 2016-15”).50 ~~percent,~~This standard provides guidance on how certain cash receipts and ~~the~~cash ~~weighted~~payments ~~average~~should ~~rate~~be onpresented ~~amounts~~and ~~outstanding~~classified ~~during~~in the ~~period~~statement ~~was~~of ~~2.51~~cash ~~percent.~~flows, ~~Comparatively~~including among others, debt prepayment and extinguishment costs, contingent consideration payments made after a business combination, proceeds from the ~~variable~~settlement ~~interest~~of ~~rate~~insurance ~~ranged~~claims and distributions received from 2equity method investees.43 ~~percent~~The tostandard ~~4.50~~also ~~percent~~clarifies ~~during~~that ~~the~~when ~~first~~cash ~~nine~~receipts ~~months~~and cash payments have aspects of ~~2013,~~more ~~with~~than aone ~~weighted~~class ~~average~~of ~~rate~~cash onflows ~~amounts~~and ~~outstanding~~cannot ~~during~~be separated, classification will depend on the ~~period~~predominant source or use of 2the underlying cash flows.52 ~~percent~~ASU 2016-15 is effective for annual and interim reporting periods beginning after December 15, 2017, with early adoption permitted. ~~The~~We ~~revolving~~will ~~line~~adopt ofthis ~~credit~~standard effective January 1, 2018. We are currently assessing the impact the new standard will ~~expire~~have on ~~December~~our ~~17,~~consolidated ~~2015~~statement of cash flows.

~~Debentures~~Definition of a Business – In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805), Clarifying the Definition of a Business (“ASU 2017-01”). Under the new guidance an integrated set of activities must include, at a minimum, an input and ~~Notes~~a substantive process that together significantly contribute to the ability to create output to be considered a business. ASU 2017-01 provides a framework to assist entities in evaluating whether both an input and a substantive process are present and removes the evaluation of whether a market participant could replace missing elements. Although outputs are not required for an integrated sets of activities to be a business, ~~Without~~outputs ~~Collateral~~generally are a key element of a business; therefore, the new guidance provides more stringent criteria for an integrated sets of activities without outputs. Furthermore, ASU 2017-01 narrows the definition of the term output so that it is consistent with how outputs are described in Topic 606. ASU 2017-01 is effective for annual periods beginning after December 15, 2017, including interim periods within those annual reporting periods. Early adoption is permitted. We are currently assessing the timing of adoption and the impact the new standard will have on our consolidated financial statements.

~~2021~~Presentation ~~Notes~~of -Defined OnBenefit ~~August~~Retirement ~~26,~~Costs ~~2013,~~– ~~Windstream~~In ~~Corp.~~March ~~completed~~2017, the ~~private~~FASB ~~placement~~issued ofASU ~~$500.0~~2017-07, ~~million~~Compensation-Retirement inBenefits ~~aggregate~~(Topic ~~principal~~715) ~~amount~~Improving ofthe ~~7.750~~Presentation ~~percent~~of ~~senior~~Net ~~unsecured~~Periodic ~~notes~~Pension ~~due~~Cost ~~October 1,~~and ~~2021,~~Net atPeriodic anPostretirement ~~issue~~Benefit ~~price~~Cost of(“ASU ~~103~~2017-07”).~~500~~ ~~percent~~This tostandard ~~yield~~changes ~~7.171 percent (“~~the ~~2021~~income ~~Notes”).~~statement ~~Proceeds~~presentation ~~from~~of ~~the~~defined ~~private~~benefit ~~placement~~plan ~~were~~expense ~~used~~by torequiring ~~pay~~separation ~~the~~between ~~consideration~~operating ~~for~~expense ~~the~~(service ~~tender~~cost ~~offer~~component) and ~~consent~~non-operating ~~solicitation~~expense to(all ~~purchase~~other ~~for~~components, ~~cash~~including ~~any~~interest ~~and~~cost, ~~all~~amortization of ~~the~~prior ~~outstanding~~service ~~$500.0~~cost, ~~million~~actuarial ~~7.000~~gains ~~percent~~and ~~notes due March 15~~losses, ~~2019~~curtailments ~~(“2019~~and ~~Notes”~~settlements). ~~together~~The ~~with~~operating ~~related~~expense ~~fees~~component ~~and~~will ~~expenses.~~be ~~Interest~~reported onin the ~~2021~~same ~~Notes~~income isstatement ~~paid~~line ~~semi-annually.~~item(s) ~~The~~as ~~notes~~other ~~had~~employee ~~terms~~compensation ~~substantially~~costs ~~identical~~arising tofrom ~~the~~services ~~terms~~rendered ofduring the ~~existing~~period ~~7.750~~while ~~percent~~the ~~senior~~non-operating ~~notes~~components ~~due~~will ~~2021,~~be ~~but~~reported ~~were~~in ~~issued~~other ~~under~~income aand ~~separate indenture~~expense. ~~During~~In ~~the~~addition, ~~fourth~~only ~~quarter~~the ofservice ~~2013~~cost ~~pursuant~~component towill abe ~~registration~~eligible ~~rights~~for ~~agreement,~~capitalization ~~the~~as ~~notes~~part ~~were~~of ~~exchanged~~an ~~for~~asset ~~additional~~such ~~7.750~~as ~~percent~~inventory ~~senior~~or ~~notes~~property, ~~due~~plant ~~2021~~and ~~issued~~equipment. ~~under~~Retrospective ~~the~~application ~~indenture~~of ~~governing~~ the ~~existing~~change ~~notes.~~in ~~For~~income ~~financial~~statement ~~reporting~~presentation ~~purposes~~is required, ~~both~~while the ~~newly~~change ~~issued~~in ~~and~~capitalized ~~existing~~benefit ~~7.750~~cost ~~percent~~is ~~senior notes due 2021 are collectively referred~~ to asbe ~~the~~applied ~~“2021 Notes”~~prospectively. ~~Debt~~The ~~issuance~~ASU ~~costs~~is ~~associated~~effective ~~with~~for ~~the~~fiscal ~~new~~years ~~borrowings~~beginning ~~were~~after ~~$10.1~~December ~~million~~15, ~~which~~2017. ~~were~~We ~~recorded~~are incurrently ~~other~~assessing ~~assets~~the inimpact ~~the~~that ~~accompanying~~adopting ~~consolidated~~this ~~balance~~new ~~sheet~~accounting ~~and~~standard will behave ~~amortized~~on ~~into~~our ~~interest~~consolidated ~~expense~~financial ~~over the life of the borrowings~~statements.

~~2023 Notes - On January 23, 2013, Windstream Corp~~2. ~~completed~~Completion ~~the private placement~~ of $700.0 million in aggregate principal amount of 6.375 percent senior unsecured notes due August 1, 2023, at an issue price at par to yield 6.375 percent (“the 2023 Notes”). Proceeds from the private placement were used to pay the consideration for the tender offer and consent solicitation to purchase for cash any and all of the outstanding $650.0 million 8.875 percent notes, due June 30, 2017 (“PAETEC 2017 Notes”), which were acquired in connection with our acquisition of PAETEC Holding Corp (“PAETEC”) in 2011, together with related fees and expenses. Interest on the 2023 Notes is paid semi-annually. Debt issuance costs associated with the new borrowings were $13.9 million, which were recorded in other assets on the balance sheet and are amortized into interest expense over the life of the borrowings.Merger:

~~Debt~~On ~~Compliance~~February 27, 2017, Windstream Holdings completed its merger with EarthLink Holdings Corp. (“EarthLink”), pursuant to the terms of the Agreement and Plan of Merger (the “Merger Agreement”) dated November 5, 2016, whereby EarthLink merged into Europa Merger Sub, Inc., an wholly-owned subsidiary of Windstream Services, LLC, and survived, and immediately following, merged with Europa Merger Sub, LLC, a wholly-owned subsidiary of Windstream Services, LLC, with Merger Sub surviving and changing its name to EarthLink Holdings, LLC (the “Merger”). EarthLink Holdings, LLC is a direct, wholly-owned subsidiary of Windstream Services and provides data, voice and managed network services to retail and wholesale business customers and nationwide Internet access and related value-added services to residential customers. In the Merger, we added approximately 700,000 customers and approximately 16,000 incremental route fiber miles, which expanded our national footprint to approximately 147,000 fiber route miles and enhanced our ability to offer customers expanded products, services and enhanced enterprise solutions. We also expect to achieve operating expense and capital expenditure synergies in integrating the acquired operations. Pursuant to the terms of the Merger Agreement, each share of EarthLink common stock was exchanged for .818 of Windstream Holdings common stock. No fractional shares were issued in the Merger, with a cash payment being made in lieu of fractional shares. Employee restricted stock units issued by EarthLink that were outstanding as of the merger date were exchanged for an equivalent number of Windstream Holdings restricted stock units based on the same exchange ratio of EarthLink common stock to Windstream Holdings common stock of .818 per share. The replacement restricted stock units remain subject to the vesting and other terms and conditions prescribed by the EarthLink equity plans that were assumed by us in the Merger. In the aggregate, Windstream Holdings issued 87.8 million shares of its common stock and 5.2 million of replacement equity awards. Windstream also assumed $435.3 million aggregate principal amount of EarthLink’s long-term debt, which we refinanced, as further discussed in Note 4. The Merger qualifies as a tax-free reorganization for U.S. federal income tax purposes and is valued at approximately $1.1 billion.

The terms of Windstream Corp.’s credit facility and indentures include customary covenants that, among other things, require maintenance of certain financial ratios and restrict Windstream Corp.’s ability to incur additional indebtedness. These financial ratios include a maximum leverage ratio of 4.5 to 1.0 and a minimum interest coverage ratio of 2.75 to 1.0. In addition, the covenants include restrictions on dividend and certain other types of payments. The terms of the indentures assumed in connection with the acquisition of PAETEC include restrictions on the ability of the subsidiary to incur additional indebtedness, including a maximum leverage ratio, with the most restrictive being 4.75 to 1.0. As of September 30, 2014, Windstream Corp. was in compliance with all of these covenants.

In addition, certain of Windstream Corp.’s debt agreements contain various covenants and restrictions specific to the subsidiary that is the legal counterparty to the agreement. Under Windstream Corp.’s long-term debt agreements, acceleration of principal payments would occur upon payment default, violation of debt covenants not cured within 30 days, a change in control including a person or group obtaining 50 percent or more of Windstream Corp.’s outstanding voting stock, or breach of certain other conditions set forth in the borrowing agreements. Windstream Corp. and its subsidiaries were in compliance with these covenants as of September 30, 2014.

NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

____

32. ~~Long-term~~Completion ~~Debt~~of ~~and Lease Obligations~~Merger, Continued:

~~Maturities~~We accounted for ~~long-term~~the ~~debt~~Merger ~~outstanding~~using asthe acquisition method of ~~September 30,~~accounting ~~2014~~and accordingly, ~~excluding~~the ~~$24~~cost of the acquisition was allocated to the assets acquired and liabilities assumed based on their estimated fair values as of the merger date.6 ~~million~~The allocation of ~~unamortized~~the ~~net~~purchase ~~premium~~price is preliminary and subject to change based on the finalization of the third-party appraisals and obtaining information currently not available to us, ~~were~~primarily related to the tax basis of assets acquired. Any changes to the initial estimates of the fair value of the acquired assets and liabilities assumed will be recorded as ~~follows~~adjustments ~~for~~to ~~each~~those asset and liabilities with the offset charged to goodwill. Goodwill associated with the Merger was primarily attributable to the EarthLink workforce and expected synergies. Approximately $54.8 million of goodwill associated with the ~~twelve~~acquisition ~~month~~of ~~periods~~EarthLink ~~ended~~is ~~September 30:~~expected to be deductible for income tax purposes.

Year	(Millions)
2015	$	92.5
2016	702.5
2017	490.9
2018	1,519.4
2019	1,025.6
Thereafter	4,805.6
Total	$	8,636.5

The following table summarizes the preliminary fair values of the assets acquired and liabilities assumed for EarthLink.

Loss on Early Extinguishment of Debt



(Millions)	Preliminary Allocation
Fair value of assets acquired:
Cash and other current assets	$	37.7
Accounts receivable	75.3
Property, plant and equipment	344.0
Goodwill	476.6
Customer lists (a)	275.0
Trade name, developed technology and software (b)	31.0
Other assets	0.3
Total assets acquired	1,239.9
Fair value of liabilities assumed:
Current liabilities	119.5
Long-term debt	449.1
Other liabilities	24.4
Total liabilities assumed	593.0
Common stock and replacement equity awards issued to EarthLink shareholders (c)	$	646.9

~~During~~(a) ~~the~~Customer ~~third~~lists ~~quarter~~are ofamortized ~~2013, Windstream Corp. retired all $500.0 million of the outstanding 2019 Notes~~ using ~~proceeds from~~ the ~~private placement~~ sum-of-years ~~the~~digit ~~2021~~methodology ~~Notes.~~over During the nine month period ended September 30, 2013, Windstream Corp. also retired all $650.0 million of the outstanding PAETEC 2017 Notes. As noted above, the PAETEC 2017 Notes were repurchased using proceeds from the issuance of the 2023 Notes. Windstream Corp. also amended its senior secured credit facility including issuance of Tranche B4, the proceeds of which were used to repay Tranche A2, Tranche B and Tranche B2 during the first quarter of 2013. The retirements and a ~~portion~~weighted ofaverage ~~the~~life ~~credit facility amendment were accounted for under the extinguishment method~~ of ~~accounting, and as a result, Windstream Corp~~5.5 ~~recognized losses due to the extinguishment of the aforementioned debt obligations~~years.

~~The~~(b) ~~loss~~Trade name is amortized on ~~early~~a ~~extinguishment~~straight-line ofbasis ~~debt~~over ~~was~~an asestimated ~~follows~~useful ~~for~~life ~~the~~of ~~three~~7 years. Internally developed technology and ~~nine~~software ~~month~~are ~~period~~amortized ~~ended~~on ~~September 30,~~a ~~2013:~~straight-line basis over an estimated useful life of 3 years.

	Three Months Ended			Nine Months Ended
(Millions)
2019 Notes:
Premium on early redemption	$	(13.6	)	$	(13.6	)
Third-party fees for early redemption	(0.5		)	(0.5		)
Unamortized debt issuance costs on original issuance	(0.6		)	(0.6		)
Loss on early extinguishment for 2019 Notes	(14.7		)	(14.7		)
Senior secured credit facility:
Unamortized debt issuance costs on original issuance	—			(2.5		)
Loss on early extinguishment for senior secured credit facility	—			(2.5		)
PAETEC 2017 Notes:
Premium on early redemption	—			(51.5		)
Third-party fees for early redemption	—			(1.0		)
Unamortized premium on original issuance	—			41.2
Loss on early extinguishment for PAETEC 2017 Notes	—			(11.3		)
Total loss on early extinguishment of debt	$	(14.7	)	$	(28.5	)


(c)	Total merger consideration of $646.9 million consisted of $631.4 million related to shares issued to EarthLink shareholders and $15.5 million related to replacement equity awards.

The preliminary fair values of the assets acquired and liabilities assumed were determined with the assistance of a third-party valuation firm using income, cost, and market approaches. The customer lists were valued based on the present value of future cash flows and the trade name was valued using the relief-from-royalty method, both of which are income approaches. Significant assumptions utilized in the income approach were based on our specific information and projections, which are not observable in the market and are thus considered Level 3 measurements as defined by authoritative guidance. The cost approach, which estimates value by determining the current cost of replacing an asset with another of equivalent economic utility, was used as appropriate for valuing internally developed technology and software and property, plant and equipment. The cost to replace a given asset reflects the estimated reproduction or replacement cost for the asset, less an allowance for loss in value due to depreciation. The fair value of the EarthLink credit facility was based on its redemption cost, while the remaining bonds were valued based on quoted market prices. Equity consideration was based on the opening price of our common stock on February 27, 2017. Consideration related to replacement restricted stock units was calculated based on the opening price of our common stock on February 27, 2017, net of the portion of the fair value attributable to future vesting requirements. The amount allocated to unearned compensation cost for awards subject to future service requirements was calculated based on the fair value of such awards at the acquisition date and will be recognized as compensation cost over the remaining future service period. The preliminary allocation of the purchase price, including the allocation of purchase price to acquired net operating losses, resulted in an estimated net deferred tax asset which was fully offset by a valuation allowance. We expect to adjust this preliminary net deferred tax asset and valuation allowance upon finalization of the third party-appraisal and upon receipt of additional information not currently available to us.

NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

____

32. ~~Long-term~~Completion ~~Debt~~of ~~and Lease Obligations~~Merger, Continued:

~~Capital~~The ~~Lease~~results ~~Obligations~~of EarthLink’s operations are included in our consolidated results of operations beginning on February 27, 2017. For the three months ended March 31, 2017, our consolidated results of operations include revenues and sales of $82.1 million and an operating loss of $2.8 million attributable to EarthLink. We incurred $53.1 million of merger and integration expenses during the first quarter of 2017 related to the completion of the Merger (see Note 9).

