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

As further discussed under “Legal Proceedings” in Item 3 of this Annual Report on Form 10-K, on September 22, 2017, Windstream Services received a purported notice of default under the indenture governing its 6.375 percent senior notes due August 2023 (the “2023 Notes”) from a purported holder of the senior notes, which alleged that Windstream Services had breached certain covenants under the indenture, primarily that the 2015 spin-off constituted a sale and leaseback transaction (as defined in the indenture). On October 12, 2017, the trustee under the indenture filed suit in the United States District Court for the Southern District of New York (the “District Court”) seeking a declaration that defaults had occurred under the indenture. On November 6, 2017, Windstream Services received consents from holders representing a majority of the outstanding aggregate principal amount of the 2023 Notes to certain waivers and amendments to the indenture relating to the defaults alleged in the notice of default in connection with certain exchange and consent transactions completed in 2017. On December 7, 2017, the purported holder issued a notice of acceleration claiming that the principal amount, along with accrued interest, was due and payable immediately.

Trial in the litigation occurred July 23-25, 2018 and the District Court heard final arguments on July 31, 2018.

The Findings resulted in a cross default under Windstream Services’ senior secured credit agreement governing its secured term and revolving loan obligations and remaining obligations under the ~~master lease~~contractual arrangement with Uniti Group, Inc. (“Uniti”). In addition, the acceleration of the 2023 Notes as noted in the Findings resulted in a cross-acceleration event of default under the indentures governing Windstream Services’ other series of secured and unsecured notes. A judgment has not been entered by the District Court.

On February 25, 2019 (the “Petition Date”), Windstream Holdings and all of its subsidiaries, including Windstream Services (collectively, the “Debtors”), filed voluntary petitions (the “Chapter 11 Cases”) for reorganization under Chapter 11 of the U.S. Bankruptcy Code (the “Bankruptcy Code”) in the U.S. Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”). ~~We intend to use the court-supervised process to address obligations that have been accelerated as a result of the recent decision by Judge Furman against Windstream.~~

The filing of the Chapter 11 Cases also ~~constitutes~~constituted an event of default under our debt agreements. Due to the Chapter 11 Cases, however, the creditors’ ability to exercise remedies under our debt agreements were stayed as of the Petition Date and continue to be stayed. See “Risks Related to Chapter 11 Reorganization” in Item 1A.

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

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

Additional resources for customers, vendors and other stakeholders, and other information on the Chapter 11 filings, can be accessed by visiting our restructuring website at www.windstreamrestructuring.com. Court filings and other documents related to the Chapter 11 process are available on a separate website administered by our claims agent, Kurtzman Carson Consultants LLC at http://www.kccllc.net/windstream. Information is also available by calling 877-759-8815 (toll-free in the U.S.) or +1-424-236-7262 (for parties outside the U.S.). Documents and other information available on such website are not part of this document and shall not be deemed incorporated by reference in this document. See Note 3 to the consolidated financial statements included in the Financial Supplement to this Annual Report on Form 10-K for additional information and developments related to our Chapter 11 reorganization.

Windstream is a leading provider of ~~advanced~~managed network communications and technology solutions for businesses across the U.S. We also offer broadband, entertainment and security solutions to consumers and small businesses primarily in rural areas in 18 states. Additionally, we supply core transport solutions on a local and long-haul fiber network spanning approximately ~~150,000~~164,000 miles.

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

To execute on our mission and achieve our vision, we have ~~four~~five key priorities for ~~2019:~~2020:

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Our focused operational strategy for each business segment has the overall objective to slow the decline in adjusted OIBDAR, which is defined as operating income before depreciation and amortization and goodwill impairment charges, adjusted to exclude the impact of the straight-line expense under our contractual arrangement with Uniti, merger, integration and certain other costs, restructuring charges, and share-based compensation. For 2020, we ~~sold~~expect continued pressure on ~~December 31, 2018, as further discussed below under “Material Dispositions”.~~our revenues, particularly in our Enterprise business, to be partially offset by reductions in our cash expenses.

Presented below for each of our ~~existing~~ business segments is an overview and further discussion of our operating strategy, product and service offerings, sales and marketing efforts and the competitive landscape in which we operate.

The ~~Consumer & Small Business~~Kinetic segment includes approximately ~~1.4~~1.3 million residential and small business customers. This segment generated ~~$1.9~~$2.1 billion in revenue and ~~$1.1~~$1.2 billion in contribution margin, or segment income, during ~~2018.~~2019.

~~The graph below highlights our significant improvement in broadband customer trends in 2018.~~

The graph below highlights our significant improvement in broadband customer trends in 2019.

For the seventh consecutive quarter we recorded consumer broadband growth, adding approximately 9,300 net subscribers during the fourth quarter and 28,300 net subscribers for the full year of 2019, nearly doubling our 2018 net subscriber growth. This market share growth has been driven by our continued improvement in broadband speed capability across our Kinetic ILEC footprint. We have experienced a significant increase in demand, principally driven by increased speed availability across our network. During 2020, we expect to grow our broadband customer base by approximately 40,000 net subscribers.

The graph below highlights our improved broadband speed capabilities over the past three years.

Broadband speed availability continues to improve due to our investment and expansion of fiber and other cost-effective network deployment strategies, including new technologies, such as fixed wireless.

As depicted in the chart below, by the end of 2019, we reached 70 percent of our consumer footprint with speeds of 25 megabits per second (“Mbps”) or higher and 42 percent with speeds of 100 Mbps or higher, up from 15 percent at the end of 2018. During 2019, we upgraded speeds to 1.3 million homes across our Kinetic footprint.

Our network investments make us more competitive in the marketplace and create a great customer experience, which helps us retain existing customers and grow market share through new customer acquisition. Similarly, our small business strategy centers around investing in our network. During 2019, we expanded the availability of our Kinetic Fiber Internet services, which provides speeds up to 1-Gigabit per second (“Gbps”) to approximately 100,000 businesses across 16 states. We are also marketing Internet security and Wi-Fi network management services under the Kinetic brand along with our proprietary TV service and faster broadband speeds. We will continue to expand use of that branding and to invest in the Kinetic name through multi-channel marketing campaigns in 2020.

Our ~~Consumer~~consumer services primarily consist of high-speed Internet, traditional voice and video services. We ~~are~~also offer robust Internet security and Wi-Fi network management services to our consumer base. Kinetic Secure provides consumers with affordable device, gateway and Internet security and protection from malware attacks and identity theft, as well as parental controls and round-the-clock technical support. We remain committed to providing high-speed broadband and continue to source and develop additional value-added services to our consumer base ~~as well as bundling our service offerings to provide a comprehensive solution at a competitive value~~in order to meet ~~our customers’ needs.~~their emerging needs and differentiate ourselves from competitors.

Consumer voice services include basic local telephone services, features and long-distance services. Features include call waiting, caller identification, call forwarding, as well as various other offerings. We also offer a variety of long-distance plans, including rate plans based on minutes of use and flexible or unlimited long-distance calling services.

We offer video services to consumers through our relationship with ~~DirecTV.~~DirecTV and YouTube TV. We also ~~own and operate IPTV and cable television franchised systems in some of our ILEC markets. We will~~ offer Kinetic TV, streaming television service, in Georgia, Kentucky, North ~~Georgia in February 2019 with plans to expand the streaming TV offer in additional ILEC markets throughout the year.~~Carolina, Nebraska and Texas. The combination of high-speed Internet, video and entertainment offerings along with best-in-class security services allow us to provide comprehensive bundled ~~services~~offerings to our consumer base, helping insulate our customers from ~~competitors.~~competitor campaigns and enticements.

We sell and lease certain equipment to support our consumer high-speed Internet, voice and ~~voice~~entertainment offerings, including broadband modems, Wi-Fi extenders, set-top boxes and home networking gateways.

Our small business product suite ~~expanded to include~~includes award-winning advanced hosted-voice, network management and business continuity ~~services to our existing Internet, voice, and web conferencing products.~~services. These services deliver high-speed Internet with competitive speeds, value added services to enhance business productivity and options to bundle services for a holistic business solution to meet our small business customer needs. These product additions ~~will allow~~position us to ~~sell~~expand our addressable market to include customers with more sophisticated communications requirements and higher spend levels.

Small business voice services include a variety of line types available to serve customer needs. We offer a standard business local line, Centrex lines, key systems, private branch exchange (“PBX”) lines, Voice over Internet Protocol (“VoIP”). Additional options for our voice lines include long-distance services, and several calling features, including call waiting, call return, speed calling, caller identification, repeat dialing, three-way calling, rotary hunt, voice mail or rotary hunt voice mail. Our many voice offerings provide customers a wide range of voice solutions to fit the needs of our small business customers.

Our sales and marketing strategy is focused on driving top-line revenue growth through stabilizing broadband market share while deepening speed and value-added service penetration for each broadband connection. In our Kinetic segment, our goal is to win and retain the household or business first and then expand the product participation by consulting on the appropriate speed or value-added services to enhance the experience. We employ the following principles to achieve these goals:

Sales are made through various distribution channels giving new and existing customers choices in how to interact and experience our products and services. We offer customers the opportunity to order service and purchase a number of products designed to enhance our existing services at any of our retail stores located in our local service areas or via our call center-based sales teams. We augment these traditional channels with online sales, national agents, telephone and direct sales representatives. We utilize a similar multi-channel approach for our small business sales focusing on a blend of local field sales teams and inbound/outbound call centers to serve this segment.

We experience intense competition for Kinetic services. During 2019, consumer households served decreased by approximately 9,900, or 1 percent and small business customers declined by approximately 7,800, or 7 percent. As noted earlier, consumer high-speed Internet customers increased by approximately 28,300, or 3 percent, driven by our ability to offer faster speeds at competitive prices, Sources of competition in our service areas include, but are not limited to, the following:

Approximately 40 percent of our footprint has no national cable overlap. Our focus on upgrading our infrastructure and deploy premium Internet speeds in our Kinetic markets will improve our competitive positioning and enable us to respond to demand and competitive pressure.

To retain and grow our Kinetic customer base, we are committed to providing our customers with exceptional service by offering faster broadband speeds and value-added services, while also offering the convenience of bundling those services with voice and video services.

The Enterprise business segment provides advanced network communications and technology solutions to businesses across the continental U.S. During 2019, the Enterprise business generated $2.7 billion in revenue and $519.4 million in contribution margin.

The traditional network services industry is in transition, driven by the emergence of cloud services and applications. As a result, there is an incredible demand for bandwidth, and as the acceleration of this dynamic continues, businesses are finding that there is a “tipping point” where legacy services no longer support their needs. Cloud-based applications are changing the way customers consume networks by leveraging software-based solutions to improve service levels, lower costs and increase productivity and efficiencies. Windstream Enterprise helps businesses transition from legacy network-based products to today’s transformative digital/software/cloud-based managed technology solutions.

The strategy for our Enterprise business segment is to increase contribution margin, and over time, grow revenue by expanding our portfolio of next-generation products. In addition, we will expand our metro fiber and fixed wireless network assets, reduce costs and improve the customer experience. As one of the country’s largest service providers with a nationwide network and broad portfolio of next-generation solutions, coupled with a highly responsive service model, we are well positioned to enable our customers transition to the cloud.

We believe we can continue to drive meaningful improvements in our Enterprise margins by pro-actively migrating our existing customers to new solutions and by attracting new business customers seeking network upgrades required to support their expanding digital strategies.

We will continue to exploit opportunities to leverage our own network facilities to reduce third-party network access costs. We will also continue to improve employee productivity with targeted system and process enhancements. To grow profitability, we are focused on leveraging the latest technology to offer next-generation products that deliver significant value to our customers while also generating strong incremental sales margins. SD-WAN, Unified Communication as a Service (“UCaaS”), OfficeSuite® and related network access products and services comprise our strategic next-generation solutions where we are seeing significant sales and revenue growth. We ended 2019 with 3,200 SD-WAN customers under contract which represent over 27,000 endpoint locations. We remain the largest SD-WAN service provider in the country. We now have 550,000 UCaaS seats installed in our Enterprise customer base, as our OfficeSuite® sales pipeline continues to expand. Our strategic product portfolio experienced 38 percent growth in revenue in 2019 compared to the prior year and now represents more than 13 percent of our total Enterprise service revenues. In addition, we expect to improve operating efficiencies and enhance the customer experience by further integrating our internal processes in sales, service delivery, customer care and repair. Furthermore, we continue to follow an aggressive expense management and capital efficient strategy to drive reductions in network access costs, create on-network sales opportunities and improve our competitiveness in the marketplace.

The drivers of demand are a result of Enterprise businesses transforming their own IT infrastructure to move workloads to the cloud, ensure cloud application performance, improve employee productivity and enhance data security, among other strategic imperatives. Our new portfolio of solutions is uniquely well positioned to support these enterprise IT imperatives. As the network evolves into the platform for how business gets done, our customers increasingly value our tailored solution-design process and

dedicated service support model. They subscribe to services such as SD-WAN, UCaaS, Contact Center as a Service (“CCaaS”), fiber transport connectivity to major cloud ecosystems, network security and other managed network services.

Our Enterprise sales organization is extensive, with sales offices throughout the United States with more than ~~500~~400 sales professionals focused on meeting the needs of our customers.

Sales and marketing activities are conducted through:

The market for enterprise customers is highly competitive. We believe we are well-positioned to gain market share within the mid and large-size enterprise segment based upon our ability to leverage new product capabilities to capitalize on significant industry growth trends: metro and long haul data transport to support cloud connectivity; customer migration from MPLS to hybrid SD-WAN and from premise based PBX to UCaaS; and growing needs for network based security to meet compliance standards. Our national network and expanded product portfolio are complemented by our agility in providing solutions tailored to the unique needs of key verticals - retail, healthcare, commercial banking and hospitality.

Our primary competitors are other communications providers. These providers offer similar services, from traditional voice to advanced data and technology services using similar facilities and technologies as we do, and they compete directly with us for customers of all sizes.

We are focused on improving the customer experience and investing in our network and service offerings to provide our customers with the most technologically advanced solutions available. We believe that many of our largest competitors are focused primarily on serving the largest global enterprises and as a result are increasingly under-serving the middle market. Accordingly, we rely on scalable, customizable solutions and a service model tailored to the mid-market customers to meet their network and communications needs.

The Wholesale segment leverages our nationwide network to provide ~~100 Gbps~~high-capacity bandwidth and transport services to wholesale customers, including telecom companies, content providers, ~~and~~ cable, international and other network operators. The Wholesale business segment produced ~~$723~~$362.2 million in ~~annual revenue~~service revenues and ~~$507~~fiber sales and $260.8 million in contribution margin in ~~2018.~~2019.

Our Wholesale strategy focuses on monetizing our network investment in strategic, high-traffic locations to drive new sales through the connection of our long-haul network from carrier hotels, international landing stations and data centers to our high fiber density markets. Our sales team continues to target high-growth areas including content, international and cable television providers. Our fiber network connects common interconnection points in tier one locations to our tier two and three markets, enabling our customers to reach their end users through unique and diverse routes. ~~Including network assets acquired through our 2017 acquisitions, our fiber network spans approximately 150,000 route miles of fiber.~~ We have made significant investments in our network adding route miles and new access points to provide advanced Wave and Metro Ethernet Forum (“MEF”) Ethernet services. Our fiber network spans over 164,000 route miles of fiber across the United States. Furthermore, advancing the service capabilities of our fiber network through Windstream’s use of software-defined networking (“SDN”) will provide our customers with the ability to dynamically configure and control their data networks.

To maintain our contribution margins in our Wholesale business, we will continue to leverage our network assets, offer advanced products and solutions, target our core customers and control costs through our disciplined approach to capital and expense management.

Wholesale services provide network bandwidth to other telecommunications carriers, network operators, and content providers. These services include ~~special access services, which provide access and network transport services to end users,~~ Ethernet and Wave transport up to 100 Gbps, and dark fiber and colocation services. Wholesale services also include fiber-to-the-tower connections to support the wireless backhaul market. In addition, we offer voice and data carrier services to other communications providers and to larger-scale purchasers of network capacity. Customers manage these services via our customer-facing self-service portals enabling accuracy and efficiency.

Our sales and marketing efforts are designed to differentiate us from our competitors by providing services in underserved markets with a superior customer experience. Our teams are integrated with the Engineering organization to build and provide customized network solutions for our customers. Our sales and customer support staff are aligned to work closely with each customer to ensure that the customer’s specific business needs are met. Whether servicing content providers, cable operators, data centers or other communication services providers who require single or multiple circuit connections or may not have sufficient transport network to support their immediate needs, our goal is to exceed customer expectations by providing tailored service and solutions.

The market for carrier services is highly competitive as continued merger and acquisition activity has resulted in fewer customers and intensified pricing pressure. To improve competitiveness and expand new sales opportunities, we have invested in our network and introduced SDN orchestration to meet the growing demand for 10 Gbps and 100 Gbps bandwidth. Through upgraded network presence in key interconnection points, we are capable of providing Ethernet access and Wave transport services to rural markets, often on unique and diverse routes. By providing a superior customer experience through our customer-facing portal and with advanced SDN network technology, we are well-positioned to attract new business and increase market share.

See Note 18 to the consolidated financial statements included in the Financial Supplement to this Annual Report on Form 10-K for additional financial information regarding our operating segments.

We are subject to regulatory oversight by the Federal Communications Commission (“FCC”) for particular interstate matters and state public utility commissions (“PUCs”) for certain intrastate matters. We are also subject to various federal and state statutes that direct such regulations. We actively monitor and participate in proceedings at the FCC and PUCs and engage federal and state legislatures on matters of importance to us. We receive federal and state Universal Service Fund (“USF”) revenues, ~~CAF~~such as Connect America Fund (“CAF”) Phase II ~~support, and funds received from federal access recovery mechanisms (“ARM”).~~support. These revenues are included in the operating results of our segments. USF revenues are government subsidies designed to partially offset the cost of providing ~~wireline~~ services in high-cost areas. CAF Phase II funding is administered by the FCC for the purpose of expanding and supporting broadband service in rural areas and effectively replaces frozen USF support in those states in which we elected to receive CAF Phase II funding, as further described below. The ARM is additional federal universal service support available to help mitigate revenue losses from inter-carrier compensation reform not covered by the access recovery charge (“ARC”), a monthly charge assessed to customers established by the FCC.

