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*	No reportable information under this item.

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

 

Organizational Structure – Windstream Holdings, Inc. (“Windstream Holdings”) is a publicly traded holding company incorporated in the state of Delaware on May 23, 2013, and the parent of Windstream 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 164,000 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, 2019, was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United 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, 2019, which was filed with the SEC on May 19, 2020.

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 U.S. GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and disclosure of contingent assets and liabilities. The estimates and assumptions used in the accompanying consolidated financial statements are based upon management’s evaluation of the relevant facts and circumstances as of the date of the consolidated financial statements, including the potential impacts arising from the COVID-19 global pandemic. Actual results may differ from the estimates and assumptions used in preparing the accompanying consolidated financial statements, and such differences could be material.

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1. Preparation of Interim Financial Statements, Continued:

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.

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.

Operating Lease Income - Certain of our service offerings include equipment leases. We also lease our network facilities to other service providers and enter into arrangements with third parties to lease unused or underutilized portions of our network. Operating lease income was $65.2 million and $62.1 million for the three months ended March 31, 2020 and 2019, respectively, and is included in services revenues in our consolidated statement of operations.

Provision for Income Taxes - We recognized income tax expense of $7.8 million and an income tax benefit of $268.8 million for the three months ended March 31, 2020 and 2019, respectively. Income tax expense recorded in the first quarter of 2020 reflected discrete tax expense of $8.5 million related to our bankruptcy reorganization and discrete tax expense of $21.5 million related to an increase in our valuation allowance, partially offset by income tax benefits attributable to our loss before taxes. Comparatively, the income tax benefit recorded for the three-month period ended March 31, 2019 reflected the loss before taxes offset by discrete tax expense of $368.0 million related to our goodwill impairment. Inclusive of the discrete items, our effective tax rate was (8.3) percent and 10.4 percent for the three months ended March 31, 2020 and 2019, respectively.

As of March 31, 2020, we were in a net deferred tax liability position and recorded an income tax benefit on non-discrete items during the first quarter of 2020. 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.

Revision to Previously Issued Financial Statements

On January 1, 2019, we adopted Accounting Standards Update No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), using the modified retrospective transition method. Under this transition method, we recognized the cumulative effect of the initial adoption of the standard as an adjustment to our opening accumulated deficit balance at the adoption date of approximately $3.0 billion, primarily due to changing the accounting treatment of our arrangement with Uniti Group, Inc. (“Uniti”) from a financing transaction to an operating lease. As a result of this change, 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 liability, which decreased by $0.7 billion and recorded a deferred tax liability of approximately $0.3 billion in accordance with the transition guidance specified in ASU 2016-02.

During 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.

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1. Preparation of Interim Financial Statements, Continued:

Recently Adopted Accounting Standards

Financial Instruments - Credit Losses – In June 2016, the Financial Accounting Standards Boards (“FASB”) issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, as modified by subsequently issued ASU Nos. 2018-19, 2019-11 and 2020-02 (collectively “ASU 2016-13”). This standard introduced a new forward-looking approach, based on expected losses, to estimate credit losses on certain types of financial instruments, including trade receivables. The estimate of expected credit losses requires entities to incorporate considerations of historical information, current information and reasonable and supportable forecasts. This new standard also expands the disclosure requirements to enable users of financial statements to understand the entity’s assumptions, models and methods for estimating expected credit losses. ASU 2016-13 was effective for annual and interim reporting periods beginning after December 15, 2019. We adopted ASU 2016-13 using the modified retrospective transition method effective January 1, 2020. Upon adoption, we recorded a cumulative effect adjustment of approximately $1.8 million, net of tax, increasing our accumulated deficit.

We estimate credit losses for trade receivables by aggregating similar customer types together to calculate expected default rates based on historical losses as a percentage of total aged revenue. These rates are then applied, on a monthly basis, to the outstanding balances staged by customer. In addition to continued evaluation of historical losses, ASU 2016-13 requires forward-looking information and forecasts to be considered in determining credit loss estimates. Our current forecast methodology assesses historical trends to project future losses and is not forward-looking for potential economic factors that would change the credit loss model. Therefore, historical trends continue to be the most accurate expectation of future losses as Windstream has defined rules around customers who can establish service. Our revenue and associated accounts receivable are based upon a recurring revenue structure whereby customers are billed in advance of service being provided and there is little month-to-month volatility in the composition of the customer base across all segments. We are actively monitoring the impacts of the COVID-19 global pandemic on our customers and their associated accounts receivable balances in order to adjust the allowance for credit losses accordingly. To date, no material risk has been identified, but management will continue to monitor and make adjustments, as necessary.

Our accounts receivable balance consists of the following as of:

(Millions)		March 31, 2020
Accounts receivable		$	568.1
Less: Allowance for credit losses		(47.0		)
Accounts receivable, net		$	521.1

Activity in our allowance for credit losses consists of the following:

(Millions)
Balance as of December 31, 2019		$	(48.2	)
Cumulative effect adjustment for ASU 2016-13 adoption		(2.6		)
Additional allowance for estimated credit losses		(4.4		)
Write-offs, net of recovered accounts		8.2
Balance as of March 31, 2020		$	(47.0	)

Implementation Costs in Cloud Computing Arrangements - In August 2018, the FASB issued ASU No. 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU 2018-15”). This standard requires entities that are customers in cloud computing arrangements to defer implementation costs if they would be capitalized by the entity in software licensing arrangements under the internal-use software guidance. The service element of a hosting arrangement will continue to be expensed as incurred. The guidance was effective for annual and interim reporting periods beginning after December 15, 2019 and may be applied retrospectively or prospectively to implementation costs incurred after the date of adoption. We adopted ASU 2018-15 on a prospective basis effective January 1, 2020. The adoption of this standard did not have a material impact on our consolidated financial statements.

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1. Preparation of Interim Financial Statements, Continued:

Recently Issued Authoritative Guidance

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 fiscal years beginning after December 15, 2020 and interim periods within those fiscal years, which is January 1, 2021 for us, with early adoption permitted. We are currently in the process of evaluating the impacts of this guidance on our consolidated financial statements and related income tax disclosures.

Chapter 11 Filing

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 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.

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”).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.

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2. Chapter 11 Filing, Going Concern and Other Related Matters, Continued:

Uniti Arrangement

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.

Plan Support Agreement

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”).

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2. Chapter 11 Filing, Going Concern and Other Related Matters, Continued:

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.

Plan of Reorganization

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. 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.

