Organizational Structure – Windstream Holdings, Inc. (“Windstream Holdings”) is a publicly traded holding company incorporated in the state of Delaware on May 23, 2013, and the parent of Windstream Services, LLC (“Windstream Services”), a Delaware limited liability company organized on March 1, 2004. Following its delisting on March 6, 2019, Windstream Holdings common stock no longer trades on the Nasdaq Global Select Market (“NASDAQ”) but trades on the Over-the-Counter (“OTC”) Pink Sheets market maintained by the OTC Market Group, Inc. under the trading symbol “WINMQ”. Windstream Holdings owns a 100 percent interest in Windstream Services and its guarantor subsidiaries are the sole obligors of all outstanding debt obligations and, as a result, also file periodic reports with the Securities and Exchange Commission (“SEC”). Windstream Holdings is not a guarantor of nor subject to the restrictive covenants included in any of Windstream Services’ debt agreements. The Windstream Holdings board of directors and officers oversee both companies.

Description of Business – We are a leading provider of advanced network communications and technology solutions for businesses across the U.S. We also offer broadband, entertainment and security solutions to consumers and small businesses primarily in rural areas in 18 states. Additionally, we supply core transport solutions on a local and long-haul fiber network spanning approximately 150,000 miles.

Consumer service revenues are generated from the provisioning of high-speed Internet, voice and video services to consumers. Enterprise service revenues include revenues from integrated voice and data services, advanced data and traditional voice and long-distance services provided to enterprise, mid-market and small business customers. Wholesale revenues include revenues from other communications services providers for special access circuits and fiber connections, voice and data transport services, and revenues from the reselling of our services. Service revenues also include switched access revenues, federal and state Universal Service Fund (“USF”) revenues, amounts received from Connect America Fund (“CAF”) - Phase II, USF surcharges and revenues from providing other miscellaneous services.

Basis of Presentation– The accompanying unaudited consolidated financial statements have been prepared based upon SEC rules that permit reduced disclosure for interim periods. Certain information and footnote disclosures have been condensed or omitted in accordance with those rules and regulations. The accompanying consolidated balance sheet as of December 31, 2018, was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United ~~States.~~States (“U.S. GAAP”). In our opinion, these financial statements reflect all adjustments that are necessary for a fair statement of results of operations and financial condition for the interim periods presented including normal recurring accruals and other items. The results for the interim periods are not necessarily indicative of results for the full year. For a more complete discussion of significant accounting policies and certain other information, this report should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2018, which was filed with the SEC on March 15, 2019.

Windstream Holdings and its domestic subsidiaries, including Windstream Services, file a consolidated federal income tax return. As such, Windstream Services and its subsidiaries are not separate taxable entities for federal and certain state income tax purposes. In instances when Windstream Services does not file a separate return, income taxes as presented within the accompanying consolidated financial statements attribute current and deferred income taxes of Windstream Holdings to Windstream Services and its subsidiaries in a manner that is systematic, rational and consistent with the asset and liability method. Income tax provisions presented for Windstream Services and its subsidiaries are prepared under the “separate return method.” The separate return method represents a hypothetical computation assuming that the reported revenue and expenses of Windstream Services and its subsidiaries were incurred by separate taxable entities.

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

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

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

Leases – In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842), as modified by subsequently issued ASU Nos. 2018-01, 2018-10, 2018-11, 2018-20 and 2019-01 (collectively “ASU 2016-02”). ASU 2016-02 requires recognition of right-of-use assets and lease liabilities on the balance sheet. Most prominent among the changes in ASU 2016-02 is the lessees’ recognition of a right-of-use asset and a lease liability for operating leases. The right-of-use asset and lease liability are initially measured based on the present value of committed lease payments. Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition. Expenses related to operating leases are recognized on a straight-line basis, while those related to financing leases are recognized under a front-loaded approach in which interest expense and amortization of the right-of-use asset are presented separately in the statement of operations. Similarly, lessors are required to classify leases as sales-type, finance or operating with classification affecting the pattern of income recognition. Classification for both lessees and lessors is based on an assessment of whether risks and rewards as well as substantive control have been transferred through a lease contract. ASU 2016-02 also requires qualitative and quantitative disclosures to assess the amount, timing and uncertainty of cash flows arising from leases.

On January 1, 2019, we adopted ASU 2016-02 using the modified retrospective transition method. Under the modified retrospective transition method, we recognized the cumulative effect of initial adoption as an adjustment to our opening accumulated deficit balance at the adoption date. Comparative information for prior periods has not been restated and continues to be reported in accordance with Topic 840.

We elected the practical expedients permitted under the transition guidance within ASU 2016-02 which, among other things, allowed us to carry forward the historical lease classification for capital and operating leases. We also elected the practical expedient related to land easements, allowing us to carry forward our accounting treatment for land easements on existing agreements. As a practical expedient, we elected not to recognize right-of-use assets and lease liabilities for leases with a term of 12 months or less.

Exclusive of our ~~lease~~contractual arrangement with Uniti Group, Inc. (“Uniti”) described below, our existing operating lease portfolio primarily consists of fiber, colocation, real estate and equipment leases. Upon adoption of this standard, we recorded an additional lease liability of $408.4 million attributable to our operating leases based on the present value of the remaining minimum lease payments with an increase to leased assets or right-of-use assets of $382.5 million in our consolidated balance sheet. Included in the operating right-of-use assets is $6.6 million of previously recorded prepaid rent and~~$6.7~~ $6.7 million in deferred rent arising from non-level rent payments. The difference between these amounts was recorded as an adjustment to our accumulated deficit.

We also recorded a cumulative effect adjustment of approximately $3.0 billion decreasing our accumulated deficit due to reassessing the accounting treatment of our arrangement with Uniti and certain of its subsidiaries. The transaction with Uniti had been accounted for as a failed spin-leaseback financing arrangement for financial reporting purposes due to prohibited continuing involvement. Under ASU 2016-02, the previous forms of prohibited continuing involvement no longer preclude the application of spin-leaseback accounting to the ~~spin-off of assets to Uniti by Windstream Services and the lease of those assets by Windstream Holdings.~~contractual arrangement. As a result, we de-recognized the remaining net book value of assets transferred to Uniti of approximately $1.3 billion, recognized a right-of-use asset of approximately $3.9 billion equaling the adjusted Uniti ~~lease~~ liability, which decreased by $0.7 billion and recorded a deferred tax liability of approximately ~~$0.3~~$0.3 billion in accordance with the standard’s transition guidance as this arrangement is now accounted for as an operating lease.

WeDuring the second quarter of 2019, management identified an immaterial error in the cumulative effect adjustment recorded related to Windstream’s adoption of ASU 2016-02. Specifically, the net book value of certain assets transferred to Uniti had not been properly de-recognized as of January 1, 2019, resulting in an overstatement of net property, plant and equipment of $33.8 million, an overstatement of deferred income tax liabilities of $8.5 million and an overstatement of the cumulative effect adjustment recorded to accumulated deficit of $25.3 million. The accompanying consolidated statement of shareholders’ deficit for the period January 1, 2019 to March 31, 2019 has been revised to correct for this error. As a result, the cumulative effect adjustment for the adoption of ASU 2016-02 changed from the previously reported amount of $3,038.3 million to $3,013.0 million.

In adopting ASU 2016-02, we also reassessed our accounting treatment for the December 2018 sale of certain fiber assets in Minnesota to Arvig Enterprises, Inc. accounted for as a financing transaction due to our continuing involvement. ASU 2016-02 no longer precludes partial sale recognition. As a result, we de-recognized $7.5 million net book value for the portion of the fiber assets Windstream no longer controls and the related $41.5 million financing lease obligation. The difference between these amounts was recorded as an adjustment to our accumulated deficit.

The following table presents the cumulative effect of the changes made to our consolidated balance sheet at December 31, 2018:

(Millions) December 31, 2018 ASU 2016-02 Adjustments January 1, 2019
Assets
   Prepaid expenses and other $ 159.7
$ (0.7 ) $ 159.0
   Net property, plant and equipment $ 4,920.9
$ (1,272.9 ) $ 3,648.0
   Operating lease right-of-use assets $ —
$ 4,239.1
$ 4,239.1
   Other assets $ 94.0
$ (5.9 ) $ 88.1
Liabilities
   Current portion of long-term lease obligations $ 4,570.3
$ (4,570.3 ) $ —
   Current portion of operating lease obligations $ —
$ 3,947.8
$ 3,947.8
   Other current liabilities $ 344.2
$ (15.4 ) $ 328.8
   Deferred income taxes $ 104.3
$ 300.8
$ 405.1
   Operating lease obligations $ —
$ 317.2
$ 317.2
   Other liabilities $ 542.4
$ (58.8 ) $ 483.6
Accumulated deficit $ (3,205.3 ) $ 3,038.3
$ (167.0 )

Due in part to recording the $3.0 billion cumulative effect adjustment to equity presented above and the resulting increase in the carrying value of our reporting units, we recorded a pre-tax goodwill impairment charge of $2.3 billion in the first quarter of 2019. See Note 3 for additional information pertaining to the goodwill impairment charge.

The impact of adoption of ASU 2016-02 on our 2019 consolidated statement of operations ~~and consolidated balance sheet are~~is as follows:

As presented in the ~~table~~tables above, the increases in cost of services ~~increased~~were due to the recognition of annual straight-line ~~rent~~ expense attributable to the ~~Uniti lease.~~contractual arrangement with Uniti. The ~~decrease~~decreases in depreciation expense isresulted from de-recognizing the remaining net book value of network assets transferred to Uniti and the ~~decrease~~decreases in interest expense iswere due to no longer accounting for the contractual arrangement with Uniti ~~lease~~ as a failed spin-leaseback financing arrangement.

As a result of the change in accounting for our arrangement with Uniti from a financing to an operating lease, our consolidated statement of cash flows for the ~~three~~nine months ended ~~March 31,~~September 30, 2019 reflected a decrease in operating cash flows of ~~$50.5~~$156.7 million attributable to no longer classifying a portion of the cash rental payments made to Uniti as a financing outflow as was the case for periods prior to the adoption of ASU 2016-02 as well as a reduction in reported cash paid for interest of ~~$113.7 million~~$337.2 million.

See Note 5 for ~~interest.~~

Derivatives and Hedging - Change in Benchmark Interest Rate - In October 2018, the FASB issued ASU No. 2018-16, Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (“SOFR”) Overnight Index Swap (“OIS”) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes (“ASU 2018-16”).This standard adds the OIS rate based on SOFR as an eligible benchmark interest rate for purposes of applying hedge accounting. SOFR is the preferred alternative reference rate to the London Interbank Offered Rate ~~“(LIBOR”~~(“LIBOR”). ~~Because~~As permitted, we early adopted ASU 2017-12 ~~on January 1, 2018, this standard was~~ effective ~~for us on~~ January 1, 2019 on a prospective basis. The adoption of this standard did not have a material impact on our consolidated financial statements.

~~Recently Issued Authoritative Guidance~~

Supplemental Guarantor Financial Information - During the second quarter of 2019, we early adopted the SEC’s final rules that amended the financial statement disclosure requirements for subsidiary issuers and guarantors of registered debt securities under Rule 3-10 of Regulation S-X. The final rule simplified the disclosure requirements related to our registered unsecured debt securities and permitted the simplified disclosure to be included within Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Income Taxes - In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740)-Simplifying the Accounting for Income Taxes (“ASU 2019-12”). The standard intends to simplify accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and by amending existing guidance to improve consistent application in financial statements. ASU 2019-12 is effective for ~~annual and interim reporting periods~~fiscal years beginning after December 15, ~~2019,~~2020 and interim periods within those fiscal years, which is January 1, 2021 for us, with early adoption permitted. We are currently ~~assessing~~in the ~~timing~~process of ~~adoption and~~evaluating the ~~impact the new standard will have~~impacts of this guidance on our consolidated financial ~~statements.~~statements and related income tax disclosures.

On February 15, 2019, Judge Jesse Furman of the United States District Court for the Southern District of New York issued findings of fact and conclusions of law in litigation relating to a noteholder’s allegations that our spin-off of certain assets in 2015 into a publicly-traded real estate investment trust resulted in one or more defaults of certain covenants under one of Windstream Services’ existing indentures. The findings resulted in a cross default under Windstream Services’ senior secured credit agreement governing its secured term and revolving loan obligations and remaining obligations under the ~~master lease~~contractual arrangement with Uniti. In addition, the findings resulted in a cross-acceleration event of default under the indentures governing Windstream Services’ other series of secured and unsecured notes. As a result, all long-term debt and remaining obligations under the ~~master lease agreement~~contractual arrangement with Uniti were classified as current liabilities in the accompanying consolidated balance sheet as of December 31, 2018.

On February 25, 2019 (the “Petition Date”), Windstream Holdings and all of its subsidiaries, including Windstream Services (collectively, the “Debtors”), filed voluntary petitions (the “Chapter 11 Cases”) for reorganization under Chapter 11 of the U.S. Bankruptcy Code (the “Bankruptcy Code”) in the U.S. Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”). ~~We intend to use the court-supervised process to address obligations that have been accelerated due to the recent decision by Judge Furman in the District Court against Windstream discussed above.~~ The filing of the Chapter 11 Cases also constitutes an event of default under our debt agreements. Subject to certain specific exceptions under the Bankruptcy Code, the filing of the Chapter 11 Cases automatically stayed most judicial or administrative actions against the Debtors and efforts by creditors to collect on or otherwise exercise rights or remedies with respect to pre-petition claims. Absent an order from the Bankruptcy Court, substantially all of the Debtors’ pre-petition liabilities are subject to settlement under the Bankruptcy Code.

The Chapter 11 Cases are being jointly administered under the caption In re Windstream Holdings, Inc., et al., No 19-22312 (RDD). We will continue to operate our businesses as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court.

In general, as debtors-in-possession under the Bankruptcy Code, we are authorized to continue to operate as an ongoing business, however, we may not engage in transactions outside the ordinary course of business without the prior approval of the Bankruptcy Court. Pursuant to first day motions filed with the Bankruptcy Court, the Bankruptcy Court authorized us to conduct our business activities in the ordinary course, including, among other things and subject to the terms and conditions of such orders, authorizing us to: obtain debtor-in-possession financing, pay certain employee wages and benefits, and pay certain vendors and suppliers in the ordinary course for most goods and services.

Subject to certain exceptions, under the Bankruptcy Code, the Debtors may assume, assign, or reject certain executory contracts and unexpired leases subject to the approval of the Bankruptcy Court and certain other conditions. Generally, the rejection of an executory contract or unexpired lease is treated as a pre-petition breach of such executory contract or unexpired lease and, subject to certain exceptions, relieves the Debtors from performing their future obligations under such executory contract or unexpired lease but entitles the contract counterparty or lessor to a pre-petition general unsecured claim for damages caused by such deemed breach. Generally, the assumption of an executory contract or unexpired lease requires the Debtors to cure existing monetary defaults under such executory contract or unexpired lease and provide adequate assurance of future performance. Accordingly, any description of an executory contract or unexpired lease with the Debtors discussed herein, including a quantification of the Debtors’ obligations under any such executory contract or unexpired lease, is qualified by any overriding rejection rights the Debtors have under the Bankruptcy Code.

The acceleration of the 2023 Notes resulted in an event of default under the contractual arrangement with Uniti but no default notice has been received. Upon an event of default, remedies available to Uniti include terminating the contractual arrangement and requiring us to transfer the business operations we conduct on the telecommunication network assets so terminated (with limited exceptions) to a successor party for fair market value pursuant to a process set forth in the contractual arrangement, dispossessing us from the telecommunication network assets, and/or collecting monetary damages for the breach (including payment acceleration), electing to leave the contractual arrangement in place and sue for payment and any other monetary damages, and seeking any and all other rights and remedies available under law or in equity. The exercise of such remedies could have a material adverse effect on our business, financial position, results of operations and liquidity. Uniti’s ability to exercise remedies under the contractual arrangement was stayed as of the date of the Chapter 11 petition filing.

In connection with the Chapter 11 Cases, the Debtors analyzed the arrangement with Uniti, and on July 25, 2019, the Debtors filed a complaint, in the Bankruptcy Court seeking, among other things, to recharacterize the Uniti arrangement from a lease to a financing. The complaint contained additional claims that certain transfers from Windstream to Uniti were fraudulent transfers under the applicable Bankruptcy Code provisions, and finally, that Uniti was in breach of the arrangement by engaging in competitive behavior in violation of certain provisions in the arrangement. After engaging in a seven months-long mediation process with Uniti and its creditors regarding the litigation, that was overseen by the Honorable Judge Shelly C. Chapman, on March 2, 2020, Windstream announced an agreement in principle with Uniti to settle any and all claims and causes that were or could have been asserted against Uniti by Windstream, including seeking the recharacterization of the lease to a financing. Among the terms of the settlement, Uniti agreed to fund up to $1.75 billion in capital improvements to the network; pay Windstream $400 million payable in quarterly cash installments over five years, at an annual interest rate of 9.0 percent, which amount may be fully paid after one year, resulting in total cash payments ranging from $432 - $490 million; and purchase, for $40 million, certain Windstream-owned fiber assets, including certain fiber indefeasible rights of use (“IRU”) contracts with Windstream transferring to Uniti certain dark fiber IRU contracts. Uniti will also transfer to Windstream $244.5 million of proceeds from, and conditioned upon, the sale of Uniti’s common stock to certain first lien creditors of Windstream Services. Annual rental payments will be equal to the annual rent due under the existing master lease agreement. On the one-year anniversary of any growth capital improvements funded by Uniti, the annual base rent payable by Windstream will increase by an amount equal to 8.0 percent of such investment, subject to a 0.5 percent annual escalator.

In conjunction with the announcement, Windstream filed a motion seeking approval from the Bankruptcy Court of the proposed settlement, and a hearing on the motion was held on May 7-8, 2020, at which time the Bankruptcy Court approved the settlement with Uniti. The approved settlement is subject to certain regulatory approvals and conditions precedent, including Uniti's receipt of satisfactory "true lease" and REIT opinions, which remain outstanding. Until all conditions are satisfied, there is no guarantee that the settlement with Uniti will be consummated.

On March 2, 2020, the Debtors entered into a Plan Support Agreement (the “PSA”) with certain members of first lien lenders and noteholders, including the Debtors’ largest creditor, Elliott Investment Management L.P. (“Elliott”), and Uniti. The PSA contemplates the Debtors’ restructuring and recapitalization (the “Restructuring Transactions”), which will be implemented through a Chapter 11 plan of reorganization (the “Plan”). The PSA provided for, among other things: (1) reduction of Windstream’s existing funded debt by more than $4 billion upon emergence of the Chapter 11 Cases, (2) reduction of Windstream’s annual debt service obligations, and (3) access to exit financing consistent with terms set forth in the PSA. Pursuant to the PSA, participating parties agreed to, among other things, support the Restructuring Transactions and vote in favor of the Plan. The PSA, as amended, has support across the Debtors’ capital structure, and participating parties include 94 percent of first lien claims, 54 percent of second lien claims, 39 percent of unsecured notes claims, and 72 percent of holders of 6.375 percent Senior Notes due 2028 (the “Midwest Notes”).

On March 2, 2020, the Debtors publicly filed the PSA and accompanying plan term sheet (the “Plan Term Sheet”), outlining the terms of the reorganization, including funding an exit facility in an aggregate amount up to $3,250 million (the “New Exit Facility”) and backstop commitments from certain first lien creditors (the “Backstop Commitment Agreement”) related to a $750 million common equity rights offering upon the effective date (the “Rights Offering”). On March 13, 2020, the Debtors filed a motion to approve the Backstop Commitment Agreement, providing for a backstop premium equal to 8 percent of the $750 million committed amount payable in common stock (the “Backstop Premium”), which agreement was approved by the Bankruptcy Court at a hearing on May 8, 2020, subject to an adjustment, required by the Bankruptcy Court, that in the event that Windstream’s proposed plan of reorganization is not confirmed, the Backstop Premium shall be reduced to 4 percent, or $30 million. Among other items, the PSA is conditioned upon the consummation of the settlement with Uniti. Accordingly, there is no guarantee that the Debtors will consummate the PSA.

In order for the Debtors to emerge successfully from Chapter 11, the Debtors must obtain the required votes of creditors accepting a plan of reorganization as well as the Bankruptcy Court’s confirmation of such plan. In connection with a reorganization plan, the Debtors also may require a new credit facility, or “exit financing.” The Debtors’ ability to obtain such approval and financing will depend on, among other things, the timing and outcome of various ongoing matters related to the Chapter 11 Cases. A reorganization plan determines the rights and satisfaction of claims of various creditors and security holders and is subject to the ultimate outcome of negotiations and Bankruptcy Court decisions ongoing through the date on which the reorganization plan is confirmed.

~~The~~

On April 1, 2020, the Debtors ~~have not yet prepared or~~ filed a ~~plan~~Joint Chapter 11 Plan of ~~reorganization~~Reorganization (“the Plan”) with the Bankruptcy Court. As of September 30, 2019, the Debtors filed a Disclosure Statement relating to the Plan, along with a motion seeking approval of the Disclosure Statement. On May 6, 2020, an amended Disclosure Statement was filed with the Bankruptcy Court that included ranges of allowed claims by creditor classes. As of December 31, 2019, the Debtors have adjusted their recorded liabilities to amounts consistent with the estimates ranges specified in the Disclosure Statement. At a hearing held on May 8, 2020, the Disclosure Statement was approved by the Bankruptcy Court, allowing the Company to begin soliciting the requisite accepting votes in favor of the Plan. The Debtors ~~have~~retain the exclusive right to file ~~a plan of reorganization~~the Plan through and including ~~August 24, 2019,~~June 22, 2020, as well as the right to seek further extensions of such period ~~subject~~up to ~~certain~~the statutory ~~limits. Any proposed reorganization plan~~maximum date of August 25, 2020. The Plan can be supplemented and revised ~~prior to submission to the Bankruptcy Court~~ based upon discussions with the Debtors’ creditors and other interested parties and ~~thereafter~~ in response to creditor claims and objections and the requirements of the Bankruptcy Code or the Bankruptcy Court. There can be no assurance that the Debtors will be able to secure requisite accepting votes for ~~any proposed reorganization~~the Plan or ~~the~~that confirmation of ~~such plan~~the Plan by the Bankruptcy Court will occur.

On June 24, 2020, the Bankruptcy Court is scheduled to hold a confirmation hearing to consider the approval of the Debtors’ Plan. The Plan will be subject to usual and customary conditions to plan confirmation, including obtaining the requisite vote of creditors and approval of the Bankruptcy Court. The Plan memorializes the terms agreed to in the PSA and Plan Term Sheet, providing for, among other things:

The Debtors have been in compliance with all milestones under the PSA, including (1) the milestones to file with the Bankruptcy Court the motion to approve the Uniti Settlement, the Backstop Commitment Agreement, and the motion to approve the Backstop Commitment Agreement, (2) the milestone to file with the Bankruptcy Court the Plan, Disclosure Statement, and motion to approve the Disclosure Statement, (3) the milestones, as extended, to achieve entry of the orders to approve the Backstop Commitment Agreement and Uniti Settlement, and (4) the milestone to achieve entry of the order approving the Disclosure Statement.

After the Bankruptcy Court’s approval of the order approving the Disclosure Statement on May 14, 2020, the remaining PSA milestones were extended to provide for a milestone of July 2, 2020 to confirm the Plan and September 30, 2020 to emerge from Chapter 11. The Debtors’ emergence from Chapter 11 is subject to, among other things, consummation of the Restructuring Transactions described above, certain regulatory approvals, and execution and implementation of the definitive documents contemplated by the Uniti Settlement. The Debtors expect to timely emerge from Chapter 11; however, there is no guarantee that we will consummate the Plan and emerge from Chapter 11.