In August 2015, we notified the FCC of our acceptance of CAF Phase II support of approximately $175 million per year for a six year period to fund the deployment of voice and high-speed Internet capable infrastructures for eligible locations in 17 of the 18 states in which we are the incumbent provider, declining only the annual statewide funding in New Mexico because our projected cost to comply with the FCC’s deployment requirements greatly exceeded the funding offer. The FCC announced the winners of its CAF Phase II competitive bidding process in August 2018. Windstream was not awarded any ~~bids so it~~bids.

In January 2020, the FCC approved the Rural Digital Opportunity Fund (“RDOF”) program, which will ~~continue~~succeed CAF Phase II. The FCC will conduct a two-phase reverse auction to ~~receive annual USF funding~~award $20.4 billion in ~~New Mexico frozen at 2011 levels until~~funding. Phase I will award $16 billion and Phase II will award $4.4 billion. The Phase I auction will begin on October 22, 2020 and no date for the ~~implementation~~Phase II auction has been determined. In addition to the auction format and details, the FCC’s January action extended Windstream’s receipt of CAF Phase II ~~award process is complete, which at this time is not known.~~annual funding ($175 million) through 2021. Windstream plans to actively pursue the opportunities offered through RDOF.

Windstream has actively engaged in policy advocacy in various FCC proceedings that address the rates, terms and conditions for access to the “last-mile” facilities (i.e., business data services (“BDS”) and unbundled network elements (“UNEs”)) we need to serve retail business customers through our competitive companies. For decades, these services ~~had been~~were subject to price caps and other FCC regulation to control ~~for~~ ILEC market power and historical advantages.

In April 2017, the FCC adopted comprehensive reforms to its BDS rules (“BDS Order”) and, after an appeal by Windstream, on August 28, 2018, the United States Court of Appeals for the 8th Circuit (the “Court”) generally upheld the FCC’s rules but vacated and remanded the FCC’s finding that transport was sufficiently competitive to deregulate based on a lack of adequate notice. ~~Because~~In response to the ~~Court granted a stay of its decision until November 12, 2019, Windstream expects~~8th Circuit’s remand, on October 2, 2018, the FCC issued a Second Further Notice of Proposed Rulemaking proposing to ~~issue new~~deregulate transport ~~rules by~~services, which they later approved subject to a transition period that ~~date.~~will end on August 1, 2020.

Additionally, on May 4, 2018, the United States Telecommunications Association (“USTA”) filed a Petition for Forbearance Pursuant to 47 U.S.C. Sec. 160(c) to Accelerate Investment in Broadband and Next-Generation Networks with the FCC. Among other requests, USTA, on behalf of ~~certain~~some of its members, sought relief from the requirement to provide unbundled network elements (“UNEs”) and resale discounts to other telecommunications providers. ~~After successful negotiations, on June 21, 2018,~~ At its July 10, 2019 Open Meeting, the FCC, as part of the same Order granting BDS transport forbearance, granted forbearance from DS1 and DS3 UNE transport obligations, subject to a three-year transition ending August 2, 2022.

Windstream ~~and~~is pursuing a strategy to accelerate the ~~members~~transition of ~~USTA filed an ex parte request~~its customers from TDM to packet-based services, which is consistent with the ~~FCC, outlining that they had agreed~~underlying goal of the FCC’s reform of BDS and UNEs, and current market trends. However, the BDS reforms and UNE proceedings could negatively impact Windstream due to ~~a transition time frame~~increased expenses to purchase business data services and UNEs, the need for ~~access~~greater capital investments to ~~UNEs until February 4, 2021, during which transition time Windstream will transition customers from UNEs or otherwise negotiate rates~~retain our competitiveness, and increased customer and revenue churn due to supersede UNE rates. The parties requested that the FCC consider this a modification of USTA’s original forbearance request. The FCC recently issued a 90-day extension for consideration of this petition, which will now be deemed granted in August 2019 if the FCC takes no further action.increasing prices.

From time to time, federal and state legislation is introduced dealing with various matters that could affect our business. Most proposed legislation of this type never becomes law. Accordingly, it is difficult to predict what kind of legislation, if any, may be introduced and ultimately become law. For additional information on these and other regulatory items, please refer to the “Regulatory Matters” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Financial Supplement to this Annual Report on Form 10-K.

No single customer, or group of related customers, represented 10 percent or more of our annual operating revenues during the three-year period ended December 31, ~~2018.~~2019.

Our business is not subject to significant seasonal fluctuations.

Our network organization’s focus is to create a consistent excellent customer experience through targeted initiatives and investments while simultaneously reducing our costs through network optimization, vendor negotiations and consolidation. Additionally, the team continues to assess emerging technologies to lead our go-forward product sets, improve our customer experience and drive network efficiencies.

We are redefining the way we design and operate our network to meet the rapidly evolving digital needs of our customers. We have redirected our network strategy toward being more software-centric as we focus on creating and managing software-defined customer solutions, while fostering an agile, innovative culture to quickly deliver the right solutions to our customers. Across our ~~150,000~~164,000 miles of fiber optic network, we maintain a calibrated balance between building future network capabilities and maintaining the valued legacy network elements to further enhance network diversity and reliability.

The transport layer of our network has been strategically designed into multiple domains, consisting of access, metro, metro-core and long-haul. Our investments to modernize the network will enable us to provide software-defined solutions that are more efficient to deploy and operate. Software-developed tools will also create efficiencies and improve reliability for legacy network elements.

The next generation IP layer contains segmentation of critical elements and routes, producing extremely high-levels of availability between core and edge routers. Similar architectures exist at the higher layers as well, as we regionalize and diversify video, VOIP, security, and SD-WAN network elements. Multi-layer orchestration has been (and will continue to be) developed to effectively reduce cycle time while improving the reliability of the process.

For those opportunities where we have limited network assets, strategic service agreements are implemented for last-mile connections to extend our ability to serve the business customers that are not located directly on our network. These connections link our business customers to our facilities-based network and products.

On July 28, 2017, Windstream Holdings completed its merger with Broadview Networks Holdings, Inc. (“Broadview”), a leading provider of cloud-based unified communications solutions to small and medium-sized businesses and offers a broad suite of cloud-based services. Broadview’s proprietary OfficeSuite® and unified communications platforms are complementary to our existing SD-WAN product offering. In addition, Broadview has an experienced sales force and strong channel partner program, which we will leverage to sell unified communications services across our small business and mid-market enterprise customer bases. In the merger, Windstream added approximately 20,000 small and medium-sized business customers and approximately 3,000 incremental route fiber miles. Windstream Services paid $69.8 million in cash to Broadview shareholders and assumed $160.2

million of Broadview’s short-term debt obligations, which Windstream Services subsequently repaid. The transaction was valued at approximately $230.0 million.

On February 27, 2017, Windstream Holdings completed its merger with EarthLink Holdings Corp. (“EarthLink”), a leading provider of data, voice and managed network services to retail and wholesale business customers and nationwide Internet access and related value-added services to residential customers. In the merger, Windstream added approximately 700,000 customers and approximately 16,000 incremental route fiber miles. In effecting the merger, each share of EarthLink common stock was exchanged for .1636 shares of Windstream Holdings common stock, on a post-reverse stock split basis. In the aggregate, Windstream Holdings issued approximately 18.6 million shares of its common stock and assumed approximately $435.3 million of EarthLink’s long-term debt, which we subsequently refinanced, in a transaction valued at approximately $1.1 billion.

In completing these acquisitions, we have increased our operating scale and scope giving us the ability to offer customers expanded products, services and enhanced enterprise solutions over an extensive national footprint now spanning approximately ~~150,000~~164,000 fiber route miles. We also ~~expect to achieve~~achieved operating and capital expense synergies in integrating the operations of ~~MASS,~~ Broadview and EarthLink. For additional information regarding these acquisitions see Note 34 to the consolidated financial statements included in the Financial Supplement to this Annual Report on Form 10-K.

Sale of Consumer CLEC Business - On December 31, 2018, we completed the sale of substantially all of our consumer competitive local exchange carrier (“CLEC”) business to an affiliate of Trive Capital Fund III LLP and nQue Technologies for $320.9 million in cash, net of a working capital adjustment. The consumer operations sold consisted solely of the former EarthLink consumer business that we acquired in February 2017.

Sale of Data Center Business - On December 18, 2015, we completed the sale of a substantial portion of our data center business to TierPoint LLC (“TierPoint”) for $575.0 million in cash. In the transaction, TierPoint acquired 14 of Windstream’s 27 data centers, including data centers located in Arkansas, Illinois, Massachusetts, North Carolina, Pennsylvania, and Tennessee. The remaining data centers retained by us are primarily shared colocation facilities. As part of the transaction, we established an ongoing reciprocal strategic partnership with TierPoint, allowing both companies to sell their respective products and services to each other’s prospective customers through referrals.

Spin-off of Certain Network and Real Estate Assets - On April 24, 2015, we completed the spin-off of certain telecommunications network assets, including our fiber and copper networks and other real estate, into an independent, publicly traded real estate investment trust. The spin-off also included substantially all of our consumer CLEC business as of that time. The telecommunications network assets consisted of copper cable and fiber optic cable lines, telephone poles, underground conduits, concrete pads, attachment hardware (e.g., bolts and lashings), pedestals, guy 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 the designation of the telecommunications network assets as real estate.

Pursuant to the plan of distribution and immediately prior to the effective time of the spin-off, we contributed the telecommunications network assets and the consumer CLEC business to Uniti formerly Communications Sales & Leasing, Inc., a wholly owned subsidiary of Windstream, in exchange for: (i) the issuance to Windstream of Uniti common stock of which 80.4 percent of the shares were distributed on a pro rata basis to Windstream’s stockholders, (ii) cash payment to Windstream in the amount of $1.035 billion and (iii) the distribution by Uniti to Windstream of approximately $2.5 billion of Uniti debt securities. After giving effect to the interest in Uniti retained by Windstream, each Windstream Holdings shareholder received one share of Uniti for every five shares of Windstream Holdings common stock in the form of a tax-free dividend. On April 24, 2015, following the completion of the spin-off, we transferred the Uniti debt securities and cash to two investment banks, in exchange for approximately $2.5 billion of debt securities of Windstream Services held by the investment banks.

As of the spin-off date, excluding restricted shares held by Windstream employees and directors, Windstream retained a passive ownership interest in approximately 19.6 percent of the common stock of Uniti. In two separate transactions completed in June 2016, Windstream Services transferred all of its shares of Uniti common stock to its bank creditors in exchange for the retirement of $672.0 million of aggregate borrowings outstanding under its revolving line of credit and to satisfy transaction-related expenses.

Staff at our headquarters and regional offices supervise, coordinate and assist 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.

At December 31, ~~2018,~~2019, we had ~~11,945~~11,080 employees, of which ~~1,340~~1,358 employees are part of collective bargaining units. During ~~2018,~~2019, we had no material work stoppages due to labor disputes with our unionized employees (see Item 1A, “Risk Factors”).

Our web site address is www.windstream.com. We file with, or furnish to, the SEC annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, and amendments to those reports, as well as various other information. The public may read and copy any materials filed by us with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Room 1580, Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. This information can also be found on the SEC website at www.sec.gov. In addition, we make available free of charge through the Investor Relations page on our web site our annual reports, quarterly reports, and current reports, and all amendments to any of those reports, as soon as reasonably practicable after 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, and Governance Committees. We will provide to any stockholder a copy of the Code of Ethics, Governance Board Guidelines and the Committee charters, without charge, upon written request to Investor Relations, Windstream Holdings, Inc., 4001 Rodney Parham Road, Little Rock, Arkansas 72212.

We claim the protection of the safe-harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 for this Annual Report on Form 10-K. This report contains various forward-looking statements which represent our expectations or beliefs concerning future events, including, without limitation, our future performance, our ability to comply with the covenant in the agreements governing our indebtedness and the availability of capital and terms thereof. Statements expressing expectations and projections with respect to future matters are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We caution that these forward-looking statements involve a number of risks and uncertainties and are subject to many variables which could impact our future performance. These statements are made on the basis of management's views, estimates, projections, beliefs, and assumptions, as of the time the statements are made, regarding future events and results. There can be no assurance, however, that management's expectations will necessarily come to pass. Actual future events and our results may differ materially from those expressed in these forward-looking statements as a result of a number of important factors.

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

In addition to these factors, actual future performance, outcomes and results may differ materially because of more general factors including, among others, general industry and market conditions and growth rates, economic conditions, and governmental and public policy changes.

On February 25, 2019 (the “Petition Date”), Windstream Holdings and all of its subsidiaries, including Windstream Services (collectively, the “Debtors”), filed voluntary petitions for relief (the “Chapter 11 Cases”) under Chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”).

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

For the duration of our Chapter 11 proceedings, our operations and our ability to develop and execute our business plan are subject to the risks and uncertainties associated with bankruptcy, including the following:

These risks and uncertainties could affect our business and operations in various ways, such as adversely impacting our relationships with our suppliers, service providers, customers, employees and other third parties, which in turn could adversely affect our operations and financial condition. Also, we need the prior approval of the Bankruptcy Court for transactions outside the ordinary course of business, which may limit our ability to respond timely to certain events or take advantage of certain opportunities.

Because of the risks and uncertainties associated with our Chapter 11 proceedings, we cannot accurately predict or quantify the ultimate impact of events that will occur during our Chapter 11 proceedings that may be inconsistent with our plans.

Under Chapter 11, transactions outside the ordinary course of business will be subject to the prior approval of the Bankruptcy Court, which may limit our ability to respond in a timely manner to certain events or take advantage of certain opportunities. We must obtain Bankruptcy Court approval to, among other things:

Adverse publicity or news coverage relating to us, including, but not limited to, publicity or news coverage in connection with the Chapter 11 Cases, may negatively impact our efforts to establish and promote name recognition and a positive image after emergence from the Chapter 11 Cases.

While we operate our businesses as debtor-in-possession under supervision by the Bankruptcy Court, we are required to obtain the approval of the Bankruptcy Court and, in some cases, certain lenders prior to engaging in activities or transactions outside the ordinary course of business. Bankruptcy Court approval of non-ordinary course activities entails preparation and filing of appropriate motions with the Bankruptcy Court, negotiation with the creditors’ committee and other parties-in-interest and one or more hearings. The creditors’ committees and other parties-in interest may be heard at any Bankruptcy Court hearing and may raise objections with respect to these motions. This process may delay major transactions and limit our ability to respond quickly to opportunities and events in the marketplace. Furthermore, in the event the Bankruptcy Court does not approve a proposed activity or transaction, we would be prevented from engaging in activities and transactions that we believe are beneficial to us.

The execution of our business plans depends on the efforts of our senior management team and other key personnel to execute our business plans. Such individuals may be required to devote significant efforts to the prosecution of the Chapter 11 Cases, thereby potentially impairing their abilities to execute our business plans. Accordingly, our business plans may not be implemented as anticipated, which may cause its financial results to materially deviate from the current projections.

~~Leading up to and following commencement of the Chapter 11 Cases, our~~Our management was required to spend a significant amount of time and effort focusing on the ~~filings.~~various workflows necessary for these Chapter 11 Cases. This diversion of attention may materially adversely affect the conduct of our business, and, as a result, our financial condition and results of operations, particularly if a Chapter 11 plan is not confirmed. During the continued pendency of the Chapter 11 Cases, our employees are facing distraction and uncertainty and we may experience increased levels of employee attrition. We are highly dependent on the continuing efforts of our executive officers and other personnel as our executive officers have substantial experience and expertise in our industry and have made significant contributions to our business. Uncertainty as a result of the Chapter 11 Cases may adversely affect our ability to attract and retain key personnel, and loss of key personnel or material erosion of employee morale could have a material adverse effect on our ability to meet customer expectations and could require the incurrence of substantial additional costs to recruit replacement personnel, thereby adversely affecting our business and results of operations. In addition, we could experience losses of customers who may be concerned about our long-term viability.

During the Chapter 11 Cases, we expect our financial results to be volatile as restructuring activities and expenses, contract terminations and rejections, and claims assessments significantly impact our consolidated financial statements. As a result, our historical financial performance is likely not indicative of our financial performance after the date of the bankruptcy filing. In addition, if we emerge from Chapter 11, the amounts reported in subsequent consolidated financial statements may materially change relative to historical consolidated financial statements, including as a result of revisions to our operating plans pursuant to a plan of reorganization. We also may be required to adopt fresh start accounting upon emergence, in which case our assets and liabilities will be recorded at fair value as of the fresh start reporting date, which may differ materially from the recorded values of assets and liabilities on our consolidated balance sheets. Our financial results after the application of fresh start accounting also may be different from historical trends.

The agreements governing our debtor-in-possession (the “DIP”) financing impose a number of restrictions on us. Specifically, the terms of the credit agreement governing the DIP financing impose certain obligations including, among other things, affirmative covenants requiring us to provide financial information, budgets and other information to the agent under the DIP financing, and negative covenants restricting our ability to incur additional indebtedness, grant liens, dispose of assets, pay dividends or take certain other actions, in each case except as permitted in by the terms of the DIP financing. Our ability to borrow under the DIP financing is subject to the satisfaction of certain conditions precedent. Covenants of the DIP facility include general affirmative covenants, as well as negative covenants such as prohibiting us from incurring or permitting debt, investments, liens or dispositions unless specifically permitted. Failure to comply with these covenants would result in an event of default under the DIP facilities and permit the lenders thereunder to accelerate the loans and otherwise exercise remedies under the loan documentation for the DIP facilities. Our ability to comply with these provisions may be affected by events beyond our control and our failure to comply or obtain a waiver in the event we cannot comply with a covenant could result in an event of default under the agreements governing the DIP financing and our other financing arrangements.

To emerge successfully from Bankruptcy Court protection as a viable entity, we must meet certain statutory requirements with respect to adequacy of disclosure related to the plan of reorganization, solicit and obtain the requisite acceptances of such a plan and fulfill other statutory conditions for confirmation of such a plan, which have not occurred to date. The confirmation process is subject to unanticipated potential delays, including a delay in the Bankruptcy Court’s commencement of the confirmation hearing regarding our plan of reorganization.

We may not receive the requisite acceptances of constituencies in the Chapter 11 proceedings to confirm our plan of reorganization. Even if the requisite acceptances of our plan of reorganization are received, the Bankruptcy Court may not confirm such a plan. The precise requirements and evidentiary showing for confirming a plan, notwithstanding its rejection by one or more impaired classes of claims or equity interests, depends upon a number of factors, including, without limitation, the status and seniority of the claims or equity interests in the rejecting class (i.e., unsecured claims or secured claims, subordinated or senior claims).

