Windstream 2015 Annual Report Download

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Oering high bandwidth
s o l u t i o n s i n c l u d i n g :
Windstream Holdings, Inc. (NASDAQ: WIN), a Fortune 500 company, is a leading provider
of advanced network communications and technology solutions for consumers, small
businesses, enterprise organizations and carrier partners across the U.S.
WINDSTREAM
2015 ANNUAL REPORT
Proxy Statement and Form 10-K

Table of contents

  • Page 1
    WINDSTREAM 2015 ANNUAL REPORT Proxy Statement and Form 10-K

  • Page 2
    ...also expanded our carrier network in strategic areas and improved the performance of the overall network. Third, we completed key strategic transactions, including the formation and spinoff of Communication Sales & Leasing Inc. (CSAL) and the sale of our data center business, using the proceeds from...

  • Page 3
    ..., cable • ~26k enterprise customers businesses (within ILEC NOTICEand operators nationwide OFother 2016 network ANNUAL MEETING OF STOCKHOLDERS territory) • Mid-size enterprise customer To be Held May 12, 2016 • Addressability:~ 4M locations focus 11:00 a.m. (central time) Financial Profile...

  • Page 4
    ... of the Board of Directors, K risti Moody Secretary Little Rock, Arkansas April 1, 2016 Important notice regarding the availability of proxy materials for the 2016 Annual Meeting of Stockholders to be held on May 12, 2016: Windstream's Proxy Statement and Annual Report to security holders for the...

  • Page 5
    ... March 17, 2016 (holders of our common stock at the close of business on the record date may vote) ADVANCE VOTING You can vote in advance using one of the advance voting methods listed below. Even if you plan to join the Annual Meeting virtually, please vote right away: • • • Vote online by...

  • Page 6
    ... to the Board. CORPORATE GOVERNANCE Windstream is committed to good corporate governance, which promotes the long-term interests of stockholders, strengthens the accountability of the Board of Directors and management, and helps to build public trust in Windstream. Key corporate governance practices...

  • Page 7
    ... and bylaws to eliminate "super-majority voting" requirements) in this Proxy Statement. 2016 Compensation. Windstream has enacted changes to its compensation program beginning in 2016 in response to stockholder feedback received in 2014 and 2015. • • Board Evaluation. In accordance with the...

  • Page 8
    ... allocation of short-term cash incentives and long-term equity-based incentives. No increases in base salaries for executive officers in 2015. As with previous years, executive officers participated in short- and long-term incentive programs based principally on Windstream's achievement of certain...

  • Page 9
    ... capital to high return initiatives that enhanced our network capabilities and returned value to shareholders through both a dividend and a share repurchase program. During 2015, we completed strategic transactions, including the spin-off of CS&L and the sale of our data center business, utilizing...

  • Page 10
    ...and all merger and integration costs related to strategic transactions. Adjusted OIBDAR is operating income before depreciation and amortization before restructuring charges, pension expense, share-based compensation and the annual rent payment due under the lease with Communications Sales & Leasing...

  • Page 11
    ...of online 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 the Annual Meeting materials over the internet to...

  • Page 12
    ... of record as of the close of business on March 17, 2016 (the "Record Date") are entitled to receive notice of and to vote during the Annual Meeting. As of the Record Date, there were 96,284,328 shares of Windstream's common stock issued and outstanding, held by 25,556 holders of record. How can...

  • Page 13
    ... to approve each proposal is set forth below: Proposal Votes Required for Approval 1. 2. 3. 4. 5. 6. Election of Directors Advisory vote on executive compensation Ratification of Windstream's rights plan Amendments to enable stockholders to call special meetings Amendments to eliminate super...

  • Page 14
    ... presented in this Proxy Statement is as follows: Proposal Broker Non-Votes Abstentions 1. 2. 3. 4. 5. 6. Election of directors Advisory vote on executive compensation Ratification of Windstream's rights plan Amendments to enable stockholders to call special meetings Amendments to eliminate...

  • Page 15
    ...defined by the rules of the SEC. Compensation Committee. The Compensation Committee held four meetings during 2015. The Compensation Committee assists the Board in fulfilling its oversight responsibility related to the compensation programs, plans, and awards for Windstream's directors and principal...

  • Page 16
    ... Committee oversees Windstream's director nomination and screening process, succession planning for the Chief Executive Officer position, the annual self-evaluation of the Board and each Board committee, compliance with Windstream's related party transaction policy and stock ownership guidelines...

  • Page 17
    ...various leadership positions in network planning and implementation, operations and customer service at MCI/Worldcom and MCI Communications from 1982 to 2002. â-‹ The Governance Committee will consider director candidates recommended by stockholders via means separate from a proxy-access director...

  • Page 18
    ... option to elect to receive any cash retainer in the form of Windstream common stock. • The Compensation Committee periodically reviews outside director compensation data provided by its independent compensation consultant, Pearl Meyer & Partners, LLC, to ensure our director compensation program...

  • Page 19
    ... mandatory retirement at age 75. On April 24, 2015, Mr. Frantz resigned as a director of the Company to assume the role of Chairman of the Board of Directors of Communications Sales & Leasing, Inc. Amount reflects change in pension value for the Windstream Pension Plan and Benefit Restoration Plan...

  • Page 20
    ... by this Proxy Statement will vote the proxies received by them as directed on the proxy card or, if no direction is made, for the election of the Board's nine nominees. If any nominee is unable or declines to serve as a director at the time of the Annual Meeting, the proxy holders will vote for...

  • Page 21
    ... and address Windstream's challenges and opportunities as a public company. As a former chief executive officer of a public company and a director of several private businesses, he has insight on managing complex business operations, overseeing business risk, designing compensation programs that...

  • Page 22
    ...-based DVR services and interactive video advertising. Until 2014, Mr. Hinson served as a director, Audit Committee member and Chairman of the Nominating and Governance Committee of Ares Commercial Real Estate Corporation (NYSE: ACRE), a specialty finance company and real estate investment trust...

  • Page 23
    ... Compensation Committee. Mr. LaPerch has been President of LaPerch Consulting, LLC (a provider of consulting services to private equity firms) from September 2012 to the present. From 2004 to 2012, Mr. LaPerch served as the President and Chief Executive Officer and a member of the board of directors...

  • Page 24
    ... election at the Annual Meeting, he will serve as a member of the Audit Committee. Mr. Laque currently serves as Executive Vice President - Global Real Estate and Facilities for Discovery Communications, Inc. (NASDAQ: DISCA). In addition to his current position, he has held key leadership roles at...

  • Page 25
    ... real estate investment trust, Communications Sales & Leasing, Inc. (NASDAQ: CSAL). Additionally, Windstream completed the sale of its data center operations and entered into a key reciprocal strategic partnership with the buyer to provide data center and network services to each other's customers...

  • Page 26
    ... the Compensation Committee and will become Chair of the Governance Committee. He is a founding partner of Financial Advisory Partners, LLC, which makes private equity investments and provides investment banking services to mid-sized companies in the Midwest. He served as Chief Executive Officer of...