Our financial condition, the defaults under our debt agreements and ~~master lease agreement~~contractual arrangement with Uniti, and the risks and uncertainties surrounding the Chapter 11 Cases, raise substantial doubt about our ability to continue as a going concern. The accompanying consolidated financial statements have been prepared assuming that we will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Our ability to continue as a going concern is contingent upon, among other factors, our ability to (i) ~~develop a plan of reorganization and~~ obtain the required creditor acceptance and confirmation under the Bankruptcy Code of our plan of reorganization, (ii) successfully implement such plan of reorganization, (iii) address debt and other liabilities through the bankruptcy process, (iv) generate sufficient cash flow from operations, and (v) obtain financing sources sufficient to meet our future obligations. As a result of the Chapter 11 Cases, the realization of assets and the satisfaction of liabilities are subject to uncertainty. While operating as debtors-in-possession pursuant to the Bankruptcy Code, we may sell or otherwise dispose of or liquidate assets or settle liabilities, subject to the approval of the Bankruptcy Court or as otherwise permitted in the ordinary course of business pursuant to relief we obtained from the Bankruptcy Court, for amounts other than those reflected in the accompanying consolidated financial statements. In particular, such financial statements do not purport to show with respect to (i) assets, the realization value on a liquidation basis or availability to satisfy liabilities, (ii) liabilities arising prior to the Petition Date, the amounts that may be allowed for claims or contingencies, or the status and priority thereof, (iii) shareholders’ equity accounts, the effect of any changes that may be made in our capitalization, or (iv) operations, the effects of any changes that may be made in the underlying business. A confirmed plan of reorganization would likely cause material changes to the amounts currently disclosed in the accompanying consolidated financial statements. Further, the plan of reorganization could materially change the amounts and classifications reported in the consolidated historical financial statements, which do not give effect to any adjustments to the carrying value of assets or amounts of liabilities that might be necessary as a consequence of confirmation of a plan of reorganization. The accompanying consolidated financial statements do not include any direct adjustments related to the recoverability and classification of assets or the amounts and classification of liabilities or any other adjustments that might be necessary should we be unable to continue as a going concern or as a consequence of the Chapter 11 Cases.

Effective on February 25, 2019, we began to apply the provisions of Accounting Standards Codification (“ASC”) 852, Reorganizations, which is applicable to companies under bankruptcy protection, and requires amendments to the presentation of key financial statement line items. ASC 852 requires that the financial statements for periods subsequent to the filing of the Chapter 11 Cases distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Revenues, expenses, realized gains and losses, and provisions for losses that can be directly associated with the reorganization and restructuring of the business must be reported separately as reorganization items, net in the consolidated statements of operations beginning February 25, 2019. The consolidated balance sheet must distinguish pre-petition liabilities subject to compromise from both those pre-petition liabilities that are not subject to compromise and from post-petition liabilities. As further discussed in Note 4, “Debt,” our debtor-in-possession facilities, term loans under the senior secured credit facility, borrowings under the revolving line of credit, senior secured first lien notes and notes issued by Windstream Holdings of the Midwest, Inc. have priority over the senior secured second lien notes and unsecured senior notes and other creditors. Based upon the uncertainty surrounding the ultimate treatment of the senior secured second lien notes and unsecured senior notes, which were under collateralized as of the Petition Date, the instruments have been classified as liabilitiesLiabilities subject to compromise ininclude pre-petition liabilities that are unsecured, under-secured or where it cannot be determined that the ~~accompanying consolidated balance sheet as of March 31, 2019. We will evaluate creditors’ claims relative to priority over other unsecured creditors.~~liabilities are fully secured. Liabilities that may be affected by a plan of reorganization must be reported at the amounts expected to be allowed by the Bankruptcy Court, even if they may be settled for lesser amounts as a result of the plan of reorganization or negotiations with creditors. If there is uncertainty about whether a secured claim is undersecured, or will be impaired under the plan of reorganization, the entire amount of the claim is included with prepetition claims in liabilities subject to compromise. In addition, cash used for reorganization items is disclosed.

Pre-petition liabilities that are subject to compromise are required to be reported at the amounts expected to be allowed, even if they may be settled for lesser amounts. The amounts currently classified as liabilities subject to compromise may be subject to future adjustments depending on Bankruptcy Court actions, further developments with respect to disputed claims, determinations of secured status of certain claims, the values of any collateral securing such claims, or other events. Any resulting changes in classification will be reflected in subsequent financial ~~statements.~~statements, as was the case for certain debt obligations of Windstream Services, which were reclassified to liabilities subject to compromise in the second quarter of 2019, as discussed below.

As further discussed in Note 4, “Debt,” our debtor-in-possession facilities have priority over all the other debt obligations of Windstream Services and its subsidiaries. Both the March 2020 PSA and the Plan indicated that all debt obligations of Windstream Services and its subsidiaries were impaired, except for the debtor-in-possession facilities. Based on the expected treatment of the creditor classes included in the PSA and the Plan, which the Debtors believe to be the most relevant factor in determining the appropriate classification of its debt obligations as of the balance sheet date, debt obligations under the senior secured credit facility, senior first lien notes and bonds issued by Windstream Holdings of the Midwest, Inc. (“Midwest Bonds”) were classified as liabilities subject to compromise during the second quarter of 2019. All unamortized debt issuance costs and original net discount related to these debt obligations were written-off and charged to reorganization items, net during second quarter of 2019. The senior secured second lien notes and unsecured senior notes, which were undercollateralized as of the Petition Date, had been classified as liabilities subject to compromise in the first quarter of 2019. Accordingly, all debt obligations, except for the debtor-in-possession facilities, have been classified as liabilities subject to compromise in the accompanying consolidated balance sheet as of September 30, 2019.

As also discussed in Note 4, “Debt,” adequate protection payment was granted by the Bankruptcy Court to holders of debt obligations under Windstream Services’ senior secured credit facility and to holders of the senior first lien notes and Midwest Bonds. The Debtors have concluded that such payments do not represent the reduction of principal because the allowed claim for the associated secured debt included in the Disclosure Statement agreed to the outstanding principal balance as of September 30, 2019 and the Bankruptcy Court has not taken any action to date to recharacterize the adequate protection payments as principal reduction. Accordingly, all such adequate protection payments remitted subsequent to the filing of the Chapter 11 Cases have been classified as interest expense in the accompanying consolidated statements of operations. The Disclosure Statement is subject to amendment and, accordingly, there can be no assurance that the treatment of the adequate protection payments will not change.

Liabilities subject to compromise at ~~March 31,~~September 30, 2019 consisted of the following:

(Millions)
Accounts payable $ 446.1
Advance payments and customer deposits 14.2
Accrued taxes 19.9
Other current liabilities 148.0
Deferred taxes 135.8
Operating lease liabilities 4,218.3
Pension and other employee benefit plan obligations 317.5
Other liabilities 214.7
   Accounts payable, accrued and other liabilities 5,514.5
Debt subject to compromise 2,348.4
Accrued interest on debt subject to compromise 29.0
   Long-term debt and accrued interest 2,377.4
   Total liabilities subject to compromise $ 7,891.9

Determination of the value at which liabilities will ultimately be settled cannot be made until the Bankruptcy Court approves the ~~plan of reorganization.~~Plan. We will continue to evaluate the amount and classification of our pre-petition liabilities. ~~Any additional liabilities that are subject to compromise will be recognized accordingly, and the aggregate amount of liabilities subject to compromise may change.~~

On May 10, 2019, the Debtors filed with the Bankruptcy Court schedules and statements setting forth, among other things, the assets and liabilities of each of the Debtors, subject to the assumptions filed in connection therewith. These schedules and statements may be subject to further amendment or modification after filing. Certain holders of pre-petition claims that were not governmental entities were required to file proofs of claim by the deadline for general claims, which was on July 15, 2019 (the “Bar Date”). The governmental bar date was August 26, 2019.

As of May ~~10, 2019,~~15, 2020, the ~~Debtors'~~Debtors have received approximately ~~1,505~~8,250 proofs of claim for an amount of approximately ~~$178.0 million.~~$16.5 billion. Such amount includes duplicate claims across multiple debtor legal entities. These claims will continue to be reconciled to amounts recorded in liabilities subject to compromise in the consolidated balance sheet. Differences in amounts recorded and claims filed by creditors ~~will~~continue to be investigated and resolved, including through the filing of objections with the Bankruptcy Court, where appropriate. The Debtors may ask the Bankruptcy Court to disallow claims that the Debtors believe are duplicative, have been later amended or superseded, are without merit, are overstated or should be disallowed for other reasons. In addition, as a result of this process, the Debtors may identify additional liabilities that will need to be recorded or reclassified to liabilities subject to compromise. In light of the substantial number of claims filed, and expected to be filed, the claims resolution process may take considerable time to complete and likely will continue after the Debtors emerge from bankruptcy.

The Debtors have incurred and will continue to incur significant costs associated with the reorganization, primarily legal and professional fees. Subsequent to the Petition Date, these costs are being expensed as incurred and are expected to significantly affect our consolidated results of operations. Reorganization items incurred as a result of the Chapter 11 Cases presented separately in the accompanying consolidated statement of operations for the three ~~months~~and nine-month periods ended ~~March 31,~~September 30, 2019 were as follows:



(Millions)	Three Months Ended September 30, 2019			Nine Months Ended September 30, 2019
Write-off of deferred long-term debt issuance costs	$	—		$	54.7
Write-off of original issue net discount on debt subject to compromise	—			27.1
Debtor-in-possession financing costs	1.0			43.4
Professional fees and other bankruptcy related costs	32.4			99.1
Provision for estimated damages on rejected executory contracts	0.2			25.5
Gain on write-off of net lease liabilities for rejected leases	(0.2		)	(17.6		)
Gain on vendor settlements of liabilities subject to compromise	(4.2		)	(12.7		)
Reorganization items, net	$	29.2		$	219.5

(Millions)
Write-off of deferred long-term debt fees $ 24.1
Write-off of original issue discount on debt subject to compromise 21.6
Debtor-in-possession financing costs 40.2
Professional fees and other bankruptcy related costs 19.0
Reorganization items, net $ 104.9

Professional fees included in reorganization items, net represent fees for post-petition expenses related to the Chapter 11 Cases. ~~Write-off~~The write-offs of deferred long-term debt ~~fees~~issuance costs and ~~write-off of~~ original issue net discount ~~related~~relate to debt classified as liabilities subject to ~~compromise~~compromise. Included in debtor-in-possession financing costs were ~~also included in reorganization items, net. Reorganization items, net include $14.7~~fees of $16.9 million ~~relating to the debtor-in-possession (“DIP”) financing costs~~ that were netted against the ~~$300.0~~$500.0 million proceeds received from issuance of the DIP Facility.

Goodwill represents the excess of cost over the fair value of net identifiable tangible and intangible assets acquired through various business combinations. The cost of acquired entities at the date of the acquisition is allocated to identifiable assets and liabilities, and the excess of the total purchase price over the amounts assigned to net identifiable assets has been recorded as goodwill.

As previously discussed in Note 1, effective January 1, 2019, we adopted the new leasing standard and changed the accounting treatment for our arrangement with Uniti from a financing to an operating lease, the effects of which resulted in a cumulative effect adjustment to equity of approximately $3.0 billion and a corresponding increase in the carrying values of our reporting units as of that date. As further discussed in Note 2, on February 25, 2019, we filed voluntary petitions for reorganization under Chapter 11 of the Bankruptcy Code. Based on these developments, we performed a quantitative goodwill impairment test during the first quarter of 2019 and compared the fair value to the carrying value for each of our ~~three~~3 reporting units, consisting of Consumer & Small Business, Enterprise and Wholesale.

We estimated the fair value of our ~~three~~3 reporting units using an income approach. The income approach is based on the present value of projected cash flows and a terminal value, which represents the expected normalized cash flows of the reporting unit beyond the cash flows from the discrete projection period of five years. We discounted the estimated cash flows for each of the reporting units using a rate that represents a market participant’s weighted average cost of capital commensurate with the reporting unit’s underlying business operations. Due to the additional risks and uncertainties to our business operations following the filing of the Chapter 11 Cases, during the first quarter of 2019, we revised our long-range financial forecasts for each of our reporting units from the long-range forecasts used in our most recently completed annual goodwill impairment assessment as of November 1, 2018. Changes to our long range forecast for 2019 and future periods primarily included: (1) slightly lowering our forecasted revenue and profitability levels for our consumer and small business operations to account for the potential impacts of the Chapter 11 Cases on customer churn, as well as revising the incremental effects from pricing strategies designed to improve revenue trends; (2) lowering our forecasted revenue and profitability levels in our enterprise business to account for the potential impacts of the Chapter 11 Cases on our ability to attract new customers and minimize customer churn, revising the incremental effects of pricing strategies to improve revenue trends, and lowering expected improvements in our cost structure due to increased uncertainty in completing various planned initiatives that are dependent on support from key vendors; and (3) reducing our forecasted revenue and profitability levels for our wholesale business to account for the potential impacts of the Chapter 11 Cases by revising the incremental effects from monetizing unused or underutilized fiber assets, revising the incremental effects of pricing pressures on our legacy service offerings and lowering incremental improvements in our cost structure for various planned initiatives that are dependent on support from key vendors.

The results of the goodwill impairment test indicated that the carrying values of our Consumer & Small Business, Enterprise and Wholesale reporting units exceeded their fair values. Accordingly, during the first quarter of 2019, we recorded an impairment of all remaining goodwill in our Consumer & Small Business reporting unit of $903.4 million, an impairment of all remaining goodwill in our Enterprise reporting unit of $996.2 million, and an impairment of goodwill in our Wholesale reporting unit of $439.4 million, representing the excess of the carrying value from each reporting unit’s fair value.

~~Changes~~As further described in Note 15, effective April 1, 2019, we implemented a new business unit organizational structure resulting in a change in our reportable operating segments and reporting units and reallocated the remaining goodwill of the former Wholesale reporting unit on a relative fair value to our new Kinetic, Enterprise and Wholesale reporting units. We also confirmed, immediately before the reorganization and reallocation of goodwill, that no further impairment existed in the former Wholesale reporting unit. We performed a quantitative goodwill impairment test as of April 1, 2019, which compared for each reporting unit its fair value to its carrying ~~amount~~value. We estimated the fair value of our new reporting units using an income approach based on the present value of projected cash flows and a terminal value, which represents the expected normalized cash flows of the reporting unit beyond the cash flows from the discrete projection period of five years. We discounted the estimated cash flows for each of the reporting units using a rate that represents a market participant’s weighted average cost of capital commensurate with the reporting unit’s underlying business operations.

The results of the goodwill ~~were as follows:~~impairment test indicated that the carrying values of our Kinetic and Enterprise reporting units exceeded their fair values. Accordingly, during the second quarter of 2019, we recorded an impairment of all goodwill allocated to our Kinetic reporting unit of $254.3 million and an impairment of all goodwill allocated to our Enterprise reporting unit of $119.0 million, representing the excess of the carrying value from each reporting unit’s fair value. The fair value of the Wholesale reporting unit exceeded its carrying value and was not at risk of a goodwill impairment at this time.

Goodwill assigned to our operating segments and changes in the carrying amount of goodwill by reportable segment were as follows:



(Millions)	Kinetic			Consumer & Small Business			Enterprise			Wholesale			Total
Balance at December 31, 2018:
Goodwill	$	—		$	2,321.2		$	996.2		$	1,297.1		$	4,614.5
Accumulated impairment loss	—			(1,417.8		)	—			(423.0		)	(1,840.8		)
Balance at December 31, 2018, net	—			903.4			996.2			874.1			2,773.7
Changes during the period:
Goodwill impairment in first quarter	—			(903.4		)	(996.2		)	(439.4		)	(2,339.0		)
Reallocation adjustment	254.3			—			119.0			(373.3		)	—
Goodwill impairment in second quarter	(254.3		)	—			(119.0		)	—			(373.3		)
Balance at September 30, 2019:
Goodwill	254.3			2,321.2			1,115.2			923.8			4,614.5
Accumulated impairment loss	(254.3		)	(2,321.2		)	(1,115.2		)	(862.4		)	(4,553.1		)
Balance at September 30, 2019, net	$	—		$	—		$	—		$	61.4		$	61.4

Indefinite-lived intangible assets were as follows:

Other intangible assets subject to amortization were as follows at:

21



	September 30, 2019							December 31, 2018
(Millions)	Gross Cost		Accumulated Amortization			Net Carrying Value		Gross Cost		Accumulated Amortization			Net Carrying Value
Franchise rights	$	1,285.1	$	(446.7	)	$	838.4	$	1,285.1	$	(414.6	)	$	870.5
Customer lists	1,758.5		(1,541.0		)	217.5		1,758.5		(1,450.4		)	308.1
Cable franchise rights	17.3		(11.7		)	5.6		17.3		(10.3		)	7.0
Trade names	21.0		(5.4		)	15.6		21.0		(3.9		)	17.1
Developed technology and software	18.0		(11.2		)	6.8		18.0		(7.7		)	10.3
Patents	10.6		(10.6		)	—		10.6		(10.5		)	0.1
Balance	$	3,110.5	$	(2,026.6	)	$	1,083.9	$	3,110.5	$	(1,897.4	)	$	1,213.1

~~Intangible assets were as follows at:~~

Amortization expense for intangible assets subject to amortization was ~~$44.7~~$42.2 million and $129.2 million for the ~~three-month period~~three and nine-month periods ended ~~March 31,~~September 30, 2019, respectively, as compared to ~~$58.5~~$56.1 million and $171.2 million for the same ~~period~~periods in 2018. Amortization expense for intangible assets subject to amortization ~~was~~is estimated to be as follows for each of the five years ended December 31:



Year	(Millions)
2019 (excluding the nine months ended September 30, 2019)	$	41.5
2020	$	133.5
2021	$	100.8
2022	$	71.0
2023	$	58.6

Year (Millions)
2019 (excluding the three months ended March 31, 2019) $ 124.0
2020 $ 133.9
2021 $ 101.2
2022 $ 71.4
2023 $ 59.0

No other long-lived assets including our other intangible assets were impaired as a result of the adoption of the new leasing standard, ~~and~~ filing of the Chapter 11 ~~Cases.~~Cases, or change in operating segments.

Windstream Holdings has no debt obligations. All debt, including the senior secured credit facility described below, have been incurred by Windstream Services and its subsidiaries. Windstream Holdings is neither a guarantor of nor subject to the restrictive covenants imposed by such debt.

On February 25, 2019, Windstream Holdings and all of its subsidiaries, including Windstream Services, filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code. The filing of the Chapter 11 Cases also constituted an event of default under our debt agreements. Due to the Chapter 11 Cases, however, our creditors’ ability to exercise remedies under our debt agreements were stayed as of the date of the Chapter 11 petition filing. In general, as debtors-in-possession under the Bankruptcy Code, we are authorized to continue to operate as an ongoing business, but may not engage in transactions outside the ordinary course of business without the prior approval of the Bankruptcy Court. Pursuant to orders entered by the Bankruptcy Court, the Bankruptcy Court after the second day motion hearing authorized us to conduct our business activities in the ordinary course.

Debt incurred by Windstream Services and its subsidiaries was as follows at:



(Millions)	September 30, 2019			December 31, 2018
Issued by Windstream Services:
Superpriority debtor-in-possession term loan facility	$	500.0		$	—
Senior secured credit facility, Tranche B6 – variable rates, due March 29, 2021 (a)	1,180.5			1,180.5
Senior secured credit facility, Tranche B7 – variable rates, due February 17, 2024	568.4			568.4
Senior secured credit facility, Revolving line of credit – variable rates, due April 24, 2020 (b)	802.0			1,017.0
Senior First Lien Notes – 8.625%, due October 31, 2025 (c) (f)	600.0			600.0
Senior Second Lien Notes – 10.500%, due June 30, 2024 (d) (f) (h)	414.9			414.9
Senior Second Lien Notes – 9.000%, due June 30, 2025 (d) (f) (h)	802.0			802.0
Debentures and notes, without collateral:
2020 Notes – 7.750%, due October 15, 2020 (f) (h)	78.1			78.1
2021 Notes – 7.750%, due October 1, 2021 (f) (h)	70.1			70.1
2022 Notes – 7.500%, due June 1, 2022 (f) (h)	36.2			36.2
2023 Notes – 7.500%, due April 1, 2023 (f) (h)	34.4			34.4
2023 Notes – 6.375%, due August 1, 2023 (f) (h)	806.9			806.9
2024 Notes – 8.750%, due December 15, 2024 (f) (h)	105.8			105.8
Issued by subsidiaries of Windstream Services:
Windstream Holdings of the Midwest, Inc. – 6.75%, due April 1, 2028 (e)	100.0			100.0
Net discount on long-term debt (g)	—			(28.6		)
Unamortized debt issuance costs (g)	—			(57.6		)
Long-term debt prior to reclassification to liabilities subject to compromise	6,099.3			5,728.1
Less current portion	(500.0		)	(5,728.1		)
Less amounts reclassified to liabilities subject to compromise	(5,599.3		)	—
Total long-term debt	$	—		$	—

(Millions) March 31,
2019
December 31,
2018
Issued by Windstream Services:
Superpriority debtor-in-possession term loan facility $ 300.0
$ —
Senior secured credit facility, Tranche B6 – variable rates, due March 29, 2021 (a) 1,180.5
1,180.5
Senior secured credit facility, Tranche B7 – variable rates, due February 17, 2024 568.4
568.4
Senior secured credit facility, Revolving line of credit – variable rates, due
April 24, 2020 (b)
802.0
1,017.0
Senior First Lien Notes – 8.625%, due October 31, 2025 (c) (f) 600.0
600.0
Senior Second Lien Notes – 10.500%, due June 30, 2024 (d) (f) (h) 414.9
414.9
Senior Second Lien Notes – 9.000%, due June 30, 2025 (d) (f) (h) 802.0
802.0
Debentures and notes, without collateral:
2020 Notes – 7.750%, due October 15, 2020 (f) (h) 78.1
78.1
2021 Notes – 7.750%, due October 1, 2021 (f) (h) 70.1
70.1
2022 Notes – 7.500%, due June 1, 2022 (f) (h) 36.2
36.2
2023 Notes – 7.500%, due April 1, 2023 (f) (h) 34.4
34.4
2023 Notes – 6.375%, due August 1, 2023 (f) (h) 806.9
806.9
2024 Notes – 8.750%, due December 15, 2024 (f) (h) 105.8
105.8
Issued by subsidiaries of Windstream Services:
Windstream Holdings of the Midwest, Inc. – 6.75%, due April 1, 2028 (e) 100.0
100.0
Net discount on long-term debt (g) (5.5 ) (28.6 )
Unamortized debt issuance costs (g) (30.6 ) (57.6 )
Long-term debt prior to reclassification to liabilities subject to compromise 5,863.2
5,728.1
Less current portion (3,514.8 ) (5,728.1 )
Less amounts reclassified to liabilities subject to compromise (2,348.4 ) —
Total long-term debt $ —
$ —

Prior to the filing of the Chapter 11 Cases, additional information with respect to our debt obligations was as follows:

~~Debtor-in-Possession”~~Debtor-in-Possession Credit Facility- On the Petition Date, Windstream Holdings and Windstream Services entered into a commitment letter (as amended, the “DIP Commitment Letter”) dated as of February 25, 2019 with Citigroup Global Markets Inc. (together with Barclays Bank, PLC, Credit Suisse Loan Funding, Deutsche Bank Securities Inc., Goldman Sachs Bank USA and JPMorgan Chase Bank, N.A., the “Arrangers”), pursuant to which the Arrangers or their affiliates committed to provide senior secured superpriority debtor-in-possession credit facilities in an aggregate principal amount of $1$1.0 billion, subject to conditions described therein. In connection with the Chapter 11 Cases and in accordance with the DIP Commitment Letter, Windstream Holdings and Windstream Services entered into a Superpriority Secured Debtor-in-Possession Credit Agreement, dated as of March 13, 2019 (the “DIP Credit Agreement”), by and among Windstream Services, as the borrower (the “Borrower”), Windstream Holdings, the other guarantors party thereto, the lenders party thereto (together with such other financial institutions from time to time party thereto, the “DIP Lenders”) and Citibank, N.A., as administrative agent and collateral agent (the “Agent”). The DIP Credit Agreement provides for $1$1.0 billion in superpriority secured debtor-in-possession credit facilities comprising of (i) a superpriority revolving credit facility in an aggregate amount of ~~$500~~$500.0 million (the “Revolving Facility”) and (ii) a superpriority term loan facility in an aggregate principal amount of ~~$500~~$500.0 million (the “Term Loan Facility” and, together with the Revolving Facility, the “DIP Facilities”), subject to the terms and conditions set forth therein.