If a Chapter 11 plan of reorganization is not confirmed by the Bankruptcy Court, it is unclear whether we would be able to reorganize our business and what, if anything, holders of claims against us would ultimately receive with respect to their claims.

Even if a Chapter 11 plan of reorganization is consummated, we will continue to face a number of risks, including certain risks that are beyond our control, such as further deterioration or other changes in economic conditions, changes in our industry and potential revaluing of our assets due to the Chapter 11 Cases. Some of these concerns and effects typically become more acute when a case under the Bankruptcy Code continues for a protracted period without indication of how or when the case may be completed. As a result of these risks and others, there is no guarantee that any plan of reorganization will achieve our stated goals.

Furthermore, we cannot predict the ultimate amount of all settlement terms for the Debtors’ liabilities that will be subject to a plan of reorganization. Even if our debts are reduced or discharged through a plan of reorganization, we may need to raise additional

funds through public or private debt or equity financing or other various means to fund our business after the completion of the Chapter 11 process. Adequate funds may not be available when needed or may not be available on favorable terms. Even once a plan of reorganization is implemented, our operating results may be adversely affected by the possible reluctance of customers to do business with a company that recently emerged from bankruptcy proceedings.

Our future results are dependent upon the successful confirmation and implementation of a plan of reorganization. ~~A long period~~The length of time our operations remain under Bankruptcy Court protection could have a material adverse effect on our business, financial condition, results of operations and liquidity.

If the proceedings related to the Bankruptcy Filings continue for a longer period than anticipated, customers and suppliers may lose confidence in our ability to reorganize our business successfully and will seek to establish alternative commercial relationships.

Furthermore, so long as the Chapter 11 proceedings continue, we will be required to incur substantial costs for professional fees and other expenses associated with the administration of the Chapter 11 proceedings. If we require additional debtor-in-possession financing and are unable to obtain it on favorable terms or at all, our chances of successfully reorganizing our business may be seriously jeopardized, the likelihood that we instead will be required to liquidate our assets may be enhanced, and, as a result, any securities in us could become further devalued or become worthless. Furthermore, we cannot predict the ultimate amount of all settlement terms for the liabilities that will be subject to a plan of reorganization. Even once a plan of reorganization is approved and implemented, our operating results may be adversely affected by the possible reluctance of prospective lenders and other counterparties to do business with a company that recently emerged from Chapter 11 proceedings.

Chapter 11 gives us the exclusive right to file a plan of reorganization during the first 120 days after filing. That period can be extended for cause up to a total of 18 months from the Petition Date with approval of the Bankruptcy Court. While we intend to conclude our Chapter 11 Cases during this “exclusivity period”, there can be no assurance that we will be able to do so. There is also no assurance that a plan of reorganization we propose will be approved by the requisite creditors and the Bankruptcy Court. After the expiration of the exclusivity period, third parties can file one or more Chapter 11 plans of reorganization for the Debtors. An alternative plan of reorganization could contemplate Windstream continuing as a going concern, Windstream being broken up, Windstream or its assets being acquired by a third party, Windstream being merged with a competitor or some other proposal. We may not believe that such an alternative plan of reorganization is in our stakeholders’ best interests or fully values the benefits to be achieved by our reorganization. If we cannot successfully obtain approval of our plan of reorganization during the exclusivity period, we may have limited ability to prevent an alternative plan of reorganization from being approved by the Bankruptcy Court.

Companies in Chapter 11 are often the target of unsolicited merger and acquisition offers, and there is no guarantee that we will emerge from Chapter 11 as a standalone company. An unsolicited proposal or alternative plan of reorganization could potentially delay our emergence from Chapter 11 and expose us to a number of other risks, including potential limitations on our ability to execute our business plan and strategic initiatives; difficulties in hiring, retaining and motivating key personnel; negative reactions among our employees, vendors, strategic partners and service providers; a failure to provide stakeholders full value for the benefits that could be achieved by Windstream post-emergence on a stand-alone basis; and unease and uncertainty among our customer base. In addition, any potential transaction proposed during Chapter 11, even if we decided such transaction was in our best interest, would be expressly subject to Bankruptcy Code requirements and Bankruptcy Court approval.

In order to successfully emerge from Chapter 11 bankruptcy protection, we must develop and obtain confirmation of a Chapter 11 plan of reorganization by the Bankruptcy Court. There can be no assurance that we will be able to confirm a plan of reorganization that will permit us to emerge from bankruptcy and continue operations. There can be no assurance that our access to liquidity, including funds available from our DIP financing and amounts of cash from future operations, will be sufficient to fund ongoing operations.

If the Bankruptcy Court finds, after much consideration, that it would be in the best interest of creditors and/or us, the Bankruptcy Court could convert our Chapter 11 bankruptcy cases to cases under Chapter 7 of the Bankruptcy Code. In such event, a Chapter 7 trustee would be appointed or elected to liquidate our assets for distribution in accordance with the priorities established by the Bankruptcy Code. We believe that liquidation under Chapter 7 would result in significantly smaller distributions being made to our creditors than those provided for in a Chapter 11 plan of reorganization because of (i) the likelihood that the assets would have to be sold or otherwise disposed of in a disorderly fashion over a short period of time rather than reorganizing or selling in a controlled manner our business as a going concern, (ii) additional administrative expenses involved in the appointment of a Chapter 7 trustee, and (iii) additional expenses and claims, some of which would be entitled to priority, that would be generated during the liquidation and from the rejection of leases and other executory contracts in connection with a cessation of operations.

The Bankruptcy Code provides that the confirmation of a Chapter 11 plan of reorganization discharges a debtor from substantially all debts arising prior to confirmation. With few exceptions, all claims that arose prior to the Petition Date, or before confirmation of the Chapter 11 plan of reorganization (i) would be subject to compromise and/or treatment under the Chapter 11 plan of reorganization and/or (ii) would be discharged in accordance with the terms of the Chapter 11 plan of reorganization. Any claims not ultimately discharged through the Chapter 11 plan of reorganization could be asserted against the reorganized entities and may have an adverse effect on our financial condition and results of operations on a post-reorganization basis.

Our ability to fund our operations and our capital expenditures require a significant amount of cash. Our principal sources of liquidity historically have been cash flow from operations, borrowing capacity under the senior secured revolving credit facility and issuances of other debt. If our cash flow from operations decreases, we may not have the ability to expend the capital necessary to improve or maintain our current operations, resulting in decreased revenues over time.

We face uncertainty regarding the adequacy of our liquidity and capital resources and have extremely limited, if any, access to additional financing. In addition to the cash requirements necessary to fund ongoing operations, we have incurred significant professional fees and other costs in connection with preparation for the Chapter 11 proceedings and expect that we will continue to incur significant professional fees and costs throughout our Chapter 11 proceedings. In addition, we must comply with the covenants of our DIP financing in order to continue to access our borrowings thereunder. We cannot assure you that we will be able to comply with the covenants of our DIP financing or that cash on hand and cash flow from operations will be sufficient to continue to fund our operations and allow us to satisfy our obligations related to the Chapter 11 Cases until we are able to emerge from our Chapter 11 Cases.

Our liquidity, including our ability to meet our ongoing operational obligations, is dependent upon, among other things: (i) our ability to comply with the terms and conditions of our DIP financing agreements, (ii) our ability to comply with the terms and conditions of any cash collateral order that may be entered by the Bankruptcy Court in connection with the Chapter 11 Cases, (iii) our ability to maintain adequate cash on hand, (iv) our ability to generate cash flow from operations, (v) our ability to develop, confirm and consummate a Chapter 11 plan or other alternative restructuring transaction and (vi) the cost, duration and outcome of the Chapter 11 Cases.

Upon emergence from Chapter 11, we may have substantial indebtedness that could have important consequences to us, including:

It is too early to determine if our Chapter 11 plan of reorganization will allow for distributions with respect to our common stock. It is possible that our common stock will be canceled and extinguished upon the approval of the Bankruptcy Court and the holders thereof would not be entitled to receive, and would not receive or retain, any property or interest in property on account of such equity interests. In the event of a cancellation of our common stock, amounts invested by such holders in our outstanding common stock will not be recoverable. Consequently, our currently outstanding common stock would have no value. Trading prices for our common stock are very volatile and may bear little or no relationship to the actual recovery, if any, by the holders of such securities in the Chapter 11 Cases. Accordingly, we urge that extreme caution be exercised with respect to existing and future investments in our equity securities and any of our other securities.

Trading in our common stock was suspended and removed from listing on NASDAQ on March 6, 2019. We will not be able to relist our common stock on a national securities exchange during our Chapter 11 process, although our common stock is now quoted on the OTC Pink Sheets market maintained by the OTC Market Group, Inc. under the trading symbol “WINMQ.” The lack of an active market may impair the ability of holders of our common stock to sell their shares at the time they wish to sell them or at a price that they consider reasonable. The lack of an active market may also reduce the fair market value of the shares of our common stock. Furthermore, because of the limited market and generally low volume of trading in our common stock, the price of our common stock could be more likely to be affected by broad market fluctuations, general market conditions, fluctuations in our operating results, changes in the markets’ perception of our business, and announcements made by us, our competitors, parties with whom we have business relationships or third parties with interests in the Chapter 11 Cases.

On ~~February 15, 2019, Judge Jesse Furman~~March 11, 2020, the World Health Organization declared a novel strain of coronavirus, COVID-19, a pandemic and a public health emergency of international concern, and the United States ~~District Court for~~declared a national emergency. The COVID-19 pandemic has, and future pandemics could, negatively impact the ~~Southern District~~global economy, disrupt global supply chains and create significant volatility and disruption of ~~New York issued findings~~financial markets. Given the ongoing and dynamic nature of ~~fact~~the COVID-19 pandemic, we cannot predict the impact of it on us, and ~~conclusions~~there is no guarantee that our efforts to address adverse impacts of ~~law~~COVID-19 will be effective.

State and jurisdictions throughout the United States, including those in ~~litigation relating~~which we operate, have adopted laws, rules, regulations or decrees intended to address the COVID-19 outbreak, including implementing travel restrictions, closing non-essential businesses and/or restricting daily activities, and lifting of these restrictions remains open. COVID-19, as well as any future pandemic, could negatively impact our operations and our financial condition, results of operations and cash flows due to a ~~noteholder’s allegations that~~number of factors, including, but not limited to, (i) an increase in operating costs, decrease in inventory and/or a decrease in productivity related to travel bans and social distancing effort, and disruptions to our ~~spin-off of certain assets~~employees, (ii) a disruption or delay in ~~2015 into~~our operations, network performance, network maintenance and construction, testing, supervisory and customer support activities, and inventory, supply, or service procurement, (iii) a ~~publicly-traded real estate investment trust (“Spin-Off”) resulted~~decrease in ~~one or more defaults of certain covenants under one~~the ability of our ~~existing indentures.~~

While we ~~had breached certain covenants under~~have implemented policies and procedures designed to mitigate the 2013 Indenture, primarily that the Spin-Off constituted a sale and leaseback transaction (as defined in the 2013 Indenture) which was not in compliance with the 2013 Indenture. On November 6, 2017, we received consents from holders representing a majorityrisks of the ~~outstanding aggregate principal amount~~COVID-19 pandemic, or any future pandemic, on our operations, we may incur additional costs to ensure continuity of ~~6.375 percent senior notes due 2023~~business operations during such pandemic that

could adversely affect our financial condition, results of operations and cash flow. The extent to ~~certain waivers~~which COVID-19 could impact us will depend on future developments, such as future actions taken to contain COVID-19, development of medical treatments or development of a vaccine, which are highly uncertain and amendments to the 2013 Indenture relating to the defaults alleged in the notice of default in connection with certain exchange and consent transactions (the “2017 Exchange and Consent Transactions”). On December 7, 2017, the purported holder issued a notice of acceleration claiming that the principal amount, along with accrued interest, was due and payable immediately.cannot be predicted.

We serve business customers in markets across the country, competing against other communications providers and cable television companies for business customers. Competition in our business markets could adversely affect growth in business revenues and ultimately have a material adverse impact on our results of operations and financial condition. Our ability to compete effectively depends in part on our ability to achieve a competitive cost structure during the Chapter 11 Cases. If we are unable to compete effectively, we may be forced to lower prices or increase our sales and marketing expenses. In addition, we may need to continue to make significant capital expenditures to keep up with technological advances and offer competitive services. For additional information, see the risk factor “Rapid changes in technology could affect our ability to compete for business customers.”

In certain markets where we serve business customers, we purchase significant amounts of network capacity to provide service to our customers. We utilize these facilities owned by other companies competing directly with us for business customers. For additional information, see the risk factor “In certain operating territories, we are dependent on other carriers to provide facilities which we use to provide service to our customers.”

As of December 31, ~~2018,~~2019, we had ~~$5,728.1~~$6,099.3 million long-term debt outstanding, all of which has been classified as current in our consolidated balance as of that date due to the adverse court ruling discussed above. The commencement of the Chapter 11 Cases described above also constituted an event of default obligations under our debt instruments, including the indentures governing our notes and our credit agreement. Any efforts to enforce payment obligations under our debt instruments are automatically stayed as a result of the filing of the Chapter 11 Cases and the holders’ rights of enforcement are subject to the applicable provisions of the Bankruptcy Code.

In connection with filing the Chapter 11 Cases, we have obtained DIP financing. The agreements governing the DIP financing impose a number of restrictions on us. Specifically, the terms of the credit agreements governing the DIP financing impose certain obligations including, among other things, affirmative covenants requiring us to provide financial information, budgets and other information to the agent under the DIP financing, and negative covenants restricting our ability to incur additional indebtedness, grant liens, dispose of assets, pay dividends or take certain other actions, in each case except as permitted in by the terms of the DIP financing. Our ability to borrow under the DIP financing is subject to the satisfaction of certain conditions precedent. Covenants of the DIP facility include general affirmative covenants, as well as negative covenants such as prohibiting us from incurring or permitting debt, investments, liens or dispositions unless specifically permitted. Failure to comply with these covenants would result in an event of default under the DIP facilities and permit the lenders thereunder to accelerate the loans and otherwise exercise remedies under the loan documentation for the DIP facilities. Our ability to comply with these provisions may be affected by events beyond our control and our failure to comply or obtain a waiver in the event we cannot comply with a covenant could result in an event of default under the agreements governing the DIP financing and our other financing arrangements.

In addition, because the Chapter 11 Cases are ongoing and there can be no assurance as to the outcome of the Chapter 11 Cases, we may have to undertake alternative financing plans, such as: refinancing or restructuring our debt, selling assets, reducing or

delaying capital investments, or seeking to raise additional capital. Our inability to pay off our debt obligations and our inability to obtain alternative financing due to the Chapter 11 Cases could materially and adversely affect our business, financial condition, results of operations or prospects. Additionally, we must obtain Bankruptcy Court approval for these actions, which will place us at a competitive disadvantage and limit our flexibility to react to changes in our business or our industry. See “Risks Related to Chapter 11 Reorganization”.

The technology used to deliver communications services has changed rapidly in the past and will likely continue to do so in the future. If we are unable to keep up with such changes and leverage next generation technology, we may not be able to offer competitive services to our business customers. This could adversely affect our ability to compete for business customers, which, in turn, would adversely affect our results of operations and financial condition.

We store customers’ proprietary business information in our facilities through our colocation, managed services and cloud computing services and we maintain certain sensitive customer and employee information in our financial and operating systems. While we have implemented data security polices and other internal controls to safeguard and protect against misuse or loss of this information, if data were compromised through a cyber security incident, it could have a significant impact on our results of operations and financial condition. We have implemented network and data security policies and other internal controls to safeguard and protect against malicious interference with our networks and information technology infrastructure and related systems and technology, as well as misappropriation of data and other malfeasance through our information security initiatives and processes, but we cannot completely eliminate the risk associated with these types of occurrences. As part of our information security processes that are regularly reviewed by management and monitored by the Audit Committee, we continue to adapt to new threats, but increasing incidents of unsuccessful and successful “cyber attacks”, such as computer hacking, dissemination of computer viruses and denial of service attacks, as well as misappropriation of data, pose growing risks of a significant effect on our results of operations and financial condition and we cannot fully predict the evolution of such threats.

In certain markets and/or at certain locations, especially where we provide services to businesses, we may purchase 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 and pricing for tariff network services may be changed, but they must be approved by the appropriate regulatory agency before they go into effect. For network service purchased pursuant to interconnection agreements, the rates, terms and conditions included therein are approved by state commissions while other network services, such as some high-capacity Ethernet services, may be obtained through commercial contracts subject to limited government oversight.

The availability and pricing of network services purchased via commercial agreements are subject to change without regulatory oversight. For interconnection agreement-based network services, if an agreement cannot be negotiated and we have to invoke binding arbitration by a state regulatory agency, that process is expensive, time consuming, and the results may not be favorable to us. In addition, rates for network services set forth above are susceptible to changes in the availability and pricing of the provider’s facilities and services. In the event a provider becomes legally entitled to deny or limit access to capacity (or already is, as is the case with respect to certain services) or if state commissions allow the providers to increase rates for tariffed or interconnection agreement-based rates, we may not be able to effectively compete. In addition, some carriers may seek to impose monetary penalties if we cannot meet specific volume and term commitments that are part of pricing plans. Also, if the provider does not adequately maintain or timely install these facilities, despite legal obligations, our service to customers may be adversely affected. Finally, negative events associated with our Chapter 11 Cases could adversely affect our relationship with carriers. See “Risks Related to Chapter 11 Reorganization”. As a result of all these items, our competitive position, our operations, financial condition and operating results could be materially affected.

Our customers depend on reliable service over our network. Some of the risks to our network infrastructure include physical damage to lines, security breaches, capacity limitations, power surges or outages, software defects and disruptions beyond our control, such as natural disasters and acts of terrorism. From time to time in the ordinary course of business, we will experience

disruptions in our service due to factors such as cable damage, inclement weather and service failures of our third-party service providers. Additionally, we could face disruptions due to capacity limitations as a result of changes in our customers’ high-speed Internet usage patterns, resulting in a significant increase in the utilization of our network.