  • Page 27
    ...for Windstream's directors and executive officers. The spin-off of Communications Sales & Leasing, Inc., and the reverse stock split in April 2015 resulted in a recapitalization of the Company, and upon the recommendation of the Compensation Committee, the Board revised the guidelines to include new...

  • Page 28
    ...to meet the new ownership guidelines. Security Ownership of Directors and Executive Officers. Set forth below is certain information, as of March 1, 2016, as to shares of Windstream common stock beneficially owned by each director, by each named executive officer, and by all directors and executive...

  • Page 29
    ... Windstream's equity compensation plans hold the sole right to vote such shares. Mr. Redmond resigned from Windstream in 2015 and is no longer affiliated with the Company. As a result, no current information on his holdings of Windstream common stock is available. Windstream grants performance-based...

  • Page 30
    ... COMMITTEE REPORT This report provides information concerning the Audit Committee of 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...

  • Page 31
    ... the long-term interests of Windstream's stockholders; and Provide competitive compensation and incentives to attract and retain key executives. Executive Summary Heading into 2015, Windstream was undergoing leadership changes, restructuring into business units, and pursuing a spin-off of its real...

  • Page 32
    ... for equity plan dilution and annual equity grant rates In light of these considerations, the Compensation Committee approved the following plan design changes to the executive compensation program for 2016: • Shift the pay mix - Reduce long-term incentive grant values and increase short-term...

  • Page 33
    ... our internet service offerings and expanding the carrier network to focus on key growth areas returned a dividend to our shareholders and repurchased 7.5 million shares of our common stock, over 7% of the outstanding shares, which such share repurchases did not impact short-term or long-term...

  • Page 34
    ... Compensation Committee assists the Board in fulfilling its oversight responsibility related to the compensation programs, plans, and awards for Windstream's directors and principal officers. The Compensation Committee annually reviews and approves goals relevant to our CEO's compensation and, based...

  • Page 35
    ... principal components: • • • Base salary; Short-term (annual) cash incentive payments; and Long-term incentives in the form of equity-based compensation. The compensation program for the NEOs also includes the Windstream 2007 Deferred Compensation Plan, the Windstream 401(k) Plan, change-in...

  • Page 36
    ... Company-wide performance goals over annual or quarterly periods. Under these plans, the Compensation Committee sets different target payout amounts (as a percentage of base salary) for all executive officers in order to reflect such individual's contributions to Windstream and the market level...

  • Page 37
    .... Windstream maintains an equity-based compensation program to provide long-term incentives to executive officers, to better align the interests of executives with stockholders and to provide a retention incentive. The equity-based compensation program also furthers the Compensation Committee's goal...

  • Page 38
    ... Incentive Plan ("Equity Plan"). Windstream has not issued any stock options or other forms of equity compensation to its directors, executive officers or other employees. PBRSUs are eligible for deduction for tax purposes under Section 162(m) of the Internal Revenue Code. The table below provides...

  • Page 39
    ... related to the award covering CS&L common stock was equal to the number of shares of CS&L common stock that the award holder would have received in the spin-off had the outstanding award represented outstanding shares of Windstream common stock on the date of the spin-off. As a result, employees...

  • Page 40
    ... with the compensation arrangements of other market participants. The change-in-control agreements for our NEOs provide that upon a qualifying separation from service the executive officers will be eligible to receive a cash, lump sum payment equal to a multiple times base salary and target...

  • Page 41
    ... compliance policy, directors and executive officers are prohibited, and employees are discouraged, 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 put...

  • Page 42
    COMPENSATION COMMITTEE REPORT 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...

  • Page 43
    ... titled "Long-Term Equity Based Incentive Awards" in the Compensation Discussion and Analysis. The grant date fair values of performance-based restricted stock units (PBRSUs) is based upon the probable levels of achievement of the performance goals related to those awards. The resulting number of...

  • Page 44
    ..., compensation of Windstream's employee pilots and other general charges related to ownership of the aircraft. Also included in these amounts are the following company matching contributions under the Windstream 2007 Deferred Compensation Plan made in 2016, but attributable to service in 2015...

  • Page 45
    ... Windstream's short-term cash incentive plans described in the section titled "Short-Term Cash Incentive Payments" in the Compensation Discussion and Analysis. All Other Stock Awards: Grant Date Fair Value Number Estimated Future Payouts Under Equity of Shares of Stock Incentive Plan Awards of Stock...

  • Page 46
    ... and Analysis-Elements of 2015 Compensation-Effect of CS&L Spin-off on Outstanding Equity Awards" for additional information. See also the Outstanding Equity Awards at Fiscal Year-End table for the number of shares of CS&L common stock, in addition to Windstream common stock, that may be payable...

  • Page 47
    ... statement reporting purposes in accordance with FASB ASC Topic 718. The grant date fair values for the time-vesting restricted stock is determined on the closing stock price of Windstream common stock on the date of grant. The grant date fair values of the performance-based equity awards are based...

  • Page 48
    ... related to the award covering CS&L common stock was equal to the number of shares of CS&L common stock that the award holder would have received in the spin-off had the outstanding award represented outstanding shares of Windstream common stock on the date of the spin-off. As a result, employees...

  • Page 49
    ... Total David M. Redmond (1) (2) (3) There are no outstanding awards of stock options for any NEO of Windstream. Market values calculated using the closing prices of Windstream and CS&L common stock on December 31, 2015, which were $6.44 and $18.69, respectively. 100% of the performance-based shares...

  • Page 50
    ... shows information regarding the exercise or vesting of equity-based awards of Windstream during 2015 by the individuals named below. All awards that vested during 2015 occurred prior to the spin-off of CS&L and were paid solely in Windstream common stock. While awards outstanding at the time of...

  • Page 51
    ... Pension Plan and the Alltel Corporation Benefit Restoration Plan assumed by Windstream at the time it spun off from Alltel in 2006. The present value of accumulated benefits was calculated based on retirement at age 60 with 20 years of credited service, current compensation as of December 31, 2015...

  • Page 52
    ... one lump sum payment if the actuarial present value is less than $30,000. To the extent permitted by the IRC Section 409A, the Benefits Committee, comprised of the President & CEO, Chief Financial Officer, Chief Human Resources Officer and Director-Benefits, authorized by the Board of Directors to...

  • Page 53
    ...409A of the Internal Revenue Code. All amounts contributed by an NEO and Windstream in prior years have been reported in the Summary Compensation Tables in our previously filed proxy statements in the year earned to the extent he was an NEO for purposes of the SEC's executive compensation disclosure...

  • Page 54
    ... of restricted shares of Windstream and CS&L is based on the closing prices of Windstream and CS&L common stock on December 31, 2015, which were $6.44 and $18.69, respectively. These amounts reflect actual 2015 payouts, which are reported in the "Non-Equity Incentive Plan Compensation" column of...

