Windstream 2013 Annual Report Download

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Proxy Statement and Form 10-K
DATA.
VOICE.
NETWORK.
CLOUD.

Table of contents

  • Page 1
    DATA. VOICE. NETWORK. CLOUD. Proxy Statement and Form 10-K

  • Page 2
    ... Chief exeCutive offiCer 2013 was a solid year for Windstream. Our business sales team finished strong, generating sequential revenue growth once again, and our consumer sales team continued to grow broadband revenue and deliver steady results. In addition, we improved the cost structure, invested...

  • Page 3
    WINDSTREAM HOLDINGS, INC. NOTICE OF 2014 ANNUAL MEETING OF STOCKHOLDERS AND PROXY STATEMENT WEDNESDAY, MAY 7, 2014 11 A.M. (LOCAL TIME) THE CAPITAL HOTEL 111 WEST MARKHAM, LITTLE ROCK, AR 72201

  • Page 4
    ...is easier to follow. We are particularly pleased to offer a stockholder forum for the first time this year. The forum is a stockholder-only website enabling you to learn more about our company, vote your proxy, listen to the meeting live online, and submit questions for the Annual Meeting in advance...

  • Page 5
    ...2006 EQUITY PLAN 67 33 70 Summary Compensation Table...34 Grants of Plan-Based Awards ...36 Outstanding Equity Awards at Fiscal Year-End ...38 Option Exercises and Stock Vested ...39 Pension Benefits ...41 Non-Qualified Deferred Compensation ...41 Potential Payments Upon Termination or Change-in...

  • Page 6

  • Page 7
    ... Given That the 2014 annual meeting of stockholders (the "Annual Meeting") of Windstream Holdings, Inc. ("Windstream") will be held at the Capital Hotel, 111 West Markham, Little Rock, Arkansas 72201, on Wednesday, May 7, 2014 at 11:00 a.m. (local time) for the following purposes, as more fully...

  • Page 8
    ...By Order of the Board of Directors, John P. Fletcher Secretary Little Rock, Arkansas March 25, 2014 Important notice regarding the availability of proxy materials for the 2014 Annual Meeting of Stockholders to be held on May 7, 2014: Windstream's Proxy Statement and Annual Report to security holders...

  • Page 9
    ... Even if you plan to attend the Annual Meeting in person, please vote right away using one of the following advance voting methods. You can vote in advance in one of three ways: Visit the website listed on your proxy card/voting instruction form to vote online. Call the telephone number on your...

  • Page 10
    ...- Audit Committee Financial Expert S - Member of 162(m) Subcommittee GOVERNANCE HIGHLIGHTS Windstream is committed to good corporate governance, which promotes the long-term interests of stockholders, strengthens the Board of Directors and management accountability, and helps build public trust in...

  • Page 11
    ... pay actually realized by our President and Chief Executive Officer in 2013. We believe this supplemental information is helpful since a substantial portion of reported compensation is an incentive for future performance and realizable only if Windstream meets or exceeds the applicable performance...

  • Page 12
    ...top hat plan No dividends on unvested performance-based restricted stock How Pay Is Tied to Company Performance (page 24) Our executive compensation program is designed to provide a high correlation between pay and performance, align management's interests with the long-term interests of Windstream...

  • Page 13
    ... impact of restructuring charges, pension expense and stock-based compensation. Pro forma for all transactions. Q3 Q4 2011 2012 2013 Free Cash Flow Payout During 2013, Windstream generated $891 million in adjusted free cash flow, equating to a payout ratio of 67%. ï¬, 3 Returning Capital to...

  • Page 14
    ... availability of proxy materials instead of a full set of Windstream's Annual Meeting materials, or vice versa? In accordance with rules and regulations of the Securities and Exchange Commission (the "SEC"), we are providing online access to Windstream's Annual Meeting materials over the Internet...

  • Page 15
    ... record as of the close of business on March 13, 2014 (the "Record Date") are entitled to receive notice of, to attend, and to vote at the Annual Meeting. As of the Record Date, there were 602,692,755 shares of Windstream's common stock issued and outstanding. How can I access the stockholder forum...

  • Page 16
    What is the quorum requirement for the Annual Meeting? The holders of a majority of the outstanding shares of Common Stock entitled to vote must be present in person or represented by proxy to hold the Annual Meeting. This is called a quorum. Your shares will be counted for purposes of determining ...

  • Page 17
    ... 8-9. Election of directors Advisory vote on executive compensation Increase authorized shares for equity incentive plan and re-approve plan's performance goals Amendment to eliminate certain voting provisions Amendments to enable stockholders to call special meetings Amendments to eliminate super...

  • Page 18
    ... than $100,000 for the year in question; The director or a member of the director's immediate family was a partner, controlling stockholder, executive officer or employee of an entity that made payments to, or received payments from, Windstream in any year in question that account for less than $200...

  • Page 19
    ...'s related party transaction policy and stock ownership guidelines, and spending on political activities by Windstream. On an annual basis, the Governance Committee reviews and assesses Windstream's Corporate Governance Board Guidelines and recommends any proposed changes to the Board of Directors...

  • Page 20
    ... the disruptive impact of technological change, capital structure and allocation, and mergers and acquisitions. The Board supplements its ability to discharge its risk oversight role by receiving and reviewing a report on the results of an annual risk assessment of Windstream as prepared by the...

  • Page 21
    ... the Board, the Board Committee or Non-Management Directors, c/o Corporate Secretary, 4001 Rodney Parham Road, Little Rock, AR 72212. Compensation of Directors. In February 2013, the Windstream Board modified the director compensation program to (1) eliminate meeting fees and to increase the annual...

  • Page 22
    ... a director of Windstream since November 2006 and is Chairman of the Compensation Committee. Mr. Beall is a principal in Beall Investments LLC, a private investment company. Mr. Beall served as Chairman of the Board and Chief Executive Officer of Ruby Tuesday, Inc., a New York Stock Exchange listed...

  • Page 23
    ...as Chairman of the Windstream Board. Mr. Frantz has served as Chairman of Central Bank (a community bank in Little Rock, Arkansas) since February 2007, and also serves as a director of a number of other privately held companies. Prior to January 2006, Mr. Frantz was Executive Vice President-External...

  • Page 24
    ... are an important customer segment for Windstream), and information technology and strategic planning. William A. Montgomery, age 65, has served as a director of Windstream since its formation in 2006 and is a member of the Compensation Committee and the Governance Committee. From 2007 to 2012, Mr...

  • Page 25
    ... Committee of Windstream and through his professional career, including his prior role as a chief executive officer of a private company, Mr. Montgomery has experience in strategic planning, risk management, compensation plans and policies, and capital market transactions. Mr. Montgomery's service...

  • Page 26
    ... of Windstream Common Stock valued at least five times the annual cash retainer paid to non-management directors. Executive officers are expected to maintain beneficial ownership of shares of Common Stock at the following levels: ten times base salary for the Chief Executive Officer; five times base...

  • Page 27
    ... each non-management director will be in compliance with the stock ownership guidelines at the time of the Annual Meeting. Security Ownership of Directors and Executive Officers. Set forth below is certain information, as of March 6, 2014, as to shares of Windstream common stock beneficially owned...

  • Page 28
    ... ownership as defined under SEC rules and will not vest within 60 days from March 6, 2014, all unvested outstanding PBRSUs are omitted from this table. For informational purposes, the following table shows the outstanding unvested PBRSUs granted to each named executive officer: Total Shares...

  • Page 29
    ... Windstream Holdings, Inc.'s Board of Directors. The Audit Committee's Charter is available on the Investor Relations page of Windstream Holdings, Inc.'s website at www.windstream.com/investors. The Audit Committee is comprised entirely of independent directors, as defined and required by SEC rules...