WeThe ~~lease~~following ~~facilities~~unaudited ~~and~~pro ~~equipment~~forma ~~for use in our operations. These facilities and equipment are included in outside communications plant in property, plant and equipment in the accompanying~~ consolidated ~~balance~~results ~~sheets. Lease agreements that include a bargain purchase option, transfer~~ of ~~ownership,~~operations ~~contractual lease term equal to or greater than 75 percent~~ of ~~the~~Windstream remaining estimated economic life of the leased facilities or equipment or minimum lease payments equal to or greater than 90 percent of the fair value of the leased facilities or equipment are accounted for ~~as capital leases in accordance with authoritative guidance for capital leases. These capital lease obligations are included in~~ the ~~accompanying~~three ~~consolidated~~months ~~balance sheets within other current liabilities and other liabilities. During the nine month periods~~ ended ~~September~~March 3031, ~~2014~~2017 and ~~2013,~~2016 weassume ~~acquired~~that ~~equipment~~the ~~under~~Merger ~~capital~~occurred ~~leases~~as of ~~$0.6~~January ~~million and $50.8 million~~1, ~~respectively.~~2016:

Future minimum lease payments under capital lease obligations were as follows for each of the twelve month periods ended September 30:



	Three Months Ended March 31,
(Millions)	2017			2016
Revenues and sales	$	1,515.2		$	1,631.5
Operating income	$	96.8		$	92.5
Net loss	$	(82.3	)	$	(270.6	)
Loss per share		($.45	)		($1.53	)

Year	(Millions)
2015	$	29.8
2016	23.7
2017	7.5
2018	1.1
2019	1.9
Thereafter	0.7
Total future payments	64.7
Less: Amounts representing interest	4.7
Present value of minimum lease payments	$	60.0

The pro forma information presents our historical results of operations adjusted to include EarthLink, with the results prior to the merger closing date adjusted to include the pro forma effect of the elimination of transactions between Windstream and EarthLink, the adjustment to revenues and sales to change EarthLink’s reporting of USF fees billed to customers and the related payments from a net basis to a gross basis to conform to Windstream’s reporting of such customer billings, the adjustment to depreciation and amortization expense associated with the estimated acquired fair value of property, plant and equipment and intangible assets, the adjustment to interest expense to reflect the refinancing of EarthLink’s long-term debt obligations, the impact of merger and integration expenses related to the acquisition and the related income tax effects of the pro forma adjustments. The pro forma amounts for the three months ended March 31, 2017 and 2016 also include the effects of non-acquisition-related items, as more fully discussed in Notes 9 and 10.

~~Other~~The ~~Lease~~pro ~~Obligations~~forma results are presented for illustrative purposes only and do not reflect either the realization of potential cost savings or any related integration costs. These pro forma results do not purport to be indicative of the results that would have been obtained if the Merger had occurred as of the date indicated, nor do the pro forma results intend to be a projection of results that may be obtained in the future.

During the third quarter of 2014, we contributed certain of our owned real property to the Windstream Pension Plan and then entered into agreements to leaseback the properties for continued use by our operating subsidiaries. Independent appraisals of the properties contributed were obtained and at the dates of contribution the properties’ aggregate fair value was $80.9 million. The lease agreements include initial lease terms of 10 years for certain properties and 20 years for the remaining properties at an aggregate annual rent of approximately $6.3 ~~million~~. ~~The~~Goodwill ~~lease agreements provide for annual rent increases ranging from 2.0 percent to 3.0 percent over the initial lease term~~ and ~~may~~Other beIntangible renewed for up to three additional five-year terms. The properties are managed on behalf of the Windstream Pension Plan by an independent fiduciary and terms of the lease agreements were negotiated with the fiduciary on an arm’s-length basis.Assets:

~~Due~~Goodwill torepresents ~~various~~the ~~forms~~excess of ~~continuing~~cost ~~involvement,~~over ~~including Windstream Corp.’s benefit from~~ the ~~future~~fair ~~appreciation~~value of ~~the~~net ~~property,~~identifiable ~~the~~tangible ~~transaction~~and ~~has~~intangible ~~been accounted for as a failed contribution-leaseback. Accordingly, the properties continue to be reported as~~ assets ofacquired ~~Windstream~~through ~~and~~various ~~depreciated~~business ~~over their remaining useful lives until termination of the lease agreement~~combinations. WeThe ~~recorded~~cost ~~a long-term lease obligation equal to the fair value~~ of ~~the~~acquired ~~properties~~entities at the date of ~~contribution. No gain or loss has been recognized on~~ the ~~contribution.~~acquisition Asis ~~lease~~allocated ~~payments are made~~ to ~~the~~identifiable ~~Windstream Pension Plan~~assets, aand ~~portion of~~ the ~~payment~~excess ~~will~~of ~~decrease~~ the ~~long-term~~total ~~lease~~purchase ~~obligation~~price ~~with~~over the ~~balance~~amounts ofassigned ~~the payment charged~~ to ~~interest~~identifiable ~~expense~~assets ~~using~~has ~~the~~been ~~effective~~recorded ~~interest~~as ~~method~~goodwill. ~~At September 30, 2014, the total lease obligation was $80.9 million and was included within other current liabilities and other liabilities in the accompanying consolidated balance sheet.~~

Changes in the carrying amount of goodwill were as follows:



(Millions)
Balance at December 31, 2016	$	4,213.6
Acquisition completed during the period - merger with EarthLink	476.6
Balance at March 31, 2017	$	4,690.2

Goodwill assigned to our four operating segments was as follows:



(Millions)	ILEC Consumer and Small Business		Wholesale		Enterprise		CLEC Consumer and Small Business		Total
Balance at December 31, 2016	$	2,321.2	$	1,176.4	$	598.0	$	118.0	$	4,213.6
Acquisition completed during the period - merger with EarthLink	—		127.0		227.8		121.8		476.6
Balance at March 31, 2017	$	2,321.2	$	1,303.4	$	825.8	$	239.8	$	4,690.2

NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

____

3. ~~Long-term~~Goodwill ~~Debt~~ and ~~Lease~~Other ~~Obligations~~Intangible Assets, Continued:

~~Future~~Intangible ~~minimum~~assets ~~payments during the initial terms of the leases~~ were as follows ~~for each of the twelve month periods ended September 30~~at:

Year	(Millions)
		March 31, 2017							December 31, 2016
2015	$	6.3
(Millions)		GrossCost		AccumulatedAmortization			Net CarryingValue		GrossCost		AccumulatedAmortization			Net CarryingValue
2016	6.5
Franchise rights		$	1,285.1	$	(339.6	)	$	945.5	$	1,285.1	$	(328.9	)	$	956.2
2017	6.7
Customer lists		2,066.7		(1,479.0		)	587.7		1,791.7		(1,442.4		)	349.3
2018	6.8
Cable franchise rights		17.3		(8.3		)	9.0		17.3		(8.0		)	9.3
2019	7.0
Trade name		8.0		(0.1		)	7.9		—		—			—
Thereafter	94.6
Developed technology and software		23.0		(0.4		)	22.6		—		—			—
Total	$	127.9
Patents		10.6		(5.6		)	5.0		10.6		(4.9		)	5.7
Balance		$	3,410.7	$	(1,833.0	)	$	1,577.7	$	3,104.7	$	(1,784.2	)	$	1,320.5

~~Interest~~Intangible ~~Expense~~asset amortization methodology and useful lives were as follows as of March 31, 2017:

Interest expense was as follows for the three and nine month periods ended September 30:



Intangible Assets	Amortization Methodology	Estimated Useful Life
Franchise rights	straight-line	30 years
Customer lists	sum of years digits	5.5 - 15 years
Cable franchise rights	straight-line	15 years
Trade name	straight-line	7 years
Developed technology and software	straight-line	3 years
Patents	straight-line	3 years

	Three Months Ended						Nine Months Ended
(Millions)	2014			2013			2014			2013
Interest expense related to long-term debt	$	134.9		$	140.8		$	404.4		$	443.6
Impact of interest rate swaps	7.3			9.2			22.1			40.3
Interest on capital and other lease obligations	2.0			0.8			4.1			2.1
Less capitalized interest expense	(0.8		)	(2.0		)	(2.8		)	(6.3		)
Total interest expense	$	143.4		$	148.8		$	427.8		$	479.7

Amortization expense for intangible assets subject to amortization was $48.8 million and $47.5 million for the three month periods ended March 31, 2017 and 2016, respectively. Amortization expense for intangible assets subject to amortization was estimated to be as follows for each of the years ended March 31:

4. Derivatives:



Year	(Millions)
2018	$	238.3
2019	198.5
2020	158.1
2021	124.4
2022	90.9
Thereafter	767.5
Total	$	1,577.7

Windstream Corp. enters into interest rate swap agreements to mitigate the interest rate risk inherent in its variable rate senior secured credit facility. Derivative instruments are accounted for in accordance with authoritative guidance for recognition, measurement and disclosures about derivative instruments and hedging activities, including when a derivative or other financial instrument can be designated as a hedge. This guidance requires recognition of all derivative instruments at fair value, and accounting for the changes in fair value depends on whether the derivative has been designated as, qualifies as and is effective as a hedge. Changes in fair value of the effective portions of cash flow hedges are recorded as a component of other comprehensive income (loss) in the current period. Any ineffective portion of the hedges is recognized in earnings in the current period.

In 2006, Windstream Corp. entered into four pay fixed, receive variable interest rate swap agreements to serve as cash flow hedges of the interest rate risk inherent in its senior secured credit facility. Windstream Corp. renegotiated the four interest rate swap agreements on December 3, 2010, and again on August 21, 2012, each time lowering the fixed interest rate paid and extending the maturity. As a result of the August 21, 2012 transaction, Windstream Corp. reduced its fixed interest rate paid from 4.553 percent to 3.391 percent effective October 17, 2012. The fixed interest rate paid includes a component which serves to settle the liability existing on Windstream Corp. swaps at the time of the transaction. The variable rate received resets on the seventeenth day of each month to the one-month London Interbank Offered Rate (“LIBOR”). The swaps had a notional value of $900.0 million as of September 30, 2014, where it will remain until maturity on October 17, 2019.

On May 31, 2013, Windstream Corp. entered into six new pay fixed, receive variable interest rate swap agreements, designated as cash flow hedges of the previously unhedged interest rate risk inherent in its senior secured credit facility. These swaps have a fixed notional value of $750.0 million and mature on June 17, 2016. The fixed rate paid ranges from 1.026 to 1.040 percent plus a fixed spread of 2.750 percent. The variable rate received resets on the seventeenth day of each month to the one-month LIBOR subject to a minimum rate of 0.750 percent.

The current swaps are designated as cash flow hedges of the benchmark LIBOR interest rate risk created by the variable rate cash flows paid on Windstream Corp.’s senior secured credit facility, which have varying maturity dates from December 30, 2016 to January 23, 2020. The swaps are hedging probable variable cash flows which extend up to four years beyond the maturity of certain components of the variable rate debt. Consistent with past practice, Windstream Corp. expects to extend or otherwise replace these components of its debt with variable rate debt.

NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

____

4. ~~Derivatives,~~Long-term ~~Continued~~Debt:

~~All~~Windstream ~~derivative~~Holdings ~~instruments~~has ~~are~~no ~~recognized~~debt atobligations. ~~fair~~All ~~value~~debt, inincluding the ~~accompanying~~senior ~~consolidated~~secured ~~balance~~credit ~~sheets~~facility asdescribed ~~either~~below, ~~assets~~have orbeen ~~liabilities,~~incurred ~~depending~~by onWindstream ~~the~~Services ~~rights~~and orits ~~obligations~~subsidiaries. Windstream ~~under~~Holdings is neither a guarantor of nor subject to the ~~related~~restrictive ~~contracts.~~covenants imposed by such debt.

~~Set~~Long-term ~~forth~~debt ~~below~~was isas ~~information~~follows ~~related to the interest rate swap agreements~~at:

(Millions, except for percentages)	September 30, 2014			December 31, 2013
(Millions)	March 31, 2017			December 31, 2016
Designated portion, measured at fair value:
Issued by Windstream Services:
Other assets	$	0.7		$	—
Senior secured credit facility, Tranche B5 – variable rates, due August 8, 2019	$	—		$	572.3
Other current liabilities	$	29.4		$	30.0
Senior secured credit facility, Tranche B6 – variable rates, due March 29, 2021 (a)	1,341.4			894.8
Other non-current liabilities	$	43.2		$	41.8
Senior secured credit facility, Tranche B7 – variable rates, due February 17, 2024	578.5			—
Accumulated other comprehensive income	$	14.5		$	28.2
Senior secured credit facility, Revolving line of credit – variable rates, due April 24, 2020	648.0			475.0
De-designated portion, unamortized value:
Debentures and notes, without collateral:
Accumulated other comprehensive loss	$	(12.5	)	$	(24.7	)
2020 Notes – 7.750%, due October 15, 2020	700.0			700.0
Weighted average fixed rate paid	3.57		%	3.57		%
2021 Notes – 7.750%, due October 1, 2021	809.3			809.3
Variable rate received	0.15		%	0.16		%
2022 Notes – 7.500%, due June 1, 2022	441.2			441.2
2023 Notes – 7.500%, due April 1, 2023	343.5			343.5
2023 Notes – 6.375%, due August 1, 2023	585.7			585.7
Issued by subsidiaries of Windstream Services:
Windstream Holdings of the Midwest, Inc. – 6.75%, due April 1, 2028 (b)	100.0			100.0
Net discount on long-term debt (c)	(13.9		)	(7.2		)
Unamortized debt issuance costs (c)	(54.6		)	(51.0		)
	5,479.1			4,863.6
Less current maturities	(19.3		)	(14.9		)
Total long-term debt	$	5,459.8		$	4,848.7

~~Derivatives~~(a) ~~are~~If ~~assessed~~the ~~for~~maturity ~~effectiveness~~of ~~each~~the ~~quarter~~revolving ~~and~~line ~~any~~of ~~ineffectiveness~~credit is ~~recognized~~not inextended ~~other~~prior ~~(expense)~~to ~~income~~April 24, ~~net~~2020, inthe ~~our~~maturity ~~consolidated~~date ~~statements~~ of ~~income.~~the ~~Ineffectiveness~~Tranche ~~recognized~~B6 onterm ~~the~~loan ~~cash~~will ~~flow~~be ~~hedges~~April ~~was~~24, ~~$(0.1)~~2020; ~~million~~provided ~~and~~further, ~~$(0.3)~~if ~~million~~the ~~for~~2020 ~~the~~Notes ~~three~~have ~~and~~not ~~nine~~been ~~month~~repaid ~~periods~~or ~~ended~~refinanced ~~September 30,~~prior ~~2014~~to July 15, ~~compared~~2020 towith ~~$(0.7)~~indebtedness ~~million~~having ~~and~~a ~~$1.5~~maturity ~~million~~date ~~for~~no earlier than March 29, 2021, the ~~three~~maturity ~~and~~date ~~nine~~of ~~month~~the ~~periods~~Tranche ~~ended~~B6 ~~September 30,~~term ~~2013~~loan will be July 15, ~~respectively~~2020.

~~Windstream~~(b) ~~Corp.’s~~These ~~original~~bonds ~~four swaps~~ are ~~off-market~~secured ~~swaps,~~equally ~~meaning~~with ~~they contain an embedded financing element, which~~ the ~~swap~~senior ~~counterparties~~secured ~~recover~~credit ~~through~~facility anwith ~~incremental~~respect ~~charge~~to in the ~~fixed~~assets ~~rate over what would be charged for an on-market swap. As such, a portion~~ of ~~the cash payment on the swaps represents the rate that~~ Windstream ~~Corp.~~Holdings ~~would pay on a hypothetical on- market interest rate swap and is recognized in interest expense. The remaining portion represents the repayment~~ of the ~~embedded~~Midwest, ~~financing element and reduces the swap liability~~Inc.

~~All~~(c) orThe anet ~~portion~~discount ofbalance ~~the~~and ~~change~~unamortized in fair value of Windstream Corp.’s interest rate swap agreements recorded in accumulated other comprehensive income may be recognized in earnings in certain situations. If Windstream Corp. extinguishes all of its variable rate debt, orissuance acosts ~~portion~~are ofamortized ~~its~~using ~~variable rate debt such that~~ the ~~variable rate~~ interest ~~received~~method onover the ~~swaps~~life ~~exceeds~~of the ~~variable~~related ~~rate interest paid on its~~ debt, ~~all or a portion of the change in fair value of the swaps would be recognized in earnings~~instrument. In addition, the change in fair value of the swaps may be recognized in earnings if Windstream Corp. determines it is no longer probable that it will have future variable rate cash flows to hedge against or if a swap agreement is terminated prior to maturity. Windstream Corp. has assessed the counterparty risk and determined that no substantial risk of default exists as of September 30, 2014. Each counterparty is a bank with a current credit rating at or above A.

Senior Secured Credit Facility - The amended credit facility provides that Windstream ~~Corp.~~Services ~~expects~~may seek to ~~recognize~~obtain ~~losses~~incremental ofrevolving ~~$8.1~~or ~~million,~~term ~~net~~loans ofin ~~taxes,~~an inunlimited ~~interest~~amount ~~expense~~subject into ~~the~~maintaining ~~next~~a ~~twelve~~maximum ~~months~~secured ~~related~~leverage toratio ~~the~~and ~~unamortized~~other ~~value~~customary ofconditions, ~~the~~including ~~de-designated~~obtaining ~~portion~~commitments and pro forma compliance with financial maintenance covenants consisting of ~~interest~~a ~~rate~~maximum ~~swap~~debt ~~agreements~~to atconsolidated ~~September 30~~earnings before interest, ~~2014.~~taxes, ~~Payments~~depreciation onand ~~the~~amortization ~~original~~(“EBITDA”) ~~four~~ratio ~~swaps~~and ~~are~~a ~~presented~~minimum ininterest ~~the~~coverage ~~financing~~ratio. ~~activities~~In ~~section~~addition, ofWindstream ~~the~~Services ~~accompanying~~may ~~consolidated~~request ~~statements~~extensions of ~~cash~~the ~~flows~~maturity ~~due~~date tounder ~~the~~any ~~embedded~~of ~~financing~~its ~~element~~existing ~~discussed~~revolving ~~above~~or term loan facilities.