  • Page 55
    ...vested benefits, in each case to the extent not previously paid and (ii) three times his annual base salary. • The Employment Agreement provides that upon termination of employment for any reason, Mr. Thomas is prohibited from soliciting employees or customers or competing against Windstream for...

  • Page 56
    ..., Fletcher, and Works, two times for Mr. Gunderman, and one time for Mr. Eichler the sum of the executive's base salary and target annual incentive compensation (in each case, as in effect on the date of the change-in-control, or if higher, on the date of termination); Pro-rated amount of target...

  • Page 57
    ... based anywhere other than its principal executive offices; (iv) the failure by Windstream to pay to the executive any portion of the executive's current compensation, deferred compensation or business expense reimbursements; (v) the failure by Windstream to continue in effect any compensation plan...

  • Page 58
    ... Compensation Table. The value of the accelerated vesting of restricted shares of Windstream and CS&L is based on the closing prices of Windstream and CS&L common stock on December 31, 2015, which were $6.44 and $18.69, respectively. None of the NEOs are eligible to receive a tax gross-up payment...

  • Page 59
    ... improve our internet service offerings and expanding the carrier network to focus on key growth areas returned a dividend to our shareholders and repurchased 7.5 million shares of our common stock, over 7% of the outstanding shares, which share repurchases did not impact the short-term or longterm...

  • Page 60
    ... Rights Plan are set forth in the 382 Rights Agreement, dated as of September 17, 2015, by and between Windstream and Computershare Trust Company, N.A., as Rights Agent (the "Rights Agreement"), a copy of which was filed as Exhibit 4.1 to Windstream's Current Report on Form 8-K filed with the SEC on...

  • Page 61
    ... affect Windstream's ability to use the Tax Benefits. An ownership change under Section 382 generally occurs when a change in the aggregate percentage ownership of the stock of the corporation held by "five percent shareholders" (as defined in the Code) increases by more than fifty percentage points...

  • Page 62
    ..., if the Board determines that (i) neither the beneficial ownership of shares of common stock by such Person, directly or indirectly, as a result of such transaction nor any other aspect of such transaction would jeopardize or endanger the availability to Windstream of the Tax Benefits or (ii...

  • Page 63
    ...affect the interests of holders of Rights, or to shorten or lengthen any time period under the Rights Agreement. Board Recommendation THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" PROPOSAL NO. 3. PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE VOTED "FOR" PROPOSAL NO...

  • Page 64
    ... held at 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 continues to believe that special meetings should only be...

  • Page 65
    ...previously provided to Windstream is true and correct as of the record date. The Board would be entitled to submit its own proposal or proposals 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...

  • Page 66
    ... Certificate and Windstream Bylaws. History of this Proposal. At the 2013 Annual Meeting of Stockholders, stockholders approved a stockholder proposal requesting that the Windstream Board of Directors "take the steps necessary so that each voting requirement in our charter and bylaws that calls for...

  • Page 67
    ... â..."% 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
    ... and Article VII of the Windstream Bylaws set forth above is qualified in its entirety to the text of the proposed amendments, which are attached as Appendix C to this Proxy Statement. Vote Requirement. The affirmative vote of the holders of at least 66 â..."% of our outstanding common stock is...

  • Page 69
    ...Exchange Commission filings, and accounting and financial reporting consultations. The increase in 2015 is due primarily to incremental audit and accounting services performed by PwC in connection with Windstream's REIT spin-off, including SEC filings made in connection therewith. Audit-related fees...

  • Page 70
    ...the Corporate Secretary at 4001 North Rodney Parham Road, Little Rock, Arkansas 72212, no later than December 2, 2016. Such proposals must meet the requirements set forth in the rules and regulations of the SEC in order to be eligible for inclusion in the proxy statement for Windstream's 2017 Annual...

  • Page 71
    ... products or other transactions conducted by Windstream in the ordinary course of business and 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...

  • Page 72
    ... Exchange Act requires Windstream's directors and executive officers, and persons who own more than ten percent of Windstream's common stock, to file with the SEC and NASDAQ initial reports of ownership and reports of changes in ownership of that common stock. To Windstream's knowledge, based solely...

  • Page 73
    ... and amortization adjusted for the impact of restructuring charges, merger and integration expense, pension expense, share-based compensation and the annual cash rent payment due under the master lease agreement with Communications Sales & Leasing, Inc. ("CS&L"). We also utilize adjusted OIBDAR...

  • Page 74
    ... lease payments began on January 1, 2014. (E) Represents capital expenditures funded by CS&L and expenditures related to Project Excel, a $250 million capital program funded entirely using a portion of the $575 million proceeds from the sale of the data center business completed on December 18, 2015...

  • Page 75
    ... meetings of stockholders of the Corporation may be called only by (A) the Board of Directors pursuant to a resolution adopted by the affirmative vote of the majority of the total number of directors then in office or (B) holders of records of at least 20% aggregate of the outstanding capital stock...

  • Page 76
    ... Request(s) shall be delivered to the secretary at the principal executive offices of the Corporation by nationally recognized private overnight courier service, return receipt requested. Each Special Meeting Request shall (i) set forth a statement of the specific purpose(s) of the Stockholder...

  • Page 77
    ... notice of a special meeting stating the place, date and hour of the meeting, the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such meeting, and the purpose or purposes for which the meeting is called shall be given...

  • Page 78
    ... 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 entitled to vote...

  • Page 79
    ... annual meeting of stockholders; provided, however, that in the event that the annual meeting of stockholders is called for a date that is not within 25 days before or after such anniversary date, notice by the stockholder to be timely must be so received not later than the close of business...

  • Page 80
    ... of the votes cast by the holders of shares entitled to vote thereon at a duly organized regular or special meeting of stockholders at which a quorum is present. outstanding shares of the Corporation entitled to vote on such alteration or repeal; provided, however, that Section 11 of ARTICLE II and...

  • Page 81
    ..., Inc. Windstream Services, LLC State or other jurisdiction of incorporation or organization Delaware Delaware Commission File Number 001-32422 001-36093 I.R.S. Employer Identification No. 46-2847717 20-0792300 4001 Rodney Parham Road Little Rock, Arkansas (Address of principal executive offices...

  • Page 82
    ...Rule 12b-2 of the Exchange Act). Windstream Holdings, Inc. Windstream Services, LLC YES YES NO NO Aggregate market value of voting stock held by non-affiliates as of June 30, 2015 - $664,073,650 As of February 22, 2016, 91,527,360 shares of common stock of Windstream Holdings, Inc. were outstanding...

  • Page 83
    ... 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 84
    ... provide data, cloud solutions, unified communications and managed services to small business and enterprise clients. We also offer bundled services, including broadband, security solutions, voice and digital television to consumers. We supply core transport solutions on a local and long-haul fiber...

  • Page 85
    ... to increase broadband speeds and capacity throughout our territories. Project Excel, which began in late 2015, accelerates our plans to upgrade and modernize our broadband network by year-end 2016. This program upgrades our fiber-fed infrastructure with Very highbit-rate Digital Subscriber Line...

