##### Table of Contents



UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 10-Q



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

For the quarterly period ended September 30, 2008

OR



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

Commission file number 1-32422

WINDSTREAM CORPORATION

(Exact name of registrant as specified in its charter)



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 20-0792300                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)



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

Registrants telephone number, including area code (501) 748-7000





(Former name, former address and former fiscal year, if changed since last report)

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.  þ  YES   ̈  NO

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

Large accelerated filer   þ            Accelerated filer   ̈            Non-accelerated filer   ̈            Smaller reporting company   ̈

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).   ̈  YES  þ  NO

Number of common shares outstanding as of October 31, 2008:
439,422,952

The Exhibit Index is located on page 55.







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##### Table of Contents

WINDSTREAM CORPORATION

FORM 10-Q

TABLE OF CONTENTS



|         |  |                                                                                       |  |         
|-------- |  | ------------------------------------------------------------------------------------- |  | --------
|         |  |                                                                                       |  | Page No.
|         |  | PART I  FINANCIAL INFORMATION                                                        |  |         
|Item 1.  |  | Financial Statements                                                                  |  |         
|         |  | Consolidated Statements of Income (Unaudited)                                         |  | 2       
|         |  | Consolidated Balance Sheets  September 30, 2008 (Unaudited) and December 31, 2007    |  | 3       
|         |  | Consolidated Statements of Cash Flows (Unaudited)                                     |  | 4       
|         |  | Consolidated Statements of Shareholders Equity (Unaudited)                           |  | 5       
|         |  | Notes to Consolidated Financial Statements (Unaudited)                                |  | 6       
|Item 2.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 29      
|Item 3.  |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 51      
|Item 4.  |  | Controls and Procedures                                                               |  | 52      
|         |  |                                                                                      
|         |  | PART II  OTHER INFORMATION                                                           |  |         
|         |  |                                                                                      
|Item 1.  |  | Legal Proceedings                                                                     |  | 53      
|Item 1A. |  | Risk Factors                                                                          |  | 53      
|Item 2.  |  | Unregistered Sales of Equity Securities and Use of Proceeds                           |  | *       
|Item 3.  |  | Defaults Upon Senior Securities                                                       |  | *       
|Item 4.  |  | Submission of Matters to a Vote of Security Holders                                   |  | *       
|Item 5.  |  | Other Information                                                                     |  | 53      
|Item 6.  |  | Exhibits                                                                              |  | 53      



|* | No reportable information under this item.
|- | ------------------------------------------



1



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WINDSTREAM CORPORATION

FORM 10-Q

PART I  FINANCIAL
INFORMATION

Item 1. Financial Statements

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

|                                                                                                            |  |                                 |        |   |                                |   |        |      |  |   |         |   |  |   |         |  
|----------------------------------------------------------------------------------------------------------- |  | ------------------------------- | ------ | - | ------------------------------ | - | ------ | ---- |  | - | ------- | - |  | - | ------- | -
|                                                                                                            |  | Three MonthsEnded September 30, |        |   | Nine MonthsEnded September 30, |  
|(Millions, except per share amounts)                                                                        |  | 2008                            |        |   | 2007                           |   |        | 2008 |  |   | 2007    |  
|Revenues and sales:                                                                                         |  |                                 |        |   |                                |   |        |      |  |   |         |   |  |   |         |  
|Service revenues                                                                                            |  | $                               | 742.0  |   |                                | $ | 742.2  |      |  | $ | 2,254.7 |   |  | $ | 2,191.2 |  
|Product sales                                                                                               |  |                                 | 52.1   |   |                                |   | 76.6   |      |  |   | 139.3   |   |  |   | 238.0   |  
|                                                                                                            |  |                                 |        |   |                                |   |        |      |  |   |         |   |  |   |         |  
|Total revenues and sales                                                                                    |  |                                 | 794.1  |   |                                |   | 818.8  |      |  |   | 2,394.0 |   |  |   | 2,429.2 |  
|Costs and expenses:                                                                                         |  |                                 |        |   |                                |   |        |      |  |   |         |   |  |   |         |  
|Cost of services (excluding depreciation of $99.3, $108.7, $294.3 and $310.3, respectively, included below) |  |                                 | 249.8  |   |                                |   | 245.0  |      |  |   | 743.1   |   |  |   | 732.9   |  
|Cost of products sold                                                                                       |  |                                 | 48.4   |   |                                |   | 45.4   |      |  |   | 124.9   |   |  |   | 140.1   |  
|Selling, general, administrative and other                                                                  |  |                                 | 100.5  |   |                                |   | 105.1  |      |  |   | 293.2   |   |  |   | 312.1   |  
|Depreciation and amortization                                                                               |  |                                 | 123.8  |   |                                |   | 132.4  |      |  |   | 368.7   |   |  |   | 384.4   |  
|Restructuring charges                                                                                       |  |                                 | 1.0    |   |                                |   | 0.3    |      |  |   | 2.1     |   |  |   | 3.5     |  
|Merger and integration costs                                                                                |  |                                 |       |   |                                |   | 2.4    |      |  |   | 6.2     |   |  |   | 5.6     |  
|                                                                                                            |  |                                 |        |   |                                |   |        |      |  |   |         |   |  |   |         |  
|Total costs and expenses                                                                                    |  |                                 | 523.5  |   |                                |   | 530.6  |      |  |   | 1,538.2 |   |  |   | 1,578.6 |  
|Operating income                                                                                            |  |                                 | 270.6  |   |                                |   | 288.2  |      |  |   | 855.8   |   |  |   | 850.6   |  
|                                                                                                            |  |                                 |        |  
|Other income, net                                                                                           |  |                                 | 0.5    |   |                                |   | 0.2    |      |  |   | 9.1     |   |  |   | 11.7    |  
|Interest expense                                                                                            |  |                                 | (103.3 | ) |                                |   | (109.6 | )    |  |   | (311.9  | ) |  |   | (332.4  | )
|                                                                                                            |  |                                 |        |   |                                |   |        |      |  |   |         |   |  |   |         |  
|                                                                                                            |  |                                 |        |  
|Income from continuing operations before income taxes                                                       |  |                                 | 167.8  |   |                                |   | 178.8  |      |  |   | 553.0   |   |  |   | 529.9   |  
|Income taxes                                                                                                |  |                                 | 63.5   |   |                                |   | 61.3   |      |  |   | 208.9   |   |  |   | 196.6   |  
|                                                                                                            |  |                                 |        |   |                                |   |        |      |  |   |         |   |  |   |         |  
|                                                                                                            |  |                                 |        |  
|Income from continuing operations                                                                           |  |                                 | 104.3  |   |                                |   | 117.5  |      |  |   | 344.1   |   |  |   | 333.3   |  
|Discontinued operations, net of tax expense of $1.2, $0.4, $0.8 and $0.4, respectively                      |  |                                 | 1.6    |   |                                |   | 0.2    |      |  |   | (12.5   | ) |  |   | 0.2     |  
|                                                                                                            |  |                                 |        |   |                                |   |        |      |  |   |         |   |  |   |         |  
|                                                                                                            |  |                                 |        |  
|Net income                                                                                                  |  | $                               | 105.9  |   |                                | $ | 117.7  |      |  | $ | 331.6   |   |  | $ | 333.5   |  
|Earnings per share:                                                                                         |  |                                 |        |   |                                |   |        |      |  |   |         |   |  |   |         |  
|Basic:                                                                                                      |  |                                 |        |   |                                |   |        |      |  |   |         |   |  |   |         |  
|Income from continuing operations                                                                           |  |                                 | $.24   |   |                                |   | $.25   |      |  |   | $.78    |   |  |   | $.70    |  
|Income (loss) from discontinued operations                                                                  |  |                                 |       |   |                                |   |       |      |  |   | (.03    | ) |  |   |        |  
|                                                                                                            |  |                                 |        |   |                                |   |        |      |  |   |         |   |  |   |         |  
|Net income                                                                                                  |  |                                 | $.24   |   |                                |   | $.25   |      |  |   | $.75    |   |  |   | $.70    |  
|Diluted:                                                                                                    |  |                                 |        |   |                                |   |        |      |  |   |         |   |  |   |         |  
|Income from continuing operations                                                                           |  |                                 | $.24   |   |                                |   | $.25   |      |  |   | $.78    |   |  |   | $.70    |  
|Income (loss) from discontinued operations                                                                  |  |                                 |       |   |                                |   |       |      |  |   | (.03    | ) |  |   |        |  
|                                                                                                            |  |                                 |        |   |                                |   |        |      |  |   |         |   |  |   |         |  
|Net income                                                                                                  |  |                                 | $.24   |   |                                |   | $.25   |      |  |   | $.75    |   |  |   | $.70    |  

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



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CONSOLIDATED BALANCE SHEETS

|                                                                                                                        |  |                               |         |   |                  |   |         |  
|----------------------------------------------------------------------------------------------------------------------- |  | ----------------------------- | ------- | - | ---------------- | - | ------- | -
|(Millions) Assets                                                                                                       |  | (Unaudited) September 30,2008 |         |   | December 31,2007 |  
|Current Assets:                                                                                                         |  |                               |         |   |                  |   |         |  
|Cash and cash equivalents                                                                                               |  | $                             | 111.6   |   |                  | $ | 72.0    |  
|Accounts receivable (less allowance for doubtful accounts of $13.6 and $13.1, respectively)                             |  |                               | 329.1   |   |                  |   | 320.7   |  
|Inventories                                                                                                             |  |                               | 31.0    |   |                  |   | 29.6    |  
|Deferred income taxes                                                                                                   |  |                               | 22.4    |   |                  |   | 32.0    |  
|Prepaid expenses and other                                                                                              |  |                               | 55.0    |   |                  |   | 40.3    |  
|Assets held for sale:                                                                                                   |  |                               |         |   |                  |   |         |  
|Acquired assets held for sale                                                                                           |  |                               | 0.5     |   |                  |   | 26.6    |  
|Assets of discontinued operations                                                                                       |  |                               | 10.0    |   |                  |   | 7.2     |  
|                                                                                                                        |  |                               |         |   |                  |   |         |  
|Total current assets                                                                                                    |  |                               | 559.6   |   |                  |   | 528.4   |  
|                                                                                                                        |  |                               |         |   |                  |   |         |  
|Goodwill                                                                                                                |  |                               | 2,224.2 |   |                  |   | 2,224.2 |  
|Other intangibles                                                                                                       |  |                               | 1,144.5 |   |                  |   | 1,184.1 |  
|Net property, plant and equipment                                                                                       |  |                               | 3,911.4 |   |                  |   | 4,030.3 |  
|Other assets                                                                                                            |  |                               | 164.7   |   |                  |   | 195.7   |  
|Non-current assets of discontinued operations                                                                           |  |                               | 55.8    |   |                  |   | 78.5    |  
|Total Assets                                                                                                            |  | $                             | 8,060.2 |   |                  | $ | 8,241.2 |  
|                                                                                                                        |  |                               |         |   |                  |   |         |  
|Liabilities and Shareholders Equity                                                                                    |  |                               |         |   |                  |   |         |  
|Current Liabilities:                                                                                                    |  |                               |         |   |                  |   |         |  
|Current maturities of long-term debt                                                                                    |  | $                             | 24.3    |   |                  | $ | 24.3    |  
|Accounts payable                                                                                                        |  |                               | 149.9   |   |                  |   | 158.1   |  
|Advance payments and customer deposits                                                                                  |  |                               | 94.3    |   |                  |   | 91.1    |  
|Accrued dividends                                                                                                       |  |                               | 109.9   |   |                  |   | 113.6   |  
|Accrued taxes                                                                                                           |  |                               | 69.9    |   |                  |   | 53.2    |  
|Accrued interest                                                                                                        |  |                               | 69.8    |   |                  |   | 139.6   |  
|Other current liabilities                                                                                               |  |                               | 88.3    |   |                  |   | 91.3    |  
|Liabilities of discontinued operations                                                                                  |  |                               | 4.9     |   |                  |   | 7.1     |  
|                                                                                                                        |  |                               |         |   |                  |   |         |  
|Total current liabilities                                                                                               |  |                               | 611.3   |   |                  |   | 678.3   |  
|Long-term debt                                                                                                          |  |                               | 5,371.4 |   |                  |   | 5,331.2 |  
|Deferred income taxes                                                                                                   |  |                               | 1,210.6 |   |                  |   | 1,133.4 |  
|Other liabilities                                                                                                       |  |                               | 326.3   |   |                  |   | 398.5   |  
|Total liabilities                                                                                                       |  |                               | 7,519.6 |   |                  |   | 7,541.4 |  
|Commitments and Contingencies (See Note 7)                                                                              |  |                               |         |   |                  |   |         |  
|Shareholders Equity:                                                                                                   |  |                               |         |   |                  |   |         |  
|Common stock, $0.0001 par value, 1,000.0 shares authorized, 439.4 and 454.5 shares issued and outstanding, respectively |  |                               |        |   |                  |   |        |  
|Additional paid-in capital                                                                                              |  |                               | 96.6    |   |                  |   | 286.8   |  
|Accumulated other comprehensive loss                                                                                    |  |                               | (72.1   | ) |                  |   | (103.0  | )
|Retained earnings                                                                                                       |  |                               | 516.1   |   |                  |   | 516.0   |  
|                                                                                                                        |  |                               |         |   |                  |   |         |  
|Total shareholders equity                                                                                              |  |                               | 540.6   |   |                  |   | 699.8   |  
|Total Liabilities and Shareholders Equity                                                                              |  | $                             | 8,060.2 |   |                  | $ | 8,241.2 |  

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



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CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

|                                                                          |  |                                |        |   |      |   |        |  
|------------------------------------------------------------------------- |  | ------------------------------ | ------ | - | ---- | - | ------ | -
|                                                                          |  | Nine MonthsEnded September 30, |       
|(Millions)                                                                |  | 2008                           |        |   | 2007 |  
|Cash Provided from Operations:                                            |  |                                |        |   |      |   |        |  
|Net income                                                                |  | $                              | 331.6  |   |      | $ | 333.5  |  
|Adjustments to reconcile net income to net cash provided from operations: |  |                                |        |   |      |   |        |  
|Loss on net assets held for sale                                          |  |                                | 16.4   |   |      |   |       |  
|Depreciation and amortization                                             |  |                                | 370.9  |   |      |   | 384.7  |  
|Provision for doubtful accounts                                           |  |                                | 25.1   |   |      |   | 19.9   |  
|Stock-based compensation expense                                          |  |                                | 13.5   |   |      |   | 12.1   |  
|Pension and postretirement benefits expense                               |  |                                | 12.3   |   |      |   | 28.9   |  
|Deferred taxes                                                            |  |                                | 74.3   |   |      |   | 9.7    |  
|Other, net                                                                |  |                                | 8.8    |   |      |   | 9.4    |  
|Changes in operating assets and liabilities, net:                         |  |                                |        |   |      |   |        |  
|Accounts receivable                                                       |  |                                | (27.9  | ) |      |   | (24.8  | )
|Prepaid expenses and other                                                |  |                                | (15.6  | ) |      |   | 2.2    |  
|Accounts payable                                                          |  |                                | (8.7   | ) |      |   | (4.3   | )
|Accrued interest                                                          |  |                                | (69.8  | ) |      |   | (74.0  | )
|Accrued taxes                                                             |  |                                | 17.5   |   |      |   | 23.4   |  
|Other current liabilities                                                 |  |                                | (12.5  | ) |      |   | (45.5  | )
|Other, net                                                                |  |                                | (6.1   | ) |      |   | 8.6    |  
|                                                                          |  |                                |        |   |      |   |        |  
|Net cash provided from operations                                         |  |                                | 729.8  |   |      |   | 683.8  |  
|Cash Flows from Investing Activities:                                     |  |                                |        |   |      |   |        |  
|Additions to property, plant and equipment                                |  |                                | (219.5 | ) |      |   | (268.3 | )
|Acquisition of CT Communications, net of cash acquired                    |  |                                |       |   |      |   | (547.6 | )
|Disposition of acquired assets held for sale                              |  |                                | 17.3   |   |      |   |       |  
|Other, net                                                                |  |                                | 11.6   |   |      |   | 2.0    |  
|                                                                          |  |                                |        |   |      |   |        |  
|Net cash used in investing activities                                     |  |                                | (190.6 | ) |      |   | (813.9 | )
|Cash Flows from Financing Activities:                                     |  |                                |        |   |      |   |        |  
|Dividends paid on common shares                                           |  |                                | (335.3 | ) |      |   | (357.7 | )
|Stock repurchase                                                          |  |                                | (200.3 | ) |      |   |       |  
|Repayment of debt                                                         |  |                                | (340.7 | ) |      |   | (577.7 | )
|Debt issued, net of issuance costs                                        |  |                                | 380.0  |   |      |   | 748.9  |  
|Other, net                                                                |  |                                | (3.3   | ) |      |   | (2.3   | )
|                                                                          |  |                                |        |   |      |   |        |  
|Net cash used in financing activities                                     |  |                                | (499.6 | ) |      |   | (188.8 | )
|                                                                          |  |                                |        |   |      |   |        |  
|Increase (decrease) in cash and cash equivalents                          |  |                                | 39.6   |   |      |   | (318.9 | )
|Cash and Cash Equivalents:                                                |  |                                |        |   |      |   |        |  
|Beginning of period                                                       |  |                                | 72.0   |   |      |   | 386.8  |  
|                                                                          |  |                                |        |   |      |   |        |  
|End of period                                                             |  | $                              | 111.6  |   |      | $ | 67.9   |  

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



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CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY (UNAUDITED)

|                                                      |  |                          |        |   |                                            |   |        |                  |  |   |        |   |  |   |        |  
|----------------------------------------------------- |  | ------------------------ | ------ | - | ------------------------------------------ | - | ------ | ---------------- |  | - | ------ | - |  | - | ------ | -
|(Millions, except per share amounts)                  |  | AdditionalPaid-InCapital |        |   | AccumulatedOtherComprehensiveIncome (Loss) |   |        | RetainedEarnings |  |   | Total  |  
|Balance at December 31, 2007                          |  | $                        | 286.8  |   |                                            | $ | (103.0 | )                |  | $ | 516.0  |   |  | $ | 699.8  |  
|Net income                                            |  |                          |       |   |                                            |   |       |                  |  |   | 331.6  |   |  |   | 331.6  |  
|Other comprehensive income, net of tax: (see Note 10) |  |                          |        |   |                                            |   |        |                  |  |   |        |   |  |   |        |  
|Change in employee benefit plans                      |  |                          |       |   |                                            |   | 27.1   |                  |  |   |       |   |  |   | 27.1   |  
|Unrealized holding gain on interest rate swaps        |  |                          |       |   |                                            |   | 3.8    |                  |  |   |       |   |  |   | 3.8    |  
|Comprehensive income                                  |  |                          |       |   |                                            |   | 30.9   |                  |  |   | 331.6  |   |  |   | 362.5  |  
|Stock repurchase                                      |  |                          | (200.3 | ) |                                            |   |       |                  |  |   |       |   |  |   | (200.3 | )
|Stock-based compensation expense                      |  |                          | 13.5   |   |                                            |   |       |                  |  |   |       |   |  |   | 13.5   |  
|Tax withheld on vested restricted stock and other     |  |                          | (3.4   | ) |                                            |   |       |                  |  |   |       |   |  |   | (3.4   | )
|Dividends of $0.75 per share declared to stockholders |  |                          |       |   |                                            |   |       |                  |  |   | (331.5 | ) |  |   | (331.5 | )
|Balance at September 30, 2008                         |  | $                        | 96.6   |   |                                            | $ | (72.1  | )                |  | $ | 516.1  |   |  | $ | 540.6  |  

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:
|-- | --------------------------------------------

On
July 17, 2006, Alltel Corporation (Alltel) completed the spin off of its wireline telecommunications division, Alltel Holding Corp., to its shareholders. Immediately after the consummation of the spin off, Alltel Holding Corp.
merged with and into Valor Communications Group Inc. (Valor), with Valor continuing as the surviving corporation. The resulting company was renamed Windstream Corporation. In this report, Windstream Corporation and its subsidiaries are
referred to as Windstream, we, or the Company.

The accompanying unaudited consolidated financial
statements have been prepared based upon Securities and Exchange Commission (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 at December 31, 2007 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 of results of operations and financial condition for the interim periods shown 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 Windstreams Annual Report on Form 10-K for the year ended December 31, 2007, which was filed with the SEC on February 29, 2008.

The preparation of financial statements, in accordance with accounting principles generally accepted in the United States, 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
and accompanying notes 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 accompanying notes, and such differences could be material.

On August 7, 2008,
Windstream entered into a definitive agreement to sell its wireless business. Accordingly, we have presented the related results as discontinued operations, and prior period financial statements, including segment information, have been reclassified
to reflect this change in the periods presented (see Note 15).

Certain amounts previously reported have been reclassified to conform to
the current year presentation of the consolidated financial statements. These reclassifications did not impact net or comprehensive income.



|2. | Accounting Changes:
|-- | -------------------

Change in Accounting
Estimate - Effective October 1, 2007, the Company prospectively reduced the depreciable rates of assets held and used in its operations in New York, Mississippi, Georgia, Ohio, Nebraska, Oklahoma, and Kentucky to reflect the results of
studies completed in the fourth quarter of 2007. In addition, during April 2007, the Company completed studies of the depreciable lives of assets held and used in its Missouri operations and in an operating subsidiary in Texas. The related
depreciation rates were changed effective April 1, 2007. The depreciable lives were lengthened to reflect the estimated remaining useful lives of the wireline plant based on the Companys expected future network utilization and capital
expenditure levels required to provide service to its customers. The effect of the change on depreciation rates in the operations discussed above resulted in a decrease in depreciation expense of $12.4 million and $38.9 million and an increase in
net income of $7.7 million and $24.2 million for the three and nine months ended September 30, 2008, respectively.