~~Changes~~On February 17, 2017, Windstream Services issued an aggregate principal amount of $580.0 million in ~~the~~borrowings ~~value~~under Tranche B7 of ~~these~~its ~~derivative~~senior ~~instruments~~secured credit facility, the proceeds of which were asused ~~follows~~to ~~for~~pay down amounts outstanding under Tranche B5, including accrued interest, and to pay related fees and expenses. The incremental Tranche B7 term loan matures on February 17, 2024 and was issued at a price of 99.5 percent of the ~~nine~~principal ~~month~~amount ~~periods~~of ~~ended~~the ~~September~~loan. ~~30:~~

(Millions)	2014			2013
Changes in fair value of effective portion, net of tax (a)	$	(8.4	)	$	13.4
Amortization of unrealized losses on de-designated interest rate swaps, net of tax (a)	$	7.5		$	19.5

(a) Included as a component of other comprehensive income (loss) and will be reclassified into earnings as the hedged transaction affects earnings.

NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

____

4. ~~Derivatives~~Long-term Debt, Continued :

~~The~~Interest ~~agreements~~rates ~~with~~applicable ~~each~~to of the ~~derivative~~Tranche ~~counterparties~~B7 ~~contain~~term ~~cross-default~~loan ~~provisions~~are, ~~whereby~~at if Windstream ~~Corp.~~Services’ ~~were~~option, equal to ~~default~~either ona ~~certain~~base ~~indebtedness,~~rate itplus ~~could~~a ~~also~~margin beof ~~declared~~2.25 inpercent ~~default~~per onannum ~~its~~or ~~derivative~~LIBOR ~~obligations~~plus ~~and~~a ~~may~~margin beof ~~required~~3.25 topercent ~~net~~per ~~settle~~annum. ~~any~~LIBOR ~~outstanding~~for ~~derivative~~the ~~liability~~Tranche ~~positions~~B7 ~~with~~term ~~its~~loan ~~counterparties~~shall at no time be less than 0.75 Inpercent. ~~addition,~~The ~~certain~~Tranche ofB7 ~~the~~term ~~agreements~~loan ~~with~~is ~~the~~subject ~~counterparties~~to ~~contain~~quarterly ~~provisions~~amortization ~~where~~payments ifin aan ~~specified~~aggregate ~~event~~amount orequal ~~condition,~~to ~~such~~0.25 aspercent aof ~~merger~~the initial principal amount of such term loans, ~~occurs~~with ~~that~~the ~~materially~~remaining ~~changes~~balance ~~Windstream~~payable ~~Corp~~at maturity.’s ~~creditworthiness~~At inthe antime ~~adverse~~of ~~manner~~repayment, ~~Windstream~~unamortized ~~Corp.~~debt ~~may~~issuance beand ~~required~~discount related to ~~fully~~Tranche ~~collateralize~~B5 ~~its~~totaled ~~derivative~~$6.3 ~~obligations~~million, of which $1.2 Atmillion ~~September 30,~~were ~~2014~~included in the loss on debt extinguishment, ~~Windstream~~while ~~Corp~~the remaining $5.1 ~~had~~million ~~not~~continue ~~posted~~to ~~any~~be ~~collateral~~deferred ~~related~~and amortized to ~~its~~ interest ~~rate~~expense ~~swap~~over ~~agreements.~~the remaining life of Tranche B7 in accordance with debt modification accounting.

~~Balance~~On ~~Sheet~~the ~~Offsetting~~date of closing of the merger with EarthLink, Windstream Services amended its existing senior secured credit agreement to provide for the issuance of an aggregate principal amount of $450.0 million in incremental borrowings under Tranche B6, the proceeds of which were used to repay amounts outstanding under EarthLink’s credit facility and to redeem EarthLink’s outstanding 8.875 percent Senior Notes due 2019 and 7.375 percent Senior Secured Notes due 2020. The incremental loans were issued at a price of 99.0 percent of the principal amount of the loan. The incremental loans will be repayable at any time, subject to soft call protection for the first six months following incurrence.

During 2016, Windstream ~~Corp.~~Services ishad ~~party~~executed incremental amendments to its ~~master~~existing ~~netting~~senior ~~arrangements~~secured credit facility to provide for the issuance of an aggregate principal amount $900.0 million term loan under Tranche B6 due March 29, 2021, the proceeds of which ~~are~~were ~~designed~~used to ~~reduce~~repurchase ~~credit~~$441.1 ~~risk~~million byof ~~permitting~~outstanding ~~net~~7.875 ~~settlement~~percent notes due November 1, 2017 (the “2017 Notes”) pursuant to a tender offer and to repay other debt obligations of ~~transactions~~Windstream Services along with ~~counterparties~~related fees and expenses. ~~For~~Interest ~~financial~~on ~~statement~~all ~~presentation~~incremental ~~purposes~~loans under Tranche B6 accrue at LIBOR plus a margin of 4.00 percent per annum, ~~Windstream~~with ~~Corp~~LIBOR subject to a 0.75 ~~does~~percent ~~not~~floor. ~~offset~~The ~~assets~~incremental ~~and~~loans ~~liabilities~~are ~~under~~subject ~~these~~to ~~arrangements~~quarterly amortization in an aggregate amount of approximately 0.25 percent of the initial principal amount of the loans, with the remaining balance payable on March 29, 2021.

~~The~~Revolving ~~following~~line ~~table~~of ~~presents~~credit - Under the ~~assets~~amended senior secured credit facility, Windstream Services may obtain revolving loans and ~~liabilities~~may ~~subject~~issue up to an$30.0 ~~enforceable~~million ~~master~~of ~~netting~~letters ~~arrangement~~of ascredit, which upon issuance reduce the amount available for other extensions of ~~September 30~~credit. Accordingly, ~~2014~~the total amount outstanding under the letters of credit and ~~December 31~~the indebtedness incurred under the revolving line of credit may not exceed $1,250.0 ~~2013~~million. AsBorrowings under the revolving line of ~~December 31,~~credit ~~2013~~may be used for permitted acquisitions, ~~all~~working ~~swap~~capital ~~agreements~~and ~~with~~other ~~counterparties~~general ~~were~~corporate inpurposes of Windstream Services and its subsidiaries. Windstream Services will pay a ~~liability~~commitment ~~position~~fee on the unused portion of the commitments under the revolving credit facility that will range from 0.40 percent to 0.50 percent per annum, depending on the debt to consolidated EBITDA ratio of Windstream Services and its subsidiaries. Revolving loans made under the credit facility are not subject to interim amortization and such loans are not required to be repaid prior to April 24, ~~accordingly~~2020, ~~there~~other ~~were~~than noto ~~assets~~the extent the outstanding borrowings exceed the aggregate commitments under the revolving credit facility. Interest rates applicable to beloans ~~recognized~~under inthe revolving line of credit are, at Windstream Services’ option, equal to either a base rate plus a margin ranging from 0.25 percent to 1.00 percent per annum or LIBOR plus a margin ranging from 1.25 percent to 2.00 percent per annum, based on the ~~accompanying~~debt to consolidated ~~balance~~EBITDA ~~sheet~~ratio as of ~~that~~Windstream Services and its subsidiaries. The maturity date of the revolving line of credit is April 24, 2020.

~~Information~~During ~~pertaining~~the tofirst ~~derivative~~three ~~assets~~months of 2017, Windstream Services borrowed $293.0 million under the revolving line of credit in its senior secured credit facility and retired $120.0 million of these borrowings through March 31, 2017. Considering letters of credit of $25.7 million, the amount available for borrowing under the revolving line of credit was as$576.3 ~~follows:~~million at March 31, 2017.

					Gross Amounts Not Offset in the Consolidated Balance Sheets
(Millions)	Gross Amount of RecognizedAssets		Net Amount of Assets presented in the Consolidated Balance Sheets		Financial Instruments			Cash Collateral Received		Net Amount
September 30, 2014:
Interest rate swaps	$	0.7	$	0.7	$	(0.5	)	$	—	$	0.2

During the first three months of 2017, the variable interest rate on the revolving line of credit ranged from 2.65 percent to 5.00 percent, and the weighted average rate on amounts outstanding was 2.83 percent during the period. Comparatively, the variable interest rate ranged from 2.25 percent to 4.50 percent during the first three months of 2016, with a weighted average rate on amounts outstanding during the period of 2.52 percent.

~~Information~~Debentures ~~pertaining~~and toNotes ~~derivative~~Repaid ~~liabilities~~in ~~was as follows:~~2016

					Gross Amounts Not Offset in the Consolidated Balance Sheets
(Millions)	Gross Amount of Recognized Liabilities		Net Amount of Liabilities presented in the Consolidated Balance Sheets		Financial Instruments			Cash Collateral Received		Net Amount
September 30, 2014:
Interest rate swaps	$	72.6	$	72.6	$	(0.5	)	$	—	$	72.1
December 31, 2013:
Interest rate swaps	$	71.8	$	71.8	$	—		$	—	$	71.8

Tender Offer for 2017 Notes - On March 29, 2016, Windstream Services repurchased $441.1 million aggregate principal amount of the 2017 Notes for total consideration of $477.5 million, plus accrued interest, pursuant to a cash tender offer. Under the tender offer, Windstream Services paid total consideration of $1,082.50 per $1,000 principal amount of the 2017 Notes, which included a $30 early tender payment, plus accrued and unpaid interest. At the time of the repurchases, there was $4.6 million in unamortized net discount and debt issuance costs related to the repurchased notes. Proceeds from the issuance of the Tranche B6 term loan were used to fund the repurchase of the 2017 Notes under the tender offer.

5. Fair Value Measurements:

Fair value of financial and non-financial assets and liabilities is defined as an exit price, representing the amount that would be received to sell an asset or transfer a liability in an orderly transaction between market participants. Authoritative guidance defines the following three tier hierarchy for assessing the inputs used in fair value measurements:

Level 1 – Quoted prices in active markets for identical assets or liabilities

Level 2 – Observable inputs other than quoted prices in active markets for identical assets or liabilities

Level 3 – Unobservable inputs

NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

____

54. ~~Fair~~Long-term ~~Value Measurements~~Debt, Continued:

~~The~~Partial ~~highest~~Repurchase ~~priority~~of isSenior ~~given~~Notes to- ~~unadjusted~~Pursuant ~~quoted~~to ~~prices~~the indebt ~~active~~repurchase ~~markets~~program ~~for~~authorized ~~identical~~by ~~assets~~Windstream orServices’ ~~liabilities~~board ~~(level~~of 1directors, ~~measurement)~~during ~~and~~ the ~~lowest~~first ~~priority~~three ismonths ~~given~~of to2016, ~~unobservable~~Windstream ~~inputs~~Services ~~(level~~repurchased ~~3 measurement). Assets and liabilities are classified~~ in ~~their entirety based on~~ the ~~lowest~~open ~~level~~market ~~of input that is significant to the fair value measurement~~$154.2 ~~Our~~million ~~assessment~~aggregate ofprincipal ~~the~~amount ~~significance~~ of aits ~~particular~~senior ~~input~~unsecured tonotes ~~the~~consisting ~~fair value measurement requires judgment and may affect the valuation~~ of ~~fair value assets and liabilities and their placement within~~ the ~~fair value hierarchy levels.~~following:

~~Our~~• ~~non-financial assets and liabilities, including property, plant and equipment, goodwill, intangible assets and asset retirement obligations, are measured at fair value on a non-recurring basis~~$93.5 Nomillion ~~event~~aggregate ~~occurred~~principal during the nine month period ended September 30, 2014 requiring these non-financial assets and liabilities to be subsequently recognized at fair value. Our financial instruments consist primarily of cash and cash equivalents, restricted cash, accounts receivable, income tax receivable, accounts payable, long-term debt and interest rate swaps. The carrying amount of ~~cash,~~2017 ~~restricted cash~~Notes, ~~accounts~~at ~~receivable,~~a ~~income~~repurchase ~~tax~~price ~~receivable and accounts payable was estimated by management to approximate fair value due to the relatively short period~~ of ~~time to maturity for those instruments~~$97.8 ~~Cash equivalents~~million, ~~long-term~~including ~~debt~~accrued and ~~interest~~unpaid ~~rate swaps are measured at fair value on a recurring basis. Cash equivalents were not significant as of December 31, 2013.~~interest;

~~The~~• ~~fair~~$33.1 ~~values~~million aggregate principal amount of ~~interest~~7.750 ~~rate~~percent ~~swaps~~senior ~~and~~unsecured ~~long-term~~notes ~~debt~~due ~~were~~October ~~determined~~1, ~~using~~2021, (the ~~following~~“2021 ~~inputs~~Notes”), at: a repurchase price of $26.0 million, including accrued and unpaid interest;

(Millions)	September 30, 2014		December 31, 2013
Recorded at Fair Value in the Financial Statements:
Cash equivalents - Level 1	$	80.0	$	—
Derivatives:
Interest rate swap assets - Level 2	$	0.7	$	—
Interest rate swap liabilities - Level 2	$	72.6	$	71.8
Not Recorded at Fair Value in the Financial Statements: (a)
Long-term debt, including current maturities - Level 1	$	5,719.6	$	5,270.0
Long-term debt, including current maturities - Level 2	3,167.2		3,738.2
	$	8,886.8	$	9,008.2


•	$17.0 million aggregate principal amount of 7.500 percent senior unsecured notes due June 1, 2022, (the “2022 Notes”), at a repurchase price of $13.1 million, including accrued and unpaid interest; and

~~(a)~~• ~~Recognized~~$10.6 atmillion ~~carrying~~aggregate ~~value~~principal amount of ~~$8,661~~7.1500 ~~million~~percent ~~and~~senior ~~$8,707.2~~unsecured ~~million~~notes indue ~~long-term~~April ~~debt~~1, ~~including current maturities~~2023, in (the ~~accompanying~~“2023 ~~consolidated~~Notes”), ~~balance~~at ~~sheets~~a asrepurchase price of ~~September~~$8.0 30million, ~~2014~~including accrued and ~~December~~unpaid 31interest, ~~2013,~~ respectively.

~~The~~At ~~fair values of interest rate swaps are determined based on~~ the ~~present~~time ~~value~~ of ~~expected future cash flows using observable~~repurchase, ~~quoted~~there ~~LIBOR~~was ~~swap~~$1.6 ~~rates~~million ~~for~~in ~~the~~unamortized ~~full~~premium ~~term of the swaps~~ and ~~also~~debt ~~incorporate~~issuance ~~credit~~costs ~~valuation~~related ~~adjustments~~ to ~~appropriately reflect both Windstream Corp.’s own non-performance risk and non-performance risk of~~ the ~~respective~~repurchased ~~counterparties~~notes. AsThe ofrepurchases ~~September 30,~~were ~~2014~~funded ~~and~~utilizing ~~December 31,~~available ~~2013,~~borrowings ~~the~~under ~~fair values of~~ the ~~interest~~amended ~~rate~~revolving ~~swaps~~line ~~were~~of ~~reduced by $1~~credit.~~9 million and $2.6 million, respectively, to reflect non-performance risk.~~

The ~~fair~~repurchases ~~value~~under of the ~~corporate~~tender ~~bonds~~offer ~~was~~and ~~calculated based on quoted market prices of~~ the ~~specific~~debt ~~issuances~~repurchase inprogram anwere ~~active~~accounted ~~market~~for ~~when~~under ~~available.~~the ~~The~~extinguishment ~~fair~~method ~~value~~ of ~~the~~accounting. ~~other~~Windstream ~~debt~~Services ~~obligations~~recognized ~~was~~a ~~estimated~~net ~~based~~loss on ~~appropriate market interest rates applied to~~ the ~~debt~~early ~~instruments.~~extinguishment ~~In calculating the fair value~~ of ~~the~~these ~~Windstream~~debt ~~Holdings of the Midwest~~obligations, ~~Inc.~~as ~~notes,~~presented ~~an appropriate market price of similar instruments~~ in ~~an active market considering credit quality, nonperformance risk and maturity of~~ the ~~instrument~~table ~~was used~~below.