  • Page 86
    ... and share files on network-based storage devices. Files can be accessed from any computer with an Internet connection. • Consumer voice services include basic local telephone services, features and long-distance services. Features include call waiting, caller identification, call forwarding, as...

  • Page 87
    ... customer needs. We offer a standard business local line, Centrex lines, key systems, private branch exchange ("PBX") lines, Voice over Internet Protocol ("VoIP") and complex phone systems. Additional options for our voice lines include long distance services, and several calling features including...

  • Page 88
    ... network • Fiber to ~5,000 towers • Expand interconnection locations (carrier hotels, landing stations and data centers) We are also committed to expanding our carrier network to add new routes, connect existing routes and add new carrier access points to increase sales. Services and Products...

  • Page 89
    ... process, personalized customer service and proactive managed service support. They subscribe to services such as multi-site networking, integrated VoIP and data services, Unified Communications as a Service ("UCaaS"), data center (cloud) connectivity, network security, managed network services, and...

  • Page 90
    ... broadband Internet access options providing reliable connections designed to help our customers reduce costs and boost productivity. Traditional Voice: Voice services consist of basic telephone services, including voice, long-distance and related features delivered over a traditional copper line...

  • Page 91
    ... this business. Products and services provided to our Small Business - CLEC customers include integrated voice and data services, advanced data and traditional voice and long distance services. We also offer on-line back-up, remote IT, managed web design, web hosting and various email services to...

  • Page 92
    ...-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. These connections link our business customers to our facilities-based network. In areas in...

  • Page 93
    ...wires, anchors, signal repeaters, and central office land and buildings, with a net book value of approximately $2.5 billion at the time of spin-off. We requested and received a private letter ruling from the Internal Revenue Service on the qualification of the spin-off as a tax-free transaction and...

  • Page 94
    ...providing such reports to the SEC. In addition, in the "Corporate Governance" section of the Investor Relations page on our web site, we make available our code of ethics, the Board of Directors' Amended and Restated Corporate Governance Board Guidelines, and the charters for our Audit, Compensation...

  • Page 95
    ...and business data connections, including increasing availability of higher Internet speeds, expectations regarding expanding IPTV and 1 Gbps services to more locations and expanding our carrier network, our expected ability to fund operations, expected required contributions to our pension plan, the...

  • Page 96
    ...effects of work stoppages by our employees or employees of other communications companies on whom we rely for service; and those additional factors under "Risk Factors" in Item 1A of this Annual Report and in subsequent filings with the Securities and Exchange Commission at www.sec.gov. • In...

  • Page 97
    ...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 network services are contained in tariffs, interconnection agreements, and negotiated contracts. Terms, conditions...

  • Page 98
    ... CS&L to retire additional Windstream Services debt within 18 to 24 months from the date of the spin-off, subject to market conditions. In addition, some of the holders of shares of CS&L common stock are index funds tied to stock or investment indices or are institutional investors bound by various...

  • Page 99
    ...the close of business on September 28, 2015 received one preferred share purchase right for each share of common stock outstanding. The Rights Plan is designed to protect Windstream's net operating loss carryforwards from the effect of limitations under Section 382 of the Internal Revenue Code ("IRC...

  • Page 100
    .... 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 101
    ...expenditures related to Project Excel, a capital program begun in late 2015 that accelerates our plans to upgrade our broadband network by the end of 2016 funded using a portion of the proceeds from the sale of the data center business. See Management's Discussion and Analysis of Financial Condition...

  • Page 102
    ...increase our capital expenditure requirements. If this occurs, funds for capital expenditures may not be available when needed, which could affect our service to customers and our growth opportunities. The level of returns on our pension plan investments and changes to the actuarial assumptions used...

  • Page 103
    ... or market or business conditions may limit, our ability to do some of these things on favorable terms or at all. As of February 22, 2016, Moody's Investors Service ("Moody's"), S&P and Fitch Ratings ("Fitch") had granted Windstream the following senior secured, senior unsecured and corporate credit...

  • Page 104
    ... contained in the FCC's Intercarrier Compensation and Universal Service reform order could result in additional access revenue reductions. The FCC's reform order adopted in 2011 provides that intrastate traffic that originates in VoIP format and is delivered by long distance carriers to us for...

  • Page 105
    ... than the amount Windstream received from the legacy federal universal service program, Windstream has committed to offer broadband to a certain number of locations at specified speeds in particular portions of its service areas. This will require substantial capital investment and large scale...

  • Page 106
    ... calls for long distance and other voice carriers over our network in exchange for access charges. These access charges represent a significant portion of our revenues. Additionally, we are making significant capital investments to deploy fiber-to-the-tower and other network services in return...

  • Page 107
    ...) Land Building and improvements Central office equipment Outside communications plant Furniture, vehicles and other equipment Total (a) $ $ Total 43.4 604.9 6,013.9 7,245.3 1,660.2 15,567.7 In connection with the spin-off (see Note3), Windstream Holdings entered into a long-term triple-net...

  • Page 108
    ... that much of the information sought by plaintiff had been disclosed in public filings available on the United States Securities and Exchange Commission's website, the Windstream Board was in no way conflicted, and while approval of the Proposals would facilitate the spin-off, approval was not...

  • Page 109
    ... 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. for each quarter in 2015...

  • Page 110
    ... shares distributed in connection with the spin-off was reinvested in Windstream Holdings common stock on April 27, 2015. The dollar value of the CS&L shares distributed is based on a price per share of CS&L of $28.60, which was the closing price of CS&L in the "when issued" market on April 24, 2015...

  • Page 111
    ... Securities Exchange Act of 1934, as amended. Securities Authorized for Issuance Under Equity Compensation Plans Under our share-based compensation plans, we may issue restricted stock and other equity securities to directors, officers and other key employees. The maximum number of shares available...

  • Page 112
    ... Sales of Equity Securities and Use of Proceeds On August 5, 2015, our board of directors authorized a stock repurchase program of up to $75.0 million to be completed by December 31, 2016. Under the repurchase plan, we may repurchase shares, from time to time, on the open market. Information...

  • Page 113
    ... 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 114
    ... David Works, Jr. John C. Eichler 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...

  • Page 115
    ... information pertaining to beneficial ownership of our securities and director independence, refer to "Security Ownership of Directors and Executive Officers", "Security Ownership of Certain Beneficial Owners" and "Board and Board Committee Matters" in our Proxy Statement for our 2016 Annual Meeting...

  • Page 116
    ... Statements of Cash Flows for the years ended December 31, 2015, 2014, and 2013 Consolidated Statements of Shareholders' Equity for the years ended December 31, 2015, 2014, and 2013 Windstream Services, LLC Consolidated Financial Statements Consolidated Statements of Operations for the years ended...

  • Page 117
    .... (Registrant) WINDSTREAM SERVICES, LLC (Registrant) By /s/ Anthony W. Thomas Anthony W. Thomas, President and Chief Executive Officer Date: February 25, 2016 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf...