The proceeds of loans extended under the DIP Facilities will be used for purposes permitted by orders of the Bankruptcy Court, including (i) for working capital and other general corporate purposes (ii) to pay transaction costs, professional fees and other obligations and expenses incurred in connection with the DIP Facilities, the Chapter 11 Cases and the transactions contemplated thereunder, and (iii) to pay adequate protection expenses, if any, to the extent set forth in any order entered by the Bankruptcy Court.

The maturity date of the DIP Facilities is February 26, 2021. Loans under the Term Loan Facility and the Revolving Facility will bear interest, at the option of ~~Windstream Services,~~the Borrower, at (1) 1.50 percent plus a base rate of the highest of (i) Citibank, N.A.’s base rate, (ii) the Federal funds effective rate plus 1/2 of 1 percent and (iii) the one-month LIBOR plus 1.00 percent per annum; or (2) 2.50 percent plus LIBOR. From and after the Effective Date, a non-refundable unused commitment fee will accrue at the rate of 0.50 percent per annum on the daily average unused portion of the Revolving Facility (whether or not then available).

The DIP Credit Agreement includes usual and customary negative covenants for debtor-in-possession loan agreements of this type, including covenants limiting Windstream Holdings’ and its subsidiaries’ ability to, among other things, incur additional indebtedness, create liens on assets, make investments, loans or advances, engage in mergers, consolidations, sales of assets and acquisitions, pay dividends and distributions and make payments in respect of junior or pre-petition indebtedness, in each case subject to customary exceptions for debtor-in-possession loan agreements of this type.

The DIP Credit Agreement also includes certain customary representations and warranties, affirmative covenants and events of default, including, but not limited to, payment defaults, breaches of representations and warranties, covenant defaults, certain events under ERISA, unstayed judgments in favor of a third party involving an aggregate liability in excess of $25.0 million, change of control, specified governmental actions having a material adverse effect or condemnation or damage to a material portion of the collateral. Certain bankruptcy-related events are also events of default, including, but not limited to, the dismissal by the Bankruptcy Court of any of the Chapter 11 Cases, the conversion of any of the Chapter 11 Cases to a case under Chapter 7 of the Bankruptcy Code, the appointment of a trustee pursuant to Chapter 11 of the Bankruptcy Code, the final order approving the DIP Facilities failing to have been entered within 60 days after the Petition Date and certain other events related to the impairment of the DIP Lenders’ rights or liens granted under the DIP Credit Agreement.

The foregoing description of the DIP Credit Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the DIP Credit Agreement.

Senior Secured Credit Facility - Prior to the filing of the Chapter 11 Cases, the amended credit facility provided Windstream Services the ability to obtain incremental revolving or term loans in an unlimited amount subject to maintaining a maximum secured leverage ratio and other customary conditions, including obtaining commitments and pro forma compliance with financial maintenance covenants consisting of a maximum debt to consolidated earnings before interest, taxes, depreciation and amortization (“EBITDA”) ratio and a minimum interest coverage ratio. In addition, Windstream Services could have requested extensions of the maturity date under any of its existing revolving or term loan facilities.

The incremental Tranche B7 term loan matures on February 17, 2024 and was issued at a price of 99.5 percent of the principal amount of the loan. Interest rates applicable to the Tranche B7 term loan were, at Windstream Services’ option, equal to either a base rate plus a margin of 2.25 percent per annum or LIBOR plus a margin of 3.25 percent per annum. LIBOR for the Tranche B7 term loan shall at no time be less than 0.75 percent. The Tranche B7 term loan was subject to quarterly amortization payments in an aggregate amount equal to 0.25 percent of the initial principal amount of such term loans, with the remaining balance payable at maturity.

The incremental Tranche B6 term loan matures on March 29, 2021. Interest on loans under Tranche B6 were equal to LIBOR plus a margin of 4.00 percent per annum, with LIBOR subject to a 0.75 percent floor. The Tranche B6 term loans were subject to quarterly amortization in an aggregate amount of approximately 0.25 percent of the initial principal amount of the loans, with the remaining balance payable at maturity.

Revolving Line of Credit - Prior to the filing of the Chapter 11 Cases, under the amended senior secured credit facility, Windstream Services had the ability to obtain revolving loans and issue up to $50.0 million of letters of credit, which upon issuance reduced the amount available for other extensions of credit. Accordingly, the total amount outstanding under the letters of credit and the indebtedness incurred under the revolving line of credit could not exceed $1,250.0 million. Borrowings under the revolving line of credit were used for permitted acquisitions, working capital and other general corporate purposes of Windstream Services and its subsidiaries. Windstream Services paid a commitment fee on the unused portion of the commitments under the revolving credit facility that will range from 0.40 percent to 0.50 percent per annum, depending on the debt to consolidated EBITDA ratio of Windstream Services and its subsidiaries. Revolving loans made under the credit facility were not subject to interim amortization and such loans were not required to be repaid prior to April 24, 2020, other than to the extent the outstanding borrowings exceed the aggregate commitments under the revolving credit facility. Interest rates applicable to loans under the revolving line of credit were, at Windstream Services’ option, equal to either a base rate plus a margin ranging from 0.25 percent to 1.00 percent per annum or LIBOR plus a margin ranging from 1.25 percent to 2.00 percent per annum, based on the debt to consolidated EBITDA ratio of Windstream Services and its subsidiaries.

Interest expense was as follows:



	Three Months Ended September 30,						Nine Months Ended September 30,
(Millions)	2019			2018			2019			2018
Interest expense - long-term debt	$	82.9		$	112.5		$	259.6		$	320.1
Interest expense - long-term lease obligations:
Telecommunications network assets	—			116.2			—			352.1
Real estate contributed to pension plan	1.5			1.5			4.6			4.6
Impact of interest rate swaps	(3.0		)	(1.3		)	(8.9		)	(1.3		)
Interest on finance leases and other	1.1			1.9			3.4			4.4
Less capitalized interest expense	(1.3		)	(0.8		)	(4.8		)	(2.4		)
Total interest expense	$	81.2		$	230.0		$	253.9		$	677.5

As previously discussed in Note 1, we adopted ASU 2016-02 effective January 1, 2019 using the modified retrospective transition method. We lease network assets and equipment, real estate, office space and office equipment. Leases with an initial term of 12 months or less are not recorded on the balance sheet, and we recognize lease expense for these leases on a straight-line basis over the lease term. We have lease agreements with lease and nonlease components, which are generally accounted for separately. For certain agreements in which we lease space for data storage and communications equipment within data centers, central offices of other interexchange carriers and alternative access providers, we account for the lease and nonlease components as a single lease component when the timing and pattern of transfer of the lease and nonlease components are identical, and the lease classification would have been an operating lease absent the combination.

Windstream uses an incremental borrowing rate as the rates implicit in the leases are not readily determinable. The incremental borrowing rates are based on Windstream’s unsecured rates, adjusted by adding the average credit spread percentage of its traded debt to the risk-free rate at maturity to approximate what Windstream would have to borrow on a collateralized basis over a similar period of time as the recognized lease term. Windstream applies the incremental borrowing rates to lease components using a portfolio approach based upon the length of the lease term and the reporting entity in which the lease resides.

Certain of our lease agreements include rental payments adjusted periodically for inflation. Lease liabilities are not remeasured as a result of changes to the inflation index. Changes to the inflation index are treated as variable lease payments and recognized in the period in which the obligation for those payments was incurred. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Operating Leases - Our operating leases, for network assets and equipment, office space, office equipment and real estate, have remaining lease terms of 1 to 30 years, some of which may include one or more options to renew with renewal terms that can extend the lease term from 1 to 10 years or more. The exercise of lease renewal options is at our sole discretion. At inception of a lease, the lease term is generally equal to the initial lease term as ~~execution of~~ a renewal is not reasonably certain at inception. Subsequent renewals are treated as lease modifications. Due to the nature and expected use of the leased assets, exercise of renewal options is reasonably certain for month-to-month fiber, colocation, point of presence and rack space leases. The lease term is based on the average lease term for similar assets or expected period of use of the underlying asset. We apply a portfolio approach to effectively account for the operating lease right-of-use asset and liability for these low dollar, high volume leases. Certain leases also include options to purchase the leased property. The depreciable life of assets and leasehold improvements are limited by the expected lease term unless there is a transfer of title or purchase option reasonably certain of exercise.

The acceleration of the 2023 Notes resulted in an event of default under the master lease but no default notice has been received. Upon an event of default, remedies available to Uniti include terminating the master lease and requiring us to transfer the business operations we conduct on the leased assets so terminated (with limited exceptions) to a successor tenant for fair market value pursuant to a process set forth in the master lease, dispossessing us from the leased assets, and/or collecting monetary damages for the breach (including rent acceleration), electing to leave the master lease in place and sue for rent and any other monetary damages, and seeking any and all other rights and remedies available under law or in equity. The exercise of such remedies could have a material adverse effect on our business, financial position, results of operations and liquidity. Uniti’s ability to exercise remedies under master lease was stayed as of the date of the Chapter 11 petition filing.

Leaseback of Real Estate Contributed to Pension Plan - We lease certain real property contributed to the Windstream Pension Plan. The lease agreements provide for the continued use of the properties by our operating subsidiaries and include initial lease terms of 10 years for certain properties and 20 years for the remaining properties at an aggregate annual rent of approximately $6.0 million. The lease agreements provide for annual rent increases ranging from 22.0 percent to 33.0 percent over the initial lease term and may be renewed for up to three additional five-year terms. The properties are managed on behalf of the Windstream Pension Plan by an independent fiduciary. Due to Windstream Services’ ability to repurchase the property by ceasing all but de minimis operations at the location, control of the property has not transferred and the transaction continues to be accounted for as a financing obligation. Accordingly, the properties continue to be reported as assets of Windstream and depreciated over their remaining useful lives until termination of the lease agreement. The long-term lease obligation, initially equal to the fair value of the properties at the date of contribution, of ~~$72.8~~$72.7 million as of ~~March 31,~~September 30, 2019 is presented in ~~other liabilities.~~liabilities subject to compromise. As a result of using the effective interest rate method, when lease payments are made to the Windstream Pension Plan, a portion of the payment is charged to interest expense and the remaining portion is recorded as an accretion to the long-term lease obligation.

Components of lease expense were as follows for the ~~three-month period~~three and nine-month periods ended ~~March 31,~~September 30, 2019:

Supplemental balance sheet information related to leases was as follows:

Supplemental cash flow information related to leases was as follows for the ~~three-month~~nine-month period ended ~~March 31,~~September 30, 2019:

(Millions)
Cash paid for amounts included in the measurement of lease liabilities:
   Operating cash outflows from operating leases $ 196.9
   Operating cash outflows from finance leases 1.3
   Financing cash outflows from finance leases 13.7
Right-of-use assets obtained in exchange for lease obligations:
   Operating leases 4.0
   Finance leases 3.9

As of ~~March 31,~~September 30, 2019, future minimum lease payments under non-cancellable leases were as follows:

Future minimum lease payments as of December 31, 2018, as disclosed in our 2018 Form 10-K under ASC 840, were as follows:

To provide comprehensive communication solutions to meet our customers’ needs, our services are integrated with the latest communications equipment. Certain offerings include equipment leases. We also lease fiber to generate cash flow from unused or underutilized portions of our network. Lease terms typically range from 1 to 20 years some of which may include one or more options to renew, with renewal terms that can extend the lease term from one to 10 years. Fiber customers do have the ability to early terminate the lease by relinquishing the fiber strands back to us, however we have assessed the probability of such action to be remote.

Most of our leases are adjusted periodically for inflation. Although increases in the inflation index are not estimated as part of straight-line rent revenue, to the extent that the actual inflation index is greater or less than the inflation index at lease commencement, there could be changes to realized income or loss.

Comprehensive communication solutions with both lease and nonlease components such as maintenance and other services are accounted for as separate components under the guidance applicable to the component either Accounting Standard Codification Topic 606, Revenue from Contracts with Customers (“ASC 606”) or ASC Topic 842, Leases (“ASC 842”).

If equipment is not returned, early contract termination penalties are designed to cover the cost of the unrecovered equipment. We provide maintenance for all fiber agreements at lessees cost limiting residual value risk.

Future lease maturities under non-cancellable leases were as follows for the years ended December 31:

Prior to the filing of the Chapter 11 Cases, Windstream Services was party to ~~six~~6 pay fixed, receive variable interest rate swap agreements. Windstream Services had designated each of the ~~six~~6 swaps as cash flow hedges of the interest rate risk inherent in borrowings outstanding under its senior secured credit facility due to changes in the LIBOR benchmark interest rate. All of the swaps hedged the probable variable cash flows which extended up to one year beyond the maturity of certain components of Windstream Services’ variable rate debt. Windstream Services expected to extend or otherwise replace those components of its debt with variable rate debt.

The variable rate received on the ~~six~~6 swaps was based on one-month LIBOR and reset on the seventeenth day of each month. The maturity date for all ~~six~~6 interest rate swap agreements was October 17, 2021. ~~Three~~NaN of the interest rate swaps were off-market swaps, meaning they contained an embedded financing element, which the swap counterparties recovered through an incremental charge in the fixed rate over what would have been charged for an at-market swap. As such, a portion of the cash payment on the swaps represented the rate that Windstream Services would have paid on a hypothetical at-market interest rate swap and was recognized in interest expense. The remaining portion represented the repayment of the embedded financing element and reduced the initial swap liability. These ~~three~~3 swaps had a total notional value of $675.0 million and the average fixed interest rate paid was 2.984 percent. The fourth interest rate swap agreement had a notional value of $200.0 million and the fixed interest rate paid was 1.1275 percent. The remaining ~~two~~2 interest rate swap agreements had a total notional value of $500.0 million and the fixed interest rate paid was 1.8812 percent.

Due to previous refinancing transactions, Windstream Services had de-designated certain interest rate swaps and froze the accumulated net gains and losses in accumulated other comprehensive income related to those swaps. The frozen balance is amortized from accumulated other comprehensive income to interest expense over the remaining life of the original swaps.

Prior to the filing of the Chapter 11 Cases, all derivative instruments were recognized at fair value as either assets or liabilities, depending on the rights or obligations under the related contracts.

The agreements with each of the derivative counterparties contained cross-default provisions, whereby if Windstream Services were to default on certain indebtedness, it could also be declared in default on its derivative obligations and be required to net settle any outstanding derivative liability positions with its counterparties at the swap termination value, including accrued interest and excluding any credit valuation adjustment to measure non-performance risk. Due to the adverse court ruling, subsequent filing of the Chapter 11 Cases and cross-default provisions contained within the interest rate swap agreements, the interest rate swaps were classified as current assets and liabilities in the accompanying consolidated balance sheet as of December 31, 2018.

Following the adverse court ruling from Judge Jessie Furman, each of the bank counterparties exercised their rights to terminate the interest rate swap agreements. Accordingly, Windstream Services ceased the application of hedge accounting for all ~~six~~6 interest rate swaps, effective February 15, 2019. For those swaps in an asset position at the date of termination as determined by the counterparty, Windstream Services received cash proceeds of $9.6 million to settle the derivative contracts. For swaps in a liability position at the date of termination as determined by the counterparty, the interest rate swaps were adjusted to their termination value of $6.1 million and reclassified as liabilities subject to compromise in the accompanying consolidated balance sheet as of ~~March 31,~~September 30, 2019.

Upon the discontinuance of hedge accounting, Windstream Services concluded that it was still probable that the hedged transactions (future interest payments) will occur. As a result, the accumulated net gains related to the interest rate swaps recorded in accumulated other comprehensive income as of February 15, 2019 were frozen and will be amortized from accumulated other comprehensive income to interest expense over the contractual remaining life of the interest rate swaps.

Set forth below is information related to interest rate swap agreements:



(Millions, except for percentages)	September 30, 2019			December 31, 2018
Designated portion, measured at fair value:
Other current assets	$	—		$	15.3
Other current liabilities	$	—		$	6.8
Accumulated other comprehensive income	$	—		$	39.7
De-designated portion, unamortized value:
Liabilities subject to compromise	$	6.1		$	—
Accumulated other comprehensive income (loss)	$	26.8		$	(2.4	)
Weighted average fixed rate paid	2.31		%	2.31		%
Variable rate received	2.48		%	2.46		%

(Millions, except for percentages) March 31,
2019
December 31,
2018
Designated portion, measured at fair value:
Other current assets $ —
$ 15.3
Other current liabilities $ —
$ 6.8
Accumulated other comprehensive income $ —
$ 39.7
De-designated portion, unamortized value:
Liabilities subject to compromise $ 6.1
$ —
Accumulated other comprehensive income $ 32.9
$ (2.4 )
Weighted average fixed rate paid 2.31 % 2.31 %
Variable rate received 2.48 % 2.46 %

Changes in derivative instruments were as follows for the ~~three-month periods~~nine-month period ended ~~March 31:~~September 30:

As of September 30, 2019, Windstream Services expects to recognize net gains of $9.8 million, net of taxes, in interest expense during the next twelve months related to the unamortized value of the de-designated portion of its terminated interest rate swap agreements.

Prior to the termination of the interest rate swaps, Windstream Services was party to master netting arrangements, which were designed to reduce credit risk by permitting net settlement of transactions with counterparties. For financial statement presentation purposes, Windstream Services did not offset assets and liabilities under these arrangements.

The following tables presents the assets and liabilities subject to an enforceable master netting arrangement as of December 31, 2018. Information pertaining to derivative assets was as follows:



			Gross Amounts Not Offset in the Consolidated Balance Sheets
(Millions)	Gross Amount of Assets Presented in the Consolidated Balance Sheets		Financial Instruments			Cash Collateral Received		Net Amount
December 31, 2018:
Interest rate swaps	$	15.3	$	(3.2	)	$	—	$	12.1

Gross Amounts Not Offset in the Consolidated
Balance Sheets

(Millions)
Gross Amount of Assets Presented in the Consolidated
Balance Sheets
Financial Instruments Cash Collateral Received Net Amount
December 31, 2018:
Interest rate swaps $ 15.3
$ (3.2 ) $ —
$ 12.1

Information pertaining to derivative liabilities was as follows:



			Gross Amounts Not Offset in the Consolidated Balance Sheets
(Millions)	Gross Amount of Liabilities Presented in the Consolidated Balance Sheets		Financial Instruments			Cash Collateral Received		Net Amount
December 31, 2018:
Interest rate swaps	$	6.8	$	(3.2	)	$	—	$	3.6

Gross Amounts Not Offset in the Consolidated
Balance Sheets

(Millions)
Gross Amount of
Liabilities Presented in
the Consolidated
Balance Sheets
Financial Instruments Cash Collateral Received Net Amount
December 31, 2018:
Interest rate swaps $ 6.8
$ (3.2 ) $ —
$ 3.6

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

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). Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the determination of fair value of assets and liabilities and their placement within the fair value hierarchy levels.

Our non-financial assets and liabilities, including property, plant and equipment, goodwill, intangible assets and asset retirement obligations, are measured at fair value on a non-recurring basis. No event occurred during the ~~three-month~~nine-month period ended ~~March 31,~~ September 30, 2019 requiring our non-financial assets and liabilities to be subsequently recognized at fair value. Our financial instruments consist primarily of cash and cash equivalents, accounts receivable, accounts payable, debt and interest rate swaps. The carrying amount of cash, accounts receivable and accounts payable was estimated by management to approximate fair value due to the relatively short period of time to maturity for those instruments. Cash equivalents, long-term debt and interest rate swaps (prior to their termination) are measured at fair value on a recurring basis. There were no cash equivalents as of ~~March 31,~~September 30, 2019.

The fair values of cash equivalents, interest rate swaps and debt were determined using the following inputs at:

The fair values of interest rate swaps ~~are~~were determined based on the present value of expected future cash flows using observable, quoted LIBOR swap rates for the full term of the swaps and also incorporate credit valuation adjustments to appropriately reflect both Windstream Services’ own non-performance risk and non-performance risk of the respective counterparties. As of December 31, 2018, the fair values of the interest rate swaps were reduced by $2.9 million to reflect non-performance risk.

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

We do not have any assets or liabilities measured for purposes of the fair value hierarchy at fair value using significant unobservable inputs (Level 3). There were no transfers within the fair value hierarchy during the ~~three-month~~nine-month period ended ~~March 31,~~ September 30, 2019.

The majority of our revenue is derived from providing access to or usage of our networks and facilities we operate.

Accounts Receivable – Accounts receivable principally consist of amounts billed and currently due from customers and are generally unsecured and due within 30 days. The amounts due are stated at their net estimated realizable value. We maintain an allowance for doubtful accounts to provide for the estimated amount of receivables that will not be collected. The allowance is based upon an assessment of historical collection experience, age of outstanding receivables, current economic conditions and a specific customer’s ability to meet its financial obligations. Concentration of credit risk with respect to accounts receivable is limited because a large number of geographically diverse customers make up our customer base. Due to varying customer monthly billing cycle cut-off, we must estimate service revenues earned but not yet billed at the end of each reporting period. Included in accounts receivable are unbilled revenues related to communication services and product sales of ~~$41.5~~$35.0 million and $40.0 million at ~~March 31,~~September 30, 2019 and December 31, 2018, respectively.

Contract Balances – Contract assets include unbilled amounts, ~~resulting~~which result when revenue recognized exceeds the amount billed to the customer and the right to payment is not just subject to the passage of time. Contract assets principally consist of discounts and promotional credits given to customers. The current and noncurrent ~~portion~~portions of contract assets isare included in prepaid expenses and other and other assets, respectively, in the accompanying consolidated balance sheets.

~~Our contract~~Contract liabilities consist of services billed in excess of revenue recognized. ~~Our contract assets and liabilities are reported~~The changes in ~~a net position on a contract-by-contract basis at the end of each reporting period. The change in our~~ contract liabilities isare primarily related to customer activity associated with services billed in advance, the receipt of cash payments and the satisfaction of our performance obligations. We classify these amounts as current or noncurrent based on the timing of when we expect to recognize revenue. The current portion of contract liabilities is included in advance payments while the noncurrent portion is included in other liabilities or liabilities subject to compromise.

Contract assets and liabilities from contracts with customers were as follows at:

Remaining Performance Obligations – Our remaining performance obligations represent services we are required to provide to customers under bundled or discounted arrangements, which are satisfied as services are provided over the contract term. Certain contracts provide customers the option to purchase additional services or ~~usage based~~usage-based services. The fees related to the additional services or ~~usage based~~usage-based services are recognized when the customer exercises the option, typically on a month-to-month basis. In determining the transaction price allocated, we do not include these non-recurring fees and estimates for usage, nor do we consider arrangements with an original expected duration of less than one year.

Remaining performance obligations reflect recurring charges billed, adjusted for discounts and promotional credits and revenue adjustments. At ~~March 31,~~September 30, 2019, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately ~~$2.9~~$2.7 billion for contracts with original expected durations of more than one year remaining. We expect to recognize approximately ~~35.3~~13 percent, ~~34.9~~41 percent and ~~19.3~~25 percent of our remaining performance obligations as revenue during the remainder of 2019, 2020 and 2021, respectively, with the remaining balance thereafter.

Revenue by Category – We disaggregate our revenue from contracts with customers by product type for each of our segments, as we believe it best depicts the nature, amount and timing of our revenue. Revenues recognized from contracts with customers by customer and product type for the three-month period ended ~~March 31,~~September 30, 2019 ~~was~~were as follows:

Revenues recognized from contracts with customers by customer and product type for the nine-month period ended September 30, 2019 were as follows:

Revenues recognized from contracts with customers by customer and product type for the three-month period ended ~~March 31,2018 was~~September 30, 2018 were as follows:

Revenues recognized from contracts with customers by ~~type~~customer and class of service offering to align with our internal management reporting of this segment’s revenues and sales. Prior period information has been revised to conform with the current year presentation. These changes did not impact total revenues and sales previously reportedproduct type for the ~~Enterprise segment.~~nine-month period ended September 30, 2018 were as follows:

Deferred Commissions and Other Costs to Fulfill a Contract – ~~Our direct~~Direct incremental costs of obtaining a contract, consisting of sales commissions and certain costs associated with activating services, including costs to develop customized solutions and provision services, are deferred and recognized as an operating expense using a portfolio approach over the estimated life of the customer, which ranges from 18 to 36 months.

Determining the amount of costs to fulfill requires judgment. In determining costs to fulfill, consideration is given to periodic time studies, management estimates and statistics from internal information systems.