Recently
Adopted Accounting Standards

SFAS No. 157 - Effective January 1, 2008, Windstream adopted Statement of Financial
Accounting Standards (SFAS) No. 157, Fair Value Measurements, for financial assets and liabilities recognized at fair value. The adoption of SFAS No. 157 did not have a material impact on our consolidated financial
statements. SFAS No. 157 clarified the definition of fair value, established a framework for measuring fair value and expanded the disclosures related to fair value measurements that are included in a companys financial statements. It
emphasized that fair value is a market-based measurement and not an entity-specific measurement, and that it should be based on an exchange transaction in which a company sells an asset or transfers a



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NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

_____



|2. | Accounting Changes, Continued:
|-- | ------------------------------



liability. SFAS No. 157 also established a fair value hierarchy in which observable market data would be considered the highest level, while fair value
measurements based on an entitys own assumptions would be considered the lowest level. See Note 6 for information and related disclosures regarding Windstreams fair value measurements.

In February 2008, the Financial Accounting Standards Board (FASB) issued FASB Staff Position No. (FSP) FAS 157-2, Effective
Date of FASB Statement No. 157, which allowed a one-year deferral of implementation for non-financial assets and liabilities, except items recognized or disclosed at fair value on an annual or more frequently recurring basis until fiscal
years beginning after November 15, 2008 and interim periods within those years. The Company continues to evaluate the effects, if any, that SFAS No. 157 will have on its non-financial assets and liabilities that are recognized or disclosed
at fair value on a non-recurring basis. Therefore, it has not yet been determined what impact, if any, that SFAS No. 157 will have on these assets and liabilities upon full adoption.

Windstream adopted FSP FAS 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active, effective
July 1, 2008. FSP FAS 157-3 clarifies the application of SFAS No. 157 in an inactive market by allowing companies to use judgment in addition to market information in certain circumstances when valuing assets which have inactive markets.
Additionally, FSP FAS 157-3 provides an example to illustrate key considerations in determining the fair value of a financial asset in an inactive market. The adoption of this FSP did not impact the Companys fair value measurements during the
third quarter of 2008. The Company is still evaluating the impact of this FSP upon full adoption of SFAS No. 157.

SFAS
No. 159 - Windstream adopted SFAS No. 159, The Fair Value Option for Financial Assets and Financial LiabilitiesIncluding an Amendment of FASB Statement No. 115, on January 1, 2008, but did not elect the fair
value option for any of its eligible financial assets and liabilities. Therefore, the adoption of SFAS No. 159 did not impact the Companys consolidated financial statements. SFAS No. 159 allowed the measurement at fair value of
eligible financial assets and liabilities that are not otherwise required to be measured at fair value. If the fair value option for an eligible item is elected, unrealized gains and losses for that item are reported in current earnings at each
subsequent reporting date. SFAS No. 159 also established presentation and disclosure requirements designed to draw comparison between the different measurement attributes the company elects for similar types of assets and liabilities.

FIN 48 - Windstream adopted FASB Interpretation No. 48 Accounting for Uncertainty in Income Taxes (FIN
48) on January 1, 2007. FIN 48 clarifies the accounting for and disclosure of uncertainty in tax positions and provides guidance on the recognition, measurement, derecognition, classification, and disclosure of tax positions and on the
accounting for related interest and penalties. As a result of the adoption of FIN 48, we recognize accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense. Although the adoption of this standard has
not had a significant impact on the Companys tax provision thus far, the recognition of tax uncertainties through earnings in the future could be materially impacted by this new accounting policy.

Recently Issued Accounting Pronouncements

SFAS No. 141(R) - In December 2007, the FASB issued SFAS No. 141(R), Business Combinations, a revision of SFAS No. 141. Under SFAS No. 141(R), an acquiring entity will be
required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition date fair value with limited exceptions. SFAS No. 141(R) will change the accounting treatment for certain specific items, including
acquisition costs, acquired contingent liabilities, restructuring costs, deferred tax asset valuation allowances and income tax uncertainties after the acquisition date. SFAS No. 141(R) also includes a substantial number of new disclosure
requirements. For calendar year companies like Windstream, SFAS No. 141(R) is effective for all business combinations for which the acquisition date is on or after January 1, 2009. The Company is currently evaluating the effects that SFAS
No. 141(R) will have on its consolidated financial statements with regards to future business combinations.

SFAS No. 160
- In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial StatementsAn Amendment of Accounting Research Bulletin No. 51. SFAS No. 160 requires noncontrolling interests to be
recognized as equity in the consolidated financial statements, separate from the parents equity. In addition, net income attributable to the noncontrolling interest will be included in consolidated net income. SFAS No. 160 clarifies that
changes in a parents ownership interest in a subsidiary that do not result in deconsolidation are equity transactions if the parent retains its controlling financial interest. In addition, when a subsidiary is deconsolidated, the parent must
recognize a gain or loss in net income, measured using the fair value of the noncontrolling equity investment on the deconsolidation date. Expanded disclosures are also required regarding the interests of the parent and its noncontrolling interest.
SFAS No. 160 is effective for



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_____



|2. | Accounting Changes, Continued:
|-- | ------------------------------



fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. The Company does not expect SFAS No. 160 to
have any impact on its consolidated financial statements.

SFAS No. 161 - In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging Activities. SFAS No. 161 requires companies with derivative instruments to disclose information that should enable financial statement users to understand how and why a company
uses derivative instruments, how derivative instruments and related hedged items are accounted for under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities and how derivative instruments and related hedged
items affect a companys financial position, financial performance and cash flows. SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. Windstream is
currently evaluating the impact, if any, that SFAS No. 161 will have on its consolidated financial statements.

FSP FAS 142-3 -
In April 2008, the FASB issued FSP FAS 142-3, Determination of the Useful Life of Intangible Assets. FSP FAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful
life of a recognized intangible asset under SFAS No. 142, Goodwill and Other Intangible Assets for intangible assets acquired after adoption. Under FSP FAS 142-3 an entity should consider its own historical experience in renewing
similar arrangements, or market participant assumptions in the absence of historical experience. FSP FAS 142-3 also requires disclosures to enable users of financial statements to assess the extent to which the expected future cash flows associated
with the asset are affected by the entitys intent and/or ability to renew or extend the arrangement. FSP FAS 142-3 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2008. Windstream
is currently evaluating the impact FSP FAS 142-3 will have on our financial statements.

SFAS No. 162 - On May 9, 2008,
the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles to improve financial reporting by identifying a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing
financial statements for nongovernmental entities that are presented in conformity with generally accepted accounting principles in the United States. SFAS No. 162 is effective November 15, 2008. The Company is currently evaluating the
effects, if any, that SFAS No. 162 will have on its consolidated financial statements.

FSP EITF 03-6-1 - In June 2008,
relative to Emerging Issues Task Force Issue No. (EITF) 03-6-1, the FASB issued FSP EITF 03-6-1 Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities. FSP EITF 03-6-1,
concluded that unvested share-based payment awards that contain a nonforfeitable right to receive dividends, whether paid or unpaid, are participating securities and should be included in the computation of earnings per share pursuant to the
two-class method prescribed under SFAS No. 128, Earnings per Share. This standard is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those years, with
early adoption prohibited. Windstream is evaluating the impact of this standard but does not believe it will have a material impact on basic or diluted earnings per share.



|3. | Acquisitions and Dispositions:
|-- | ------------------------------

Disposition of
Directory Publishing Business  On November 30, 2007, Windstream completed the split off of its directory publishing business. In connection with the consummation of the transaction, the parties and their affiliates entered into a
publishing agreement whereby Windstream granted Local Insight Yellow Pages, Inc. (Local Insight Yellow Pages), the successor to the Windstream subsidiary that once operated the publishing business, an exclusive license to publish
Windstream directories in each of its markets other than the newly acquired CT Communications, Inc. (CTC) markets. Local Insight Yellow Pages will, at no charge to Windstream or its affiliates or subscribers, publish directories with
respect to each Windstream service area covered under the agreement in which Windstream or its affiliates are required to publish such directories by applicable law, tariff or contract. Subject to the termination provisions in the agreement, the
publishing agreement will remain in effect for a term of fifty years. As part of this agreement, Windstream agreed to forego future royalty payments from Local Insight Yellow Pages on advertising revenues generated from covered directories for the
duration of the publishing agreement.

Acquisition of CTC  On August 31, 2007, Windstream completed the acquisition of
CTC in a transaction valued at $584.3 million. Under the terms of the agreement the shareholders of CTC received $31.50 in cash for each of their shares with a total cash payout of $652.2 million. The transaction value also includes a payment of
$37.5 million made by Windstream to satisfy



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NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

_____



|3. | Acquisitions and Dispositions, Continued:
|-- | -----------------------------------------



CTCs debt obligations, offset by $105.4 million in cash and cash equivalents held by CTC. Including $25.3 million in severance and other
transaction-related expenses, the total net consideration paid in the acquisition was $609.6 million. Windstream financed the transaction using the cash acquired from CTC, $250.0 million in borrowings available under its revolving line of credit,
and additional cash on hand. The premium paid by Windstream in this transaction is attributable to the strategic importance of the CTC acquisition. The access lines and high-speed Internet customers added through the acquisition significantly
increased Windstreams presence in North Carolina and provided the opportunity to generate significant operating efficiencies with contiguous Windstream markets.

In accordance with SFAS No. 142, certain assets acquired from CTC totaling $26.6 million were included in acquired assets held for sale in the accompanying consolidated balance sheet as of December 31, 2007.
During the first nine months of 2008, Windstream received net proceeds of $17.3 million, which approximated the fair value at the date of acquisition, on the sale of the corporate headquarters building, a license for wireless spectrum, and various
investments designated as held for sale. During the third quarter of 2008, Windstream recognized a non-cash impairment charge of $6.5 million included in selling, general, administrative and other in the accompanying unaudited interim consolidated
statements of income to reduce the carrying value of certain wireless spectrum licenses designated as held for sale, and not used in operations, to their fair market value in accordance with SFAS No. 144 Accounting for the Impairment or
Disposal of Long-Lived Assets. The fair market value of these holdings has been reduced to a nominal amount due to an impairment resulting from general market conditions and limited interest on this bandwidth of spectrum. In addition, during
the third quarter of 2008, certain long term investments totaling $2.3 million, primarily consisting of a minority ownership in a private equity investment holding company, were no longer being marketed by Windstream and are no longer considered
saleable within one year. Therefore, the Company reclassified these investments from acquired assets held for sale to other assets in the accompanying consolidated balance sheets at their current fair market value, which required no valuation
adjustment.

Pro forma financial results related to the disposition of the publishing business and the acquisition of CTC have not been
included because the Company does not consider the results of the publishing business, prior to the recognition of a gain on its sale, nor the results of the former CTC operations to be significant.



|4. | Goodwill and Other Intangible Assets:
|-- | -------------------------------------

On
August 7, 2008, Windstream entered into a definitive agreement to sell its wireless business. During the second quarter of 2008 the Company reclassified the associated assets as held for sale, including $52.2 million of goodwill and $13.4
million of other intangible assets. Once the assets were classified as held for sale, the Company recognized an impairment loss on goodwill of $17.5 million to reduce the carrying value of the assets to their contemplated transaction price less cost
to sell (see Note 15).

During the nine months ended September 30, 2008, there were no changes in the carrying amounts of wireline and
product distribution goodwill and indefinite-lived intangible assets.

As of January 1, 2008, the Company completed the annual
impairment reviews of its goodwill and franchise rights according to the guidance in SFAS No. 142 and determined that no write-down in the carrying value of these assets was required.



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NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

_____



|4. | Goodwill and Other Intangible Assets, Continued:
|-- | ------------------------------------------------



Intangible assets subject to amortization were as follows:



(Millions)

September 30, 2008GrossCost

AccumulatedAmortization


Net CarryingValueWireline customer list

$
322.6

$
(135.1
)

$
187.5Cable franchise rights


22.5


(20.5
)


2.0$
345.1

$
(155.6
)

$
189.5




(Millions)

December 31, 2007GrossCost

AccumulatedAmortization


Net CarryingValueWireline customer list

$
322.6

$
(96.6
)

$
226.0Cable franchise rights


22.5


(19.4
)


3.1$
345.1

$
(116.0
)

$
229.1


Amortization expense for intangible assets subject to amortization was $12.7 million and
$39.6 million for the three and nine month periods ended September 30, 2008, respectively, as compared to $12.8 million and $36.8 million for the same periods of 2007. Amortization expense for intangible assets subject to amortization is
estimated to be $51.9 million in 2008, $46.4 million in 2009, $39.3 million in 2010, $33.5 million in 2011 and $27.9 million in 2012.



|5. | Debt and Derivative Instruments:
|-- | --------------------------------

Long-term debt
was as follows:



(Millions)

September 30,


December 31,2008


2007Issued by Windstream Corporation:Senior secured credit facility, Tranche A  variable rates, due July 17, 2011

$
283.3


$
283.3Senior secured credit facility, Tranche B  variable rates, due July 17, 2013 (a)


1,382.5



1,393.0Senior secured credit facility, Revolving line of credit  variable rates, due July 17, 2011 (b)


150.0



100.0Debentures and notes, without collateral:2016 Notes  8.625%, due August 1, 2016 (c)


1,746.0



1,746.02013 Notes  8.125%, due August 1, 2013 (c)


800.0



800.02019 Notes  7.000%, due March 15, 2019 (a) (c)


500.0



500.0Issued by subsidiaries of the Company:Valor Telecommunications Enterprises LLC and Valor Telecommunications Finance Corp.  7.75%, due February 15, 2015
(c) (d)


400.0



400.0Windstream Holdings of the Midwest, Inc.  6.75%, due April 1, 2028 (c) (d)


100.0



100.0Debentures and notes, without collateral:Windstream Georgia Communications LLC  6.50%, due November 15, 2013


60.0



60.0Teleview, LLC  7.00%, due January 2, 2010 and May 2, 2010


0.4



0.6Discount on long-term debt, net of premiums


(26.5
)


(27.4
)5,395.7



5,355.5Less current maturities


(24.3
)


(24.3
)Total long-term debt

$
5,371.4


$
5,331.2




| | (a) | On February 27, 2007, Windstream issued $500.0 million aggregate principal amount of senior notes due 2019, with an interest rate of 7.0 percent (the
refinancing transaction). Windstream used the net proceeds of the offering to repay
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

_____



|5. | Debt and Derivative Instruments, Continued:
|-- | -------------------------------------------



| | $500.0 million of amounts outstanding under the term loan portion of its senior secured credit facilities. Additionally, Windstream received the consent of
lenders to amend and restate its $2.9 billion senior secured credit facilities to, among other things, reduce the interest payable under Tranche B of the term loan portion of the facilities; modify the pre-payment provision; and modify certain
covenants to permit the consummation of the previously announced split off of its directory publishing business.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | During the first nine months of 2008, the Company incurred net borrowings of $50.0 million under the revolving line of credit in its senior secured credit facilities. The revolving
line of credits variable interest rates ranged from 3.65 percent to 6.10 percent, and the weighted average rate was 4.13 percent during the nine months ended September 30, 2008. Letters of credit are deducted in determining the total
amount available for borrowing under the revolving credit agreement. Accordingly, the total amount outstanding under the letters of credit and the indebtedness incurred under the revolving credit agreement may not exceed $500.0 million. At
September 30, 2008, the amount available for borrowing under the revolving credit agreement was $343.2 million.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (c) | Certain of the Companys debentures and notes are callable by the Company at various premiums on early redemption.
| | --- | ------------------------------------------------------------------------------------------------------------------



| | (d) | The Companys collateralized Valor debt is equally and ratably secured with debt under the senior secured credit facilities. Debt held by Windstream Holdings of the Midwest,
Inc., a subsidiary of the Company, is secured solely by the assets of the subsidiary.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The terms of the credit facility and
indentures include customary covenants that, among other things, require Windstream to maintain certain financial ratios and restrict its 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 capital expenditures, which must not exceed a specified amount for any fiscal year (for 2008 this amount is $534.3 million, which includes $84.3
million of unused capacity from 2007). The Company was in compliance with these covenants as of September 30, 2008.

Maturities for
debt outstanding as of September 30, 2008 for each of the twelve month periods ended September 30, 2009, 2010, 2011, 2012, and 2013 are $24.3 million, $24.1 million, $457.3 million, $20.5 million and $2,140.0 million, respectively.

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



(Millions)

Three Months Ended


Nine Months Ended2008


2007


2008


2007Interest expense related to long-term debt (a)

$
94.8


$
109.6


$
291.1


$
332.2Impacts of interest rate swaps


9.0



0.9



22.0



2.9Other interest expense






0.1



0.1



0.2Less capitalized interest expense


(0.5
)


(1.0
)


(1.3
)


(2.9
)Total interest expense

$
103.3


$
109.6


$
311.9


$
332.4




| | (a) | In connection with the refinancing transaction, the Company recorded additional non-cash interest expense of $5.3 million in 2007 due to a write-off of the unamortized debt issuance
costs associated with the term loan that was paid down.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In order to mitigate the interest rate risk inherent in its variable
rate senior secured credit facilities, the Company entered into four identical pay fixed, receive variable interest rate swap agreements totaling $1,600.0 million in notional value. The four interest rate swap agreements amortize quarterly to a
notional value of $906.3 million at maturity on July 17, 2013. The variable rate received resets on the seventeenth day of each quarter to the three-month LIBOR (London-Interbank Offered Rate). The Companys interest rate swap agreements
are designated as cash flow hedges of the interest rate risk created by the variable interest rate paid on Tranche B of the senior secured credit facilities, which matures on July 17, 2013. The variable interest rate paid on Tranche B is based
on the three-month LIBOR, and it also resets on the seventeenth day of each quarter. After the completion of the refinancing transaction in February 2007, a portion of one of the four interest rate swap agreements with a



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NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

_____



|5. | Debt and Derivative Instruments, Continued:
|-- | -------------------------------------------



notional value of $125.0 million ($107.6 million as of September 30, 2008) was de-designated and therefore was no longer an effective hedge of the
variable interest rate paid on Tranche B.

The effectiveness of the Companys cash flow hedges is assessed each quarter. At
September 30, 2008, the Company concluded that there was no ineffectiveness, in the designated portion, for any of the four interest rate swap agreements.

Set forth below is information related to the Companys interest rate swap agreements:



(Millions, except for percentages)

September 30,


December 31,2008


2007Unamortized notional value

$
1,312.5


$
1,412.5Weighted average fixed rate paid


5.60
%


5.60
%Variable rate received


2.79
%


5.21
%Fair value of interest rate swap agreements (see Note 6)

$
(77.0
)

$
(83.2
)


In accordance with SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities, the Company recognizes all derivative instruments at fair value in the accompanying consolidated balance sheets as either assets or liabilities depending on the rights or obligations under the related contracts. Changes in
the fair value of the effective portion of these derivative instruments were reported as a component of other comprehensive income in the current period and will be reclassified into earnings as the hedged transaction affects earnings. Changes in
the fair value of the undesignated portion of the swaps were recognized in other income, net in the unaudited interim consolidated statements of income.

Changes in fair value of these derivative instruments were as follows for the three and nine month periods ended September 30:



(Millions)

Three Months Ended


Nine Months Ended2008


2007


2008

2007Change in fair value of effective portion, net of tax

$
(1.7
)

$
(18.9
)

$
3.8

$
(4.5
)Change in fair value of undesignated portion

$
(0.3
)

$
(2.9
)

$
0.5

$





|6. | Fair Value Measurements:
|-- | ------------------------

The Companys
financial instruments consist primarily of cash and cash equivalents, accounts receivable, accounts payable, long-term debt and interest rate swaps. Cash equivalents and interest rate swaps are measured at fair value on a recurring basis in
accordance with the fair value measurement provisions of SFAS No. 157. Windstream utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent
in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. Valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs are used
and the fair value balances are classified based on the observability of those inputs. The highest priority is given 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). As required by SFAS No. 157, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The
Companys assessment of the significance of a particular input to the 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.



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NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

_____



|6. | Fair Value Measurements, Continued:
|-- | -----------------------------------



The fair values of the Companys cash equivalents and interest rate swaps were determined using
the following inputs at September 30, 2008:



Fair Value Measurements at Reporting DateQuoted Pricein ActiveMarkets forIdentical Assets

SignificantOtherObservableInputs


SignificantUnobservableInputs(Millions)

Fair Value


Level 1

Level 2


Level 3Cash equivalents (a)

$
110.0


$
110.0

$



$
Interest rate swaps (b)

$
(77.0
)

$


$
(77.0
)

$





| | (a) | Included in cash and cash equivalents on the unaudited consolidated balance sheets.
| | --- | -----------------------------------------------------------------------------------



| | (b) | Included in other current liabilities and other liabilities on the unaudited consolidated balance sheets.
| | --- | ---------------------------------------------------------------------------------------------------------

The Companys cash and cash equivalents are primarily highly liquid, actively traded money market finds with next day access. The fair values of the
interest rate swaps were determined based on the present value of expected future cash flows using LIBOR swap rates which are observable at commonly quoted intervals for the full term of the swaps using discount rates appropriate with consideration
given to the Companys non-performance risk. The Companys non-performance risk is assessed based on the current trading discount of its public bonds outstanding. In addition, the Company routinely monitors and updates its evaluation of
counterparty risk, and based on such evaluation has determined that the swap agreements continue to meet the requirements of an effective cash flow hedge. The counterparty to each of the four swap agreements is a bank with a current credit rating at
or above A+.



|7. | Commitments and Contingencies:
|-- | ------------------------------

During the third
quarter of 2007, the staff of a state Public Utility Commission (PUC Staff) notified the Company that the PUC Staff believed the Company had been over-compensated from its state universal service fund dating back to 2000 by the amount of
$6.1 million plus interest in the amount of $1.2 million (for a total $7.3 million). On October 18, 2007, the PUC Staff issued a Notice of Violation and recommended that the Company be assessed a fine in the amount of $5.2 million in addition
to the initial refund request for failure to refund the requested amount. The Company believes its universal service receipts in question are in compliance with all applicable regulatory requirements, that it has not been over-compensated and that
no refund or penalty is owed. The Company plans to defend its position in hopes of eliminating or reducing the assessment but at this time cannot predict the outcome of the proceeding. A liability of $7.6 million, consisting of the original
assessment of $7.3 million plus additional accrued interest from the date of that request, is included in other current liabilities in the accompanying unaudited interim consolidated balance sheet to reserve for this matter.

The Company is party to various other legal proceedings. Although the ultimate resolution of these various proceedings cannot be determined at this time,
management of the Company does not believe that such proceedings, individually or in the aggregate, will have a material adverse effect on the future consolidated results of income, cash flows or financial condition of the Company.