We could experience more significant disruptions in the future. Disruptions may cause interruptions in service or reduced capacity for customers, either of which could cause us to lose customers or incur additional expenses or capital expenditures. Such results could adversely affect our results of operations and financial condition.

Broadband consumption continues to increase, and, as a result, we could be required to make significant capital expenditures to increase network capacity to avoid service disruptions or reduced capacity for customers.

Alternatively, we may choose to implement reasonable network management practices to reduce the network capacity available to bandwidth-intensive activities during certain times in market areas experiencing congestion, and these actions could negatively affect customer experience and increase customer churn.

While we believe demand for these services may drive customers to pay for faster Internet speeds offered as part of our premium services, we may not be able to recover the costs of the necessary network investments. This could result in an adverse impact to our results of operations and financial condition.

If Windstream experiences an “ownership change” within the meaning of Section 382 of the Internal Revenue Code of 1986, as amended (an “Ownership Change”), it could adversely impact Windstream’s ability to utilize its existing net operating loss carryforwards. In general, an Ownership Change will occur when the percentage of Windstream’s common stock beneficially owned by one or more “5-percent shareholders” (as defined under IRC Section 382) increases by more than 50 percent at any time during the prior three years (calculated on a rolling basis). Under the rules of IRC Section 382, such beneficial ownership is calculated with reference to direct, indirect, and constructive ownership. The inability to utilize existing net operating loss carryforwards ~~would~~could significantly increase the amount of Windstream’s annual cash taxes required to be paid and reduce the overall amount of cash available to be used in other areas of Windstream’s business. An Ownership Change previously occurred on March 1, 2018, but did not have a material effect on Windstream’s ability to utilize its tax attributes because of rules applicable at that time that would not be applicable to an Ownership Change that occurred today.business, including after Windstream emerges from the Chapter 11 Cases.

In September 2015, Windstream’s board of directors adopted a shareholder rights plan under which Windstream shareholders of record as of the close of business on September 28, 2015 received one preferred share purchase right for each share of common stock outstanding (the “Rights Plan”) and Windstream entered into a 382 Rights Agreement with Computershare Trust Company, N.A. (the “Rights Agreement”). The Rights Plan is also designed to protect Windstream’s net operating loss carryforwards from the effect of an Ownership Change. Pursuant to the Rights Plan, if a shareholder (or group) acquires beneficial ownership of 4.9 percent or more of Windstream’s common stock without prior approval or meeting certain exceptions, shareholders (other than the acquiring shareholder or group) would be entitled to purchase additional shares of Windstream at a significant discount, resulting in significant dilution in the economic interests and voting power of the acquiring shareholder or group in Windstream. The Rights Agreement was amended on November 5, 2016, to confirm that any EarthLink shareholder that became a 4.9 percent or greater shareholder of the combined company as a result of the merger is exempt and the ownership does not trigger implementation of the Rights Plan unless the shareholder acquires additional shares of common stock. The Rights Agreement was further amended on August 7, 2018 to extend its term to September 17, ~~2021.~~2021, but the Rights Plan will no longer be in effect after we emerge from the Chapter 11 Cases.

On February 28, 2019, in connection with Windstream’s Chapter 11 ~~filings,~~cases, the U.S. Bankruptcy Court for the Southern District of New York entered an order approving certain notification and hearing procedures for transfers of, and declarations of worthlessness with respect to, beneficial ownership of common stock (the “Order”). The Order is designed to protect Windstream’s net operating loss carryforwards from the effect of a premature Ownership Change and to preserve Windstream’s ability to rely on certain favorable rules that can apply to Ownership Changes occurring in connection with the implementation of a bankruptcy plan of ~~reorganization.~~reorganization, but we cannot guarantee that we will be able to fully protect the net operating loss carryforwards post-emergence. The Order requires “substantial shareholders” and “50-percent shareholders” (each as defined therein) and certain persons that might become a substantial shareholder or 50-percent shareholder, to provide notice before making certain transfers of beneficial ownership of common stock or declaring its beneficial ownership of stock worthless for U.S. income tax purposes,

respectively. After receiving notice, Windstream is permitted to object, whereupon such action remains ineffective pending final resolution. Any action taken in violation of such procedures is void ab ~~initio~~.initio.

We are required to pay a portion of our cash flow from operations to Uniti pursuant to and subject to the terms and conditions of ~~the master lease.~~our contractual arrangement with Uniti. During the Chapter 11 Cases, we expect our financial results to continue to be volatile as restructuring activities and expenses can significantly impact our consolidated financial statements and affect our ability to ~~pay the rent owed~~make payments to Uniti. ~~Our~~This obligation ~~to pay rent~~ could impair our ability to fund our own operations, raise capital, make acquisitions and otherwise respond to competitive and economic changes may be adversely affected, any of which could have a material adverse effect on our business, financial condition and results of operations.

We currently lease a significant portion of our telecommunications network assets, including our fiber and copper networks and other real estate, under the ~~master lease~~contractual arrangement with Uniti. The filing of the Chapter 11 Cases resulted in an event of default under ~~the master lease.~~this arrangement. Upon an event of default, remedies available to Uniti include terminating the ~~master lease~~arrangement and requiring us to transfer the business operations we conduct at the leased assets so terminated (with limited exceptions) to a successor tenant for fair market value pursuant to a process set forth in the ~~master lease,~~arrangement, dispossessing us from the leased assets, and/or collecting monetary damages for the breach (including rent acceleration), electing to leave the ~~master lease~~arrangement in place and sue for rent and any other monetary damages, and seeking any and all other rights and remedies available under law or in equity. The exercise of such remedies could have a material adverse effect on our business, financial position, results of operations and liquidity. Due to the Chapter 11 Cases, however, Uniti’s ability to exercise remedies under ~~master lease~~contractual arrangement was stayed as of the date of the Chapter 11 petition filing. See “Risks Related to Chapter 11 Reorganization”.

As of December 31, ~~2018,~~2019, we had operating authority from each of the 48 states and the District of Columbia in which we conducted local service operations, and we are subject to various forms of regulation from the regulatory commissions in each of these areas as well as from the FCC. State regulatory commissions have jurisdiction over local and intrastate services including, to some extent, the rates that we charge and service quality standards. The FCC has primary jurisdiction over interstate services including the rates that we charge other telecommunications companies that use our network and other issues related to interstate service. In some circumstances, these regulations restrict our ability to adjust rates to reflect market conditions and may affect our ability to compete and respond to changing industry conditions.

Future revenues, costs, and capital investment in our wireline business could be adversely affected by material changes to or decisions regarding applicability of government requirements, including, but not limited to, changes in rules governing inter-carrier compensation, state and federal USF support, competition policies, and other pricing and requirements. Federal and state communications laws and regulations may be amended in the future, and other laws and regulations may affect our business. In addition, certain laws and regulations applicable to us and our competitors may be, and have been, challenged in the courts and could be changed at any time. We cannot predict future developments or changes to the regulatory environment or the impact such developments or changes would have.

We require substantial capital to maintain our network, and our growth strategy will require significant capital investments for network enhancements and build-out. During ~~2018,~~2019, we incurred ~~$820.2~~$878.5 million in total capital ~~expenditures, including $37.6 million in incremental spend related to acquisitions.~~expenditures. We expect to be able to fund required capital expenditures from cash generated from operations and borrowings under our DIP facilities. However, other risk factors described in this section, including relating the Chapter 11 Cases, could materially reduce cash available from operations or significantly 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.

Difficulties of operating while attempting to reorganize our businesses in bankruptcy may also make it more difficult to maintain our capital expenditures. As a result of the Chapter 11 Cases, we may experience collection issues with otherwise valid receivables of certain customers. Adverse resolution of these disagreements may impact our revenues and other costs of services, both prospectively and retroactively. It is too soon for us to predict with any certainty the ultimate impact of these disagreements. Many of our suppliers, vendors and service providers may require stricter terms and conditions, and we may not find these terms and conditions acceptable. In addition, we may continue to experience a loss of confidence by current and prospective suppliers, new and existing customers, landlords, employees or other stakeholders, which could make it more difficult for us to make capital expenditures and have an adverse effect on our businesses, financial condition and results of operations.

Our pension plan invests in marketable securities, including marketable debt and equity securities denominated in foreign currencies, which are exposed to changes in the financial markets. During ~~2018,~~2019, the fair market value of these investments ~~decreased~~increased from ~~$841.4~~$740.9 million to ~~$740.9~~$854.0 million primarily due to investment ~~losses~~gains of ~~$41.1~~$163.8 million and employer contributions of $15.9 million, partially offset by routine benefit payments of ~~$77.9 million. These decreases were partially offset by employer contributions of $18.5~~$66.6 million. Returns generated on plan assets have historically funded a large portion of the benefits paid under our pension plan.

Funding requirements may increase as a result of a decline in the market value of plan assets, a decline in the interest rates used to calculate the present value of future plan obligations or government regulations that increase minimum funding requirements of the pension liability. We estimate that the ~~long term~~long-term rate of return on plan assets will be 7.0 percent, but returns below this estimate could significantly increase our contribution requirements, which could adversely affect our cash flows from operations. Also, reductions in discount rates and extensions of participant mortality rates directly increase our pension liability and expose us to greater funding obligations in the future. Our earnings reported under accounting principles generally accepted in the United States (“U.S. GAAP”) may also be adversely affected due to our method of accounting for pension costs, whereby we immediately recognize gains and losses resulting from the return on plan assets as well as other changes in actuarial assumptions impacting our discount rate and mortality estimates.

We face intense competitive pressures in our consumer service areas. If we continue to lose consumer households as we have historically, our results of operations and financial condition could be adversely affected. During 2018, our consumer households declined 1.6 percent.

Cable television companies have aggressively expanded 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 regulations than our consumer operations. For more information, refer to the risk factor, “Our competitors, especially cable television companies, in our consumer markets are subject to less stringent industry regulations.”

Wireless competition has contributed to a reduction in our voice lines and generally has caused pricing pressure in the industry. Some customers have chosen to stop using traditional wireline phone service and instead rely solely on wireless service. We anticipate that this trend toward solely using wireless services will continue, particularly if wireless prices continue to decline and the quality of wireless services improves.

Competition in our consumer markets could affect our revenues and profitability in several ways, including accelerated consumer household loss, reductions by customers in usage-based services or shifts to less profitable services and a need to lower our prices or increase marketing expenses to stay competitive.

We are the recipient of a material amount of end user revenue and government funding under various government programs and also serve as a government contractor for services for various state, local and federal agencies. Our failure to comply with the complex government regulations and statutes applicable to the programs, or the terms of one or more of our government contracts, could result in our being suspended or disbarred from future government programs for a significant period of time or result in harm to our reputation with the government and possible restriction from future government activities. While we have implemented compliance programs and internal controls that are reasonably designed to prevent misconduct and non-compliance relating to the government programs and contracting, we cannot eliminate the risk that our employees, partners or subcontractors may independently engage in such activities.

If we are suspended or debarred from government programs, or if our government contracts are terminated for any reason, we could suffer a significant reduction in expected revenue which could have a material and adverse effect on our operating results.

New technologies may affect our ability to compete in our consumer markets.

Wireless companies are aggressively developing networks using next-generation data technologies, which are capable of delivering high-speed Internet service via wireless technology to a larger geographic footprint. If these technologies continue to expand in availability and reliability, they could become a cost 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.

These and other new and evolving technologies could result in greater competition for our voice and high-speed Internet services. If we cannot develop new services and products to keep pace with technological advances, or if such services and products are not widely embraced by our customers, our results of operations could be adversely affected.

Cable television companies are generally subject to less stringent regulations than our consumer operations. Cable voice offerings and others are subject to fewer service quality and reporting requirements than our consumer operations, and their rates are generally not subject to regulation, unlike our consumer voice services. Our consumer areas also may be subject to “carrier of last resort” obligations, which generally obligate us to provide basic voice services to any person within our service area regardless of the profitability of the customer. Our competitors in these areas are not subject to such requirements.

Because of these regulatory disparities, we have less flexibility in our consumer markets than our competitors. This could result in accelerated voice line and revenue losses in the future.

In ~~2018,~~2019, we received approximately 5 percent of our revenues from state and federal USF, and any material adverse regulatory developments with respect to these funds could adversely affect our financial and operating condition.

We receive state and federal USF revenues to support the high cost of providing affordable telecommunications services in rural markets. Such support payments constituted approximately 5 percent of our revenues for the year ended December 31, ~~2018.~~2019. Pending regulatory proceedings to reform state and federal USF programs and our implementation of those reforms could, depending on the outcome, materially reduce our USF revenues and increase our expenses.

~~The~~In 2011, the FCC ~~implemented~~adopted the Connect America Fund, which ~~was adopted in 2011 and includes~~included a short-term (“CAF Phase I”) and a longer-term (“CAF Phase II”) ~~framework.~~framework that will conclude at year-end 2020. Windstream elected to participate in both programs. Currently, Windstream receives immaterial amounts of CAF Phase I funding in one state that is subject to being phased out at an undetermined future ~~date. Furthermore, Windstream receives funds under the~~date, and material amounts of CAF Phase II ~~program that is scheduled to end in 2021. If the~~funding. Under CAF Phase II, ~~program is not extended by the FCC, or if a new similar program is not implemented beyond 2021 in which~~ Windstream ~~can participate, our financial and operating condition could be materially impaired.~~

In April 2019, the FCC announced a successor program to the Connect America Fund, the Rural Digital Opportunity Fund (“RDOF”). Under RDOF, the FCC will solicit bids from qualifying bidders via a reverse auction process, which is currently scheduled to begin in October 2020. The program will fund the deployment of high-speed broadband infrastructure in certain areas throughout the U.S. that have been deemed to lack adequate broadband service. If Windstream fails to qualify as a bidder in the reverse auction or otherwise does not succeed in securing funding through RDOF, our financial and operating condition could be materially impaired.

We are required to make contributions to state and federal USF programs each year. Most state and federal regulations allow us to recover these contributions by including a surcharge on our customers’ bills. If state and/or federal regulations change, and we become ineligible to receive support, such support is reduced, or we become unable to recover the amounts we contribute to the state and federal USF programs from our customers, our results of operations and financial condition would be directly and adversely affected.

As of December 31, ~~2018,~~2019, our goodwill comprised ~~27.0~~less than 1 percent of our assets. Each year, and more frequently on an interim basis if appropriate, we are required by Accounting Standards Codification Topic 350, Intangibles - Goodwill and Other, to assess whether the amount of goodwill assigned to each of our reporting units is impaired. Significant judgments are required to estimate the fair value of reporting units including estimating future cash flows, near-term and long-term revenue growth, and determining appropriate discount rates, among other assumptions. Future impairment reviews could result in additional impairment charges. Any such impairment charges could materially adversely affect our financial results for the periods in which they are recorded. Additional impairment charges will likely result due to changes from various factors or circumstances, including adoption of new accounting standards, deterioration in the macroeconomic environment, deterioration in our performance or future projections as a result of the Chapter 11 Cases or otherwise, if actual results are not consistent with our estimates and assumptions used in the impairment analysis. See Note 25 to the consolidated financial statements included in the Financial Supplement to this Annual Report on Form 10-K.

We originate and terminate 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 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 them, it may have a negative effect on our results of operations and financial condition.

Windstream purchases a significant amount of equipment from key suppliers to maintain, upgrade and enhance our network facilities and operations. Should these suppliers experience financial difficulties, or unanticipated or unexpected impact on their operations caused by market conditions, including but not limited to epidemics, pandemics, or other contagious diseases, such as the COVID-19 global pandemic, their issues could adversely affect our business through increased prices to source purchases through alternative vendors, or unanticipated delays in the delivery of equipment and services ~~purchased.~~purchased, or an inability to obtain the goods or services at all.

Adverse developments in our relationship with our employees could adversely affect our business, our results of operations and financial condition.

As of December 31, ~~2018,~~2019, we had ~~1,340~~1,358 employees, or approximately 1112 percent of all of our employees, covered by collective bargaining agreements. Our relationship with these unions generally has been satisfactory.

We are currently party to 2316 collective bargaining agreements and one National Pension Agreement with several unions, which expire at various times. Of our existing collective bargaining agreements, ~~eight~~six agreements covering approximately ~~500~~600 employees are due to expire in ~~2019.~~2020. In addition, the national pension agreement covers approximately ~~350~~330 employees. This agreement expired in 2010 but has been extended indefinitely, subject to the right of Windstream or the unions to terminate the agreement with 30 days’ notice. Historically, we have succeeded in negotiating new collective bargaining agreements without work stoppages; however, no assurances can be given that we will succeed in negotiating new collective bargaining agreements to replace the expiring ones without work stoppages. Increases in organizational activity or any future work stoppages could have a material adverse effect on our business, our results of operations and financial condition.

Our property, plant and equipment consists primarily of land and buildings, office and warehouse facilities, central office equipment, software, outside plant and related equipment. Outside communications plant includes aerial and underground cable, conduit, poles and wires. Central office equipment includes digital switches and peripheral equipment. As such, our properties do not provide a basis for description by character or 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, ~~2018,~~2019, was as follows:

Certain of our properties are pledged as collateral to secure long-term debt obligations of Windstream Services. The obligations under Windstream Services’ senior secured credit facility are secured by liens on all of the personal property assets and the related operations of our subsidiaries who are guarantors of the senior secured credit facility.

Litigation

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

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

~~Additionally, as outlined in Note 5, on~~On October 18, 2017, Windstream Services launched debt exchange offers with respect to its senior notes, including the 6.375 percent notes, and on October 31, 2017, learned that ~~based on tenders of notes in the exchange offers and consents delivered in the consent solicitation, upon early settlement of the exchange offers,~~ holders representing the requisite percentage of the 6.375 percent notes needed to waive the defaults alleged in the Original Notice would be received. On November 6, 2017, Windstream Services and the Trustee executed a supplemental indenture, and new 6.375 percent notes were issued, which gave effect to the waivers and consents for the 6.375 percent notes. During the fourth quarter of 2017, Windstream Services also completed consent solicitations with respect to each of its series of outstanding notes, pursuant to which noteholders agreed to waive alleged defaults with respect to the transactions related to the ~~Spin-Off~~spin-off of Uniti and amend the indentures governing such notes to give effect to such waivers and amendments.