  • Page 30
    ...J. David Works, Jr., Executive Vice President - Chief Human Resources Officer Compensation Philosophy. Windstream's executive compensation program is designed to achieve the following objectives Provide a high correlation between pay and performance; Align management's interests with the long-term...

  • Page 31
    ...and long-term incentive plans. Our 2013 compensation reflected our mixed operating results by paying short-term incentive payouts below target. Our stock price decline also impacted 2013 compensation by providing a lower value to executives upon vesting of their equity awards compared to their grant...

  • Page 32
    ...The following table illustrates the allocation for each named executive officer for 2013: Percentage of Annual Total Direct Compensation* Allocated to Short-term Incentive (%) Percentage of Annual Total Direct Compensation* Allocated to Equity-Based Compensation (%) Percentage of Annual Total Direct...

  • Page 33
    ... year and is used as part of the decision-making process for the following year. During 2012, PM&P provided, and the Compensation Committee reviewed, competitive market data as part of its process for approving 2013 executive compensation levels and plan designs. Given the limited number of direct...

  • Page 34
    ... Windstream Benefit Restoration Plan. 2013 Total Compensation. Base salaries and short-term incentive opportunities remained flat year-over-year for all named executive officers. Long-term incentives remained flat for all NEOs except for Mr. Works, who received an increased amount due to his new...

  • Page 35
    ...-year and overall financial condition. Payout ratio was added to the short-term incentive plan to focus on cash flow to fund the dividend and is a key metric followed by our investors and the capital markets. Under the Windstream short-term incentive plan, executive officers were eligible to receive...

  • Page 36
    ... stock and to receive any cash dividends paid with respect to the restricted shares during the vesting period. For all outstanding grants of performance-based equity compensation, the dividends are accrued and paid out only when and if the performance conditions are satisfied. The Windstream Board...

  • Page 37
    ... to executive officers other than benefits that are generally available to all employees under Windstream's severance plan and benefits available under the change-in-control agreements discussed below. The employment agreement with Mr. Gardner includes a severance benefit of three times base salary...

  • Page 38
    ..., under Windstream's insider trading compliance policy, directors and executive officers are prohibited from engaging in any transaction involving derivative securities intended to hedge the market risk in equity securities of Windstream other than purchases of long call options or the sale of short...

  • Page 39
    ... ON EXECUTIVE COMPENSATION This report provides information concerning the Compensation Committee of Windstream Holdings, Inc.'s Board of Directors. The Compensation Committee's Charter is available on the Investor Relations page of Windstream Holdings, Inc.'s website at www.windstream.com/investors...

  • Page 40
    ... fiscal year ended December 31, 2013. As discussed in further detail in footnotes 1-3 and 9 to the Grants of Plan-Based Awards table below, the information provided in the Stock Awards column does not reflect the manner in which the Compensation Committee viewed or determined the equity compensation...

  • Page 41
    ... officers as follows: Company Contributions to Plans ($) Imputed Life Insurance, Aircraft Use, and Other ($) (4) (5) Name Year Total ($) Jeffery R. Gardner Anthony W. Thomas Brent Whittington John P. Fletcher J. David Works, Jr. (6) 2013 2012 2011 2013 2012 2011 2013 2012 2011 2013 2012...

  • Page 42
    ... executive officer in 2013 that vest ratably over a three-year period with each year set as a separate performance period. The Compensation Committee sets the threshold and target Adjusted OIBDA amount each year during the three-year vesting period. Pursuant to SEC rules and applicable accounting...

  • Page 43
    ... to the 2013 grant of PBRSUs, each NEO is entitled to receive an additional number of shares following completion of the three-year vesting period equal to 50% of his/her Total Target Amount (the "Overachievement Amount") if (i) Windstream's total stockholder return exceeds 75% of the S&P 500 during...

  • Page 44
    ... following table shows information regarding outstanding awards under the Windstream equity incentive plans held by the individuals named below as of December 31, 2013. All awards represent grants of restricted stock or units under the Equity Plan. OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END Stock...

  • Page 45
    ...15, 2013 with a closing price of $8.18. Pension Benefits The following is a brief summary of the material terms of the retirement plans maintained by Windstream. Windstream Pension Plan. Windstream maintains the Windstream Pension Plan ("Pension Plan"), which is a tax-qualified defined benefit plan...

  • Page 46
    ... base salary (three highest years) exceeds his or her Social Security covered compensation, multiplied by his years of pre-1988 credited service. Windstream Benefit Restoration Plan. The Windstream Benefit Restoration Plan ("BRP") contains an unfunded, unsecured pension benefit for a group of highly...

  • Page 47
    ...shows certain information regarding benefits under the Windstream Pension Plan and Benefit Restoration Plan as of December 31, 2013 for the individuals named below. PENSION BENEFITS Number of Years Credited Service (#) (1) Present Value of Accumulated Benefit ($) (2) Payments During Last Fiscal Year...

  • Page 48
    ... terminations of employment or a change-in-control of Windstream. The estimated amount of compensation and benefits payable or provided to each named executive officer in each situation is summarized below, assuming that the triggering event occurred on the last day of the 2013 fiscal year. The...

  • Page 49
    ... her 2013 annual bonus under the Performance Incentive Compensation Plan would have been pro-rated on the basis of the ratio of the number of days of participation during the plan year to the number of days during the plan year and paid by Windstream in a lump sum following the end of the year. For...

  • Page 50
    ... to receive, in a lump sum paid by Windstream or its successor, the following amounts pursuant to the change-in-control agreements: Three times for Messrs. Gardner, Thomas, Whittington, Fletcher and Works the sum of the executive's base salary and target annual incentive compensation (in...

  • Page 51
    ... by the executive of the corporate governance board guidelines and code of ethics of Windstream or any affiliate; (v) a material violation by the executive of the requirements of the SarbanesOxley Act of 2002 or other federal or state securities law, rule or regulation; (vi) the repeated use of...

  • Page 52
    ... closing price of Windstream's Common Stock on December 31, 2013 of $7.98 per share. None of the named executive officers is eligible to receive a tax gross-up payment for the golden parachute excise tax imposed on the change in control severance benefits under Sections 280G and 4999 of the tax code...

  • Page 53
    ...base salary, annual cash incentives and long-term equity incentives. The following is a summary of key considerations that stockholders should take into account when assessing our executive compensation program: Windstream's vision is to become the premier enterprise communications and services...

  • Page 54
    ... Code relating to performance-based compensation, the Equity Plan imposes the following additional sub-limits: (i) no participant may be granted option rights and stock appreciation rights ("SARs"), in the aggregate, for more than 1,000,000 shares of Windstream common stock during any calendar year...

  • Page 55
    ...performance-based restricted stock or stock units have been granted under the Equity Plan to the Company's directors, executive officers or other employees. Option Rights. The Compensation Committee may, in its discretion, award option rights to officers and other key employees of Windstream and its...

  • Page 56
    ... a change in control of Windstream, retirement, death or disability of the employee, or other similar transaction or event approved by the Compensation Committee. Any grant of SARs may specify Management Objectives that must be achieved as a condition to exercise such rights. Performance Shares and...

  • Page 57
    ... common stock as a bonus, or may grant other awards in lieu of obligations of Windstream or a subsidiary to pay cash or deliver other property under the Equity Plan or under other plans or compensatory arrangements, subject to such terms as are determined by the Compensation Committee. Management...

  • Page 58
    ... business expansion goals, cost targets, customer satisfaction, gross or net additional customers, average customer life, employee satisfaction, management of employment practices and employee benefits, supervision of litigation and information technology, and goals relating to acquisitions...