In addition, management of the Company 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 results of operations of the Company.



|8. | Employee Benefit Plans and Postretirement Benefits Other Than Pensions:
|-- | -----------------------------------------------------------------------

Windstream maintains a non-contributory qualified defined benefit pension plan, which covers substantially all employees. Future benefit accruals for all eligible nonbargaining employees covered by the pension plan
ceased as of December 31, 2005 (December 31, 2010 for employees who had attained age 40 with two years of service as of December 31, 2005). The Company also maintains supplemental executive retirement plans that provide unfunded,
non-qualified supplemental retirement benefits to a select group of management employees. Additionally, the Company provides postretirement healthcare and life insurance benefits for eligible employees. Employees share in, and the Company funds, the
costs of these plans as benefits are paid.



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NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

_____



|8. | Employee Benefit Plans and Postretirement Benefits Other Than Pensions, Continued:
|-- | ----------------------------------------------------------------------------------



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



(Millions)

Three Months Ended


Nine Months Ended2008


2007


2008


2007Benefits earned during the year

$
3.3


$
4.0


$
9.9


$
11.8Interest cost on benefit obligation


14.0



13.2



42.1



39.2Recognition of net actuarial loss


1.6



5.9



4.8



18.0Amortization of prior service cost










(0.1
)


(0.1
)Expected return on plan assets


(19.1
)


(19.4
)


(57.2
)


(58.2
)Net periodic benefit (income) expense

$
(0.2
)

$
3.7


$
(0.5
)

$
10.7


The components of postretirement expense were as follows for the three and nine months ended
September 30:



(Millions)

Three Months Ended

Nine Months Ended2008

2007

2008

2007Benefits earned during the year

$
0.1

$
0.1

$
0.2

$
0.3Interest cost on benefit obligation


3.1


3.9


10.1


11.4Amortization of transition obligation


0.1


0.2


0.5


0.6Recognition of net actuarial loss


0.3


1.5


1.0


4.5Amortization of prior service cost


0.1


0.4


1.0


1.4Net periodic benefit expense

$
3.7

$
6.1

$
12.8

$
18.2


During the third quarter of 2008, Windstream amended certain of its postretirement medical
and life insurance plans to replace post-65 Medicare supplement plans with a federally funded Medicare Advantage Private Fee for Service plan effective January 1, 2009. In addition, these amendments capped the maximum amount of medical subsidy
provided by Windstream to retirees and replaced death benefits provided to certain surviving spouses of retirees with basic life insurance benefits effective January 1, 2009.

These amendments were accounted for as plan amendments and reduced Windstreams benefit obligation at September 1, 2008 by $67.3 million, with
a corresponding decrease in accumulated other comprehensive loss, net of tax, resulting in a revised benefit obligation of $159.2 million. The reduction in the obligation will be amortized to postretirement benefits expense over the remaining life
of retirees beginning in September 2008. In re-measuring the postretirement obligations to reflect these amendments, updated assumptions as of September 1, 2008 were used; specifically the discount rate was increased from 6.38 percent to 6.83
percent. The discount rate selected is based on the Companys expected postretirement benefit payments discounted from their expected payment date to the measurement date using the appropriate spot rate from the Citigroup Pension Discount
Curve. As of September 1, 2008, estimated future benefit payments, net of Medicare prescription drug subsidies are expected to be as follows:



(Millions)

Gross ExpectedBenefit Payments

Expected MedicarePrescription Drug Subsidies

Net ExpectedBenefit PaymentsExpected benefit payments:2009

$17.1

$(0.8)

$16.32010

16.1

(0.9)

15.22011

15.9

(0.9)

15.02012

15.5

(1.0)

14.52013

15.1

(1.1)

14.02014  2018

65.1

(2.4)

62.7


Windstream contributed $10.2 million to the postretirement plan during the nine months ended
September 30, 2008, and expects to contribute $16.8 million for postretirement benefits in 2008, excluding amounts that will be funded by participant contributions to the plans.



14



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##### Table of Contents

NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

_____



|9. | Merger, Integration and Restructuring Charges:
|-- | ----------------------------------------------

The following is a summary of the merger, integration and restructuring charges recorded in the three and nine month periods ended September 30:



(Millions)

Three Months Ended

Nine Months Ended2008

2007

2008

2007Transaction costs associated with the acquisition of CTC

$


$
0.3

$
0.1

$
0.3Transaction costs associated with split off of directory publishing





0.1





3.3Signage and other rebranding costs





1.0





1.0Computer system separation and conversion costs





1.0


6.1


1.0Total merger and integration costs





2.4


6.2


5.6Severance and employee benefit costs


1.0


0.3


2.1


3.5Total merger, integration and restructuring charges

$
1.0

$
2.7

$
8.3

$
9.1


Costs triggered by strategic transactions, including transaction costs, rebranding costs and
system conversion costs are unpredictable by nature and are not included in the determination of segment income. Restructuring charges, consisting primarily of severance and employee benefit costs, are triggered by the Companys continued
evaluation of its operating structure and identification of opportunities for increased operational efficiency and effectiveness. These costs should not necessarily be viewed as non-recurring, and are included in the determination of segment income.
They are reviewed regularly by the Companys decision makers and are included as a component of compensation targets.

Transaction
costs primarily include charges for accounting, legal, broker fees and other miscellaneous costs associated with the acquisition of CTC and the disposition of the publishing business. Other merger and integration costs include computer system and
conversion costs. These costs are considered indirect or general and are expensed when incurred in accordance with SFAS No. 141 Business Combinations. During the second quarter of 2008, the Company determined not to use certain
software acquired in the CTC acquisition; therefore, we recognized a $5.4 million non-cash charge to abandon this asset, of which $0.8 million was related to the wireless business (see Note 15).

The following is a summary of the activity related to the liabilities associated with the Companys merger, integration and restructuring charges
for the nine months ended September 30, 2008:



(Millions)Balance, beginning of period

$
14.7Merger, integration and restructuring charges, net of non-cash charges


3.7Cash outlays during the period


(14.7
)Balance, end of period

$
3.7


This unpaid merger, integration and restructuring liability, which consists of $0.5 million
in costs associated with the acquisition of CTC, Valor lease termination costs of $2.2 million, and $1.0 million of employee-related benefit costs, is included in other current liabilities in the Companys unaudited interim consolidated balance
sheet at September 30, 2008. The remaining unpaid CTC transaction costs primarily consist of system conversion and severance and related employee costs related to those CTC employees that were terminated following the billing system conversion
in the first quarter of 2008. Valor lease payments will be funded from operating cash flows over the remaining term of the lease.



15



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NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

_____



|10. | Comprehensive Income:
|--- | ---------------------

Other comprehensive income
(loss) was as follows for the three and nine month periods ended September 30:



(Millions)

Three Months Ended


Nine Months Ended2008


2007


2008


2007Net income

$
105.9


$
117.7


$
331.6


$
333.5Other comprehensive income (loss):Change in net actuarial gain (loss) for employee benefit plans


67.3







31.5



(16.7
)Recognition of net actuarial losses


1.9



7.4



5.8



22.5Amortization of prior service costs


0.1



0.4



0.9



1.3Amortization of transition obligations


0.1



0.2



0.5



0.6Income tax expense


(27.5
)


(3.2
)


(11.6
)


(3.0
)Change in employee benefit plans


41.9



4.8



27.1



4.7Unrealized holding gain (loss) on interest rate swaps


(2.7
)


(31.1
)


6.2



(7.4
)Income tax benefit (expense)


1.0



12.2



(2.4
)


2.9Unrealized holding gain (loss) on interest rate swaps


(1.7
)


(18.9
)


3.8



(4.5
)Other comprehensive income (loss) before income taxes


66.7



(23.1
)


44.9



0.3Income tax benefit (expense)


(26.5
)


9.0



(14.0
)


(0.1
)Other comprehensive income (loss)


40.2



(14.1
)


30.9



0.2Comprehensive income

$
146.1


$
103.6


$
362.5


$
333.7




16



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##### Table of Contents

NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

_____



|11. | Earnings per Share:
|--- | -------------------

Basic earnings per share of
common stock was computed by dividing net income applicable to common shares by the weighted average number of common shares outstanding during each period. Diluted earnings per share reflects the potential dilution that could occur assuming
conversion or exercise of all dilutive outstanding stock instruments.

A reconciliation of the net income and numbers of shares used in
computing basic and diluted earnings per share was as follows for the three and nine month periods ended September 30:



(Millions, except per share amounts)

Three Months Ended

Nine Months Ended2008

2007

2008


2007Basic earnings per share:Income from continuing operations

$
104.3

$
117.5

$
344.1


$
333.3Income (loss) from discontinued operations


1.6


0.2


(12.5
)


0.2Net income applicable to common shares

$
105.9

$
117.7

$
331.6


$
333.5Weighted average common shares outstanding for the period


435.9


473.8


442.3



473.6Basic earnings (loss) per share:From continuing operations


$.24


$.25


$.78



$.70From discontinued operations








(.03
)


Net income


$.24


$.25


$.75



$.70Diluted earnings per share:Income from continuing operations

$
104.3

$
117.5

$
344.1


$
333.3Income (loss) from discontinued operations


1.6


0.2


(12.5
)


0.2Net income applicable to common shares

$
105.9

$
117.7

$
331.6


$
333.5Weighted average common shares outstanding for the period


435.9


473.8


442.3



473.6Increase in shares resulting from:Non-vested restricted stock awards


1.3


1.1


1.2



1.2Weighted average common shares assuming conversion


437.2


474.9


443.5



474.8Diluted earnings (loss) per share:From continuing operations


$.24


$.25


$.78



$.70From discontinued operations








(.03
)


Net income


$.24


$.25


$.75



$.70




|12. | Stock-Based Compensation:
|--- | -------------------------

Under the
Companys stock-based compensation plans, Windstream may issue restricted stock and other equity securities to directors, officers and other key employees. The maximum number of shares available for issuance under the Windstream 2006 Equity
Incentive Plan is 10.0 million shares. As of September 30, 2008, the balance available for grant was approximately 6.6 million shares.

In February 2008, the Compensation Committee of the Windstream Board of Directors approved grants of restricted stock to officers, executives, non-employee directors and certain management employees totaling
approximately 1.3 million common shares with a fair value on the date of the grant of $14.3 million. Under the current compensation philosophy of the Compensation Committee, these management employees are eligible to receive an annual grant of
long-term incentives in the form of equity compensation as a significant component of their total compensation. Of the shares granted, approximately 535,000 shares contingently vest over a three-year period if performance-based operating targets are
met each period. The operating target for the first vesting period was approved by the Board of Directors on February 6, 2008. While achievement of these performance targets remains uncertain, management has determined that it is probable that
such targets will be met for fiscal year 2008. The remaining shares vest ratably over a three-year service period, with the exception of approximately 45,000 shares granted to non-employee directors that vest over a one-year service period.



17



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##### Table of Contents

NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

_____



|12. | Stock-Based Compensation, Continued:
|--- | ------------------------------------

Non-vested
Windstream restricted stock activity for the nine months ended September 30, 2008 was as follows:



(Thousands)


Weighted AverageFair Value Per ShareNumber ofSharesNon-vested at December 31, 2007

3,098.8


$13.09Granted

1,299.0


$11.00Vested

(937.9
)

$13.07Forfeited

(104.5
)

$12.57Non-vested at September 30, 2008

3,355.4


$12.30


No shares were granted during the three months ended September 30, 2008. For the nine
months ended September 30, 2008 the weighted average grant date fair value for restricted stock granted was $14.3 million. The weighted average grant date fair value for restricted stock granted was $0.1 million and $11.8 million, respectively
for three and nine months ended September 30, 2007.

At September 30, 2008, unrecognized compensation expense for non-vested
Windstream restricted shares was $18.8 million. The unrecognized compensation expense for these non-vested restricted shares has a remaining weighted average vesting period of 1.2 years. The total fair value of shares vested during the three and
nine months ended September 30, 2008 was $6.9 million and $12.3 million, respectively, as compared to $7.8 million for same periods of 2007. Stock-based compensation expense was $4.3 million and $13.5 million for the three and nine month
periods ended September 30, 2008, respectively, as compared to $3.8 million and $12.1 million for the same periods of 2007.



|13. | Business Segment Information:
|--- | -----------------------------

The Company
disaggregates its business operations based upon differences in products and services. The Companys wireline segment consists of Windstreams retail and wholesale telecommunications services, including voice service, long distance, data

and special access, switched access and Universal Service Fund revenues and miscellaneous and other services in 16 states. In assessing
operating performance and allocating resources, the chief operating decision makers focus is at a level that consolidates the results of all services. Accordingly, the Company manages its wireline-based services as a single operating segment.
The product distribution segment consists of warehouse and logistics operations, and it procures and sells telecommunications infrastructure and equipment to both affiliated and non-affiliated businesses. It operates four warehouses across the
United States.

On November 30, 2007, Windstream completed the split off of its directory publishing business. Prior to the split off,
the Companys publishing subsidiary coordinated advertising, sales, printing, and distribution for 356 telephone directory contracts in 34 states. The directory publishing business was previously presented together with the wireless business in
other operations. Commensurate with the classification of the wireless business as discontinued operations (see Note 15), the directory publishing business is now reported separately.

The Company accounts for intercompany sales at current market prices. The evaluation of segment performance is based on segment income, which is computed
as revenues and sales less operating expenses, excluding the effects of the merger and integration charges but including restructuring charges as discussed in Note 9. In addition, non-operating items such as other income, net, interest expense and
income taxes have not been allocated to the segments.



18



---

##### Table of Contents

NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

_____



|13. | Business Segment Information, Continued:
|--- | ----------------------------------------



Segment operating results were as follows for the three and nine month periods ended
September 30:



(Millions)

Three Months Ended


Nine Months Ended2008


2007


2008


2007Revenues and sales from external customers:Wireline

$
761.5


$
762.2


$
2,308.6


$
2,247.2Product distribution


32.6



28.7



85.4



92.5Directory publishing






27.9







89.5Total

$
794.1


$
818.8


$
2,394.0


$
2,429.2Intersegment revenues and sales:Wireline

$
13.3


$
24.4


$
38.0


$
70.7Product distribution


61.7



61.9



161.0



166.8Directory publishing






2.8







9.2Total

$
75.0


$
89.1


$
199.0


$
246.7Total revenues and sales:Wireline

$
774.8


$
786.6


$
2,346.6


$
2,317.9Product distribution


94.3



90.6



246.4



259.3Directory publishing






30.7







98.7Total business segments


869.1



907.9



2,593.0



2,675.9Less intercompany eliminations


(75.0
)


(89.1
)


(199.0
)


(246.7
)Total revenues and sales

$
794.1


$
818.8


$
2,394.0


$
2,429.2(Millions)

Three Months Ended


Nine Months Ended2008


2007


2008


2007Segment income:Wireline

$
270.5


$
289.0


$
863.0


$
852.4Product distribution


0.1



(0.6
)


(1.0
)


(1.1
)Directory publishing






2.2







4.9Total segment income

$
270.6


$
290.6


$
862.0


$
856.2Merger and integration costs






(2.4
)


(6.2
)


(5.6
)Other income, net


0.5



0.2



9.1



11.7Interest expense


(103.3
)


(109.6
)


(311.9
)


(332.4
)Income from continuing operations before income taxes

$
167.8


$
178.8


$
553.0


$
529.9Segment assets were as follows:







September 30,


December 31,(Millions)







2008


2007Wireline (a)









$
7,954.1


$
8,119.8Product distribution










40.3



35.7Assets of discontinued operations










65.8



85.7Total consolidated assets









$
8,060.2


$
8,241.2




| | (a) | Wireline segment assets include $0.5 million and $26.6 million in acquired assets held for sale at September 30, 2008 and December 31, 2007, respectively.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------



19



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NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

_____



|14. | Supplemental Guarantor Information:
|--- | -----------------------------------

In connection
with the issuance of the 2016 Notes, the 2013 Notes and the 2019 Notes (the guaranteed notes), certain of the Companys wholly-owned subsidiaries (the Guarantors), including all former subsidiaries of Valor, provided
guarantees of those debentures. These guarantees are full and unconditional as well as joint and several. Certain Guarantors may be subject to restrictions on their ability to distribute earnings to the Company. The remaining subsidiaries (the
Non-Guarantors) of Windstream are not guarantors of the guaranteed notes. Following the acquisition of CTC, the guaranteed notes were amended to include certain subsidiaries of CTC as guarantors.

The following information presents condensed consolidated statements of income for the three and nine months ended September 30, 2008 and 2007,
condensed consolidated balance sheets as of September 30, 2008 and December 31, 2007, and condensed consolidated statements of cash flows for the nine months ended September 30, 2008 and 2007 of the parent company, the Guarantors, and
the Non-Guarantors. Investments in consolidated subsidiaries are held primarily by the parent company in the net assets of its subsidiaries and have been presented using the equity method of accounting.



Condensed Consolidated Statement of Income (Unaudited)Three Months Ended September 30, 2008(Millions)

Parent


Guarantors


Non-Guarantors


Eliminations


ConsolidatedRevenues and sales:Service revenues

$



$
189.9


$
553.4


$
(1.3
)

$
742.0Product sales






82.4



16.5



(46.8
)


52.1Total revenues and sales






272.3



569.9



(48.1
)


794.1Costs and expenses:Cost of services






59.1



192.0



(1.3
)


249.8Cost of products sold






78.4



16.8



(46.8
)


48.4Selling, general, administrative and other






31.9



68.6







100.5Depreciation and amortization






42.2



81.6







123.8Merger, integration and restructuring






0.2



0.8







1.0Total costs and expenses






211.8



359.8



(48.1
)


523.5Operating income






60.5



210.1







270.6Earnings from consolidated subsidiaries


173.9



32.7







(206.6
)


Other income (expense), net


(0.5
)


0.6



0.4







0.5Intercompany interest income (expense)


(7.9
)


(3.1
)


11.0







Interest expense


(101.0
)


(1.6
)


(0.7
)






(103.3
)Income from continuing operations before income taxes


64.5



89.1



220.8



(206.6
)


167.8Income taxes (benefit)


(41.4
)


21.4



83.5







63.5Income from continuing operations


105.9



67.7



137.3



(206.6
)


104.3Discontinued operations










1.6







1.6Net income

$
105.9


$
67.7


$
138.9


$
(206.6
)

$
105.9




20



---

##### Table of Contents

NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

_____



|14. | Supplemental Guarantor Information, Continued:
|--- | ----------------------------------------------



Condensed Consolidated Statement of Income (Unaudited)Nine Months Ended September 30, 2008(Millions)

Parent


Guarantors


Non-Guarantors


Eliminations


ConsolidatedRevenues and sales:Service revenues

$



$
570.7


$
1,687.4


$
(3.4
)

$
2,254.7Product sales






218.5



44.7



(123.9
)


139.3Total revenues and sales






789.2



1,732.1



(127.3
)


2,394.0Costs and expenses:Cost of services






175.9



570.6



(3.4
)


743.1Cost of products sold






205.9



42.9



(123.9
)


124.9Selling, general, administrative and other






81.0



212.2







293.2Depreciation and amortization






127.3



241.4







368.7Merger, integration and restructuring






0.9



7.4







8.3Total costs and expenses






591.0



1,074.5



(127.3
)


1,538.2Operating income






198.2



657.6







855.8Earnings from consolidated subsidiaries


539.7



77.0







(616.7
)


Other income (expense), net


1.2



8.9



(1.0
)






9.1Intercompany interest income (expense)


(30.7
)


(11.0
)


41.7







Interest expense


(305.0
)


(4.8
)


(2.1
)






(311.9
)Income from continuing operations before income taxes


205.2



268.3



696.2



(616.7
)


553.0Income taxes (benefit)


(126.4
)


72.3



263.0







208.9Income from continuing operations


331.6



196.0



433.2



(616.7
)


344.1Discontinued operations










(12.5
)






(12.5
)Net income

$
331.6


$
196.0


$
420.7


$
(616.7
)

$
331.6




21



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##### Table of Contents

NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

_____



|14. | Supplemental Guarantor Information, Continued:
|--- | ----------------------------------------------



Condensed Consolidated Statement of Income (Unaudited)(Millions)

Three Months Ended September 30, 2007Parent


Guarantors


Non-Guarantors


Eliminations


ConsolidatedRevenues and sales:Service revenues

$



$
185.7


$
570.9


$
(14.4
)

$
742.2Product sales






111.1



14.4



(48.9
)


76.6Total revenues and sales






296.8



585.3



(63.3
)


818.8Costs and expenses:Cost of services






59.7



186.6



(1.3
)


245.0Cost of products sold






95.8



11.6



(62.0
)


45.4Selling, general, administrative and other






30.5



74.6







105.1Depreciation and amortization






42.5



89.9







132.4Merger, integration and restructuring






0.2



2.5







2.7Total costs and expenses






228.7



365.2



(63.3
)


530.6Operating income






68.1



220.1







288.2Earnings from consolidated subsidiaries


185.3



14.7



1.1



(201.1
)


Other income (expense), net






(0.2
)


0.4







0.2Intercompany interest income (expense)


(15.8
)


(7.6
)


23.4







Interest expense


(107.7
)


(1.4
)


(0.5
)






(109.6
)Income from continuing operations before income taxes


61.8



73.6



244.5



(201.1
)


178.8Income taxes (benefit)


(55.9
)


22.9



94.3







61.3Income from continuing operations


117.7



50.7



150.2



(201.1
)


117.5Discontinued operations










0.2







0.2Net income

$
117.7


$
50.7


$
150.4


$
(201.1
)

$
117.7




22



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##### Table of Contents

NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

_____



|14. | Supplemental Guarantor Information, Continued:
|--- | ----------------------------------------------



Condensed Consolidated Statement of Income (Unaudited)Nine Months Ended September 30, 2007(Millions)

Parent


Guarantors


Non-Guarantors


Eliminations


ConsolidatedRevenues and sales:Service revenues

$



$
572.2


$
1,661.7


$
(42.7
)

$
2,191.2Product sales






329.8



40.2



(132.0
)


238.0Total revenues and sales






902.0



1,701.9



(174.7
)


2,429.2Costs and expenses:Cost of services






171.5



564.8



(3.4
)


732.9Cost of products sold






281.3



30.1



(171.3
)