~~On November 22, 2017, Windstream Services filed~~After a motion seeking dismissal of the Trustee’s complaint, which motion was denied without prejudice. On the same date, Aurelius filed counterclaims seeking a declaration that the new 6.375 percent notes were improperly issued and that the debt exchange offers and consent solicitation were void. Windstream Services asserted that such counterclaims should be dismissed pursuant to Section 6.06 of the 2013 Indenture, which contains a “no-action” clause. On November 27, 2017, Windstream Services received a second purported notice of default (the “Second Notice”) from Aurelius which alleged that certain of the exchange and consent transactions described above violated the terms of the 2013 Indenture. Aurelius withdrew the Second Noticetrial in July 2018, on December 6, 2017, and served an alleged notice of an Event of Default and acceleration on December 7, 2017 (“Notice of Acceleration”). The Notice of Acceleration claimed that the principal amount, and all accrued interest, owed under the 2013 Indenture was now due and payable as result of Windstream Services allegedly not curing the alleged defaults set forth in the Original Notice within the sixty-day cure period.

On ~~February 25,~~March 1, 2019, ~~(the “Petition Date”), Windstream Holdings and all of its subsidiaries, including Windstream Services, filed voluntary petitions for relief (the “Chapter 11 Cases”) under Chapter 11 of~~Judge Furman issued an Order that he cannot enter a final judgment due to the ~~United States Bankruptcy Code (the “Bankruptcy Code”) in~~Automatic Stay imposed by the ~~United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”). The~~ filing of the Chapter 11 ~~Cases also constitutes an event~~Cases. The matter has been administratively closed subject to the right of ~~default under our debt agreements. Due~~any party to move to reopen it within twenty-one (21) days of the conclusion of the Chapter 11 Cases ~~however,~~or the ~~creditors’ ability to exercise remedies under our debt agreements were stayed as~~lifting or modification of the date of the Chapter 11 petition filing. See Note 5 to the consolidated financial statements included in the Financial Supplement to this Annual Report on Form 10-K for more information about our debt agreements.automatic stay.

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

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

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

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

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

Windstream and one of its ~~business~~Enterprise customers ~~had~~entered into an agreement ~~pursuant to~~in which Windstream provided communication services to several of the customer’s locations. The majority of funding for the services iswas administered by ~~the Universal Service Administrative Company (“USAC”)~~USAC pursuant to the Universal Service Rural Health Care Telecommunications Program ~~that~~which offers reduced rates for broadband and telecommunications services to rural health care facilities. In March 2017, USAC issued a funding denial to the customer on the basis that certain rules of the FCC were violated with the selection of Windstream as the service provider. Due to an alleged conflict of interest created by a third-party Windstream channel partner that acted as a consultant for the customer regarding the agreement, USAC asserted that Windstream’s selection was not based upon a fair and open competitive bidding process. USAC’s denial addressed accrued funding of approximately $16.6 million, as well as funding of approximately $6.0 million previously remitted to us. Windstream, along with the customer, appealed the denial; USAC rejected the appeal on June 29, 2018, ~~and~~upholding its previous denial of funding. Windstream appealed ~~USAC’s~~the denial to the FCC onin August ~~23,~~ 2018. The FCC has yet to rule on the ~~appeal. While the ultimate resolution~~appeal and timing of ~~any~~a decision by the FCC is ~~not currently predictable, if there is~~unknown. We recorded a ~~future adverse legal ruling against us, the ruling could result in financial exposure to Windstream~~reserve for the ~~total amounts listed above.~~funding denial from USAC during the second quarter of 2019, and as a result, we have no additional loss exposure related to this matter.

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

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

Not applicable.

Under the Windstream 2006 Amended and Restated Equity Incentive Plan (the “Windstream Plan”), we may issue restricted stock and other equity securities to directors, officers and other key employees. As of December 31, ~~2018,~~2019, the maximum number of shares available for issuance under the Windstream Plan was ~~2.0~~2.2 million shares.

The following table sets forth information about our equity compensation plans as of December 31, ~~2018:~~2019:

Equity Compensation Plan Information



Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights [a]	Weighted-average exercise price of outstanding options, warrants and rights [b]		Number of securities remaining available for future issuance under equity compensation plans [c] (excluding securities reflected in column [a])
Equity compensation plans not approved by security holders	224,014		$9.60	—	(1)
Equity compensation plans approved by security holders	617,967		$7.50	2,205,204	(2)
Total	841,981		$8.06	2,205,204

For information pertaining to our Selected Financial Data, refer to page ~~F-39~~F-38 of the Financial Supplement, which is incorporated by reference herein.

For information pertaining to Management’s Discussion and Analysis of our Financial Condition and Results of Operations, refer to pages F-2 to ~~F-38~~F-37 of the Financial Supplement, which is incorporated by reference herein.

For information pertaining to our market risk disclosures, refer to page F-31 of the Financial Supplement, which is incorporated by reference herein.

For information pertaining to our Financial Statements and Supplementary Data, refer to pages ~~F-46~~F-45 to ~~F-125~~F-114 of the Financial Supplement, which is incorporated by reference herein.

Not applicable.

Controls and Procedures for Windstream Holdings, Inc.

No reportable information under this item.

Our executive officers are as follows:



Name	Business Experience	Age
Anthony W. Thomas	President and Chief Executive Officer of Windstream since December 2014; President-REIT Operations from October 2014 to December 2014; Chief Financial Officer of Windstream from August 2013 to October 2014; Chief Financial Officer and Treasurer of Windstream from May 2012 to August 2013; Chief Financial Officer of Windstream from August 2009 to May 2012; Controller of Windstream from July 2006 to August 2009.2014.	4749
Robert E. Gunderman	Chief Financial Officer and Treasurer of Windstream since November 2017; Chief Financial Officer of Windstream from June 2015 to ~~January 2018;~~November 2017; Chief Financial Officer and Treasurer of Windstream from December 12, 2014 to June 2015; Interim Chief Financial Officer from October 2014 to December 12, 2014; Senior Vice President - Financial Planning and Treasurer of Windstream from August 2013 to October 2014; Senior Vice President - Financial Planning and Treasury of Windstream from June 2012 to August 2013; Vice President - Financial Planning of Windstream from August 2008 to June 2012.2015.	4647
Layne Levine	President Windstream Enterprise & Wholesale of Windstream since July 2017; Previously held positions at GTT including Chief Revenue Officer and Executive Vice President of GTT’s Americas division.	5557
Jeff Small	President ~~Consumer & Small Business~~- Kinetic of Windstream since May 2017; Executive Vice President Engineering and Network Operations of Windstream from June 2016 to May 2017; Previously held position of senior vice president of corporate development and operations for Communications Sales & Leasing (now Uniti Group), the Real Estate Investment Trust created in 2015 from the spin-off of certain Windstream network and real estate assets.	4344
Kristi Moody	~~Senior~~Executive Vice President, - General Counsel & Corporate Secretary of Windstream since February ~~2017;~~2019; Senior Vice President, General Counsel & Corporate Secretary of Windstream from February 2017 to February 2019; Senior Vice President & Corporate Secretary of Windstream from January 2015 to February ~~2017; Deputy General Counsel of Windstream from August 2013 to December 2014; Vice President - Law of Windstream from 2012 to July 2013; Senior Litigation Counsel from June 2006 to 2012.~~2017.	4849
~~John C. Eichler~~	~~Senior Vice President and Controller of Windstream since February 2018; Vice President and Controller from August 2009 to February 2018; Vice President of Internal Audit from July 2006 to August 2009.~~	47

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 in the “Corporate Governance” section of the Investor Relations page on our web site amendments and waivers with respect to the Code of Ethics that would otherwise be required to be disclosed under Item 5.05 of Form 8-K. We will provide to any stockholder a copy of the foregoing information, without charge, upon written request to Investor Relations, Windstream, 4001 Rodney Parham Road, Little Rock, Arkansas 72212.

On February 25, 2019, Windstream Holdings and all of its subsidiaries, including Windstream Services, LLC (“Windstream Services”), filed voluntary petitions for reorganization (collectively, the “Bankruptcy Petitions”) under Chapter 11 of Title 11 of the U.S. Code (the “Bankruptcy Code”) in the U.S. Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”). The Chapter 11 cases (collectively, the “Chapter 11 Cases”) are being jointly administered under the caption In ~~accordance with General Instruction G.(3) to Form 10-K,~~re Windstream Holdings, Inc., et al., Case No. 19-22312 (RDD) (lead case). Windstream intends to ~~file~~use the court-supervised process to address debt maturities that were accelerated as a result of a decision by Judge Jesse Furman in the Southern District of New York against Windstream Services, LLC, issued on February 15, 2019. The Company continues to operate the business as a “debtor-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and the orders of the Bankruptcy Court.

The same individuals serve as executive officers of both Windstream Holdings and Windstream Services. The information presented in this Item 11, or this Compensation Discussion and Analysis (“CD&A”), reflects compensation for the following individuals, who served as the principal executive officer, principal financial officer and the three most highly compensated officers (other than the principal executive and financial officers) of Windstream Holdings and Windstream Services (collectively, the “named executive officers” or “NEOs”) for fiscal year 2019:

DETERMINATION OF 2019 EXECUTIVE COMPENSATION

GOVERNANCE FEATURES



Name and Principal Position	Year	Salary ($)	Bonus ($)	Stock Awards ($)	Option Awards ($)	Non-Equity Incentive Plan Compensation ($) (1)	Change in Pension Value and Non-Qualified Deferred Compensation Earnings ($) (2)	All Other Compensation ($) (3)	Total ($)
Tony Thomas President & CEO	2019	1,000,000	-	-	-	5,650,474	39,251	12,910	6,702,635
	2018	1,000,000	-	-	1,381,250	2,661,742	-	12,710	5,055,702
	2017	1,000,000	-	3,131,379	-	1,195,680	22,270	85,659	5,434,988
Robert E. Gunderman Chief Financial Officer & Treasurer	2019	500,000	-	-	-	2,092,770	-	12,110	2,604,880
	2018	500,000	-	-	504,900	849,492	-	14,285	1,868,677
	2017	475,000	-	1,143,054	-	381,600	-	37,478	2,037,132
Layne Levine President - Enterprise	2019	447,115	300,000⁽⁵⁾	-	-	1,123,196	-	14,055	1,884,366
	2018	425,000	-	-	212,500	532,109	-	12,300	1,181,909
	2017	187,500	1,010,000	1,500,002	-	-	-	27,588	2,725,090
Jeff Small President - Kinetic	2019	394,231	166,666⁽⁶⁾	-	-	1,121,460	-	11,542	1,693,899
	2018	350,000	166,667	-	170,000	634,366	-	11,245	1,322,278
	2017	325,577	186,667	262,846	-	312,985	-	24,306	1,112,381
Kristi Moody Executive Vice President, General Counsel & Corporate Secretary (4)	2019 2018	372,115 344,231	- -	- -	- 127,500	860,514 297,322	- -	11,579 14,932	1,244,208 783,985

The following table shows information ~~required~~regarding grants made by Windstream during 2019 to the NEOs pursuant to the KEIP described in the section titled “Components of Executive Compensation-Key Employee Incentive Plan (“KEIP”)” in this Item 11. There were no grants of equity-based awards made in 2019.

The following table shows information regarding the vesting of equity-based awards during 2019.

The Windstream Pension Plan (“Pension Plan”) is a tax-qualified defined benefit plan and generally covers salaried and non-salaried employees of Windstream and those subsidiary companies that have adopted the Pension Plan. Accruals are frozen for non-bargaining employees. No NEOs were eligible for continuing accruals under the Pension Plan as of the end of 2019.

The Pension Plan’s accrued benefit is payable in the form of a monthly life annuity following normal retirement at age 65 (or, if later, at five years of service or at the fifth anniversary of participation). The accrued benefit is also payable in a monthly life

annuity following early retirement at or after age 55 with at least 20 years of service (with reduction in the life annuity of 0.25% for each month that commencement precedes age 60) or at or after age 60 with 15 years of service (with reduction in the life annuity of 0.25% for each month that commencement precedes age 65 for a participant whose benefit commences before age 62). As of the end of 2019, no NEOs satisfied the foregoing age and service requirements to commence receipt of an early retirement benefit under the Pension Plan.

For deferred vested participants (i.e., those who terminate employment before early retirement), the accrued benefit is payable in a monthly life annuity beginning at normal retirement age. If a deferred vested participant has 15 years of service, the accrued benefit is also payable in a monthly life annuity beginning as early as age 60 (with reduction in the life annuity of 0.50% for each month commencement precedes age 65), and, if the deferred vested participant has at least 20 years of service, the accrued benefit is also payable in a monthly life annuity beginning as early as age 55 (with reduction in the life annuity of 0.50% for each month commencement precedes age 65).

For a participant eligible for normal retirement or early retirement, payment is also available in actuarial equivalent joint and surviving spouse annuities, which provide a reduced monthly amount for the participant’s life with the surviving spouse receiving 50%, 75% or 100%, as elected, of the reduced monthly amount, or in an actuarial equivalent 10-year certain and life annuity, which provides a reduced monthly amount for the participant’s life and, if the participant dies within 10 years of benefit commencement, with payments to a designated beneficiary for the remainder of the 10-year certain period. For a married deferred vested participant, payment is also available in the form of an actuarial equivalent joint and 50% or 75% surviving spouse annuity, as elected. If a vested participant dies before benefit commencement, an annuity generally is payable to the participant’s surviving spouse in an amount based on the joint and 50% surviving spouse annuity that would have been payable to the participant beginning on the later of when the participant died or would have been eligible to commence a benefit.

Under the Pension Plan, post-January 1, 1988 through December 31, 2005 service (December 31, 2010 service for employees who had attained age 40 with two years of vesting service as of December 31, 2005) is credited at 1% of compensation, including salary, bonus and other non-equity incentive compensation, plus 0.4% of that part of the participant’s compensation in excess of the Social Security taxable wage base for such year. Service prior to 1988, if any, is credited on the basis of a percentage of the participant’s highest consecutive five-year average annual salary, equal to 1% for each year of service prior to 1982 and thereafter increasing by 0.05% each year until 1988, but only prospectively, i.e., with respect to service earned in such succeeding year. In addition, participants receive an additional credit of 0.25% for each pre-1988 year of service after age 55, subject to a maximum of 10 years of credit, plus an amount equal to 0.4% of the amount by which the participant’s pre-1988 career average annual base salary (three highest years) exceeds his or her Social Security covered compensation, multiplied by his or her years of pre-1988 credited service.

The Windstream Benefit Restoration Plan (“BRP”) contains an unfunded, unsecured pension benefit for a group of highly compensated employees whose benefits are reduced due to the IRS compensation limits for qualified plans. This plan was established by Alltel Corporation (“Alltel”) and assumed by Windstream at the time it spun off from Alltel in 2006. Accruals are frozen for employees. No NEOs continued to be eligible for accruals in the pension benefit of the BRP as of the end of 2019. The pension benefit under the BRP is calculated as the excess, if any, of (x) the participant’s Pension Plan benefit (on a single life-annuity basis payable commencing on the later of the participant’s retirement date or age 65) without regard to the IRS compensation limit ($280,000 for 2019) over (y) the participant’s regular Pension Plan benefit (on a single life-annuity basis payable commencing on the later of the participant’s retirement date or age 65 regardless of the actual form or timing of payment). If the participant has not attained age 65 on the date his or her benefit is scheduled to commence, the BRP benefit is reduced to the extent as the Pension Plan benefit would have been reduced based on reduction factors as in effect on December 31, 2007. For purposes of the preceding calculations, compensation has the same meaning provided in the foregoing description of the Pension Plan. The payment of a participant’s retirement benefit under the BRP shall commence as of the first day of the first month following the later of (i) his or her 60th birthday or (ii) the six-month anniversary of the participant’s separation from service. Benefits are paid over the life of the participant if the participant is alive when benefits commence or over the life of the spouse if the benefit is paid as a pre-retirement death benefit. The benefit will be paid in one lump sum payment if the actuarial present value is less than ~~120~~$30,000. To the extent permitted by Section 409A of the Code, the Benefits Committee, comprised of the President & Chief Executive Officer, Chief Financial Officer, Chief Human Resources Officer and Vice President-Compensation & Benefits, authorized by the Board of Directors to manage the operation and administration of all employee benefit plans, including non-qualified plans, may direct that the benefit be paid in an alternative form provided that it is the actuarial equivalent of the normal form of benefit so that the BRP benefit is paid in the same form as the Pension Plan benefit. No NEOs were yet eligible to commence their benefits under the BRP as of the end of 2019.

The Windstream 2007 Deferred Compensation Plan (the “2007 Plan”) is a non-qualified deferred compensation plan offered to executive officers and other key employees. Due to low participation, the 2007 Plan was frozen to new contributions as of January 1, 2018. The 2007 Plan also allowed Windstream to make discretionary contributions to the 2007 Plan to replace contributions that Windstream is limited from making to its 401(k) qualified plan as a result of limits imposed by the Code. These discretionary contributions equal the amount that could have been credited to the executive officers as a matching contribution under Windstream’s 401(k) plan had compensation not been limited under the 401(k) plan by the Code, plus the amount, if any, by which the executive officer’s matching contribution under the Windstream 401(k) Plan is reduced due to the executive officer’s contributions to the 2007 Plan. Participant accounts are credited with earnings based on a portfolio of investment funds. Payments are made under the 2007 Plan in cash at certain future dates as specified by the participants or upon separation of service. Whether or not payments will be made under the 2007 Plan is ultimately dependent on the outcome of the Chapter 11 Cases. The following table shows certain information regarding contributions and aggregate balances for the NEOs under the 2007 Plan as of December 31, 2019.

The benefits payable to each NEO upon death, disability, termination or change-in-control are subject to the provisions of certain agreements, plans and arrangements discussed below. The actual amounts that would be paid to each NEO can be determined only at the time the actual triggering event occurs. The estimated amount payable or provided to each NEO in each situation summarized below assumes that the triggering event occurred on December 31, 2019 (and that the Company had not commenced the Chapter 11 Cases) and are in addition to the benefits which the NEOs would be entitled to receive under the retirement plans and programs described in the section titled “Retirement Benefits” above. Note that NEOs who are considered “insiders” under the Bankruptcy Code may not be eligible to receive all or a portion of the described payments or benefits if terminated prior to the Company’s emergence from bankruptcy. This section identifies and quantifies the extent to which those retirement benefits are enhanced or accelerated upon the triggering events described below.