Collectively, deferred commissions and other costs to fulfill a contract are referred to as deferred contract costs. We classify deferred contract costs as current or noncurrent based on the timing of when we expect to recognize the expense. The current and noncurrent portions of deferred contract costs are included in prepaid expenses and other and other assets, respectively, in ~~our~~the accompanying consolidated balance sheets. Deferred contract costs totaled ~~$46.2~~$51.6 million at ~~March 31,~~September 30, 2019, of which ~~$31.2~~$35.0 million and ~~$15.0~~$16.6 million ~~was~~were included in prepaid expenses and other and other assets, respectively. At December 31, 2018, deferred contract costs were $45.5 million, of which $30.4 million and $15.1 million ~~was~~were included in prepaid expenses and other and other assets, respectively. Amortization of deferred contract costs was ~~$9.9~~$10.4 million and ~~$10.8~~$30.3 million for the ~~three-month~~three and nine-month periods ended ~~March 31,~~September 30, 2019, respectively, compared to $10.6 million and $31.9 million for the three and nine-month periods ended September 30, 2018, respectively. There was no impairment loss recognized for the ~~three-month~~nine-month periods ended ~~March 31,~~September 30, 2019 and 2018, related to deferred contract ~~cost.~~costs.

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

The components of pension benefit ~~income,~~(income) expense, including provision for executive retirement agreements, were as follows:

For 2019, the expected employer contributions for pension benefits consists of $15.2 million to the qualified pension plan to satisfy our remaining 2018 and 2019 funding requirements and $0.8 million necessary to fund the expected benefit payments of our unfunded supplemental executive retirement pension plans to avoid certain benefit restrictions. InDuring the first ~~quarter~~nine months of 2019, we made our required quarterly employer ~~contribution of $3.0~~contributions totaling $11.8 million in cash. InComparatively in the first ~~quarter~~nine months of 2018, we made ~~our required quarterly~~ employer ~~contribution~~contributions to the qualified pension plan of ~~$5.2~~$8.8 million in cash and also contributed 0.8 million shares of our common stock with a value of approximately $5.8 ~~million to the qualified pension plan.~~million.

The components of postretirement benefits expense were as follows:

We contributed ~~$0.3~~$0.5 million in cash to the postretirement plan during the ~~three-month~~nine-month period ended ~~March 31,~~September 30, 2019, excluding amounts that were funded by participant contributions to the plan.

We also sponsor an employee savings plan under section 401(k) of the Internal Revenue Code, which covers substantially all salaried employees and certain bargaining unit employees. Windstream matches on an annual basis up to a maximum of 4.0 percent of employee pre-tax contributions to the plan for employees contributing up to 5.0 percent of their eligible pre-tax compensation. WeExcluding amounts capitalized, we recorded expenses of ~~$7.0~~$5.8 million and $19.3 million in the ~~three-month period~~three and nine-month periods ended ~~March 31,~~September 30, 2019, respectively, as compared to ~~$6.3~~$4.7 million and $16.8 million for the same ~~period~~periods in 2018 related to our matching contribution under the employee savings plan, which was included in cost of services and selling, general and administrative expenses in our consolidated statements of operations. Expense related to our 2018 matching contribution that was expected to be made in Windstream Holdings common stock was included in share-based compensation expense in the accompanying consolidated statement of cash flows for the ~~three~~nine months ended ~~March 31,~~September 30, 2018. In March 2019, we contributed $26.4 million in cash to the plan for the 2018 annual matching contribution. Comparatively, in March 2018, we contributed ~~3.4~~3.6 million shares of our common stock with a fair value of ~~$26.9~~$28.3 million to the plan for the 2017 annual matching contribution. We funded the remaining 2019 contributions using cash.

In May 2018, our stockholders approved amendments to our Amended and Restated 2006 Equity Incentive Plan (the “Incentive Plan”) which (i) extended the term of the Incentive Plan through February 6, 2023 and (ii) increased the maximum number of shares authorized for issuance or delivery under the Incentive Plan to 6.8 million. Under the Incentive Plan, we may issue equity stock awards in the form of restricted stock, restricted stock units, stock appreciation rights or stock options. As of ~~March 31,~~September 30, 2019, the Incentive Plan had remaining capacity of approximately ~~1.5~~2.2 million awards.

Restricted Stock and Restricted Stock Units – Our board of directors may approve grants of restricted stock and restricted stock units to officers, executives, non-employee directors and certain management employees. Grants may include time-based and performance-based awards. Time-based awards granted to employees generally vest over a service period of two or three years. Performance-based restricted stock units may vest in a number of shares from ~~zero~~0 to 150.0 percent of their award based on attainment of specified targets over a three-year period. The three-year operating target for the performance-based restricted stock units granted in 2017 was approved by the board of directors in May 2017. During the second quarter of 2019, we determined that the three-year operating target would not be met by the end of the measurement period, and accordingly, all compensation expense previously recognized for these performance-based awards was reversed.

In February 2019, we granted 0.7 million performance-based restricted stock units that ~~will~~were scheduled to vest three years from the date of grant. The grant date fair value of the restricted stock units was $2.4 million. These awards were subsequently canceled and replaced with cash-based awards during the second quarter of 2019. There were no service-based restricted stock units granted during the first ~~quarter~~nine months of 2019.

In light of our Chapter 11 filing, the vesting date for certain service-based restricted ~~stocks~~stock was extended from March 1, 2019, May 1, 2019, and March 1, 2020 to December 1, ~~2019.~~2020. Additionally, the delivery of shares for performance-based restricted stock units vested on March 1, 2019 was delayed until ~~December 1, 2019.~~March 14, 2020.

~~Service-based restricted~~Restricted stock and ~~restricted unit activity for the~~ ~~three-month period ended~~ ~~March 31, 2019 was as follows:~~



	Service-Based				Performance-Based
	(Thousands) Underlying Number of Shares		Per Share Weighted Average Fair Value		(Thousands) Underlying Number of Shares		Per Share Weighted Average Fair Value
Non-vested at December 31, 2018	522.1		$	23.34	325.4		$	28.35
Granted	—		$	—	698.5		$	3.40
Vested	(132.0	)	$	32.37	(159.2	)	$	28.84
Canceled and forfeited	(16.9	)	$	35.24	(731.5	)	$	4.50
Non-vested at September 30, 2019	373.2		$	19.61	133.2		$	27.90

(Thousands)
Underlying Number of
Shares

Per Share
Weighted
Average Fair
Value
Non-vested at December 31, 2018 325.4
$ 28.35
Granted 698.5
$ 3.40
Vested (147.0 ) $ 28.25
Forfeited (17.4 ) $ 27.76
Non-vested at March 31, 2019 859.5
$ 8.10

At ~~March 31,~~September 30, 2019, unrecognized compensation expense for restricted stock and restricted stock units totaled ~~$6.2~~$1.3 million and is expected to be recognized over the weighted average vesting period of ~~1.9~~0.8 years. The total fair value of shares vested was ~~$8.0~~$8.9 million for the ~~three-month~~nine-month period ended ~~March 31,~~September 30, 2019, as compared to ~~$20.6~~$22.5 million for the same period in 2018. Share-based compensation expense for restricted stock and restricted stock units was ~~$1.6~~$0.7 million and ~~$3.6~~$0.4 million for the ~~three-month period~~three and nine-month periods ended ~~March 31,~~September 30, 2019, respectively, as compared to $2.4 million and ~~2018, respectively.~~$8.7 million for the same periods in 2018.

Stock Options – At ~~March 31,~~September 30, 2019 and December 31, 2018, we had approximately 0.9 million and 1.0 million of ~~unvested and vested~~ stock option awards outstanding, respectively, all of which have exercise prices that are significantly higher than the current market price of our common stock and, therefore, are not likely to be exercised during the next twelve months. NoNaN stock options were granted or exercised during ~~the first quarter of~~ 2019. At ~~March 31,~~September 30, 2019, total unamortized compensation cost for non-vested stock option awards amounted to ~~$2.4~~$1.6 million and is expected to be recognized over a weighted average period of ~~1.9~~1.4 years. Share-based compensation expense for stock options was ~~$0.4~~$0.3 million and $0.9 million for the three ~~months~~and nine-month periods ended ~~March 31, 2019.~~September 30, 2019, respectively.

We incur costs to complete a merger or acquisition and integrate its operations into our business, which are presented as merger and integration expense in our consolidated results of operations. These costs include transaction costs, such as accounting, legal, consulting and broker fees; severance and related costs; IT and network conversion; rebranding and marketing; and contract termination fees.

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

During the first nine months of 2019 and 2018, we completed restructurings of our workforce to improve our overall cost structure and gain operational efficiencies. In undertaking these efforts, we eliminated approximately ~~275~~450 positions ~~in the first quarter of 2019 and 400 positions in the first quarter of 2018~~ and incurred related severance and employee benefit costs of ~~$10.5~~$17.5 million in 2019, and ~~$13.7~~in the first nine months of 2018, we eliminated approximately 750 positions and incurred $22.1 million ~~respectively.~~in severance and employee benefit costs. We also incurred lease termination costs of $3.9 million during the nine-month period of 2018, as a result of vacating certain facilities.

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



	Three Months Ended September 30,				Nine Months Ended September 30,
(Millions)	2019		2018		2019		2018
Merger, integration and other costs:
Information technology conversion costs	$	—	$	0.2	$	0.3	$	0.8
Costs related to merger with EarthLink (a)	1.8		2.0		5.8		13.0
Costs related to merger with Broadview (b)	—		0.5		—		3.9
Legal fees related to Uniti spin-off litigation (see Note 16)	—		5.1		—		9.9
Other	—		1.2		1.1		2.8
Total merger, integration and other costs	1.8		9.0		7.2		30.4
Restructuring charges	1.6		6.5		18.2		26.0
Total merger, integration and other costs and restructuring charges	$	3.4	$	15.5	$	25.4	$	56.4

Three Months Ended
March 31,
(Millions) 2019
2018
Merger, integration and other costs:
Information technology conversion costs $ 0.2
$ 0.4
Costs related to merger with EarthLink (a) 3.4
4.4
Costs related to merger with Broadview (b) —
1.9
Other 1.0
0.6
Total merger, integration and other costs 4.6
7.3
Restructuring charges 10.5
13.7
Total merger, integration and other costs and
restructuring charges
$ 15.1
$ 21.0

After giving consideration to tax benefits on deductible items, merger, integration and other costs and restructuring charges increased our reported net loss by ~~$11.3~~$2.5 million and $19.0 million for the ~~three-month period~~three and nine-month periods ended ~~March 31,~~September 30, 2019, respectively, as compared to ~~$15.9~~$11.6 million and $42.1 million for the same ~~period~~periods in ~~2018.~~2018, respectively.

The following is a summary of the activity related to the liabilities associated with merger, integration and other costs and restructuring charges at ~~March 31:~~September 30:



				Restructuring Charges
(Millions)	Merger, Integration and Other Charges			Severance and Benefit Costs			Lease Termination Costs			Total
Balance at December 31, 2018	$	4.0		$	12.6		$	15.3		$	31.9
Reclassified to operating lease obligations upon adoption of ASU 2016-02	(4.0		)	—			(15.3		)	(19.3		)
Expenses incurred in period	7.2			18.2			—			25.4
Cash outlays during the period	(7.2		)	(24.8		)	—			(32.0		)
Balance at September 30, 2019	$	—		$	6.0		$	—		$	6.0

Restructuring Charges
(Millions) Merger, Integration and Other Charges Severance and Benefit Costs Lease Termination Costs Total
Balance at December 31, 2018 $ 4.0
$ 12.6
$ 15.3
$ 31.9
Reclassified to operating lease obligations upon adoption of
ASU 2016-02
(8.6 ) —
(15.3 ) (23.9 )
Expenses incurred in period 4.6
10.5
—
15.1
Cash outlays during the period —
(16.5 ) —
(16.5 )
Balance at March 31, 2019 $ —
$ 6.6
$ —
$ 6.6

Payments of these liabilities will be funded through operating cash flows.

(Millions) March 31,
2019
December 31, 2018
Property, plant and equipment $ 516.1
$ 825.5
Goodwill and other intangible assets 247.3
477.7
Operating loss and credit carryforward (591.7 ) (576.8 )
Postretirement and other employee benefits (78.6 ) (79.6 )
Unrealized holding loss and interest rate swaps 5.8
7.2
Deferred compensation (2.0 ) (2.3 )
Bad debt (14.4 ) (15.1 )
Long-term lease obligations (1,091.9 ) (1,170.9 )
Operating lease right-of-use assets 1,063.1
—
Deferred debt costs (34.9 ) (19.2 )
Share-based compensation (6.0 ) (6.8 )
Interest expense (13.5 ) —
Other, net (7.0 ) (20.4 )
(7.7 ) (580.7 )
Valuation allowance 143.5
685.0
Less amounts reclassified to liabilities subject to compromise (135.8 ) —
Deferred income taxes, net $ —
$ 104.3
Deferred tax assets $ (1,904.3 ) $ (1,954.0 )
Deferred tax liabilities 2,040.1
2,058.3
Less amounts reclassified to liabilities subject to compromise (135.8 ) —
Deferred income taxes, net $ —
$ 104.3

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences representing net future deductible amounts become deductible. We consider the scheduled reversal of deferred tax assets and liabilities, carryback potential, projected future taxable income and tax planning strategies in making this assessment. As a result of the adverse court ruling and subsequent filing of the Chapter 11 Cases, we considered the reversal of taxable temporary differences and carryback potential as a source of income as of December 31, 2018. After consideration of these factors, we recorded a full valuation allowance for the year ended December 31, 2018, exclusive of a portion of deferred tax liabilities primarily associated with indefinite-lived intangible assets. Therefore, as of December 31, 2018, we had valuation allowances of approximately $685.0 million. The impact of adoption of ASU 2016-02 in 2019 resulted in an increase to deferred tax liabilities of approximately ~~$842.3~~$833.8 million. This increase caused a re-evaluation of our valuation allowances as of January 1, 2019 and resulted in a decrease of approximately $541.5 million, recorded as an adjustment to equity. At ~~March 31,~~September 30, 2019, our valuation allowance is approximately $143.5 million. As of ~~March 31,~~September 30, 2019, we were in a net deferred tax liability position and recorded an income tax benefit during the first ~~quarter~~three quarters of 2019. We will monitor our deferred tax asset position each quarter and determine the appropriate income tax benefit to record based upon the reversal of taxable temporary differences.

At ~~March 31,~~September 30, 2019 and December 31, 2018, we had federal net operating loss carryforwards of approximately ~~$1,992.0~~$1,810.3 million and $1,920.2 million, respectively. Net operating losses generated prior to 2018 expire in varying amounts from 2019 through 2037. Under the 2017 Tax Act, federal net operating losses generated in 2018 and future years can be carried forward indefinitely. The loss carryforwards at ~~March 31,~~September 30, 2019 and December 31, 2018 were primarily losses acquired in conjunction with our acquisitions including PAETEC, EarthLink and Broadview.

At ~~March 31,~~September 30, 2019 and December 31, 2018, we had state net operating loss carryforwards of approximately ~~$2,527.7~~$2,598.2 million and $2,456.6 million, respectively, which expire annually in varying amounts from 2019 through 2039. The loss carryforwards were primarily losses acquired in conjunction with our acquisitions including PAETEC and EarthLink.

The amount of federal tax credit carryforward at ~~March 31,~~September 30, 2019 and December 31, 2018 was approximately $21.8 million, which expires in varying amounts from 2031 through 2036. The amount of state tax credit carryforward at ~~March 31,~~September 30, 2019 and December 31, 2018 was approximately $17.7 million, which expires in varying amounts from 2019 through 2027.

13. Accumulated Other Comprehensive Income:

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



(Millions)	September 30, 2019		December 31, 2018
Pension and postretirement plans	$	6.8	$	7.7
Unrealized net gains (losses) on interest rate swaps:
Designated portion	—		29.7
De-designated portion	20.0		(1.8		)
Accumulated other comprehensive income	$	26.8	$	35.6

(Millions) March 31,
2019
December 31,
2018
Pension and postretirement plans $ 7.4
$ 7.7
Unrealized net gains (losses) on interest rate swaps:
Designated portion —
29.7
De-designated portion 24.6
(1.8 )
Accumulated other comprehensive income $ 32.0
$ 35.6

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

Reclassifications out of accumulated other comprehensive income were as follows:

We compute basic ~~loss~~(loss) earnings per share by dividing net ~~loss~~income (loss) applicable to common shares by the weighted average number of common shares outstanding during each period.

Diluted (loss) earnings per share ~~reflects~~amounts reflect the potential dilution that could occur if securities or other contracts to issue common stock, including restricted stock units, stock options and warrants, were exercised or converted into common stock. The dilutive ~~effect~~effects of outstanding restricted stock units, stock options and warrants isare reflected in diluted ~~earnings per share~~shares outstanding by application of the treasury stock method. In applying the treasury stock method for stock-based compensation arrangements, the assumed proceeds are computed as the sum of the amount the employee must pay upon exercise plus the amount of compensation cost attributed to future services.

A reconciliation of net ~~loss~~(loss) income and number of shares used in computing basic and diluted ~~loss~~(loss) earnings per share was as follows:

For the ~~three-month~~three and nine-month periods ended September 30, 2019 and the nine-month period ended ~~March 31, 2019 and~~September 30, 2018, we excluded from the computation of diluted shares the effect of restricted stock units and options to purchase shares of our common stock because their inclusion would have an anti-dilutive effect due to our reported net losses. For the three months ended September 30, 2018, we excluded restricted stock units and options to purchase shares from the computation of diluted earnings per share because the effect would be anti-dilutive in applying the treasury stock method. We had ~~1.0~~0.5 million restricted stock units and ~~1.3~~0.9 million stock options outstanding as of ~~March 31,~~September 30, 2019, compared to 0.9 million restricted stock units and ~~1.1~~1.0 million stock options outstanding at ~~March 31,~~September 30, 2018.

~~We disaggregate~~Effective April 1, 2019, we reorganized our business operations ~~between~~into three segments: Kinetic, Enterprise and Wholesale. The Kinetic business unit primarily serves customers ~~located~~ in ~~service areas~~markets in which we are the incumbent local exchange carrier (“ILEC”) and ~~provide~~provides services over network facilities operated by usus. The Enterprise and ~~those~~Wholesale business units primarily serve customers ~~located~~ in ~~service areas~~markets in which we are a competitive local exchange carrier (“CLEC”) and provide services over network facilities primarily leased from other carriers. ~~We have further disaggregated~~As a result of this reorganization, we improved the alignment of our customer base within our ILEC and CLEC markets. The significant changes to our previous segment structure included: (1) shifting certain business customers with operations ~~between enterprise,~~in ILEC-only markets from the Enterprise segment to the Consumer & Small Business segment, which was renamed Kinetic; (2) shifting governmental and resale customers from Wholesale to Enterprise; (3) shifting wholesale customers and ~~consumer customers. As previously discussed, on~~related services in ILEC markets from Wholesale to Kinetic; and (4) allocating certain corporate expenses, primarily property taxes, to the segments. Prior period segment information has been revised to reflect these changes for all periods presented.

On December 31, 2018, we ~~sold~~completed the sale of substantially all of our consumer CLEC ~~operations. Prior~~business. The consumer operations sold consisted solely of the former EarthLink consumer business that we acquired in February 2017. The sale of the consumer CLEC business did not represent a strategic shift in our operations nor have a major effect on our consolidated results of operations, financial position or cash flows, and therefore did not qualify for reporting as a discontinued operation. Accordingly, for periods prior to the sale, ~~we operated and reported~~ the ~~following four segments:~~sold CLEC business continues to be presented as a separate segment. The retained portion of the consumer CLEC business, primarily consisting of revenues generated from our master services agreement with Uniti have been assigned to the Enterprise segment.

For financial reporting purposes, our ~~residential and small~~segments consist of:

~~Consumer CLEC~~ – Products and services offered to customers included traditional voice and long-distance services, nationwide Internet access services, both dial-up and high-speed, as well as value added services including online backup and various e-mail services.

We evaluate performance of the segments based on contribution margin or segment income, which is computed as segment revenues and sales less segment operating expenses. Segment revenues are based upon each customer’s classification to an individual segment and include all services provided to that customer. Segment revenues also include revenue from federal and state USF, CAF – Phase II support, funds received from federal access recovery mechanisms, revenues from providing switched access services, including usage-based revenues from long-distance companies and other carriers for access to our network to complete long-distance calls, reciprocal compensation received from wireless and other local connecting carriers for the use of network facilities, certain surcharges assessed to our customers, including billings for our required contributions to federal and state USF programs, and product sales to contractors. There are no differences between total segment revenues and sales and total consolidated revenues and sales.

Segment expenses include specific expenses incurred as a direct result of providing services and products to segment customers; selling, general and administrative expenses that are directly associated with specific segment customers or activities; and certain allocated expenses which include network expenses, facilities expenses and other expenses, such as vehicle and real estate-related expenses. Operating expenses associated with regulatory and other revenues have also been assigned to our segments. We do not assign depreciation and amortization expense, goodwill impairment, merger, integration and other costs, restructuring charges, ~~straight-line rent~~straight - line expense under the ~~master lease agreement~~contractual arrangement with Uniti, share-based compensation, ~~pension expense,~~ business transformation expenses, ~~and~~ costs related to network optimization projects, spend commitment penalties incurred under certain carrier discount plans, and reserves for funding denials from Universal Service Administrative Company (“USAC”) to our segments, because these expenses are centrally managed and are not monitored by or reported to the chief operating decision maker (“CODM”) by segment. Similarly, certain costs related to centrally-managed administrative functions, such as accounting and finance, information technology, network management, legal and human resources, are not assigned to our segments. Interest expense and net gain on early extinguishment of debt have also been excluded from segment operating results because we manage our financing activities on a total company basis and have not assigned any debt or lease obligations to the segments. Other expense, net, reorganization items, net, and income tax benefit are not monitored as a part of our segment operations and, therefore, these items also have been excluded from our segment operating results.

Capital expenditures for network enhancements and information technology-related projects benefiting Windstream as a whole are not assigned to the segments and are presented as corporate/shared capital expenditures. Asset information by segment is not monitored or reported to the CODM and therefore has not been presented. ~~All~~Substantially all of our customers are located in the United States, and we do not have any single customer that provides more than 10 percent of our total consolidated revenues and sales.

The following table summarizes our segment results:

The following table reconciles segment income to consolidated net ~~loss:~~(loss) income:



	Three Months Ended September 30,						Nine Months Ended September 30,
(Millions)	2019			2018			2019			2018
Total segment income	$	478.6		$	543.7		$	1,490.2		$	1,646.0
Depreciation and amortization	(262.2		)	(383.8		)	(809.7		)	(1,136.3		)
Goodwill impairment	—			—			(2,712.3		)	—
Merger, integration and other costs	(1.8		)	(9.0		)	(7.2		)	(30.4		)
Restructuring charges	(1.6		)	(6.5		)	(18.2		)	(26.0		)
Straight-line expense under contractual arrangement with Uniti	(168.8		)	—			(506.5		)	—
Other unassigned operating expenses (a)	(78.7		)	(68.8		)	(275.0		)	(220.4		)
Other income (expense), net	0.2			3.2			(10.0		)	12.9
Reorganization items, net	(29.2		)	—			(219.5		)	—
Net gain on early extinguishment of debt	—			190.3			—			190.3
Interest expense	(81.2		)	(230.0		)	(253.9		)	(677.5		)
Income tax benefit	29.2			2.2			352.2			67.6
Net (loss) income	$	(115.5	)	$	41.3		$	(2,969.9	)	$	(173.8	)

Three Months Ended
March 31,
(Millions) 2019
2018
Total segment income $ 539.1
$ 583.3
Depreciation and amortization (271.5 ) (381.8 )
Goodwill impairment (2,339.0 ) —
Merger, integration and other costs (4.6 ) (7.3 )
Restructuring charges (10.5 ) (13.7 )
Other unassigned operating expenses (294.8 ) (111.5 )
Other expense, net (1.0 ) (2.3 )
Reorganization items, net (104.9 ) —
Interest expense (91.9 ) (223.1 )
Income tax benefit 268.8
35.0
Net loss $ (2,310.3 ) $ (121.4 )

Litigation

In a notice letter received September 22, 2017 (the “Original Notice”), Aurelius Capital Master, Ltd. ("Aurelius") asserted an alleged default of certain senior unsecured notes, the 6.375 percent Senior Notes due 2023 of Windstream Services, based on alleged violations of the associated indenture (the "2013 Indenture"). Aurelius primarily alleged that Windstream Services violated the 2013 Indenture by executing the spin-off of Uniti in April 2015 that, according to Aurelius, constituted a Sale and Leaseback Transaction that was prohibited under Section 4.19 of the 2013 Indenture.