140.1Selling, general, administrative and other






93.3



218.8







312.1Depreciation and amortization






127.0



257.4







384.4Merger, integration and restructuring






4.5



4.6







9.1Total costs and expenses






677.6



1,075.7



(174.7
)


1,578.6Operating income






224.4



626.2







850.6Earnings (losses) from consolidated subsidiaries


549.1



41.0



(0.5
)


(589.6
)


Other income (expense), net


11.9



(0.5
)


0.3







11.7Intercompany interest income (expense)


(38.8
)


(26.0
)


64.8







Interest expense


(326.6
)


(4.4
)


(1.4
)






(332.4
)Income from continuing operations before income taxes


195.6



234.5



689.4



(589.6
)


529.9Income taxes (benefit)


(137.9
)


69.6



264.9







196.6Income from continuing operations


333.5



164.9



424.5



(589.6
)


333.3Discontinued operations










0.2







0.2Net income

$
333.5


$
164.9


$
424.7


$
(589.6
)

$
333.5




23



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##### Table of Contents

NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

_____



|14. | Supplemental Guarantor Information, Continued:
|--- | ----------------------------------------------



Condensed Consolidated Balance Sheet (Unaudited)As of September 30, 2008(Millions)

Parent


Guarantors

Non-Guarantors


Eliminations


ConsolidatedAssetsCurrent Assets:Cash and cash equivalents

$
93.1


$
0.6

$
17.9


$



$
111.6Accounts receivable (less allowance for doubtful accounts of $13.6)






106.9


222.2







329.1Inventories






19.6


11.4







31.0Deferred income taxes


14.1






8.3







22.4Prepaid expenses and other


21.7



4.2


29.1







55.0Assets held for sale






0.5


10.0







10.5Total current assets


128.9



131.8


298.9







559.6Investments in consolidated subsidiaries


8,017.5



469.0






(8,486.5
)


Goodwill and other intangibles


0.1



1,862.8


1,505.8







3,368.7Net property, plant and equipment


7.6



1,106.3


2,797.5







3,911.4Other assets


33.1



12.2


119.4







164.7Non-current assets of discontinued operations









55.8







55.8Total Assets

$
8,187.2


$
3,582.1

$
4,777.4


$
(8,486.5
)

$
8,060.2Liabilities and Shareholders EquityCurrent Liabilities:Current maturities of long-term debt

$
14.0


$
0.3

$
10.0


$



$
24.3Accounts payable


8.0



78.7


63.2







149.9Affiliates payable, net


2,189.9



287.2


(2,477.1
)






Advance payments and customer deposits






18.8


75.5







94.3Accrued dividends


109.9














109.9Accrued taxes


(44.8
)


37.6


77.1







69.9Accrued interest


64.4



3.3


2.1







69.8Other current liabilities


36.7



11.1


40.5







88.3Liabilities of discontinued operations









4.9







4.9Total current liabilities


2,378.1



437.0


(2,203.8
)






611.3Long-term debt


5,222.0



99.6


49.8







5,371.4Deferred income taxes


(50.8
)


509.1


752.3







1,210.6Other liabilities


97.3



15.5


213.5







326.3Total liabilities


7,646.6



1,061.2


(1,188.2
)






7,519.6Commitments and Contingencies (See Note 7)Shareholders Equity:Common stock









45.8



(45.8
)


Additional paid-in capital


96.6



1,764.5


2,619.5



(4,384.0
)


96.6Accumulated other comprehensive loss


(72.1
)





(26.7
)


26.7



(72.1
)Retained earnings


516.1



756.4


3,327.0



(4,083.4
)


516.1Total shareholders equity


540.6



2,520.9


5,965.6



(8,486.5
)


540.6Total Liabilities and Shareholders Equity

$
8,187.2


$
3,582.1

$
4,777.4


$
(8,486.5
)

$
8,060.2




24



---

##### Table of Contents

NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

_____



|14. | Supplemental Guarantor Information, Continued:
|--- | ----------------------------------------------



Condensed Consolidated Balance SheetAs of December 31, 2007(Millions)

Parent


Guarantors

Non-Guarantors


Eliminations


ConsolidatedAssetsCurrent Assets:Cash and cash equivalents

$
47.2


$
1.2

$
23.6


$



$
72.0Accounts receivable (less allowance for doubtful accounts of $13.1)


0.2



94.5


226.0







320.7Inventories






17.6


12.0







29.6Deferred income taxes


23.7






8.3







32.0Prepaid expenses and other


3.9



7.1


29.3







40.3Assets held for sale






26.6


7.2







33.8Total current assets


75.0



147.0


306.4







528.4Investments in consolidated subsidiaries


7,436.6



482.5


34.9



(7,954.0
)


Goodwill and other intangibles


0.1



1,891.7


1,516.5







3,408.3Net property, plant and equipment


7.6



1,151.3


2,871.4







4,030.3Other assets


36.2



9.1


150.4







195.7Non-current assets of discontinued operations









78.5







78.5Total Assets

$
7,555.5


$
3,681.6

$
4,958.1


$
(7,954.0
)

$
8,241.2Liabilities and Shareholders EquityCurrent Liabilities:Current maturities of long-term debt

$
14.0


$
0.3

$
10.0


$



$
24.3Accounts payable


13.0



34.2


110.9







158.1Affiliates payable, net


1,339.6



588.0


(1,927.6
)






Advance payments and customer deposits






17.2


73.9







91.1Accrued dividends


113.6














113.6Accrued taxes


(33.8
)


7.9


79.1







53.2Accrued interest


136.6



1.7


1.3







139.6Other current liabilities


30.7



11.3


49.3







91.3Liabilities of discontinued operations









7.1







7.1Total current liabilities


1,613.7



660.6


(1,596.0
)






678.3Long-term debt


5,181.6



99.9


49.7







5,331.2Deferred income taxes


(42.8
)


486.7


689.5







1,133.4Other liabilities


103.2



15.5


279.8







398.5Total liabilities


6,855.7



1,262.7


(577.0
)






7,541.4Commitments and Contingencies (See Note 7)Shareholders Equity:Common stock









60.6



(60.6
)


Additional paid-in capital


286.8



1,777.1


2,646.3



(4,423.4
)


286.8Accumulated other comprehensive loss


(103.0
)





(53.7
)


53.7



(103.0
)Retained earnings


516.0



641.8


2,881.9



(3,523.7
)


516.0Total shareholders equity


699.8



2,418.9


5,535.1



(7,954.0
)


699.8Total Liabilities and Shareholders Equity

$
7,555.5


$
3,681.6

$
4,958.1


$
(7,954.0
)

$
8,241.2




25



---

##### Table of Contents

NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

_____



|14. | Supplemental Guarantor Information, Continued:
|--- | ----------------------------------------------



Condensed Consolidated Statement of Cash Flows (Unaudited)Nine
Months Ended September 30, 2008(Millions)

Parent


Guarantors


Non-Guarantors


Eliminations


ConsolidatedCash Provided from Operations:Net income

$
331.6


$
196.0


$
420.7


$
(616.7
)

$
331.6Adjustments to reconcile net income to net cash provided from operations:Loss on net assets held for sale










16.4







16.4Depreciation and amortization






127.3



243.6







370.9Provision for doubtful accounts






3.9



21.2







25.1Stock-based compensation expense


6.1



0.2



7.2







13.5Pension and postretirement benefits expense


0.1



1.1



11.1







12.3Equity in earnings from subsidiaries


(539.7
)


(77.0
)






616.7



Deferred taxes


(0.7
)


22.4



52.6







74.3Other, net


3.9



(0.9
)


5.8







8.8Changes in operating assets and liabilities, net


742.8



(244.7
)


(621.2
)






(123.1
)Net cash provided from operations


544.1



28.3



157.4







729.8Cash Flows from Investing Activities:Additions to property, plant and equipment






(51.6
)


(167.9
)






(219.5
)Disposition of acquired assets held for sale






17.3











17.3Other, net






4.9



6.7







11.6Net cash used in investing activities






(29.4
)


(161.2
)






(190.6
)Cash Flows from Financing Activities:Dividends paid on common shares


(335.3
)














(335.3
)Stock repurchase


(200.3
)














(200.3
)Repayment of debt


(340.5
)


(0.2
)










(340.7
)Debt issued, net of issuance costs


380.0















380.0Other, net


(2.1
)


0.7



(1.9
)






(3.3
)Net cash from (used in) financing activities


(498.2
)


0.5



(1.9
)






(499.6
)Increase (decrease) in cash and cash equivalents


45.9



(0.6
)


(5.7
)






39.6Cash and Cash Equivalents:Beginning of the period


47.2



1.2



23.6







72.0End of the period

$
93.1


$
0.6


$
17.9


$



$
111.6




26



---

##### Table of Contents

NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

_____



|14. | Supplemental Guarantor Information, Continued:
|--- | ----------------------------------------------



Condensed Consolidated Statement of Cash Flows (Unaudited)Nine
Months Ended September 30, 2007(Millions)

Parent


Guarantors


Non-Guarantors


Eliminations


ConsolidatedCash Provided from Operations:Net income

$
333.5


$
164.9


$
424.7


$
(589.6
)

$
333.5Adjustments to reconcile net income to net cashprovided from operations:Depreciation and amortization






127.0



257.7







384.7Provision for doubtful accounts






5.0



14.9







19.9Stock-based compensation expense


0.4



0.9



10.8







12.1Pension and postretirement benefits expense


0.1



5.0



23.8







28.9Equity in (earnings) losses from subsidiaries


(549.1
)


(41.0
)


0.5



589.6



Deferred taxes


(14.2
)


13.5



10.4







9.7Other, net


9.7



(0.5
)


0.2







9.4Changes in operating assets and liabilities, net


536.3



(195.2
)


(455.5
)






(114.4
)Net cash provided from operations


316.7



79.6



287.5







683.8Cash Flows from Investing Activities:Additions to property, plant and equipment






(61.9
)


(206.4
)






(268.3
)Acquisition of CT Communications, net of cash acquired


(547.6
)














(547.6
)Other, net


(0.1
)


0.2



1.9







2.0Net cash used in investing activities


(547.7
)


(61.7
)


(204.5
)






(813.9
)Cash Flows from Financing Activities:Dividends paid on common shares


(357.7
)














(357.7
)Dividends received from (paid to) subsidiaries


99.0



(16.1
)


(82.9
)






Repayment of debt


(577.5
)


(0.2
)










(577.7
)Debt issued, net of issuance costs


748.9















748.9Other, net


(1.4
)






(0.9
)






(2.3
)Net cash used in financing activities


(88.7
)


(16.3
)


(83.8
)






(188.8
)Increase (decrease) in cash and cash equivalents


(319.7
)


1.6



(0.8
)






(318.9
)Cash and Cash Equivalents:Beginning of the period


362.4



0.6



23.8







386.8End of the period

$
42.7


$
2.2


$
23.0


$



$
67.9




27



---

##### Table of Contents

NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

_____



|15. | Discontinued Operations:
|--- | ------------------------

The wireless business
provides wireless services to customers in and around Concord, North Carolina and was acquired by Windstream in conjunction with the CTC acquisition on September 1, 2007. On August 7, 2008, Windstream reached a definitive purchase
agreement to sell its wireless business to AT&T Mobility II, LLC for approximately $60.0 million. This transaction will allow management to divest of a non-core asset to focus on other strategic initiatives. The Federal Communications Commission
(FCC) has granted approval for this transaction and we expect it to close before the end of the year. Additionally, the agreement provides for customary working capital adjustments, cash adjustments for fluctuations in the number of
estimated postpaid subscribers and an allowance for capital expenditures at the time of closing. Upon consummation, we will have no significant continuing involvement in the operations or cash flows of the wireless business, and have classified the
corresponding assets and liabilities as held for sale in the accompanying consolidated balance sheets, accordingly. In addition, depreciation and amortization of the related assets ceased effective July 1, 2008.

The operating results of the wireless business have been separately presented as discontinued operations in the accompanying unaudited interim
consolidated statements of income. Certain shared costs previously allocated to the wireless business totaling $2.3 million for the nine months ended September 30, 2008, have been reallocated to the wireline segment.

The following table summarizes the results of the wireless business operations for the three and nine month periods ended September 30:



(Millions)

Three Months Ended

Nine Months Ended2008

2007

2008


2007Revenues and sales

$
11.7

$
3.8

$
35.2


$
3.8Income from discontinued operations, net of tax of $1.2, $0.4, $2.4 and $0.4, respectively

$
1.6

$
0.2

$
3.9


$
0.2Loss on net assets held for sale, including tax benefit of $1.6








(16.4
)


Net income (loss) from discontinued operations

$
1.6

$
0.2

$
(12.5
)

$
0.2


The pre-tax loss on net assets held for sale of $18.0 million reduced the carrying value of
the wireless business to the contemplated transaction price less estimated costs to sell of $0.5 million. As of January 1, 2008, the Company completed its annual impairment review of goodwill and wireless licenses on a held for use basis, and
determined that no write-down in the carrying value of these assets was required. In connection with the pending sale of this business, the Company performed an event-driven impairment review of these intangible assets as of June 30, 2008
assuming a fair market value equal to the contemplated transaction price less costs to sell. Based on this held for sale impairment analysis, the Company recorded an impairment to goodwill of $17.5 million in the second quarter of 2008, which is
included in the loss from discontinued operations in the unaudited interim consolidated statements of income. At the same time, the Company updated its purchase price allocation through goodwill of certain tax contingencies related to the CTC
acquisition, which resulted in a $3.2 million reduction of deferred tax liabilities for the nine months ended September 30, 2008.

The
following table summarizes the assets and liabilities of the wireless business that are classified as held for sale in the accompanying consolidated balance sheets:



(Millions)

September 30,

December 31,2008

2007Current assets

$
10.0

$
7.2Goodwill


31.5


52.2Other intangibles


13.4


14.4Net property, plant and equipment


10.8


11.9Other assets


0.1


Total assets of discontinued operations

$
65.8

$
85.7Current liabilities

$
4.9

$
7.1Total liabilities of discontinued operations

$
4.9

$
7.1




28



---

##### Table of Contents

WINDSTREAM CORPORATION

FORM 10-Q

PART I  FINANCIAL
INFORMATION

Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations

Basis of Presentation

The following is a discussion and analysis
of the historical results of operations and financial condition of Windstream Corporation (Windstream, we, or the Company). Windstream was formed on July 17, 2006 through the spin off of Alltel Holding Corp.,
the holding company for the wireline and communications support operating subsidiaries of Alltel Corporation (Alltel), in a pro rata distribution to Alltel shareholders and the immediate merger with and into Valor Communications
Corporation (Valor) (collectively referred to as the legacy business). This discussion should be read in conjunction with the unaudited consolidated financial statements, including the notes thereto, for the interim periods
ended September 30, 2008 and 2007 and Windstreams Annual Report on Form 10-K for the year ended December 31, 2007 filed with the Securities and Exchange Commission (SEC) on February 29, 2008.

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

EXECUTIVE SUMMARY

Windstream
is a customer-focused telecommunications company that provides local telephone, high-speed Internet, long distance, network access, and video services to approximately 3.1 million customers primarily located in rural areas in 16 states. Among
the highlights in the third quarter of 2008:



| |  | The Company added approximately 28,000 high-speed Internet services customers, increasing its high-speed Internet services customer base to over 962,000. During the
quarter, the Company lost approximately 38,000 access lines or approximately 1 percent of its total access lines.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Revenues and sales decreased $24.7 million, as compared to the third quarter of 2007, primarily due to the sale of the Companys directory publishing business
in the fourth quarter of 2007. Offsetting these decreases was a $25.4 million increase in revenues due to the acquisition of CT Communications, Inc. (CTC).
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Operating income decreased $17.6 million primarily due to the sale of directory publishing, partially offset by the acquisition of CTC, which accounted for an
increase of $7.5 million, as well as the favorable effects of reduced depreciation rates discussed below.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The Company generated cash flows from operations of $729.8 million for the nine months ended September 30, 2008, which was used to fund capital expenditures of
$219.5 million and to pay $335.3 million in dividends to shareholders.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Effective July 1, 2008 the Company converted the majority of its remaining interstate rate-of-return regulated operations to price-cap regulation. Price-cap
regulation better aligns the Companys continued efforts to improve its cost structure for interstate wholesale services and allows high-speed Internet services to be deregulated.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



29



---

##### Table of Contents

During the remainder of 2008, the Company will continue to face significant challenges resulting from competition in the
telecommunications industry. In addressing competition, the Company will continue to focus its efforts on improving customer service, increasing high-speed Internet penetration and expanding its service offerings.

Business Trends

The following risk factors and material
non-recurring events and transactions could cause the Companys reported financial information to be not necessarily indicative of future operating results or future financial conditions.



| |  | As discussed in detail below, the Companys revenues and sales and operating income in future periods will continue to be positively impacted by the
acquisition of CTC. The Company added approximately 132,000 access lines through the acquisition of CTC in the third quarter of 2007.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Wireline revenues and sales are expected to continue to be adversely impacted by future declines in access lines due to increasing competition in the
telecommunications industry from cable television providers, wireless communications providers, and providers using other emerging technologies.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The Company is also exposed to regulatory uncertainty in state and federal Universal Service Fund (USF) programs and inter-carrier compensation. Pending
regulatory proceedings and other legislative actions could materially reduce the Companys inter-carrier compensation and/or USF revenues.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The split off of the Companys directory publishing business, which was completed in the fourth quarter of 2007, resulted in a reduction in wireline segment
revenues due to the elimination of royalties received on sales of advertising in Windstream telephone directories. The Company agreed to forego these royalty payments for a period of fifty years as part of the split off agreement, and received
$506.7 million in up-front consideration for the publishing business (see Note 3). The split off of the publishing business also resulted in the loss of directory publishing revenues, as discussed below in Directory Publishing.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Economic trends in markets served by the Company could generate increases in bad debt expense, accelerated access line losses and slower high-speed Internet
customer growth.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | On August 7, 2008, Windstream entered into a definitive agreement to sell its wireless business to AT&T Mobility II, LLC (AT&T) for
approximately $60.0 million. This transaction is expected to close before the end of the year.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The foregoing risk factors and material
transactions, as well as other risks and events that could cause Windstreams reported financial information to be not necessarily indicative of future operating results or financial condition, are discussed in more detail under Risk
Factors in Item 1A and in the notes to the unaudited interim consolidated financial statements.



30



---

##### Table of Contents

STRATEGIC TRANSACTIONS

Discontinued Operations

On August 7, 2008, Windstream entered into a definitive agreement to sell its wireless business to AT&T
(see Note 15). Accordingly, we have classified these operations as held for sale, and during the second quarter of 2008, we recognized a pre-tax loss of $18.0 million to reduce the carrying value of the assets held for sale to the contemplated
transaction price less estimated costs to sell.

For the nine months ended September 30, 2008, revenues generated from the wireless operations totaled
$35.2 million or approximately 1 percent of total consolidated revenues. Completion of this transaction will allow management to divest of a non-core asset to focus on other strategic initiatives.

Acquisition

On August 31, 2007, Windstream completed the
acquisition of CTC in a transaction valued at $584.3 million. Under the terms of the agreement the shareholders of CTC received $31.50 in cash for each of their shares with a total cash payout of $652.2 million. The transaction value also includes a
payment of $37.5 million made by Windstream to satisfy CTCs debt obligations, offset by $105.4 million in cash and cash equivalents held by CTC. Including $25.3 million in severance and other transaction-related expenses, the total net
consideration paid in the acquisition was $609.6 million. Windstream financed the transaction using the cash acquired from CTC, $250.0 million in borrowings available under its revolving line of credit, and additional cash on hand. The accompanying
unaudited interim consolidated financial statements reflect the combined operations of Windstream and CTC following the acquisition.

The premium paid by
Windstream in this transaction is attributable to the strategic importance of the CTC acquisition. The access lines and high-speed Internet customers added through the acquisition significantly increased Windstreams presence in North Carolina
and provided the opportunity to generate significant operating efficiencies with contiguous Windstream markets. The transaction has increased Windstreams position in these markets where it can leverage its brand and bring significant value to
customers by offering competitive bundled services.

Disposition

On November 30, 2007, Windstream completed the split off of its directory publishing business (the publishing business) in a tax-free transaction with entities affiliated with Welsh, Carson,
Anderson & Stowe (WCAS), a private equity investment firm and Windstream shareholder.

To facilitate the split off transaction,
Windstream contributed the publishing business to a newly formed subsidiary (Holdings). Holdings paid a special cash dividend to Windstream in an amount of $40.0 million, issued additional shares of Holdings common stock to Windstream,
and distributed to Windstream certain debt securities of Holdings having an aggregate principal amount of $210.5 million. Windstream exchanged the Holdings debt securities for outstanding Windstream debt securities with an equivalent fair market
value, and then retired those securities. Windstream used the proceeds of the special dividend to repurchase approximately three million shares of Windstream common stock during the fourth quarter. Windstream exchanged all of the outstanding equity
of Holdings (the Holdings Shares) for an aggregate of 19,574,422 shares of Windstream common stock (the Exchanged WIN Shares) owned by WCAS, which were then retired. Based on the price of Windstream common stock of $12.95 at
November 30, 2007, the Exchanged WIN Shares had a value of $253.5 million. The total value of the transaction was $506.7 million, including an adjustment for net working capital of approximately $2.7 million. As a result of completing this
transaction, Windstream recorded a gain on the sale of its publishing business of $451.3 million in the fourth quarter of 2007, after substantially all performance obligations had been fulfilled.

In connection with the consummation of the transaction, the parties and their affiliates entered into a publishing agreement whereby Windstream granted Local Insight
Yellow Pages, Inc. (Local Insight Yellow Pages), the successor to the Windstream subsidiary that once operated the publishing business, an exclusive license to publish Windstream directories in each of its markets other than the newly
acquired CTC markets. Local Insight Yellow Pages will, at no charge to Windstream or its affiliates or subscribers, publish directories with respect to each Windstream service area covered under the agreement in which Windstream or its affiliates
are required to publish such directories by applicable law, tariff or contract. Subject to the termination provisions in the agreement, the publishing agreement will remain in effect for a term of fifty years. As part of this agreement, Windstream
agreed to forego future royalty payments, which totaled $41.5 million during the nine months ended September 30, 2007, from Local Insight Yellow Pages on advertising revenues generated from covered directories for the duration of the publishing
agreement.