WeNet doLoss ~~not~~on ~~have~~Early ~~any~~Extinguishment ~~assets or liabilities measured at fair value using significant unobservable inputs (Level 3). We recognize transfers between levels~~ of ~~the fair value hierarchy as of the end of the reporting period. There were no transfers within the fair value hierarchy during the nine month period ended September 30, 2014.~~Debt

The net loss on early extinguishment of debt was as follows:



	Three Months Ended March 31,
(Millions)	2017			2016
EarthLink 2019 and 2020 Notes:
Premium on early redemption	$	(18.3	)	$	—
Unamortized premium recorded in the Merger	16.3			—
Loss on early extinguishment of EarthLink 2019 and 2020 Notes	(2.0		)	—
Senior secured credit facility:
Unamortized discount on original issuance	(0.3		)	—
Unamortized debt issuance costs on original issuance	(0.9		)	—
Loss on early extinguishment of senior secured credit facility	(1.2		)	—
2017 Notes:
Premium on repurchases	—			(40.6		)
Third-party fees for repurchases	—			(2.2		)
Unamortized discount on original issuance	—			(2.0		)
Unamortized debt issuance costs on original issuance	—			(3.7		)
Loss on early extinguishment of 2017 Notes	—			(48.5		)
Partial repurchases of 2021, 2022 and 2023 Notes:
Discount on repurchases	—			13.6
Unamortized premium on original issuance	—			0.3
Unamortized debt issuance costs on original issuance	—			(0.8		)
Gain on early extinguishment from partial repurchases of 2021, 2022 and 2023 Notes	—			13.1
Net loss on early extinguishment of debt	$	(3.2	)	$	(35.4	)

NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

____

64. ~~Commitments~~Long-term ~~and~~Debt, ~~Contingencies~~Continued:

WeMaturities ~~are~~for ~~party~~long-term todebt ~~various~~outstanding ~~legal~~as ~~proceedings, including certain lawsuits claiming infringement~~ of ~~patents~~March 31, ~~relating~~2017, toexcluding ~~various aspects of our business~~$13.9 Inmillion ~~certain~~ of ~~the~~unamortized ~~patent~~net ~~matters,~~discount ~~other industry participants are also parties,~~ and ~~we may have claims of indemnification against vendors/suppliers~~$54.6 ~~The~~million ~~ultimate resolution~~ of ~~these~~unamortized ~~legal~~debt ~~proceedings~~issuance ~~cannot be determined at this time. However~~costs, ~~based~~were onas current circumstances, management does not believe such proceedings, individually or in the aggregate, will have a material adverse effect on the future consolidated results of our income, cash flows or financial condition.follows:

In addition, management is currently not aware of any environmental matters that, individually or in the aggregate, would have a material adverse effect on the consolidated financial condition or our results of operations.



Twelve month period ended:	(Millions)
March 31, 2018	$	19.3
March 31, 2019	19.3
March 31, 2020	19.3
March 31, 2021	2,654.7
March 31, 2022	815.1
Thereafter	2,019.9
Total	$	5,547.6

7.Interest ~~Employee Benefit Plans and Postretirement Benefits:~~Expense

WeInterest ~~maintain~~expense awas non-contributory qualified defined benefit pension plan. Future benefit accruals for all eligible nonbargaining employees covered by the pension plan have ceased. We also maintain supplemental executive retirement plans that provide unfunded, non-qualified supplemental retirement benefits to a select group of management employees. Additionally, we provide postretirement healthcare and life insurance benefits for eligible employees. Employees share in, and we fund, the costs of these plans as ~~benefits are paid.~~follows:

The components of pension benefit (income) expense (including provision for executive retirement agreements) were as follows for the three and nine month periods ended September 30:



	Three Months Ended March 31,
(Millions)	2017			2016
Interest expense - long-term debt	$	85.9		$	91.5
Interest expense - long-term lease obligations:
Telecommunications network assets	122.8			126.9
Real estate contributed to pension plan	1.5			1.5
Impact of interest rate swaps	2.8			2.8
Interest on capital leases and other	1.1			0.6
Less capitalized interest expense	(2.3		)	(3.6		)
Total interest expense	$	211.8		$	219.7

	Three Months Ended						Nine Months Ended
(Millions)	2014			2013			2014			2013
Benefits earned during the period	$	2.1		$	2.6		$	6.2		$	7.9
Interest cost on benefit obligation	14.7			13.1			44.2			39.4
Net actuarial loss	—			—			6.4			3.7
Amortization of prior service credit	—			—			(0.1		)	(0.1		)
Expected return on plan assets	(16.6		)	(16.8		)	(50.5		)	(50.9		)
Net periodic benefit expense (income)	$	0.2		$	(1.1	)	$	6.2		$	—

Debt Compliance

The ~~components~~terms of ~~postretirement~~Windstream ~~benefits~~Services’ ~~income~~credit ~~were~~facility asand ~~follows~~indentures ~~for~~include customary covenants that, among other things, require maintenance of certain financial ratios and restrict Windstream Services’ ability to incur additional indebtedness. These financial ratios include a maximum leverage ratio of 4.5 to 1.0 and a minimum interest coverage ratio of 2.75 to 1.0. In addition, the ~~three~~covenants include restrictions on dividend and ~~nine~~certain ~~month~~other ~~periods~~types ~~ended~~of ~~September~~payments. As of March 3031, :2017, Windstream Services was in compliance with all of these covenants.

	Three Months Ended						Nine Months Ended
(Millions)	2014			2013			2014			2013
Interest cost on benefit obligation	$	0.4		$	0.4		$	0.9		$	1.1
Amortization of net actuarial loss	0.1			0.5			0.1			1.3
Amortization of prior service credit	(1.6		)	(2.2		)	(4.3		)	(6.9		)
Plan curtailments	—			(6.5		)	(9.5		)	(32.2		)
Net periodic benefit income	$	(1.1	)	$	(7.8	)	$	(12.8	)	$	(36.7	)

In addition, certain of Windstream Services’ debt agreements contain various covenants and restrictions specific to the subsidiary that is the legal counterparty to the agreement. Under Windstream Services’ long-term debt agreements, acceleration of principal payments would occur upon payment default, violation of debt covenants not cured within 30 days, a change in control including a person or group obtaining 50 percent or more ownership interest in Windstream Services, or breach of certain other conditions set forth in the borrowing agreements. Windstream Services and its subsidiaries were in compliance with these covenants as of March 31, 2017.

During the first quarter of 2014, we made changes to our postretirement medical plan, eliminating medical and prescription drug subsidies primarily for certain active participants effective April 1, 2014. As a result, we remeasured the plan and recognized curtailment gains totaling $9.5 ~~million, of which $5~~.1 million was recognized in cost of services expenses and $4.4 million was recognized in selling, general and administrative expenses, with the offsetting effect recorded as a reduction in accumulated other comprehensive income of $9.5 million.Derivatives:

~~During~~Windstream ~~2013,~~Services weenters ~~made~~into ~~changes~~interest rate swap agreements to ~~our~~mitigate ~~postretirement~~the ~~medical~~interest ~~plan,~~rate ~~eliminating~~risk ~~medical~~inherent ~~and~~in ~~prescription~~its ~~drug~~variable ~~subsidies~~rate ~~primarily~~senior secured credit facility. Derivative instruments are accounted for ~~certain~~in ~~active~~accordance ~~participants~~with ~~effective~~authoritative ~~August 1,~~guidance ~~2013,~~for ~~October 1~~recognition, ~~2013~~measurement orand ~~January 1~~disclosures about derivative instruments and hedging activities, ~~2014.~~including Aswhen a ~~result,~~derivative weor ~~remeasured~~other ~~the~~financial ~~plan~~instrument ~~and~~can ~~recognized~~be ~~curtailment~~designated ~~gains~~as ofa ~~$32~~hedge.2 ~~million,~~This guidance requires recognition of ~~which~~all ~~$24.1~~derivative ~~million~~instruments ~~was~~at ~~recognized~~fair value, and accounting for the changes in ~~cost~~fair ofvalue ~~services~~depends ~~expenses~~on ~~and~~whether ~~$8.1~~the ~~million~~derivative ~~was~~has ~~recognized~~been indesignated ~~selling~~as, ~~general~~qualifies as and ~~administrative~~is ~~expenses,~~effective ~~with~~as a hedge. Changes in fair value of the ~~offsetting~~effective ~~effects~~portions of cash flow hedges are recorded as ~~reductions~~a incomponent ~~accumulated~~of other comprehensive (loss) income ofin ~~$31.8~~the ~~million~~current ~~and~~period. ~~other~~Any ~~liabilities~~ineffective portion of ~~$0.4~~the ~~million~~hedges is recognized in earnings in the current period.

NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

____

75. ~~Employee Benefit Plans and Postretirement Benefits~~Derivatives, Continued:

WeAs ~~contributed~~of December 31, 2016, Windstream Services was party to three pay fixed, receive variable interest rate swap agreements to serve as cash flow hedges of the interest rate risk inherent in its senior secured credit facility. The swaps have a notional value of $1675.80 million and mature on October 17, 2021. The average fixed interest rate paid is 2.984 percent and includes a component which serves to settle the ~~postretirement~~liability ~~plan~~existing ~~during~~on Windstream Services swaps at the ~~nine~~time ~~month~~of ~~period~~the ~~ended~~transaction. ~~September 30,~~Windstream ~~2014,~~Services ~~and~~also ~~expect~~was toa ~~contribute~~party to an additional pay fixed, receive variable interest rate swap agreement with a bank counterparty with a notional value of $0200.50 million, ~~for~~fixed ~~postretirement~~interest ~~benefits~~rate ~~throughout~~paid ~~the~~of ~~remainder~~1.1275 percent and a maturity date of ~~2014~~October 17, ~~excluding~~2021. ~~amounts~~The ~~that~~variable ~~will~~rate bereceived ~~funded~~on bythese ~~participant~~four ~~contributions~~swaps tois based on one-month LIBOR and resets on the ~~plan~~seventeenth day of each month. On ~~March 7~~February 27, ~~2014~~2017, weWindstream ~~contributed~~Services 1entered into two new pay fixed, receive variable interest rate swap agreements with bank counterparties with a total notional value of $500.0 million ~~shares~~and ofmaturing ~~our~~on ~~common~~October ~~stock~~17, to2021. ~~the~~The ~~Windstream~~fixed ~~Pension~~rate ~~Plan~~paid toon ~~meet~~the ~~our~~new ~~quarterly~~swaps ~~2014~~is ~~funding~~1.8812 ~~requirements~~percent. AtSimilar ~~the~~to ~~time~~Windstream ofServices’ ~~this~~other ~~contribution~~four swaps, the ~~shares~~variable ~~had~~rate anreceived ~~appraised~~on ~~value,~~the asnew ~~determined~~swaps byis athe ~~third~~one-month ~~party~~LIBOR ~~valuation~~and ~~firm,~~resets on the seventeenth day of ~~approximately~~each $8month.3 ~~million.~~Windstream Services has designated each of its six swaps as cash flow hedges of the interest rate risk inherent in borrowings outstanding under its senior secured credit facility due to changes in the LIBOR benchmark interest rate.

AsAll ~~previously~~of ~~discussed~~the inswaps ~~Note~~are 3,hedging weprobable ~~contributed~~variable ~~certain~~cash offlows ~~our~~which ~~own~~extend ~~real~~up ~~property~~ to ~~our~~one ~~qualified~~year ~~pension~~beyond ~~plan during~~ the ~~third~~maturity ~~quarter~~ of ~~2014.~~certain ~~Independent~~components ~~appraisals~~ of ~~the~~Windstream ~~properties~~Services’ ~~contributed~~variable ~~were~~rate ~~obtained~~debt. ~~and~~Consistent ~~the~~with ~~Windstream~~past ~~Pension~~practice, ~~Plan~~Windstream ~~recorded~~Services ~~the~~expects ~~contribution~~to ~~based~~extend onor ~~the~~otherwise ~~properties’~~replace ~~aggregate~~these ~~fair~~components ~~value~~ of ~~$80.9~~its ~~million~~debt atwith ~~the~~variable ~~dates~~rate ~~of contribution~~debt. WeThe ~~subsequently~~three ~~entered~~renegotiated ~~into~~swaps ~~leases~~are ~~for~~off-market ~~the~~swaps, ~~contributed~~meaning ~~properties~~they ~~with~~contain ~~initial~~an ~~lease~~embedded ~~terms~~financing ofelement, 10which ~~years~~the ~~for~~swap ~~certain~~counterparties ~~properties~~recover ~~and~~through 20an ~~years~~incremental ~~for~~charge in the ~~remaining~~fixed ~~properties~~rate atover anwhat ~~aggregate~~would ~~annual~~be ~~rent~~charged offor ~~approximately~~an ~~$6.3~~at-market ~~million~~swap. ~~The~~As ~~lease~~such, ~~agreements~~a ~~provide~~portion ~~for~~of ~~annual~~the ~~rent~~cash ~~increases~~payment ~~ranging~~on ~~from~~the ~~2.0~~swaps ~~percent~~represents tothe ~~3.0~~rate ~~percent~~that ~~over~~Windstream ~~the~~Services ~~initial~~would ~~lease~~pay ~~term~~on ~~and~~a ~~may~~hypothetical beat-market ~~renewed~~interest ~~for~~rate upswap toand ~~three~~is ~~additional~~recognized ~~5-year~~in ~~terms~~interest expense. The ~~properties~~remaining ~~are~~portion ~~managed~~represents onthe ~~behalf~~repayment of the ~~Windstream~~embedded ~~Pension~~financing ~~Plan~~element ~~by an independent fiduciary~~ and ~~terms~~reduces of the ~~lease~~initial ~~agreements~~swap ~~were negotiated with the fiduciary on an arm’s-length basis~~liability.

WeAs also sponsor an employee savings plan under section 401(k) of the Internal Revenue Code, which covers substantially all salaried employees and certain bargaining unit employees. Windstream matches on an annual basis up to a ~~maximum~~result of ~~4.0~~refinancing ~~percent~~transactions ofcompleted ~~employee pre-tax contributions to the plan for employees contributing up to 5.0 percent of their eligible pre-tax compensation. We recorded expenses of $4.3 million and $14.2 million~~ in ~~the~~2013, ~~three~~2015 and ~~nine month periods ended September 30~~2016, ~~2014,~~Windstream ~~respectively,~~Services asde-designated ~~compared~~certain tointerest ~~$4.5~~rate ~~million~~swaps and ~~$13.8~~froze ~~million for~~ the ~~same~~accumulated ~~periods~~net ingains ~~2013 related to our matching contribution under the employee savings plan, which was included in cost of services~~ and ~~selling,~~losses ~~general and administrative~~ in ~~our~~accumulated ~~consolidated~~other ~~statements~~comprehensive of income. ~~Expense~~ related to ~~our~~those ~~2014~~swaps. ~~matching~~The ~~contribution~~frozen ~~expected~~balance ~~to be made in Windstream stock~~ is ~~included~~amortized infrom ~~share-based~~accumulated ~~compensation~~other ~~expense~~comprehensive inincome ~~the accompanying consolidated statements of cash flow. Additionally, we contributed 2.7 million shares of our common stock~~ to ~~the~~interest ~~plan~~expense ~~for~~over the ~~2013~~remaining ~~annual~~life ~~matching contribution during the nine month period ended September 30, 2014. At the time~~ of ~~our contribution,~~ the ~~shares~~original ~~had a value of approximately $21~~swaps.~~6 million as determined by the plan trustee.~~

8.All ~~Share-Based~~derivative ~~Compensation~~instruments ~~Plans:~~are recognized at fair value in the accompanying consolidated balance sheets as either assets or liabilities, depending on the rights or obligations under the related contracts.

~~Under~~Set ~~the~~forth ~~Amended~~below ~~and~~is ~~Restated~~information ~~2006~~related ~~Equity~~to ~~Incentive~~interest ~~Plan~~rate ~~(the~~swap “Incentive Plan”), we may issue a maximum of 35.0 million equity stock awards in the form of restricted stock, restricted stock units, stock appreciation rights or stock options. As of September 30, 2014, the Incentive Plan had remaining capacity of 17.2 million awards. As of September 30, 2014, we had additional remaining capacity of 2.0 million awards from a similar equity incentive plan acquired in the PAETEC acquisition.agreements:

On March 6, 2014, our Board of Directors approved grants of restricted stock and restricted stock units to officers, executives, non-employee directors and certain management employees. These grants include the standard annual grants to these employee and director groups as a key component of their annual incentive compensation plan. Each recipient of the performance based restricted stock units may vest in a number of shares from zero to 150.0 percent of their award based on attainment of certain operating targets, some of which are indexed to the performance of Standard & Poor’s 500 Stock Index, over a three-year period. The operating targets for the first vesting period for these performance based restricted stock units grant were approved by the Board of Directors in March 2014.



(Millions, except for percentages)	March 31, 2017			December 31, 2016
Designated portion, measured at fair value:
Other assets	$	10.8		$	6.3
Other current liabilities	$	14.6		$	13.4
Other non-current liabilities	$	19.1		$	21.9
Accumulated other comprehensive income	$	25.7		$	22.3
De-designated portion, unamortized value:
Accumulated other comprehensive income	$	(9.2	)	$	(10.7	)
Weighted average fixed rate paid	1.37		%	1.82		%
Variable rate received	0.94		%	0.74		%

~~The~~Derivatives ~~vesting~~are ~~periods~~assessed for effectiveness each quarter and ~~grant~~any ~~date~~ineffectiveness ~~fair~~is ~~value~~recognized ~~for~~in ~~restricted~~other ~~stock~~income ~~and~~(expense), ~~restricted~~net ~~stock~~in ~~units~~our ~~issued~~consolidated ~~during~~statements of operations. There was no ineffectiveness recognized on the ~~nine~~cash flow hedges for the three month period ended ~~September 30~~March 31, ~~2014,~~2017. ~~were~~Ineffectiveness asrecognized ~~follows:~~on the cash flow hedges was $(0.5) million for the three month period ended March 31, 2016.