On April 1, 2020, the Debtors filed a Joint Chapter 11 Plan of Reorganization (“the Plan”) with the Bankruptcy Court. On the same date, 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 March 31, 2020 and December 31, 2019, the Debtors have adjusted their recorded liabilities to amounts consistent with the estimate’s 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 retain the exclusive right to file the Plan through and including June 22, 2020, as well as the right to seek further extensions of such period up to the 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 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 the Plan or that confirmation of 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:

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

b)

distribution to holders of first lien claims on a pro rata basis: (i) 100 percent of new common stock, subject to certain adjustments described in the Plan and dilution by the Backstop Premium, Rights Offering, and Management Incentive Program; (ii) cash in the amount equal to the sum of Exit Facility proceeds, flex proceeds, cash proceeds of the Rights Offering, and cash held by the Debtors; (iii) subscription rights; and (iv) first lien replacement loans, as applicable;

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.

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2. Chapter 11 Filing, Going Concern and Other Related Matters, Continued:

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.

Going Concern and Financial Reporting

Our financial condition, the defaults under our debt agreements and 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) 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. Liabilities subject to compromise include pre-petition liabilities that are unsecured, under-secured or where it cannot be determined that the 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, net is disclosed.

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2. Chapter 11 Filing, Going Concern and Other Related Matters, Continued:

Liabilities Subject to Compromise

Due to the filing of the Chapter 11 Cases on February 25, 2019, the classification of pre-petition indebtedness is generally subject to compromise pursuant to a plan of reorganization, as previously described above. Generally, actions to enforce or otherwise effect payment of pre-bankruptcy filing liabilities are stayed. Although payment of pre-petition claims generally is not permitted, the Bankruptcy Court granted the Debtors authority to pay certain pre-petition claims in designated categories and subject to certain terms and conditions. This relief generally was designed to preserve the value of the Debtors’ businesses and assets. Among other things, the Bankruptcy Court authorized the Debtors to pay certain pre-petition claims relating to employee wages and benefits, taxes and critical vendors. The Debtors are paying and intend to pay undisputed post-petition liabilities in the ordinary course of business. In addition, the Debtors may reject certain pre-petition executory contracts and unexpired leases with respect to their operations with the approval of the Bankruptcy Court. Any damages resulting from the rejection of executory contracts and unexpired leases are treated as general unsecured claims and classified as liabilities subject to compromise.

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, 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 3, “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 sheets.

As also discussed in Note 3, “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 March 31, 2020 and December 31, 2019, respectively, 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.  

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2. Chapter 11 Filing, Going Concern and Other Related Matters, Continued:

Liabilities subject to compromise was as follows at:

(Millions)		March 31, 2020				December 31, 2019
Accounts payable		$	326.3			$	335.7
Advance payments		6.4				6.6
Accrued taxes		25.0				24.5
Other current liabilities		86.4				97.1
Deferred taxes		80.1				72.6
Operating lease liabilities		3,985.9				4,040.7
Pension and other employee benefit plan obligations		305.8				314.0
Other liabilities		194.1				200.7
Accounts payable, accrued and other liabilities		5,010.0				5,091.9
Debt subject to compromise		5,599.3				5,599.3
Accrued interest on debt subject to compromise		28.9				28.9
Long-term debt and accrued interest		5,628.2				5,628.2
Total liabilities subject to compromise		$	10,638.2			$	10,720.1

Determination of the value at which liabilities will ultimately be settled cannot be made until the Bankruptcy Court approves the Plan. We will continue to evaluate the amount and classification of our pre-petition liabilities.

Potential Claims

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 June 5, 2020, the Debtors have received approximately 8,400 proofs of claim for an amount of approximately $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 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.

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2. Chapter 11 Filing, Going Concern and Other Related Matters, Continued:

Reorganization Items, Net

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, net incurred as a result of the Chapter 11 Cases presented separately in the accompanying consolidated statement of operations was as follows:

							Three Months Ended March 31,
(Millions)							2020				2019
Write-off of deferred long-term debt issuance costs							$	—			$	24.1
Write-off of original issue net discount on debt subject to compromise							—				21.6
Debtor-in-possession financing costs							—				40.2
Professional fees and other bankruptcy-related costs							44.8				19.0
Gain on vendor settlements of liabilities subject to compromise							(4.3		)		—
Reorganization items, net							$	40.5			$	104.9

Professional fees included in reorganization items, net represent fees for post-petition expenses related to the Chapter 11 Cases. The write-offs of deferred long-term debt issuance costs and original issue net discount relate to debt classified as liabilities subject to compromise. Included in debtor-in-possession financing costs for the three-month period ended March 31, 2019 were fees of $14.7 million that were netted against the $300.0 million proceeds received from issuance of the DIP Facility.

Event of Default and Chapter 11 Cases – As discussed in Notes 2 and 12, on February 15, 2019, Judge Jessie Furman found that Windstream Services had defaulted under the indenture governing the August 2023 Notes, which resulted in the acceleration of the August 2023 Notes, and a cross default under Windstream Services’ senior secured credit agreement governing its secured term and revolving line of credit obligations, as well as the remaining obligations under the contractual arrangement with Uniti. In addition, the acceleration of the August 2023 Notes resulted in a cross-acceleration event of default under the indentures governing Windstream Services’ other series of secured and unsecured notes.

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.

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3. Debt, Continued:

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

(Millions)		March 31, 2020				December 31, 2019
Issued by Windstream Services:
Superpriority debtor-in-possession term loan facility		$	500.0			$	500.0
Superpriority debtor-in-possession revolving credit facility		400.0				—
Senior secured credit facility, Tranche B6 – variable rates, due March 29, 2021 (a) (b)		1,180.5				1,180.5
Senior secured credit facility, Tranche B7 – variable rates, due February 17, 2024 (b)		568.4				568.4
Senior secured credit facility, Revolving line of credit – variable rates, due    April 24, 2020 (b)		802.0				802.0
Senior First Lien Notes – 8.625%, due October 31, 2025 (b)		600.0				600.0
Senior Second Lien Notes – 10.500%, due June 30, 2024 (b)		414.9				414.9
Senior Second Lien Notes – 9.000%, due June 30, 2025 (b)		802.0				802.0
Debentures and notes, without collateral:
2020 Notes – 7.750%, due October 15, 2020 (b)		78.1				78.1
2021 Notes – 7.750%, due October 1, 2021 (b)		70.1				70.1
2022 Notes – 7.500%, due June 1, 2022 (b)		36.2				36.2
2023 Notes – 7.500%, due April 1, 2023 (b)		34.4				34.4
2023 Notes – 6.375%, due August 1, 2023 (b)		806.9				806.9
2024 Notes – 8.750%, due December 15, 2024 (b)		105.8				105.8
Issued by subsidiaries of Windstream Services:
Windstream Holdings of the Midwest, Inc. – 6.75%, due April 1, 2028 (b)		100.0				100.0
Long-term debt prior to reclassification to liabilities subject to compromise		6,499.3				6,099.3
Less current portion		(900.0		)		(500.0		)
Less amounts reclassified to liabilities subject to compromise		(5,599.3		)		(5,599.3		)
Total long-term debt		$	—			$	—

(a)

Prior to the filing of the Chapter 11 Cases, if the maturity of the revolving line of credit was not extended prior to April 24, 2020, the maturity date of the Tranche B6 term loan would have become April 24, 2020; provided further, if the 2020 Notes had not been repaid or refinanced prior to July 15, 2020 with indebtedness having a maturity date no earlier than March 29, 2021, the maturity date of the Tranche B6 term loan would have become July 15, 2020.