  • Page 118
    ... expense on long-term lease obligation with CS&L Loss before income taxes and equity in subsidiaries Income tax benefit Loss before equity in subsidiaries Equity earnings (losses) from subsidiaries Net income (loss) Comprehensive (loss) income $ For the Year Ended December 31, 2015 446.0 446...

  • Page 119
    ...Assets: Distributions receivable from Windstream Services Total current assets Investment and affiliate related balances Net property, plant and equipment Deferred income taxes Total Assets Liabilities and Shareholders' Equity Current liabilities: Accrued dividends Current portion of long-term lease...

  • Page 120
    ... activities Cash Flows from Financing Activities: Distributions from Windstream Services Funding received from CS&L Dividends paid to shareholders Stock repurchases Payments under long-term lease obligation Net cash (used in) provided from financing activities Change in cash and cash equivalents...

  • Page 121
    ... Services. On April 24, 2015, Windstream Holdings completed the spin-off of certain telecommunications network assets and other real estate, into an independent, publicly traded real estate investment trust, Communications Sales & Leasing, Inc. ("CS&L"). Immediately prior to the effective time...

  • Page 122
    ... to the sale of Pinnacle Software Company and on capital loss carryforwards realized as a result of capital gains recognized. Costs primarily consist of charges incurred related to the REIT spin-off, the sale of our data center business and charges related to a network optimization project designed...

  • Page 123
    ... and WIN Merger Sub, Inc. (incorporated herein by reference to Exhibit 2.1 to Windstream Holdings, Inc.'s Form 8-K dated August 30, 2013). 2.2 Separation and Distribution Agreement, dated as of March 26, 2015, by and among Windstream Holdings, Inc., Windstream Services, LLC and Communications Sales...

  • Page 124
    ...to the Corporation's Form 8-K dated January 23, 2013). Seventh Supplemental Indenture to the 7.875% Senior Notes due 2017, dated as of March 2, 2015, among Windstream Services, LLC (as successor to Windstream Corporation), a Delaware limited liability company (the "Company"), Windstream Finance Corp...

  • Page 125
    ... 2015, by and between Windstream Holdings, Inc., Windstream Services, LLC, and JPMorgan Chase Bank, N.A., as administrative agent under the Sixth ARCA (incorporated herein by reference to Exhibit 10.11 to Windstream Holdings, Inc.'s Form 8-K dated April 27, 2015). Director Compensation Program dated...

  • Page 126
    ...PAETEC's Form 8-K dated May 20, 2008) and as assumed by Windstream Holdings, Inc. PAETEC Corp. 2001 Stock Option and Incentive Plan (incorporated herein by reference to Exhibit 10.10.1 to the Registration Statement on Form S-4 filed by PAETEC Holding Corp. with the SEC on November 13, 2006 (SEC File...

  • Page 127
    ...Number and Name 21 Listing of Subsidiaries. 23 24 31(a) 31(b) 32(a) 32(b) Consents of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm. Power of Attorney. Certifications of Chief Executive Officer... * (a) Incorporated herein by reference as indicated. Filed herewith. 45

  • Page 128
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  • Page 129
    WINDSTREAM HOLDINGS, INC. WINDSTREAM SERVICES, LLC FINANCIAL SUPPLEMENT TO ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2015 (This page intentionally left blank.)

  • Page 130
    (This page intentionally left blank.)

  • Page 131
    ... Flows for the years ended December 31, 2015, and 2013 left blank.) (This 2014, page intentionally Consolidated Statements of Shareholders' Equity for the years ended December 31, 2015, 2014, and 2013 Windstream Services, LLC Consolidated Financial Statements Consolidated Statements of Operations...

  • Page 132
    ... and board of director fees, NASDAQ listing fees, other shareholder-related costs, income taxes, common stock activity, and payables from Windstream Services to Windstream Holdings. For the years ended December 31, 2015 and 2014, the amount of expenses directly incurred by Windstream Holdings were...

  • Page 133
    ... the sale of our data center business, additional subsidy revenues received from the Connect America Fund ("CAF") Phase II, growth in enterprise revenues, reflecting increased demand for integrated data and voice services, multi-site networking and data center services, and dividend income earned...

  • Page 134
    ... equal to the sum of the minimum future annual lease payments over the 15-year lease term discounted to the present value based on Windstream Services' incremental borrowing rate. Funding received from CS&L in December 2015 for capital expenditures was recorded as an increase to the long-term lease...

  • Page 135
    ... expenses: Cost of services (a) (b) Cost of products sold Selling, general, and administrative (a) Depreciation and amortization Merger and integration costs Restructuring charges Total costs and expenses Operating income Other income (expense), net Gain on sale of data center business Loss on early...

  • Page 136
    ... 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. CAF...

  • Page 137
    ... product sales includes high-end data and communications equipment which facilitate the delivery of advanced data and voice services to our enterprise customers. Consumer product sales include high-speed Internet modems, home networking equipment, computers and phones. Sales of high-speed Internet...

  • Page 138
    ...&A expenses result from sales and marketing efforts, advertising, IT support, costs associated with corporate and other support functions and professional fees. These expenses include salaries, wages and employee benefits not directly associated with the provisioning of services. The following table...

  • Page 139
    ... network conversion; rebranding; and consulting fees. We also incurred investment banking fees, legal, accounting and other consulting fees related to the REIT spin-off and the sale of a portion of our data center business. During the fourth quarter of 2015, we began a network optimization project...

  • Page 140
    ... of our data center business. In 2013, we incurred consulting fees related to network efficiency projects. Restructuring charges are primarily due to small workforce reductions completed during 2015, an early termination of a software licensing agreement and the special shareholder meeting, as...

  • Page 141
    ... notes due 2018 (the "PAETEC 2018 Notes") using a portion of the cash payment received from CS&L in conjunction with the spin-off. On April 24, 2015, Windstream Services also repaid all $1.9 million of unsecured notes of its subsidiary. The retirements were accounted for under the extinguishment...

  • Page 142
    ...-term lease obligations: Telecommunications network assets Real estate contributed to pension plan Impacts of interest rate swaps Interest on capital leases and other Less capitalized interest expense Total interest expense $ 2015 5.4 37.7 21.1 355.4 - 22.4 $ 2014 17.2 71.2 22.2 384.4 - 44.9 $ 2013...

  • Page 143
    ... business customer needs. Carrier - Our carrier operations consist of providing products and services to other communications services providers, including special access services, which provide network access and transport services to end users, and fiber-to-tower connections to support backhaul...

  • Page 144
    ... from providing switched access services, which include usage-based revenues from long-distance companies and other carriers for access to our network to complete long distance calls, as well as reciprocal compensation received from wireless and other local connecting carriers for the use of network...

  • Page 145
    ...increased sales of value added services, targeted price increases, and implementation of a modem rental program during 2015, partially offset by declines in high-speed Internet customers. Demand for faster broadband speeds and Internet-related services such as virus protection and online data backup...