In light of the allegations in the Original Notice, Windstream Services filed suit against U.S. Bank N.A., the Indenture Trustee (the “Trustee”), in Delaware Chancery Court seeking a declaration that it had not violated any provision of the 2013 Indenture and injunctive relief. On October 12, 2017, the Trustee filed suit in the Southern District of New York seeking a declaration that defaults had occurred. Windstream Services filed an answer and affirmative defenses in response to the Trustee’s complaint the following day, as well as counterclaims against the Trustee and Aurelius for declaratory relief. The Delaware action was subsequently dismissed.

After ~~conducting~~ a trial in July 2018, on February 15, 2019, Judge Jessie Furman of United States District Court for the Southern District of New York issued certain findings of fact and conclusions of law regarding the Spin-Off, invalidating the 2017 exchange and consent transactions, and found that the trustee under the 2013 Indenture and/or Aurelius was entitled to a ~~judgment, specifically:~~judgment:

On March 1, 2019, Judge Furman issued an Order that he cannot enter a final judgment due to the Automatic Stay imposed by the filing of the Chapter 11 Cases. The matter has been administratively closed subject to the right of any party to move to reopen it within twenty-one (21) days of the conclusion of the Chapter 11 Cases or the lifting or modification of the automatic stay.

Windstream Holdings, its current and former directors, and certain of its executive officers are the subject of shareholder-related lawsuits arising out of the merger with EarthLink Holdings Corp. in February 2017. ~~Two~~NaN putative shareholders have filed separate purported shareholder class action complaints in federal court in Arkansas and state court in Georgia, captioned Murray v. Earthlink Holdings Corp., et. al., and Yadegarian v. Windstream Holdings, Inc., et. al., respectively. Additionally, ~~two~~2 separate shareholder derivative actions were filed during the fourth quarter of 2018 in Arkansas federal court on behalf of Windstream Holdings, Inc., styled Cindy Graham v. Wells, et. al., and Larry Graham v. Thomas, et. al. ~~Additionally, Windstream received a shareholder demand letter in the fourth quarter of 2018 related to the EarthLink merger.~~ All ~~four~~ of the complaints ~~and demand letter~~ contain similar assertions and claims of alleged securities law violations and breaches of fiduciary duties related to the disclosures in the joint proxy statement/prospectus soliciting shareholder approval of the merger, which the plaintiffs allege were inadequate and misleading.

Suggestions of Bankruptcy and Notices of the Automatic Stay ~~have been~~were filed with regard to the Murray, Yadegarian and Graham cases, but the Plaintiffs ~~are challenging~~challenged the applicability of the stay with regard to non-debtor defendants. Windstream ~~has~~ filed an adversary proceeding motion with the Bankruptcy Court regarding this challenge. AAt a hearing on Windstream’s adversary proceeding motion conducted on June 17, 2019, the Bankruptcy court agreed to lift the automatic stay temporarily to allow the federal court presiding over the Murray case to hear arguments regarding Windstream’s motion to dismiss because it was procedural in nature. Oral arguments on the motion ~~is set~~to dismiss were held August 22, 2019, but a ruling has not yet been issued by the federal court. In the Yadegarian case, Windstream agreed to lift the automatic stay for ~~June 17, 2019.~~the limited purpose of allowing the state court to rule on pending Motions to Stay or Dismiss filed by Windstream. Both motions were heard on November 18, 2019, with the state court granting the Motion to Stay, pending a decision in the Murray case.

While the plaintiffs in the Murray case filed a proof of claim for an undetermined monetary amount, neither the plaintiffs in the Yadegarian nor Graham cases submitted proof of claims.

We believe that we have valid defenses for each of the lawsuits, and we plan to vigorously defend the pursuit of all matters. While the ultimate resolution of the matters is not currently predictable, if there is an adverse ruling in any of these matters, the ruling could constitute a material adverse outcome on the future consolidated results of our income, cash flows, or financial condition.

Windstream did not file a Suggestion of Bankruptcy as a result of the filing of the Chapter 11 cases with regard to this matter as it was determined it would fall under a regulatory exception and is precluded from the automatic stay.

Windstream and one of its Enterprise customers entered into an agreement in which Windstream provided communication services to several of the customer’s locations. The majority of funding for the services was administered by USAC pursuant to the Universal Service Rural Health Care Telecommunications Program which offers reduced rates for broadband and telecommunications services to rural health care facilities. In March 2017, USAC issued a funding denial to the customer on the basis that certain rules of the FCC were violated with the selection of Windstream as the service provider. Due to an alleged conflict of interest created by a third-party Windstream channel partner that acted as a consultant for the customer regarding the agreement, USAC asserted that Windstream’s selection was not based upon a fair and open competitive bidding process. USAC’s denial addressed accrued funding of approximately $16.6 million, as well as funding of approximately $6.0 million previously remitted to us. Windstream, along with the customer, appealed the denial; USAC rejected the appeal on June 29, 2018, upholding its previous denial of funding. Windstream appealed the denial to the FCC in August 2018. The FCC has yet to rule on the appeal and timing of a decision by the FCC is unknown. We recorded a reserve for the funding denial from USAC during the second quarter of 2019, and as a result, we have no additional loss exposure related to this matter.

We currently are involved in certain legal proceedings arising in the ordinary course of business and, as required, have accrued an estimate of the probable costs for the resolution of those claims for which the occurrence of loss is probable and the amount can be reasonably estimated. These estimates have been developed in consultation with counsel and are based upon an analysis of potential results, assuming a combination of litigation and settlement strategies. It is possible, however, that future results of operations for any particular period could be materially affected by changes in our assumptions or the effectiveness of our strategies related to these proceedings. Additionally, due to the inherent uncertainty of litigation, there can be no assurance that the resolution of any particular claim or proceeding would not have a material adverse effect on our financial condition or results of operations.

Notwithstanding the foregoing, any litigation pending against us and any claims that could be asserted against us that arose prior to the Petition Date are automatically stayed as a result of the commencement of the Chapter 11 Cases pursuant to Section 362(a) of the Bankruptcy Code, subject to certain statutory exceptions. These matters will be subject to resolution in accordance with the Bankruptcy Code and applicable orders of the Bankruptcy Court.

In March 2020, Windstream Services borrowed $400.0 million under the Revolving Facility of the DIP Facilities to assist with working capital and other general corporate purposes during the coronavirus, COVID-19, global pandemic.

Plan Support Agreement - As previously discussed in ~~Operating Segments~~Note 2, on March 2, 2020, the Debtors entered into a Plan Support Agreement (the “PSA”) with certain members of first lien lenders and noteholders, including the Debtors’ largest creditor, Elliott Investment Management L.P., and Uniti. The PSA contemplates the Debtors’ restructuring and recapitalization, which will be implemented through a Chapter 11 plan of reorganization. On March 2, 2020, the Debtors publicly filed the PSA and accompanying plan term sheet, outlining the terms of the reorganization, including funding an exit facility in an aggregate amount up to $3,250 million and backstop commitments from certain first lien creditors (the “Backstop Commitment Agreement”) related to a $750 million common equity rights offering upon the effective date. On March 13, 2020, the Debtors filed a motion to approve the Backstop Commitment Agreement, providing for a backstop premium equal to 8 percent of the $750 million committed amount payable in common stock.

Uniti Settlement Agreement - ~~Effective~~As previously discussed in Note 2, on March 2, 2020, the Debtors announced that they had reached an agreement in principle with Uniti to settle any and all claims and causes that were or could have been asserted against Uniti by Windstream. Among the terms of the settlement, Uniti agreed to fund up to $1.75 billion in capital improvements to the network; pay Windstream $400 million payable in quarterly cash installments over five years, at an annual interest rate of 9.0 percent, which amount may be fully paid after one year, resulting in total cash payments ranging from $432 - $490 million; purchase certain unused and underutilized dark filer assets from Windstream and Uniti will transfer to Windstream $244.5 million of proceeds from, and conditioned upon, the sale of Uniti’s common stock to certain first lien creditors of Windstream Services. On May 8, 2020, the Bankruptcy Court approved the settlement with Uniti.

Plan of Reorganization - As previously discussed in Note 2, on April 1, 2019, we reorganized our business operations into three segments, Kinetic, Enterprise and Wholesale to better align our customer base within our ILEC and CLEC markets. The significant changes to our existing segments will include: (1) shifting certain small business customers2020, the Debtors filed a Joint Chapter 11 Plan of Reorganization (“the Plan”) with ~~operations in ILEC-only markets from~~ the ~~Enterprise segment~~Bankruptcy Court. On the same date, the Debtors filed a Disclosure Statement relating to the ~~Consumer & Small Business segment, which we will rename Kinetic; (2) shifting governmental~~Plan, along with a motion seeking approval of the Disclosure Statement. On May 8, 2020, the Disclosure Statement was approved by the Bankruptcy Court, allowing Windstream to begin soliciting the requisite accepting votes in favor of the Plan. The Debtors retain the exclusive right to file the Plan through and ~~resale customers from Wholesale~~including June 22, 2020, as well as the right to ~~Enterprise; (3) shifting wholesale customers in ILEC markets from Wholesale to Kinetic; and (4) allocating certain corporate expenses, primarily property taxes,~~seek further extensions of such period up to the ~~segments. While we initiated certain changes~~statutory maximum date of August 25, 2020. The Plan can be supplemented and revised based upon discussions with the Debtors’ creditors and other interested parties and in ~~preparation~~response to creditor claims and objections and the requirements of the Bankruptcy Code or the Bankruptcy Court. On June 24, 2020, the Bankruptcy Court is scheduled to hold a confirmation hearing to consider the approval of the Debtors’ Plan.

See Note 2 for additional information regarding the ~~planned segment reorganization, including~~PSA, Uniti settlement agreement and the release on April 29, 2019 of our 2019 operational consolidated and business segment forecast that will be the basis for determining management compensation under certain incentive-based compensation plans, management continued to evaluate the performance of our operating segments under the existing segment structure as of March 31, 2019, as presented in Note 15. Upon adoption of our new segment structure in the second quarter 2019, we will be required to evaluate goodwill, including the allocation of goodwill to any new reporting units on a relative fair value basis. As a result of reallocating our remaining goodwill of $434.7 million, we expect to record an additional goodwill impairment charge in the second quarter of 2019 of approximately $250.0 million to $350.0 million.Plan.

The following sections provide an overview of our results of operations and highlight key trends and uncertainties in our business. Certain statements 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 our Annual Report on Form 10-K for the year ended December 31, 2018, filed with the Securities and Exchange Commission (“SEC”) on March 15, 2019, for a discussion of certain risk factors applicable to our business, financial condition and results of operations.

Windstream Holdings, Inc. (“Windstream Holdings”) is a publicly traded holding company incorporated in the state of Delaware on May 23, 2013, and the parent of Windstream Services, LLC (“Windstream Services”), a Delaware limited liability company organized on March 1, 2004. Following its delisting on March 6, 2019, Windstream Holdings common stock no longer trades on the Nasdaq Global Select Market (“NASDAQ”) but trades on the Over-the-Counter (“OTC”) Pink Sheets market maintained by the OTC Market Group, Inc. under the trading symbol “WINMQ”. Windstream Holdings owns a 100 percent interest in Windstream Services. Windstream Services and its guarantor subsidiaries are the sole obligors of all outstanding debt obligations and, as a result, also file periodic reports with the Securities and Exchange Commission (“SEC”). Windstream Holdings is not a guarantor of nor subject to the restrictive covenants included in any of Windstream Services’ debt agreements. The Windstream Holdings board of directors and officers oversee both companies.

There are no significant differences between the consolidated results of operations, financial condition, and cash flows of Windstream Holdings and those of Windstream Services other than for certain expenses directly incurred by Windstream Holdings principally consisting of audit, legal and board of director fees, NASDAQ listing fees, other shareholder-related costs, income taxes, common stock activity, and payables from Windstream Services to Windstream Holdings. For the ~~three-month period~~three and nine-month periods ended ~~March 31,~~September 30, 2019, the amount of pre-tax expenses directly incurred by Windstream Holdings was approximately ~~$0.4~~$0.7 million and $1.6 million, respectively, compared to ~~$0.5~~$0.3 million and $1.5 million for the same ~~period~~periods in 2018. On an after-tax basis, expenses incurred directly by Windstream Holdings were approximately ~~$0.3~~$0.5 million and $1.2 million for the ~~three-month period~~three and nine-month periods ended ~~March 31,~~September 30, 2019, respectively, compared to ~~$0.4~~$0.2 million and $1.1 million for the same periods in 2018. Unless otherwise indicated, the following discussion of our business strategy, trends and results of operations pertain to both Windstream Holdings and Windstream Services.

On February 15, 2019, Judge Jesse Furman of the United States District Court for the Southern District of New York issued an adverse ruling in litigation relating to a noteholder’s allegations that our 2015 spin-off of certain assets into a publicly-traded real estate investment trust resulted in one or more defaults of certain covenants under one of Windstream Services’ existing indentures. The findings resulted in a cross default under Windstream Services’ senior secured credit agreement governing its secured term and revolving loan obligations and a cross-acceleration event of default under the indentures governing Windstream Services’ other series of secured and unsecured notes. As a result, on February 25, 2019, Windstream Holdings and all of its subsidiaries, including Windstream Services (collectively the “Debtors”), filed voluntary petitions (the “Chapter 11 Cases”) for reorganization under Chapter 11 of the U.S. Bankruptcy Code (the “Bankruptcy Code”) in the U.S. Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”). The Chapter 11 Cases are being jointly administered under the caption In re Windstream Holdings, Inc., et al., No 19-22312 (RDD).Windstream has continued to operate its business as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court.

In connection with the Chapter 11 Cases, the Debtors analyzed the contractual arrangement with Uniti, and on July 25, 2019, the Debtors filed a complaint in the Chapter 11 Cases seeking, among other things, to recharacterize the Uniti arrangement from a lease to a financing. After engaging in a months-long mediation process with Uniti and its creditors regarding the litigation, on March 2, 2020, Windstream, along with certain of their creditors, announced an agreement in principle with Uniti to settle any

and all claims and causes that were or could have been asserted against Uniti by Windstream. Among the terms of the settlement, Uniti agreed to fund up to $1.75 billion in capital improvements to the network, which will allow us to deliver 1-Gigabytes per second (“Gbps”) to more than half of our Kinetic footprint. Uniti also agreed to pay Windstream $400 million payable in quarterly cash installments over five years, at an annual interest rate of 9.0 percent, which amount may be fully paid after one year, resulting in total cash payments ranging from $432 - $490 million. Uniti will also purchase certain unused and underutilized dark fiber assets from Windstream and Uniti will transfer to Windstream $244.5 million of proceeds from, and conditioned upon, the sale of Uniti’s common stock to certain first lien creditors of Windstream Services. In conjunction with the announcement, Windstream filed a motion seeking approval from the Bankruptcy Court of the proposed settlement, and a hearing on the motion was held on May 7-8, 2020, at which time the Bankruptcy Court approved the settlement with Uniti. The approved settlement is subject to certain regulatory approvals and conditions precedent, including Uniti's receipt of satisfactory "true lease" and REIT opinions, which remain outstanding. In conjunction with the settlement with Uniti, Windstream also entered into a plan support agreement with Elliott Investment Management, L.P., (“Elliott”) and certain consenting first lien creditors of Windstream Services outlining certain terms included in Windstream’s plan of reorganization.

We filed a plan of reorganization and disclosure statement with the Bankruptcy Court on April 1, 2020. The plan of reorganization provides for the reduction of more than $4 billion of our existing debt. A confirmation hearing to review the plan of reorganization has been set by the Bankruptcy Court for June 24, 2020. There can be no assurance that the Debtors will be able to secure the requisite accepting votes from creditors for the plan of reorganization or the confirmation of the plan by the Bankruptcy Court.

For more information regarding the impact of the Chapter 11 Cases, settlement with Uniti and our plan of reorganization see Note 2 to the consolidated financial statements and “Financial Condition, Liquidity and Capital Resources” below.

On December 31, 2018, we completed the sale of substantially all of our consumer competitive local exchange carrier (“CLEC”) business to an affiliate of Trive Capital Fund III LLP and nQue Technologies for $320.9 million in cash, net of a working capital adjustment. The consumer operations sold consisted solely of the former EarthLink consumer business that we acquired in February 2017. The sale of the consumer CLEC business did not represent a strategic shift in our operations nor have a major effect on our consolidated results of operations, financial position or cash flows, and accordingly, did not qualify for reporting as a discontinued operation.

On August 31, 2018, Windstream Holdings completed its acquisition of American Telephone Company, LLC (“ATC”), a reseller of a broad range of voice and data communications services to businesses mainly headquartered in the greater New York metropolitan area, for initial cash consideration of approximately $10.0 million, net of cash acquired.

56

On March 27, 2018, Windstream Holdings acquired MASS Communications (“MASS”), a privately held telecommunications network management company focused on providing custom engineered voice, data and networking solutions to small and mid-sized global enterprises in the financial, legal, healthcare, technology, education and government sectors, for $37.1 million in cash, net of cash acquired.

~~Overview~~

We are a leading provider of advanced network communications and technology solutions for businesses across the U.S. We also offer broadband, entertainment and security solutions to consumers and small businesses primarily in rural areas in 18 states. Additionally, we supply core transport solutions on a local and long-haul fiber network spanning approximately 150,000 miles.

Our mission is to connect people and empower business in a world of infinite possibilities brought on by rapid technological change. Our vision is to provide innovative software and network solutions while consistently delivering a great customer experience.

To execute on our mission and achieve our vision, we have four key priorities for 2019:

Our focused operational strategy for each business segment has the overall objective to ~~generate strong financial returns for our investors and grow~~slow the decline in adjusted OIBDA, which is defined as operating (loss) income before depreciation and amortization and goodwill impairment and adjusted to exclude the ~~impact~~impacts of straight-line expense under the contractual arrangement with Uniti, merger, integration and other costs, restructuring charges, ~~pension expense~~ and share-based compensation.

During the third quarter and first ~~quarter~~nine months of 2019, we achieved the following related to these initiatives:

In addition to the effects of the disposal of the Consumer CLEC business, our consolidated operating results for the ~~three-month period~~three and nine-month periods ended ~~March 31,~~September 30, 2019 were adversely impacted by ~~a non-cash, pre-tax goodwill impairment charge of $2,339.0 million and~~ reorganization items, net of ~~$104.9~~$29.2 million and $219.5 million, respectively, incurred as a result of the Chapter 11 Cases. Operating results for 2019 also reflect the change in the accounting treatment for our arrangement with Uniti from a financing to an operating lease upon adoption of the new leasing standard effective January 1, 2019, as further discussed in Notes 1 and 5 to the consolidated financial statements. The effects of this accounting change for the three and nine-month periods ended September 30, 2019 resulted in recognition of additional rent expense of ~~$168.8~~$168.7 million and $506.4 million, respectively, a reduction in interest expense of ~~$113.7~~$116.2 million and $352.1 million, respectively, and lower depreciation expense of ~~$83.4~~$67.3 million and $234.1 million, respectively, primarily attributable to the de-recognition of $1.3 billion of network assets previously transferred to Uniti. Operating results for the nine-months ended September 30, 2019 were also adversely impacted by a non-cash, pre-tax goodwill impairment charge of $2,712.3 million.

The following table reflects the consolidated operating results of Windstream Holdings:

The following table reflects the primary drivers of the changes in service revenues compared to the same ~~period~~periods a year ago:

Product sales consist of product sales of various types of communications equipment to our ~~customers. We also sell~~customers including network equipment to contractors on a wholesale basis. Enterprise product sales ~~includes~~include high-end data and communications equipment which facilitate the delivery of advanced data and voice services to our enterprise customers. Consumer product sales include home networking equipment, computers and phones. Wholesale fiber sales consist of amounts recognized from sales-type leases where control of the fiber has transferred to the customer.

The following table reflects the primary drivers of the changes in product and fiber sales compared to the same ~~period~~periods a year ago:

Three Months Ended
March 31, 2019
Increase (Decrease)
(Millions) Amount
%
Decrease attributable to disposition of Consumer CLEC business $ (0.1 )
Decrease in Enterprise product sales (a) (3.1 )
Increase in Consumer & Small Business product sales (b) 2.7

Net decrease in product sales $ (0.5 ) (3 )



	Three Months Ended September 30, 2019				Nine Months Ended September 30, 2019
	Increase (Decrease)				Increase (Decrease)
(Millions)	Amount			%	Amount			%
Increases in Kinetic product sales (a)	$	7.2			$	11.1
Increases in Wholesale fiber sales	4.5				4.5
Decreases attributable to disposition of Consumer CLEC business	(0.2		)		(0.4		)
Decreases in Enterprise product sales (b)	(3.6		)		(11.3		)
Net increases in product and fiber sales	$	7.9		39	$	3.9		7

Cost of services expense primarily consists of charges incurred for network operations, interconnection, bad debt and business taxes. Network operations charges include salaries and wages, materials, contractor costs, IT support and costs to lease certain network facilities. Interconnection consists of charges incurred to access the public switched network and transport traffic to the Internet, including charges paid to other carriers for access points where we do not own the primary network infrastructure. Other expenses consist of third-party costs for ancillary voice and data services, business and financial services, bad debt and business taxes.

The following table reflects the primary drivers of the changes in cost of services compared to the same ~~period~~periods a year ago:

Three Months Ended
March 31, 2019
Increase (Decrease)
(Millions) Amount
%
Increase in rent expense attributable to master lease with Uniti $ 168.8

Increase in network operations (a) 19.7

Increase attributable to acquisitions 5.4

Increase in other expenses 0.6

Decrease in federal USF expense (3.9 )
Decrease attributable to disposition of Consumer CLEC business (17.3 )
Decrease in interconnection expense (b) (49.1 )
Net increase in cost of services $ 124.2
17



	Three Months Ended September 30, 2019				Nine Months Ended September 30, 2019
	Increase (Decrease)				Increase (Decrease)
(Millions)	Amount			%	Amount			%
Increases in straight-line expense attributable to contractual arrangement with Uniti	$	168.7			$	506.4
Changes in network operations (a)	8.5				(6.7		)
Increases in bad debt expense (b)	1.4				28.9
Increases attributable to acquisitions	5.1				15.5
Changes in federal USF expense (c)	3.4				(5.7		)
Decreases in other expenses (d)	(5.1		)		(17.6		)
Decreases attributable to disposition of Consumer CLEC business	(16.4		)		(50.8		)
Decreases in interconnection expense (e)	(38.8		)		(89.7		)
Net increases in cost of services	$	126.8		18	$	380.3		18

Cost of ~~products sold~~product and fiber sales represents the associated cost of equipment and fiber sales to customers. The following table reflects the primary drivers of the changes in cost of ~~products sold~~sales compared to the same periods a year ago:

Three Months Ended
March 31, 2019
Increase (Decrease)
(Millions) Amount
%
Decrease in product sales to Enterprise customers $ (1.9 )
Increase in product sales to Consumer & Small Business customers 2.0

Decrease in cost of products sold $ 0.1
1



	Three Months Ended September 30, 2019				Nine Months Ended September 30, 2019
	Increase (Decrease)				Increase (Decrease)
(Millions)	Amount			%	Amount			%
Increases in sales to Kinetic customers	$	6.1			$	8.2
Increases in Wholesale fiber sales	1.1				1.1
Decreases in sales to Enterprise customers	(3.9		)		(8.9		)
Net increases in cost of product and fiber sales	$	3.3		17	$	0.4		1

The ~~change~~changes in cost of ~~products sold was~~product and fiber sales were generally consistent with the ~~changes~~net increases in product and fiber sales.

SG&A expenses result from sales and marketing efforts, advertising, IT support, costs associated with corporate and other support functions and professional fees. These expenses include salaries, wages and employee benefits not directly associated with the provisioning of services to our customers.