(b)	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 and/or impaired based on the expected treatment of the creditor classes included in the PSA and the Plan.

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3. Debt, Continued:

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 $1.0 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 $1.0 billion in superpriority secured debtor-in-possession credit facilities comprising of (i) a superpriority revolving credit facility in an aggregate amount of $500.0 million (the “Revolving Facility”) and (ii) a superpriority term loan facility in an aggregate principal amount of $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. In March 2020, Windstream Services borrowed $400.0 million under the Revolving Facility to assist with working capital and other general corporate purposes during the coronavirus, COVID-19, global pandemic. Accordingly, as of March 31, 2020, $500.0 million was outstanding under the Term Loan Facility and $400.0 million was outstanding under the Revolving Facility. Considering letters of credit of $28.7 million and $58.4 million reserved for potential professional fees, the amount available for borrowing under the Revolving Facility was $12.9 million as of March 31, 2020.

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 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.

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3. Debt, Continued:

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. 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; however, LIBOR at no time could have been less than 0.75 percent. 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 and B7 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 ranged 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.

Prior to the filing of the Chapter 11 Cases, Windstream Services borrowed $155.0 million under the revolving line of credit in its senior secured credit facility and retired $370.0 million of these borrowings during the period January 1, 2019 to February 24, 2019. During the first three months of 2019, the variable interest rate on the revolving line of credit ranged from 4.38 percent to 8.50 percent with a weighted average rate on amounts outstanding during the period of 5.89 percent.

Following the filing of the Chapter 11 Cases, interest rates applicable to the revolving line of credit, Tranche B6 term loan and Tranche B7 term loan were converted from LIBOR to the alternate base rate, the effects of which increased interest rates 2.00 percent for borrowings under the senior secured credit facility. The Bankruptcy Court also approved an additional 2.00 percent default rate applicable to borrowings under the senior secured credit facility. As of March 31, 2020, interest rates applicable to the revolving line of credit, Tranche B6 term loan and Tranche B7 term loan were 8.50 percent, 10.50 percent and 9.75 percent, respectively. All payments to holders of debt obligations under the senior secured credit facility, senior first lien notes and Midwest Bonds remitted subsequent to the filing of the Chapter 11 Cases have been classified as interest expense in the accompanying consolidated statements of operations.

Interest Expense

Interest expense was as follows:

							Three Months Ended March 31,
(Millions)							2020				2019
Interest expense - debt							$	76.1			$	93.8
Interest expense - leaseback of real estate    contributed to pension plan							1.5				1.6
Impact of interest rate swaps							(3.3		)		(2.9		)
Interest on finance leases and other							0.8				0.9
Less capitalized interest expense							(2.0		)		(1.5		)
Total interest expense							$	73.1			$	91.9

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Prior to the filing of the Chapter 11 Cases, Windstream Services was party to six pay fixed, receive variable interest rate swap agreements. Windstream Services had designated each of the six swaps as cash flow hedges of the interest rate risk inherent in borrowings outstanding under its senior secured credit facility due to changes in the LIBOR benchmark interest rate. 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.

Prior to the filing of the Chapter 11 Cases, the variable rate received on the six swaps was based on one-month LIBOR and reset on the seventeenth day of each month. The maturity date for all six interest rate swap agreements was October 17, 2021 and the total notional value of the swaps was $1,375.0 million. The average fixed interest paid on the swaps ranged from 1.1275 percent to 2.984 percent. All of the interest rate swaps were recognized at fair value as either assets or liabilities, depending on the rights or obligations under the related contracts. Due to previous refinancing transactions, Windstream Services had de-designated certain interest rate swaps and froze the accumulated net 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.

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. Following the adverse court ruling from Judge 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 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 sheets.

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 are being 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)		March 31, 2020				December 31, 2019
De-designated portion, unamortized value:
Liabilities subject to compromise		$	6.1			$	6.1
Accumulated other comprehensive income		$	20.3			$	23.6

Changes in derivative instruments were as follows for the three-month period ended March 31:

(Millions)		2020				2019
Changes in fair value, net of tax		$	—			$	(2.4	)
Amortization of net unrealized gains on de-designated interest rate swaps,    net of tax		$	(2.4	)		$	(0.9	)

As of March 31, 2020, 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.

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

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

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

Level 3 – Unobservable inputs

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 period ended March 31, 2020 requiring our non-financial assets and liabilities to be subsequently recognized at fair value. Our financial instruments consist primarily of cash, cash equivalents, restricted cash, accounts receivable, accounts payable, and debt. These financial instruments are measured at fair value on a recurring basis. Except for debt, the carrying amount of our other financial instruments were estimated by management to approximate fair value due to the relatively short period of time to maturity for those instruments. 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.

The fair value of debt was as follows:

(Millions)		March 31, 2020				December 31, 2019
Not Recorded at Fair Value in the Financial Statements: (a)
Debt, including current portion - Level 2:
Included in current portion of long-term debt		$	752.7			$	500.0
Included in liabilities subject to compromise		$	2,045.6			$	3,676.1

(a)	Recognized at carrying value of $6,499.3 million and $6,099.3 million in debt, including current portion, and liabilities subject to compromise and excluding unamortized debt issuance costs, in the accompanying consolidated balance sheets as of March 31, 2020 and December 31, 2019, respectively.

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 period ended March 31, 2020.

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We earn revenue from contracts with customers, primarily through the provision of telecommunications and other services and through the sale of equipment to customers and contractors. We also earn revenues from leasing arrangements, federal and state universal service funds and other regulatory-related sources and activities.

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 credit losses to provide for the estimated amount of receivables that will not be collected. As discussed in Note 1, the allowance is based upon an assessment of historical collection experience and the age of outstanding receivables. 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 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 $30.9 million and $33.9 million at March 31, 2020 and December 31, 2019, respectively.

Contract Balances – Contract assets include unbilled amounts, 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 portions of contract assets are included in prepaid expenses and other and other assets, respectively, in the accompanying consolidated balance sheets.

Contract liabilities consist of services billed in excess of revenue recognized. The changes in contract liabilities are 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:

(Millions)		March 31, 2020				December 31, 2019
Contract assets (a)		$	36.9			$	32.8
Contract liabilities (b)		$	159.9			$	162.3
Revenues recognized included in the opening contract liability balance (c)		$	125.3			$	156.8

(a)	Included $23.3 million and $20.8 million in prepaid expense and other and $13.6 million and $12.0 million in other assets as of March 31, 2020 and December 31, 2019, respectively.