  • Page 59
    ... to the optionee, then upon sale of such shares, any amount realized in excess of the option price will be taxed to the optionee as a long-term capital gain and any loss sustained will be a long-term capital loss. If shares of Windstream common stock acquired upon the timely exercise of an ISO are...

  • Page 60
    ... Windstream from PAETEC at the time of acquisition, which was assumed by the Company in connection with its acquisition of PAETEC in 2011. As of December 31, 2013, 2,610,174 shares remained available for future grants under the PAETEC Plan. Other than the Equity Plan and the PAETEC Plan, the Company...

  • Page 61
    ... the total potential dilution to our outstanding common stock (as of December 31, 2013) from our equity-based compensation program from 2.3% to 4.8%. Share Utilization Rate. In fiscal years 2011, 2012 and 2013, the Company granted equity awards (gross equity grants, which do not reflect the impact...

  • Page 62
    ...,991 $ 1,212,506 - Securities Authorized for Issuance under Equity Compensation Plans The following table contains information about our common stock which may be issued under our existing equity compensation plans as of the end of fiscal 2013 as set forth in the Company's Annual Report on Form 10...

  • Page 63
    ... Holding Corp. prior to its merger with Windstream on December 1, 2011. This plan has not been approved by Windstream stockholders. Shares under the PAETEC Plan are only available for issuance to Windstream employees who were employees of PAETEC on December 1, 2011. Board Recommendation THE BOARD OF...

  • Page 64
    ... adversely impact the anticipated operational benefits of the holding company structure. For example, we are considering amending Windstream Corporation's Amended and Restated Certificate of Incorporation to reduce the number of shares of its authorized capital stock in order to reduce its Delaware...

  • Page 65
    ... least a 20% "net long position" in our outstanding capital stock for at least one year to call a special meeting of stockholders, subject to the conditions set forth in the Windstream Bylaws, as amended and described below. The Board believes that special meetings should only be called to consider...

  • Page 66
    ... for consideration at the special meeting. Upon receipt of a valid stockholder request to call a special meeting, the Windstream Board of Directors must set the meeting within 90 days. The proposed amendments to the Windstream Bylaws also contain various exceptions and timing mechanisms that are...

  • Page 67
    ...66 2/3% of Windstream's outstanding common stock to amend, alter, change or repeal the provisions of the Windstream Bylaws governing (1) substantive and procedural requirements regarding bringing business before an annual meeting, (2) the number, election and term of office of the Board of Directors...

  • Page 68
    ... alter, change or repeal the provisions of the Windstream Certificate governing (1) limits on the liability of Windstream's directors, (2) the provision of indemnification for its directors and officers, (3) prohibitions on stockholders' ability to act by written consent and to call special meetings...

  • Page 69
    ...23,750 paid directly by the Windstream 401(k) Plan for the 2012 audit. Tax fees are principally comprised of fees for tax consulting services provided by PwC. The 2012 fees were higher than 2013 primarily due to work performed in 2012 in connection with a study of acquisition costs and net operating...

  • Page 70
    ... implementation assistance on restructurings, mergers and acquisition matters and other tax strategies. The pre-approval policy provides that the Audit Committee, or any individual member of the Audit Committee who has been designated with authority to pre-approve audit or non-audit services to be...

  • Page 71
    ... change in control (as defined under any applicable employment agreement, equity incentive plan or other plan), there shall be no acceleration of vesting of any equity award granted to any senior executive, provided, however, that the board's Compensation Committee may provide in an applicable grant...

  • Page 72
    ... due to the substantial amount of merger and acquisition activity that occurs in our sector, as well as Windstream's practice of allocating a substantial percentage of each executive's annual total direct compensation to equity compensation. One unintended consequence of adopting the proposal...

  • Page 73
    ... environmental, social and corporate governance performance as reported in 2013: GMI Ratings, an independent investment research firm rated our company D for its executive pay. Windstream could give long-term incentive pay to our CEO for below-median performance. Unvested equity pay would not lapse...

  • Page 74
    ..., the Company is committed to good corporate governance, which promotes the long-term interests of stockholders, strengthens the Board of Directors and management accountability and helps build public trust in the company. Highlights of our strong corporate governance profile include the following...

  • Page 75
    Board Recommendation THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE "AGAINST" PROPOSAL NO. 9. PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE VOTED "AGAINST" PROPOSAL NO. 9 UNLESS STOCKHOLDERS SPECIFY A CONTRARY VOTE. | 69

  • Page 76
    ... on terms generally available to employees or customers. Covered transactions also do not include an employment or service relationship involving a director or executive officer and any related compensation resulting from that relationship that is approved by Windstream's Compensation Committee or...

  • Page 77
    ... restricted stock granted during 2013, Company contribution to the Windstream 401K plan, and Windstream's portion of healthcare premiums. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Exchange Act requires Windstream's directors and executive officers, and persons who...

  • Page 78
    .... Capitalized terms used herein shall have the meanings assigned to such terms in this Section 2. "Applicable Laws" means the requirements relating to the administration of equity-based compensation plans under U.S. state corporate laws, U.S. federal and state securities laws, the Code, any stock...

  • Page 79
    ... of the Outstanding Voting Securities, as the case may be, (ii) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or...

  • Page 80
    ... business expansion goals, cost targets, customer satisfaction, gross or net additional customers, average customer life, employee satisfaction, management of employment practices and employee benefits, supervision of litigation and information technology, and goals relating to acquisitions...

  • Page 81
    ... Option Price or per share Base Price provided for in the related Option Right or Free-Standing Appreciation Right, respectively. "Subsidiary" means a corporation, company or other entity which is designated by the Board and in which the Company has a direct or indirect ownership or other equity...

  • Page 82
    ... which shall contain such terms and provisions, consistent with this Plan and applicable sections of the Code, as the Board may approve. l. The Board may, at the Date of Grant of any Option Rights (other than Incentive Stock Options), provide for the payment of dividend equivalents to the Optionee...

  • Page 83
    ...Right is subject to all the terms and conditions of this Plan, and contain such other terms and provisions, consistent with this Plan and applicable sections of the Code, as the Board may approve. (v) Any grant may provide for the payment to the Participant of dividend equivalents thereon in cash or...

  • Page 84
    ...of Award, which shall contain such terms and provisions, consistent with this Plan and applicable sections of the Code, as the Board may approve. g. The Board may, at the Date of Grant of Performance Shares, provide for the payment of dividend equivalents to the holder thereof on either a current or...

  • Page 85
    ... Each grant or sale of Restricted Stock Units shall be evidenced by an Evidence of Award, which shall contain such terms and provisions, consistent with this Plan and applicable sections of the Code, as the Board may approve. 9. Awards to Non-Employee Directors. The Board may, from time to time and...

  • Page 86
    ... would result from (a) any stock dividend, stock split, combination of shares, recapitalization or other change in the capital structure of the Company, or (b) any merger, consolidation, spin-off, split-off, spin-out, split-up, reorganization, partial or complete liquidation or other distribution of...

  • Page 87
    ... of the Company in order to comply with applicable law or the rules of the New YorkNASDAQ Global Stock Exchange or, if the Common Shares are not traded on the New York Stock Exchange, the principal national securities exchange upon which the Common Shares are traded or quotedMarket, shall...

  • Page 88
    ... receive a cash bonus or other compensation otherwise payable by the Company or a Subsidiary to the Participant. e. If permitted by Section 409A of the Code, in case of termination of employment by reason of death, disability or normal or early retirement, or in the case of hardship or other special...

  • Page 89
    ... that any award under the Plan will qualify for favorable tax treatment under Section 409A of the Code or any other provision of federal, state, local, or non-United States law. Neither the Company, its Subsidiaries, nor their respective directors, officers, employees or advisers shall be liable...