31



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##### Table of Contents

ORGANIZATION AND RESULTS OF OPERATIONS

The Company is organized based on the products and services that it offers. Under this organizational structure, its operations consist of its wireline and product distribution segments, and directory publishing
operations. The Companys wireline segment consists of its retail and wholesale telecommunications services, including local telephone, high-speed Internet, long distance, network access and video services. The product distribution segment
consists of warehouse and logistics operations, and it procures and sells telecommunications infrastructure equipment to both affiliated and non-affiliated businesses. Effective with the completion of the split off of its directory publishing
business, as discussed above, the Companys publishing operations have ceased.

Consolidated Results of Operations

|                                                      |      |                                 |        |      |                                |   |        |   |  |      |         |   |  |   |         |  
|----------------------------------------------------- | ---- | ------------------------------- | ------ | ---- | ------------------------------ | - | ------ | - |  | ---- | ------- | - |  | - | ------- | -
|(Millions)                                            |      | Three Months EndedSeptember 30, |        |      | Nine Months EndedSeptember 30, |  
|                                                      | 2008 |                                 |        | 2007 |                                |   | 2008   |   |  | 2007 |        
|Segment revenues and sales:                           |      |                                 |        |      |                                |   |        |   |  |      |         |   |  |   |         |  
|Wireline                                              |      | $                               | 774.8  |      |                                | $ | 786.6  |   |  | $    | 2,346.6 |   |  | $ | 2,317.9 |  
|Product distribution                                  |      |                                 | 94.3   |      |                                |   | 90.6   |   |  |      | 246.4   |   |  |   | 259.3   |  
|Directory publishing                                  |      |                                 |       |      |                                |   | 30.7   |   |  |      |        |   |  |   | 98.7    |  
|                                                      |      |                                 |        |      |                                |   |        |   |  |      |         |   |  |   |         |  
|Total business segment revenues and sales             |      |                                 | 869.1  |      |                                |   | 907.9  |   |  |      | 2,593.0 |   |  |   | 2,675.9 |  
|Less affiliated eliminations                          |      |                                 | (75.0  | )    |                                |   | (89.1  | ) |  |      | (199.0  | ) |  |   | (246.7  | )
|                                                      |      |                                 |        |      |                                |   |        |   |  |      |         |   |  |   |         |  
|Consolidated revenues and sales                       |      |                                 | 794.1  |      |                                |   | 818.8  |   |  |      | 2,394.0 |   |  |   | 2,429.2 |  
|Segment income:                                       |      |                                 |        |      |                                |   |        |   |  |      |         |   |  |   |         |  
|Wireline                                              |      |                                 | 270.5  |      |                                |   | 289.0  |   |  |      | 863.0   |   |  |   | 852.4   |  
|Product distribution                                  |      |                                 | 0.1    |      |                                |   | (0.6   | ) |  |      | (1.0    | ) |  |   | (1.1    | )
|Directory publishing                                  |      |                                 |       |      |                                |   | 2.2    |   |  |      |        |   |  |   | 4.9     |  
|                                                      |      |                                 |        |      |                                |   |        |   |  |      |         |   |  |   |         |  
|Total business segment income                         |      |                                 | 270.6  |      |                                |   | 290.6  |   |  |      | 862.0   |   |  |   | 856.2   |  
|Merger and integration costs                          |      |                                 |       |      |                                |   | (2.4   | ) |  |      | (6.2    | ) |  |   | (5.6    | )
|                                                      |      |                                 |        |      |                                |   |        |   |  |      |         |   |  |   |         |  
|Consolidated operating income                         |      |                                 | 270.6  |      |                                |   | 288.2  |   |  |      | 855.8   |   |  |   | 850.6   |  
|Other income, net                                     |      |                                 | 0.5    |      |                                |   | 0.2    |   |  |      | 9.1     |   |  |   | 11.7    |  
|Interest expense                                      |      |                                 | (103.3 | )    |                                |   | (109.6 | ) |  |      | (311.9  | ) |  |   | (332.4  | )
|                                                      |      |                                 |        |      |                                |   |        |   |  |      |         |   |  |   |         |  
|Income from continuing operations before income taxes |      |                                 | 167.8  |      |                                |   | 178.8  |   |  |      | 553.0   |   |  |   | 529.9   |  
|Income taxes                                          |      |                                 | 63.5   |      |                                |   | 61.3   |   |  |      | 208.9   |   |  |   | 196.6   |  
|                                                      |      |                                 |        |      |                                |   |        |   |  |      |         |   |  |   |         |  
|Income from continuing operations                     |      |                                 | 104.3  |      |                                |   | 117.5  |   |  |      | 344.1   |   |  |   | 333.3   |  
|Discontinued operations, net of tax                   |      |                                 | 1.6    |      |                                |   | 0.2    |   |  |      | (12.5   | ) |  |   | 0.2     |  
|                                                      |      |                                 |        |      |                                |   |        |   |  |      |         |   |  |   |         |  
|Net income                                            |      | $                               | 105.9  |      |                                | $ | 117.7  |   |  | $    | 331.6   |   |  | $ | 333.5   |  

The following discussion and analysis details results for Windstream Consolidated
Revenues.

The following table reflects the primary drivers of year-over-year changes in consolidated revenues and sales:

Consolidated revenues and sales

|                                                                  |  |                                      |       |   |                                     |    |    |                    |   |       |   |  |    |   
|----------------------------------------------------------------- |  | ------------------------------------ | ----- | - | ----------------------------------- | -- | -- | ------------------ | - | ----- | - |  | -- | --
|                                                                  |  | Three Months EndedSeptember 30, 2008 |       |   | Nine Months EndedSeptember 30, 2008 |   
|(Millions)                                                        |  | Increase(Decrease)                   |       |   | %                                   |    |    | Increase(Decrease) |   |       | % | 
|Due to changes in wireline segment revenues and sales             |  | $                                    | (11.8 | ) |                                     |    |    |                    | $ | 28.7  |   |  |    |   
|Due to changes in product distribution segment revenues and sales |  |                                      | 3.7   |   |                                     |    |    |                    |   | (12.9 | ) |  |    |   
|Due to decreases in revenues and sales from directory publishing  |  |                                      | (30.7 | ) |                                     |    |    |                    |   | (98.7 | ) |  |    |   
|Due to changes in affiliated eliminations                         |  |                                      | 14.1  |   |                                     |    |    |                    |   | 47.7  |   |  |    |   
|Total consolidated revenues and sales                             |  | $                                    | (24.7 | ) |                                     | (3 | )% |                    | $ | (35.2 | ) |  | (1 | )%

Consolidated revenues and sales decreased $24.7 million, or 3 percent, and $35.2 million, or 1 percent in the
three and nine month periods ended September 30, 2008, respectively, as compared to the same periods of 2007. The decreases are primarily due to the sale of the Companys directory publishing business in the fourth quarter of 2007, as
discussed above, partially offset by the acquisition of CTC. Additionally, consolidated revenues and sales increased due to increases in high-speed Internet customers, partially offset by declines in revenues associated with continued access line
losses. The decline in product



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distribution revenues and associated change in affiliate eliminations were the result of lower sales to affiliates primarily due to the decline in revenues
from directory publishing rights and changes in capital expenditures in the Companys wireline operations during the three and nine months ended September 30, 2008.

See below a detailed discussion and analysis of segment revenues and sales in our discussion of segment operating results.

The following discussion and analysis details results for each of Windstreams operating segments.

Wireline Operations

|                                                              |  |                                 |         |                                |   |         |  |            |         |  |   |        
|------------------------------------------------------------- |  | ------------------------------- | ------- | ------------------------------ | - | ------- |  | ---------- | ------- |  | - | -------
|                                                              |  | Three Months EndedSeptember 30, |         | Nine Months EndedSeptember 30,
|(Millions, access lines and customers in thousands)           |  | 2008                            |         | 2007                           |   | 2008    |  | 2007 (a,b)
|Revenues and sales:                                           |  |                                 |         |                                |   |         |  |            |         |  |   |        
|Voice service                                                 |  | $                               | 297.8   |                                | $ | 311.2   |  | $          | 908.7   |  | $ | 942.0  
|Long distance                                                 |  |                                 | 71.1    |                                |   | 66.0    |  |            | 213.8   |  |   | 192.0  
|Data and special access                                       |  |                                 | 199.3   |                                |   | 180.1   |  |            | 587.9   |  |   | 515.7  
|Switched access and USF                                       |  |                                 | 144.1   |                                |   | 155.4   |  |            | 447.6   |  |   | 450.7  
|Miscellaneous                                                 |  |                                 | 41.0    |                                |   | 43.4    |  |            | 128.9   |  |   | 129.2  
|Directory publishing rights                                   |  |                                 | 1.9     |                                |   | 13.4    |  |            | 5.7     |  |   | 41.5   
|Product sales                                                 |  |                                 | 19.6    |                                |   | 17.1    |  |            | 54.0    |  |   | 46.8   
|                                                              |  |                                 |         |                                |   |         |  |            |         |  |   |        
|Total revenues and sales                                      |  |                                 | 774.8   |                                |   | 786.6   |  |            | 2,346.6 |  |   | 2,317.9
|                                                              |  |                                 |         |                                |   |         |  |            |         |  |   |        
|Costs and expenses:                                           |  |                                 |         |                                |   |         |  |            |         |  |   |        
|Cost of services                                              |  |                                 | 263.1   |                                |   | 257.3   |  |            | 781.1   |  |   | 768.0  
|Cost of products sold                                         |  |                                 | 20.9    |                                |   | 15.0    |  |            | 53.3    |  |   | 36.9   
|Selling, general, administrative and other                    |  |                                 | 95.6    |                                |   | 92.8    |  |            | 278.8   |  |   | 273.4  
|Depreciation and amortization                                 |  |                                 | 123.7   |                                |   | 132.2   |  |            | 368.3   |  |   | 383.8  
|Restructuring charges                                         |  |                                 | 1.0     |                                |   | 0.3     |  |            | 2.1     |  |   | 3.4    
|                                                              |  |                                 |         |                                |   |         |  |            |         |  |   |        
|Total costs and expenses                                      |  |                                 | 504.3   |                                |   | 497.6   |  |            | 1,483.6 |  |   | 1,465.5
|                                                              |  |                                 |         |                                |   |         |  |            |         |  |   |        
|Segment income                                                |  | $                               | 270.5   |                                | $ | 289.0   |  | $          | 863.0   |  | $ | 852.4  
|Access lines in service (excludes high-speed Internet lines): |  |                                 |         |                                |   |         |  |            |         |  |   |        
|Residential                                                   |  |                                 | 2,028.1 |                                |   | 2,149.5 |  |            |         |  |   |        
|Business                                                      |  |                                 | 921.0   |                                |   | 944.5   |  |            |         |  |   |        
|Wholesale (c)                                                 |  |                                 | 21.3    |                                |   | 34.4    |  |            |         |  |   |        
|Special circuits                                              |  |                                 | 115.8   |                                |   | 113.0   |  |            |         |  |   |        
|                                                              |  |                                 |         |                                |   |         |  |            |         |  |   |        
|Total access lines in service                                 |  |                                 | 3,086.2 |                                |   | 3,241.4 |  |            |         |  |   |        
|                                                              |  |                                 |         |                                |   |         |  |            |         |  |   |        
|Average access lines in service                               |  |                                 | 3,105.8 |                                |   | 3,162.2 |  |            | 3,143.0 |  |   | 3,180.4
|Average revenue per customer per month (d)                    |  |                                 | $83.16  |                                |   | $82.92  |  |            | $82.96  |  |   | $80.98 
|High-speed Internet customers                                 |  |                                 | 962.7   |                                |   | 830.2   |  |            |         |  |   |        
|Digital satellite television customers                        |  |                                 | 251.7   |                                |   | 177.5   |  |            |         |  |   |        
|Long distance customers                                       |  |                                 | 2,039.0 |                                |   | 2,065.5 |  |            |         |  |   |        



|(a) | Results from wireline operations in 2007 include results from the former CTC operations following their acquisition on August 31, 2007. In the discussion and analysis provided
below regarding changes in wireline revenues and expenses in 2008 as compared to 2007, the impact of the acquisition of CTC on these changes is considered to be the revenues and expenses recognized by the former CTC operations during the two and
eight month periods ended August 31, 2008, respectively. The acquisition of CTC accounted for $25.4 million and $98.6 million of the year-over-year increase in revenues and sales for the three and nine month periods ended September 30,
2008, respectively, as compared to the same periods of 2007.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(b) | Effective on July 1, 2008, Windstream converted the majority of its remaining interstate rate-of-return regulated operations to price-cap regulation. Price-cap regulation
better aligns the Companys continued efforts to improve its cost structure because rates for interstate wholesale services are not required to be periodically adjusted based on the Companys cost structure. In conjunction with the
approval, the Company changed its presentation of certain wireline segment revenues and expenses to be consistent with the effects of price-cap regulation. Prior year revenues and expenses were changed to reflect the current presentation.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(c) | Wholesale units include unbundled network elements and pay stations.
|--- | --------------------------------------------------------------------



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|(d) | Average revenue per customer per month is calculated by dividing total wireline revenues and sales by average access lines in service for the period.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------

Customer access lines decreased by 5 percent during the twelve months ended September 30, 2008, which reflects declines in both residential and wholesale lines.

During the three and nine month periods ended September 30, 2008, the Companys legacy operations lost approximately 37,000 and 112,000 access
lines, respectively, as compared to approximately 41,000 and 106,000 access lines lost during the same periods in 2007. During the three and nine month periods ended September 30, 2008, the Companys CTC operations lost approximately 1,000
and 5,000 access lines, respectively. These declines in access lines primarily reflect the effects of fixed line competition and wireless substitution. The Company expects access lines to continue to be impacted by these effects in 2008.

To slow the decline of revenue from access line loss in 2008, the Company will continue to emphasize sales of additional services and bundling of its various product
offerings, including voice, high-speed Internet, and digital satellite television into one convenient billing solution for its customers. In an effort to further develop enhanced services and bundled product offerings, the Company will continue to
invest in its network to offer faster speeds in its high-speed Internet offerings. As of September 30, 2008, the Company could deliver speeds of 3Mb to 98 percent of its addressable lines. Additionally, speeds of 6Mb and 12Mb are available to
57 percent and 31 percent of its high-speed Internet customers, respectively.

During the three and nine month periods ended September 30, 2008, the
Company added approximately 28,000 and 91,000 high-speed Internet customers, respectively. This increased the Companys high-speed Internet customer base to over 962,000 customers at September 30, 2008, which represents a penetration rate
of 31 percent of total access lines in service, and 42 percent of residential access lines in service.

Voice Service Revenues

Voice service revenues consist of traditional telephone services provided to both residential and business customers. These revenues include monthly recurring charges for
basic services such as local dial-tone and enhanced services such as caller identification, voicemail and call waiting. The following table reflects the primary drivers of year-over-year changes in voice service revenues:

Voice service

|                                                       |  |                                      |       |   |                                     |    |    |                    |   |       |   |  |    |   
|------------------------------------------------------ |  | ------------------------------------ | ----- | - | ----------------------------------- | -- | -- | ------------------ | - | ----- | - |  | -- | --
|                                                       |  | Three Months EndedSeptember 30, 2008 |       |   | Nine Months EndedSeptember 30, 2008 |   
|(Millions)                                             |  | Increase(Decrease)                   |       |   | %                                   |    |    | Increase(Decrease) |   |       | % | 
|Due to CTC acquisition                                 |  | $                                    | 10.3  |   |                                     |    |    |                    | $ | 40.6  |   |  |    |   
|Due to reductions in expanded calling area rate plans  |  |                                      | (2.4  | ) |                                     |    |    |                    |   | (6.9  | ) |  |    |   
|Due to decreases in local number portability surcharge |  |                                      | (1.5  | ) |                                     |    |    |                    |   | (6.0  | ) |  |    |   
|Due to access line losses and other                    |  |                                      | (19.8 | ) |                                     |    |    |                    |   | (61.0 | ) |  |    |   
|Total voice service revenues                           |  | $                                    | (13.4 | ) |                                     | (4 | )% |                    | $ | (33.3 | ) |  | (4 | )%

The decreases in voice service revenues were primarily due to the overall decline in access lines discussed above
and reductions in customers on expanded calling area rate plans. The Company is offering long distance packaged rate plans, which has resulted in customers moving from expanded calling area plans to packaged calling plans, shifting revenues from
voice service revenues to long distance revenues. Voice service revenues also decreased in part due to the expiration during the third quarter of 2007 of a five-year period during which the Company was allowed to bill customers a surcharge to
recover costs associated with local number portability. Partially offsetting these decreases were increases in voice service revenues due to the acquisition of CTC.



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Long Distance Revenues

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

Long distance

|                                             |  |                                      |     |   |                                     |   |                    |   |      |  |    |  
|-------------------------------------------- |  | ------------------------------------ | --- | - | ----------------------------------- | - | ------------------ | - | ---- |  | -- | -
|                                             |  | Three Months EndedSeptember 30, 2008 |     |   | Nine Months EndedSeptember 30, 2008 |  
|(Millions)                                   |  | Increase(Decrease)                   |     | % |                                     |   | Increase(Decrease) |   | %    | 
|Due to CTC acquisition                       |  | $                                    | 1.9 |   |                                     |   |                    | $ | 6.8  |  |    |  
|Due to increases in customer billing rates   |  |                                      | 2.8 |   |                                     |   |                    |   | 8.5  |  |    |  
|Due to increases in packaged plans and other |  |                                      | 0.4 |   |                                     |   |                    |   | 6.5  |  |    |  
|Total long distance                          |  | $                                    | 5.1 |   | 8                                   | % |                    | $ | 21.8 |  | 11 | %

Increases in long distance revenues are primarily due to the acquisition of CTC, increases in customer billing
rates and subscriptions to packaged rate plans that offer a defined number of minutes or unlimited toll calling for a fixed monthly fee. Partially offsetting these increases were declines attributable to wireless substitution.

Data and Special Access Revenues

Data and special access revenues
primarily consist of retail high-speed Internet services and the provision of special access and virtual private network and virtual LAN services (next generation data services) to business and wholesale customers. The following table
reflects the primary drivers of year-over-year changes in data and special access revenues:

Data and special access

|                                                  |  |                                      |      |   |                                     |    |   |                    |   |      |   |  |    |  
|------------------------------------------------- |  | ------------------------------------ | ---- | - | ----------------------------------- | -- | - | ------------------ | - | ---- | - |  | -- | -
|                                                  |  | Three Months EndedSeptember 30, 2008 |      |   | Nine Months EndedSeptember 30, 2008 |   
|(Millions)                                        |  | Increase(Decrease)                   |      |   | %                                   |    |   | Increase(Decrease) |   |      | % | 
|Due to CTC acquisition                            |  | $                                    | 5.8  |   |                                     |    |   |                    | $ | 22.8 |   |  |    |  
|Due to increases in high-speed Internet customers |  |                                      | 9.6  |   |                                     |    |   |                    |   | 34.9 |   |  |    |  
|Due to increases in special access revenues       |  |                                      | 4.2  |   |                                     |    |   |                    |   | 13.8 |   |  |    |  
|Due to increases in next generation data services |  |                                      | 1.7  |   |                                     |    |   |                    |   | 5.5  |   |  |    |  
|Other                                             |  |                                      | (2.1 | ) |                                     |    |   |                    |   | (4.8 | ) |  |    |  
|Total data and special access                     |  | $                                    | 19.2 |   |                                     | 11 | % |                    | $ | 72.2 |   |  | 14 | %

Increases in data and special access revenues are due in part to the acquisition of CTC as well as the significant
increase in high-speed Internet customers over the last year, as previously discussed. The remaining increases are due primarily to increases in special access revenues, which represent monthly flat-rate end user charges for dedicated circuits, and
virtual networking services. The Company has realized increases in special access revenues due to strong demand from wireless and other carriers, while increases in next generation data services resulted from the introduction of these services to
new markets.



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Switched Access and USF Revenues

Switched access and USF revenues include usage sensitive charges to long distance companies for access to the Companys network in connection with the completion of interstate and intrastate long distance calls,
as well as receipts from federal and state universal service funds that subsidize the cost of providing wireline services. The following table reflects the primary drivers of year-over-year changes in switched access and USF revenues:

Switched access and USF

|                                                                      |  |                                      |       |   |                                     |    |    |                    |   |       |   |  |    |   
|--------------------------------------------------------------------- |  | ------------------------------------ | ----- | - | ----------------------------------- | -- | -- | ------------------ | - | ----- | - |  | -- | --
|                                                                      |  | Three Months EndedSeptember 30, 2008 |       |   | Nine Months EndedSeptember 30, 2008 |   
|(Millions)                                                            |  | Increase(Decrease)                   |       |   | %                                   |    |    | Increase(Decrease) |   |       | % | 
|Due to CTC acquisition                                                |  | $                                    | 5.2   |   |                                     |    |    |                    | $ | 19.0  |   |  |    |   
|Due to decrease in switched access revenues                           |  |                                      | (10.1 | ) |                                     |    |    |                    |   | (13.9 | ) |  |    |   
|Due to settlement of inter-carrier traffic dispute in 2007            |  |                                      |      |   |                                     |    |    |                    |   | (13.3 | ) |  |    |   
|Due to decrease in ICLS                                               |  |                                      | (10.5 | ) |                                     |    |    |                    |   | (0.8  | ) |  |    |   
|Due to unfavorable state universal service support assessment in 2007 |  |                                      | 7.3   |   |                                     |    |    |                    |   | 7.3   |   |  |    |   
|Due to discontinuance of federal USF surcharge on high-speed Internet |  |                                      | (3.0  | ) |                                     |    |    |                    |   | (3.0  | ) |  |    |   
|Other                                                                 |  |                                      | (0.2  | ) |                                     |    |    |                    |   | 1.6   |   |  |    |   
|Total switched access and USF                                         |  | $                                    | (11.3 | ) |                                     | (7 | )% |                    | $ | (3.1  | ) |  | (1 | )%

The declines in switched access and USF revenues in the three and nine months ended September 30, 2008 were
due primarily to a decrease in switched access revenues driven by the overall decline in access lines, as previously discussed, and the non-recurring favorable resolution of a traffic dispute with another carrier in the second quarter of 2007
totaling $13.3 million. In addition, federal universal service support declined primarily due to the recognition in the prior year of additional recoveries under the interstate common line support (ICLS) program totaling $13.8 million
related to the Companys revision of previously submitted costs for 2005 through 2007 related to cost study updates supporting additional expenses in those periods as calculated for regulatory purposes. Partially offsetting those declines were
increases due to the acquisition of CTC and due to the recognition of an unfavorable state universal service support assessment during the third quarter of 2007 in the amount of $7.3 million (see Note 7).