(b)	Included $148.5 million and $148.0 million in advance payments, $9.7 million and $9.9 million in other liabilities, and $1.7 million and $4.4 million in liabilities subject to compromise as of March 31, 2020 and December 31, 2019, respectively.

(c)	Represents revenues recognized from the contract liability balance as of the beginning of the periods ended March 31, 2020 and 2019, respectively.

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 services. The fees related to the additional services or 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, 2020, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $2.5 billion for contracts with original expected durations of more than one year remaining. We expect to recognize approximately 33 percent, 31 percent and 20 percent of our remaining performance obligations as revenue during the remainder of 2020, 2021 and 2022, respectively, with the remaining balance thereafter.

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6. Revenues, Continued:

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, 2020 were as follows:

(Millions)		Kinetic				Enterprise				Wholesale				Total
Revenue from contracts with customers:
Type of service:
High-speed Internet bundles		$	240.1			$	—			$	—			$	240.1
Voice-only		23.3				—				—				23.3
Video and miscellaneous		7.9				—				—				7.9
Core (a)		—				249.4				—				249.4
Strategic (b)		—				63.9				—				63.9
Legacy (c)		—				104.7				—				104.7
Small business		71.1				—				—				71.1
Wholesale (d)		58.9				—				66.2				125.1
Switched access (e)		5.4				—				5.6				11.0
Other (f)		—				111.9				—				111.9
Service revenues from contracts with    customers		406.7				529.9				71.8				1,008.4
Product and fiber sales		13.7				7.6				0.7				22.0
Total revenue from contracts with    customers		420.4				537.5				72.5				1,030.4
Other service revenues (g)		98.1				59.8				12.6				170.5
Total revenues and sales		$	518.5			$	597.3			$	85.1			$	1,200.9

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6. Revenues, Continued:

Revenues recognized from contracts with customers by customer and product type for the three-month period ended March 31, 2019 were as follows:

(Millions)		Kinetic				Enterprise				Wholesale				Total
Revenue from contracts with customers:
Type of service:
High-speed Internet bundles		$	239.9			$	—			$	—			$	239.9
Voice-only		28.6				—				—				28.6
Video and miscellaneous		10.1				—				—				10.1
Core (a)		—				309.4				—				309.4
Strategic (b)		—				48.8				—				48.8
Legacy (c)		—				132.6				—				132.6
Small business		77.2				—				—				77.2
Wholesale (d)		51.5				—				73.8				125.3
Switched access (e)		6.3				—				7.5				13.8
Other (f)		—				140.5				—				140.5
Service revenues from contracts with    customers		413.6				631.3				81.3				1,126.2
Product and fiber sales		8.0				10.4				—				18.4
Total revenue from contracts with    customers		421.6				641.7				81.3				1,144.6
Other service revenues (g)		100.0				64.7				11.3				176.0
Total revenues and sales		$	521.6			$	706.4			$	92.6			$	1,320.6

(a)	Core revenues consist of dynamic Internet protocol, dedicated Internet access, multi-protocol label switching services, integrated voice and data, long distance, and managed services.

(b)	Strategic revenues consist of Software Defined Wide Area Network (“SD-WAN”), Unified Communications as a Service (“UCaaS”), OfficeSuite©, and associated network access products and services.

(c)	Legacy revenues consist of Time Division Multiplexing (“TDM”) voice and data services.

(d)	Wholesale revenues primarily include revenues from providing special access circuits, fiber connections, data transport and wireless backhaul services.

(e)	Switched access revenues include usage sensitive revenues from long-distance companies and other carriers for access to our network in connection with the completion of long-distance calls, as well as reciprocal compensation received from wireless and other local connecting carriers for use of our network facilities.

(f)	Other revenues primarily consist of administrative service fees, subscriber line charges, and non-recurring usage-based long-distance revenues.

(g)	Other service revenues primarily include end user surcharges, CAF – Phase II funding, frozen federal USF, state USF, and access recovery mechanism (“ARM”) support and lease revenue.

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6. Revenues, Continued:

Deferred Commissions and Other Costs to Fulfill a Contract – 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 the accompanying consolidated balance sheets. Deferred contract costs totaled $54.4 million at March 31, 2020, of which $36.2 million and $18.2 million were included in prepaid expenses and other and other assets, respectively. At December 31, 2019, deferred contract costs were $53.8 million, of which $34.9 million and $18.9 million were included in prepaid expenses and other and other assets, respectively. Amortization of deferred contract costs was $11.4 million for the three-month period ended March 31, 2020, compared to $9.9 million for the three-month period ended March 31, 2019. There was no impairment loss recognized for the three-month periods ended March 31, 2020 and 2019, related to deferred contract 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.

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

						Three Months Ended March 31,
(Millions)						2020				2019
Benefits earned during the period (a)						$	1.0			$	0.6
Interest cost on benefit obligation (b)						9.4				10.9
Amortization of prior service credit (b)						(0.2		)		(0.3		)
Expected return on plan assets (b)						(14.7		)		(12.4		)
Net periodic benefit income						$	(4.5	)		$	(1.2	)

(a)	Included in cost of services and selling, general and administrative expense.

(b)	Included in other income (expense), net.

For 2020, the expected employer contributions for pension benefits consists of $52.8 million to the qualified pension plan to satisfy our remaining 2019 and 2020 funding requirements and $0.9 million necessary to fund the expected benefit payments of our unfunded supplemental executive retirement pension plans to avoid certain benefit restrictions. During the first three months of 2020, we made our required quarterly employer contributions totaling $3.4 million in cash. The remaining required quarterly and annual employer contributions due in 2020 will be funded no later than December 31, 2020, as permitted under certain relief provisions included in the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). Comparatively in the first three months of 2019, we made employer contributions to the qualified pension plan of $3.0 million in cash.

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7. Employee Benefit Plans, Continued:

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. Excluding amounts capitalized, we recorded expenses of $7.3 million in the three-month period ended March 31, 2020, as compared to $7.0 million for the same period in 2019 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. In March 2020, we contributed $25.7 million in cash to the plan for the 2019 annual matching contribution. Comparatively, in March 2019, we contributed $26.4 million in cash to the plan for the 2018 annual matching contribution. We intend to fund the remaining 2020 contributions using cash.

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 and other employee benefit-related charges are included in restructuring charges. Other charges primarily consist of incremental costs incurred in integrating the operations of an acquired business.

During the first three months of 2020 and 2019, we completed restructurings of our workforce to improve our overall cost structure and gain operational efficiencies. In undertaking these efforts, we eliminated approximately 315 positions and incurred related severance and employee benefit costs of $6.4 million in the first quarter of 2020 and we eliminated approximately 275 positions and incurred $10.5 million in severance and employee benefit costs in the first quarter of 2019.