  • Page 90
    ...to the holders of the security to be acquired" shall be the date of the relevant Special Meeting Request, (B) the "highest tender offer price or stated amount of the consideration offered for the subject security" shall refer to the closing sales price of capital stock on the NASDAQ Stock Market (or...

  • Page 91
    ...Section 2(b) and related provisions of these Bylaws shall be determined in good faith by the Board of Directors or its designees, which determination shall be conclusive and binding on the Corporation and the stockholders. (c) In order for a Stockholder Requested Special Meeting to be called, one or...

  • Page 92
    ... Board of Directors may designate any place, either within or without the State of Delaware, as the place of meeting for any annual meeting or for any special meeting. If no designation is made, or if a special meeting be otherwise called, the place of meeting shall be the principal executive office...

  • Page 93
    ...principal place of business of the Corporation. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. Section 6. Quorum. The holders of a majority of the outstanding shares of capital stock...

  • Page 94
    ... of which is to mitigate loss to or manage risk or benefit of share price changes for, or to increase or decrease the voting power of, such stockholder or any such Stockholder Associated Person with respect to any share of stock of the Corporation. (b) For purposes of this Section 11, "Stockholder...

  • Page 95
    ... accordance with the requirements set forth in Article II, Section 2), and the only matters that may be brought before a special meeting are the matters specified in the Corporation's notice of meeting. Stockholders seeking to nominate persons for election to the Board of Directors must comply with...

  • Page 96
    ... the capital stock required by law or this Restated Certificate, the affirmative vote of the holders of at least two-thirds of the combined voting power of all of the then outstanding shares of the Corporation eligible to be cast in the election of directors shall be required to amend, alter, change...

  • Page 97
    ... For the fiscal year ended December 31, 2013 or TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____ to _____ 4001 Rodney Parham Road Little Rock, Arkansas 72212 (Address of principal executive offices) (Zip Code) (501) 748...

  • Page 98
    ...Form 10-K is a combined annual report being filed separately by two registrants:Windstream Holdings, Inc. and Windstream Corporation. Windstream Corporation is a direct, wholly-owned subsidiary of Windstream Holdings, Inc. Accordingly, Windstream Corporation meets the conditions set forth in general...

  • Page 99
    ... 14. Directors, Executive Officers, and Corporate Governance Executive Compensation Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Certain Relationships and Related Transactions, and Director Independence Principal Accountant Fees and Services Part IV...

  • Page 100
    ... to business services, we offer broadband, voice and video services to consumers in primarily rural markets. We have operations in 48 states and the District of Columbia, a local and long-haul fiber network spanning approximately 118,000 miles, a robust business sales division and 26 data centers...

  • Page 101
    ... broadband lines to our service areas and that the projects will be complete by the end of 2014. Our consumer business remains under pressure due to competition from wireless carriers, cable television companies and other companies using emerging technologies. For the year ended December 31, 2013...

  • Page 102
    .... ("Lexcom"), a local communications company in Lexington, North Carolina. The transaction added approximately 22,000 voice lines, 9,000 high-speed Internet customers and 12,000 cable television customers. D&E Communications - On November 10, 2009, we completed a merger with D&E Communications, Inc...

  • Page 103
    ... consumer high-speed Internet and voice offerings, including broadband modems, home networking gateways and personal computers. We also sell home phones to support voice services. Wholesale We provide switched access services to long-distance companies and other local exchange carriers for access to...

  • Page 104
    ... of our new sales; our account management team, who also supports existing customers by advising and assisting them with their communications needs; our business call centers, which provide customer service and also generate new sales and upgrades; our indirect sales channel, which partners with...

  • Page 105
    ... to offer a full suite of voice and advanced data services, including, but not limited to, multi-site networking, dedicated Internet and Ethernet solutions, high-speed Internet and VoIP services. In certain territories, we serve business customers by leasing last-mile connections from other carriers...

  • Page 106
    ... advanced data services such as multi-site networking. Our small business customers are driving growth in revenues by purchasing value-added services such as data backup, hosting services, and tech support. Our primary competitors are other communications providers and cable television companies. In...

  • Page 107
    ...subsidiaries in management activities including investor relations, acquisitions and dispositions, corporate planning, tax planning, cash and debt management, accounting, insurance, sales and marketing support, government affairs, legal matters, human resources and engineering services. EMPLOYEES At...

  • Page 108
    ...or other government programs, expected rates of loss of voice lines or intercarrier compensation, expected increases in business data connections, our expected ability to fund operations, expected required contributions to our pension plan, capital expenditures, cash income tax payments, and certain...

  • Page 109
    ...regulations governing the communications industry; continued loss of consumer voice lines and consumer high-speed Internet customers; the impact of equipment failure, natural disasters or terrorist acts; the effects of work stoppages by our employees or employees of other communications companies on...

  • Page 110
    ... we use to provide service to our customers. In certain markets and/or at certain locations, especially where we provide services to businesses, we may lease a significant portion of our network capacity from other carriers. These carriers may compete directly with us for customers. The prices for...

  • Page 111
    ... and peer-to-peer file sharing applications use significantly more bandwidth than traditional Internet activity such as web browsing and email. As utilization rates and availability of these services continue to grow, our high-speed Internet customers may use much more bandwidth than in the past...

  • Page 112
    ..., which limit our pricing flexibility for regulated voice and high-speed Internet products, subject us to service quality, service reporting and other obligations and expose us to the reduction of revenue from changes to the universal service fund, the intercarrier compensation system, or access to...

  • Page 113
    ... payments on outstanding debt, thereby limiting the availability of cash flow to fund future capital expenditures, working capital and other general corporate requirements; Limit our flexibility in planning for, or reacting to, changes in our business and the telecommunications industry; Place...

  • Page 114
    ... in our consumer markets, offering voice and high-speed Internet services in addition to video services. Some of our customers have chosen to move to cable television providers for their voice, high-speed Internet and television bundles. Cable television companies are subject to less stringent...

  • Page 115
    ... continue to expand in availability and reliability, they could become an effective alternative to our high-speed Internet services. In addition, cable operators may be able to take advantage of certain technology to deploy faster broadband speeds more rapidly than Windstream. In addition to...

  • Page 116
    ...making significant capital investments to deploy fiber-to-the-tower and other network services for wireless companies in return for long-term revenue generating contracts. If these carriers go bankrupt or experience substantial financial difficulties and we are unable to timely collect payments from...

  • Page 117
    .... We store customers' proprietary business information in our facilities through our colocation, managed services and cloud computing services. In addition, we maintain certain sensitive customer information in our financial and operating systems. While we have implemented data security polices and...

  • Page 118
    ...location of principal units. All of our property is considered to be in good working condition and suitable for its intended purpose. Our gross investment in property, by category, as of December 31, 2013, was as follows: Land Building and improvements Central office equipment Outside communications...

  • Page 119
    ...Issuer Purchases of Equity Securities Market Information, Holders and Dividends (a) Our common stock is traded on the Nasdaq Global Select Market under the symbol "WIN." The following table reflects the range of high, low and closing prices of our common stock as reported by Dow Jones & Company, Inc...

  • Page 120
    ... S&P 500 Stock Index and the S&P Telecom Index. The S&P Telecom Index consists of the following companies: AT&T Inc., CenturyLink, Inc., Crown Castle International Corp., Frontier Communications Corp., Sprint Communications, Inc., T-Mobile US, Inc., Verizon Communications Inc., Windstream Holdings...

  • Page 121
    ...PAETEC Holding Corp. 2011 Omnibus Incentive Plan is approximately 3.6 million shares. The following table sets forth information about our equity compensation plans as of December 31, 2013: Equity Compensation Plan Information Plan Category Equity compensation plans not approved by security holders...