None of the NEOs 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. Instead, each of them would either (i) have his or her severance benefits reduced to a level such that the golden parachute excise tax would not apply, or (ii) receive all the benefits to which he or she is entitled and pay the related excise tax, whichever would result in the greater net after-tax benefit to the executive.

The amounts in the tables below assume that the severance benefits would not be reduced.

In the event that an NEO dies or becomes disabled, the NEO (or such NEO’s beneficiary) will be entitled to (i) the immediate vesting of any unvested restricted stock, the target number of PBRSUs, and unvested stock options (with disability determined by the Committee in its sole discretion), and (ii) the target bonus under Windstream’s annual short-term incentive plan pro-rated

on the basis of the ratio of the number of days ~~after~~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 (with disability defined as incapacity resulting in the executive being unable to engage in gainful employment at his usual occupation by reason of any medically demonstrable physical or mental condition, excluding incapacity resulting from a felonious enterprise, chronic alcoholism or addiction to drugs or abuse, and self-inflicted injury or illness).

The benefits payable to each NEO upon a termination or change-in-control are subject to the provisions of certain agreements, plans and arrangements discussed below.

Pursuant to the amended and restated employment agreement with Mr. Thomas, the potential payments upon a termination or a change-in-control are as follows:

In connection with any termination of employment, Mr. Thomas is restricted from soliciting employees or customers of or competing against Windstream and its affiliates for a certain period of time, and is required to sign a waiver and release of all claims against Windstream and its affiliates prior to receiving severance benefits.

Pursuant to change-in-control and severance agreements with each of the NEOs (other than Mr. Thomas), the potential payments upon a termination or a change-in-control are as follows:

In connection with a termination of employment, a NEO is prohibited from soliciting employees or customers of or competing against Windstream and its affiliates for a certain period of time, and is required to sign a waiver and release of all claims against Windstream and its affiliates prior to receiving severance benefits.

The following tables show the potential payments upon a hypothetical termination or change in control of the Company effective as of December 31, 2019 for the NEOs. In all tables, the value of the accelerated vesting of restricted shares, PBRSUs and stock options are based on closing prices of Windstream common stock on December 31, 2019, which was $0.09 per share. As noted above, NEOs who are considered “insiders” under the Bankruptcy Code may not be eligible to receive all or a portion of the described payments or benefits if terminated prior to the Company’s emergence from bankruptcy.

This pay ratio is a reasonable estimate calculated in a manner consistent with SEC rules based on payroll and employment records and the methodology described above. The SEC rules for identifying the median compensated employee and calculating the pay ratio based on that employee’s annual total compensation allow companies to adopt a variety of methodologies, apply certain exclusions, and make reasonable estimates and assumptions that reflect their compensation practices. As such, pay ratios reported by other companies may not be comparable to the pay ratio reported above, as other companies may utilize different methodologies, exclusions, estimates and assumptions in their compensation calculations.

During 2019, Windstream’s Non-Employee Director Compensation Program provided for the following annual compensation: (1) a restricted cash grant of $100,000 to be paid in 2020; (2) a cash retainer of $90,000; (3) an additional cash retainer of $140,000 for the Board Chair; (4) additional cash retainers of $35,000, $35,000, $30,000 and $25,000 for the chairs of the Annual Restructuring, Audit, Compensation and Governance Committees, respectively; and (5) additional cash retainers of $17,500, $17,500, $15,000 and $12,500 for members of the Annual Restructuring, Audit, Compensation, and Governance Committees, respectively. In 2019, the Board of Directors approved amending the Director Compensation Program to provide non-employee directors with a $1,500 meeting fee for any Board or Board Committee meetings at which their attendance is required beyond the four standard meetings per year. The following table shows the compensation paid to the directors during 2019.

In addition to financial results reported in accordance with generally accepted accounting principles (“GAAP”), we utilize certain unaudited results of operations in this Annual Report on Form 10-K, which are not calculated in accordance with GAAP. A “non-GAAP measure” is defined as a numerical measure of a company’s financial performance, financial position or cash flows that excludes (or includes) amounts that are included in (or excluded from) the most directly comparable measure calculated and presented in accordance with GAAP in a company’s financial statements. Adjusted OIBDAR, which is a non-GAAP measure, is operating loss before depreciation and amortization and goodwill impairment, adjusted to exclude straight-line expense under the contractual arrangement with Uniti Group, Inc. (“Uniti”), merger, integration and other costs, restructuring charges, share-based compensation expense and certain other costs. This non-GAAP measure may not be comparable to similarly titled measures used by other companies and should not be considered in isolation or as a substitute for measures of performance or liquidity prepared in accordance with GAAP. We use Adjusted OIBDAR as a key measure of our operational performance, and our management, including the chief operating decision-maker, uses Adjusted OIBDAR consistently for all purposes, including internal reporting, the evaluation of business objectives, opportunities and performance, and the determination of management compensation. Adjusted OIBDAR is included to provide investors with useful information about our operating performance before the impacts of certain non-cash items and to enhance the comparability of operating results between periods in order to focus on the true earnings capacity of our core business operations. Prior to the filing of the Chapter 11 Cases, adjusted OIBDAR was also used by rating agencies and lenders to evaluate our operating performance and creditworthiness.

Directors and Executive Officers. As of March 31, 2020, the following table sets forth the number of shares of Windstream ~~intends to file with~~common stock beneficially owned by our directors, our executive officers and by all directors and current executive officers of Windstream as a group. Except as otherwise indicated by footnote, the ~~Securities and Exchange Commission the information required by this Item not later than 120 days after the end~~nature of the ~~fiscal year covered~~beneficial ownership is sole voting and investment power, and no shares are pledged as security:

Certain Beneficial Owners. Windstream Holdings, Inc. owns 100% of voting securities of Windstream Services, LLC. Set forth below is information, as of March 31, 2020, with respect to any person known to Windstream to be the beneficial owner of more than 5% of any class of Windstream Holdings, Inc.’s voting securities, all of which are shares of common stock:

Stock Ownership Guidelines. The Board of Directors has adopted minimum stock ownership guidelines that require Windstream’s directors and executive officers to meet minimum stock ownership levels equal to the lesser of (i) a value-based multiple of salary or retainer, as applicable, or (ii) a fixed number of shares of common stock. Effective May 7, 2019, the Board of Directors suspended application of the minimum stock ownership guidelines in light of Windstream’s restructuring and limited ability to issue restricted stock to those individuals subject to the guidelines. This suspension is in effect until further notice.

When the minimum stock ownership guidelines are not suspended, directors who are not officers are expected to maintain minimum beneficial ownership of shares of Windstream common stock at levels equaling the lesser of either (i) 8,000 shares of common stock or (ii) a number of shares valued at least three times the annual cash retainer paid to non-employee directors (currently a value of $270,000). The table below sets forth the lesser applicable guideline share amount for each non-employee director and the number of shares of Windstream common stock that each such director is deemed to own under the guidelines as of March 31, 2020.

Executive officers are expected to maintain minimum beneficial ownership of shares of Windstream common stock at levels equaling the lesser of either (i) a number of shares equal to the value-based multiple or (ii) a specified fixed number of shares, each as provided in the following table. The table below sets forth the number of shares of Windstream common stock that each NEO is deemed to own under the guidelines as of March 31, 2020. Currently the fixed number of shares is the applicable guideline share amount for each officer.

Directors and executive officers have five years from the date they become subject to the guidelines, or the date of any change to increase applicable ownership levels under the guidelines, to attain the ownership levels described above. During the transition period and until the director or officer satisfies the specified ownership levels, the guidelines impose a retention ratio that provides that each director and officer is expected to retain at least 50% of the shares received, net of tax payment obligations, upon the vesting of restricted stock or the exercise of stock options. Directors and officers are also required to hold for at least six months all shares received, net of tax payment obligations, upon vesting of restricted equity awards or the exercise of stock options. For the purposes of the guidelines, unvested time-based shares or units of restricted stock are considered beneficially owned, while unvested performance-based shares or units of restricted stock do not count toward satisfaction of the stock ownership guidelines for officers. Additionally, the share equivalent of the in-the-money value of any exercisable stock options, measured as of December 31 (in-the-money value divided by ~~this Form 10-K.~~the stock price) count toward satisfaction of the guidelines.

~~In accordance with General Instruction G.(3) to Form 10-K, Windstream intends to file with the Securities and Exchange Commission the~~The information required by Item 407(a) of Regulation S-K is incorporated herein by reference to the discussion of director independence included in Item 10 of this ~~Item not later than 120 days after the end of~~Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

Transactions covered by the policy do not include the provision of services, the sale of 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 resulting from that relationship that is approved by Windstream’s Compensation Committee or is disclosed in Item 11 of this Annual Report Form 10-K for the fiscal year ended December 31, 2019 pursuant to the SEC’s executive compensation rules. Additionally, covered transactions do not include employment relationships of immediate family members of executive officers as long as the immediate family member is not also an executive officer and is not related to the CEO or a director. Any employment relationships with immediate family members of executive officers that are not subject to the policy require the approval of the CEO. The Governance Committee receives an annual report disclosing the terms of all related party transactions, including transactions that do not require pre-approval by the Committee.

All other schedules are omitted since the required information is not present or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements and notes thereto.

None.



WINDSTREAM HOLDINGS, INC.		WINDSTREAM SERVICES, LLC
(Registrant)		(Registrant)



By	/s/ Anthony W. Thomas	Date:	~~March 15, 2019~~May 19, 2020
Anthony W. Thomas, President and Chief Executive Officer



By	/s/ Robert E. Gunderman	Date:	~~March 15, 2019~~May 19, 2020
Robert E. Gunderman, Chief Financial Officer and Treasurer ~~(Principal~~(Principal Financial Officer)

By	/s/ Anthony W. Thomas		~~March 15, 2019~~May 19, 2020
Anthony W. Thomas, President and Chief Executive Officer

By	/s/ John C. Eichler		~~March 15, 2019~~May 19, 2020
John C. Eichler, Senior Vice President and Controller (Principal Accounting Officer)



	*Samuel E. Beall, III, Director

	*Jeannie Diefenderfer, Director

	*Jeffrey T. Hinson, Director

	*William G. LaPerch, Director

	*Julie Shimer, Director

	*Michael G. Stoltz, Director

	*Walter Turek, Director

	*Alan L. Wells, Director



By		/s/ Kristi M. Moody
		* (Kristi M. Moody,
		Attorney-in-fact)
~~March 15, 2019~~May 19, 2020

Background and Basis of Presentation: Notwithstanding the accounting treatment for the spin-off transaction as further discussed below, Windstream Holdings, Inc. (“Windstream Holdings”) has no material assets or operations other than its ownership in Windstream Services, LLC (“Windstream Services”) and its subsidiaries. Windstream Holdings owns a 100 percent interest in Windstream Services.


Column A	Column B		Column C						Column D			Column E		Column B		Column C						Column D			Column E
			Additions													Additions
Description	Balance at Beginning of Period		Charged to Cost and Expenses			Charged to Other Accounts			Deductions			Balance at End of Period		Balance at Beginning of Period		Charged to Cost and Expenses			Charged to Other Accounts			Deductions			Balance at End of Period
Allowance for doubtful accounts, customers and others:
For the years ended:
December 31, 2019														$	24.8	$	65.2	(a)	$	—		$	41.8	(b)	$	48.2
December 31, 2018	$	29.7	$	37.7		$	—		$	42.6	(a)	$	24.8	$	29.7	$	37.7		$	—		$	42.6	(b)	$	24.8
December 31, 2017	$	27.1	$	45.8		$	—		$	43.2	(a)	$	29.7	$	27.1	$	45.8		$	—		$	43.2	(b)	$	29.7
December 31, 2016	$	33.1	$	43.8		$	—		$	49.8	(a)	$	27.1
Valuation allowance for deferred tax assets:
For the years ended:
December 31, 2019														$	685.0	$	45.7		$	—		$	541.5	(c)	$	189.2
December 31, 2018	$	179.6	$	505.4	(b)	$	—		$	—		$	685.0	$	179.6	$	505.4	(d)	$	—		$	—		$	685.0
December 31, 2017	$	146.5	$	2.5		$	41.8	(c)	$	11.2	(d)	$	179.6	$	146.5	$	2.5		$	41.8	(e)	$	11.2	(f)	$	179.6
December 31, 2016	$	147.9	$	—		$	—		$	1.4		$	146.5
Accrued liabilities related to merger, integration and other costs and restructuring charges:
For the years ended:
December 31, 2019														$	31.9	$	36.8	(g)	$	—		$	60.6	(j)	$	8.1
December 31, 2018	$	19.5	$	76.9	(e)	$	—		$	64.5	(h)	$	31.9	$	19.5	$	76.9	(h)	$	—		$	64.5	(j)	$	31.9
December 31, 2017	$	5.8	$	180.4	(f)	$	—		$	166.7	(h)	$	19.5	$	5.8	$	180.4	(i)	$	—		$	166.7	(j)	$	19.5
December 31, 2016	$	5.1	$	34.1	(g)	$	—		$	33.4	(h)	$	5.8

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

There are no significant differences between the consolidated results of operations, financial condition, and cash flows of Windstream Holdings and those of Windstream Services other than for certain expenses directly incurred by Windstream Holdings principally consisting of audit, legal and board of director fees, NASDAQ listing fees, other shareholder-related costs, income taxes, common stock activity, and payables from Windstream Services to Windstream Holdings. For the years ended December 31, 2019, 2018, ~~2017,~~ and ~~2016~~2017 the amount of expenses directly incurred by Windstream Holdings were approximately $2.1 million, $1.8 million ~~$2.0 million~~ and ~~$1.7~~$2.0 million, respectively, on a pre-tax basis, or $1.6 million, $1.4 million ~~$1.2 million~~ and ~~$1.0~~$1.2 million on an after-tax basis. Unless otherwise indicated, the following discussion of our business strategy, trends and results of operations pertain to both Windstream Holdings and Windstream Services.

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

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

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

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

For more information regarding the impact of the Chapter 11 Cases, settlement with Uniti and our plan of reorganization see Note 3 to the consolidated financial statements and “Financial Condition, Liquidity and Capital ~~Resources.”~~Resources” below.

~~ACQUISITIONS~~

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

On August 31, 2018, Windstream Holdings completed its acquisition of American Telephone Company, LLC (“ATC”), a reseller of a broad range of voice and data communications services to businesses mainly headquartered in the greater New York metropolitan area, for initial cash consideration of approximately $10.0 million, net of cash acquired. ~~The transaction reflects our strategy to augment organic revenue growth with small, customer-base acquisitions.~~

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

On July 28, 2017, Windstream Holdings completed its merger with Broadview Networks Holdings, Inc. (“Broadview”), a leading provider of cloud-based unified communications solutions to small and medium-sized businesses and offers a broad suite of cloud-based services. Broadview’s proprietary OfficeSuite® and unified communications platforms are complementary to our existing Software Defined Wide Area Networking (“SD-WAN”) product offering. In addition, Broadview has an experienced sales force and strong channel partner program, which we will leverage to sell unified communications services across our small business and mid-market enterprise customer bases. In the merger, Windstream added approximately 20,000 small and medium-sized business customers and approximately 3,000 incremental route fiber miles. Windstream Services paid $69.8 million in cash to Broadview shareholders and assumed $160.2 million of Broadview’s short-term debt obligations, which Windstream Services subsequently repaid using amounts available under its senior secured revolving credit facility (see Note 5)6). The transaction was valued at approximately $230.0 million.

On February 27, 2017, Windstream Holdings completed its merger with EarthLink Holdings Corp. (“EarthLink”), a leading provider of data, voice and managed network services to retail and wholesale business customers and nationwide Internet access and related value-added services to residential customers. In the merger, Windstream added approximately 700,000 customers and approximately 16,000 incremental route fiber miles. In effecting the merger, each share of EarthLink common stock was exchanged for .1636 shares of Windstream Holdings common stock. In the aggregate, Windstream Holdings issued approximately 17.6 million shares of its common stock and assumed approximately ~~$435~~$435.3 million of EarthLink’s long-term debt, which we subsequently refinanced, in a transaction valued at approximately $1.1 billion.

In completing these mergers, we have increased our operating scale and scope giving us the ability to offer customers expanded products, services and enhanced enterprise solutions over anour extensive national footprint, now spanning approximately ~~150,000~~164,000 fiber route miles. We also ~~expect to achieve~~achieved operating and capital expense synergies in integrating the operations of MASS, Broadview and EarthLink. For additional information regarding the mergers, including our refinancing of EarthLink’s long-term debt, see Notes 34 and 56 to the consolidated financial statements.

~~On December 31, 2018,~~We are a leading provider of advanced network communications and technology solutions for businesses across the U.S. We also offer broadband, entertainment and security solutions to consumers and small businesses primarily in rural areas in 18 states. Additionally, we ~~completed~~supply core transport solutions on a local and long-haul fiber network spanning approximately 164,000 miles.

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

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

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

During ~~2018,~~2019, we achieved the following related to these initiatives:

~~Maintained 70.0 percent~~

In addition to the effects of the disposal of the Consumer CLEC business, on December 31, 2018. Proceeds from this sale were used to reduce borrowings outstanding under Windstream Services’ revolving line of credit. On August 2, 2018, we completed various debt exchanges, which extended the maturities of $1.4 billion of our long-term debt obligations. In completing these exchanges, we reduced our total long-term debt by $226.0 million and recognized a pretax gain from the early extinguishment of debt of $190.3 million during the third quarter of 2018.

Turning to 2020, we are focused on continuing the positive growth trends in Kinetic broadband customers and sales of our strategic Enterprise products and services that we experienced in 2019. To meet this objective, we have established the following operational priorities:

The following table reflects the consolidated operating results of Windstream Holdings for the years ended December 31:

A detailed discussion and analysis of our consolidated operating results is presented below.

The following table reflects the primary drivers of year-over-year changes in service revenues:

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

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

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

The following table reflects the primary drivers of year-over-year changes in cost of services:

Cost of ~~products sold~~product and fiber sales represents the associated cost of equipment and fiber sales to customers. The following table reflects the primary drivers of year-over-year changes in cost of ~~products sold:~~product and fiber sales:

The changes in ~~cost of products sold~~both periods were generally consistent with the changes in revenues earned from product and fiber sales.