A summary of restructuring and other charges recorded was as follows:

						Three Months Ended March 31,
(Millions)						2020				2019
Restructuring charges						$	6.4			$	10.5
Costs related to merger with EarthLink (a)						—				3.4
Other						—				1.2
Total restructuring and other charges						$	6.4			$	15.1

(a)	This amount included severance and employee benefit costs for EarthLink employees terminated after the acquisition of $2.9 million and other miscellaneous expenses of $0.5 million.

After giving consideration to tax benefits on deductible items, restructuring and other charges increased our reported net loss by $4.8 million for the three-month period ended March 31, 2020, as compared to $11.3 million for the same period in 2019.

The following is a summary of the activity related to the liabilities associated with restructuring activities at March 31:

(Millions)
Balance at December 31, 2019							$	8.1
Severance and benefit costs incurred in period							6.4
Cash outlays during the period							(8.0		)
Balance at March 31, 2020							$	6.5

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

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

(Millions)		March 31, 2020				December 31, 2019
Pension and postretirement plans		$	4.7			$	5.0
Unrealized net gains on de-designated interest rate swaps		15.2				17.6
Accumulated other comprehensive income		$	19.9			$	22.6

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

(Millions)		Unrealized Net Gains on Interest Rate Swaps				Pension and Postretirement Plans				Total
Balance at December 31, 2019		$	17.6			$	5.0			$	22.6
Amounts reclassified from other accumulated comprehensive    income (a)		(2.4		)		(0.3		)		(2.7		)
Balance at March 31, 2020		$	15.2			$	4.7			$	19.9

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

Reclassifications out of accumulated other comprehensive income were as follows:

		(Millions) Amount Reclassified from Accumulated Other Comprehensive Income
Details about Accumulated Other Comprehensive Income Components						Three Months Ended March 31,								Affected Line Item in the Consolidated Statements of Operations
						2020				2019
Interest rate swaps:
Amortization of net unrealized gains    on de-designated interest rate swaps						$	(3.3	)		$	(1.2	)		Interest expense
						(3.3		)		(1.2		)		Loss before income taxes
						0.9				0.3				Income tax (expense) benefit
						(2.4		)		(0.9		)		Net loss
Pension and postretirement plans:
Amortization of prior service credits						(0.3		)		(0.4		)	(a)
						(0.3		)		(0.4		)		Loss before income taxes
						—				0.1				Income tax (expense) benefit
						(0.3		)		(0.3		)		Net loss
Total reclassifications for the period, net of tax						$	(2.7	)		$	(1.2	)		Net loss

(a)	Included in the computation of net periodic benefit expense for the period.

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

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

						Three Months Ended March 31,
(Millions, except per share amounts)						2020				2019
Basic and diluted loss per share:
Numerator:
Net loss attributable to common shares						$	(101.6	)		$	(2,310.3	)
Denominator:
Basic and diluted shares outstanding
Weighted average basic and diluted shares outstanding						42.7				42.6
Basic and diluted loss per share:
Net loss							($2.38	)			($54.26	)

For the three-month period ended March 31, 2020 and 2019, 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. We had 0.3 million restricted stock units and 0.8 million stock options outstanding as of March 31, 2020, compared to 1.0 million restricted stock units and 1.3 million stock options outstanding at March 31, 2019.

 

Effective April 1, 2019, we reorganized our business operations into three segments: Kinetic, Enterprise and Wholesale. The Kinetic business unit primarily serves customers in markets in which we are the incumbent local exchange carrier (“ILEC”) and provides services over network facilities operated by us. The Enterprise and Wholesale business units primarily serve customers in markets in which we are a competitive local exchange carrier (“CLEC”) and provide services over network facilities primarily leased from other carriers. 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 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 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.

For financial reporting purposes, our segments consist of:

•

Kinetic - We manage as one business our residential, business, and 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.

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11. Segment Information, Continued:

Our wholesale services are focused on providing network bandwidth to other telecommunications carriers and network operators. These services include special access services, which provide access and network transport services to end users including Ethernet access up to 2 Gbps, traditional TDM private line access and transport. Wholesale services 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 these services allow Kinetic wholesale customers to provide voice and data services to their customers through the use of our network or in combination with their own networks.

•

Enterprise - Products and services offered 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, SD-WAN, which optimizes application performance, 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 within CLEC markets. These services include 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. 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 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, restructuring and other charges, straight-line expense under the contractual arrangement with Uniti, share-based compensation, business transformation expenses, and spend commitment penalties incurred under certain carrier discount plans, because these expenses are centrally managed and/or 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 has 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 income (expense), net, reorganization items, net, and income tax (expense) benefit are not monitored as a part of our segment operations and, therefore, these items also have been excluded from our segment operating results.

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11. Segment Information, Continued:

Capital expenditures for network enhancements and information technology-related projects benefiting Windstream as a whole 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. 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:

						Three Months Ended March 31,
(Millions)						2020				2019
Kinetic:
Revenues and sales						$	518.5			$	521.6
Costs and expenses						216.7				212.8
Segment income						$	301.8			$	308.8
Enterprise:
Revenues and sales						$	597.3			$	706.4
Cost and expenses						484.2				573.8
Segment income						$	113.1			$	132.6
Wholesale:
Revenues and sales						$	85.1			$	92.6
Costs and expenses						22.7				29.9
Segment income						$	62.4			$	62.7
Total segment revenues and sales						$	1,200.9			$	1,320.6
Total segment costs and expenses						723.6				816.5
Total segment income						$	477.3			$	504.1

Capital expenditures by segment were as follows:

						Three Months Ended March 31,
(Millions)						2020				2019
Kinetic						$	133.0			$	98.4
Enterprise						26.7				42.1
Wholesale						6.9				5.2
Corporate/shared (a)						65.8				47.1
Total						$	232.4			$	192.8

(a)	Represents capital expenditures not directly assigned to the segments and primarily consist of capital outlays for network enhancements and information technology-related projects benefiting Windstream as a whole.

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11. Segment Information, Continued:

The following table reconciles segment income to consolidated net loss:

						Three Months Ended March 31,
(Millions)						2020				2019
Total segment income						$	477.3			$	504.1
Depreciation and amortization						(232.6		)		(271.5		)
Goodwill impairment						—				(2,339.0		)
Restructuring and other charges						(6.4		)		(15.1		)
Straight-line expense under contractual    arrangement with Uniti						(168.8		)		(168.8		)
Other unassigned operating expenses (a)						(55.4		)		(91.0		)
Other income (expense), net						5.7				(1.0		)
Reorganization items, net						(40.5		)		(104.9		)
Interest expense						(73.1		)		(91.9		)
Income tax (expense) benefit						(7.8		)		268.8
Net loss						$	(101.6	)		$	(2,310.3	)

(a)	Included in these expenses are spend commitment penalties incurred under certain carrier discount plans of $0.4 million and $28.5 million for the three months ended March 31, 2020 and 2019, respectively.