Also contributing to the decline in switched access and USF revenues was a reduction due to the discontinuance of the federal USF surcharge on high-speed Internet
services. As further discussed below in Regulatory Matters  Wireline Operations, effective July 1, 2008 the Company converted the majority of its remaining interstate rate-of-return regulated operations to price-cap
regulation. Commensurate with this change, the Company discontinued its assessment of the USF surcharge on high-speed Internet services resulting in a $3.0 million reduction of USF revenues with a proportionate decline in contribution expense.

The conversion to price-cap regulation also resulted in the transition of support received under the ICLS program to a fixed monthly dollar amount of
support per access line. Historically that support was based largely on the recovery of costs and network investments. Although this transition did not significantly impact USF revenues in the three month period ended September 30, 2008, future
access line losses will result in a decline in that revenue stream.

Additionally, also as a result of converting to price-cap regulation, the Company has
agreed to a phased reduction of interstate access rates which will result in a decline in those revenues which is estimated to total $8.4 million over the next three years.

In addition, as discussed further in Regulatory Matters  Wireline Operations, the FCC is currently reviewing the inter-carrier compensation framework, which could reduce the amount of switched access
revenue of the Company in future periods.



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Miscellaneous Revenues

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

Miscellaneous

|                                                        |  |                                      |      |   |                                     |    |    |                    |   |      |   |  |   |  
|------------------------------------------------------- |  | ------------------------------------ | ---- | - | ----------------------------------- | -- | -- | ------------------ | - | ---- | - |  | - | -
|                                                        |  | Three Months EndedSeptember 30, 2008 |      |   | Nine Months EndedSeptember 30, 2008 |   
|(Millions)                                              |  | Increase(Decrease)                   |      |   | %                                   |    |    | Increase(Decrease) |   |      | % | 
|Due to CTC acquisition                                  |  | $                                    | 0.6  |   |                                     |    |    |                    | $ | 2.5  |   |  |   |  
|Due to network management services performed for Alltel |  |                                      | (1.9 | ) |                                     |    |    |                    |   | 0.4  |   |  |   |  
|Due to service fees and other                           |  |                                      | (1.1 | ) |                                     |    |    |                    |   | (3.2 | ) |  |   |  
|Total miscellaneous                                     |  | $                                    | (2.4 | ) |                                     | (6 | )% |                    | $ | (0.3 | ) |  |  | %

Miscellaneous revenues decreased in 2008, primarily due to declines in service fees associated with access line
losses. Partially offsetting these declines was an increase due to the acquisition of CTC. Also included in miscellaneous revenues were charges to Alltel for network management services totaling $2.6 million and $13.7 million for the three and nine
month periods of 2008, respectively. Alltel has begun to transition these services to their own network, resulting in a decline in the related revenues in the three month period of 2008. This transition is expected to be completed in the next three
to six months.

Directory Publishing Rights

Due to the
sale of the Companys directory publishing business in the fourth quarter of 2007 as discussed above, revenues from directory publishing rights decreased $11.5 million and $35.8 million in the three and nine month periods of 2008, respectively,
as compared to the same periods of 2007.

Product Sales

Product sales represent equipment sales to customers, including sales of high-speed Internet modems and customer premise equipment. Product sales increased 15 percent in both the three and nine month periods of 2008, or $2.5 million, and
$7.2 million, respectively, as compared to the same periods of 2007. The acquisition of CTC accounted for $0.4 million and $2.1 million, of the year-over-year increases in product sales, respectively. In addition, increases of $2.6 million and $5.6
million, respectively, were primarily due to residential computer sales to qualifying high-speed Internet customers in select markets. These computers are sold at a loss to customers that sign a multi-year contract.

Average Revenue per Customer

Average revenue per customer per month
increased slightly in the three and nine month periods of 2008, respectively, as compared to the same periods of 2007, primarily due to high-speed Internet customer growth and pricing increases on long distance services as discussed above. Future
growth in average revenue per customer per month will depend on the Companys success in sustaining growth in sales of high-speed Internet and other enhanced services to new and existing customers.



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Cost of Services

Cost of services primarily consist of network operations costs, including salaries and wages, employee benefits, materials, contract services and information technology costs to support the network. Cost of services also include
interconnection expense, bad debt expense and business taxes. The following table reflects the primary drivers of year-over-year changes in cost of services:

Cost of services

|                                                       |  |                                      |      |   |                                     |   |   |                    |   |      |   |  |   |  
|------------------------------------------------------ |  | ------------------------------------ | ---- | - | ----------------------------------- | - | - | ------------------ | - | ---- | - |  | - | -
|                                                       |  | Three Months EndedSeptember 30, 2008 |      |   | Nine Months EndedSeptember 30, 2008 |  
|(Millions)                                             |  | Increase(Decrease)                   |      |   | %                                   |   |   | Increase(Decrease) |   |      | % | 
|Due to CTC acquisition                                 |  | $                                    | 9.2  |   |                                     |   |   |                    | $ | 38.3 |   |  |   |  
|Due to increases in interconnection expense            |  |                                      | 4.5  |   |                                     |   |   |                    |   | 8.4  |   |  |   |  
|Due to decreases in employee benefits expense          |  |                                      | (3.2 | ) |                                     |   |   |                    |   | (9.2 | ) |  |   |  
|Due to decreases in directory publishing expense       |  |                                      | (2.7 | ) |                                     |   |   |                    |   | (9.7 | ) |  |   |  
|Due to decreases in business taxes                     |  |                                      | (1.7 | ) |                                     |   |   |                    |   | (7.2 | ) |  |   |  
|Due to decreases in USF fees                           |  |                                      | (3.5 | ) |                                     |   |   |                    |   | (5.4 | ) |  |   |  
|Due to changes in network operations expense and other |  |                                      | 3.2  |   |                                     |   |   |                    |   | (2.1 | ) |  |   |  
|Total cost of services                                 |  | $                                    | 5.8  |   |                                     | 2 | % |                    | $ | 13.1 |   |  | 2 | %

Increases in cost of services are due primarily to the acquisition of CTC and an increase in interconnect costs
driven primarily by the increases in high-speed Internet customers discussed above. Partially offsetting these increases was a decline in employee benefit costs relative to postretirement and pension expense (see Note 8), and a decrease in directory
publishing expenses associated with the split off of the Companys directory publishing business during the fourth quarter of 2007, as previously discussed.

In addition, the decline in cost of services was the result of a decrease in business taxes and USF fees. The decrease in business taxes was due to a decline in property taxes as well as the recognition of a retroactive excise tax liability
incurred in the second quarter of 2007. USF fees declined primarily because the Companys contribution for USF surcharge on high-speed Internet services expired effective with the conversion to price-cap regulation July 1, 2008.

Also, cost of services declined during the nine months ended September 30, 2008 due to a decrease in network operations expense as a result of
certain pricing reviews of the Companys pole attachment contracts in the prior year that resulted in retroactive adjustments to this expense. Partially offsetting these decreases in network operations expense were higher contract labor,
overtime and maintenance costs incurred during the third quarter of 2008 due to inclement weather, as well as seasonal increases in fuel costs and utility expenses. These increased costs resulted in an increase in network operations expense during
the three month period of 2008.

Cost of Products Sold

Cost of products sold increased $5.9 million, or 39 percent, and $16.4 million, or 44 percent, in the three and nine month periods ended September 30, 2008, respectively, as compared to the same periods of 2007. Gross margin on product
sales decreased $3.4 million and $9.2 million in the three and nine month periods of 2008, respectively, as compared to the same periods of 2007. This was primarily due to losses incurred on computer sales to promote the Companys high-speed
Internet services, as previously discussed.

Selling, General, Administrative and Other Expenses (SG&A)

SG&A expenses result from sales and marketing efforts, advertising, information technology support systems, costs associated with corporate and other support
functions, and professional fees. These expenses also include salaries and wages and employee benefits not directly associated with the provision of services. The following table reflects the primary drivers of year-over-year changes in SG&A
expenses:



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Selling, general, administrative and other expenses

|                                                                  |  |                                      |      |   |                                     |   |   |                    |   |      |   |  |   |  
|----------------------------------------------------------------- |  | ------------------------------------ | ---- | - | ----------------------------------- | - | - | ------------------ | - | ---- | - |  | - | -
|                                                                  |  | Three Months EndedSeptember 30, 2008 |      |   | Nine Months EndedSeptember 30, 2008 |  
|(Millions)                                                        |  | Increase(Decrease)                   |      |   | %                                   |   |   | Increase(Decrease) |   |      | % | 
|Due to CTC acquisition                                            |  | $                                    | 2.6  |   |                                     |   |   |                    | $ | 13.9 |   |  |   |  
|Due to impairment loss on assets held for sale                    |  |                                      | 6.5  |   |                                     |   |   |                    |   | 6.5  |   |  |   |  
|Due to decreases in information technology services               |  |                                      | (1.4 | ) |                                     |   |   |                    |   | (7.9 | ) |  |   |  
|Due to decreases in general and administrative expenses and other |  |                                      | (4.9 | ) |                                     |   |   |                    |   | (7.1 | ) |  |   |  
|Total selling, general, administrative and other expenses         |  | $                                    | 2.8  |   |                                     | 3 | % |                    | $ | 5.4  |   |  | 2 | %

Increases in SG&A expenses in 2008 are due to the acquisition of CTC and the recognition in the third quarter
of 2008 of a $6.5 million non-cash impairment charge to adjust the carrying value of the Companys Wireless Communications Services (WCS) and 39 GHz fixed wireless spectrum holdings to their estimated fair value. The fair market
value of these assets has been reduced to a nominal amount due to an impairment resulting from general market conditions as well as limited interest on this bandwidth of spectrum (see Note 3).

Partially offsetting these increases were declines due to the realignment of the Companys information technology functions during the first quarter of 2007, as
discussed further below, and decreases in general and administrative expenses primarily from a reduction in insurance costs during 2008 due to better than expected claims experience and the Companys continued cost containment efforts.

Depreciation and Amortization Expense

Depreciation
and amortization expense primarily includes the depreciation of the Companys plant assets and the amortization of its definite-lived intangible assets. The following table reflects the primary drivers of year-over-year changes in depreciation
and amortization expense:

Depreciation and amortization expense

|                                            |  |                                      |       |   |                                     |    |    |                    |   |       |   |  |    |   
|------------------------------------------- |  | ------------------------------------ | ----- | - | ----------------------------------- | -- | -- | ------------------ | - | ----- | - |  | -- | --
|                                            |  | Three Months EndedSeptember 30, 2008 |       |   | Nine Months EndedSeptember 30, 2008 |   
|(Millions)                                  |  | Increase(Decrease)                   |       |   | %                                   |    |    | Increase(Decrease) |   |       | % | 
|Due to CTC acquisition                      |  | $                                    | 5.6   |   |                                     |    |    |                    | $ | 22.4  |   |  |    |   
|Due to depreciation rate studies and other  |  |                                      | (14.1 | ) |                                     |    |    |                    |   | (37.9 | ) |  |    |   
|Total depreciation and amortization expense |  | $                                    | (8.5  | ) |                                     | (6 | )% |                    | $ | (15.5 | ) |  | (4 | )%

Decreases in depreciation expense in 2008 primarily reflect the results of studies completed during the second and
fourth quarters of 2007 that lowered the Companys depreciation rates. Depreciable lives were revised to reflect the estimated remaining useful lives of wireline plant based on the Companys expected future network utilization and capital
expenditure levels required to provide service to its customers. Partially offsetting these decreases was the increase related to the acquisition of CTC.

Restructuring Charges

The Company incurred $2.1 million in severance and employee-related costs during the nine months ended
September 30, 2008, primarily related to the announced realignment of certain information technology, network operations and business sales functions.

The Company incurred $3.4 million in severance and employee related costs during the nine months ended September 30, 2007. During the third quarter of 2007, Windstream announced the realignment of certain customer service functions and
recognized $1.3 million in severance and employee benefit costs. These severance costs were offset by the reversal of $1.0 million in severance costs that had been recorded during the fourth quarter of 2006. This reserve was no longer needed as
costs were less than originally estimated. The Company incurred $3.1 million during the first quarter of 2007, primarily related to the continuation of a planned workforce reduction related to the Companys information technology functions
announced during the fourth quarter of 2006.



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Restructuring charges, consisting primarily of severance and employee benefit costs, are triggered by the Companys
continued evaluation of its operating structure and identification of opportunities for increased operational efficiency and effectiveness. These costs should not necessarily be viewed as non-recurring, and are included in the determination of
segment income. They are reviewed regularly by the Companys decision makers and are included as a component of compensation targets.

Wireline
Segment Income

The following table reflects the primary drivers of year-over-year changes in wireline segment income:

Wireline segment income

|                                                  |  |                                      |       |   |                                     |    |    |                    |   |       |   |  |   |  
|------------------------------------------------- |  | ------------------------------------ | ----- | - | ----------------------------------- | -- | -- | ------------------ | - | ----- | - |  | - | -
|                                                  |  | Three Months EndedSeptember 30, 2008 |       |   | Nine Months EndedSeptember 30, 2008 |   
|(Millions)                                        |  | Increase(Decrease)                   |       |   | %                                   |    |    | Increase(Decrease) |   |       | % | 
|Due to CTC acquisition                            |  | $                                    | 7.5   |   |                                     |    |    |                    | $ | 21.2  |   |  |   |  
|Due to depreciation rate studies                  |  |                                      | 14.1  |   |                                     |    |    |                    |   | 37.9  |   |  |   |  
|Due to split off of directory publishing business |  |                                      | (10.1 | ) |                                     |    |    |                    |   | (30.9 | ) |  |   |  
|Other                                             |  |                                      | (30.0 | ) |                                     |    |    |                    |   | (17.6 | ) |  |   |  
|Total wireline segment income                     |  | $                                    | (18.5 | ) |                                     | (6 | )% |                    | $ | 10.6  |   |  | 1 | %

The changes in segment income in 2008 primarily resulted from the increases due to the acquisition of CTC and
reduced depreciation rates, as discussed above. Partially offsetting these increases were the net decreases from directory publishing revenues and expenses as a result of the split off of the publishing business. The remaining changes in segment
income resulted from the non-recurring items recorded in 2007, as discussed above, continued access line losses, and the impairment loss on assets held for sale, partially offset by the increases in high-speed Internet customers, the favorable
effects of the decrease in restructuring charges, and the Companys cost containment efforts.

Regulatory Matters  Wireline Operations

Our incumbent local exchange carrier subsidiaries (collectively the ILECs) are regulated by both federal and state agencies. Interstate
products and services and the related earnings are subject to federal regulation by the Federal Communications Commission (FCC) and our local and intrastate products and services and the related earnings are subject to regulation by
state Public Service Commissions (PSCs). The FCC has principal jurisdiction over interstate switched and special access rates and high-speed Internet service offerings and regulates the rates that ILECs may charge for the use of their
local networks in originating or terminating interstate and international transmissions. State PSCs have principal jurisdiction over matters including local service rates, intrastate access rates, quality of service, the disposition of public
utility property and the issuance of securities or debt by the local operating companies.

Federal Regulation and Legislation

Communications service providers are regulated differently depending primarily upon the network technology used to deliver the service. This patchwork regulatory approach
advantages certain companies and disadvantages others. It impedes market-based competition where service providers, regardless of technology, exchange telecommunications traffic between their networks and compete for customers.

From time to time, federal legislation is introduced dealing with various matters that could affect our business. Most proposed legislation of this type never becomes
law. It is difficult to predict what kind of reform efforts, if any, may be introduced in Congress and ultimately become law. Windstream strongly supports the modernization of the nations telecommunications laws, but at this time, cannot
predict the timing and the resulting financial impact of any possible federal legislative efforts.

Price-Cap Petition Granted by FCC

Effective July 1, 2008, the Company converted the majority of its remaining interstate rate-of-return regulated operations to price-cap regulation. Price-cap
regulation better aligns the Companys continued efforts to improve its cost structure, because rates for interstate wholesale services are not required to be periodically adjusted based on the Companys cost structure, and under price-cap
regulation, high-speed Internet services can be deregulated. As previously discussed, high speed Internet services were deregulated effective July 1, 2008. Prior to the conversion, with the exception of our Nebraska and New Mexico operations,
and a portion of our Kentucky, Oklahoma and Texas operations, our interstate ILEC operations were subject to rate-of-return regulation by the FCC.



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Inter-carrier Compensation

The FCC is currently conducting a rulemaking proceeding to consider changes in the rules governing inter-carrier compensation. Windstream strongly supports regulatory reform, but is opposed to the draft order as originally proposed by the
FCC. We have submitted an alternative proposal that includes a reduction in access rates, increases in subscriber line charges to our customers and a modest increase in universal service support. At this time, we can not predict the ultimate outcome
of these proceedings or the impact on our revenues and expenses.

The following table reflects the minute-driven components of Windstreams
inter-carrier compensation revenues for the third quarter of 2008:







Revenues

|                           |  |                                  |  |                     |        |             |           |      |   |       
|-------------------------- |  | -------------------------------- |  | ------------------- | ------ | ----------- | --------- | ---- | - | ------
|                           |  | Quarter Ended September 30, 2008
|                           |  | Originating Traffic              |  | Terminating Traffic
|                           |  | Minutes                          |  | Rate                |        | Minutes     |           | Rate
|                           |  | (Thousands)                      |  |                     |        | (Thousands) |           |     
|Interstate switched access |  | 899,726                          |  | $                   | 0.0070 |             | 835,927   |      | $ | 0.0060
|Intrastate switched access |  | 609,344                          |  | $                   | 0.0340 |             | 650,944   |      | $ | 0.0430
|Local interconnection      |  |                                 |  |                     |       |             | 1,388,359 |      | $ | 0.0100



In
addition, our third quarter 2008 inter-carrier and reciprocal compensation expense was comprised of $17.0 million and $18.0 million in terminating and originating charges, respectively.

On November 5, 2008, the FCC released an order affirming a prior decision regarding compensation payable to local exchange companies for the termination of dial-up ISP
bound traffic.

State Regulation

Local and
Intrastate Rate Regulation

Most states in which our ILEC subsidiaries operate provide alternatives to rate-of-return regulation for local and
intrastate services. We have elected alternative regulation for our ILEC subsidiaries in all states except New York. On March 4, 2008, the New York PSC issued an order providing rate flexibility to certain rate-of-return regulated carriers,
like Windstream, based on the level of competition in their service areas and whose regulated earnings are no higher than five percent above their authorized threshold. We continue to advocate for greater alternative regulation options in New York
where our ILEC subsidiary remains subject to rate-of-return regulation.

State Universal Service

We recognize revenue from state universal service funds in a limited number of states in which we operate. In the third quarter of 2008, Windstream received $35.0 million
in state universal service support, which included approximately $26.0 million from the Texas USF. These payments are intended to provide additional support, beyond the federal universal service receipts, for the high cost of operating in rural
markets.

During the third quarter of 2007, the staff of a state PUC Staff notified the Company that the PUC Staff believed the Company had been
over-compensated from its state universal service fund dating back to 2000 by the amount of $6.1 million plus interest in the amount of $1.2 million (for a total $7.3 million). On October 18, 2007, the PUC Staff issued a Notice of Violation and
recommended that the Company be assessed a fine in the amount of $5.2 million in addition to the initial refund request for failure to refund the requested amount. The Company believes its universal service receipts in question are in compliance
with all applicable regulatory requirements, that it has not been over-compensated and that no refund or penalty is owed. The Company plans to defend its position in hopes of eliminating or reducing the assessment but at this time cannot predict the
outcome of the proceeding (see Note 7).

Texas USF Large Company High Cost Program Settlement

The rules governing the Texas universal service fund provide for a review of the fund every three years. In the third quarter of 2007, the Texas Public Utility Commission
Staff (PUC) filed a petition to review the USF amounts received by the large company participants. In March 2008, Windstream, along with all the other parties in this proceeding including three other ILECs receiving support from the
large company fund, reached agreement on a framework that will determine the amount of support each company receives from the fund effective January 1, 2009. As a result of this agreement, the annual amount of support received from the fund by
the Company will decline by approximately $5.0 million. However, the Company expects to recover at least that amount from its end user customers through modest rate increases allowed as part of the agreement, which will be phased in over three years
beginning January 1, 2009. The Texas PUC approved the settlement on April 25, 2008.

The Texas USF small company high cost fund will likely be
under review beginning in 2009. Windstream receives approximately $13.0 million annually from the Texas high cost program for small companies. The Company does not expect to incur any significant reductions in the amount of support from this fund.