  • Page 146
    ... fiber-based networks. We expect these revenues to be adversely impacted as wireless carriers continue to migrate traffic to fiber-based connections. The increase during 2015 was primarily related to higher interconnection expense due to an increase in long distance usage by our wholesale customers...

  • Page 147
    ... voice and data services. The increases during 2015 and 2014 were primarily due to customer access costs directly related to the growth in enterprise data and integrated services revenues and increases in network operations due to the expansion of our fiber transport network. (b) (c) For 2016, we...

  • Page 148
    ... support for upgrades and new deployments of broadband service. Of the total amount of $86.7 million made available to us, we received $60.7 million in December 2013 and the remaining $26.0 million in the first quarter of 2014. Pursuant to commitments we made while the FCC was considering the rules...

  • Page 149
    ... to be sufficient to cover the program's capital obligations and to provide significant opportunities for Windstream to enhance broadband services in our more rural markets. Finally, the FCC does not allow funding of CAF Phase I locations in CAF Phase II eligible areas. As a result, we will either...

  • Page 150
    ... 2015, we received $52.0 million from the large company program and $7.5 million from the 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...

  • Page 151
    ... of our common stock under the stock repurchase program authorized by our board of directors on August 5, 2015. We also have access to capital markets and available borrowing capacity under our revolving credit agreement. As previously discussed, we are positioned to retire additional long-term debt...

  • Page 152
    ... of our data center business, partially offset by an increase in capital expenditures, further discussed below. Cash used in investing activities increased $61.5 million in 2014 compared to 2013 primarily as a result of reductions in grant funds received for both broadband stimulus projects and CAF...

  • Page 153
    ...million in capital expenditures related to Project Excel, a capital program begun in late 2015 that accelerates our plans to upgrade our broadband network by the end of 2016 funded using a portion of the proceeds from the sale of the data center business, we expect total 2016 capital expenditures to...

  • Page 154
    ... stock of CS&L. Windstream intends to use all of its shares of CS&L to retire additional Windstream Services debt within 18 to 24 months from the date of the spin-off, subject to market conditions. In conjunction with the spin-off, on April 24, 2015, Windstream Services amended its senior secured...

  • Page 155
    ... 22, 2016, Moody's Investors Service, Standard & Poor's Corporation ("S&P") and Fitch Ratings had granted the following senior secured, senior unsecured and corporate credit ratings: Description Senior secured credit rating (a) Senior unsecured credit rating (a) Corporate credit rating (b) Outlook...

  • Page 156
    ... 31, 2015. Represents undiscounted future minimum lease payments related to the master lease agreement with CS&L and the leaseback of real estate contributed to the Windstream Pension Plan, which exclude the residual value of the obligations at the end of the initial lease terms. Capital leases...

  • Page 157
    ... 31, 2015 and 2014, respectively. Actual results may differ from this estimate. Equity Risk In connection with the REIT spin-off, we retained a passive ownership interest in approximately 19.6 percent of the common stock of CS&L. This investment has been classified as an available-for-sale security...

  • Page 158
    ... rights are amortized on a straight-line basis over their estimated useful lives of 30 years. A reduction in the average useful lives of the franchise rights and customer lists of one year would have increased the amount of amortization expense recorded in 2015 by approximately $3.3 million. F-28

  • Page 159
    ... unless an earlier measurement date is required. Our projected net pension income for 2016, which is estimated to be approximately $1.1 million, was calculated based upon a number of actuarial assumptions, including an expected long-term rate of return on qualified pension plan assets of 7.0 percent...

  • Page 160
    The discount rate selected is derived by identifying a theoretical settlement portfolio of high quality corporate bonds sufficient to provide for the plan's projected benefit payments. The values of the plan's projected benefit payments are matched to the cash flows of the theoretical settlement ...

  • Page 161
    ...and business data connections, including increasing availability of higher Internet speeds, expectations regarding expanding IPTV and 1 Gbps services to more locations and expanding our carrier network, our expected ability to fund operations, expected required contributions to our pension plan, the...

  • Page 162
    ...effects of work stoppages by our employees or employees of other communications companies on whom we rely for service; and those additional factors under "Risk Factors" in Item 1A of this Annual Report and in subsequent filings with the Securities and Exchange Commission at www.sec.gov. • In...

  • Page 163
    ... of audit, legal and board of director fees, NASDAQ listing fees, other shareholder-related costs, income taxes, common stock activity, and payables from Windstream Services to Windstream Holdings. In 2015, 2014 and 2013, the amount of pretax expenses directly incurred by Windstream Holdings totaled...

  • Page 164
    ... historical operating trends during the years 2013 through 2015 are provided in Management's Discussion and Analysis of Results of Operations and Financial Condition. In 2011, we changed our method of recognizing actuarial gains and losses for pension benefits to recognize actuarial gains and losses...

  • Page 165
    ...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 25, 2016 Anthony...

  • Page 166
    ... over financial reporting as of December 31, 2015, has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein. Dated February 25, 2016 Anthony W. Thomas President and Chief Executive Officer Robert E. Gunderman...

  • Page 167
    Report 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 operations, comprehensive income (loss), shareholders' equity and ...

  • Page 168
    Report of Independent Registered Public Accounting Firm To the Board of Directors and Member of Windstream Services, LLC: In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, comprehensive income (loss), member equity and cash flows ...

  • Page 169
    ... sale of data center business Loss on early extinguishment of debt Interest expense Income (loss) from continuing operations before income taxes Income tax expense (benefit) Income (loss) from continuing operations Discontinued operations Net income (loss) Basic and diluted earnings (loss) per share...

  • Page 170
    ... on available-for-sale securities Interest rate swaps: Changes in designated interest rate swaps Amortization of unrealized losses on de-designated interest rate swaps Income tax (expense) benefit Unrealized gain (loss) on interest rate swaps Postretirement and pension plans: Prior service credit...

  • Page 171
    ... in CS&L common stock Other assets Total Assets Liabilities and Shareholders' Equity Current Liabilities: Current maturities of long-term debt Current portion of long-term lease obligations Accounts payable Advance payments and customer deposits Accrued dividends Accrued taxes Accrued interest Other...

  • Page 172
    ...Provision for doubtful accounts Share-based compensation expense Pension expense (income) Deferred income taxes Unamortized net premium on retired debt Amortization of unrealized losses on de-designated interest rate swaps Gains from sales of data center and software businesses Plan curtailments and...

  • Page 173
    ... loss on available-for-sale securities Change in postretirement and pension plans Amortization of unrealized losses on de-designated interest rate swaps Changes in designated interest rate swaps Comprehensive loss (income) Effect of REIT spin-off (See Note 3) Share-based compensation expense (See...

  • Page 174
    ... income (expense), net Gain on sale of data center business Loss on early extinguishment of debt Interest expense Income (loss) from continuing operations before income taxes Income tax expense (benefit) Income (loss) from continuing operations Discontinued operations Net income (loss) 2015 $ 5,598...