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.

On October 18, 2017, Windstream Services launched debt exchange offers with respect to its senior notes, including the 6.375 percent notes, and on October 31, 2017, learned that holders representing the requisite percentage of the 6.375 percent notes needed to waive the defaults alleged in the Original Notice would be received. On November 6, 2017, Windstream Services and the Trustee executed a supplemental indenture, and new 6.375 percent notes were issued, which gave effect to the waivers and consents for the 6.375 percent notes. During the fourth quarter of 2017, Windstream Services also completed consent solicitations with respect to each of its series of outstanding notes, pursuant to which noteholders agreed to waive alleged defaults with respect to the transactions related to the spin-off of Uniti and amend the indentures governing such notes to give effect to such waivers and amendments.

After 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:

•	that, in effecting the Spin-Off, we failed to comply with the covenants set forth in Section 4.19 of the 2013 Indenture restricting certain sale and leaseback transactions;

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12. Commitments and Contingencies, Continued:

•	that our breaches of Section 4.19 constitute a “Default” under 2013 Indenture;

•	that the 6.375 percent notes issued in the 2017 exchange and consent transactions do not constitute “Additional Notes” under the 2013 Indenture;

•	that the notice of default with respect to the foregoing breaches was valid and effective;

•	that those breaches ripened into “Events of Default” as defined in the 2013 Indenture on December 6, 2017;

•	that the notice of acceleration with respect to those “Events of Default” was valid and effective, and all principal together with all accrued and unpaid interest on the notes became immediately due and payable as of that date;

•	enjoining us from taking any further action to issue new notes in contravention of, or to otherwise violate, the 2013 Indenture;

•	awarding Aurelius a money judgment in an amount of $310,459,959.10 plus interest from and after July 23, 2018; and

•	dismissing our counterclaims with prejudice.

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 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 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. All of the complaints 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 were filed with regard to the Murray, Yadegarian and Graham cases, but the Plaintiffs challenged the applicability of the stay with regard to non-debtor defendants. Windstream filed an adversary proceeding motion with the Bankruptcy Court regarding this challenge. At 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 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 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.

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12. Commitments and Contingencies, Continued:

Other Matters

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.

13. Subsequent Events:

Uniti Settlement Agreement - 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, 2020, the Debtors filed a Joint Chapter 11 Plan of Reorganization (“the Plan”) with the Bankruptcy Court. On the same date, the Debtors filed a Disclosure Statement relating to the 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 including June 22, 2020, as well as the right to seek further extensions of such period up to the 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 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.

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•

Taking action to keep our employees safe, including implementing a work-from-home strategy for employees whose jobs can be performed remotely, including call center support, sales and marketing, finance and other administrative functions. We also implemented processes and procedures to limit face-to-face interactions between our field technicians and customers and provided gloves, face masks and hand sanitizer to our technicians to allow them to continue to work safely while responding to an increase in demand for our broadband services.

•	Participating in the Federal Communications Commission (“FCC”) Keep Americans Connected Pledge not to turn-off service or charge late fees due to a customer’s inability to pay their bill due to circumstances related to COVID-19 functions. We have extended our commitments under the FCC Pledge through June 30, 2020.

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•	Through constant communication with our vendors and suppliers and managing our existing inventory, we have avoided any significant disruptions to our supply chain.

•

Our broadband network is well equipped to handle the expected incremental demand given our past efforts to modernize our network and provide high-speed IP/Ethernet services. We have experienced increased demand for data services within our Kinetic business segment and we have seen higher demand for our OfficeSuite© HD meetings in our Enterprise business segment, as the need for video conferencing services expands. Kinetic network data traffic has increased approximately 30 percent above pre-COVID-19 levels, while our OfficeSuite© HD total meeting minutes of usage have nearly tripled since early March 2020.

•	Focus on growth.

•	Maintain product and software leadership.

•	Deliver consistent excellence in the customer experience.

•	Drive adoption of strategic products.

•	Manage costs aggressively.

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•

Grew high-speed Internet customers for the eighth consecutive quarter as we added 18,000 net broadband customers, or a 58 percent increase year-over-year, which accelerated throughout the quarter as we added nearly 10,000 net subscribers in the month of March alone. We currently expect to add approximately 40,000 net high-speed Internet customers for the full year of 2020. This growth in market share has been driven by our continued improvement in our broadband speed capability. As of March 31, 2020, 71 percent of our broadband customer base enjoy speeds of 25 Mbps or greater, a 900-basis point improvement from the end of 2018. We have nearly tripled the availability of 100 megabytes per second (“Mbps”) speeds across our footprint and now 43 percent of our households can receive speeds of 100 Mbps or greater and 54 percent of our households have access to speeds of 25 Mbps or greater. Additionally, we have enabled 1-Gigabyte per second (“Gbps”) capability to over 100,000 commercial locations across our footprint. Increasing penetration of faster speeds across our customer base remains a key priority for us to continue to drive subscriber growth and higher average monthly revenue per customer. Currently, only 36 percent of our Kinetic households capable of receiving 25 Mbps or greater speeds and only 15 percent of such households with access to 1 Gbps speeds are enjoying those speeds. Year-to-date contribution margin in our Kinetic segment was 58.2 percent.

•

In our Enterprise business, our emphasis on growing revenues from our strategic products continues to help offset the continued pressure on our core and legacy product offerings. We remain the nation’s largest Software Defined Wide Area Network (“SD-WAN”) service provider with over 3,200 SD-WAN customers under contract representing over 29,000 endpoint locations. OfficeSuite© demand also remains strong as we now have approximately 540,000 Unified Communications as a Service (“UCaaS”) seats installed, Our total annualized strategic product revenue reached $322 million in the first quarter of 2020, representing 28 percent year-over-year growth and now represents 14 percent of our total Enterprise service revenues. Contribution margin in our Enterprise segment was 18.9 percent for the first quarter of 2020, up slightly from the same period a year ago.

•	Year-to-date contribution margin in our Wholesale segment was 73.3 percent and reflected our continued focus on expense management.

•

During the first quarter of 2020, we announced several new products and services in each of our three business segments. In our Kinetic segment, we announced a partnership with YouTube TV that will allow our Kinetic customers to access an affordable and innovative streaming solution for both live and on-demand content from 70-plus top networks. Enrollment in this service includes free unlimited DVR cloud storage and the service can be accessed from any screen. In our Enterprise segment, we launched a new WE Connect Partners portal for our channel partners, which provides them the ability to easily manage and configure end-user services, gain critical analytical insight in real time, and access customer support whenever needed. Finally, in our Wholesale segment, we completed a successful trial with Infinera Corporation to commercially offer 400 Gigabit Ethernet wave services to support our customers’ high-bandwidth needs and positions us to be an industry leader in optical infrastructure.