The following table reflects the primary drivers of the changes in SG&A expenses compared to the same ~~period~~periods a year ago:

Three Months Ended
March 31, 2019
Increase (Decrease)
(Millions) Amount
%
Increase in pre-bankruptcy legal and consulting fees (a) $ 3.2

Increase attributable to acquisitions 0.8

Decrease in sales and marketing expenses (0.2 )
Decrease in share-based compensation (2.5 )
Decrease attributable to disposition of Consumer CLEC business (2.9 )
Decrease in occupancy rent (3.0 )
Decrease in salaries and other benefits (3.9 )
Decrease due to business transformation expenses (b) (8.6 )
Decrease in other costs (c) (13.4 )
Net decrease in SG&A $ (30.5 ) (13 )



	Three Months Ended September 30, 2019					Nine Months Ended September 30, 2019
	Increase (Decrease)					Increase (Decrease)
(Millions)	Amount			%		Amount			%
Increases attributable to acquisitions	$	1.2				$	4.6
Increases in pre-bankruptcy legal and consulting fees (a)	—					3.1
Decreases in share-based compensation	(1.8		)			(7.5		)
Decreases in sales and marketing expenses	(1.4		)			(7.1		)
Decreases attributable to disposition of Consumer CLEC business	(2.5		)			(8.5		)
Decreases in occupancy rent	(2.5		)			(8.8		)
Decreases in salaries and other benefits (b)	(10.3		)			(26.8		)
Decreases due to business transformation expenses (c)	(2.9		)			(22.9		)
Decreases in other costs (d)	(16.6		)			(32.0		)
Net decreases in SG&A	$	(36.8	)	(16	)	$	(105.9	)	(16	)

Depreciation and amortization expense includes the depreciation of property, plant and equipment and the amortization of intangible assets. The following table reflects the primary drivers of the changes in depreciation and amortization expense compared to the same ~~period~~periods a year ago:

Three Months Ended
March 31, 2019
Increase (Decrease)
(Millions) Amount
%
Increase attributable to acquisitions $ 1.1

Decrease attributable to disposition of Consumer CLEC business (8.5 )
Decrease in depreciation expense (a) (92.5 )
Decrease in amortization expense (b) (10.4 )
Net increase in depreciation and amortization expense $ (110.3 ) (29 )



	Three Months Ended September 30, 2019					Nine Months Ended September 30, 2019
	Increase (Decrease)					Increase (Decrease)
(Millions)	Amount			%		Amount			%
Increases attributable to acquisitions	$	1.1				$	3.3
Decreases attributable to disposition of Consumer CLEC business	(8.2		)			(24.8		)
Decreases in amortization expense (a)	(10.8		)			(32.3		)
Decreases in depreciation expense (b)	(103.7		)			(272.8		)
Net decreases in depreciation and amortization expense	$	(121.6	)	(32	)	$	(326.6	)	(29	)

We incur costs to complete a merger or acquisition and integrate its operations into our business which are presented as merger and integration expense in our consolidated results of operations. These costs include transaction costs, such as accounting, legal, consulting and broker fees; severance and related costs; IT and network conversion; rebranding and marketing; and contract termination fees.

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

During the first nine months of 2019 and 2018, we completed restructurings of our workforce to improve our overall cost structure and gain operational efficiencies. In undertaking these efforts, we eliminated approximately ~~275~~450 positions ~~in the first quarter of 2019 and 400 positions in the first quarter of 2018~~ and incurred related severance and employee benefit costs of ~~$10.5~~$17.5 million in 2019, and ~~$13.7~~in the first nine months of 2018, we eliminated approximately 750 positions and incurred $22.1 million ~~respectively.~~in severance and employee benefit costs. We also incurred lease termination costs of $3.9 million during the nine-month period of 2018 as a result of vacating certain facilities.

Set forth below is a summary of merger, integration and other costs and restructuring charges:


	Three Months Ended March 31,				Three Months Ended September 30,				Nine Months Ended September 30,
(Millions)	2019		2018		2019		2018		2019		2018
Merger, integration and other costs:
Information technology conversion costs	$	0.2	$	0.4	$	—	$	0.2	$	0.3	$	0.8
Costs related to merger with EarthLink (a)	3.4		4.4		1.8		2.0		5.8		13.0
Costs related to merger with Broadview (b)	—		1.9		—		0.5		—		3.9
Legal fees related to Uniti spin-off litigation (See Note 16)					—		5.1		—		9.9
Other costs	1.0		0.6		—		1.2		1.1		2.8
Total merger, integration and other costs	4.6		7.3		1.8		9.0		7.2		30.4
Restructuring charges	10.5		13.7		1.6		6.5		18.2		26.0
Total merger, integration and other costs and restructuring charges	$	15.1	$	21.0	$	3.4	$	15.5	$	25.4	$	56.4

As of ~~March 31,~~September 30, 2019, we had unpaid liabilities totaling ~~$6.6~~$6.0 million associated solely with restructuring initiatives, which are included in other current liabilities in the accompanying consolidated balance sheet. Payments of these liabilities will be funded through operating cash flows (see Note 11).

We reported an operating ~~loss~~losses of ~~$2,381.3~~$34.5 million ~~during~~and $2,838.7 million for the ~~three-month period~~three and nine-month periods ended ~~March 31,~~September 30, 2019, respectively, as compared to operating income of ~~$69.0~~$75.6 million inand $232.9 million for the same ~~period~~periods in 2018. The operating loss infor the ~~three-month~~nine-month period of 2019 iswas primarily due to a goodwill impairment ~~charge~~charges of ~~$2,339.0~~$2,712.3 million. The operating losses in the three and nine-month periods ended September 30, 2019 reflect additional straight-line expense of $168.7 million and ~~additional rent expense of $168.8~~$506.4 million, respectively, under our contractual arrangement with Uniti, partially offset by ~~a reduction~~reductions in depreciation and amortization expense of ~~$110.3 million.~~$121.6 million and $326.6 million respectively. The increase in ~~rent~~straight-line expense and substantially all of the ~~decline~~declines in depreciation expense resulted from the adoption of the new leasing standard effective January 1, 2019, and a change in our accounting treatment for our arrangement with Uniti to an operating lease, as previously discussed. The operating loss for the ~~three-month period~~three and nine-month periods of 2019 also reflected decreases in consumer and enterprise revenues, wholesale services and switched access revenues due to customer losses from the effects of competition, declining demand for copper-based circuits to towers and the adverse effects of intercarrier compensation reform, respectively. The adverse effects from these revenue reductions were partially offset by decreased labor costs attributable to workforce reductions completed in 2019 and 2018 and lower interconnections costs attributable to rate

The components of other ~~expense,~~income (expense), net were as follows:

Set forth below is a summary of interest expense:

~~Interest expense decreased $131.2 million, or 59 percent, for the three-month period ended March 31, 2019 as compared to the same period~~The decreases in ~~2018. The decrease in~~both periods of 2019 primarily ~~reflects~~reflect lower interest expense associated with the long-term lease obligation under the ~~master lease~~contractual arrangement with Uniti of ~~$118.5~~$116.2 million and $352.1 million, respectively, attributable to no longer accounting for our arrangement with Uniti as a financing obligation upon adoption of the new leasing standard, as previously discussed. Interest expense attributable to our senior unsecured notes decreased ~~$39.2~~$30.5 million in the three-month period of 2019 and $119.7 million in the nine-month period of 2019 primarily due to the effects of the exchange transactions completed in the third quarter of 2018 and no longer recording interest expense on these obligations after the filing of the Chapter 11 Cases. These decreases were partially offset by additional interest associated with borrowings under our superpriority debtor-in-possession facility and the adverse effects of exchanging unsecured senior notes for new 2024 and 2025 second lien notes in the third quarter of 2018, which were issued at comparatively higher interest rates, as well as higher interest costs applicable to borrowings outstanding under the senior secured credit facility. Following our default under the senior secured credit facility, interest rates charged on these borrowings reset to the applicable default rates, which are comparatively higher than the non-default interest rates.

During the ~~first quarter of~~three and nine-month periods ended September 30, 2019, we recognized an income tax ~~benefit~~benefits of ~~$268.8~~$29.2 million and $352.2 million, respectively, as compared to income tax benefits of ~~$35.0~~$2.2 million and $67.6 million for the same ~~period~~periods in 2018.

The income tax benefits recorded in both periods of 2019 reflected the loss before taxes recognized in each period. The income tax benefit recorded in the ~~first quarter~~nine-month period of 2019 ~~reflected the loss before taxes. This benefit~~ was offset by discrete tax expense of ~~$368.0~~$455.9 million related to our goodwill impairment. Comparatively, the income tax benefit recorded ~~for~~in the ~~three month~~three-month period ended ~~March 31,~~September 30, 2018 reflected income tax benefits associated with the ~~loss before taxes~~debt exchange. The income tax benefit recorded in the nine-month period of 2018 reflected income tax benefits associated with the debt exchange offset by discrete tax expense of $3.3 million associated with the vesting of restricted stock. Our effective tax ~~rate was 10.4~~rates were 20.2 percent and 10.6 percent for the three ~~month period~~and nine-month periods ended ~~March 31,~~September 30, 2019, respectively, as compared to ~~22.4~~(5.6) percent inand 28.0 percent for the same ~~period~~periods in ~~2018.~~2018, respectively. The effective rates for the three ~~month~~and nine-month periods ended ~~March 31,~~September 30, 2019 and 2018 were impacted by the debt exchange and discrete items discussed above.

For 2019, our annualized effective income tax rate is expected to range between 25.0 and 26.0 percent, excluding one-time discrete items. Changes in our relative profitability, as well as recent and proposed changes to federal and state tax laws may cause the rate to change from historical rates. In determining our quarterly provision for income taxes, we use an estimated annual effective tax rate, which is based on our expected annual income, statutory rates and tax planning opportunities. Significant or unusual items are separately recognized in the quarter in which they occur.

~~We disaggregate~~Effective April 1, 2019, we reorganized our business operations ~~between~~into three segments: Kinetic, Enterprise and Wholesale. The Kinetic business unit primarily serves customers ~~located~~ in ~~service areas~~markets in which we are the incumbent local exchange carrier (“ILEC”) and ~~provide~~provides services over network facilities operated by usus. The Enterprise and ~~those~~Wholesale business units primarily serve customers ~~located~~ in ~~service areas~~markets in which we are a competitive local exchange carrier (“CLEC”) and provide services over network facilities primarily leased from other carriers. ~~We have further disaggregated~~As a result of this reorganization, we improved the alignment of our customer base within our ILEC and CLEC markets. The significant changes to our previous segment structure included: (1) shifting certain business customers with operations ~~between enterprise~~in ILEC-only markets from the Enterprise segment to the Consumer & Small Business segment, which was renamed Kinetic; (2) shifting governmental and resale customers from Wholesale to Enterprise; (3) shifting wholesale ~~customers. As previously discussed, on~~customers and related services in ILEC markets from Wholesale to Kinetic; and (4) allocating certain corporate expenses, primarily property taxes, to the segments. Prior period segment information has been revised to reflect these changes for all periods presented.

On December 31, 2018, we completed the sale of substantially all of our consumer CLEC business. The consumer operations sold consisted solely of the former EarthLink consumer business that we acquired in February 2017. The sale of the consumer CLEC business did not represent a strategic shift in our operations nor have a major effect on our consolidated results of operations, financial position or cash flows, and ~~accordingly,~~therefore did not qualify for reporting as a discontinued operation. ~~Following~~Accordingly, for periods prior to the sale, ~~we operated and reported~~ the ~~following three segments.~~sold CLEC business continues to be presented as a separate segment. The retained portion of the consumer CLEC business, primarily consisting of revenues generated from our master services agreement with Uniti have been assigned to the Enterprise segment. For financial reporting purposes, our segments consist of:

~~Consumer & Small Business~~Kinetic – We manage as one business our residential, business, and ~~small business~~wholesale operations in those markets in which we are the ILEC due to the similarities with respect to service offerings, marketing strategies and customer service delivery. Residential customers can bundle voice, high-speed Internet and video services, to provide one convenient billing solution and receive bundle discounts. We offer a wide range of advanced Internet, voice, and web conferencing products to our business customers. These services are equipped to deliver high-speed Internet with competitive speeds, value added services to enhance business productivity and options to bundle services for a global business solution to meet our business customer needs.

Products and services offered to business customers include traditional local and long-distance voice services, high-speed Internet services, and value-added services such as security and online back-up, which are delivered primarily over network facilities operated by us. We offer consumer video services through relationships with DirecTV and Dish Network LLC, and we also own and operate cable television franchises in some of our service areas. We offer Kinetic, a premium broadband and video entertainment offering in several of our markets.

~~Residential customers can bundle voice, high-speed Internet~~Our wholesale services are focused on providing network bandwidth to other telecommunications carriers and ~~video~~network operators. These services include special access services, which provide access and network transport services to ~~provide one convenient billing solution~~end users including Ethernet access up to 2 Gbps, traditional TDM private line access and ~~receive bundle discounts. Small Business~~transport. Wholesale services ~~offer a wide range~~also include fiber-to-the-tower connections to support the wireless backhaul market, and both Ethernet/dedicated Internet connections and broadband access services. The combination of ~~advanced Internet,~~these services allow Kinetic wholesale customers to provide voice and ~~web conferencing products. These services are equipped to deliver high-speed Internet with competitive speeds, value added~~data services to ~~enhance business productivity and options to bundle services for a global business solution to meet~~their customers through the use of our ~~small business customer needs.~~network or in combination with their own networks.

Enterprise – Products and services offered to our business customers include integrated voice and data services, which deliver voice and broadband services over a single Internet connection, data transport services, multi-site networking services which provide a fast and private connection between business locations, Software Defined Wide Area Network (“SD-WAN”), which optimizes application performance, Unified Communications as a Service (“UCaaS”), a next generation voice solution, as well as a variety of other data services, including cloud computing and collocation and managed services as an alternative to traditional information technology infrastructure.

Wholesale – Our wholesale operations are focused on providing network bandwidth to other telecommunications carriers, network operators, and content ~~providers.~~providers within CLEC markets. These services include ~~special access services, which provide access and~~ network transport services to end users, Ethernet and Wave transport up to 100 Gbps, and dark fiber and colocation services. Wholesale services also include fiber-to-the-tower connections in CLEC markets to support the wireless backhaul market. In addition, we offer voice and data carrier services to other communications providers and to larger-scale purchasers of network capacity. ~~We also offer traditional services including special access services and Time Division Multiplexing (“TDM”) private line transport.~~ The combination of these services allow wholesale customers to provide voice and data services to their customers through the use of our network or in combination with their own networks.

We evaluate performance of the segments based on contribution margin or segment income, which is computed as segment revenues and sales less segment operating expenses. Segment revenues are based upon each customer’s classification to an individual segment and include all services provided to that customer. Segment revenues also include revenue from federal and state universal service funds, CAF Phase II support, funds received from federal access recovery mechanisms, revenues from providing switched access services, including usage-based revenues from long-distance companies and other carriers for access to our network to complete long-distance calls, reciprocal compensation received from wireless and other local connecting carriers for the use of network facilities, certain surcharges assessed to our customers, including billings for our required contributions to federal and state USF programs, and product sales to contractors. There are no differences between total segment revenues and sales and total consolidated revenues and sales.

Segment expenses include specific expenses incurred as a direct result of providing services and products to segment customers; selling, general and administrative expenses that are directly associated with specific segment customers or activities; and certain allocated expenses which include network expenses, facilities expenses and other expenses, such as vehicle and real estate-related expenses. Operating expenses associated with regulatory and other revenues have also been assigned to our segments. We do not assign depreciation and amortization expense, goodwill impairment, merger, integration and other costs, restructuring charges, straight-line ~~rent~~ expense under the ~~master lease agreement~~contractual arrangement with Uniti, share-based compensation, ~~pension costs,~~ business transformation expenses, ~~and~~ costs related to network optimization projects, spend commitment penalties incurred under certain carrier discount plans, and reserves for funding denials from USAC to our segments, because these expenses are centrally managed and are not monitored by or reported to the chief operating decision maker (“CODM”) by segment. Similarly, certain costs related to centrally-managed administrative functions, such as accounting and finance, information technology, network management, legal and human resources, are not assigned to our segments. Interest expense and net gain on early extinguishment of debt have also been excluded from segment operating results because we manage our financing activities on a total company basis and have not assigned any debt or lease obligations to the segments. Other expense, net, reorganization items, net, and income tax benefit are not monitored as a part of our segment operations and, therefore, these items also have been excluded from our segment operating results.

See Note 15 to the consolidated financial statements for a reconciliation of segment income to consolidated net income (loss).

As of ~~March 31,~~September 30, 2019, the ~~Consumer & Small Business~~Kinetic segment includes approximately 1.4 million residential and small business customers. This segment generated ~~$461.7~~$1,559.2 million in revenue and ~~$272.0~~$898.7 million in segment income, or contribution margin, during the first ~~quarter~~nine months of 2019.

As of ~~March 31,~~September 30, 2019, we reached 6570 percent of our ~~consumer~~ footprint with 25 megabits per second (Mbps”) speeds and 3541 percent with 100 Mbps speeds. Speed expansion is a key part of our consumer strategy for 2019 as we doubled our 100 Mbps speed availability in the first quarter of 2019. In addition, we offer 1-Gigabit per second (“Gbps”) Internet service in 16 states to deliver faster speeds to more of our customer base. Connect America Fund (“CAF”) funding will also provide support and allow us to expand our broadband capabilities.

Our network investments make us more competitive in the marketplace and create a great customer experience, which helps us retain existing customers and grow market share through new customer acquisition. As of ~~March 31,~~September 30, 2019, 4451 percent of our consumer broadband customers were on speeds of 25 Mbps or greater. Our small business strategy also centers around investing in our network. During the first ~~quarter~~nine months of 2019, we ~~also~~ doubled the availability of our Kinetic fiber Internet services, which provides speeds up to 1 Gbps, to approximately 100,000 business locations across 16 states.

We expect the fiber investments in our business footprint to drive increased sales and lower churn by creating a premium customer experience and enabling more robust solutions for our Kinetic Business product, such as cloud voice services, next-generation networking and affordable business continuity plans. Our network investments will also power bandwidth-intensive applications such as video conferencing, file-sharing and high-definition (“HD”) content consumption.

The following table reflects the ~~Consumer & Small Business~~Kinetic segment results of operations:

The following table reflects the ~~Consumer & Small Business~~Kinetic segment operating metrics:

Our Enterprise segment provides advanced communications services to enterprise customers. During the first ~~quarter~~nine months of 2019, the Enterprise segment generated ~~$689.7~~$2,047.2 million in revenue and ~~$153.3~~$398.0 million in contribution margin.

We will continue to exploit opportunities to leverage our own network facilities to reduce third-party network access costs. We will also continue to improve employee productivity with targeted system and process enhancements. To grow profitability, we are focused on leveraging the latest technology in offering next-generation products that deliver significant value to our customers while also generating strong incremental sales margins. SD-WAN and UCaaS represent two examples of next-generation solutions where we are seeing significant sales and revenue growth. During the first ~~quarter~~nine months of 2019, strategic sales from SD-WAN, UCaaS and other on-net services comprised ~~55.1~~62.3 percent of our total Enterprise sales. In addition, we expect to improve operating efficiencies and enhance the customer experience by further integrating our internal processes in sales, service delivery, customer care and repair. Furthermore, we continue to follow an aggressive expense management and capital efficient strategy to drive reductions in network access costs, create on-network sales opportunities and improve our competitiveness in the marketplace.

As further presented in the table below, our Enterprise segment’s operating results for 2019 were adversely impacted by the effects of operating a business while in bankruptcy, which has resulted in increased customer churn and has limited our ability to transition existing customers to our higher margin next-generation products, such as OfficeSuite®, SD-WAN and UCaaS. In addition to the disruption caused by bankruptcy, our Enterprise segment continues to be impacted by the effects of competition from other large communications services providers who offer similar services, from traditional voice to advanced data and technology services using similar facilities and technologies and compete directly with us for customers of all size.

The following table reflects the Enterprise segment results of operations:

The Wholesale segment leverages our nationwide network to provide 100 Gbps wave and transport services to wholesale customers, including ~~telecom~~telecommunications companies, content providers, and cable and other network operators. The Wholesale business segment produced ~~$169.2~~$270.8 million in revenue and ~~$113.8~~$193.5 million in contribution margin for the first ~~quarter~~nine months of 2019.

The following table reflects the Wholesale segment results of operations:

We are subject to regulatory oversight by the Federal Communications Commission (“FCC”) for ~~particular~~certain interstate matters and state public utility commissions (“PUCs”) for certain intrastate matters. We are also subject to various federal and state statutes that ~~direct~~mandate such ~~regulations.~~oversight. We actively monitor and participate in proceedings at the FCC and PUCs and engage with federal and state legislatures on matters of importance to us.

On occasion, federal and state legislation is introduced that could affect our business. Most proposed legislation of this type never becomes law. Accordingly, it is difficult to predict what kind of legislation, if any, may be introduced and ultimately become law.

In ~~2011, the FCC released an order (“the Order”) that established a framework for reform of federal USF. The Order established the~~2015, Windstream accepted Connect America Fund (“CAF”), which included a short-term (“CAF Phase I”) and a longer-term (“CAF Phase II”) framework for broadband funding. CAF Phase I provided for continued legacy Universal Service Fund (“USF”) support frozen at 2011 levels as well as the opportunity for incremental broadband funding to numerous unserved and underserved locations. In accordance with FCC rules, Windstream certified its fulfillment of its obligations for both rounds of CAF Phase I incremental support.

A summary of CAF Phase II and frozen USF support we have received or expect to receive is as follows:

On April 12, 2019, FCC Chairman Pai ~~as part of the Facilitate America’s Superiority in 5G Technology (the “5G FAST Plan”)~~ announced his intent to create the Rural Digital Opportunity Fund (“RDOF”), which will invest $20.4 billion over a ten-year period in rural high-speed broadband networks over the next decade. Through a reverse auction, the funds will be allocated to service providers to deliver up to gigabit-speed broadband in unserved and underserved rural areas.

On January 30, 2020, the FCC approved the RDOF program, which is the FCC’s most significant effort to close the digital divide to date and will connect ~~four million~~millions of rural homes and small businesses to high-speed broadband networks. This fund will be the successor to the current CAF Phase II that Windstream participates in. Windstream ~~will advocate~~advocated for the development of an economically sound funding and auction structure that delivers continuing and much-needed support for further broadband expansion in rural areas. The FCC will conduct a two-phase reverse auction to award the $20.4 billion funding. Phase I will award $16.0 billion and Phase II will award $4.4 billion. The Phase I auction will begin on October 22, 2020 and no date for the Phase II auction has been determined. Phase I will target those areas that current data confirm are wholly unserved at 25 Mbps down and 3 Mbps up speeds, and Phase II will target unserved locations within areas that data demonstrates are only partially served, as well as any areas not won in Phase I. Windstream plans to actively pursue the opportunities offered through the RDOF program.

~~As part of the same Order reforming USF, discussed above,~~In 2011, the FCC ~~also~~ reformed intercarrier compensation by establishing ~~two recovery mechanisms that mitigate the revenue reductions resulting from the reduction~~a multi-year transition to bill and ~~ultimate elimination of~~keep for terminating access rates. First, the FCC established the access recovery charge (“ARC”), a fee which may be assessed to some of our retail customers. Second, the access recovery mechanism (“ARM”) is a form of additional federal universal service support designed to allow carriers to recover some of the revenue reductions that cannot be recovered through assessment of the ARC. Carriers are required to use ARM support to buildcharges and operate broadband networks in areas substantially unserved by an unsubsidized competitor offering fixed voice and broadband service. Our ARM support decreased incrementally from $36.4 million in 2015 to $7.7 million in 2018,with a portion of the decrease offset by increases in ARC revenues. The FCC is phasing out the ARM annually in one-third increments, beginning in July 2017, and it will be eliminated completely as of July 2019.