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Product distribution

|                                           |  |                                 |      |      |                                |      |      |  |   |       |   |  |   |       |  
|------------------------------------------ |  | ------------------------------- | ---- | ---- | ------------------------------ | ---- | ---- |  | - | ----- | - |  | - | ----- | -
|                                           |  | Three Months EndedSeptember 30, |      |      | Nine Months EndedSeptember 30, |     
|(Millions)                                 |  | 2008                            |      | 2007 |                                |      | 2008 |  |   | 2007  |  
|Revenues and sales:                        |  |                                 |      |      |                                |      |      |  |   |       |   |  |   |       |  
|Product sales                              |  | $                               | 94.3 |      | $                              | 90.6 |      |  | $ | 246.4 |   |  | $ | 259.3 |  
|                                           |  |                                 |      |      |                                |      |      |  |   |       |   |  |   |       |  
|Total revenues and sales                   |  |                                 | 94.3 |      |                                | 90.6 |      |  |   | 246.4 |   |  |   | 259.3 |  
|                                           |  |                                 |      |      |                                |      |      |  |   |       |   |  |   |       |  
|Costs and expenses:                        |  |                                 |      |      |                                |      |      |  |   |       |   |  |   |       |  
|Cost of products sold                      |  |                                 | 89.2 |      |                                | 85.2 |      |  |   | 232.6 |   |  |   | 243.0 |  
|Selling, general, administrative and other |  |                                 | 4.9  |      |                                | 5.7  |      |  |   | 14.4  |   |  |   | 16.7  |  
|Depreciation and amortization              |  |                                 | 0.1  |      |                                | 0.3  |      |  |   | 0.4   |   |  |   | 0.6   |  
|Restructuring charges                      |  |                                 |     |      |                                |     |      |  |   |      |   |  |   | 0.1   |  
|                                           |  |                                 |      |      |                                |      |      |  |   |       |   |  |   |       |  
|Total costs and expenses                   |  |                                 | 94.2 |      |                                | 91.2 |      |  |   | 247.4 |   |  |   | 260.4 |  
|                                           |  |                                 |      |      |                                |      |      |  |   |       |   |  |   |       |  
|Segment income (loss)                      |  | $                               | 0.1  |      | $                              | (0.6 | )    |  | $ | (1.0  | ) |  | $ | (1.1  | )

Revenues and sales from the Companys product distribution operations reflect sales of telecommunications
equipment to affiliated wireline subsidiaries and non-affiliated telecommunications companies. Revenues and sales from the Companys product distribution operations increased $3.7 million, or 4 percent, and decreased $12.9 million, or 5
percent, in the three and nine month periods ended September 30, 2008, respectively, as compared to the same periods of 2007. Sales of telecommunications equipment and data products to the Companys affiliated subsidiaries decreased $0.2
million and $5.8 million in the three and nine month periods ended September 30, 2008, respectively, as compared to the same periods in the prior year. This was due primarily to a decrease in capital expenditures in the Companys wireline
operations during the three and nine month periods ended 2008, respectively, as compared to the same periods of 2007. Sales to external customers increased $3.9 million in the three month period of 2008 and decreased $7.1 million in the nine month
period ended September 30, 2008, as compared to the same periods of 2007, reflecting a slight increase in sales to smaller telecommunications providers and contractors during the third quarter of 2008 and a decline in these sales during the
nine month period ended 2008 as compared to the same periods of 2007. Product distribution segment income in the three and nine month periods ended September 30, 2008 remained relatively unchanged, as compared to the same periods of 2007.

The product distribution segment incurred $0.1 million in restructuring and other charges related to a workforce reduction during the nine month period
ended September 30, 2007.

Directory Publishing

|                                           |  |                                 |   |                                |   |      |  |      |   |  |   |     
|------------------------------------------ |  | ------------------------------- | - | ------------------------------ | - | ---- |  | ---- | - |  | - | ----
|                                           |  | Three Months EndedSeptember 30, |   | Nine Months EndedSeptember 30,
|(Millions)                                 |  | 2008                            |   | 2007                           |   | 2008 |  | 2007
|Revenues and sales:                        |  |                                 |   |                                |   |      |  |      |   |  |   |     
|Directory publishing                       |  | $                               |  |                                | $ | 30.7 |  | $    |  |  | $ | 98.7
|                                           |  |                                 |   |                                |   |      |  |      |   |  |   |     
|Total revenues and sales                   |  |                                 |  |                                |   | 30.7 |  |      |  |  |   | 98.7
|                                           |  |                                 |   |                                |   |      |  |      |   |  |   |     
|Costs and expenses:                        |  |                                 |   |                                |   |      |  |      |   |  |   |     
|Cost of services                           |  |                                 |  |                                |   |     |  |      |  |  |   |    
|Cost of products sold                      |  |                                 |  |                                |   | 21.8 |  |      |  |  |   | 71.8
|Selling, general, administrative and other |  |                                 |  |                                |   | 6.7  |  |      |  |  |   | 22.0
|Depreciation and amortization              |  |                                 |  |                                |   |     |  |      |  |  |   |    
|Restructuring charges                      |  |                                 |  |                                |   |     |  |      |  |  |   |    
|                                           |  |                                 |   |                                |   |      |  |      |   |  |   |     
|Total costs and expenses                   |  |                                 |  |                                |   | 28.5 |  |      |  |  |   | 93.8
|                                           |  |                                 |   |                                |   |      |  |      |   |  |   |     
|Segment income (loss)                      |  | $                               |  |                                | $ | 2.2  |  | $    |  |  | $ | 4.9 

Results during the first nine months of 2007 were derived from the publication of directories for affiliated and
non-affiliated local exchange carriers. The Company completed the split off of its directory publishing business during the fourth quarter of 2007, as previously discussed.



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The following discussion and analysis details Windstreams consolidated merger and integration
costs.

Merger and Integration Costs

Merger and integration costs include costs incurred related to strategic transactions, including transaction costs, rebranding costs and system conversion costs. These costs are unpredictable by nature and are not included in the
determination of segment income.

Set forth below is a summary of merger and integration costs for the three and nine month periods ended
September 30:

Merger and integration costs

|                                                                        |  |                                 |   |                                |   |      |  |      |     |  |   |    
|----------------------------------------------------------------------- |  | ------------------------------- | - | ------------------------------ | - | ---- |  | ---- | --- |  | - | ---
|                                                                        |  | Three Months EndedSeptember 30, |   | Nine Months EndedSeptember 30,
|(Millions)                                                              |  | 2008                            |   | 2007                           |   | 2008 |  | 2007
|Transaction costs associated with the acquisition of CTC                |  | $                               |  |                                | $ | 0.3  |  | $    | 0.1 |  | $ | 0.3
|Transaction costs associated with the split off of directory publishing |  |                                 |  |                                |   | 0.1  |  |      |    |  |   | 3.3
|Signage and other rebranding costs                                      |  |                                 |  |                                |   | 1.0  |  |      |    |  |   | 1.0
|Computer system separation and conversion costs                         |  |                                 |  |                                |   | 1.0  |  |      | 6.1 |  |   | 1.0
|                                                                        |  |                                 |   |                                |   |      |  |      |     |  |   |    
|Total merger and integration costs                                      |  | $                               |  |                                | $ | 2.4  |  | $    | 6.2 |  | $ | 5.6

Transaction costs primarily include charges for accounting, legal and broker fees and other miscellaneous costs
associated with the acquisition of CTC and the disposition of the publishing business. Other merger and integration costs during 2008 include computer system and conversion costs. These costs are considered indirect or general and are expensed when
incurred in accordance with Statement of Financial Accounting Standards (SFAS) No. 141 Business Combinations. During the second quarter of 2008, the Company determined not to use certain software acquired in the CTC
acquisition; therefore, we recognized a $5.4 million non-cash charge to abandon this asset, of which $0.8 million was related to the wireless business (see Note 15).

Summary of Liability Activity Related to Both Merger and Integration Costs and Restructuring Charges

Unpaid merger,
integration and restructuring liabilities totaling $3.7 million consist of $0.5 million of costs associated with the acquisition of CTC, Valor lease termination costs of $2.2 million, and $1.0 million of employee-related benefit costs, and are
included in other current liabilities in the accompanying unaudited interim consolidated balance sheet as of September 30, 2008. The CTC transaction costs primarily consist of system conversion and severance and related employee costs for
employees that were terminated following the billing conversion in the first quarter of 2008. Valor lease payments will be made over the remaining term of the lease. Each of these payments will be funded through operating cash flows (see Note 9).

The following discussion and analysis details results of Windstreams consolidated operating income and all other consolidated results
presented below operating income.

The following table reflects the primary drivers of year-over-year changes in consolidated operating income:

Consolidated operating income

|                                                      |  |                                      |       |   |                                     |    |    |                    |   |      |   |  |   |  
|----------------------------------------------------- |  | ------------------------------------ | ----- | - | ----------------------------------- | -- | -- | ------------------ | - | ---- | - |  | - | -
|                                                      |  | Three Months EndedSeptember 30, 2008 |       |   | Nine Months EndedSeptember 30, 2008 |   
|(Millions)                                            |  | Increase(Decrease)                   |       |   | %                                   |    |    | Increase(Decrease) |   |      | % | 
|Due to changes in wireline segment income             |  | $                                    | (18.5 | ) |                                     |    |    |                    | $ | 10.6 |   |  |   |  
|Due to changes in product distribution segment income |  |                                      | 0.7   |   |                                     |    |    |                    |   | 0.1  |   |  |   |  
|Due to changes in directory publishing segment income |  |                                      | (2.2  | ) |                                     |    |    |                    |   | (4.9 | ) |  |   |  
|Total                                                 |  | $                                    | (20.0 | ) |                                     | (6 | )% |                    | $ | 5.8  |   |  | 1 | %

The changes in operating income in 2008 are due in part to the sale of directory publishing, the non-cash
impairment loss on assets held for sale and non-recurring items recorded in 2007, as discussed above, partially offset by the acquisition of CTC. The remaining changes in operating income in 2008 were primarily attributable to the revenue impacts of
continued access line losses offset by growth in high-speed Internet customers, the favorable effects of reduced depreciation rates discussed above, and the Companys cost containment efforts.



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Other income, net

|                                                   |  |                                 |      |   |                                |   |      |      |  |   |      |   |  |   |     
|-------------------------------------------------- |  | ------------------------------- | ---- | - | ------------------------------ | - | ---- | ---- |  | - | ---- | - |  | - | ----
|                                                   |  | Three Months EndedSeptember 30, |      |   | Nine Months EndedSeptember 30,
|(Millions)                                         |  | 2008                            |      |   | 2007                           |   |      | 2008 |  |   | 2007
|Interest income on cash and short-term investments |  | $                               | 0.5  |   |                                | $ | 2.9  |      |  | $ | 1.7  |   |  | $ | 11.2
|Sale of investments                                |  |                                 |     |   |                                |   |     |      |  |   | 7.3  |   |  |   | 0.3 
|Mark-to-market of interest rate swap agreement     |  |                                 | (0.3 | ) |                                |   | (2.9 | )    |  |   | 0.5  |   |  |   |    
|Other expense, net                                 |  |                                 | 0.3  |   |                                |   | 0.2  |      |  |   | (0.4 | ) |  |   | 0.2 
|                                                   |  |                                 |      |   |                                |   |      |      |  |   |      |   |  |   |     
|Other income, net                                  |  | $                               | 0.5  |   |                                | $ | 0.2  |      |  | $ | 9.1  |   |  | $ | 11.7

Other income, net increased $0.3 million, or 150 percent and decreased $2.6 million, or 22 percent, in the three
and nine month periods ended September 30, 2008, respectively, as compared to the same periods of 2007. There was an increase in other income, net during the nine month period of 2008 primarily due to a $7.3 million gain from the sale of the
Companys investments in non-consolidated cellular partnerships acquired through the merger with Valor in 2006. Partially offsetting the increase was a decrease in interest income earned on cash and cash equivalents in the three and nine month
periods ended September 30, 2008, as compared to the same periods of 2007, primarily due to the reduction in the Companys cash on hand following the funding of the acquisition of CTC on August 31, 2007, and repurchases of Company
stock in accordance with the Companys announced stock repurchase program discussed below. Additionally, there was a change in the loss recognized on the undesignated portion of an interest rate swap agreement, as discussed further in Note 5.
Pursuant to the guidance in SFAS No. 133, Accounting for Derivative Financial Instruments and Hedging Activities, as amended, changes in the market value of the undesignated portion of this interest rate swap are included in net
income. The market value calculation of this interest rate swap is based on estimates of forward variable interest rates, and changes in estimated forward rates could result in significant non-cash increases or decreases in other income, net in
future periods.

Interest expense

|                                                                      |  |                                 |       |   |                                |   |       |      |  |   |       |   |  |   |       |  
|--------------------------------------------------------------------- |  | ------------------------------- | ----- | - | ------------------------------ | - | ----- | ---- |  | - | ----- | - |  | - | ----- | -
|                                                                      |  | Three Months EndedSeptember 30, |       |   | Nine Months EndedSeptember 30, |  
|(Millions)                                                            |  | 2008                            |       |   | 2007                           |   |       | 2008 |  |   | 2007  |  
|Senior secured credit facility, Tranche A                             |  | $                               | 3.1   |   |                                | $ | 8.7   |      |  | $ | 10.4  |   |  | $ | 25.8  |  
|Senior secured credit facility, Tranche B, net of interest rate swaps |  |                                 | 24.8  |   |                                |   | 26.0  |      |  |   | 74.7  |   |  |   | 90.2  |  
|Senior secured credit facility, revolving line of credit              |  |                                 | 2.1   |   |                                |   | 2.0   |      |  |   | 6.8   |   |  |   | 3.2   |  
|Senior unsecured notes                                                |  |                                 | 63.8  |   |                                |   | 63.7  |      |  |   | 191.3 |   |  |   | 185.6 |  
|Notes issued by subsidiaries                                          |  |                                 | 10.0  |   |                                |   | 10.1  |      |  |   | 29.9  |   |  |   | 30.3  |  
|Other interest expense                                                |  |                                 |      |   |                                |   | 0.1   |      |  |   | 0.1   |   |  |   | 0.2   |  
|Less capitalized interest expense                                     |  |                                 | (0.5  | ) |                                |   | (1.0  | )    |  |   | (1.3  | ) |  |   | (2.9  | )
|                                                                      |  |                                 |       |   |                                |   |       |      |  |   |       |   |  |   |       |  
|Total interest expense                                                |  | $                               | 103.3 |   |                                | $ | 109.6 |      |  | $ | 311.9 |   |  | $ | 332.4 |  

Interest expense decreased 6 percent in both the three and nine month periods ended September 30, 2008, or
$6.3 million, and $20.5 million, respectively, as compared to the same periods of 2007. These decreases were primarily due to the November 2007 retirement of $210.5 million of Tranche A senior secured debt under its credit facility in a
debt-for-debt exchange related to the sale of its publishing business, as well as the decline in the LIBOR (London-Interbank Offered Rate) rate impacting the Tranche A notes. In addition, the Company incurred $5.3 million in non-cash interest
expense in the first quarter of 2007 on Tranche B of its senior secured credit facilities due to the write-off of previously capitalized debt issuance costs. These debt issue costs were associated with $500.0 million of the Tranche B loan that was
paid down pursuant to the refinancing transaction during the first quarter of 2007. The weighted-average interest rate paid on the Companys long-term debt for nine months ended September 30, 2008 was 7.7 percent, as compared to 7.9
percent for the same period of 2007.

Income Taxes

Income tax expense increased $2.2 million, or 4 percent, and $12.3 million, or 6 percent, in the three and nine month periods ending September 30, 2008, respectively, as compared to the same periods of 2007. The Companys
effective tax rate increased to 37.8 percent for both the three and nine month periods ended September 30, 2008, as compared to 34.3 percent and 37.1 percent in the corresponding periods of 2007. The increase in income tax expense and the
effective rate for the three month period ending in 2008 as compared to same period in 2007 is attributable to the fact that during the three month period ended in 2007, the company evaluated its projected state income tax rates which resulted in a
$6.0 million reduction in income tax expense and lowered the overall effective tax rate. There were no similar adjustments made during the three months ended in 2008. The increase in income tax expense and the effective rate for the nine month
period is generally consistent with the change in income before taxes. For 2008, the Companys annual effective income tax rate is expected to range between



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37.5 and 38.5 percent. Changes in the relative profitability of the Companys operating business units, as well as recent and proposed changes to
federal and state tax laws, may cause the rate to change from historical rates. In determining its quarterly provision for income taxes, the Company uses an estimated annual effective tax rate, which is based on its expected annual income, statutory
rates and tax planning opportunities. Significant or unusual items are separately recognized in the quarter in which they occur.

Discontinued
Operations, Net of Tax

On August 7, 2008 Windstream entered into a definitive agreement to sell its wireless business to AT&T Mobility II, LLC
(see Note 15). In connection with the contemplated transaction, we have reported the related results as discontinued operations and recognized a pre-tax loss of $18.0 million during the second quarter of 2008 to reduce the carrying value of the
assets held for sale to the contemplated transaction price less estimated costs to sell. Wireless business income before taxes of $2.8 million and $6.3 million for the three and nine month periods ending September 30, 2008, respectively, as
compared to $0.6 million for both the three and nine month periods of 2007, was reported as discontinued operations in the unaudited interim consolidated statements of income (see Note 15). Upon consummation of the contemplated transaction, the
Company expects to recognize additional tax expense of approximately $9.7 million related to the excess of consideration to be received over tax basis in the assets to be sold.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

Liquidity and Capital Resources

During the nine months ended September 30, 2008, the Company generated approximately $730.0 million in cash flows from operations and ended the third quarter with
$111.6 million in cash and cash equivalents. At September 30, 2008, current maturities of long-term debt were $24.3 million. The Company expects to fund the payment of these obligations through operating cash flows over the next twelve months.
At September 30, 2008, the Company also had $343.2 million available under its $500.0 million revolving line of credit, which expires in 2011. Due to recent volatility in the credit markets, we assessed the solvency for each lender in our
revolving line of credit and expect to have full access to the $500.0 million available under the revolving line of credit because our revolver is well diversified among 15 lending institutions with credit ratings ranging from A to AAA. We expect
that cash on hand, along with cash generated from operations during the year, will be adequate to finance the ongoing operating requirements, capital expenditures, scheduled principal and interest payments of long-term debt and payments of dividends
in 2008.

During the nine months ended September 30, 2008, the assets of Windstreams pension plan have declined 24.4 percent from $1,001.0
million to $756.3 million due to benefit payments as well as declines in the market value of assets held. As a result of these losses, the Company may be required to make future pension contributions in accordance with the provisions of the U.S.
Pension Protection Act of 2006. The Companys funding requirements are established annually by actuarial valuation, with the next such valuation to be performed as of January 1, 2009. The funding target for a minimum contribution as
measured on January 1, 2008 was approximately $915.0 million. As the assets of the plan exceeded the funding target as of January 1, 2008, there were no contribution requirements for 2008 or 2009. Should the value of the pension assets
fall below 80 percent of the funding target as measured on January 1, 2009, the Company will likely make a voluntary contribution in 2009 to ensure the pension plan remains at or above 80 percent funded.

The Companys board of directors has adopted a current dividend practice for the payment of quarterly cash dividends at a rate of $0.25 per share of the
Companys common stock. This practice can be changed at any time at the discretion of the board of directors. Dividends paid to shareholders were $0.75 per share during the nine months ended September 30, 2008, totaling $335.3 million.
Windstream also paid $109.9 million to shareholders in October 2008 pursuant to a $0.25 quarterly dividend declared during the third quarter of 2008.

In
February 2008, the Windstream Board of Directors approved a stock repurchase program for up to $400.0 million of the Companys common stock continuing until December 31, 2009. No repurchases were made under this program during the third
quarter of 2008; however, as of September 30, 2008 the Company had repurchased 16.0 million shares for $200.3 million, and had approximately $659.9 million of restricted payments capacity under its indentures to complete the share
repurchase program.



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The Company builds additional capacity through cash generated from operations while dividend payments, share repurchases
and other strategic investments reduce the available restricted payments capacity. While it is the Companys intention at this time to fully achieve the stock repurchase program by the end of 2009, it will depend on such factors as the overall
credit environment and liquidity needs of the business. In the near term, the Company will maintain higher cash balances to improve overall liquidity and enhance balance sheet flexibility.

The Economic Stimulus Act of 2008 enacted on February 13, 2008 will allow Windstream to deduct for federal income tax purposes an amount equal to half of the costs
of qualifying assets purchased and placed in service in 2008. The acceleration of tax depreciation could result in the deferral in cash tax payments of approximately $45.0 million to $50.0 million based on currently estimated 2008 capital
expenditures ranging from $300.0 to $320.0 million.

As discussed further in Note 5, the Company currently has approximately $5.4 billion in long-term debt
outstanding,including current maturities. This outstanding debt is primarily comprised of approximately $1.8 billion in senior secured credit facilities, approximately $3.0 billion in unsecured senior notes, and approximately $0.6 billion in
debt issued by the Companys subsidiaries. With respect to scheduled principal payments on these borrowings over the next five years, the Company retired $210.5 million of Tranche A debt under its senior secured credit facilities pursuant to
the split off of the publishing business. As a result, scheduled principal payments under the credit facility have been reduced to $14.0 million per year through 2011. In addition, the Company will make sinking fund payments of approximately $10.0
million per year on its subsidiary debt. The remaining principal balance of Tranche A and the revolving line of credit of the senior secured credit facilities, totaling approximately $435.0 million, will be due in 2011.

The indentures governing our senior secured credit facilities and senior notes include customary covenants that, among other things, require the Company to maintain
certain financial ratios and restrict our ability to incur additional indebtedness. In particular, the Company must maintain the following financial ratios:



| | (a) | total leverage ratio must be no greater than 4.5 to 1.0 on the last day of any fiscal quarter;
| | --- | ----------------------------------------------------------------------------------------------



| | (b) | interest coverage ratio must be greater than 2.75 to 1.0 on the last day of any fiscal quarter; and
| | --- | ---------------------------------------------------------------------------------------------------



| | (c) | capital expenditures must not exceed a specified amount in any fiscal year (for 2008 this amount is $534.3 million, which includes $84.3 million of unused capacity from 2007).
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In addition, certain of the Companys debt agreements contain various covenants and restrictions specific to the subsidiary that is the
legal counterparty to the agreement. Under the Companys long-term debt agreements, acceleration of principal payments would occur upon payment default, violation of debt covenants not cured within 30 days, or breach of certain other conditions
set forth in the borrowing agreements. At September 30, 2008, the Company was in compliance with all such covenants and restrictions.

As of
September 30, 2008, Moodys Investors Service (Moodys), Standard & Poors Corporation (S&P) and Fitch Ratings (Fitch) had granted Windstream the following senior secured and
senior unsecured credit ratings:



|                               |  |         |  |        |  |       
|------------------------------ |  | ------- |  | ------ |  | ------
|Description                    |  | Moodys |  | S&P    |  | Fitch 
|Senior unsecured credit rating |  | Ba3     |  | BB     |  | BB+   
|Senior secured credit rating   |  | Baa3    |  | BBB    |  | BBB-  
|Outlook                        |  | Stable  |  | Stable |  | Stable

Factors that could affect Windstreams short and long-term credit ratings would include, but are not limited
to, a material decline in the Companys operating results, increased debt levels relative to operating cash flows resulting from future acquisitions, increased capital expenditure requirements, or changes to our dividend policy. If
Windstreams credit ratings were to be downgraded from current levels, the Company would incur higher interest costs on its borrowings, and the Companys access to the public capital markets could be adversely affected. The Companys
exposure to interest risk is further discussed in Item 3, Quantitative and Qualitative Disclosures About Market Risk in Part I. A downgrade in Windstreams current short or long-term credit ratings would not accelerate scheduled principal
payments of Windstreams existing long-term debt, as discussed further in Note 5. Windstreams next scheduled debt maturity is in 2011. Given the Companys ability to generate cash flow, these maturities could be funded with available
cash, if necessary.