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

The following table reflects the primary drivers of year-over-year changes in SG&A expenses:

Depreciation and amortization expense includes the depreciation of property, plant and equipment and the amortization of intangible assets. The following table reflects the primary drivers of year-over-year changes in depreciation and amortization expense:

We incur costs to complete a merger or acquisition and integrate its operations into our business which are presented as merger and integration expense in our consolidated results of operations. These costs include transaction costs, such as accounting, legal, consulting and broker fees; severance and related costs; IT and network conversion; rebranding and marketing; and contract termination fees. During 2017, we incurred investment banking fees, legal, accounting and other consulting fees, severance and employee benefit costs, contract and lease termination costs, and other integration expenses related to the mergers with EarthLink and Broadview. We also incurred legal fees in 2018 and 2017 for litigation related to the Uniti spin-off. During the fourth quarter

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

During 2019 and 2018, we completed separate restructurings of our workforce to improve our overall cost structure and gain operational efficiencies. In undertaking these efforts, we eliminated approximately 730 positions and incurred severance and employee benefit costs of $28.5 million in 2019, and we eliminated approximately 800 positions and incurred ~~restructuring charges of $24.6 million, consisting of~~ severance and employee benefit ~~costs. We~~costs of $24.6 million in 2018. Restructuring charges for 2018 also ~~incurred~~included lease termination costs of $20.4 million ~~as a result of~~due to vacating certain facilities.

The following is a summary of the merger, integration and other costs and restructuring charges recorded for the years ended December 31:

As of December 31, ~~2018,~~2019, we had unpaid ~~merger, integration and other costs and restructuring~~ liabilities totaling ~~$31.9 million, which consisted of $27.9~~$8.1 million associated solely with ~~the~~ restructuring initiatives, ~~and $4.0 million related to merger, integration and other activities,~~ which are included in other current ~~liabilities and other~~ liabilities in the accompanying consolidated balance sheet. Payments of these liabilities will be funded through operating cash flows (see Note ~~11)~~13).

We reported an operating loss of $2,877.5 million in 2019, as compared to operating income of $296.6 million in 2018. The operating loss in 2019 was primarily due to goodwill impairment charges of $2,712.3 million and additional straight-line expense of $675.2 million under our contractual arrangement with Uniti, partially offset by a reduction in depreciation and amortization expense of $458.5 million. The increase in straight-line expense and substantially all of the decline in depreciation expense resulted from the adoption of the new leasing standard effective January 1, 2019, and a change in the accounting treatment for our arrangement with Uniti to an operating lease, as previously discussed.

Operating income increased $1,887.2 million in 2018 primarily due to the absence of a goodwill impairment charge of $1,840.8 million incurred in 2017. The increase in 2018 also reflected reductions in merger, integration and other costs of $105.5 ~~million~~ and incremental operating income before depreciation and amortization attributable to acquisitions of $79.8 million. The increases were partially offset by higher depreciation and amortization expense of $48.0 million due to the acquisitions and from additions to property, plant and equipment, incremental business transformation expenses of $28.8 million, and $27.3 million of incremental network optimization costs. ~~Operating~~

Both the operating loss incurred in 2019 and operating income for 2018 ~~also~~ reflected decreases in consumer and enterprise revenues, wholesale services and switched access revenues due to customer losses from the effects of competition, declining demand for copper-based circuits to towers and the adverse effects of intercarrier compensation reform, respectively. The adverse effects from these revenue reductions were partially offset by decreased labor costs attributable to workforce reductions completed ~~during 2017 and 2018~~in the past three years and lower interconnections costs attributable to rate reductions and cost improvements from the continuation of network efficiency projects, declines in the number of customers served and decreases in long-distance usage.

The components of ~~$1,840.8 million, higher depreciation and amortization~~other expense, ~~of $206.5 million, and increases in merger, integration and other costs of $123.6 million primarily attributable to~~net were as follows for the acquisitions of Broadview and EarthLink. Operating loss for 2017 also included additional restructuring charges of $22.7 million incurred in connection with workforce reductions completed in 2017, incremental expenses related to Hurricanes Harvey and Irma of $4.5 million and a carrier access settlement of $8.3 million. Operating loss for 2017 also reflects reductions in consumer and enterprise revenues, wholesale services and switched access revenues due to customer losses from the effects of competition, declining demand for copper-based circuits to towers and the adverse affects of intercarrier compensation reform respectively. These increases to expense were partially offset by incremental operating income, excluding depreciation and amortization, of $117.4 million, due to the acquisitions of Broadview and EarthLink.years ended December 31:

The net gain (loss) on early extinguishment of debt by debt instrument was as follows for the year ended December 31:

During the third quarter of 2018, Windstream Services completed the settlement of exchange offers, which expired on July 31, 2018, for (1) its 7.75 percent senior notes due October 15, 2020 (“2020 Notes”) for new 10.500 percent senior second lien notes due June 30, 2024 (the “New 2024 Notes”) and (2) its 7.75 percent senior notes due October 1, 2021 (“2021 Notes”), 7.50 percent senior notes due June 1, 2022 (“2022 Notes”), 7.50 percent senior notes due April 1, 2023 (“2023 Notes”), 6.375 percent senior notes due August 1, 2023 (“August 2023 Notes”) and 8.75 percent senior notes due December 15, 2024 (“2024 Notes”) for new 9.00 percent senior second lien notes due June 30, 2025 (the “New 2025 Notes”) as follows:

In completing the exchange transactions, Windstream Services incurred $18.4 million in arrangement, legal and other third-party fees. The exchanges of the 2020 and 2021 Notes were accounted for as a debt modification, and the remaining exchanges of 2022 Notes, 2023 Notes, August 2023 Notes and 2024 Notes were accounted for as a debt extinguishment. For the exchanges accounted for under the extinguishment method of accounting, Windstream Services recognized a net gain of $190.3 million, consisting of

the net principal reduction of $226.0 million reduced by the write-off of a portion of the unamortized discount and debt issuance costs related to the original notes of $35.7 million.

In ~~the fourth quarter of~~ 2017, Windstream Services exchanged a portion of its 2020 Notes, 2021 Notes, 2022 Notes, and April 2023 Notes for new notes with maturities ranging from August 1, 2023 to October 31, 2025. In completing the exchanges, Windstream Services incurred $27.7 million in fees, consisting of $6.0 million in consent fees payable to lenders and $21.7 million in arrangement, legal and other third-party fees and the lenders received a net exchange premium of $95.1 million in the form of additional future principal payments. Based on a lender-by-lender analysis of participating creditors, Windstream Services concluded that a portion of the exchanges should be accounted for as a debt modification, and the remainder as a debt extinguishment. For the portion of the exchanges accounted for under the extinguishment method of accounting, Windstream Services recognized a net loss of $55.5 million, consisting of the write-off of a portion of the net exchange premium and consent fees and unamortized premium and debt issuance costs.

~~During~~Also in 2017, pursuant to a debt repurchase program authorized by Windstream Services’ board of directors, Windstream Services repurchased in the open market $49.1 million aggregate principal amount of its 2020 Notes. In connection with the repurchase, Windstream Services recognized a pre-tax gain of $5.0 million. Windstream Services also repaid Broadview’s long-term debt and refinanced EarthLink’s long-term debt obligations that were assumed in the mergers. In repaying these debt obligations prior to their maturity, Windstream Services recognized a net pre-tax loss of $1.8 million. Windstream Services also repaid term loan Tranche B5 and Tranche B6 of its senior secured credit facility through the issuance of a new term loan under Tranche B7, which effectively extended the maturity of the term loan from 2019 to 2024. In completing this refinancing, Windstream recognized a pre-tax loss of $4.1 million.

Set forth below is a summary of interest expense for the years ended December 31:

Interest expense decreased approximately $569.4 million, or 63 percent, in 2019 primarily driven by lower interest expense associated with the long-term lease obligation under the contractual arrangement with Uniti attributable to no longer accounting for our arrangement with Uniti as a financing obligation upon adoption of the new leasing standard, as previously discussed. Interest expense attributable to our senior unsecured notes decreased $141.8 million primarily due to the effects of the exchange transactions completed in the third quarter of 2018 and no longer recording interest expense on these obligations after the filing of the Chapter 11 Cases. These decreases were partially offset by additional interest associated with borrowings under our superpriority debtor-in-possession facility and the adverse effects of exchanging unsecured senior notes for new 2024 and 2025 second lien notes in the third quarter of 2018, which were issued at comparatively higher interest rates, as well as higher interest costs applicable to borrowings outstanding under the senior secured credit facility. Following our default under the senior secured credit facility, interest rates charged on these borrowings reset to the applicable default rates, which are comparatively higher than the non-default interest rates.

Comparatively, interest expense increased approximately $25.9 million or 3 percent, in 2018 reflecting one-time financing fees of $9.2 million incurred in completing the 2018 consent and exchange transactions that were expensed in accordance with debt modification accounting. In addition, interest expense increased in 2018 due to the adverse effects of exchanging existing unsecured senior notes for the new 2024 and 2025 second lien notes, which were issued at comparatively higher interest rates, as well as higher interest costs due to incremental borrowings under the senior secured credit facility. These increases were partially offset by lower interest expense associated with the long-term lease obligation ~~under the master lease~~ with Uniti of $17.9 million, due to a larger portion of the monthly ~~lease~~ payment being recorded as a reduction to the long-term lease obligation in applying the effective interest method over the initial term of the ~~master lease.~~arrangement.

We recognized an income tax benefit of $320.0 million in 2019, as compared to income tax expense of $449.1 million in ~~2018, as compared to an~~2018. The income tax benefit ~~of $408.1 million in 2017. The income tax expense~~ recorded in ~~2018~~2019 reflected the loss before taxes. This benefit was offset by discrete tax expense of ~~$501.4~~$457.1 million related to our goodwill impairment, discrete tax expense of $27.9 million related to our bankruptcy reorganization, and discrete tax expense of $60.5 million related to the increase in our valuation ~~allowance and discrete tax expense of $25.5 million related to the sale of our consumer CLEC business. This expense was offset by tax benefits of $18.7 million related to our debt exchange.~~allowance. Our effective tax rate in ~~2018~~2019 was ~~(164.0)~~9.2 percent, compared to (164.0) percent in 2018 and 16.2 percent in ~~2017 and 26.7 percent in 2016.~~2017. The effective tax rate in ~~2018~~2019 was impacted by ~~the debt exchange and~~ the discrete items discussed above.

On ~~December 22, 2017,~~March 27, 2020, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax CutsCoronavirus Aid, Relief, and ~~Jobs~~Economic Security Act (the ~~“2017 Tax~~“CARES Act”)~~. December 22, 2018 marked~~ was signed into law in the end of the measurement period for purposes of SAB 118. As such, we have completed our analysis based on legislative updates relating to the 2017 Tax Act currently available which resulted in no material adjustments for the year ended December 31, 2018.

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

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

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

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

~~Residential customers can bundle voice, high-speed Internet~~Our wholesale services are focused on providing network bandwidth to other telecommunications carriers and ~~video~~network operators. These services include special access services, which provide access and network transport services to ~~provide one convenient billing solution~~end users including Ethernet access up to 2 Gbps, traditional TDM private line access and ~~receive bundle discounts. Small Business~~transport. Wholesale services ~~offer a wide range~~also include fiber-to-the-tower

connections to support the wireless backhaul market, and both Ethernet/dedicated Internet connections and broadband access services. The combination of these services allow Kinetic wholesale customers to provide voice and ~~web conferencing products. These services are equipped to deliver high-speed Internet with competitive speeds, value added~~data services to ~~enhance business productivity and options to bundle services for a global business solution to meet~~their customers through the use of our ~~small business customer needs.~~network or in combination with their own networks.

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

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

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

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

Segment expenses include specific expenses incurred as a direct result of providing services and products to segment customers; selling, general and administrative expenses that are directly associated with specific segment customers or activities; and certain allocated expenses which include network expenses, facilities expenses and other expenses, such as vehicle and real estate-related expenses. Operating expenses associated with regulatory and other revenues have also been assigned to our segments. We do not assign depreciation and amortization expense, goodwill impairment, merger, integration and other costs, restructuring charges, straight-line expense under the contractual arrangement with Uniti, share-based compensation, ~~pension costs,~~ business transformation expenses, ~~and~~ costs related to network optimization projects, spend commitment penalties incurred under certain carrier discount plans, and reserves for funding denials from USAC to our segments, because these expenses are centrally managed and are not monitored by or reported to the chief operating decision maker (“CODM”) by segment. Similarly, certain costs related to centrally-managed administrative functions, such as accounting and finance, information technology, network management, legal and human

resources, are not assigned to our segments. Interest expense and net gain on early extinguishment of debt have also been excluded from segment operating results because we manage our financing activities on a total company basis and have not assigned any ~~long-term~~ debt or lease obligations to the segments. Other ~~income,~~expense, net, reorganization items, net, and income tax benefit are not monitored as a part of our segment operations and, therefore, these items also have been excluded from our segment operating results.

See Note 18 to the consolidated financial statements for a reconciliation of total segment income to our consolidated net loss.

~~F-15~~

As of year end 2018, we reached 61 percent of our consumer footprint with 25 megabits per second (Mbps”) speeds, 39 percent with 50 Mbps speeds, and 15 percent with 100 Mbps speeds. Speed expansion is a key part of our consumer strategy for 2019 as well, and we expect to double our 100 Mbps speed availability in the first quarter of 2019. In addition, we offer 1-Gigabit per second (“Gbps”) Internet service in 15 states to deliver faster speeds to more of our customer base. Connect America Fund (“CAF”) funding will also provide support and allow us to expand our broadband capabilities.

As of year-end 2019, we reached 70 percent of our footprint with 25 megabits per second (Mbps”) speeds and 42 percent of our footprint with 100 Mbps speeds. As of December 31, 2019, 53 percent of our consumer broadband customers were on speeds of 25 Mbps or greater. Our small business strategy also centers around investing in our network. During 2019, we doubled the availability of our Kinetic fiber Internet services, which provides speeds up to 1-Gigabit per second (“Gbps”) to approximately 100,000 business locations across 16 states.

The following table reflects the ~~Consumer & Small Business~~Kinetic segment results of operations for the years ended December 31:

The following table reflects the ~~Consumer & Small Business~~Kinetic segment operating metrics as of December 31:

We expect the number of consumer households, consumer high-speed Internet customers, ~~digital television subscribers~~ and small business customers in our ILEC footprint to continue to be impacted by the effects of competition.

We will continue to exploit opportunities to leverage our own network facilities to reduce third-party network access costs. We will also continue to improve employee productivity with targeted system and process enhancements. To grow profitability, we are focused on leveraging the latest technology in offering next-generation products that deliver significant value to our customers while also generating strong incremental sales margins. Software Defined Wide Area Network (“SD-WAN”) and Unified Communication as a Service (“UCaaS”) represent two examples of next-generation solutions where we are seeing significant sales and revenue growth. In addition, we expect to improve operating efficiencies and enhance the customer experience by further integrating our internal processes in sales, service delivery, customer care and repair. Furthermore, we continue to follow an aggressive expense management and capital efficient strategy to drive reductions in network access costs, create on-network sales opportunities and improve our competitiveness in the marketplace.

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

The following table reflects the Enterprise segment results of operations for the years ended December 31:

The following table reflects the ~~Consumer CLEC~~Wholesale segment results of operations ~~for the years ended~~as of December 31:

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

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

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

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

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

On January 30, 2020, the FCC approved the RDOF program, which is the FCC’s most significant effort to close the digital divide to date and will connect millions of rural homes and small businesses to high-speed broadband networks. This fund will be the successor to the current CAF Phase II that Windstream participates in. Windstream advocated for the development of an economically sound funding and auction structure that delivers continuing and much-needed support for further broadband expansion in rural areas. The FCC will conduct a two-phase reverse auction to award the $20.4 billion funding. Phase I will award $16 billion and Phase II will award $4.4 billion. The Phase I auction will begin on October 22, 2020 and no date for the Phase II auction has been determined. Phase I will target those areas that current data confirm are wholly unserved at 25 Mbps down and 3 Mbps up speeds, and Phase II will target unserved locations within areas that data demonstrates are only partially served, as well as any areas not won in Phase I. Windstream plans to actively pursue the opportunities offered through the RDOF program.

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

In June 2017, the FCC invited interested parties to refresh the record on issues raised by the Order with respect to access charges for 8YY (toll free) calls, which are under the umbrella of originating access. On June 7, 2018, the FCC adopted a Further Notice of Proposed Rulemaking seeking comment on reforms to “curb abuses” in the 8YY toll-free access regime. Currently 8YY service providers pay access charges to the carrier whose customer makes an 8YY call and compensate that originating carrier for an 8YY database query necessary to route the call correctly. The FCC proposes to move interstate and intrastate originating 8YY end office, tandem switching and transport access charges to bill-and-keep over a three-year period. The FCC also proposes to address concerns about excessive and irrationally priced rates for database query charges by capping those charges nationwide at the lowest rate currently charged by any price cap local exchange carrier and allowing only one database query charge per 8YY call. The FCC will also consider whether incumbent local exchange carriers should be able to recover their lost access charge revenues from their end users and whether it should provide any additional revenue recovery. Windstream has been working with other industry participants on proposals to address the FCC’s policy directive. We cannot now reasonably predict the timing or level of reductions, if any, the FCC may choose.

Set forth below is a summary of ~~inter-carrier~~intercarrier compensation revenue and federal USF and CAF Phase II support included in regulatory revenues within the consolidated statements of operations for the years ended December 31:

Several of our ~~companies~~subsidiaries are defendants in approximately 25 lawsuits filed by Verizon and Sprint long-distance companies (IXCs) alleging that our ~~companies~~subsidiaries may not bill them switched access charges for calls between wireline and wireless devices that originate and terminate within the same Major Trading Area. The complaints seek historical relief in the form of refunds and prospective relief concerning future billings. These suits were consolidated in a single federal district court in Texas, including a suit filed in 2016 by fifty-five Windstream subsidiaries in Kansas federal district court to collect late payment assessments on amounts Sprint previously withheld, and to ensure consistent application of any adjudication among the subsidiaries. The district court dismissed Verizon and Sprint’s federal law claims onin November ~~17,~~ 2015 and in March 2016, the plaintiffs were denied permission to appeal the dismissal. Verizon and Sprint’s state law claims and the defendants’ counterclaims for return of all withholdings (including those involving Windstream) continued in federal district court along with several lawsuits filed against Level 3 (another long-distance company) and became part of the consolidated case (but not involving Windstream). The parties filed summary judgment motions in March 2018, which were granted by the court on May 15, 2018. The interexchange carriers filed an appeal to the 5th Circuit Court of Appeals on June 29, 2018. ~~On February 19, 2019,~~All briefing and oral arguments have been completed and the parties ~~began~~are now waiting for the ~~briefing process.~~Court to issue a decision. The subject matter of

Windstream has actively engaged in policy advocacy in various FCC proceedings that address the rates, terms and conditions for access to the “last-mile” facilities (i.e., special access and unbundled network elements (“UNEs”)) we need to serve retail business customers through our competitive companies. ~~In 2017, we incurred~~We incur approximately ~~$1.7~~$1.3 billion in annual interconnection expense and most of that was attributable to last-mile access. For the vast majority of our customers, last-mile facilities, the wires (“loops”) to a customer location from a central office, are not economic for Windstream to duplicate through its own investment and are not available from providers other than the incumbent carrier. Therefore, we often utilize connections owned by incumbent carriers as one of two distinct product types: either unbundled network elements (“UNEs”), which by law are not available in all areas but are subject to strict regulatory standards, or business data service (“BDS”) inputs, widely available from incumbents but subject to more flexible regulatory standards. Windstream’s purchase of business data service inputs may be subject to volume and term commitments and associated fees and penalties.