  • Page 122
    ... that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely...

  • Page 123
    ... We have a code of ethics that applies to all employees and members of the Board of Directors. Our code of ethics, referred to as the "Working with Integrity" guidelines, is posted on the Investor Relations page on our web site (www.windstream.com) under "Corporate Governance". We will disclose...

  • Page 124
    ... For information pertaining to Executive Compensation, refer to "Compensation Committee Report on Executive Compensation" and "Management Compensation" in our Proxy Statement for our 2014 Annual Meeting of Stockholders, which are incorporated herein by reference. Item 12. Security Ownership of...

  • Page 125
    ... by reference herein: Financial Supplement Page Number Reports of Independent Registered Public Accounting Firm Windstream Holdings, Inc. Consolidated Financial Statements Consolidated Statements of Income for the years ended December 31, 2013, 2012, and 2011 Consolidated Statements of Comprehensive...

  • Page 126
    .... (Registrant) WINDSTREAM CORPORATION (Registrant) By /s/ Jeffery R. Gardner Jeffery R. Gardner, President and Chief Executive Officer Date: February 27, 2014 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf...

  • Page 127
    WINDSTREAM HOLDINGS, INC. SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT (PARENT COMPANY) STATEMENT OF COMPREHENSIVE INCOME For the period of August 30, 2013 (date of formation) to December 31, 2013 (Millions) Costs and expenses: Selling, general, and administrative Total costs and ...

  • Page 128
    ... INFORMATION OF THE REGISTRANT (PARENT COMPANY) BALANCE SHEET December 31, 2013 (Millions, except par value) Assets Current Assets: Distributions receivable from Windstream Corp. Other current assets Total current assets Investment in affiliate Total Assets Liabilities and Shareholders' Equity...

  • Page 129
    ...: Equity in earnings from subsidiaries Changes in operating assets and liabilities, net: Other current assets Net cash used in operating activities Cash Flows from Financing Activities: Dividends paid to shareholders Distributions from Windstream Corp Net cash provided by financing activities Change...

  • Page 130
    ... FINANCIAL INFORMATION OF THE REGISTRANT (PARENT COMPANY) Background and Basis of Presentation: Following its formation on August 30, 2013, Windstream Holdings, Inc. ("Windstream Holdings") has no material assets or operations other than its ownership in Windstream Corporation ("Windstream Corp...

  • Page 131
    ... accounts, customers and others: For the years ended: December 31, 2013 December 31, 2012 December 31, 2011 Valuation allowance for deferred tax assets: For the years ended: December 31, 2013 December 31, 2012 December 31, 2011 Accrued liabilities related to merger, integration and restructuring...

  • Page 132
    ... Windstream Corporation, Peach Merger Sub, Inc. and PAETEC Holding Corp. (incorporated herein by reference to Exhibit 2.1 to Current Report on Form 8-K of PAETEC dated July 31, 2011). 2.2 Agreement and Plan of Merger, dated August 29, 2013, by and among Windstream Corporation, Windstream Holdings...

  • Page 133
    ... 7, 2013). Director Compensation Program dated February 6, 2013 (incorporated herein by reference to Windstream Holdings Inc.'s Form 10-K dated February 19, 2013). Form of Restricted Shares Agreement (Non-Employee Directors) entered into between Windstream Corporation and non-employee directors...

  • Page 134
    ... to Exhibit 10.1 to Corporation's Current Report on Form 8-K dated December 21, 2009) and as assumed by Windstream Holdings, Inc. Form of Change-In-Control Agreement, dated as of January 1, 2013, entered into between Windstream Corporation and certain executive officers (incorporated herein by...

  • Page 135
    ... the SEC on February 8, 2008 (SEC File No. 333-149130)) and as assumed by Windstream Holdings, Inc. PAETEC Communications, Inc. Agent Incentive Plan, as amended and restated (filed as Exhibit 4.2.1 to PAETEC Holding Corp.'s Amendment No. 2 to Registration Statement on Form S-4 (SEC File Number 333...

  • Page 136
    WINDSTREAM HOLDINGS, INC. WINDSTREAM CORPORATION FINANCIAL SUPPLEMENT TO ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2013

  • Page 137
    ... HOLDINGS, INC. WINDSTREAM CORPORATION INDEX TO FINANCIAL SUPPLEMENT TO ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2013 Management's Discussion and Analysis of Financial Condition and Results of Operations Selected Financial Data Management's Responsibility for Financial Statements...

  • Page 138
    ... audit, legal and board of director fees, Nasdaq listing fees, other shareholder-related costs, income taxes, common stock activity, and payables from Windstream Corp. to Windstream Holdings. Through December 31, 2013, the amount of expenses directly incurred by Windstream Holdings subsequent to the...

  • Page 139
    ... cost management. We are also proud of the fact that we were named for the first time to the 2013 FORTUNE 500 list of largest U.S. companies as ranked by revenue, placing No. 414. BUSINESS TRENDS The following discussion highlights key trends affecting our business. Business communications services...

  • Page 140
    ... from cable companies, wireless carriers and providers using other emerging technologies. To combat competitive pressures, we continue to emphasize our bundled products and services. Our consumers can bundle voice, high-speed Internet and video services, providing one convenient billing solution and...

  • Page 141
    ... advanced data solutions for businesses to basic voice services. Our sales, marketing and customer support teams are structured based upon the type of customer they serve. We deliver these services over owned or leased network facilities. Our corporate support teams, such as finance and accounting...

  • Page 142
    ... Operating Metrics: Customer locations Enterprise Small business Total customer locations (a) Total business customers Carrier special access circuits Consumer Operating Metrics: Voice lines High-speed Internet Digital television customers Total consumer connections (a) 2013 2012 2011 210...

  • Page 143
    ... of competition from wireless carriers, cable companies and other providers using emerging technologies. For the twelve months ended December 31, 2013, consumer voice lines decreased by approximately 119,600, or 6.5 percent. Growth in revenues from high-speed Internet and related services help to...

  • Page 144
    ... the completion of long distance calls, as well as reciprocal compensation received from wireless and other local connecting carriers for the use of our network facilities. USF revenues are government subsidies designed to partially offset the cost of providing wireline services in high-cost areas...

  • Page 145
    ... to our customers. Business product sales includes high-end data and communications equipment which facilitate the delivery of advanced data and voice services to our business customers. Consumer product sales include high-speed Internet modems, home networking equipment, computers and phones. We...

  • Page 146
    ...(22.7) Year Ended December 31, 2012 Increase % (Decrease) 90.1 (1.1) (4.7) (11)% $ 17.2 101.5 97% (Millions) Due to PAETEC acquisition Due to changes in product sales to consumers Due to decreases in product sales to business customers Due to changes in sales to contractors Total changes in cost of...

  • Page 147
    ... other support functions, and professional fees. These expenses include salaries, wages and employee benefits not directly associated with the provisioning of services. The following table reflects the primary drivers of year-over-year changes in SG&A expenses: Year Ended December 31, 2013 Increase...

  • Page 148
    ... acquisitions of PAETEC, NuVox, Iowa Telecom, Q-Comm, and Hosted Solutions (collectively the "Acquired Companies") described in the sections entitled "Strategic Acquisitions" and "Other Acquisitions" in Part I, "Item I Business" in this annual report accounted for the merger and integration costs...

  • Page 149
    ... with Iowa Telecom and D&E Communications, Inc. ("D&E"). Other expense, net during 2013, primarily consisted of costs incurred in connection with the Holding Company Formation. (b) (Loss) Gain on Extinguishment of Debt During the third quarter of 2013, Windstream Corp. retired all $500.0 million...