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(a)	Excludes depreciation and amortization included below.

(b)

As discussed in Note 1 to the consolidated financial statements, in connection with our adoption of ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), effective January 1, 2019, we recognized a cumulative effect adjustment to our opening accumulated deficit balance of approximately $3.0 billion, primarily due to changing the accounting treatment of our arrangement with Uniti Group, Inc. (“Uniti”) from a financing transaction to an operating lease. Due to recording the cumulative effect adjustment and the resulting increase in the carrying value of our reporting units, we performed a quantitative goodwill impairment test and recorded a goodwill impairment charge of $2,339.0 million, representing the aggregate excess of the carrying values of the reporting units to their fair values.

(c)	See Note 8 for discussion related to restructuring and other charges recorded in each period.

(d)	See Note 2 for discussion related to reorganization items, net recorded in each period.

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(a)	Decrease was primarily due to reductions in non-recurring revenues and usage for voice-only services and lower demand for dedicated copper-based circuits, as carriers continue to migrate traffic to fiber-based connections. These decreases were partially offset by price increases implemented in January 2020.

(b)

Decrease was primarily due to lower demand for consumer voice-only services, a decline in small business revenues reflecting a reduction in customers served, primarily due to the impacts of competition, and reductions in switched access revenues and state USF and access recovery support attributable to the effects of intercarrier compensation reform. These decreases were partially offset by an increase in high-speed Internet bundle revenues attributable to growth in net broadband customers and higher wholesale revenues resulting from a price increase implemented January 2020.

(c)	Decrease was primarily due to adverse effects of operating a business while in bankruptcy and the resulting increase in customer churn. As a result, service revenues reflect reductions in traditional voice, long-distance and data and integrated services, declines in long-distance usage, partially offset in growth in strategic revenues and increased demand for video conferencing services.

(a)	Increase was due to higher sales of network equipment on a wholesale basis to contractors due to increased demand.

(b)	Decrease was primarily due to lower equipment installations.

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(a)	Decrease primarily due to improvement in the collection of our trade receivables, when compared to the corresponding period of 2019.

(b)	Decrease reflects the overall decline in revenues.

(c)	Decrease was primarily attributable to cost savings and other expense management initiatives, including reductions in labor costs attributable to work force reductions completed in 2020 and 2019.

(d)	Decrease in interconnection expense was attributable to rate reductions and cost improvements from the continuation of network efficiency projects, increased customer churn, and lower long-distance usage as well as, a reduction of $28.1 million in incremental costs incurred related to spend commitment penalties under certain carrier discount plans.

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(a)	Represents amounts incurred prior to the filing of the Chapter 11 Cases.

(b)	Decrease was primarily attributable to cost savings and other expense management initiatives.

(c)	Decrease was primarily attributable to workforce reductions completed in 2020 and 2019.

(a)	Decrease reflects the use of the sum-of-the-years-digits method for customer lists. The effect of using an accelerated amortization method results in an incremental decline in expense each period as the intangible assets amortize.

(b)	Decrease primarily reflects beneficial impact from no longer recording depreciation expense on assets still in service which became fully depreciated or were retired from service subsequent to the end of the first quarter of 2019.

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(a)	Increase reflected growth in broadband customers, partially offset by the effects of competitively priced rate plans aimed at improving customer churn

(b)	Decrease was primarily attributable to lower demand for voice-only services.

(c)	Decreases reflect lower revenues from satellite, cable and IP television offerings due to declines in customers subscribing to these services.

(d)	Decrease was primarily attributable to lower usage for voice-only and high-speed Internet services and declines in customers due to the impacts of competition.

(e)	Increase due to higher recurring revenues resulting from a price increase implemented in January 2020.

(f)

Switched access revenues include usage sensitive revenues from long-distance companies and other carriers for access to our network in connection with the completion of long-distance calls, as well as reciprocal compensation received from wireless and other local connecting carriers for use of our network facilities. The decreases were primarily due to the effects of intercarrier compensation reform. See “Regulatory Matters” for a further discussion.

(g)

Universal Service Fund (“USF”) revenues are government subsidies designed to partially offset the cost of providing wireline services in high-cost areas. CAF Phase II funding is provided for the purpose of expanding and supporting broadband service in rural areas and effectively replaces frozen federal USF support in those states in which we elected to receive the CAF Phase II funding. The access recovery mechanism (“ARM”) is additional federal universal service support available to help mitigate revenue losses from intercarrier compensation reform. The decrease in state USF and ARM support in 2020 was primarily due to the effects of intercarrier compensation reform. See “Regulatory Matters” for a further discussion of state and federal regulatory actions impacting these revenues and our election of CAF Phase II funding.

(h)	Increase was primarily due to higher sales of network equipment on a wholesale basis to contractors due to increased demand.

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(a)	Increase in the number of consumer households served was primarily attributable to the increase in high-speed Internet customers discussed below. For the three-month period ended March 31, 2020, consumer households served increased by 9,200, compared to an increase of 2,700, for the same period in 2019.

(b)

Increase in consumer high-speed Internet customers was primarily due to the improved sales and customer retention efforts primarily attributable to offering faster, more competitive speeds. As of March 31, 2020, we provided high-speed Internet service to all of our primary residential lines in service and approximately 77 percent of our total voice lines had high-speed Internet competition, primarily from cable service providers. For the three-month period ended March 31, 2020, consumer high-speed Internet customers increased by 18,000, compared to an increase of 11,400 for the same period in 2019.

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(a)	Core revenues consist of dynamic Internet protocol, dedicated Internet access, multi-protocol label switching services, integrated voice and data, long distance, and managed services. The decrease was primarily attributable to lower sales and higher customer churn in data and integrated services.

(b)	Strategic revenues consist of SD-WAN, UCaaS, OfficeSuite©, and associated network access products and services. Growth in these revenues was primarily due to increased demand for these product offerings.

(c)	Legacy revenues consist of TDM voice and data services. The decrease was primarily due to lower demand and higher customer churn in voice services.

(d)	Other revenues primarily consist of administrative service fees, subscriber line charges, and non-recurring usage-based long-distance revenues. The decrease reflects the adverse effects of higher customer churn.

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(e)	Decreases were primarily due to lower interconnection expense from the continuation of network efficiency projects, reduced labor costs due to workforce reductions, lower sales and marketing costs, and an overall decrease in the number of customers served.

(a)

Core services primarily include revenues from providing special access circuits, fiber connections, data transport and wireless backhaul services. The decrease was primarily attributable to lower non-recurring revenue, lower usage for voice-only services and higher disconnect activity as a result of carriers migrating to fiber-based networks, partially offset by price increases implemented in January 2020.