(Thousands)	CommonShares
Vest ratably over a three-year service period	2,903.4
Vest ratably over a two-year service period	18.3
Vest variably over a three-year service period	43.7
Vest contingently over a three-year performance period	1,176.3
Vest one year from date of grant, service based - granted to non-employee directors	121.0
Vest three years from date of grant, service based	12.2
Total granted	4,274.9
Grant date fair value (Millions)	$	35,311.4

NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

____

85. ~~Share-Based Compensation Plans~~Derivatives, Continued:

~~Restricted~~All ~~stock~~or ~~and~~a ~~restricted~~portion ~~stock~~of ~~unit~~the ~~activity~~change ~~for~~in fair value of Windstream Services’ interest rate swap agreements recorded in accumulated other comprehensive income may be recognized in earnings in certain situations. If Windstream Services extinguishes all of its variable rate debt, or a portion of its variable rate debt such that the ~~nine~~variable ~~month~~rate ~~period~~interest ~~ended~~received ~~September 30~~on the swaps exceeds the variable rate interest paid on its debt, ~~2014~~all ~~was~~or a portion of the change in fair value of the swaps may be recognized in earnings. In addition, the change in fair value of the swaps may be recognized in earnings if Windstream Services determines it is no longer probable that it will have future variable rate cash flows to hedge against or if a swap agreement is terminated prior to maturity. Windstream Services has assessed the counterparty risk and determined that no substantial risk of default exists as ~~follows:~~of March 31, 2017. Each counterparty is a bank with a current credit rating at or above A, as determined by Moody’s Investors Service, Standard & Poor’s Corporation and Fitch Ratings.

	(Thousands)Underlying Number ofShares		WeightedAverage FairValue
Non-vested at December 31, 2013	5,259.5		$	10.75
Granted	4,274.9		$	8.26
Vested	(2,456.8	)	$	10.83
Forfeited	(622.3	)	$	8.91
Non-vested at September 30, 2014	6,455.3		$	9.04

Windstream Services expects to recognize net losses of $5.2 million, net of taxes, in interest expense in the next twelve months related to the unamortized value of the de-designated portion of interest rate swap agreements and the interest settlements for these interest swap agreements at March 31, 2017. Payments on the swaps are presented in the financing activities section of the accompanying consolidated statements of cash flows due to the embedded financing element discussed above.

AtChanges September 30, 2014, unrecognized compensation expense totaled $41.2 million and is expected to be recognized over the weighted average vesting period of 1.7 years. Unrecognized compensation expense is included in ~~additional~~derivative ~~paid-in~~instruments ~~capital~~were inas ~~the~~follows ~~accompanying consolidated balance sheets and statements of shareholders’ equity. Share-based compensation expense~~ for ~~restricted stock and restricted stock units was $5.8 million and $19.9 million for~~ the three ~~and nine~~ month periods ended ~~September 30,~~March ~~2014, respectively, as compared to $6.7 million and $20.2 million for the same periods in 2013.~~31:

In addition to including amounts related to restricted stock and restricted units, share-based compensation expense presented in the accompanying consolidated statements of cash flow also includes amounts related to certain executive and management incentive compensation plans and the matching contribution to the employee savings plan for which payments to eligible participants are expected to be made in Windstream stock. For periods prior to the second quarter of 2014, payments made under the applicable executive and management incentive plans had been in the form of cash. A summary of share-based compensation expense was as follows for the three and nine month periods ended September 30:



(Millions)	2017		2016
Changes in fair value of effective portion, net of tax (a)	$	2.1	$	(5.1	)
Amortization of net unrealized losses on de-designated interest rate swaps, net of tax (a)	$	0.9	$	0.7

	Three Months Ended				Nine Months Ended
(Millions)	2014		2013		2014		2013
Restricted stock and restricted units	$	5.8	$	6.7	$	19.9	$	20.2
Employee savings plan (See Note 7)	4.3		4.5		14.2		13.8
Executive and management incentive compensation plans	0.5		—		4.2		—
Share-based compensation expense	$	10.6	$	11.2	$	38.3	$	34.0


(a)	Included as a component of other comprehensive income and will be reclassified into earnings as the hedged transaction affects earnings.

The agreements with each of the derivative counterparties contain cross-default provisions, whereby if Windstream Services were to default on certain indebtedness, it could also be declared in default on its derivative obligations and may be required to net settle any outstanding derivative liability positions with its counterparties at the swap termination value of $32.9 million including accrued interest and excluding the credit valuation adjustment to measure non-performance risk. ~~Merger~~In addition, ~~Integration~~certain ~~and~~of ~~Restructuring~~the ~~Charges:~~agreements with the counterparties contain provisions where if a specified event or condition, such as a merger, occurs that materially changes Windstream Services’ creditworthiness in an adverse manner, Windstream Services may be required to fully collateralize its derivative obligations. At March 31, 2017, Windstream Services had not posted any collateral related to its interest rate swap agreements.

WeBalance ~~incur~~Sheet a significant amount of costs to complete a merger or acquisition and integrate its operations into our business, which are presented as merger and integration expense in our consolidated results of operations. These costs primarily consist of expenses incurred for IT and network conversions, rebranding, and consulting fees. Expenses for IT conversions and other transition activities related to the 2011 acquisition of PAETEC Holding Corp (“PAETEC”) and fees related to the proposed spin-off of certain network and real estate assets account for the merger and integration costs incurred for the periods presented.Offsetting

~~Restructuring~~Windstream ~~charges~~Services ~~are~~is ~~primarily~~party ~~incurred~~to asmaster anetting ~~result of evaluations of our operating structure. Among other things~~arrangements, ~~these~~which ~~evaluations~~are ~~explore~~designed ~~opportunities~~ to ~~provide~~reduce ~~greater~~credit ~~flexibility~~risk inby ~~managing~~permitting ~~and~~net ~~financing~~settlement ~~existing and future strategic operations, for task automation, network efficiency and the balancing~~ of ~~our~~transactions ~~workforce~~with ~~based~~counterparties. onFor ~~the~~financial ~~current~~statement ~~needs~~presentation ofpurposes, ~~our~~Windstream ~~customers.~~Services ~~Severance,~~does ~~lease~~not ~~exit~~offset ~~costs~~assets and ~~other~~liabilities ~~related~~under ~~charges~~these ~~are included in restructuring charges~~arrangements.

OnThe ~~February~~following ~~21,~~tables ~~2014,~~presents wethe ~~announced~~assets aand ~~reduction~~liabilities insubject ~~our workforce~~ to ~~increase~~an ~~operational~~enforceable ~~efficiency.~~master Asnetting aarrangement ~~result,~~as weof ~~eliminated approximately 400 positions on or before~~ March 3 31, ~~2014,~~2017 ~~with~~and ~~about 175 of the eliminated positions resulting from a voluntary separation initiative. In connection with this workforce reduction~~December 31, ~~we incurred pre-tax restructuring charges of $12~~2016.1 ~~million~~Information ~~for~~pertaining ~~the~~to ~~nine~~derivative ~~month~~assets ~~period~~was ~~ended~~as ~~September 30, 2014, primarily consisting of severance and other employee benefit costs.~~follows:



					Gross Amounts Not Offset in the Consolidated Balance Sheets
(Millions)	Gross Amount of Recognized Assets		Net Amount of Assets presented in the Consolidated Balance Sheets		Financial Instruments			Cash Collateral Received		Net Amount
March 31, 2017:
Interest rate swaps	$	10.8	$	10.8	$	(2.7	)	$	—	$	8.1

December 31, 2016:
Interest rate swaps	$	6.3	$	6.3	$	—		$	—	$	6.3

NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

____

95. ~~Merger~~Derivatives, ~~Integration and Restructuring Charges,~~ Continued:

~~The~~Information ~~following~~pertaining isto aderivative ~~summary~~liabilities ofwas ~~the~~as ~~merger, integration and restructuring charges recorded for the three and nine month periods ended September 30~~follows:

		Three Months Ended						Nine Months Ended
							Gross Amounts Not Offset in the Consolidated Balance Sheets
(Millions)	Gross Amount of Recognized Liabilities	~~2014~~		Net Amount of Liabilities Presented in the Consolidated Balance Sheets	~~2013~~		Financial Instruments	~~2014~~		Cash Collateral Received	~~2013~~		Net Amount
Merger and integration costs:
March 31, 2017:
Employee related transition costs		$	—		$	1.5		$	—		$	5.2
Interest rate swaps	$	33.7		$	33.7		$	(2.7	)	$	—		$	31.0
Information technology conversion costs		4.2			2.6			15.7			7.5
December 31, 2016:
Rebranding, consulting and other costs		5.8			1.7			10.3			5.1
Interest rate swaps	$	35.3		$	35.3		$	—		$	—		$	35.3
Total merger and integration costs		10.0			5.8			26.0			17.8
Restructuring charges		3.6			0.8			19.8			8.3
Total merger, integration and restructuring charges		$	13.6		$	6.6		$	45.8		$	26.1

~~After giving consideration to tax benefits on deductible items, merger, integration and restructuring charges decreased net income $8~~6.4 ~~million~~Fair ~~and~~Value ~~$28.2 million for the three and nine month periods ended September 30, 2014, respectively, as compared to $4.1 million and $16.4 million for the same periods in 2013.~~Measurements:

~~The~~Fair ~~following~~value of financial and non-financial assets and liabilities is adefined ~~summary~~as ofan exit price, representing the ~~activity~~amount ~~related~~that would be received to sell an asset or transfer a liability in an orderly transaction between market participants. Authoritative guidance defines the ~~liabilities~~following ~~associated~~three ~~with~~tier ~~merger,~~hierarchy ~~integration~~for ~~and~~assessing ~~restructuring~~the ~~charges~~inputs atused ~~September 30~~in fair value measurements:

(Millions)	2014
Balance, beginning of period	$	14.0
Merger, integration and restructuring charges	45.8
Cash outlays during the period	(52.8		)
Balance, end of period	$	7.0

Level 1 – Quoted prices in active markets for identical assets or liabilities

AsLevel of2 ~~September 30,~~– ~~2014,~~Observable ~~unpaid~~inputs ~~merger,~~other ~~integration~~than ~~and~~quoted ~~restructuring~~prices ~~liabilities~~in ~~consisted~~active ofmarkets ~~$0.6~~for ~~million~~identical ~~primarily~~assets ~~associated~~or ~~with the restructuring initiatives and $6.4 million related to merger and integration activities. Payments of these~~ liabilities ~~will be funded through operating cash flows.~~

~~10.~~Level ~~Accumulated~~3 ~~Other~~– ~~Comprehensive~~Unobservable ~~Income:~~ inputs

~~Accumulated~~The ~~other~~highest ~~comprehensive~~priority ~~income~~is ~~balances,~~given ~~net~~to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority is given to unobservable inputs (level 3 measurement). Assets and liabilities are classified in their entirety based on the lowest level of ~~tax,~~input ~~were~~that asis ~~follows:~~significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the determination of fair value of assets and liabilities and their placement within the fair value hierarchy levels.

(Millions)	September 30, 2014			December 31, 2013
Pension and postretirement plans	$	19.9		$	26.4
Unrealized holding gains (losses) on interest rate swaps:
Designated portion	9.0			17.4
De-designated portion	(7.8		)	(15.3		)
Accumulated other comprehensive income	$	21.1		$	28.5

Our non-financial assets and liabilities, including property, plant and equipment, goodwill, intangible assets and asset retirement obligations, are measured at fair value on a non-recurring basis. No event occurred during the three month period ended March 31, 2017 requiring our non-financial assets and liabilities to be subsequently recognized at fair value. Our financial instruments consist primarily of cash and cash equivalents, accounts receivable, accounts payable, long-term debt and interest rate swaps. The carrying amount of cash, accounts receivable and accounts payable was estimated by management to approximate fair value due to the relatively short period of time to maturity for those instruments. Cash equivalents, long-term debt and interest rate swaps are measured at fair value on a recurring basis. Cash equivalents were not significant as of March 31, 2017 or December 31, 2016.

~~Changes~~The infair ~~accumulated~~values ~~other~~of ~~comprehensive~~interest ~~income~~rate ~~balances,~~swaps ~~net~~and oflong-term ~~tax,~~debt were asdetermined ~~follows~~using the following inputs at:

(Millions)	~~Gains~~March ~~(Losses)on~~31, ~~InterestRate Swaps~~2017			~~Pension~~December ~~andPostretirementPlans~~31, 2016			~~Total~~
Balance at December 31, 2013	$	2.1		$	26.4		$	28.5
Recorded at Fair Value in the Financial Statements:
Other comprehensive (loss) income before reclassifications	(8.4		)	2.0			(6.4		)
Derivatives - Interest rate swap assets - Level 2	$	10.8		$	6.3
Amounts reclassified from other accumulated comprehensive income (a)	7.5			(8.5		)	(1.0		)
Derivatives - Interest rate swap liabilities - Level 2	$	33.7		$	35.3
Balance at September 30, 2014	$	1.2		$	19.9		$	21.1
Not Recorded at Fair Value in the Financial Statements: (a)
Long-term debt, including current maturities - Level 2	$	5,446.7		$	4,884.4

(a) ~~See~~Recognized ~~separate~~at ~~table~~carrying ~~below~~value ~~for~~of ~~details~~$5,533.7 ~~about~~million ~~these~~and ~~reclassifications~~$4,914.6 million in long-term debt, including current maturities, and excluding unamortized debt issuance costs, in the accompanying consolidated balance sheets as of March 31, 2017 and December 31, 2016, respectively.

NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

____

106. ~~Accumulated~~Fair ~~Other~~Value ~~Comprehensive Income~~Measurements, Continued:

~~Reclassifications~~The ~~out~~fair values of ~~accumulated~~interest ~~other~~rate ~~comprehensive~~swaps ~~income~~are ~~were~~determined asbased ~~follows~~on the present value of expected future cash flows using observable, quoted LIBOR swap rates for the ~~three~~full term of the swaps and ~~nine~~also ~~month~~incorporate ~~periods~~credit ~~ended~~valuation ~~September~~adjustments to appropriately reflect both Windstream Services’ own non-performance risk and non-performance risk of the respective counterparties. As of March ~~30:~~31, 2017 and December 31, 2016, the fair values of the interest rate swaps were reduced by $1.8 million and $1.7 million, respectively, to reflect non-performance risk.

	(Millions)Amount Reclassified from Accumulated Other Comprehensive Income
Details about Accumulated Other Comprehensive Income Components	Three Months Ended						Nine Months Ended							Affected Line Item in the Consolidated Statements of Income
	2014			2013			2014			2013
Losses on interest rate swaps:
Amortization of unrealized losses on de-designated interest rate swaps	$	3.9		$	6.0		$	12.2		$	31.6			Interest expense
	3.9			6.0			12.2			31.6				Income from continuing operations before income taxes
	(1.5		)	(2.3		)	(4.7		)	(12.1		)		Income taxes
	2.4			3.7			7.5			19.5				Net income
Pension and postretirement plans:
Plan curtailments	—			(6.5		)	(9.5		)	(31.8		)	(a)
Amortization of net actuarial loss	0.1			0.5			0.1			1.3			(a)
Amortization of prior service credits	(1.6		)	(2.2		)	(4.4		)	(7.0		)	(a)
	(1.5		)	(8.2		)	(13.8		)	(37.5		)		Income from continuing operations before income taxes
	0.6			3.2			5.3			14.5				Income taxes
	(0.9		)	(5.0		)	(8.5		)	(23.0		)		Net income
Total reclassifications for the period, net of tax	$	1.5		$	(1.3	)	$	(1.0	)	$	(3.5	)		Net income

In calculating the fair value of Windstream Services’ long-term debt, the fair value of the debentures and notes was calculated based on quoted market prices of the specific issuances in an active market when available. The fair value of the other debt obligations was estimated based on appropriate market interest rates applied to the debt instruments. In calculating the fair value of the Windstream Holdings of the Midwest, Inc. notes, an appropriate market price of similar instruments in an active market considering credit quality, nonperformance risk and maturity of the instrument was used.

We do not have any assets or liabilities measured for purposes of the fair value hierarchy at fair value using significant unobservable inputs (aLevel 3). ~~These~~We ~~accumulated~~recognize ~~other~~transfers ~~comprehensive~~between ~~income~~levels ~~components~~of ~~are~~the ~~included~~fair invalue ~~the~~hierarchy ~~computation~~as of ~~net~~the ~~periodic~~end ~~benefit~~of ~~income~~the reporting period. ~~See~~There ~~Note~~were 7no ~~for~~transfers ~~additional~~within ~~details~~the fair value hierarchy during the three month period ended March 31, 2017.

117. ~~Earnings~~Employee ~~per~~Benefit ~~Share~~Plans and Postretirement Benefits:

We ~~compute~~maintain ~~basic~~a ~~earnings~~non-contributory ~~per~~qualified ~~share~~defined bybenefit ~~dividing~~pension ~~net~~plan. ~~income~~Future ~~applicable~~benefit toaccruals ~~common~~for ~~shares~~all byeligible ~~the~~nonbargaining ~~weighted~~employees ~~average~~covered ~~number~~by ofthe ~~common~~pension ~~shares~~plan ~~outstanding~~have ~~during each period~~ceased. ~~Our~~We ~~non-vested~~also ~~restricted~~maintain ~~shares~~supplemental ~~containing~~executive aretirement ~~non-forfeitable~~plans ~~right~~that toprovide ~~receive~~unfunded, ~~dividends on a one~~non-~~to-one~~qualified ~~per~~supplemental ~~share~~retirement ~~ratio~~benefits to ~~common~~a ~~shares~~select ~~are~~group ~~considered~~of ~~participating~~management ~~securities~~employees. Additionally, ~~and~~we ~~the~~provide ~~impact~~postretirement ishealthcare ~~included~~and inlife ~~the~~insurance ~~computation~~benefits offor ~~earnings~~eligible ~~per share pursuant to the two-class method~~employees. ~~Calculations~~Employees ~~of earnings per~~ share ~~under~~in, ~~the~~and ~~two-class~~we ~~method~~fund, ~~exclude from~~ the ~~numerator~~costs ~~any~~of ~~dividends~~these ~~paid~~plans oras ~~owed~~benefits ~~on participating securities and any undistributed earnings considered to be attributable to participating securities. The related participating securities~~ are ~~similarly excluded from the denominator~~paid.