In June 2017, the FCC invited interested parties to refresh the record on issues raised by the Order with respect to access charges for 8YY (toll free) calls, which are under the umbrella of originating access. On June 7, 2018, the FCC adopted a Further

currently charged by any price cap local exchange carrier and allowing only one database query charge per 8YY call. The FCC will also consider whether incumbent local exchange carriers should be able to recover their lost access charge revenues from their end users and whether it should provide any additional revenue recovery. Windstream has been working with other industry participants on proposals to address the FCC’s policy directive. We cannot now reasonably predict the timing or level of reductions, if any, the FCC may choose.

Set forth below is a summary of intercarrier compensation revenue and federal USF and CAF Phase II support included in regulatory revenues within the consolidated statements of operations:

Several of our subsidiaries are defendants in approximately 25 lawsuits filed by Verizon and Sprint long-distance companies (IXCs) alleging that our subsidiaries may not bill them switched access charges for calls between wireline and wireless devices that originate and terminate within the same Major Trading Area. The complaints seek historical relief in the form of refunds and prospective relief concerning future billings. These suits were consolidated in a single federal district court in Texas, including a suit filed in 2016 by fifty-five Windstream subsidiaries in Kansas federal district court to collect late payment assessments on amounts Sprint previously withheld, and to ensure consistent application of any adjudication among the subsidiaries. The district court dismissed Verizon and Sprint’s federal law claims in November 2015 and in March 2016, the plaintiffs were denied permission to appeal the dismissal. Verizon and Sprint’s state law claims and the defendants’ counterclaims for return of all withholdings (including those involving Windstream) continued in federal district court along with several lawsuits filed against Level 3 (another long-distance company) and became part of the consolidated case (but not involving Windstream). The parties filed summary judgment motions in March 2018, which were granted by the court on May 15, 2018. The interexchange carriers filed an appeal to the 5th Circuit Court of Appeals on June 29, 2018. ~~On February 19, 2019,~~All briefing and oral arguments have been completed and the parties ~~began~~are now waiting for the ~~briefing process. A Suggestion of Bankruptcy and Notice of Automatic Stay has been filed in this case but Windstream is seeking~~Court to ~~lift the stay to allow the appeal process to proceed.~~issue a decision. The subject matter of the above suits remains a topic of a pending petition for declaratory ruling before the FCC. The outcome of the disputes is currently not predictable due to the appeal and FCC action.

Windstream has actively engaged in policy advocacy in various FCC proceedings that address the rates, terms and conditions for access to the “last-mile” facilities (i.e., special access and unbundled network elements (“UNEs”)) we need to serve retail business customers through our competitive companies. We incur approximately ~~$1.3~~$1.1 billion in annual interconnection expense and most of that was attributable to last-mile access. For the vast majority of our customers, last-mile facilities, the wires (“loops”) to a customer location from a central office, are not economic for Windstream to duplicate through its own investment and are not available from providers other than the incumbent carrier. Therefore, we often utilize connections owned by incumbent carriers as one of two distinct product types: either unbundled network elements (“UNEs”), which by law are not available in all areas but are subject to strict regulatory standards, or business data service (“BDS”) inputs, widely available from incumbents but subject to more flexible regulatory standards. Windstream’s purchase of business data service inputs may be subject to volume and term commitments and associated fees and penalties.

In April 2017, the FCC adopted comprehensive reforms to its BDS rules (“BDS Order”). After an appeal by the parties, including Windstream, on August 28, 2018, the United States Court of Appeals for the 8th Circuit upheld the FCC’s rules but, based on a lack of adequate notice, it vacated and remanded the FCC’s finding that transport was sufficiently competitive to deregulate. InOn October 2, 2018, in response to the 8th Circuit’s remand, ~~on October 2, 2018,~~ the FCC issued a Second Further Notice of Proposed Rulemaking on the topic of transport deregulation and requested that the 8th Circuit issue a stay of its decision vacating the transport in deference to the FCC issuing new rules regarding same. ~~The 8th Circuit granted a stay of~~At its ~~decision until November 12,~~July 10, 2019 ~~and as a result, we expect~~Open Meeting, the FCC approved a Report and Order revisiting the remanded issues and granting forbearance from ex ante regulation of BDS transport services, subject to ~~issue new transport rules by~~a transition period that ~~date.~~will end on August 1, 2020.

Additionally, on May 4, 2018, the United States Telecommunications Association (“USTA”) filed a Petition for Forbearance Pursuant to 47 U.S.C. Sec. 160(c) to Accelerate Investment in Broadband and Next-Generation Networks with the FCC. Among other requests, USTA, on behalf of ~~certain~~some of its members, sought relief from the requirement to provide unbundled network elements (“UNEs”) and resale discounts to other telecommunications providers. ~~After successful negotiations, on June 21, 2018, Windstream and the members of USTA filed an ex parte request with~~At its July 10, 2019 Open Meeting, the FCC, ~~outlining that they had agreed~~as part of the same Order granting BDS transport forbearance, granted forbearance from DS1 and DS3 UNE transport obligations, subject to a three-year transition time frame for access to UNEs until February 4, 2021, during which transition time Windstream will transition customers from UNEs or otherwise negotiate rates to supersede UNE rates. The parties requested thatending August 2, 2022.

On November 22, 2019, the FCC ~~consider this~~approved a ~~modification~~Notice of ~~USTA’s original forbearance request. The FCC recently granted a 90-day extension for consideration of this petition, which will now be deemed granted in August 2019, if~~Proposed Rulemaking to update certain unbundling rules. Specifically the FCC ~~takes no further action.~~proposes to remove unbundling requirements for: (1) DS1 and DS3 loops in counties and study areas deemed competitive in the BDS Order with an exemption for DS1 loops used to provide residential broadband service and telecommunications service in rural areas; (2) DS0 loops in urban census blocks; (3) narrowband voice-grade loops; and (4) dark fiber transport in wire centers within a half-mile of alternative fiber. The proposal includes a three-year transition for existing customers and a six-month transition for new orders. Windstream has actively participated in industry negotiations to address our concerns with this proposal. We cannot now reasonably predict the timing or substance of any final action on this item.

Windstream is pursuing a strategy to accelerate the transition of its customers from TDM to packet-based services, which is consistent with the underlying goal of the FCC’s reform of business data services and current market trends. However, we believe the BDS order (and the original USTA forbearance proposal) present unnecessary risk of disruption to the market by not allowing an adequate transition period. Customers such as small businesses, schools and libraries are at greatest risk to this disruption, which could occur in the form of price increases for TDM services, the forced transition to purchase new packet-based communications equipment and systems, and the forced obsolescence and write-off of legacy TDM communication systems. Our strategy is to position Windstream for this transition through investments to extend the reach of our metro fiber networks directly to more buildings using fiber and fixed wireless facilities and to negotiate with providers other than the ILECs for last mile access, and to develop next generation, value-added solutions such as SD-WAN and UCaaS. The BDS reforms and UNE ~~forbearance proceeding~~proceedings could negatively impact Windstream due to increased expenses to purchase business data services and UNEs, the need for greater capital investments to retain our competitiveness, and increased customer and revenue churn due to increasing prices.

Windstream and one of its Enterprise customers entered into an agreement ~~pursuant to~~in which Windstream provided communication services to several of the customer’s locations. The majority of funding for the services was administered by ~~the Universal Service Administrative Company (“USAC”)~~USAC pursuant to the Universal Service Rural Health Care Telecommunications Program ~~that~~which offers reduced rates for broadband and telecommunications services to rural health care facilities. In March 2017, USAC issued a funding denial to the customer on the basis that certain rules of the FCC were violated with the selection of Windstream as the service provider. Due to an alleged conflict of interest created by a third-party Windstream channel partner that acted as a consultant for the customer regarding the agreement, USAC asserted that Windstream’s selection was not based upon a fair and open competitive bidding process. USAC’s denial addressed accrued funding of approximately $16.6 million, as well as funding of approximately $6.0 million previously remitted to us. Windstream, along with the customer, appealed the denial; USAC rejected the appeal on June 29, 2018, upholding its previous denial of funding. Windstream appealed the denial to the FCC in August 2018. Timing of a decision by the FCC is unknown. ~~While the ultimate resolution and timing of any decision is not currently predictable, if there is~~As previously discussed, we recorded a ~~future adverse legal ruling against us, the ruling could result in financial exposure to Windstream~~reserve for the ~~total amounts listed above.~~funding denial from USAC during the second quarter of 2019, and as a result, we have no additional loss exposure related to this matter.

Windstream did not file a Suggestion of Bankruptcy as a result of the filing of the Chapter 11 Cases with regard to this matter as it was determined it falls under a regulatory exception and is precluded from the automatic stay. USAC filed a proof of claim in the Chapter 11 Cases for approximately $6.0 million, reflecting the amount of funding previously remitted to Windstream as referenced above.

We recognize revenue from the receipt of state universal service funding in a limited number of states in which we operate: Texas, Georgia, Pennsylvania, New Mexico, Oklahoma, South Carolina, Alabama, Nebraska, and Arkansas. For the ~~three-month~~nine-month period ended ~~March 31,~~ September 30, 2019, we recognized ~~$20.7~~$61.4 million ~~in state USF revenue, the~~(the majority of which came from the Texas ~~USF.These~~USF). These payments are intended to provide support, apart from the federal USF receipts, for the high cost of operating in certain rural markets.

There are two high-cost programs of the Texas USF, one for large companies and another for small companies. In the first ~~three~~nine months of 2019, we received ~~$9.7~~$28.9 million from the large company program and ~~$1.1~~$3.2 million from the small company program. The Texas USF is currently running a $23 million per quarter deficit. Absent reform, at this rate, it is expected to exhaust its cash

reserve by the end of 2020. The Commission is currently examining remedies to restore stability to the fund and Windstream is actively involved in those discussions.

In Nebraska, ~~our~~the high-cost Nebraska Universal Service Fund (“NUSF”) support available for ~~2019~~2020 will beincrease such that our funding will increase from $4.6 million received in 2019 to $6.2 million in 2020. This funding increase is directly related to the Commission’s change from a revenue-based assessment model to a connections-based assessment model. The Nebraska Public Service Commission recently opened a docket proposing a reverse auction of ~~which 20 percent is allocated to ongoing maintenance and support and 80 percent is allocated to approved capital construction projects.~~future NUSF funding. Most commenters have argued that the proposed rules regarding that reverse auction are impermissibly vague. To date, no further action has been directed by the Commission.

In 2017, New Mexico enacted a statute to reform the New Mexico State Rural Universal Service Fund (“SRUSF”). Among other things, the legislation authorizes an annual broadband fund in addition to the access replacement fund from which we will continue

Historically, we have received $3.4 million from the Oklahoma High Cost Fund (“OHCF”) on an annual basis. On February 8, 2018, the Oklahoma Corporation Commission issued an order phasing out the OHCF. ~~Starting~~As of February 28, 2019, funding ~~will be~~was cut 25 percent per year with all funding terminating on February 28, 2022. However, in December 2018, we received notice that our application for replacement funds from the Oklahoma Universal Service Fund (“OUSF”) was approved. Accordingly, we will continue to receive $3.4 million annually from a combination of OHCF and OUSF support through February 28, 2022 and, thereafter, solely from the OUSF.

Universal service reform is also possible in Pennsylvania. Windstream currently receives $13.3 million annually from that fund and cannot estimate the financial impact that would result from changes, if any.

The filing of the Chapter 11 Cases constituted an event of default that accelerated the obligations under our debt agreements. Due to the Chapter 11 Cases, however, our creditors’ ability to exercise remedies under our debt agreements were stayed as of the date of the Chapter 11 petition filing. In general, as debtors-in-possession under the Bankruptcy Code, we are authorized to continue to operate as an ongoing business, but may not engage in transactions outside the ordinary course of business without the prior approval of the Bankruptcy Court. Pursuant to first day motions filed with the Bankruptcy Court, the Bankruptcy Court authorized us to conduct our business activities in the ordinary course. During the pendency of the Chapter 11 Cases, our principal sources of liquidity are expected to be limited to cash flow from operations, cash on hand and borrowings under our debtor-in-possession facilities discussed below. Our ability to maintain adequate liquidity through the reorganization process and beyond depends on successful operation of our business, and appropriate management of operating expenses and capital spending. Our anticipated liquidity needs are highly sensitive to changes in each of these and other factors.

We rely largely on operating cash flows to provide for our liquidity requirements. As noted above, we also have access to and available borrowing capacity under our DIP Facilities. We have assessed our current and expected ~~needs for funds~~funding requirements and our current and expected sources of ~~funds,~~liquidity, and have determined, based on our forecasted financial results and financial condition as of ~~March 31,~~September 30, 2019, that cash on hand and cash expected to be generated from operating activities will be sufficient to fund our ongoing working capital requirements, planned capital expenditures, scheduled debt service requirements, and ~~lease~~ payments due under the ~~master lease agreement~~contractual arrangement with Uniti. As previously discussed, we incurred ~~a non-cash~~ goodwill impairment ~~charge of $2,339.0~~charges totaling $2,712.3 million in the first ~~quarter~~and second quarters of 2019 based on the results of an interim goodwill impairment ~~assessment.~~assessments. While ~~this~~these non-cash ~~charge~~charges reduced our reported operating results, the ~~charge~~charges had no effect on our immediate or near-term liquidity position. Any future impairment charges could materially adversely affect our financial results in the periods in which they are recorded.

The following table summarizes our cash flow activities for the ~~three~~nine months ended ~~March 31:~~September 30:

Cash provided from operations is our primary source of funds. Cash flows from operating activities decreased by ~~$21.1~~$291.3 million in the ~~three-month~~nine-month period ended ~~March 31,~~September 30, 2019, as compared to the same period in 2018 primarily due to the absence of operating cash flows attributable to the sold Consumer CLEC business and incremental cash outlays of ~~$26.1~~$111.3 million for reorganization items, net. Operating cash flows for the ~~three~~nine months ended ~~March 31,~~September 30, 2019 also reflect a decrease of ~~$50.5~~$156.7 million attributable to no longer classifying a portion of the cash ~~rental~~ payments made to Uniti as a financing outflow as was the case for periods prior to the adoption of the new leasing standard. As previously discussed, we changed the accounting for our arrangement with Uniti from a financing to an operating lease upon adoption of the new leasing standard. These decreases were partially offset by favorable changes in working capital, primarily attributable to not paying pre-petition trade accounts payable subsequent to the filing of the Chapter 11 Cases.

We are currently utilizing net operating loss carryforwards (“NOLs”) and other income tax initiatives to lower our cash income tax obligations during 2019. We expect the effects of the overall impact of the 2017 Tax Act will be favorable to us over the long-term by allowing us to extend the time frame we have to use our NOLs generated after December 31, 2017, and remain a minimal cash ~~tax payer~~taxpayer for the foreseeable future.

Cash used in investing activities primarily includes investments in our network to upgrade and expand our service offerings, as well as spending on strategic initiatives. Cash used in investing activities decreased ~~$57.8~~$4.2 million in the ~~three-month~~nine-month period ended ~~March 31,~~September 30, 2019, as compared to the same period in 2018, primarily due to a decrease in our capital spending, as well as the absence of cash outlays for acquisitions in 2019. In March 2018, we paid $37.1 million in cash for the acquisition of MASS. Capital expenditures were ~~$192.8~~$628.9 million for the ~~three-month~~nine-month period ended ~~March 31,~~September 30, 2019 compared to ~~$217.6~~$603.2 million for the same period in 2018, ~~a decrease~~an increase of ~~$24.8~~$25.7 million. Capital expenditures for the first ~~quarter~~nine months of 2018 included ~~$9.9~~$27.3 million of incremental spend related to our 2017 acquisitions of EarthLink Holdings Corp. and Broadview Networks Holdings, Inc. ~~Cash used in investing activities in the first quarter of 2018 also reflected cash paid for the MASS acquisition of $37.6 million, net of cash acquired.~~

Cash provided from financing activities was ~~$57.5~~$220.5 million for the ~~three-month~~nine-month period ended ~~March 31,~~September 30, 2019 compared to ~~$32.6~~$104.6 million for the same period in 2018.

Proceeds from new issuances of debt during the first ~~quarter~~nine months of 2019 were ~~$455.0~~$655.0 million, which consisted of ~~$300.0~~$500.0 million of new borrowings under our DIP Facilities and additional borrowings under Windstream Services’ revolving line of credit prior to the filing of the Chapter 11 Cases. Comparatively, proceeds from new issuances of long-term debt during the first ~~quarter~~nine months of 2018 were ~~$313.0~~$627.0 million, ~~consisting~~which consisted solely of new ~~and incremental~~ borrowings under Windstream Services’ revolving line of credit.

Debt repayments for the ~~three-month~~nine-month period ended ~~March 31,~~September 30, 2019 totaled $372.4 million and primarily consisted of repayments of $370.0 million of borrowings under Windstream Services’ revolving line of credit prior to the filing of the Chapter 11 Cases. On January 3, 2019, Windstream Services repaid $312.0 million of these borrowings using proceeds received from the sale of the Consumer CLEC business. Comparatively, debt repayments for the ~~three~~nine months ended ~~March 31,~~September 30, 2018 totaled ~~$217.1~~$540.4 million and ~~primarily consisted of the~~included a one-time mandatory redemption payment of $150.0 million applicable to the 8.750 percent senior notes due December 15, 2024 ~~Notes.~~(“2024 Notes”). The redemption payment was made on February 26, 2018 and was funded using available borrowing capacity under the revolving line of credit. During the first ~~three~~nine months of 2018, Windstream Services also repaid ~~$60.0~~$372.0 million of borrowings under its revolving line of credit.

On June 1, 2018, Windstream Holdings entered into an equity distribution agreement with Citigroup Global Markets Inc. (the “Sales Agent”). Under terms of the agreement, Windstream Holdings may issue and sell, from time to time to or through the Sales Agent, shares of its common stock, up to an aggregate offering price of $18.0 million.

For 2019, the expected employer contributions for pension benefits consists of $15.2 million to the qualified pension plan to satisfy our remaining 2018 and 2019 funding requirements. ~~On January 15,~~During the first nine months of 2019, we made required quarterly employer contributions totaling $11.8 million in cash. In October 2019, we made our required quarterly ~~employer~~cash contribution of ~~$5.2~~approximately $3.4 million ~~in cash~~ to the qualified pension plan. ~~We intend to fund the remaining 2019 contributions using cash.~~ The amount and timing of future contributions to the qualified pension plan are dependent upon a myriad of factors including future investment performance, changes in future discount rates and changes in the demographics of the population participating in the plan. We also expect to make cash contributions in 2019 totaling $0.8 million to fund the expected benefit payments of our unfunded supplemental executive retirement pension plans.

We also sponsor an employee savings plan under section 401(k) of the Internal Revenue Code, which covers substantially all salaried employees and certain bargaining unit employees. We match on an annual basis up to a maximum of 4.0 percent of employee pre-tax contributions to the plan for employees contributing up to 5.0 percent of their eligible pre-tax compensation. In March 2019, we contributed $26.4 million in cash to the plan for the 2018 annual matching contribution. Comparatively, in March 2018, we contributed ~~3.4~~3.6 million shares of our common stock with a value of ~~$26.9~~$28.3 million to the plan for the 2017 annual matching contribution.

The terms of the credit facility and indentures issued by Windstream Services include customary covenants that, among other things, require Windstream Services 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 dividend and certain other types of payments.

Certain of Windstream Services’ debt agreements contain various covenants and restrictions specific to the subsidiary that is the legal counterparty to the agreement. Under its debt agreements, acceleration of principal payments would occur upon payment default, violation of debt covenants not cured within 30 days, a change in control including a person or group obtaining 50 percent or more of Windstream Services’ outstanding voting stock, or breach of certain other conditions set forth in the borrowing agreements. At ~~March 31,~~September 30, 2019, Windstream Services was in default of certain of its debt covenants and restrictions due to the adverse court ruling and filing of the Chapter 11 Cases, as further discussed below.

As further discussed in Note ~~17,~~16, on September 22, 2017, Windstream Services received a purported notice of default dated September 21, 2017 (the “Original Notice”) from a noteholder that claims to hold greater than 25 percent in aggregate principal amount of the 6.375 percent 2023 Notes issued under the indenture dated January 23, 2013 (the “2013 Indenture”), between Windstream Services, as issuer, Windstream Finance Corp., as co-issuer, the guarantors party thereto and U.S. Bank National Association, as trustee (the “Trustee”). The Original Notice primarily alleged that the transfer of certain assets and the subsequent lease of those assets in connection with the spin-off of Uniti did not comply with the Sale and Leaseback covenant under the 2013 Indenture. As previously noted, on February 16, 2019, Judge Jessie Furman ruled in favor of the noteholder on this point.

In November 2017, Windstream Services completed a private placement offering of approximately $600.0 million in aggregate principal amount of 8.625 percent notes due October 31, 2025 (“2025 Notes”). Windstream Services used the net proceeds of the offering to repay approximately $250.0 million of borrowings under its revolving line of credit and to repay approximately $140.0 million of amounts outstanding under its Tranche B6 term loan. Windstream Services also completed exchange offers with respect to certain of its senior secured notes, improving the maturity profile of its long-term debt obligations due in 2020, 2021 and 2022. In completing these exchange offers, Windstream Services issued $561.9 million aggregate principal amount of new August 2023 Notes, issued $200.0 million aggregate principal amount of 2025 Notes. Pursuant to exchanges offers for its 2021 and 2022 Notes, in December 2017, Windstream Services issued $834.3 million in aggregate principal amount of ~~8.750 percent senior notes due December 15,~~ 2024 ~~(“2024 Notes”)~~Notes in exchange for ~~exchange of~~ $539.2 million aggregate principal amount of 2021 Notes and $232.1 million aggregate principal amount of 2022 Notes.

Additionally, during the fourth quarter of 2017, Windstream Services completed consent solicitations with respect to its 2020 Notes, 2021 Notes, 2022 Notes, April 2023 Notes and the existing 6.375 percent 2023 Notes (collectively “the Windstream Services Notes”), pursuant to which noteholders agreed to waive alleged defaults with respect to the transactions related to the spin-off of Uniti.

During the second quarter of 2018, Windstream Services received the requisite consents to amend the indenture governing the 2025 Notes. The purpose of the consent solicitation was (i) to permit Windstream Services to issue or incur indebtedness on a junior lien basis (which indebtedness is currently permitted by the indenture to be incurred on a first-priority lien basis) and (ii) to authorize the collateral agent under the indenture to enter into a junior lien intercreditor agreement upon the issuance or incurrence of junior lien secured indebtedness by the issuers and the guarantors under the indenture. In conjunction with receiving the requisite consents, the amendments to the indenture became effective and operative. All holders of the 2025 Notes are bound by the terms thereof, even if they did not deliver consents to the amendments.

Concurrent with the consent solicitation, Windstream Services also sought and obtained an amendment to its senior secured credit facility to, among other things, (i) permit the issuance or incurrence of second-priority lien secured indebtedness, (ii) allow Windstream Services to use the proceeds from the issuance or incurrence of such second-priority lien secured indebtedness and other secured indebtedness to repay certain of its outstanding secured and unsecured indebtedness, (iii) permit the execution of a first-lien/second-lien intercreditor agreement, (iv) allow for the incurrence of first-priority lien secured indebtedness if the proceeds of such indebtedness are used to prepay or repay revolving loans or term loans under the senior secured credit facility (and, for revolving loans, permanently reduce the commitments), even if Windstream Services does not meet the typical test of having a pro forma first lien leverage ratio of not more than 2.25 to 1.0, and (v) limit the ability of Windstream Services to declare and pay dividends.

On August 2, 2018, Windstream Services completed exchange transactions resulting in the issuance of $414.9 million aggregate principal of New 2024 Notes and the issuance of $802.0 million aggregate principal amount of New 2025 Notes in exchange for a portion of the outstanding aggregate principal amount of its 2020 Notes, 2021, Notes, 2022 Notes, August 2023 Notes and 2024 Notes. Both the New 2024 Notes and New 2025 Notes are senior secured obligations and: (i) rank senior to Windstream Services’

and the guarantors’ existing and future unsecured indebtedness, including its existing senior unsecured notes, to the extent of the value of the collateral securing the New 2024 Notes and New 2025 Notes; (ii) rank equally with all of Windstream Services’ and the guarantors’ existing and future indebtedness that is secured by second-priority liens on the collateral, as defined below; (iii) rank junior to any existing and future indebtedness of Windstream Services or of the guarantors

The New 2024 Notes and New 2025 Notes are guaranteed by each of Windstream Services’ domestic subsidiaries that guarantees debt under the Windstream Services’ senior credit facilities or that guarantee certain other debt in the future. The New 2024 Notes and New 2025 Notes and the guarantees thereof are secured by second-priority liens, subject to permitted liens, on Windstream Services’ and on the guarantors’ assets that secure the obligations under Windstream Services’ senior credit facilities and its existing first lien notes, except for certain stock of foreign subsidiaries and certain excluded assets.