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Historical Cash Flows



|                                                 |  |                                |        |   |      |   |        |  
|------------------------------------------------ |  | ------------------------------ | ------ | - | ---- | - | ------ | -
|                                                 |  | Nine Months EndedSeptember 30, |       
|(Millions)                                       |  | 2008                           |        |   | 2007 |  
|Cash flows provided from (used in):              |  |                                |        |   |      |   |        |  
|Operating activities                             |  | $                              | 729.8  |   |      | $ | 683.8  |  
|Investing activities                             |  |                                | (190.6 | ) |      |   | (813.9 | )
|Financing activities                             |  |                                | (499.6 | ) |      |   | (188.8 | )
|                                                 |  |                                |        |   |      |   |        |  
|Increase (decrease) in cash and cash equivalents |  | $                              | 39.6   |   |      | $ | (318.9 | )

Cash Flows-Operating Activities

Cash provided from operations is the Companys primary source of funds. Cash flows from operating activities increased by $46.0 million in the nine months ended September 30, 2008, as compared to the same
period in 2007, primarily from the deferral of cash tax payments due to the Economic Stimulus Act discussed in the Liquidity and Capital Resources section above and a reduction in merger, integration and restructuring payments. These increases were
partially offset by changes in working capital requirements, including timing differences in the billing and collections of accounts receivable, payment of trade payables, taxes and purchases of inventory. During the first nine months of 2008, the
Company generated sufficient cash flows from operations to fund its capital expenditure requirements, dividend payments and scheduled long-term debt payments as further discussed below. The Company expects to generate sufficient cash flows from
operations to fund its operating requirements during the balance of 2008.

Cash Flows-Investing Activities

Capital expenditures, including those related to the CTC wireless business, for the nine months ended September 30, 2008, were $219.5 million, as compared to $268.3
million for the same period in 2007. Capital expenditures in both years were incurred to construct additional network facilities and to upgrade the Companys telecommunications network in order to expand our offering of other communications
services, including high-speed Internet communication services. The Company funded its capital expenditures through internally generated funds.

Capital
expenditures were partially offset by $17.3 million in net proceeds received on the sale of acquired assets held for sale discussed in Note 3.

Cash
Flows-Financing Activities

The primary use of funds for financing activities was the payment of dividends to shareholders during the first nine months
of 2008. These payments decreased by $22.4 million in the nine months ended September 30, 2008 as compared to the same period in 2007 primarily due to fewer shares issued and outstanding as of September 30, 2008 as a result of the stock
repurchase program. As previously discussed, during the first nine months of 2008, the Company repurchased 16.0 million shares of its common stock.

Repayments of borrowings were $340.7 million for the nine months ended September 30, 2008 and $577.7 million for the nine months ended September 30, 2007. Debt issued, net of issuance costs, during the nine months ended
September 30, 2008 and 2007 totaled $380.0 and $748.9 million, respectively. During the first nine months of 2008, the Company borrowed $380.0 million from its $500.0 million revolving credit agreement, of which $330.0 million was repaid during
the nine month period. Additionally, repayments of borrowings and debt issued in the nine months ended September 30, 2007 were primarily due to the refinancing transaction discussed in further detail in Note 5. Other retirements of long-term
debt in both periods reflected the required scheduled principal payments under the Companys existing long-term debt obligations.

Off-Balance
Sheet Arrangements

We do not use securitization of trade receivables, affiliation with special purpose entities, variable interest entities or
synthetic leases to finance our operations. Additionally, we have not entered into any arrangement requiring us to guarantee payment of third party debt or to fund losses of an unconsolidated special purpose entity.

Contractual Obligations and Commitments

There have been no
significant changes in the Companys contractual obligations and commitments since December 31, 2007 set forth in the Companys Annual Report on Form 10-K.



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Critical Accounting Policies

The Company prepares its consolidated financial statements in accordance with accounting principles generally accepted in the United States. In Managements Discussion and Analysis of Financial Condition and Results of Operations for
the year ended December 31, 2007 in the Companys Annual Report on Form 10-K, the Company identified the critical accounting policies which affect its more significant estimates and assumptions used in preparing its consolidated financial
statements. These critical accounting policies include recognizing revenue, evaluating the collectibility of trade receivables, accounting for pension and other postretirement benefits, calculating depreciation and amortization expense, determining
the fair values of goodwill and other indefinite-lived intangible assets, determining the fair values of derivative instruments, and accounting for current and deferred income taxes and related tax contingencies. See Note 6, Fair Value
Measurements, and Note 8, Employee Benefit Plans and Postretirement Benefits Other Than Pensions, for discussions relating to the Companys adoption of SFAS No. 157 Fair Value Measurements and change in
methodology used to determine the appropriate discount rate for the Companys postretirement benefits, respectively. Other than the adoption of SFAS No. 157 discussed in Note 2, there were no material changes to the Companys critical
accounting policies during the nine month period ended September 30, 2008.

Recently Adopted Accounting Pronouncements

SFAS No. 157 - Effective January 1, 2008, Windstream adopted SFAS No. 157, for financial assets and liabilities recognized at fair value. SFAS
No. 157 defined fair value, established a framework for measuring fair value and expanded disclosures about the use of fair value to measure assets and liabilities. Although the adoption of SFAS No. 157 for financial assets and liabilities
recognized at fair value on a recurring basis did not have a material impact on our consolidated financial statements, applying the fair value measurement framework to non-financial assets and liabilities that are recognized or disclosed at fair
value on a non-recurring basis may have a material impact on future consolidated financial statements.

SFAS No. 159 - In the first quarter of
2008, the Company adopted SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of Financial Accounting Standards Board (FASB) Statement No. 115. Since
Windstream did not elect the fair value option for any of its eligible financial assets and liabilities, the adoption of SFAS No. 159 did not impact the Companys consolidated financial statements.

FIN 48 - Windstream adopted FASB Interpretation No. 48 Accounting for Uncertainty in Income Taxes (FIN 48) on January 1, 2007.
FIN 48 clarifies the accounting for and disclosure of uncertainty in tax positions and provides guidance on the recognition, measurement, derecognition, classification, and disclosure of tax positions and on the accounting for related interest and
penalties. As a result of the adoption of FIN 48, we recognize accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense. Although the adoption of this standard has not had a significant impact on the
Companys tax provision thus far, the recognition of tax uncertainties through earnings in the future could be materially impacted by this new accounting policy.

For additional information concerning the adoption of the above mentioned accounting pronouncements see Note 2.

Recently Issued Accounting Pronouncements

SFAS No. 141(R) - In December 2007, the FASB issued SFAS No. 141(R),
Business Combinations, a revision of SFAS No. 141. Under SFAS No. 141(R), an acquiring entity will be required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value
with limited exceptions. SFAS No. 141(R) will change the accounting treatment for certain specific items, including acquisition costs, acquired contingent liabilities, restructuring costs, deferred tax asset valuation allowances and income tax
uncertainties after the acquisition date. For calendar year companies like Windstream, SFAS No. 141(R) is effective for all business combinations for which the acquisition date is on or after January 1, 2009. The Company is currently
evaluating the effects that SFAS No. 141(R) will have on its consolidated financial statements with regards to future business combinations.

SFAS No. 160 - In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements - An Amendment of Accounting Research Bulletin No. 51. SFAS No. 160
requires noncontrolling interests to be recognized as equity in the consolidated financial statements, separate from the parents equity. In addition, net income attributable to the noncontrolling interest will be included in consolidated net
income. SFAS No. 160 clarifies that changes in a parents ownership interest in a subsidiary that do not result in deconsolidation are equity transactions if the parent retains its controlling financial interest. In addition, when a
subsidiary is deconsolidated, the parent must recognize a gain or loss in net income, measured using the fair value of the noncontrolling equity investment on the deconsolidation date. Expanded disclosures are also required regarding the interests
of the parent and its noncontrolling interest. SFAS No. 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. The Company does not expect SFAS No. 160 to have any
impact on its consolidated financial statements.



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SFAS No. 161 - In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities. SFAS No. 161 requires companies with derivative instruments to disclose information that should enable financial statement users to understand how and why a company uses derivative instruments, how
derivative instruments and related hedged items are accounted for under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities and how derivative instruments and related hedged items affect a companys
financial position, financial performance and cash flows. SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. Windstream is currently evaluating the impact, if
any, that SFAS No. 161 will have on its consolidated financial statements.

FSP FAS 142-3 - In April 2008, the FASB issued FSP FAS 142-3,
Determination of the Useful Life of Intangible Assets. FSP FAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under
SFAS No. 142, Goodwill and Other Intangible Assets for intangible assets acquired after adoption. Under FSP FAS 142-3 an entity should consider its own historical experience in renewing similar arrangements or market participant
assumptions in the absence of historical experience. FSP FAS 142-3 also requires disclosures to enable users of financial statements to assess the extent to which the expected future cash flows associated with the asset are affected by the
entitys intent and/or ability to renew or extend the arrangement. FSP FAS 142-3 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2008. Windstream is currently evaluating the impact
FSP FAS 142-3 will have on our financial statements.

SFAS No. 162 - On May 9, 2008, the FASB issued SFAS No. 162, The
Hierarchy of Generally Accepted Accounting Principles to improve financial reporting by identifying a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements for nongovernmental
entities that are presented in conformity with generally accepted accounting principles in the United States. SFAS No. 162 is effective November 15, 2008. The Company is currently evaluating the effects, if any, that SFAS No. 162 will
have on its consolidated financial statements.

FSP EITF 03-6-1 - In June 2008, relative to Emerging Issues Task Force Issue No. (EITF)
03-6-1, the FASB issued FSP EITF 03-6-1 Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities. FSP EITF 03-6-1, concluded that unvested share-based payment awards that contain a
nonforfeitable right to receive dividends, whether paid or unpaid, are participating securities and should be included in the computation of earnings per share pursuant to the two-class method prescribed under SFAS No. 128, Earnings per
Share. This standard is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those years, with early adoption prohibited. Windstream is evaluating the impact of this
standard but does not believe it will have a material impact on basic or diluted earnings per share.



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Forward-Looking Statements

This Managements Discussion and Analysis of Financial Condition and Results of Operations includes, and future filings on Form 10-K, Form 10-Q and Form 8-K and future oral and written statements by Windstream and our management may
include, certain forward-looking statements. Windstream claims the protection of the safe-harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 for the Quarterly Report on Form 10-Q for the period
ending September 30, 2008. Forward-looking statements are subject to uncertainties that could cause actual future events and results to differ materially from those expressed in the forward-looking statements. These forward-looking statements
are based on estimates, projections, beliefs, and assumptions that Windstream believes are reasonable but are not guarantees of future events and results. Actual future events and results of Windstream may differ materially from those expressed in
these forward-looking statements as a result of a number of important factors.

Factors that could cause actual results to differ materially from those
contemplated in our forward looking statements include, among others: adverse changes in economic conditions in the markets served by Windstream; the extent, timing and overall effects of competition in the communications business; continued access
line loss; the impact of new, emerging or competing technologies; the adoption of inter-carrier compensation and/or universal service reform proposals by the Federal Communications Commission or Congress that results in a significant loss of revenue
to Windstream; the risks associated with the integration of acquired businesses or the ability to realize anticipated synergies, cost savings and growth opportunities; the availability and cost of financing in the corporate debt markets; the
potential for adverse changes in the ratings given to Windstreams debt securities by nationally accredited ratings organizations; the effects of federal and state legislation and rules and regulations governing the communications industry;
material changes in the communications industry generally that could adversely affect vendor relationships with equipment and network suppliers and customer relationships with wholesale customers; unexpected results of litigation; unexpected rulings
by state public service commissions in proceedings regarding universal service funds, inter-carrier compensation or other matters that could reduce revenues or increase expenses; the effects of workstoppages; the impact of equipment
failure, natural disasters or terrorist acts; the ability to execute the Companys share repurchase program or the ability to achieve the desired accretive effect from such repurchases; and those additional factors under the caption Risk
Factors in Item 1A in the Form 10-K for the year ended December 31, 2007. In addition to these factors, actual future performance, outcomes and results may differ materially because of more general factors including, among others,
general industry and market conditions and growth rates, economic conditions, and governmental and public policy changes.

Windstream undertakes no
obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The foregoing review of factors that could cause Windstreams actual results to differ materially from those
contemplated in the forward-looking statements should be considered in connection with information regarding risks and uncertainties that may affect Windstreams future results included in this Managements Discussion and Analysis of
Financial Condition and Results of Operations and in other filings by Windstream with the Securities and Exchange Commission at www.sec.gov.



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WINDSTREAM CORPORATION

FORM 10-Q

PART I  FINANCIAL
INFORMATION

Item 3. Quantitative and Qualitative Disclosures About Market Risk

MARKET RISK

The Companys market risks at September 30,
2008 are similar to the market risks discussed in the Companys Annual Report on Form 10-K for the year ended December 31, 2007, filed with the SEC on February 29, 2008. Market risk is comprised of three elements: foreign currency
risk, interest rate risk and equity risk. As further discussed below, the Company is exposed to market risk from changes in interest rates. The Company does not directly own significant marketable equity securities other than highly liquid cash
equivalents, nor does it operate in foreign countries. However, the Companys pension plan invests in marketable equity securities, including marketable debt and equity securities denominated in foreign currencies.

Interest Rate Risk

The Company is exposed to market risk through
changes in interest rates, primarily as it relates to the variable interest rates it is charged under its senior secured credit facilities. Under its current policy, the Company enters into interest rate swap agreements to obtain a targeted mixture
of variable and fixed interest rate debt such that the portion of debt subject to variable rates does not exceed 25 percent of Windstreams total debt outstanding. The Company has established policies and procedures for risk assessment and the
approval, reporting, and monitoring of interest rate swap activity. Windstream does not enter into interest rate swap agreements, or other derivative financial instruments, for trading or speculative purposes. Management periodically reviews
Windstreams exposure to interest rate fluctuations and implements strategies to manage the exposure.

Due to the interest rate risk inherent in its
variable rate senior secured credit facilities, the Company entered into four pay fixed, receive variable interest rate swap agreements on notional amounts totaling $1,600.0 million at July 17, 2006 to convert variable interest rate payments to
fixed. The counterparty for each of the swap agreements is a bank with a current credit rating at or above A+. The four interest rate swap agreements amortize quarterly to a notional value of $906.3 million at maturity on July 17, 2013, and
have an unamortized notional value of $1,312.5 million as of September 30, 2008. The variable rate received by Windstream on these swaps was 2.79 percent at September 30, 2008, which is the three-month LIBOR (London-Interbank Offered Rate)
on July 17, 2008. The weighted-average fixed rate paid by Windstream is 5.60 percent. The interest rate swap agreements are designated as cash flow hedges of the interest rate risk created by the variable interest rate paid on the senior
secured credit facilities pursuant to the guidance in SFAS No. 133, Accounting for Derivative Financial Instruments and Hedging Activities, as amended.

After the completion of a refinancing transaction in February 2007, a portion of one of the four interest rate swap agreements with a notional value of $125.0 million was de-designated and is no longer considered an
effective hedge as the portion of the Companys senior secured credit facility that it was designated to hedge against was repaid. Changes in the market value of this portion of the swap, which had an unamortized notional value of $107.6
million as of September 30, 2008, are recognized in net income, including $(0.3) million and $0.5 million recognized as other income (loss) in the unaudited interim consolidated statement of income for the three and nine months ended
September 30, 2008, respectively. Changes in the market value of the designated portion of the swaps are recognized in other comprehensive income.

As
of September 30, 2008, the unhedged portion of the Companys variable rate senior secured credit facilities was $503.3 million, or approximately 9 percent of its total outstanding long-term debt. Windstream has estimated its interest rate
risk using a sensitivity analysis. For variable rate debt instruments, market risk is defined as the potential change in earnings resulting from a hypothetical adverse change in interest rates. A hypothetical increase of 100 basis points in variable
interest rates would reduce annual pre-tax earnings by approximately $5.0 million. Actual results may differ from this estimate.

Equity Risk

The Company is exposed to market risk through the Companys pension plan investments. The fair market value of these investments, totaling $756.3
million at September 30, 2008, declined 24.4 percent from $1,001.0 million at December 31, 2007, due to benefit payments as well as declines in the market value of assets held. Continued returns below our expected rate of return of 8.0
percent will result in increased pension expense beginning in 2009.



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WINDSTREAM CORPORATION

FORM 10-Q

PART I  FINANCIAL
INFORMATION

Item 4. Controls and Procedures

(a)  Evaluation of disclosure controls and procedures.

The term disclosure controls and
procedures (defined in Exchange Act Rule 13a-15(e)) refers to the controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under
the Securities Exchange Act of 1934 (the Exchange Act) is recorded, processed, summarized and reported within required time periods. Disclosure controls and procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by the company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the companys management, including the companys principal executive and
financial officers, as appropriate to allow timely decisions regarding required disclosure. Windstreams management, with the participation of the Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of the
Companys disclosure controls and procedures as of the end of the period covered by this quarterly report (the Evaluation Date). Based on that evaluation, Windstreams Chief Executive Officer and Chief Financial Officer have
concluded that, as of the Evaluation Date, such disclosure controls and procedures were effective.

(b)  Changes in internal control over
financial reporting.

The term internal control over financial reporting (defined in SEC Rule 13a-15(f)) refers to the process
of a company that is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Windstreams management, with the participation of the Chief Executive Officer and Chief Financial Officer, have evaluated any changes in the Companys internal control over financial reporting that occurred during the period covered by
this quarterly report, and they have concluded that there were no changes to Windstreams internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, Windstreams internal control
over financial reporting.



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WINDSTREAM CORPORATION

FORM 10-Q

PART II  OTHER
INFORMATION

Item 1. Legal Proceedings

On August 14, 2008, Windstream Corporation, Windstream Nebraska, Inc., Windstream Systems of the Midwest, Inc., and Windstream Benefits Committee filed a class
action complaint for declaratory judgment in the United States District Court for the District of Nebraska against a group of retirees requesting the court to declare that the Company had a unilateral right to make certain amendments to its
postretirement, medical and life insurance plans (see Note 8). Defendants include the local bargaining unit for the Communication Workers of America and several former Aliant retirees individually and as representatives of persons similarly
situated. The Company intends to vigorously assert and defend its position in this matter.

The Company is also party to various other legal proceedings.
Although the ultimate resolution of these various proceedings cannot be determined at this time, management of the Company does not believe that such proceedings, individually or in the aggregate, will have a material adverse effect on the future
consolidated results of income, cash flows or financial condition of the Company.

In addition, management of the Company 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 results of operations of the Company.

Item 1A. Risk Factors

During the first nine months of 2008, there have
been no material changes to the risk factors affecting Windstreams businesses that were discussed in the Companys Annual Report on Form 10-K for the year ended December 31, 2007, filed with the SEC on February 29, 2008.

Item 5. Other Information

(a)  Amendment to Bylaws.

Effective November 6, 2008, the Board of Directors of the Company
adopted an amendment to the Bylaws of the Company. The amendment modified the contents of the advance notice that is required to be delivered to the Companys Secretary by any stockholder in order for such stockholder to submit a matter for
business at an annual meeting of stockholders of the Company or to nominate a person for election to the Board of Directors of the Company. In each instance, the modified advance notice provisions now require the stockholder to disclose the full
extent of the economic and voting interests in any stock of the Company that are held by such stockholder and certain affiliated persons. The prior Bylaws required advance notice only of beneficial ownership and record ownership of the stockholder.

In particular, the amendment to the Bylaws of the Company modifies Section 11 of Article II for bringing matters before an annual meeting
and Section 4 of Article III for nominating a person for election to the Board of Directors to require advance notice of whether and the extent to which any hedging or other transaction or series of transactions has been entered into by or on behalf
of, or any other agreement, arrangement or understanding (including any short position or any borrowing or lending of shares) has been made, the effect or intent of which is to mitigate loss to or manage risk or benefit of share price changes for,
or to increase or decrease the voting power of, the stockholder making the proposal or any Stockholder Associated Person (as defined below) with respect to any share of stock of the Company. The amendment defines a Stockholder Associated
Person as (i) any person directly or indirectly controlling, controlled by or under common control with, or directly or indirectly acting in concert with, the stockholder making the proposal and (ii) any beneficial owner of shares of stock of
the Company owned of record or otherwise by such stockholder. The amendment also modifies Section 11 of Article II of the Bylaws to require advance notice of the reason for conducting the business that is proposed to be brought before an annual
meeting of stockholders.

The foregoing description of the amendment to the Bylaws is qualified in its entirety by reference to the Amended
and Restated Bylaws of the Company, a copy of which is attached to this Quarterly Report on Form 10-Q as Exhibit 3.2.

Item 6. Exhibits

See the exhibits specified on the Index of Exhibits located at Page 55.



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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



|                                                  
|--------------------------------------------------
|WINDSTREAM CORPORATION                            
|(Registrant)                                      
|                                                  
|/s/ Brent Whittington                             
|Brent Whittington                                 
|Executive Vice President  Chief Financial Officer
|(Principal Financial Officer)                     
|November 7, 2008                                  



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WINDSTREAM CORPORATION

FORM 10-Q

INDEX OF EXHIBITS



|                      |  |                                                                                                                                                    |  |   |   
|--------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------- |  | - | --
|Form 10-Q Exhibit No. |  | Description of Exhibits                                                                                                                            |  |   |   
|                      |  |                                                                                                                                                   
|3.2                   |  | Amended and Restated Bylaws of Windstream Corporation.                                                                                             |  | ( | *)
|                      |  |                                                                                                                                                   
|31(a)                 |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                |  | ( | *)
|                      |  |                                                                                                                                                   
|31(b)                 |  | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                |  | ( | *)
|                      |  |                                                                                                                                                   
|32(a)                 |  | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |  | ( | *)
|                      |  |                                                                                                                                                   
|32(b)                 |  | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |  | ( | *)



|(*) | Filed herewith.
|--- | ---------------



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