  • Page 175
    ... on available-for-sale securities Interest rate swaps: Changes in designated interest rate swaps Amortization of unrealized losses on de-designated interest rate swaps Income tax (expense) benefit Unrealized gain (loss) on interest rate swaps Postretirement and pension plans: Prior service credit...

  • Page 176
    ... Investment in CS&L common stock Other assets Total Assets Liabilities and Member Equity Current Liabilities: Current maturities of long-term debt Current portion of long-term lease obligations Accounts payable Advance payments and customer deposits Payable to Windstream Holdings, Inc. Accrued taxes...

  • Page 177
    ...Provision for doubtful accounts Share-based compensation expense Pension expense (income) Deferred income taxes Unamortized net premium on retired debt Amortization of unrealized losses on de-designated interest rate swaps Gains from sales of data center and software businesses Plan curtailments and...

  • Page 178
    ... loss on available-for-sale securities Change in postretirement and pension plans Amortization of unrealized losses on de-designated interest rate swaps Changes in designated interest rate swaps Comprehensive loss (income) Effect of REIT spin-off (See Note 3) Share-based compensation expense (See...

  • Page 179
    ...from integrated voice and data services, advanced data and traditional voice and long-distance services provided to small business customers. Carrier revenues include revenues from other carriers for special access circuits and fiber connections as well as voice and data services sold on a wholesale...

  • Page 180
    ... for uses other than current operations have been presented as restricted cash. In connection with broadband stimulus grants, we placed cash into pledged deposit accounts representing our share of committed spend on construction contracts that were subject to review by the Rural Utilities Service...

  • Page 181
    ... 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 receivables related to communications services and product sales of $41.5 million...

  • Page 182
    ... change on a go forward basis the date of our annual goodwill impairment assessment from January 1st to November 1st, which we believe is preferable because it more closely aligns with the timing of our internal strategic planning process. Following the sale of the data center business, we no longer...

  • Page 183
    ... (9,925.7) 5,412.3 $ Of the total net property, plant and equipment at December 31, 2015 listed above, approximately $2.4 billion was transferred to Communications Sales & Leasing, Inc. ("CS&L") in connection with the spin-off and then was leased back by Windstream Holdings (see Note 3). Under the...

  • Page 184
    ... services are rendered to customers. Revenues that are billed in advance include monthly recurring network access and data services, special access and monthly recurring voice, Internet and other related charges. The unearned portion of these revenues is included in advance payments and customer...

  • Page 185
    ... time-based awards to employees at fair value on the date of the grant, and recognize that value as compensation expense over the period that each award vests. Performance-based awards are valued at fair value at the end of each reporting period until final performance targets are set. Share-based...

  • Page 186
    ... to participating securities in 2013. Options to purchase shares of stock issuable under stock-based compensation plans that were excluded from the computation of diluted earnings per share because the exercise prices were greater than the average market price of our common stock and, therefore...

  • Page 187
    ... revenue for the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to receive for those goods or services. ASU 2014-09 also includes new accounting principles related to the deferral and amortization of...

  • Page 188
    ... the net asset value per share practical expedient and also removes certain related disclosure requirements. ASU 2015-07 is effective retrospectively for fiscal years, and interim periods within those years, beginning after December 31, 2015, with early adoption permitted. Pension Plan Investment...

  • Page 189
    ... to retire additional Windstream Services debt within 18 to 24 months from the date of the spin-off, subject to market conditions. For employees and directors remaining with Windstream, restricted stock awarded pursuant to our equity incentive plans and held by employees and directors at the time of...

  • Page 190
    ... lists (a) Cable franchise rights Other (b) Balance (a) $ $ $ $ In connection with the spin-off, we transferred customer lists with a gross cost of $34.5 million and a net carrying value of $13.1 million to CS&L (see Note 3). At the date of sale, customer lists associated with the data center...

  • Page 191
    ... asset amortization methodology and useful lives were as follows as of December 31, 2015: 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...

  • Page 192
    ... the debt-for-debt exchange (see Note 3). (b) During 2015, Windstream Services repurchased in the open market a portion of this debt obligation. (c) The net premium balance and unamortized debt issuance costs are amortized using the interest method over the life of the related debt instrument. F-62

  • Page 193
    ...CONSOLIDATED FINANCIAL STATEMENTS ____ 5. Long-term Debt and Lease Obligations, Continued: Senior Secured Credit Facility - In connection with the REIT spin-off, on April 24, 2015, Windstream Services amended its existing senior secured credit facility which includes a revolving line of credit in an...

  • Page 194
    ... borrowings under the revolving line of credit, new term loans under the senior secured credit facility, or a combination thereof. On December 17, 2015, Windstream Services' board of directors increased the capacity of the debt repurchase program authorizing Windstream Services to repurchase up to...

  • Page 195
    ... or more of Windstream Services' outstanding voting stock, or breach of certain other conditions set forth in the borrowing agreements. Windstream Services and its subsidiaries were in compliance with these covenants as of December 31, 2015. Maturities for long-term debt outstanding as of December...

  • Page 196
    .... As previously discussed, Windstream Services retired all of the outstanding 2018 Notes and all of the PAETEC 2018 Notes in conjunction with the spin-off. The retirements were accounted for under the extinguishment method of accounting, and as a result, Windstream Services recognized losses due to...

  • Page 197
    ... equal to the sum of the minimum future annual lease payments over the 15-year lease term discounted to the present value based on Windstream Services' incremental borrowing rate. Funding received from CS&L in December 2015 for capital expenditures was recorded as an increase to the long-term lease...

  • Page 198
    ... remaining useful lives until termination of the lease agreement. We recorded a long-term lease obligation equal to the fair value of the properties at the date of contribution. No gain or loss was recognized on the contribution. As lease payments are made to the Windstream Pension Plan, a portion...

  • Page 199
    ... network assets Real estate contributed to pension plan Impact of interest rate swaps Interest on capital leases and other Less capitalized interest expense Total interest expense 6. Derivative Instruments: Prior to the spin-off of CS&L, Windstream Services had entered into four pay fixed, receive...

  • Page 200
    ... of default exists as of December 31, 2015. Each counterparty is a bank with a current credit rating at or above A, as determined by Moody's Investors Service, Standard & Poor's Corporation and Fitch Ratings. Windstream Services expects to recognize losses of $7.7 million, net of taxes, in interest...

  • Page 201
    ... event or condition, such as a merger, occurs that materially changes Windstream Services' creditworthiness in an adverse manner, Windstream Services may be required to fully collateralize its derivative obligations. At December 31, 2015, Windstream Services had not posted any collateral related to...

  • Page 202
    ... of Windstream Services' long-term debt, the fair value of the debentures and notes was calculated based on quoted market prices of the specific issuances in an active market when available. The fair value of the other debt obligations was estimated based on appropriate market interest rates applied...