  • Page 150
    ... its interest rates. The 2011 debt retirements were also accounted for under the extinguishment method, and, as a result, Windstream Corp. recognized a loss on extinguishment of debt of $136.1 million during 2011. The (loss) gain on extinguishment of debt was as follows for the years ended December...

  • Page 151
    ..., for the years ended December 31, 2013 and 2012, respectively. The increase in 2013 was attributable to additional interest and amortization of debt issuance costs associated with the Windstream Corp. 2023 Notes issued in January 2013, the revolving line of credit completed in August 2013, and the...

  • Page 152
    ..., net of tax On December 5, 2013, we completed the sale of Pinnacle, a software business acquired as part of PAETEC, which provided comprehensive solutions for supporting the full lifecycle of information technology and telecommunications services. On June 15, 2012, we completed the sale of the...

  • Page 153
    .... Carriers are required to use ARM support to build and operate broadband networks in areas substantially unserved by an unsubsidized competitor offering fixed voice and broadband service. On April 25, 2012, the FCC decided that originating access rates for intrastate long distance traffic exchanged...

  • Page 154
    ... small company program. The purpose of the Texas USF is to assist telecommunications carriers with providing basic local telecommunications services at reasonable rates to customers in high cost rural areas and to qualifying low-income and disabled customers. By order of the Texas PUC, the Texas USF...

  • Page 155
    ...term debt to meet our liquidity requirements. We expect cash flows from operations will be sufficient to fund ongoing working capital requirements, planned capital expenditures, scheduled debt principle and interest payments and dividend payments. We also have access to capital markets and available...

  • Page 156
    ... 2013 also reflected $22.3 million in additional grant funds received for broadband stimulus projects, the receipt of $60.7 million in support from CAF, and proceeds from the disposition of the software business of $30.0 million. Cash used in investing activities increased by $449.5 million in 2012...

  • Page 157
    ... stock, or $1.00 per common share on an annual basis. This practice can be changed at any time at the discretion of the board of directors, and is subject to the restricted payment capacity under Windstream Corp.'s debt covenants as further discussed below. Dividends paid to shareholders during 2013...

  • Page 158
    ... of dividends to Windstream Holdings shareholders. Windstream Corp. builds additional capacity through cash generated from operations while dividend payments, and other certain restricted investments reduce the available restricted payments capacity. Windstream Corp. will continue to consider free...

  • Page 159
    ...the discount on long-term debt, net of premiums. The interest coverage ratio is computed by dividing adjusted EBITDA by adjusted interest expense. (b) (c) (d) Credit Ratings As of February 24, 2014, Moody's Investors Service, Standard & Poor's Corporation ("S&P") and Fitch Ratings had granted the...

  • Page 160
    ... premiums (net of discounts) included in long-term debt at December 31, 2013. Variable rates on the senior secured credit facility are calculated in relation to one-month London Interbank Offered Rate ("LIBOR") rate which was 0.16 percent at December 31, 2013. Capital leases include non-cancellable...

  • Page 161
    ... instruments, for trading or speculative purposes. Management periodically reviews our exposure to interest rate fluctuations and implements strategies to manage the exposure. As of December 31, 2013, Windstream Corp. has entered into ten pay fixed, receive variable interest rate swap agreements...

  • Page 162
    ..., long distance and enhanced service revenues are recognized monthly as services are provided. Revenue from sales of indefeasible rights to use fiber optic network facilities ("IRUs") and the related telecommunications network maintenance arrangements is generally recognized over the term of...

  • Page 163
    ... unfunded, non-qualified supplemental retirement benefits to a select group of management employees. The annual costs of providing pension benefits are based on certain key actuarial assumptions, including the expected return on plan assets and discount rate. We recognize changes in the fair value...

  • Page 164
    ... funds or other government programs, expected rates of loss of voice lines or inter-carrier compensation, expected increases in business data connections, our expected ability to fund operations, expected required contributions to our pension plan, capital expenditures, cash income tax payments, and...

  • Page 165
    ...acquired businesses or the ability to realize anticipated synergies, cost savings and growth opportunities; the effects of federal and state legislation, and rules and regulations governing the communications industry; continued loss of consumer voice lines and consumer high-speed Internet customers...

  • Page 166
    ...of certain expenses directly incurred by Windstream Holdings principally consisting of audit, legal and board of director fees, Nasdaq listing fees, other shareholder-related costs, income taxes, common stock activity, and payables from Windstream Corp. to Windstream Holdings. In 2013, the amount of...

  • Page 167
    ..., and legal compliance and ethics programs as established by our management and the Board of Directors. The internal auditors and the independent registered public accounting firm periodically meet alone with the Audit Committee and have access to the Audit Committee at any time. Dated February 27...

  • Page 168
    ... over financial reporting as of December 31, 2013, has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein. Dated February 27, 2014 Jeffery R. Gardner President and Chief Executive Officer Anthony W. Thomas...

  • Page 169
    ...of Independent Registered Public Accounting Firm To the Board of Directors and Shareholders of Windstream Holdings, Inc.: In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, comprehensive income, shareholders' equity and cash flows present...

  • Page 170
    ... of Independent Registered Public Accounting Firm To the Board of Directors and Shareholders of Windstream Corporation: In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, comprehensive income, shareholders' equity and cash flows present...

  • Page 171
    ... STATEMENTS OF INCOME For the years ended December 31, (Millions, except per share amounts) Revenues and sales: Service revenues: Business Consumer Wholesale Other Total service revenues Product sales Total revenues and sales Costs and expenses: Cost of services (exclusive of depreciation and...

  • Page 172
    ... for employee benefit plans Plan curtailment Amounts included in net periodic benefit cost: Amortization of net actuarial loss Amortization of prior service credits Income tax benefit (expense) Change in postretirement and pension plans Other comprehensive income Comprehensive income 2013 241.0 2012...

  • Page 173
    ... sale Total current assets Goodwill Other intangibles, net Net property, plant and equipment Other assets Total Assets Liabilities and Shareholders' Equity Current Liabilities: Current maturities of long-term debt Current portion of interest rate swaps Accounts payable Advance payments and customer...

  • Page 174
    ... net (premium) discount on retired debt Amortization of unrealized losses on de-designated interest rate swaps Gain from sale of software business Plan curtailment and other, net Changes in operating assets and liabilities, net Accounts receivable Income tax receivable Prepaid income taxes Prepaid...

  • Page 175
    ... rate swaps Changes in designated interest rate swaps Comprehensive income Share-based compensation expense Stock options exercised Stock issued to PAETEC shareholders (See Note 3) Stock issued to qualified pension plan (See Note 8) Taxes withheld on vested restricted stock and other Dividends...

  • Page 176
    WINDSTREAM CORPORATION CONSOLIDATED STATEMENTS OF INCOME For the years ended December 31, (Millions, except per share amounts) Revenues and sales: Service revenues: Business Consumer Wholesale Other Total service revenues Product sales Total revenues and sales Costs and expenses: Cost of services (...

  • Page 177
    ... for employee benefit plans Plan curtailment Amounts included in net periodic benefit cost: Amortization of net actuarial loss Amortization of prior service credits Income tax benefit (expense) Change in postretirement and pension plans Other comprehensive income Comprehensive income 2013 241.3 2012...

  • Page 178
    ... Total Assets Liabilities and Shareholders' Equity Current Liabilities: Current maturities of long-term debt Current portion of interest rate swaps Accounts payable Payable to Windstream Holdings, Inc. Advance payments and customer deposits Accrued dividends Accrued taxes Accrued interest Other...

  • Page 179
    ... net (premium) discount on retired debt Amortization of unrealized losses on de-designated interest rate swaps Gain from sale of software business Plan curtailment and other, net Changes in operating assets and liabilities, net Accounts receivable Income tax receivable Prepaid income taxes Prepaid...