The Indentures of the New 2024 Notes and New 2025 Notes contain covenants limiting Windstream Services and certain of its subsidiaries’ ability to: (i) borrow money or sell preferred stock; (ii) incur liens; (iii) pay dividends on or redeem or repurchase stock; (iv) make certain types of investments; (v) sell stock in restricted subsidiaries; (vi) restrict dividends or other payments from subsidiaries; (vii) enter into transactions with affiliates; (viii) issue guarantees of debt; and (ix) sell assets or merge with other companies. These covenants contain important exceptions, limitations and qualifications. At any time that the New 2024 Notes and/or New 2025 Notes are rated investment grade, certain covenants will be terminated.

The Findings and filing of the Chapter 11 Cases constitute events of default under certain of Windstream Services’ and its subsidiaries’ debt instruments (the “Debt Instruments”). Any efforts to enforce payment obligations under the Debt Instruments and other obligations of the Debtors are automatically stayed as a result of the filing of the Chapter 11 Cases and holders’ rights of enforcement in respect of the Debt Instruments are subject to the applicable provisions of the Bankruptcy Code.

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~~third-party debt or to fund losses of an unconsolidated special purpose entity.

Following the filing of the Chapter 11 Cases and issuance of ~~$300.0~~$500.0 million under the senior secured, superpriority debtor-in-possession term loan, our contractual obligations and commitments changed from December 31, 2018. The table below presents our principal and interest payments on our debtor-in-possession term loan ~~interest payments on our long-term debt not classified as liabilities subject to compromise~~ and operating lease obligations as of ~~March 31,~~September 30, 2019.

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

The following tables present summarized financial information for Windstream Services and the Guarantors, on a combined basis, after elimination of intercompany transactions and balances between Windstream Services, the Guarantors and the Non-Guarantors.

Summarized and combined balance sheet information was as follows:



(Millions)	September 30, 2019		December 31, 2018
Current assets	$	577.3	$	634.5
Noncurrent assets	$	3,152.3	$	4,521.5
Current liabilities	$	737.7	$	7,566.1
Noncurrent liabilities (a)	$	7,502.4	$	184.7



(Millions)
Revenues and sales	$	746.8
Operating loss	$	(2,192.3	)
Loss before income taxes	$	(2,629.5	)
Net loss	$	(2,415.5	)

From time to time, we will reference certain non-GAAP measures in our filings including a non-GAAP measure entitled operating income before depreciation and amortization (“OIBDA”). OIBDA can be calculated directly from our consolidated financial statements prepared in accordance with GAAP by taking operating (loss) income and adding back goodwill impairment and depreciation and amortization expense. Management considers OIBDA to be useful to investors as we believe it provides for comparability and evaluation of our ongoing operating performance and trends by excluding the impact of non-cash depreciation and amortization from capital investments and non-cash goodwill impairment charges which are not indicative of our ongoing operating performance. Management’s purpose for including these measures is to provide investors with measures of performance that management uses in evaluating the performance of the business. These non-GAAP measures should not be considered in isolation or as a substitute for measures of financial performance reported under GAAP.

Following is a reconciliation of a non-GAAP financial measure titled OIBDA to the most closely related financial measure reported under GAAP referenced in this filing.


	Three Months Ended March 31,					Three Months Ended September 30,					Nine Months Ended September 30,
(Millions)	2019			2018		2019			2018		2019			2018
Operating (loss) income	$	(2,381.3	)	$	69.0	$	(34.5	)	$	75.6	$	(2,838.7	)	$	232.9
Depreciation and amortization	271.5			381.8		262.2			383.8		809.7			1,136.3
Goodwill impairment	2,339.0			—		—			—		2,712.3			—
OIBDA	$	229.2		$	450.8	$	227.7		$	459.4	$	683.3		$	1,369.2

As further discussed in Note 3 to the consolidated financial statements, during the first quarter of 2019, we performed a quantitative goodwill impairment test comparing the fair value to carrying value for each or our three reporting units consisting of Consumer & Small Business, Enterprise, and Wholesale, which is consistent with how we defined our three reportable operating segments. Our reporting units are not separate legal entities with discrete balance sheet information. Accordingly, in determining the reporting unit’s carrying value, assets and liabilities were assigned to the reporting units using a combination of specification identification and consistent and reasonable allocation methodologies as appropriate. We estimated the fair value of our reporting units using an income approach. The income approach is based on the present value of projected cash flows and a terminal value, which represents the expected normalized cash flows of the reporting unit beyond the cash flows from the discrete projection period of five years. We discounted the estimated cash flows for each of the reporting units using a rate that represents a market participant’s weighted average cost of capital commensurate with the reporting unit’s underlying business operations. Based on the results of our quantitative analysis, we recorded an impairment of all remaining goodwill in our Consumer & Small Business reporting unit of $903.4 million, an impairment of all remaining goodwill in our Enterprise reporting unit of $996.2 million, and an impairment of goodwill in our Wholesale reporting unit of $439.4 million, representing the excess of the carrying value from each reporting unit’s fair value.

As described in Note 15, effective April 1, 2019, we implemented a new business unit organizational structure resulting in a change in our reportable operating segments and reporting units and reallocated the remaining goodwill of the former Wholesale reporting unit on a relative fair value to our new Kinetic, Enterprise and Wholesale reporting units. We also confirmed, immediately before the reorganization and reallocation of goodwill, that no further impairment existed in the former Wholesale reporting unit. We performed a quantitative goodwill impairment test as of April 1, 2019, which compared, for each reporting unit, its fair value to its carrying value. We estimated the fair value of our new reporting units using an income approach based on the present value of projected cash flows and a terminal value, which represents the expected normalized cash flows of the reporting unit beyond the cash flows from the discrete projection period of five years. We discounted the estimated cash flows for each of the reporting units using a rate that represents a market participant’s weighted average cost of capital commensurate with the reporting unit’s underlying business operations. The results of the goodwill impairment test indicated that the carrying values of our Kinetic and Enterprise reporting units exceeded their fair values. Accordingly, during the second quarter of 2019, we recorded an impairment of all goodwill allocated to our Kinetic reporting unit of $254.3 million and an impairment of all goodwill allocated to our Enterprise reporting unit of $119.0 million, representing the excess of the carrying value from each reporting unit’s fair value. The fair value of the Wholesale reporting unit exceeded its carrying value and was not at risk of a goodwill impairment at this time.

Fair value determinations of our reporting units require considerable judgment and are sensitive to changes in underlying assumptions and factors. As a result, there can be no assurance that the estimates and assumptions made for purposes of the interim and annual goodwill impairment tests will prove to be an accurate prediction of future results. Examples of events or circumstances that could reasonably be expected to negatively affect the underlying key assumptions and ultimately impact the estimated fair value of our reporting units may include such items as: (i) a decrease in expected future cash flows due to decreases in sales and/or increases in costs that could significantly impact our immediate and long-range results, and an inability to successfully achieve our cost savings targets, (ii) higher than expected customer churn as the result of competition, (iii) sensitivity to market multiples; and (iv) adverse changes as a result of regulatory or legislative actions.

Based on known facts and circumstances, we evaluate and consider recent events and uncertain items, as well as related potential implications, as part of our annual assessment and incorporate into the analyses as appropriate. These facts and circumstances are subject to change and may impact future analyses.

During ~~the first quarter of~~ 2019, we adopted the following authoritative guidance:

Effective January 1, 2020, we adopted the following authoritative guidance:

See Note 1 for further discussion of this guidance and the related impacts to our consolidated financial statements.

The following authoritative guidance, together with our evaluation of the related impact to the consolidated financial statements, is more fully described in Note 1.1 to the consolidated financial 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 us and our management may include, certain forward-looking statements. We claim the protection of the safe-harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 for this for this Quarterly Report on Form 10-Q.

This report contains various forward-looking statements which represent our expectations or beliefs concerning future events, including, without limitation, our future performance, our ability to comply with the covenant in the agreements governing our indebtedness and the availability of capital and terms thereof. Statements expressing expectations and projections with respect to future matters are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We caution that these forward-looking statements involve a number of risks and uncertainties and are subject to many variables which could impact our future performance. These statements are made on the basis of management’s views, estimates, projections, beliefs and assumptions, as of the time the statements are made, regarding future events and results. There can be no assurance, however, that management’s expectations will necessarily come to pass. Actual future events and our results may differ materially from those expressed in these forward-looking statements as a result of a number of important factors.

A wide range of factors could cause actual results to differ materially from those contemplated in our forward-looking statements, including, but not limited to:



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




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

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



~~Title of each class~~	~~Trading Symbol~~	~~Name of each exchange on which registered~~
~~Common Stock ($0.0001 par per share) (1)~~	~~WINMQ (1)~~	~~OTC Pink Sheets Market (1)~~



Windstream Holdings, Inc.	ý ~~YES~~ ¨ NO ☐	Yes	☒	No
Windstream Services, LLC	ý ~~YES~~ ¨ NO ☐	Yes	☒	No



Windstream Holdings, Inc.	ý ~~YES~~ ¨ NO ☐	Yes	☒	No
Windstream Services, LLC	ý ~~YES~~ ¨ NO ☐	Yes	☒	No



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



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



Windstream Holdings, Inc.	Large accelerated filer ¨	☐	Accelerated filerý	☒
	Non-accelerated filer ¨	☐	Smaller reporting company ý	☒
			Emerging growth company ¨	☐

Windstream Services, LLC	Large accelerated filer ¨	☐	Accelerated filer ¨	☐
	Non-accelerated filerý	☒	Smaller reporting company ¨	☐
			Emerging growth company ¨	☐



Windstream Holdings, Inc.	¨ ☐
Windstream Services, LLC	¨ ☐



Windstream Holdings, Inc.	¨ ~~YES~~ ý NO ☐	Yes	☒	No
Windstream Services, LLC	¨ ~~YES~~ ý NO ☐	Yes	☒	No



Windstream Holdings, Inc.	¨ ~~YES~~ ¨ NO ☐	Yes	☐	No
Windstream Services, LLC	¨ ~~YES~~ ¨ NO ☐	Yes	☐	No




		Page No.
PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements
	Windstream Holdings, Inc. Consolidated Financial Statements
	Consolidated Statements of Operations (Unaudited)	2
	Consolidated Statements of Comprehensive Income (Loss) (Unaudited)	3
	Consolidated Balance Sheets (Unaudited)	4
	Consolidated Statements of Cash Flows (Unaudited)	5
	Consolidated Statement of Shareholders’ Deficit (Unaudited)	6
	Windstream Services, LLC Consolidated Financial Statements
	Consolidated Statements of Operations (Unaudited)	7
	~~Consolidated Statements of Comprehensive Income (Loss) (Unaudited)~~	8
	Consolidated ~~Balance Sheets~~Statements of Comprehensive Income (Loss) (Unaudited)	9
	Consolidated ~~Statements of Cash Flows~~Balance Sheets (Unaudited)	10
	Consolidated ~~Statement~~Statements of ~~Member Deficit~~Cash Flows (Unaudited)	11
	Consolidated Statement of Member Deficit (Unaudited)	12
	Notes to Unaudited Interim Consolidated Financial Statements	1214
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	5658
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	8489
Item 4.	Controls and Procedures	8590

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	8692
Item 1A.	Risk Factors	8794
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	*
Item 3.	Defaults Upon Senior Securities	*
Item 4.	Mine Safety Disclosures	*
Item 5.	Other Information	*
Item 6.	Exhibits	8895


(Millions, except par value)	March 31, 2019			December 31, 2018			September 30, 2019			December 31, 2018
Assets
Current Assets:
Cash and cash equivalents	$	432.0		$	355.7		$	385.1		$	355.7
Restricted cash	7.7			5.3			7.8			5.3
Accounts receivable (less allowance for doubtful
accounts of $23.0 and $24.8, respectively)	633.4			653.1
accounts of $49.3 and $24.8, respectively)							556.2			653.1
Inventories	79.8			82.4			70.7			82.4
Prepaid expenses and other	195.6			159.7			196.4			159.7
Total current assets	1,348.5			1,256.2			1,216.2			1,256.2
Goodwill	434.7			2,773.7			61.4			2,773.7
Other intangibles, net	1,174.5			1,213.1			1,110.5			1,213.1
Net property, plant and equipment	3,627.8			4,920.9			3,582.4			4,920.9
Operating lease right-of-use assets	4,187.4			—			4,066.8			—
Other assets	84.3			94.0			84.1			94.0
Total Assets	$	10,857.2		$	10,257.9		$	10,121.4		$	10,257.9
Liabilities and Shareholders’ Deficit
Current Liabilities:
Current portion of long-term debt	$	3,514.8		$	5,728.1		$	500.0		$	5,728.1
Current portion of long-term lease obligations	—			4,570.3			—			4,570.3
Accounts payable	271.9			503.6			298.5			503.6
Advance payments and customer deposits	163.9			180.6
Advance payments							155.7			180.6
Accrued taxes	64.9			87.4			64.8			87.4
Accrued interest	0.9			43.5
Other current liabilities	120.4			344.2			209.9			387.7
Total current liabilities	4,136.8			11,457.7			1,228.9			11,457.7
Long-term lease obligations	—			72.8
Deferred income taxes	—			104.3			—			104.3
Other liabilities	21.4			542.4			21.5			615.2
Liabilities subject to compromise	7,891.9			—			10,754.3			—
Total liabilities	12,050.1			12,177.2			12,004.7			12,177.2
Commitments and Contingencies (See Note 17)
Commitments and Contingencies (See Note 16)
Shareholders’ Deficit:
Common stock, $.0001 par value, 75.0 shares authorized,
43.0 and 42.9 shares issued and outstanding, respectively	—			—			—			—
Additional paid-in capital	1,252.4			1,250.4			1,252.1			1,250.4
Accumulated other comprehensive income	32.0			35.6			26.8			35.6
Accumulated deficit	(2,477.3		)	(3,205.3		)	(3,162.2		)	(3,205.3		)
Total shareholders’ deficit	(1,192.9		)	(1,919.3		)	(1,883.3		)	(1,919.3		)
Total Liabilities and Shareholders’ Deficit	$	10,857.2		$	10,257.9		$	10,121.4		$	10,257.9


(Millions, except per share amounts)	Additional Paid-In Capital			Accumulated Other Comprehensive Income			Accumulated Deficit			Total			Additional Paid-In Capital			Accumulated Other Comprehensive Income			Accumulated Deficit			Total
Balance at December 31, 2018	$	1,250.4		$	35.6		$	(3,205.3	)	$	(1,919.3	)	$	1,250.4		$	35.6		$	(3,205.3	)	$	(1,919.3	)
Cumulative effect adjustments, net of tax:
Adoption of ASU 2016-02 (See Note 1)	—			—			3,038.3			3,038.3			—			—			3,013.0			3,013.0
Net loss	—			—			(2,310.3		)	(2,310.3		)	—			—			(2,310.3		)	(2,310.3		)
Other comprehensive loss, net of tax:
Change in postretirement and pension plans	—			(0.3		)	—			(0.3		)
Amortization of net unrealized losses on de-designated interest rate swaps	—			(0.9		)	—			(0.9		)
Change in pension and postretirement plans													—			(0.3		)	—			(0.3		)
Amortization of net unrealized gains on de-designated interest rate swaps													—			(0.9		)	—			(0.9		)
Change in designated interest rate swaps	—			(2.4		)	—			(2.4		)	—			(2.4		)	—			(2.4		)
Comprehensive loss	—			(3.6		)	(2,310.3		)	(2,313.9		)	—			(3.6		)	(2,310.3		)	(2,313.9		)
Share-based compensation	2.4			—			—			2.4			2.4			—			—			2.4
Taxes withheld on vested restricted stock and other	(0.4		)	—			—			(0.4		)	(0.4		)	—			—			(0.4		)
Balance at March 31, 2019	$	1,252.4		$	32.0		$	(2,477.3	)	$	(1,192.9	)	$	1,252.4		$	32.0		$	(2,502.6	)	$	(1,218.2	)
Net loss													—			—			(544.1		)	(544.1		)
Other comprehensive loss, net of tax:
Change in pension and postretirement plans													—			(0.4		)	—			(0.4		)
Amortization of net unrealized gains on de-designated interest rate swaps													—			(2.2		)	—			(2.2		)
Comprehensive loss													—			(2.6		)	(544.1		)	(546.7		)
Share-based compensation													(1.6		)	—			—			(1.6		)
Taxes withheld on vested restricted stock and other													0.1			—			—			0.1
Balance at June 30, 2019													$	1,250.9		$	29.4		$	(3,046.7	)	$	(1,766.4	)
Net loss													—			—			(115.5		)	(115.5		)
Other comprehensive loss, net of tax:
Change in pension and postretirement plans													—			(0.2		)	—			(0.2		)
Amortization of net unrealized gains on de-designated interest rate swaps													—			(2.4		)	—			(2.4		)
Comprehensive loss													—			(2.6		)	(115.5		)	(118.1		)
Share-based compensation													1.1			—			—			1.1
Taxes withheld on vested restricted stock and other													0.1			—			—			0.1
Balance at September 30, 2019													$	1,252.1		$	26.8		$	(3,162.2	)	$	(1,883.3	)



(Millions)	December 31, 2018			ASU 2016-02 Adjustments			January 1, 2019
Assets
Prepaid expenses and other	$	159.7		$	(0.7	)	$	159.0
Net property, plant and equipment	$	4,920.9		$	(1,306.7	)	$	3,614.2
Operating lease right-of-use assets	$	—		$	4,239.1		$	4,239.1
Other assets	$	94.0		$	(5.9	)	$	88.1
Liabilities
Current portion of long-term lease obligations	$	4,570.3		$	(4,570.3	)	$	—
Current portion of operating lease obligations	$	—		$	3,947.8		$	3,947.8
Other current liabilities	$	387.7		$	(15.4	)	$	372.3
Deferred income taxes	$	104.3		$	292.3		$	396.6
Operating lease obligations	$	—		$	317.2		$	317.2
Other liabilities	$	615.2		$	(58.8	)	$	556.4
Accumulated deficit	$	(3,205.3	)	$	3,013.0		$	(192.3	)


	Three Months Ended March 31, 2019									Three Months Ended September 30, 2019
(Millions)	Under ASC 840			Effect of Adoption of ASU 2016-02			As reported			Under ASC 840			Effect of Adoption of ASU 2016-02			As reported
Costs and expenses
Cost of services	$	692.3		$	168.8		$	861.1		$	658.3		$	168.7		$	827.0
Selling, general and administrative	$	198.3		$	—		$	198.3
Depreciation and amortization	$	354.9		$	(83.4	)	$	271.5		$	329.5		$	(67.3	)	$	262.2
Interest expense	$	205.6		$	(113.7	)	$	91.9		$	192.3		$	(111.1	)	$	81.2
Income tax benefit (expense)	$	275.9		$	(7.1	)	$	268.8		$	31.6		$	(2.4	)	$	29.2
Net loss	$	(2,331.5	)	$	21.2		$	(2,310.3	)
Net (loss) income										$	(122.8	)	$	7.3		$	(115.5	)



	Nine Months Ended September 30, 2019
(Millions)	Under ASC 840			Effect of Adoption of ASU 2016-02			As reported
Costs and expenses
Cost of services	$	2,033.9		$	506.3		$	2,540.2
Depreciation and amortization	$	1,043.8		$	(234.1	)	$	809.7
Interest expense	$	591.1		$	(337.2	)	$	253.9
Income tax benefit (expense)	$	368.5		$	(16.3	)	$	352.2
Net (loss) income	$	(3,018.6	)	$	48.7		$	(2,969.9	)



	March 31, 2019
(Millions)	Under ASC 840			Effect of Adoption of ASU 2016-02			As reported
Assets
Prepaid expenses and other	$	197.2		$	(1.6	)	$	195.6
Net property, plant and equipment	$	4,817.3		$	(1,189.5	)	$	3,627.8
Operating lease right-of-use assets	$	—		$	4,187.4		$	4,187.4
Other assets	$	90.2		$	(5.9	)	$	84.3
Liabilities
Liabilities subject to compromise (a)	$	7,961.0		$	(69.1	)	$	7,891.9
Accumulated deficit	$	(5,536.8	)	$	3,059.5		$	(2,477.3	)


a)	payment in full of debtor-in-possession financing obligations and administrative expense claims;


c)	$100 million in new loans arising under the New Exit Facility to holders of Midwest Notes;


d)	certain cash distributions to holders of the second lien claims, unsecured notes claims, and other general unsecured claims against obligor Debtors, if those classes accept the plan;


e)	reinstatement or repayment of general unsecured claims against non-obligor Debtors; and


f)	the cancellation of existing equity interests in Windstream Holdings.



(Millions)
Accounts payable	$	346.6
Advance payments	8.7
Accrued taxes	20.2
Other current liabilities	102.7
Deferred taxes	42.5
Operating lease liabilities	4,087.4
Pension and other employee benefit plan obligations	316.9
Other liabilities	201.1
Accounts payable, accrued and other liabilities	5,126.1
Debt subject to compromise	5,599.3
Accrued interest on debt subject to compromise	28.9
Long-term debt and accrued interest	5,628.2
Total liabilities subject to compromise	$	10,754.3



(Millions)
Accounts payable	$	446.1
Advance payments and customer deposits	14.2
Accrued taxes	19.9
Other current liabilities	148.0
Deferred taxes	135.8
Operating lease liabilities	4,218.3
Pension and other employee benefit plan obligations	317.5
Other liabilities	214.7
Accounts payable, accrued and other liabilities	5,514.5
Debt subject to compromise	2,348.4
Accrued interest on debt subject to compromise	29.0
Long-term debt and accrued interest	2,377.4
Total liabilities subject to compromise	$	7,891.9



(Millions)
Write-off of deferred long-term debt fees	$	24.1
Write-off of original issue discount on debt subject to compromise	21.6
Debtor-in-possession financing costs	40.2
Professional fees and other bankruptcy related costs	19.0
Reorganization items, net	$	104.9



Intangible Assets	Amortization Methodology	Estimated Useful Life
Franchise rights	straight-line	30 years
Customer lists	sum of years digits	5.5 - 15 years
Cable franchise rights	straight-line	15 years
Trade names	straight-line	1-10 years
Developed technology and software	straight-line	3-5 years
Patents ~~and other~~	straight-line	3 years



Year	(Millions)
2019 (excluding the three months ended March 31, 2019)	$	124.0
2020	$	133.9
2021	$	101.2
2022	$	71.4
2023	$	59.0


(b)	On January 3, 2019, Windstream Services’ reduced future maturities of its revolving line of credit of $312.0 million using proceeds received from the sale of the Consumer CLEC business.


(c)	The notes are guaranteed by each of our domestic subsidiaries that guarantees debt under Windstream Services’ senior secured credit facility. The notes and the guarantees are secured by a first priority lien on Windstream Services’ and the guarantors’ assets that secure the obligations under the senior secured credit facility.


(e)	These bonds are secured equally with the senior secured credit facility with respect to the assets of Windstream Holdings of the Midwest, Inc.


(f)	Windstream Services may call the remaining aggregate principal amounts of these debentures and notes at various premiums upon early redemption.


(g)	The net discount balance and unamortized debt issuance costs are amortized using the interest method over the life of the related debt instrument.


(h)	Balances have been reclassified to liabilities subject to compromise because these obligations were under collateralized as of the Petition Date of the Chapter 11 Cases.


(Millions)	Classification			Classification	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
Operating lease costs (a)	Cost of services, Selling, general and administrative	$	201.5	Cost of services, Selling, general and administrative	$	199.9	$	602.4
Finance lease costs
Amortization of right-of-use assets	Depreciation and amortization	4.4		Depreciation and amortization	13.4		31.7
Interest on lease liabilities	Interest expense	0.4		Interest expense	1.1		3.3
Net lease expense		$	206.3		$	214.4	$	637.4