  • Page 203
    ... employees. Additionally, we provide postretirement healthcare and life insurance benefits for eligible employees. Employees share in, and we fund, the costs of these plans as benefits are paid. The components of pension benefit (income) expense (including provision for executive retirement...

  • Page 204
    ...the option to receive a single lump sum payment in full settlement of all future pension benefits earned by the participant from prior service to Windstream. Individuals eligible for the voluntary lump sum payment option were former employees and certain of their beneficiaries with termination dates...

  • Page 205
    ... return on plan assets Rate of compensation increase In developing the expected long-term rate of return assumption, we considered the plan's historical rate of return, as well as input from our investment advisors. Projected returns on qualified pension plan assets were based on broad equity...

  • Page 206
    ... 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 asset...

  • Page 207
    ... of our pension plan assets were determined using the following inputs as of December 31, 2015: Quoted Price in Active Markets for Identical Assets (Millions) Money market fund (a) Guaranteed annuity contract (b) Common collective trust funds (c) Government and agency securities (d) Corporate bonds...

  • Page 208
    ... of business or, in the absence of any sales, at the latest available bid price. Government and agency securities, corporate bonds and asset backed securities, common and preferred stocks, and registered investment companies traded in active markets on securities exchanges are valued at their quoted...

  • Page 209
    ... million to the qualified pension plan to meet our 2016 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. We intend to fund these contributions using cash. F-79

  • Page 210
    ...restricted stock units to officers, executives, non-employee directors and certain management employees. These grants include the standard annual grants to these employee and director groups as a key component of their annual incentive compensation plan and one-time grants may include time-based and...

  • Page 211
    ... units and stock options, share-based compensation expense presented in the accompanying consolidated statements of cash flow also includes amounts related to certain management incentive compensation plans and the matching contribution to the employee savings plan for which payments to eligible...

  • Page 212
    ... network conversion; rebranding; and consulting fees. We also incurred investment banking fees, legal, accounting and other consulting fees related to the REIT spin-off and the sale of a portion of our data center business. During the fourth quarter of 2015, we began a network optimization project...

  • Page 213
    ... - $ 2013 26.4 - 17.4 (15.3) 28.5 $ 3.1 (5.5) 12.1 $ Changes in accumulated other comprehensive (loss) income balances, net of tax, were as follows: Unrealized Holding Loss on Available-for-Sale Securities $ - (286.5) - (286.5) $ Net Losses Pension and on Interest Postretirement Rate Swaps Plans...

  • Page 214
    ... represents the gain from the sale of our remaining non-strategic directory publishing business completed on April 1, 2015. The loss realized in 2013 was primarily due to the disposal of various non-operating real estate assets. 13. Income Taxes: Income tax expense (benefit) was as follows for the...

  • Page 215
    ... employee benefits Unrealized holding loss and interest rate swaps Deferred compensation Bad debt Long-term lease obligations Deferred debt costs Restricted stock Other, net Valuation allowance Deferred income taxes, net Deferred tax assets Deferred tax liabilities Deferred income taxes, net $ 2015...

  • Page 216
    ... to their expiration. In September 2015, Windstream's board of directors adopted a shareholder rights plan designed to protect our net operating loss carryforwards from the effect of limitations imposed by federal and state tax rules following an ownership change. This plan was designed to deter an...

  • Page 217
    ... that much of the information sought by plaintiff had been disclosed in public filings available on the United States Securities and Exchange Commission's website, the Windstream Board was in no way conflicted, and while approval of the Proposals would facilitate the spin-off, approval was not...

  • Page 218
    ... small business customer needs. • Carrier - Our carrier operations consist of providing products and services to other communications services providers, including special access services, which provide network access and transport services to end users, and fiber-to-tower connections to support...

  • Page 219
    ... from providing switched access services, which include usage-based revenues from long-distance companies and other carriers for access to our network to complete long distance calls, as well as reciprocal compensation received from wireless and other local connecting carriers for the use of network...

  • Page 220
    ... operating expenses Operating expenses related to disposed businesses Other income (expense), net Gain on sale of data center business Loss on early extinguishment of debt Interest expense Income tax expense (benefit) Discontinued operations Net income (loss) 2015 1,858.2 $ 131.2 714.5 1,366...

  • Page 221
    ... December 31, 2015, 2014 and 2013 of Windstream Services, the Guarantors and the Non-Guarantors. Investments consist of investments in net assets of subsidiaries held by Windstream Services and other subsidiaries, and have been presented using the equity method of accounting. Condensed Consolidating...

  • Page 222
    ... 2014 (Millions) Windstream Services 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 administrative Depreciation and amortization Merger and...

  • Page 223
    ... 2013 (Millions) Windstream Services 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 administrative Depreciation and amortization Merger and...

  • Page 224
    ... CS&L common stock Deferred income taxes Other assets Total Assets Liabilities and Equity Current Liabilities: Current maturities of long-term debt Current portion of long-term lease obligations Accounts payable Affiliates payable, net Notes payable - affiliate Advance payments and customer deposits...

  • Page 225
    ... Notes receivable - affiliate Goodwill Other intangibles, net Net property, plant and equipment Other assets Total Assets Liabilities and Equity Current Liabilities: Current maturities of long-term debt Accounts payable Affiliates payable, net Notes payable - affiliate Advance payments and customer...

  • Page 226
    ... received for broadband stimulus projects Network expansion funded by Connect America Fund - Phase 1 Disposition of data center business Other, net Net cash provided from (used in) investing activities Cash Flows from Financing Activities: Distributions to Windstream Holdings, Inc. Payment received...

  • Page 227
    ...broadband stimulus projects Grant funds received from Connect America Fund - Phase 1 Network expansion funded by Connect America Fund - Phase 1 Acquisition of a business Other, net Net cash provided from (used in) investing activities Cash Flows from Financing Activities: Distributions to Windstream...

  • Page 228
    ... funds received for broadband stimulus projects Grant funds received from Connect America Fund - Phase 1 Disposition of software business Other, net Net cash provided from (used in) investing activities Cash Flows from Financing Activities: Dividends paid to shareholders Distributions to Windstream...

  • Page 229
    ... Phase II support received in August that was retroactive to January 1, 2015. Operating income for the second quarter of 2015 was adversely impacted by $54.5 million of transaction costs related to the REIT spin-off, including investment banker, legal and accounting fees. (See Note 10). Net income...

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  • Page 231
    ... Investor Services, LLC 2 North LaSalle Street Chicago, IL 60602 800-697-8153 http://www.computershare.com/us/investor Institutional Shareholder Contact: Mary Michaels Assistant Treasurer & VP Investor Relations 4001 Rodney Parham Road Little Rock, AR 72212-2442 E-mail: mary.michaels@windstream...

  • Page 232
    ... 500 company, is a leading provider of advanced network communications and technology solutions for consumers, small businesses, enterprise organizations and carrier partners across the U.S. CONSUMER & SMALL BUSINESS Services include: High Speed Internet Video Voice Security Solutions CARRIER...