  • Page 180
    ... rate swaps Changes in designated interest rate swaps Comprehensive income Share-based compensation expense Stock options exercised Stock issued to PAETEC shareholders (See Note 3) Stock issued to qualified pension plan (See Note 8) Taxes withheld on vested restricted stock and other Dividends...

  • Page 181
    ...voice and data services, advanced data, traditional voice and longdistance services to enterprise and small-business customers, and revenues from other carriers for special access circuits and fiber connections. Consumer service revenues are generated from the provision of high-speed Internet, voice...

  • Page 182
    ... expenses incurred directly by Windstream Holdings principally consisting of audit, legal and board of director fees, Nasdaq listing fees, other shareholder-related costs, income taxes, common stock activity, and payables from Windstream Corp. to Windstream Holdings. Earnings per share data has not...

  • Page 183
    ... of our software business are reported as discontinued operations for all periods presented. See Note 15 for further discussion of discontinued operations. On February 22, 2012 and March 30, 2012, we completed the sales of wireless assets acquired from D&E Communications, Inc. ("D&E") and Iowa...

  • Page 184
    ...We amortize customer lists using the sum-of-the-digits method over an estimated life or 9 to 15 years. All other intangible assets are amortized using a straight-line method over the estimated useful lives. Net Property, Plant and Equipment - Property, plant and equipment are stated at original cost...

  • Page 185
    ..., long distance and enhanced service revenues are recognized monthly as services are provided. Revenue from sales of indefeasible rights to use fiber optic network facilities ("IRUs") and the related telecommunications network maintenance arrangements is generally recognized over the term of...

  • Page 186
    ... income applicable to common shares by the weighted average number of common shares outstanding during each period. Our non-vested restricted shares containing a non-forfeitable right to receive dividends on a one-to-one per share ratio to common shares are considered participating securities, and...

  • Page 187
    ...we implemented new depreciation rates resulting in a net increase to depreciation of $59.1 million and a net decrease in net income of $36.5 million or $0.06 per share for the year ended December 31, 2012. Recently Adopted Accounting Standards Balance Sheet Offsetting - Effective January 1, 2013, we...

  • Page 188
    ...Common stock issued to PAETEC shareholders (a) (b) Final Allocation $ 240.8 227.5 875.7 653.3 830.0 15.0 162.8 8.4 3,013.5 (19.0) (453.5) (1,643.7) (55.3) (2,171.5) 842.0 $ Customer lists are amortized using the sum-of-years digit methodology over an estimated useful life of ten years. Trade names...

  • Page 189
    ... of merger and integration expenses related to the acquisition and the impact of tax benefits from PAETEC's loss from operations. The pro forma results are presented for illustrative purposes only and do not reflect either the realization of potential cost savings or any related integration costs...

  • Page 190
    ... useful lives were as follows as of December 31, 2013: Intangible Assets Franchise rights Customer lists Cable franchise rights Other Amortization Methodology straight-line sum of years digits straight-line straight-line Estimated Useful Life 30 years 9 - 15 years 15 years 1 - 3 years Amortization...

  • Page 191
    ... and notes, without collateral: Windstream Georgia Communications LLC - 6.50%, due November 15, 2013 PAETEC 2018 Notes - 9.875%, due December 1, 2018 Premium on long-term debt, net Less current maturities Total long-term debt Weighted average interest rate Weighted maturity $ 2013 $ - 387.3 277...

  • Page 192
    ...B3 senior secured credit facilities due August 8, 2019. The additional term loan proceeds were used to repay Windstream Corp.'s revolver borrowings and for general corporate purposes, thereby creating sufficient liquidity to repay the 2013 debt maturities. Debt issuance costs associated with the new...

  • Page 193
    ..., together with available cash, were used to pay the consideration for the tender offer and to redeem all of the outstanding PAETEC 2017 Notes, along with related fees and expenses. PAETEC 2015 Notes - In connection with our acquisition of PAETEC on November 30, 2011, Windstream Corp. also assumed...

  • Page 194
    ... debt of $28.5 million during 2013. During the first quarter of 2012, Windstream Corp. retired all $300.0 million of the outstanding PAETEC 2015 Notes. The PAETEC 2015 Notes were purchased using borrowings under Windstream Corp.'s revolving line of credit. The retirement was accounted for under the...

  • Page 195
    ... STATEMENTS ____ 5. Long-term Debt and Capital Lease Obligations, Continued: The (loss) gain on extinguishment of debt was as follows for the years ended December 31: (Millions) 2019 Notes: Premium on early redemption Third-party fees for early redemption Unamortized debt issuance costs on original...

  • Page 196
    ...Present value of minimum lease payments Interest Expense Interest expense was as follows for the years ended December 31: (Millions) Interest expense related to long-term debt Impacts of interest rate swaps Interest on capital leases and other Less capitalized interest expense Total interest expense...

  • Page 197
    ... a current credit rating at or above A. Windstream Corp. expects to recognize losses of $9.8 million, net of taxes, in interest expense in the next twelve months related to the unamortized value of the de-designated portion of interest rate swap agreements at December 31, 2013. Payments on the swaps...

  • Page 198
    ... condition, such as a merger, occurs that materially changes Windstream Corp.'s creditworthiness in an adverse manner, Windstream Corp. may be required to fully collateralize its derivative obligations. At December 31, 2013, Windstream Corp. had not posted any collateral related to its interest rate...

  • Page 199
    ...receivable, income tax receivable, accounts payable, long-term debt, and interest rate swaps. The carrying amount of cash, restricted cash, accounts receivable, income tax receivable and accounts payable was estimated by management to approximate fair value due to the relatively short period of time...

  • Page 200
    ... Employees share in, and we fund, the costs of these plans as benefits are paid. The components of pension benefit (income) expense (including provision for executive retirement agreements) and postretirement benefits income were as follows for the years ended December 31: Pension Benefits 2013 2012...

  • Page 201
    ... incorporating high-quality corporate bonds with various maturities adjusted to reflect the timing of our expected benefit payments. During 2012, we also made changes to our postretirement medical plan, eliminating medical and prescription drug subsidies for certain active and retired participants...

  • Page 202
    ... respectively. Assumptions - Actuarial assumptions used to calculate pension and postretirement benefits (income) expense were as follows for the years ended December 31: (Millions) Discount rate Expected return on plan assets Rate of compensation increase Pension Benefits 2013 2012 3.85% 4.64% 7.00...

  • Page 203
    ... of the pension plan are manageable given that lump sum payments are not available to most participants. Equity securities include stocks of both large and small capitalization domestic and international companies. Equity securities are expected to provide both diversification and long-term real...

  • Page 204
    ... of our pension plan assets were determined using the following inputs as of December 31, 2013: Quoted Price in Active Markets for Identical Assets (Millions) Money market funds (a) Guaranteed annuity contract (b) Common collective trust funds (c) Government and agency securities (d) Corporate bonds...

  • Page 205
    ... the fund manager on the last business day of the Plan year. The underlying assets are mostly comprised of publicly traded equity securities and fixed income securities. These securities are valued at the official closing price of, or the last reported sale prices as of the close of business or, in...

  • Page 206
    ... fair value measurement at the reporting date. Estimated Future Employer Contributions and Benefit Payments - Estimated future employer contributions, benefit payments, including executive retirement agreements, are as follows as of December 31, 2013: Pension Benefits $ $ 83.8 78.1 77.4 78.3 80...

  • Page 207
    ...-Based Compensation Plans, Continued: Restricted Stock and Restricted Stock Unit Activity - During 2013, 2012 and 2011, our Board of Directors approved grants of restricted stock and restricted stock units to officers, executives, non-employee directors and certain management employees. These grants...