(b)	Decreases were primarily attributable to the effects of intercarrier compensation reform.

(c)	Decreases were primarily related to lower interconnection expense, reductions in long-distance usage by our wholesale customers and rate reductions and costs improvements from the continuation of network efficiency projects.

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(a)	Includes $7,478.0 million and $7,100.5 million of liabilities classified as subject to compromise at March 31, 2020 and December 31, 2019, respectively.

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•	Financial Instruments - Credit Losses

•	Implementation Costs in Cloud Computing Arrangements

•	Income Taxes

•	adverse changes in economic, political or market conditions in the areas that we serve, the U.S. and globally, including but not limited to, changes resulting from epidemics, pandemics and outbreaks of contagious diseases, including the COVID-19 global pandemic as declared by the World Health Organization on March 11, 2020, or other adverse public health developments;

•	potential adverse impacts of the COVID-19 global pandemic on our employees’ health, safety, and their opportunities to perform job tasks due to social distancing or working remotely, on the performance of our network, on our relationships with our current or prospective customers and vendors and their abilities to perform under current or proposed arrangements with us, and on our supply chain;

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•	risks and uncertainties relating to the Chapter 11 Cases, including completion of our Chapter 11 Cases and timing of our emergence from the bankruptcy process that is dependent on several factors, including approval of our Plan of Reorganization and obtaining necessary regulatory approvals related to the emergence process, and the impact of these risks and uncertainties on our business;

•	our ability to obtain Bankruptcy Court approval with respect to our Plan of Reorganization, that includes any Plan supplements or exhibits, or any of our motions filed in the Chapter 11 Cases from time to time;

•	our ability to pursue our business strategies during the pendency of the Chapter 11 Cases;

•	our ability to generate sufficient cash to fund our operations during the pendency of the Chapter 11 Cases;

•	our ability to implement a business plan;

•	the diversion of management's attention as a result of the Chapter 11 Cases;

•	increased levels of employee attrition as a result of the Chapter 11 Cases;

•	our ability to continue as a going concern;

•	volatility of our financial results as a result of the Chapter 11 Cases;

•	the conditions to which our debtor-in-possession financing is subject to and the risk that these conditions may not be satisfied for various reasons, including for reasons outside of our control;

•	the impact of any challenge by creditors or other parties to our proposed Plan of Reorganization and previously completed transactions or other restructuring issues, along with risks associated with our ability to defend motions filed presenting these challenges;

•	the potential adverse effects of the Chapter 11 Cases on our liquidity or results of operations and increased legal and other professional costs necessary to execute our reorganization;

•	trading price and volatility of our common stock, including the stock trading on the OTC Pink Sheets as maintained by the OTC Market Group, Inc.;

•	our substantial debt could adversely affect our cash flow and impair our ability to raise additional capital on favorable terms;

•	the potential for incumbent carriers to impose monetary penalties for failure to meet specific volume and term commitments under their special access pricing and tariff plans, which Windstream uses to lease last-mile connections to serve its retail business data service customers, without FCC action;

•	the impact of the FCC’s comprehensive business data services reforms that were confirmed by an appellate court, which may result in greater capital investments and customer and revenue churn because of possible price increases by our ILEC suppliers for certain services we use to serve customer locations where we do not have facilities;

•	the impact of new, emerging or competing technologies and our ability to utilize these technologies to provide services to our customers;

•	unanticipated increases or other changes in our future cash requirements, whether caused by unanticipated increases in capital expenditures, increases in pension funding requirements, or otherwise;

•	for certain operations where we utilize facilities owned by other carriers, adverse effects on the availability, quality of service, price of facilities and services provided by other carriers on which our services depend;

•	our election to accept statewide offers under the FCC’s Connect America Fund, Phase II, and the impact of such election on our future receipt of federal universal service funds and capital expenditures, and any return of support received pursuant to the program or future versions of the program implemented by the FCC, including but not limited to the Rural Digital Opportunity Fund;

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•	our ability to make payments under the current or future arrangements with Uniti, which may be affected by results of operations, changes in our cash requirements, cash tax payment obligations, or overall financial position;

•	the extent, timing and overall effects of competition in the communications business;

•	unfavorable rulings by state public service commissions in current and further proceedings regarding universal service funds, intercarrier compensation or other matters that could reduce revenues or increase expenses;

•	material changes in the communications industry that could adversely affect vendor relationships with equipment and network suppliers and customer relationships with wholesale customers;

•	earnings on pension plan investments significantly below our expected long-term rate of return for plan assets or a significant change in the discount rate or other actuarial assumptions;

•	unfavorable results of litigation or intellectual property infringement claims asserted against us;

•	the risks associated with noncompliance by us with regulations or statutes applicable to government programs under which we receive material amounts of end-user revenue and government subsidies, or noncompliance by us, our partners, or our subcontractors with any terms of our government contracts;

•	the effects of federal and state legislation, and rules and regulations, and changes thereto, governing the communications industry;

•	the impact of equipment failure, natural disasters or terrorist acts; and

•	the effects of work stoppages by our employees or employees of other communications companies on whom we rely for service; and

•	other risks and uncertainties referenced from time to time in our Annual Report on Form 10-K for the year ended December 31, 2019, including those additional factors under “Risk Factors” in Item 1A of Part 1, and in other filings of ours with the SEC at www.sec.gov or not currently known to us or that we do not currently deem to be material.

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(a)	Evaluation of Disclosure Controls and Procedures

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(b)	Remediation Plan

(c)	Changes in Internal Control over Financial Reporting

(a)	Evaluation of Disclosure Controls and Procedures

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(b)	Remediation Plan

(c)	Changes in Internal Control over Financial Reporting

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•	that, in effecting the Spin-Off, we failed to comply with the covenants set forth in Section 4.19 of the 2013 Indenture restricting certain sale and leaseback transactions;

•	that our breaches of Section 4.19 constitute a “Default” under 2013 Indenture;

•	that the 6.375 percent notes issued in the 2017 exchange and consent transactions do not constitute “Additional Notes” under the 2013 Indenture;

•	that the notice of default with respect to the foregoing breaches was valid and effective;

•	that those breaches ripened into “Events of Default” as defined in the 2013 Indenture on December 6, 2017;

•	that the notice of acceleration with respect to those “Events of Default” was valid and effective, and all principal together with all accrued and unpaid interest on the notes became immediately due and payable as of that date;

•	enjoining us from taking any further action to issue new notes in contravention of, or to otherwise violate, the 2013 Indenture;

•	awarding Aurelius a money judgment in an amount of $310,459,959.10 plus interest from and after July 23, 2018; and

•	dismissing our counterclaims with prejudice.

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