~~Diluted~~The ~~earnings~~components ~~per~~of ~~share~~pension ~~are~~benefit ~~computed by dividing net~~ income ~~applicable~~(including toprovision ~~common~~for ~~shares~~executive byretirement ~~the~~agreements) ~~weighted~~were ~~average~~as number of common shares adjusted to include the effect of potentially dilutive securities. Potentially dilutive securities include incremental shares issuable upon exercise of outstanding stock options and warrants. Diluted earnings per share exclude all potentially dilutive securities if their effect is anti-dilutive.follows:

We also issue performance-based restricted stock units as part of our share-based compensation plan. These restricted stock units contain a forfeitable right to receive dividends. Because dividends attributable to these shares are forfeited if the vesting provisions are not met, they are considered non-participating restricted shares and are not dilutive under the two-class method until the performance conditions have been satisfied. As of September 30, 2014, the performance conditions for the outstanding restricted stock units have not yet been satisfied. Options and warrants granted in conjunction with the acquisition of PAETEC are included in the computation of dilutive earnings per share using the treasury stock method.



	Three Months Ended March 31,
(Millions)	2017			2016
Benefits earned during the period	$	2.1		$	2.2
Interest cost on benefit obligation	11.6			13.8
Amortization of prior service credit	(0.1		)	(0.1		)
Expected return on plan assets	(13.6		)	(16.2		)
Net periodic benefit income	$	—		$	(0.3	)

The expected employer contributions to the qualified pension plan to meet our 2017 annual funding requirements are $27.0 million. On January 12, 2017, we made our required quarterly employer contribution of $8.0 million in cash to the qualified pension plan. We intend to fund the remaining 2017 contributions using cash, our common stock, or a combination thereof. On March 2, 2017, we filed an effective shelf registration statement on Form S-3 (the “Registration Statement”) to offer and sell various securities from time to time. Under the Registration Statement, we established an at-the-market common stock offering program (the “ATM Program”) to sell shares of our common stock. We intend to utilize the ATM Program to facilitate contributions of cash to the qualified pension plan, if the price we can obtain for our common stock is no less than $6.00 per share. During the quarter ended March 31, 2017, we issued and sold 1.3 million shares of common stock under the ATM Program and received proceeds of approximately $9.6 million, net of commissions. At March 31, 2017, subject to the terms and conditions of the ATM Program, we may sell an additional $15.2 million aggregate offering price of shares of common stock under the ATM Program. On April 14, 2017, we made our required quarterly contribution of $8.9 million using proceeds from the ATM Program. The amount and timing of future contributions to the qualified pension plan are dependent upon a myriad of factors including future investment performance, changes in future discount rates and changes in the demographics of the population participating in the plan. We also expect to make cash contributions in 2017 totaling $0.9 million to fund the expected benefit payments of our unfunded supplemental executive retirement pension plans.

NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

____

117. ~~Earnings~~Employee ~~per~~Benefit ~~Share~~Plans and Postretirement Benefits, Continued:

AThe ~~reconciliation~~components of ~~net~~postretirement ~~income~~benefits ~~and~~expense ~~number~~(income) ofwere ~~shares used in computing basic and diluted earnings per share was~~ as follows ~~for the three and nine month periods ended September 30~~:

	Three Months Ended								Nine Months Ended
		Three Months Ended March 31,
(Millions, except per share amounts)	2014				2013				2014			2013
(Millions)		2017				2016
Basic and diluted earnings per share:
Interest cost on benefit obligation		$	0.3			$	0.3
Numerator:
Amortization of net actuarial loss		—				0.1
Income from continuing operations	$	8.0			$	30.6			$	38.0		$	121.9
Amortization of prior service credit		(0.1		)		(0.4		)
Income from continuing operations allocable to participating securities	(1.2		)		(1.0		)		(3.7		)	(3.1		)
Plan curtailment		—				(5.5		)
Adjusted income from continuing operations attributable to common shares	6.8				29.6				34.3			118.8
Net periodic benefit expense (income)		$	0.2			$	(5.5	)
Income from discontinued operations	—				—				—			0.7
Income from discontinued operations allocable to participating securities	—				—				—			—
Adjusted income from discontinued operations attributable to common shares	—				—				—			0.7
Net income attributable to common shares	$	6.8			$	29.6			$	34.3		$	119.5
Denominator:
Basic shares outstanding
Weighted average basic shares outstanding	602.7				593.4				601.0			592.2
Weighted average participating securities	(4.9		)		(3.9		)		(4.5		)	(3.9		)
Weighted average shares outstanding for basic earnings per share	597.8				589.5				596.5			588.3
Diluted shares outstanding
Weighted average shares outstanding for basic earnings per share	597.8				589.5				596.5			588.3
Effect of dilutive stock options	0.3				0.3				0.2			0.2
Weighted average shares outstanding for diluted earnings per share	598.1				589.8				596.7			588.5
Basic and diluted earnings per share:
From continuing operations		$.01				$.05				$.06			$.20
From discontinued operations	—				—				—			—
Net income		$.01				$.05				$.06			$.20

~~Options~~During tothe ~~purchase~~first ~~shares~~quarter of ~~stock~~2016, ~~issuable~~we ~~under~~made ~~stock-based~~changes ~~compensation~~to ~~plans~~our ~~that~~postretirement ~~were~~medical ~~excluded~~plan, ~~from~~eliminating ~~the~~medical ~~computation~~and ofprescription ~~diluted~~drug ~~earnings~~subsidies ~~per~~primarily ~~share~~for ~~because~~certain ~~the~~active ~~exercise~~participants ~~prices~~effective ~~were~~March 14, ~~greater~~2016. ~~than~~As ~~the~~a ~~average~~result, ~~market~~we ~~price~~remeasured ofthe ~~our~~plan ~~common stock~~ and, ~~therefore,~~recognized ~~the~~curtailment ~~effect~~gains ~~would~~totaling ~~be anti-dilutive, totaled 0~~$5.5 million, ~~and~~which ~~0.7~~was ~~million~~recognized ~~shares~~in ~~for~~cost ~~the~~of ~~three~~services and ~~nine~~selling, ~~month~~general ~~periods~~and ~~ended~~administrative ~~September 30~~expenses, ~~2014,~~with ~~respectively,~~the asoffsetting ~~compared~~effect torecorded ~~1.0~~as ~~million~~a ~~shares~~reduction ~~for~~in ~~each~~accumulated ofother ~~the~~comprehensive ~~three and nine months ended September 30, 2013, respectively~~income.

We contributed $0.6 million to the postretirement plan during the three month period ended March 31, 2017, and expect to contribute an additional $1.3 million for postretirement benefits throughout the remainder of 2017, excluding amounts that will be funded by participant contributions to the plan.

We also sponsor an employee savings plan under section 401(k) of the Internal Revenue Code, which covers substantially all salaried employees and certain bargaining unit employees. Windstream matches on an annual basis up to a maximum of 4.0 percent of employee pre-tax contributions to the plan for employees contributing up to 5.0 percent of their eligible pre-tax compensation. We recorded expenses of $6.8 million in the three month period ended March 31, 2017, as compared to $6.5 million for the same period in 2016 related to our matching contribution under the employee savings plan, which was included in cost of services and selling, general and administrative expenses in our consolidated statements of operations. Expense related to our 2017 matching contribution expected to be made in Windstream Holdings common stock is included in share-based compensation expense in the accompanying consolidated statements of cash flow. In March 2017, we contributed 3.1 million shares of our common stock with a fair value of $22.7 million, as determined by the plan trustee, and $0.6 million in cash to the plan for the 2016 annual matching contribution. Additionally, we contributed 3.2 million shares of our common stock to the plan for the 2015 annual matching contribution during the three month period ended March 31, 2016. At the time of this contribution, the shares had a fair value of approximately $24.0 million as determined by the plan trustee.

8. Share-Based Compensation Plans:

Under the Amended and Restated 2006 Equity Incentive Plan (the “Incentive Plan”), we may issue a maximum of 24.3 million equity stock awards in the form of restricted stock, restricted stock units, stock appreciation rights or stock options. As of March 31, 2017, the Incentive Plan had remaining capacity of approximately 4.2 million awards. As of March 31, 2017, we had additional remaining capacity of approximately 5.8 million awards from a similar equity incentive plan assumed in the merger with EarthLink.

Our Board of Directors approves grants of restricted stock and restricted stock units to officers, executives, non-employee directors and certain management employees. These grants include the standard annual grants to these employee and director groups as a key component of their annual incentive compensation plan and one-time grants. Grants may include time-based and performance-based awards. Time-based awards granted to employees vest over a service period of two or three years. Each recipient of the performance-based restricted stock units may vest in a number of shares from zero to 150.0 percent of their award based on attainment of certain operating targets, some of which are indexed to the performance of Standard & Poor’s 500 Stock Index, over a three-year period.

The 2016 annual and three-year operating targets for these performance based restricted stock units were approved by the Board of Directors in February 2017 and May 2017. All performance targets for replacement awards granted to EarthLink employees were met prior to the merger date. For equity awards that contain only service conditions for vesting, we calculate the fair value of the award based on Windstream Holdings’ closing price on the grant date determined in accordance with the applicable authoritative guidance.

NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

____

128. ~~Supplemental~~Share-Based ~~Guarantor~~Compensation ~~Information~~Plans, Continued:

~~Debentures~~The vesting periods and ~~notes~~grant date fair value for restricted stock and restricted stock units issued, ~~without~~including ~~collateral~~the EarthLink replacement awards, ~~issued~~were byas ~~Windstream~~follows ~~Corporation~~for the three month period ended March 31, 2017:

In connection with the issuance of the 7.875 percent senior notes due November 1, 2017, the 8.125 percent senior notes due September 1, 2018, the 7.750 percent senior notes due October 15, 2020, the 7.750 percent senior notes due October 1, 2021, the 7.500 percent senior notes due June 1, 2022, the 7.500 percent senior notes due April 1, 2023 and the 6.375 percent senior notes due August 1, 2023 (“the guaranteed notes”), certain of Windstream Corp.’s wholly-owned subsidiaries (the “Guarantors”), provide guarantees of those debentures. These guarantees are full and unconditional, subject to certain customary release provisions, as well as joint and several. All personal property assets and related operations of the Guarantors are pledged as collateral on the senior secured credit facility of Windstream Corp. Certain Guarantors may be subject to restrictions on their ability to distribute earnings to Windstream Corp. The remaining subsidiaries of Windstream Corp. (the “Non-Guarantors”) are not guarantors of the guaranteed notes. Following the acquisitions of acquired businesses, the guaranteed notes were amended to include certain subsidiaries of the acquired businesses as guarantors. Windstream Holdings is not a guarantor of any Windstream Corp. debt instruments.



(Number of shares in thousands)
Service-based restricted stock and restricted units:
Vest variably over remaining service period, up to three years	2,858.7
Vest ratably over a three-year service period	1,068.7
Vest three years from date of grant, service based	33.8
Vest one year from date of grant, service based - granted to non-employee directors	9.4
Total granted	3,970.6
Grant date fair value (Dollars in millions)	$	28.8
Performance restricted units:
Vest variably over remaining required service period, up to three years	2,370.9
Vest contingently at the end of the respective performance period	1,139.3
Total granted	3,510.2
Grant date fair value (Dollars in millions)	$	27.0

~~Upon~~Service-based ~~completing~~restricted anstock ~~internal legal entity restructuring, as of January 1, 2014, certain of Windstream Corp.’s guarantor~~ and ~~non-guarantor~~restricted ~~subsidiaries~~unit ~~were~~activity ~~merged~~for ~~with~~the ~~and~~three ~~into~~month ~~Windstream Corp. Prior~~ period ~~information~~ended ~~has~~March 31, ~~been~~2017 ~~revised~~was toas ~~reflect the change in our legal entity structure.~~follows:

The following information presents condensed consolidated and combined statements of comprehensive income for the three and nine month periods ended September 30, 2014 and 2013, condensed consolidated balance sheets as of September 30, 2014 and December 31, 2013, and condensed consolidated and combined statements of cash flows for the nine month period ended September 30, 2014 and 2013 of Windstream Corp., the Guarantors and the Non-Guarantors. Investments consist of investments in net assets of subsidiaries held by Windstream Corp. and other subsidiaries, and have been presented using the equity method of accounting.



	(Thousands) Underlying Number of Shares		Per Share Weighted Average Fair Value
Non-vested at December 31, 2016	3,283.8		$	10.27
Replacement grants related to merger with EarthLink	2,858.7		$	7.19
Granted	1,111.9		$	7.39
Vested	(2,034.4	)	$	9.95
Forfeited	(80.7	)	$	9.04
Non-vested at March 31, 2017	5,139.3		$	8.08

	Condensed Consolidated Statement of Comprehensive Income (Unaudited)
	Three Months EndedSeptember 30, 2014
(Millions)	Windstream Corp.			Guarantors			Non-Guarantors			Eliminations			Consolidated
Revenues and sales:
Service revenues	$	—		$	258.3		$	1,158.3		$	(7.0	)	$	1,409.6
Product sales	—			11.4			34.5			—			45.9
Total revenues and sales	—			269.7			1,192.8			(7.0		)	1,455.5
Costs and expenses:
Cost of services	—			96.4			580.4			(5.9		)	670.9
Cost of products sold	—			10.9			28.1			—			39.0
Selling, general and administrative	—			22.1			210.5			(1.1		)	231.5
Depreciation and amortization	5.3			74.9			268.3			—			348.5
Merger and integration costs	—			—			10.0			—			10.0
Restructuring charges	—			0.5			3.1			—			3.6
Total costs and expenses	5.3			204.8			1,100.4			(7.0		)	1,303.5
Operating (loss) income	(5.3		)	64.9			92.4			—			152.0
Earnings (losses) from consolidated subsidiaries	69.6			12.5			(0.2		)	(81.9		)	—
Other (expense) income, net	(0.3		)	40.9			(40.7		)	—			(0.1		)
Intercompany interest income (expense)	31.8			(13.4		)	(18.4		)	—			—
Interest expense	(130.9		)	(1.6		)	(10.9		)	—			(143.4		)
(Loss) income before income taxes	(35.1		)	103.3			22.2			(81.9		)	8.5
Income tax (benefit) expense	(43.3		)	34.8			8.8			—			0.3
Net income	$	8.2		$	68.5		$	13.4		$	(81.9	)	$	8.2
Comprehensive income	$	13.8		$	68.5		$	13.4		$	(81.9	)	$	13.8

Performance restricted stock unit activity for the three month period ended March 31, 2017 was as follows:



	(Thousands) Underlying Number of Shares		Per Share Weighted Average Fair Value
Non-vested at December 31, 2016	1,206.3		$	5.64
Replacement grants related to merger with EarthLink	2,370.9		$	7.19
Granted	1,139.3		$	7.39
Vested	(1,375.3	)	$	7.93
Forfeited	(100.7	)	$	6.54
Non-vested at March 31, 2017	3,240.5		$	6.87

At March 31, 2017, unrecognized compensation expense for restricted stock and restricted stock units totaled $40.9 million and is expected to be recognized over the weighted average vesting period of 2.0 years. Unrecognized compensation expense is included in additional paid-in capital in the accompanying consolidated balance sheets and statements of shareholders’ and member equity. The total fair value of shares vested was $31.1 million for the three month period ended March 31, 2017, as compared to $20.7 million for the same period in 2016. Share-based compensation expense for restricted stock and restricted stock units was $10.0 million for the three month period ended March 31, 2017, as compared to $6.6 million for the same period in 2016.

NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

____

128. ~~Supplemental~~Share-Based ~~Guarantor~~Compensation ~~Information~~Plans, Continued:

	Condensed Consolidated Statement of Comprehensive Income (Unaudited)
	Three Months EndedSeptember 30, 2013
(Millions)	Windstream Corp.			Guarantors			Non-Guarantors			Eliminations			Consolidated
Revenues and sales:
Service revenues	$	—		$	268.8		$	1,182.3		$	(8.3	)	$	1,442.8
Product sales	—			13.4			42.3			—			55.7
Total revenues and sales	—			282.2			1,224.6			(8.3		)	1,498.5
Costs and expenses:
Cost of services	—			92.5			558.7			(6.4		)	644.8
Cost of products sold	—			12.7			33.5			—			46.2
Selling, general and administrative	—			20.9			224.1			(1.9		)	243.1
Depreciation and amortization	6.2			73.3			258.7			—			338.2
Merger and integration costs	—			—			5.8			—			5.8
Restructuring charges	—			1.0			(0.2		)	—			0.8
Total costs and expenses	6.2			200.4			1,080.6			(8.3		)	1,278.9
Operating (loss) income	(6.2		)	81.8			144.0			—			219.6
Earnings from consolidated subsidiaries	106.7			17.2			0.7			(124.6		)	—
Other (expense) income, net	(0.8		)	43.0			(47.8		)	—			(5.6		)
Loss on early extinguishment of debt	(14.6		)	—			(0.1		)	—			(14.7		)
Intercompany interest income (expense)	33.0			(14.9		)	(18.1		)	—			—
Interest expense	(138.7		)	(1.4		)	(8.7		)	—			(148.8		)
(Loss) income before income taxes	(20.6		)	125.7			70.0			(124.6		)	50.5
Income tax (benefit) expense	(51.2		)	43.3			27.8			—			19.9
Net income	$	30.6		$	82.4		$	42.2		$	(124.6	)	$	30.6
Comprehensive income	$	25.1		$	82.4		$	42.2		$	(124.6	)	$	25.1

A summary of share-based compensation expense was as follows:



	Three Months Ended March 31,
(Millions)	2017		2016
Restricted stock and restricted units and stock options	$	10.0	$	6.6
Employee savings plan (See Note 7)	6.8		6.5
Management incentive compensation plans	—		0.6
Share-based compensation expense	$	16.8	$	13.7

9. Merger, Integration and Other Costs and Restructuring Charges:

We incur costs to complete a merger or acquisition and integrate its operations into our business, which are presented as merger, integration and other costs in our consolidated results of operations. These costs include transaction costs, such as accounting, legal, consulting and broker fees; severance and related costs; IT and network conversion; rebranding; and contract termination fees. During 2017, we incurred investment banking fees, legal, accounting and other consulting fees and severance and employee benefit costs related to the merger with EarthLink. During the fourth quarter of 2015, we began a network optimization project designed to consolidate traffic onto network facilities operated by us and reduce the usage of other carriers’ networks in our acquired CLEC markets. In undertaking this initiative, we incurred costs to migrate traffic to lower cost circuits and to terminate existing contracts prior to their expiration. We will complete this project in 2017. Costs related to the network optimization project and our merger with EarthLink account for the merger, integration and other costs incurred in 2017.

Restructuring charges are primarily incurred as a result of evaluations of our operating structure. Among other things, these evaluations explore opportunities to provide greater flexibility in managing and financing existing and future strategic operations, for task automation and the balancing of our workforce based on the current needs of our customers. Severance, lease exit costs and other related charges are included in restructuring charges.

In the first quarter of 2017, we completed reductions in our workforce eliminating approximately 280 positions in our ILEC small business and enterprise segments as well as in our engineering, finance and information technology workgroups to more efficiently manage our operations. In completing these workforce reductions, we incurred severance and other employee benefit costs of $7.1 million. Restructuring charges in the first three months of 2016 principally consisted of $4.3 million of severance and other employee-related costs incurred in connection with completing several small workforce reductions.

A summary of the merger, integration and other costs and restructuring charges recorded was as follows:



	Three Months Ended March 31,
(Millions)	2017		2016
Merger, integration and other costs:
Information technology conversion costs	$	0.9	$	—
Costs related to merger with EarthLink (a)	53.1		—
Network optimization and contract termination costs	3.3		4.2
Consulting and other costs	—		0.8
Total merger, integration and other costs	57.3		5.0
Restructuring charges	7.4		4.4
Total merger, integration and other costs and restructuring charges	$	64.7	$	9.4

NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

____

129. ~~Supplemental~~Merger, ~~Guarantor~~Integration ~~Information~~and Other Costs and Restructuring Charges, Continued:

	Condensed Consolidated Statement of Comprehensive Income (Unaudited)
	Nine Months EndedSeptember 30, 2014
(Millions)	Windstream Corp.			Guarantors			Non-Guarantors			Eliminations			Consolidated
Revenues and sales:
Service revenues	$	—		$	776.7		$	3,488.6		$	(18.3	)	$	4,247.0
Product sales	—			31.8			107.6			—			139.4
Total revenues and sales	—			808.5			3,596.2			(18.3		)	4,386.4
Costs and expenses:
Cost of services	—			278.3			1,704.6			(15.1		)	1,967.8
Cost of products sold	—			30.6			89.5			—			120.1
Selling, general and administrative	—			74.8			661.1			(3.2		)	732.7
Depreciation and amortization	16.3			224.3			790.8			—			1,031.4
Merger and integration costs	—			—			26.0			—			26.0
Restructuring charges	—			3.4			16.4			—			19.8
Total costs and expenses	16.3			611.4			3,288.4			(18.3		)	3,897.8
Operating (loss) income	(16.3		)	197.1			307.8			—			488.6
Earnings from consolidated subsidiaries	229.7			37.0			1.0			(267.7		)	—
Other (expense) income, net	(0.4		)	123.5			(123.0		)	—			0.1
Intercompany interest income (expense)	95.1			(40.6		)	(54.5		)	—			—
Interest expense	(392.8		)	(4.8		)	(30.2		)	—			(427.8		)
(Loss) income before income taxes	(84.7		)	312.2			101.1			(267.7		)	60.9
Income tax (benefit) expense	(123.9		)	105.8			39.8			—			21.7
Net income	$	39.2		$	206.4		$	61.3		$	(267.7	)	$	39.2
Comprehensive income	$	31.8		$	206.4		$	61.3		$	(267.7	)	$	31.8

(a)

Includes investment banking, legal, accounting and other consulting fees of $23.4 million, severance and employee benefit costs for EarthLink employees terminated after the Merger of $24.5 million, share-based compensation expense of $4.4 million attributable to the accelerated vesting of replacement equity awards for terminated EarthLink employees and other miscellaneous expenses of $0.8 million.

After giving consideration to tax benefits on deductible items, merger, integration and other costs and restructuring charges increased our reported net loss $44.9 million for the three month period ended March 31, 2017, as compared to $5.8 million for the same period in 2016.

The following is a summary of the activity related to the liabilities associated with merger, integration and other costs and restructuring charges at March 31:



(Millions)	2017
Balance, beginning of period	$	5.8
Merger, integration and other costs and restructuring charges	64.7
Cash outlays during the period	(54.0		)
Balance, end of period	$	16.5

As of March 31, 2017, unpaid merger, integration and other costs and restructuring liabilities consisted of $3.9 million associated with the restructuring initiatives and $12.6 million related to merger and integration activities. Payments of these liabilities will be funded through operating cash flows.

10. Other-Than-Temporary Impairment Loss on Investment in Uniti Common Stock:

On April 24, 2015, we completed the spin-off of certain telecommunications network assets, including our fiber and copper networks and other real estate, to Uniti Group, Inc. (“Uniti”) (formerly Communications Sales & Leasing, Inc.). As of the spin-off date, we retained a passive ownership interest in approximately 19.6 percent of the common stock of Uniti. Shares of Uniti retained by us following the spin-off were classified as available-for-sale and recorded at fair value with unrealized gains and losses reported in accumulated other comprehensive income. No deferred income taxes were recorded with respect to the unrealized gains and losses due to the tax-free qualification of the spin-off.

During the first quarter of 2016, we recorded an other-than-temporary impairment loss of $181.9 million for the difference between the fair value of the Uniti common stock as of March 31, 2016 and our cost basis, which had been based on the market value of the shares on the date of spin-off. We recorded the other-than-temporarily impairment due to the duration in which the Uniti shares had traded at a market price below our initial cost basis. Following the recognition of the other-than-temporary impairment loss, the cost basis of the Uniti shares was adjusted to equal the March 31, 2016 market value of $653.8 million. Subsequent changes in the market value of the Uniti shares were recorded in accumulated other comprehensive income. During the second quarter of 2016, we disposed of all of our shares of Uniti common stock.

11. Accumulated Other Comprehensive Income:

Accumulated other comprehensive income balances, net of tax, were as follows:



(Millions)	March 31, 2017			December 31, 2016
Pension and postretirement plans	$	(1.3	)	$	(1.2	)
Unrealized net gains on interest rate swaps:
Designated portion	15.8			13.7
De-designated portion	(5.7		)	(6.6		)
Accumulated other comprehensive income	$	8.8		$	5.9

NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

____

1211. ~~Supplemental~~Accumulated ~~Guarantor~~Other ~~Information~~Comprehensive Income, Continued:

	Condensed Consolidated Statement of Comprehensive Income (Unaudited)
	Nine Months EndedSeptember 30, 2013
(Millions)	Windstream Corp.			Guarantors			Non-Guarantors			Eliminations			Consolidated
Revenues and sales:
Service revenues	$	—		$	804.3		$	3,560.4		$	(25.2	)	$	4,339.5
Product sales	—			41.9			115.3			—			157.2
Total revenues and sales	—			846.2			3,675.7			(25.2		)	4,496.7
Costs and expenses:
Cost of services	—			271.5			1,680.4			(19.3		)	1,932.6
Cost of products sold	—			42.1			96.1			—			138.2
Selling, general and administrative	—			61.4			662.1			(5.9		)	717.6
Depreciation and amortization	18.8			218.5			762.4			—			999.7
Merger and integration costs	—			—			17.8			—			17.8
Restructuring charges	—			2.3			6.0			—			8.3
Total costs and expenses	18.8			595.8			3,224.8			(25.2		)	3,814.2
Operating (loss) income	(18.8		)	250.4			450.9			—			682.5
Earnings from consolidated subsidiaries	352.5			49.7			1.9			(404.1		)	—
Other income (expense), net	2.1			125.1			(132.2		)	—			(5.0		)
Loss on early extinguishment of debt	(17.1		)	—			(11.4		)	—			(28.5		)
Intercompany interest income (expense)	103.2			(47.1		)	(56.1		)	—			—
Interest expense	(447.0		)	(4.4		)	(28.3		)	—			(479.7		)
(Loss) income from continuing operations before income taxes	(25.1		)	373.7			224.8			(404.1		)	169.3
Income tax (benefit) expense	(147.7		)	126.1			69.0			—			47.4
Income from continuing operations	122.6			247.6			155.8			(404.1		)	121.9
Discontinued operations	—			—			0.7			—			0.7
Net income	$	122.6		$	247.6		$	156.5		$	(404.1	)	$	122.6
Comprehensive income	$	135.2		$	247.6		$	156.5		$	(404.1	)	$	135.2

Changes in accumulated other comprehensive income balances, net of tax, were as follows:



(Millions)	Net Gains on Interest Rate Swaps		Pension and Postretirement Plans			Total
Balance at December 31, 2016	$	7.1	$	(1.2	)	$	5.9
Other comprehensive income before reclassifications	2.1		—			2.1
Amounts reclassified from other accumulated comprehensive income (a)	0.9		(0.1		)	0.8
Balance at March 31, 2017	$	10.1	$	(1.3	)	$	8.8


(a)	See separate table below for details about these reclassifications.

Reclassifications out of accumulated other comprehensive income were as follows:



	(Millions) Amount Reclassified from Accumulated Other Comprehensive Income
Details about Accumulated Other Comprehensive Income Components		Three Months Ended March 31,							Affected Line Item in the Consolidated Statements of Operations
		2017			2016
Available-for-sale securities:
Other-than-temporary impairment loss recognized in the period		$	—		$	181.9			Other-than-temporary impairment loss on investment in Uniti common stock
		—			181.9				Net loss
Interest rate swaps:
Amortization of net unrealized losses on de-designated interest rate swaps		1.5			1.2				Interest expense
		1.5			1.2				Loss before income taxes
		(0.6		)	(0.5		)		Income tax benefit
		0.9			0.7				Net loss
Pension and postretirement plans:
Plan curtailment		—			(5.5		)	(a)
Amortization of net actuarial loss		—			0.1			(a)
Amortization of prior service credits		(0.2		)	(0.5		)	(a)
		(0.2		)	(5.9		)		Loss before income taxes
		0.1			2.3				Income tax benefit
		(0.1		)	(3.6		)		Net loss
Total reclassifications for the period, net of tax		$	0.8		$	179.0			Net loss


(a)	These accumulated other comprehensive income components are included in the computation of net periodic benefit expense (income) (see Note 7).

NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

____

	Condensed Consolidated Balance Sheet (Unaudited)
	As of September 30, 2014
(Millions)	Windstream Corp.		Guarantors		Non-Guarantors		Eliminations			Consolidated
Assets
Current Assets:
Cash and cash equivalents	$	57.6	$	0.8	$	45.3	$	—		$	103.7
Restricted cash	7.7		—		—		—			7.7
Accounts receivable (less allowance for doubtful accounts of $40.2)	—		129.9		487.4		—			617.3
Notes receivable - affiliate	—		4.7		—		(4.7		)	—
Affiliates receivable, net	—		1,015.2		2,049.9		(3,065.1		)	—
Inventories	—		41.9		26.2		—			68.1
Deferred income taxes	28.6		10.5		30.4		—			69.5
Prepaid income taxes	21.0		—		—		—			21.0
Prepaid expenses and other	5.8		20.4		114.6		—			140.8
Total current assets	120.7		1,223.4		2,753.8		(3,069.8		)	1,028.1
Investments in consolidated subsidiaries	10,227.7		972.1		283.0		(11,482.8		)	—
Notes receivable - affiliate	—		318.6		—		(318.6		)	—
Goodwill	1,649.5		825.6		1,856.3		—			4,331.4
Other intangibles, net	603.4		365.3		857.0		—			1,825.7
Net property, plant and equipment	10.1		1,283.6		4,162.6		—			5,456.3
Other assets	108.8		16.9		64.4		—			190.1
Total Assets	$	12,720.2	$	5,005.5	$	9,977.1	$	(14,871.2	)	$	12,831.6
Liabilities and Shareholders’ Equity
Current Liabilities:
Current maturities of long-term debt	$	92.4	$	—	$	0.1	$	—		$	92.5
Current portion of interest rate swaps	29.4		—		—		—			29.4
Accounts payable	6.2		64.5		285.8		—			356.5
Affiliates payable, net	3,217.8		—		—		(3,065.1		)	152.7
Notes payable - affiliate	—		—		4.7		(4.7		)	—
Advance payments and customer deposits	—		17.1		199.6		—			216.7
Accrued taxes	0.2		24.4		73.0		—			97.6
Accrued interest	148.7		3.8		17.3		—			169.8
Other current liabilities	33.9		15.2		239.6		—			288.7
Total current liabilities	3,528.6		125.0		820.1		(3,069.8		)	1,403.9
Long-term debt	7,996.2		99.6		472.8		—			8,568.6
Notes payable - affiliate	—		—		318.6		(318.6		)	—
Deferred income taxes	675.8		413.6		783.1		—			1,872.5
Other liabilities	60.7		51.5		415.5		—			527.7
Total liabilities	12,261.3		689.7		2,810.1		(3,388.4		)	12,372.7
Commitments and Contingencies (See Note 6)
Shareholders’ Equity:
Common stock	—		39.4		81.9		(121.3		)	—
Additional paid-in capital	437.8		3,794.9		3,979.4		(7,774.3		)	437.8
Accumulated other comprehensive income	21.1		—		19.8		(19.8		)	21.1
Retained earnings	—		481.5		3,085.9		(3,567.4		)	—
Total shareholders’ equity	458.9		4,315.8		7,167.0		(11,482.8		)	458.9
Total Liabilities and Shareholders’ Equity	$	12,720.2	$	5,005.5	$	9,977.1	$	(14,871.2	)	$	12,831.6

12. Loss per Share:

We compute basic earnings (loss) per share by dividing net income (loss) applicable to common shares by the weighted average number of common shares outstanding during each period. Our non-vested restricted shares containing a non-forfeitable right to receive dividends on a one-to-one per share ratio to common shares are considered participating securities, and the impact is included in the computation of earnings (loss) per share pursuant to the two-class method. Calculations of earnings (loss) per share under the two-class method exclude from the numerator any dividends paid or owed on participating securities and any undistributed earnings considered to be attributable to participating securities. The related participating securities are similarly excluded from the denominator.

Diluted earnings (loss) per share is computed by dividing net income (loss) applicable to common shares by the weighted average number of common shares adjusted to include the effect of potentially dilutive securities. Potentially dilutive securities include incremental shares issuable upon exercise of outstanding stock options and warrants. Diluted earnings (loss) per share excludes all potentially dilutive securities if their effect is anti-dilutive.

We also issue performance-based restricted stock units as part of our share-based compensation plan. Certain of these restricted stock units contain a forfeitable right to receive dividends. Because dividends attributable to these shares are forfeited if the vesting provisions are not met, they are considered non-participating restricted shares and are not dilutive under the two-class method until the performance conditions have been satisfied. As of March 31, 2017, the performance conditions for the outstanding restricted stock units have not yet been satisfied. Restricted stock units, stock options and warrants granted in conjunction with past acquisitions are included in the computation of dilutive earnings (loss) per share using the treasury stock method.

A reconciliation of net loss and number of shares used in computing basic and diluted loss per share was as follows:



	Three Months Ended March 31,
(Millions, except per share amounts)	2017			2016
Basic and diluted loss per share:
Numerator:
Net loss	$	(111.3	)	$	(231.9	)
Income allocable to participating securities	(0.6		)	(0.5		)
Net loss attributable to common shares	$	(111.9	)	$	(232.4	)

Denominator:
Basic and diluted shares outstanding
Weighted average shares outstanding	130.4			96.4
Weighted average participating securities	(4.3		)	(4.2		)
Weighted average basic and diluted shares outstanding	126.1			92.2
Basic and diluted loss per share:
Net loss		($.89	)		($2.52	)

We have excluded from the computation of diluted shares the effect of restricted stock units and options to purchase shares of our common stock because their inclusion would have an anti-dilutive effect due to our reported net loss for both the three months ended March 31, 2017 and 2016. We had 5.2 million restricted stock units and 0.2 million stock options outstanding as of March 31, 2017, compared to 1.5 million restricted stock units and 0.5 million stock options outstanding at March 31, 2016.

NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

____

1213. ~~Supplemental~~Segment ~~Guarantor~~ Information~~, Continued~~:

	Condensed Consolidated Balance Sheet (Unaudited)
	As of December 31, 2013
(Millions)	Windstream Corp.		Guarantors		Non-Guarantors		Eliminations			Consolidated
Assets
Current Assets:
Cash and cash equivalents	$	13.7	$	0.7	$	33.8	$	—		$	48.2
Restricted cash	9.7		—		—		—			9.7
Accounts receivable (less allowance for doubtful accounts of $40.0)	—		117.4		517.9		—			635.3
Notes receivable - affiliate	—		4.8		—		(4.8		)	—
Affiliates receivable, net	—		743.7		1,864.5		(2,608.2		)	—
Inventories	—		49.8		17.9		—			67.7
Deferred income taxes	202.1		10.5		28.9		—			241.5
Prepaid income taxes	29.7		—		—		—			29.7
Prepaid expenses and other	5.6		20.8		126.3		—			152.7
Total current assets	260.8		947.7		2,589.3		(2,613.0		)	1,184.8
Investments in consolidated subsidiaries	9,997.5		936.7		291.1		(11,225.3		)	—
Notes receivable - affiliate	—		321.3		—		(321.3		)	—
Goodwill	1,649.5		825.6		1,856.3		—			4,331.4
Other intangibles, net	645.0		397.6		977.5		—			2,020.1
Net property, plant and equipment	10.2		1,350.9		4,341.5		—			5,702.6
Other assets	120.3		14.8		70.6		—			205.7
Total Assets	$	12,683.3	$	4,794.6	$	10,126.3	$	(14,159.6	)	$	13,444.6
Liabilities and Shareholders’ Equity
Current Liabilities:
Current maturities of long-term debt	$	84.9	$	—	$	0.1	$	—		$	85.0
Current portion of interest rate swaps	30.0		—		—		—			30.0
Accounts payable	5.0		54.8		326.1		—			385.9
Affiliates payable, net	2,758.9		—		—		(2,608.2		)	150.7
Notes payable - affiliate	—		—		4.8		(4.8		)	—
Advance payments and customer deposits	—		17.4		206.1		—			223.5
Accrued taxes	0.2		33.8		70.3		—			104.3
Accrued interest	95.4		1.8		6.3		—			103.5
Other current liabilities	38.1		17.2		307.1		—			362.4
Total current liabilities	3,012.5		125.0		920.8		(2,613.0		)	1,445.3
Long-term debt	8,044.9		99.6		477.7		—			8,622.2
Notes payable - affiliate	—		—		321.3		(321.3		)	—
Deferred income taxes	724.7		421.7		891.9		—			2,038.3
Other liabilities	60.7		28.8		408.8		—			498.3
Total liabilities	11,842.8		675.1		3,020.5		(2,934.3		)	12,604.1
Commitments and Contingencies (See Note 6)
Shareholders’ Equity:
Common stock	—		39.4		81.9		(121.3		)	—
Additional paid-in capital	812.0		3,657.5		3,978.8		(7,636.3		)	812.0
Accumulated other comprehensive income	28.5		—		26.3		(26.3		)	28.5
Retained earnings	—		422.6		3,018.8		(3,441.4		)	—
Total shareholders’ equity	840.5		4,119.5		7,105.8		(11,225.3		)	840.5
Total Liabilities and Shareholders’ Equity	$	12,683.3	$	4,794.6	$	10,126.3	$	(14,159.6	)	$	13,444.6

Our business unit organizational structure is focused on our core customer relationships. Enterprise customers consist of those relationships that have the propensity now or in the future to generate at least $1,500 or more in monthly recurring revenue. Business customers not meeting this criterion are classified as small business. In classifying our business customers, we consider the maximum potential revenue to be generated from the customer relationship for both our existing customer base and any new customers in determining which business unit can best support the customer. Accordingly, over time, we may prospectively change the classification of a particular business customer between enterprise and small business. Our consumer and small business customer base is further disaggregated between those customers located in service areas in which we are the incumbent local exchange carrier (“ILEC”) and provide services over network facilities operated by us and those customers located in service areas in which we are a competitive local exchange carrier (“CLEC”) and provide services over network facilities primarily leased from other carriers. Under our current organizational structure, we have combined our ILEC Consumer and Small Business operations into one segment and we have combined into a separate segment our CLEC Consumer and Small Business operations due to similarities with respect to product and service offerings, marketing strategies and customer service delivery.

Following the merger with EarthLink, we operate and report these four customer-based segments:

•

ILEC Consumer and Small Business - We manage as one business our residential and small business operations in those markets in which we are the ILEC due to the similarities with respect to service offerings, marketing strategies and customer service delivery. Products and services offered to customers include traditional local and long-distance voice services and high-speed Internet services, which are delivered primarily over network facilities operated by us. We offer consumer video services primarily through a relationship with Dish Network LLC and we also own and operate cable television franchises in some of our service areas. We offer Kinetic, a complete video entertainment offering in our Lincoln, Nebraska; Lexington, Kentucky; Sugar Land, Texas markets, as well as several communities in North Carolina.

Residential customers can bundle voice, high-speed Internet and video services, to provide one convenient billing solution and receive bundle discounts. Small Business - ILEC services offer a wide range of advanced Internet, voice, and web conferencing products. These services are equipped to deliver high-speed Internet with competitive speeds, value added services to enhance business productivity and options to bundle services for a global business solution to meet our small business customer needs.

•

Wholesale - Our wholesale operations are focused on providing products and services to other communications services providers. Our service offerings leverage Windstream’s extensive fiber network to provide wave transport services, carrier Ethernet services, fiber-to-tower connections to support backhaul services to wireless carriers, and high speed Internet access. We also offer traditional services including special access services and Time Division Multiplexing (“TDM”) private line transport. The combination of these services allow wholesale customers to provide voice and data services to their customers through the use of our network or in combination with their own networks.

•

Enterprise - Products and services offered by our enterprise operations include integrated voice and data services, which deliver voice and broadband services over a single Internet connection, multi-site networking services which provide a fast and private connection between business locations, as well as a variety of other data services, including cloud computing and collocation and managed services as an alternative to traditional information technology infrastructure.


•	CLEC Consumer and Small Business - Products and services offered to customers include integrated voice and data services, advanced data and traditional voice and long-distance services, as well as value added services including online backup, managed web design and web hosting, and various e-mail services.

We evaluate performance of the segments based on segment income, which is computed as segment revenues and sales less segment operating expenses. As further discussed below, certain operating revenues and expenses are not assigned to our segments.

Segment revenues are based upon each customer’s classification to an individual segment and include all services provided to that customer. Certain operating revenues are derived from activities that are centrally-managed by us and, accordingly, these revenues are not included in any of our four segments presented below. These other operating revenues include revenue from federal and state universal service funds, CAF Phase II support, and funds received from federal access recovery mechanisms. We also generate other service revenues from providing switched access services, which include usage-based revenues from long-distance companies and other carriers for access to our network to complete long-distance calls, as well as reciprocal compensation received from wireless and other local connecting carriers for the use of network facilities. Other operating revenues also include certain surcharges assessed to our customers, including billings for our required contributions to federal and state USF programs and product sales to contractors.

NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

____

1213. ~~Supplemental~~Segment ~~Guarantor~~ Information, Continued:

	Condensed Consolidated Statement of Cash Flows (Unaudited)
	Nine Months EndedSeptember 30, 2014
(Millions)	Windstream Corp.			Guarantors			Non-Guarantors			Eliminations		Consolidated
Cash Provided from Operations:
Net cash provided from operations	$	43.4		$	354.8		$	715.5		$	—	$	1,113.7
Cash Flows from Investing Activities:
Additions to property, plant and equipment	(1.4		)	(75.5		)	(475.8		)	—		(552.7		)
Broadband network expansion funded by stimulus grants	—			(0.3		)	(11.3		)	—		(11.6		)
Changes in restricted cash	2.0			—			—			—		2.0
Grant funds received for broadband stimulus projects	25.8			—			—			—		25.8
Grant funds received from Connect America Fund	—			9.4			16.6			—		26.0
Network expansion funded by Connect America Fund	—			(0.5		)	(1.5		)	—		(2.0		)
Net cash provided from (used in) investing activities	26.4			(66.9		)	(472.0		)	—		(512.5		)
Cash Flows from Financing Activities:
Distributions to Windstream Holdings, Inc.	(452.4		)	—			—			—		(452.4		)
Repayments of debt and swaps	(1,049.0		)	—			—			—		(1,049.0		)
Proceeds of debt issuance	985.0			—			—			—		985.0
Intercompany transactions, net	500.0			(290.5		)	(209.5		)	—		—
Payments under capital lease obligations	—			—			(19.8		)	—		(19.8		)
Other, net	(9.5		)	2.7			(2.7		)	—		(9.5		)
Net cash used in financing activities	(25.9		)	(287.8		)	(232.0		)	—		(545.7		)
Increase in cash and cash equivalents	43.9			0.1			11.5			—		55.5
Cash and Cash Equivalents:
Beginning of period	13.7			0.7			33.8			—		48.2
End of period	$	57.6		$	0.8		$	45.3		$	—	$	103.7

Segment expenses include specific expenses incurred as a direct result of providing services and products to segment customers; selling, general and administrative expenses that are directly associated with specific segment customers or activities; and certain allocated expenses which include network expenses, facilities expenses and other expenses, such as vehicle and real estate-related expenses. We do not assign depreciation and amortization expense, merger, integration and other costs, restructuring charges, share-based compensation and pension costs to our segments, because these expenses are centrally managed and are not monitored by or reported to the chief operating decision maker (“CODM”) by segment. Similarly, certain regulatory fees, cost of products sold to contractors, and centrally-managed administrative functions, such as accounting and finance, information technology, engineering, network management, legal and human resources, are not assigned to our segments. Interest expense and net loss on early extinguishment of debt have also been excluded from segment operating results because we manage our financing activities on a total company basis and have not assigned any long-term debt obligations to the segments. Amounts related to our investment in Uniti common stock consisting of dividend income and other-than-temporary impairment loss, as well as other (expense) income, net, and income tax benefit are not monitored as a part of our segment operations and, therefore, these items also have been excluded from our segment operating results.

Asset information by segment is not monitored or reported to the CODM and therefore has not been presented. All of our customers are located in the United States and we do not have any single customer that provides more than 10 percent of our total consolidated revenues and sales.

The following table summarizes our segment results:



	Three Months Ended March 31,
(Millions)	2017		2016
ILEC Consumer and Small Business:
Revenues and sales	$	391.0	$	397.2
Costs and expenses	169.3		169.1
Segment income	221.7		228.1
Wholesale:
Revenues	157.5		163.2
Costs and expenses	50.0		45.5
Segment income	107.5		117.7
Enterprise:
Revenues and sales	525.5		513.1
Costs and expenses	443.0		442.6
Segment income	82.5		70.5
CLEC Consumer and Small Business:
Revenues	140.3		128.7
Costs and expenses	91.5		87.4
Segment income	48.8		41.3
Total segment revenues and sales	1,214.3		1,202.2
Total segment costs and expenses	753.8		744.6
Total segment income	$	460.5	$	457.6

The following table reconciles total segment revenues and sales to total consolidated revenues and sales:



	Three Months Ended March 31,
(Millions)	2017		2016
Total segment revenues and sales	$	1,214.3	$	1,202.2
Regulatory and other operating revenues and sales	151.4		171.2
Total consolidated revenues and sales	$	1,365.7	$	1,373.4

NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

____

1213. ~~Supplemental~~Segment ~~Guarantor~~ Information, Continued:

	Condensed Consolidated Statement of Cash Flows (Unaudited)
	Nine Months EndedSeptember 30, 2013
(Millions)	Windstream Corp.			Guarantors			Non-Guarantors			Eliminations		Consolidated
Cash Provided from Operations:
Net cash (used in) provided from operations	$	(92.5	)	$	426.7		$	826.5		$	—	$	1,160.7
Cash Flows from Investing Activities:
Additions to property, plant and equipment	(1.0		)	(117.0		)	(548.0		)	—		(666.0		)
Broadband network expansion funded by stimulus grants	—			(3.5		)	(25.3		)	—		(28.8		)
Changes in restricted cash	11.5			—			1.5			—		13.0
Grant funds received for broadband stimulus projects	53.5			—			—			—		53.5
Net cash provided from (used in) investing activities	64.0			(120.5		)	(571.8		)	—		(628.3		)
Cash Flows from Financing Activities:
Dividends paid to shareholders	(444.6		)	—			—			—		(444.6		)
Repayments of debt and swaps	(3,443.1		)	—			(650.1		)	—		(4,093.2		)
Proceeds of debt issuance	3,997.5			—			—			—		3,997.5
Debt issuance costs	(29.7		)	—			—			—		(29.7		)
Intercompany transactions, net	(74.4		)	(309.1		)	383.5			—		—
Payments under capital lease obligations	—			—			(13.8		)	—		(13.8		)
Other, net	(7.2		)	2.7			(2.7		)	—		(7.2		)
Net cash used in financing activities	(1.5		)	(306.4		)	(283.1		)	—		(591.0		)
Decrease in cash and cash equivalents	(30.0		)	(0.2		)	(28.4		)	—		(58.6		)
Cash and Cash Equivalents:
Beginning of period	57.5			1.1			73.4			—		132.0
End of period	$	27.5		$	0.9		$	45.0		$	—	$	73.4

The following table reconciles segment income to consolidated net loss:



	Three Months Ended March 31,
(Millions)	2017			2016
Total segment income	$	460.5		$	457.6
Regulatory and other operating revenues and sales	151.4			171.2
Depreciation and amortization	(338.5		)	(304.8		)
Other unassigned operating expenses	(227.4		)	(166.3		)
Dividend income on Uniti common stock	—			17.6
Other income (expense), net	0.7			(1.2		)
Net loss on early extinguishment of debt	(3.2		)	(35.4		)
Other-than-temporary impairment loss on investment in Uniti common stock	—			(181.9		)
Interest expense	(211.8		)	(219.7		)
Income tax benefit	57.0			31.0
Net loss	$	(111.3	)	$	(231.9	)

14. Supplemental Guarantor Information:

Debentures and notes, without collateral, issued by Windstream Services, LLC

In connection with the issuance of the 7.750 percent senior notes due October 15, 2020, the 7.750 percent senior notes due October 1, 2021, the 7.500 percent senior notes due June 1, 2022, the 7.500 percent senior notes due April 1, 2023 and the 6.375 percent senior notes due August 1, 2023 (“the guaranteed notes”), certain of Windstream Services’ wholly-owned subsidiaries (the “Guarantors”), provide guarantees of those debentures. These guarantees are full and unconditional, subject to certain customary release provisions, as well as joint and several. All personal property assets and related operations of the Guarantors are pledged as collateral on the senior secured credit facility of Windstream Services. Certain Guarantors may be subject to restrictions on their ability to distribute earnings to Windstream Services. The remaining subsidiaries of Windstream Services (the “Non-Guarantors”) are not guarantors of the guaranteed notes. Windstream Holdings is not a guarantor of any Windstream Services debt instruments.

Effective July 1, 2016, the guaranteed notes were amended to include a subsidiary as a Guarantor. Previously, this subsidiary was classified as a Non-Guarantor. As a result, information for the three months ended March 31, 2016 has been revised to reflect the change in the guarantor reporting structure. Following the Merger, the acquired legal entities of EarthLink have been designated as either Guarantors or Non-Guarantors. Accordingly, the financial information presented as of and for the three months ended March 31, 2017 includes the acquired EarthLink operations beginning on February 27, 2017.

The following information presents condensed consolidating and combined statements of comprehensive income (loss) for the three month periods ended March 31, 2017 and 2016, condensed consolidating and combined balance sheets as of March 31, 2017 and December 31, 2016, and condensed consolidating and combined statements of cash flows for the three month periods ended March 31, 2017 and 2016 of Windstream Services, the Guarantors and the Non-Guarantors. Investments consist of investments in net assets of subsidiaries held by Windstream Services and other subsidiaries, and have been presented using the equity method of accounting.

NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

____

1214. Supplemental Guarantor Information, Continued:

Debentures and notes, issued by PAETEC Holding Corporation



	Condensed Consolidating Statement of Comprehensive Income (Loss) (Unaudited)
	Three Months Ended March 31, 2017
(Millions)	Windstream Services			Guarantors			Non- Guarantors			Eliminations			Consolidated
Revenues and sales:
Service revenues	$	—		$	266.9		$	1,096.3		$	(18.8	)	$	1,344.4
Product sales	—			19.6			1.7			—			21.3
Total revenues and sales	—			286.5			1,098.0			(18.8		)	1,365.7
Costs and expenses:
Cost of services	—			117.5			583.1			(18.2		)	682.4
Cost of products sold	—			18.7			2.1			—			20.8
Selling, general and administrative	—			38.4			175.2			(0.6		)	213.0
Depreciation and amortization	2.7			90.8			245.0			—			338.5
Merger, integration and other costs	—			2.8			54.5			—			57.3
Restructuring charges	—			1.3			6.1			—			7.4
Total costs and expenses	2.7			269.5			1,066.0			(18.8		)	1,319.4
Operating (loss) income	(2.7		)	17.0			32.0			—			46.3
Losses from consolidated subsidiaries	(70.8		)	(15.9		)	(7.2		)	93.9

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