  • Page 208
    ...Total compensation expense related to stock options granted was approximately $0.1 million, $0.2 million, and $0.1 million for the years ended December 31, 2013, 2012 and 2011, respectively. The following table summarizes stock option information as of December 31, 2013: Options Outstanding Weighted...

  • Page 209
    ... costs, such as accounting, legal and broker fees; severance and related costs; IT and network conversion; rebranding; and consulting fees. The 2011 acquisition of PAETEC and 2010 acquisitions of NuVox Inc. ("NuVox"), Iowa Telecom, Q-Comm Corporation ("Q-Comm") and Hosted Solutions Acquisitions, LLC...

  • Page 210
    ... income balances, net of tax, were as follows for the years ended December 31: (Millions) Pension and postretirement plans Unrealized holding gains (losses) on interest rate swaps Designated portion De-designated portion Accumulated other comprehensive income $ 2013 26.4 $ 2012 43.9 $ 2011 54.7 (16...

  • Page 211
    ... federal and state income taxes, were as follows for the years ended December 31: Statutory federal income tax rate Increase (decrease) State income taxes, net of federal benefit Adjust deferred taxes for state net operating loss carryforward Acquisition costs Tax refund interest Valuation allowance...

  • Page 212
    ... D&E, Lexcom Inc. ("Lexcom"), NuVox, Iowa Telecom, Q-Comm and PAETEC. The 2013 decrease is primarily associated with the amount utilized for the year. Federal and state tax rules limit the deductibility of loss carryforwards in years following an ownership change. As a result of these limitations or...

  • Page 213
    ... tax rate but would accelerate the payment of cash to the taxing authority to an earlier period. These unrecognized tax benefits are included in other long-term liabilities in the accompanying consolidated balance sheets for the years ended December 31, 2013 and 2012. We file income tax returns...

  • Page 214
    ... using the equity method of accounting. Condensed Consolidated Statement of Comprehensive Income For the Year Ended December 31, 2013 (Millions) Windstream Corp. Guarantors NonGuarantors Eliminations Consolidated Revenues and sales: Service revenues Product sales Total revenues and sales Costs...

  • Page 215
    ... of Comprehensive Income For the Year Ended December 31, 2012 (Millions) Windstream Corp. Guarantors NonGuarantors Eliminations Consolidated Revenues and sales: Service revenues Product sales Total revenues and sales Costs and expenses: Cost of services Cost of products sold Selling, general and...

  • Page 216
    ... of Comprehensive Income For the Year Ended December 31, 2011 (Millions) Windstream Corp. Guarantors NonGuarantors Eliminations Consolidated Revenues and sales: Service revenues Product sales Total revenues and sales Costs and expenses: Cost of services Cost of products sold Selling, general and...

  • Page 217
    ... Total Assets Liabilities and Shareholders' Equity Current Liabilities: Current maturities of long-term debt Current portion of interest rate swaps Accounts payable Affiliates payable, net Notes payable - affiliate Advance payments and customer deposits Accrued taxes Accrued interest Other current...

  • Page 218
    ... Assets Liabilities and Shareholders' Equity Current Liabilities: Current maturities of long-term debt Current portion of interest rate swaps Accounts payable Affiliates payable, net Notes payable - affiliate Advance payments and customer deposits Accrued dividends Accrued taxes Accrued interest...

  • Page 219
    ... expense Pension income Deferred income taxes Unamortized net discount (premium) on retired debt Amortization of unrealized losses on de-designated interest rate swaps Gain from sale of software business Plan curtailment and other, net Changes in operating assets and liabilities, net Net cash (used...

  • Page 220
    ... grants Changes in restricted cash Grant funds received for broadband stimulus projects Disposition of wireless assets Disposition of energy business Other, net Net cash provided from (used in) investing activities Cash Flows from Financing Activities: Dividends paid to shareholders Repayment...

  • Page 221
    ... from subsidiaries Share-based compensation expense Pension expense Deferred income taxes Unamortized net discount on retired debt Amortization of unrealized losses on de-designated interest rate swaps Plan curtailment and other, net Changes in operating assets and liabilities, net Net cash (used in...

  • Page 222
    ... 14. Supplemental Guarantor Information, Continued: Debentures and notes, issued by PAETEC Holding Corporation In connection with the acquisition of PAETEC on November 30, 2011, Windstream Corp. (the "Parent") acquired the PAETEC 2018 Notes ("the guaranteed notes"). Windstream Corp. and all former...

  • Page 223
    ...Year Ended December 31, 2012 (Millions) Windstream Corp. PAETEC Issuer Guarantors NonGuarantors Eliminations Consolidated Revenues and sales: Service revenues Product sales Total revenues and sales Costs and expenses: Cost of services Cost of products sold... income taxes Income tax (benefit) expense...

  • Page 224
    ... Income For the Year Ended December 31, 2011 (Millions) Windstream Corp. PAETEC Issuer Guarantors NonGuarantors Eliminations Consolidated Revenues and sales: Service revenues Product sales Total revenues and sales Costs and expenses: Cost of services Cost of products sold Selling, general and...

  • Page 225
    ... and Shareholders' Equity Current Liabilities: Current maturities of long-term debt Current portion of interest rate swaps Accounts payable Affiliates payable, net Advance payments and customer deposits Accrued taxes Accrued interest Other current liabilities Total current liabilities Long-term debt...

  • Page 226
    ... assets Total Assets Liabilities and Shareholders' Equity Current Liabilities: Current maturities of long-term debt Current portion of interest rate swaps Accounts payable Affiliates payable, net Advance payments and customer deposits Accrued dividends Accrued taxes Accrued interest Other current...

  • Page 227
    ... expense Pension income Deferred income taxes Unamortized net discount (premium) on retired debt Amortization of unrealized losses on de-designated interest rate swaps Gain from sale of software business Plan curtailment and other, net Changes in operating assets and liabilities, net Net cash (used...

  • Page 228
    ... grants Changes in restricted cash Grant funds received for broadband stimulus projects Disposition of wireless assets Disposition of energy business Other, net Net cash used in (provided from) investing activities Cash Flows from Financing Activities: Dividends paid to shareholders Repayment...

  • Page 229
    ... from subsidiaries Share-based compensation expense Pension expense Deferred income taxes Unamortized net discount on retired debt Amortization of unrealized losses on de-designated interest rate swaps Plan curtailment and other, net Changes in operating assets and liabilities, net Net cash (used in...

  • Page 230
    ...5, 2013, we completed the sale of Pinnacle, a software business acquired as part of the PAETEC acquisition, for $30.0 million in cash. Pinnacle provided comprehensive solutions for supporting the full lifecycle of information technology and telecommunications services. On June 15, 2012, we completed...

  • Page 231
    ...fourth quarter of each year, unless an earlier measurement date is required. Results of operations for the fourth quarter of 2013 and 2012 include pretax actuarial (gains) and losses related to pension benefits of $(110.4) million and $72.5 million or an after-tax (benefit) charge of $(71.1) million...

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  • Page 235
    ... OIBDA excludes the impact of restructuring charges, pension expense and stock-based compensation. Pro forma for all transactions. 86 93 k 118 27 Top U.S. Metros Miles of Fiber Data Centers Service in % Consumer Broadband Addressability Using Capital Wisely 5 Contacts We are making strategic...

  • Page 236
    ... COMMUNICATIONS CLOUD MPLS / MANAGED NETWORK SERVICES SMALL & MEDIUM BUSINESS CONSUMER BROADBAND Scan these QR codes to access these sites with your mobile device Windstream Investor Relations site Windstream 2014 Shareholder Forum Windstream 2014 Annual Meeting Voting site Windstream 2013...