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

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

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

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

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

Windstream did not file a Suggestion of ~~any decision~~Bankruptcy as a result of the filing of the Chapter 11 Cases with regard to this matter as it was determined it falls under a regulatory exception and is ~~not currently predictable, if there~~

We recognize revenue from the receipt of state universal service funding in a limited number of states in which we operate: Texas, Georgia, Pennsylvania, New Mexico, Oklahoma, South Carolina, Alabama, Nebraska, and Arkansas. In ~~2018~~2019 and ~~2017,~~2018, we recognized $81.9 million and $85.6 million, ~~and $90.7 million,~~ respectively ~~in state USF revenue, the~~(the majority of which came from the Texas ~~USF.~~USF). These payments are intended to provide support, apart from the federal USF receipts, for the high cost of operating in certain rural markets.

There are two high-cost programs of the Texas USF, one for large companies and another for small companies. In ~~2018,~~2019, we received ~~$39.8~~$38.3 million from the large company program and ~~$4.7~~$4.3 million from the small company ~~program based on our demonstration~~program. The Texas USF is currently running a $23 million per quarter deficit. Absent reform, at this rate it is expected to exhaust its cash reserve by the end of ~~need~~2020. The Commission is currently examining remedies to restore stability to the fund, and Windstream is actively involved in ~~2016 after 2013 legislation in Texas required same.~~those discussions.

In Nebraska, ~~our~~the high-cost Nebraska Universal Service Fund (“NUSF”) support available for ~~2018~~2020 will ~~be $4.5~~increase such that our funding will increase from $4.6 million ~~of which 20 percent~~received in 2019 to $6.2 million in 2020. This funding increase is ~~allocated~~directly related to ~~ongoing maintenance and support and 80 percent is allocated~~the Commission’s change from a revenue-based assessment model to ~~approved capital construction projects. On January 29, 2019, the~~a connections-based assessment model. The Nebraska Public Service Commission ~~confirmed~~ recently opened a docket proposing a reverse auction of future NUSF funding. Most commenters have argued

that ~~our support amount and allocations will remain~~ the ~~same for 2019.~~proposed rules regarding that reverse auction are impermissibly vague. To date, no further action has been directed by the Commission.

In 2017, New Mexico enacted a statute to reform the New Mexico State Rural Universal Service Fund (“SRUSF”). Among other things, the legislation authorizes an annual broadband fund in addition to the access replacement fund from which we will continue to receive support. Beginning in 2018, the amount of support is determined by adjusting the 2014 support amount by a carrier’s change in access line count and imputing the affordability benchmark, which is currently based on the FCC’s residential rate benchmark. We ~~are~~will be required to use at least 60 percent of this support to deploy and maintain broadband service in rural areas of the state. ~~In calendar year 2018, we recognized $5.7~~Our support for 2019 was $5.0 million and is expected to be $4.9 million in ~~state USF revenue.~~2020.

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

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

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

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

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

The following table summarizes our cash flow activities for the years ended December 31:

Our cash, cash equivalents and restricted cash ~~increased~~decreased by ~~$317.6~~$161.4 million to ~~$361.0~~$199.6 million at December 31, ~~2018,~~2019, from ~~$43.4~~$361.0 million at December 31, ~~2017,~~2018, as compared to ~~a decrease~~an increase of ~~$15.7~~$317.6 million during ~~2017.~~2018. Cash inflows during ~~2018~~2019 were primarily

from operating activities ~~proceeds from the sale of our Consumer CLEC business and financing of fiber assets in Minnesota~~ and incremental debt proceeds. These inflows were partially offset by cash outflows for capital expenditures, repayments of debt, and payments under our finance and capital ~~and long-term~~ lease ~~obligations, and the acquisitions of MASS and ATC.~~obligations. Cash, cash equivalents and restricted cash at December 31, 2018, includes a short-term investment in an overnight money market fund of $310.0 million comprised of substantially all of the cash proceeds received from the sale of the consumer CLEC operations. On January 3, 2019, the short-term investment was liquidated, and the proceeds were used to reduce borrowings outstanding under Windstream Services’ revolving line of credit.

Cash provided from operations is our primary source of funds. Cash flows from operating activities decreased by $479.3 million in 2019 and increased by $38.5 million in 2018, ~~and decreased $33.2 million in 2017,~~ as compared to the corresponding prior-year period. The decrease in 2019 primarily reflected the absence of operating cash flows attributable to the sold Consumer CLEC business and incremental cash outlays of $146.1 million for reorganization items, net. Operating cash flows for 2019 also reflect a decrease of $212.0 million attributable to no longer classifying a portion of the cash payments made to Uniti as a financing outflow as was the case for periods prior ~~year period.~~ to the adoption of the new leasing standard. As previously discussed, we changed the accounting for our arrangement with Uniti from a financing to an operating lease upon adoption of the new leasing standard. These decreases were partially offset by favorable changes in working capital, primarily attributable to not paying pre-petition trade accounts payable subsequent to the filing of the Chapter 11 Cases.

The increase in 2018 primarily reflected the incremental cash flows generated from our 2018 and 2017 acquisitions, reductions from the prior year in merger, integration and other costs of $105.5 million, mainly attributable to the mergers with EarthLink and Broadview and timing differences in the payment of trade accounts payable. These increases were partially offset by cash outlays related to our 2018 workforce reductions, decreases in ~~consumer, small business~~Kinetic, enterprise and ~~enterprise~~wholesale revenues, ~~wholesale services,~~ and switched access revenues due to customer losses from competition, declining demand for copper-based circuits to towers and the adverse effects of ~~inter-carrier~~intercarrier compensation reform, respectively. Higher cash interest payments of $30.8 million attributable to our 2018 and 2017 debt refinancing activities, as well as unfavorable timing differences in the collection of trade receivables also adversely impacted cash from operations in 2018.

We utilized ~~NOLs~~net operating loss carryforwards (“NOLs”) and other income tax initiatives to lower our cash income tax obligations for all years presented. As previously discussed, we expect the effects of the overall impact of the 2017 Tax Cuts and Jobs Act will be generally favorable to us over the long-term by allowing us to extend the time frame we have to use our NOLs generated after December 31, 2017, and remain a minimal cash taxpayer for the foreseeable future.

Cash used in investing activities primarily includes investments in our network to upgrade and expand our service offerings as well as spending on strategic initiatives. Cash used in investing activities increased $349.2 million in 2019 compared to 2018 primarily due to an increase in our capital spending and the absence of proceeds from the sale of the Consumer CLEC business of $320.9 million in 2019. Cash used in investing activities decreased $429.0 million in 2018 compared to 2017 primarily due to a decrease in our capital spending and proceeds from the sale of the Consumer CLEC ~~business of $320.9 million.~~business. Cash used in investing in 2018 also reflected cash paid for the acquisitions of MASS and ATC of $46.9 million, net of cash acquired. Cash used in investing activities decreased $6.8 million in 2017 compared to 2016 primarily due to a reduction in our capital spending, partially offset by the net cash paid for the acquisition of Broadview and a payment of $9.4 million to settle an indemnification claim related to the December 2015 sale of substantially all of our data center business.

Capital expenditures were $878.5 million, $820.2 million and $908.6 million for 2019, 2018 and ~~$989.8 million for 2018,~~ 2017, ~~and 2016,~~ respectively. The majority of our capital spend during the past three years has been primarily directed toward consumer broadband upgrades of our network.

Cash provided from financing activities ~~were~~was a net inflow of $208.2 million in 2019, compared to net outflows of $141.3 million in 2018 and $7.1 million in ~~2017 and a net inflow~~2017.

Proceeds from new issuances of ~~$10.0~~long-term debt were $655.0 million in ~~2016.~~

Debt repayments during 2019 totaled $372.4 million ~~in 2017, which~~and primarily consisted of ~~new and incremental~~repayments of $370.0 million of borrowings ~~totaling $1,022.6 million~~ under ~~Tranches B6 and B7 of Windstream Services’ senior secured credit facility, which were issued at a discount, additional borrowings of $1,196.0 million under the~~its revolving line of credit ~~and $396.0~~prior to the filing of the Chapter 11 Cases. On January 3, 2019, Windstream Services repaid $312.0 million of these borrowings using proceeds received from the ~~issuance~~sale of the ~~2025 Notes, which were issued at a discount.~~

~~During the years ended December 31, 2017 and 2016, dividends~~Dividends paid to shareholders were $64.4 million ~~and $58.6 million respectively.~~in 2017. Our board of directors elected to eliminate our quarterly common stock dividend commencing in the third quarter of ~~2017 after reviewing our capital allocation strategy and determining our common stock was undervalued.~~2017. Concurrently, our board of directors authorized a share repurchase program of up to $90.0 ~~million, effective through March 31, 2019.~~million. During 2017, we repurchased 9.1 million of our common shares at a total cost of $19.0 ~~million. Effective February 6, 2018,~~million under this program, which our Board elected to end ~~the share repurchase program previously authorized.~~in February 2018.

On June 1, 2018, Windstream Holdings entered into an equity distribution agreement with Citigroup Global Markets Inc. (the “Sales Agent”). Under terms of the agreement, Windstream Holdings may issue and sell, from time to time to or through the Sales Agent, shares of its common stock, up to an aggregate offering price of $18.0 million. We intend to use the net proceeds from this offering for general corporate purposes, including, without limitation, the acquisition of companies or businesses and additional contributions to the Windstream Pension Plan.

In 2019, we made cash contributions of $15.2 million to the qualified pension plan to satisfy our remaining 2018 and 2019 funding requirements. We also made cash contributions of $0.8 million in 2019 to fund the benefit payments of our unfunded supplemental executive retirement pension plans. Comparatively, in 2018, we made cash contributions of $11.9 million ~~as well as~~and contributed 0.8 million shares of our common stock with a value of $5.8 million to the qualified pension plan to satisfy our remaining 2017 and 2018 funding requirements. We also made cash contributions of $0.8 million in 2018 to fund the expected benefit payments of our unfunded supplemental executive retirement pension plans.

For ~~2019,~~2020, the expected employer contributions for pension benefits consists of ~~$15.2~~$52.8 million to the qualified pension plan to satisfy our remaining ~~2018~~2019 and ~~2019~~2020 funding requirements and ~~$0.8~~$0.9 million necessary to fund the expected benefit payments of our unfunded supplemental executive retirement pension plans to avoid certain benefit restrictions. On January 15, ~~2019,~~2020, we made our required quarterly employer contribution of ~~$3.0~~$3.4 million in cash to the qualified pension plan. We intend to fund the remaining ~~2019~~2020 contributions using cash. The amount and timing of future contributions to the qualified pension plan are dependent upon a myriad of factors including future investment performance, changes in future discount rates and changes in the demographics of the population participating in the plan.

We also sponsor an employee savings plan under section 401(k) of the Internal Revenue Code, which covers substantially all salaried employees and certain bargaining unit employees. We match on an annual basis up to a maximum of 4.0 percent of employee pre-tax contributions to the plan for employees contributing up to 5.0 percent of their eligible pre-tax compensation. In March 2020 and 2019, we contributed $25.7 million and $26.4 million in cash to the plan for the 2019 and 2018 annual matching contributions, respectively. Comparatively in March 2018, we contributed 3.6 million shares of our common stock with a value of $28.3 million to the plan for the 2017 annual matching contribution. During 2017, we contributed 0.6 million shares of our common stock with a value of $22.7 million and $0.6 million in cash to the plan for the 2016 annual matching contribution. We expect to make the 2018 annual matching contribution of approximately $26.0 million to the plan in March 2019 using cash.

On May 12, 2016, our shareholders ratified a shareholder rights plan, previously adopted by Windstream Holdings’ board of ~~directors.~~directors on September 17, 2015. The plan is designed to protect our ~~net operating loss carryforwards (“NOLs”)~~NOLs from the effect of limitations imposed by federal and state tax rules following a change in the ownership of our stock. This plan was designed to deter an “ownership change” (as defined in IRC Section 382) from occurring, and therefore protect our ability to utilize our federal and state net operating loss carry forwards in the future. A person or group of affiliated or associated persons may cause the rights under the plan to become exercisable if such person or group is or becomes the beneficial owner of 4.90 percent or more of the “outstanding shares” of Windstream Holdings common stock other than as a result of repurchases of stock by Windstream Holdings, dividends or distributions by Windstream Holdings or certain inadvertent actions by Windstream Holdings’ stockholders. For purposes of calculating percentage ownership under the plan, “outstanding shares” of common stock include all of the shares of common stock actually issued and outstanding. Beneficial ownership is determined as provided in the rights plan and generally includes, without limitation, any ownership of securities a person would be deemed to actually or constructively own for purposes of Section 382 of the IRC or the Treasury Regulations promulgated thereunder.

The plan is not meant to be an anti-takeover measure and our board of directors has established a procedure to consider requests to exempt the acquisition of Windstream Holdings common stock from the rights plan, if such acquisition would not limit or impair the availability of our NOLs. Such determination will be made in the sole and absolute discretion of the Windstream Holdings’ board of directors, upon request by any person prior to the date upon which such person would otherwise become the beneficial owner of 4.90 percent or more of the outstanding shares of Windstream Holdings common stock. In addition, if the Windstream Holdings’ board of directors determines in good faith that a person has inadvertently become the beneficial owner of 4.90 percent or more of the outstanding shares of Windstream Holdings common stock, and such person divests as promptly as practicable a sufficient number of shares of common stock so that such person beneficially owns less than 4.90 percent, then such person will not cause the rights under the plan to become exercisable. The Rights Plan was amended by the Amendment No. 1 to Rights Agreement, dated November 5, 2016, to confirm that any EarthLink shareholder that became a 4.90 percent or greater shareholder of the combined company as a result of the merger is exempt and the ownership does not trigger implementation of the Rights

Windstream Holdings has no debt obligations. All of our debt ~~including the facility described below,~~ has been incurred by our subsidiaries (primarily Windstream Services). Windstream Holdings is neither a guarantor of nor subject to the restrictive covenants imposed by such debt. As of December 31, ~~2018,~~2019, we had ~~$5,728.1~~$6,099.3 million in ~~long-term~~ debt ~~outstanding, which~~outstanding. Except for the DIP Facilities, all of our debt has been classified as ~~current~~liabilities subject to compromise in the accompanying consolidated balance sheet (see Note 5)6).

The terms of the credit facility and indentures issued by Windstream Services include customary covenants that, among other things, require Windstream Services to maintain certain financial ratios and restrict its ability to incur additional indebtedness. These financial ratios include a maximum leverage ratio of 4.5 to 1.0 and a minimum interest coverage ratio of 2.75 to 1.0. In addition, the covenants include restrictions on dividend and certain other types of ~~payments, including restricted~~ payments.

Certain of Windstream Services’ debt agreements contain various covenants and restrictions specific to the subsidiary that is the legal counterparty to the agreement. Under its ~~long-term~~ debt agreements, acceleration of principal payments would occur upon payment default, violation of debt covenants not cured within 30 days, a change in control including a person or group obtaining 50 percent or more of Windstream Services’ outstanding voting stock, or breach of certain other conditions set forth in the borrowing agreements. At December 31, ~~2018,~~2019, Windstream Services was in ~~compliance with all~~default of certain of its debt covenants and ~~restrictions.~~restrictions due to the adverse court ruling and filing of the Chapter 11 Cases, as further discussed below.

As further discussed in Note 5,16, on September 22, 2017, Windstream Services received a purported notice of default dated September 21, 2017 (the “Original Notice”) from a noteholder that claims to hold greater than 25 percent in aggregate principal amount of the 6.375 percent 2023 Notes issued under the indenture dated January 23, 2013 (the “2013 Indenture”), between Windstream Services, as issuer, Windstream Finance Corp., as co-issuer, the guarantors party thereto and U.S. Bank National Association, as trustee (the “Trustee”). The Original Notice primarily alleged that the transfer of certain assets and the subsequent lease of those assets in connection with the spin-off of Uniti ~~Group, Inc. in April 2015 constituted a “sale and leaseback transaction” (as defined in the 2013 Indenture) which~~ did not comply with the Sale and Leaseback covenant under the 2013 Indenture. ~~The Original Notice further alleged that Windstream Services violated~~As previously noted, on February 16, 2019, Judge Jessie Furman ruled in favor of the ~~restricted payment covenant under the 2013 Indenture by not delivering an officers’ certificate as required by the 2013 Indenture and that it made a restricted payment in reliance~~noteholder on ~~the restricted payment builder basket during the pendency of an alleged default which is prohibited by the 2013 Indenture.~~this point.

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

Additionally, during the fourth quarter of 2017, Windstream Services completed consent solicitations with respect to its 2020 Notes, 2021 Notes, 2022 Notes, April 2023 Notes and the existing 6.375 percent 2023 Notes (collectively “the Windstream Services Notes”), pursuant to which noteholders agreed to waive alleged defaults with respect to the transactions related to the spin-off of Uniti and amend the indentures governing the Windstream Services Notes to give effect to such waivers and amendments. Windstream Services received such consents from the holders representing a majority of the outstanding aggregate principal amount of the Windstream Services Notes. Windstream Services, the trustee under the indentures governing the Windstream Services Notes, and the other parties to such indentures executed supplemental indentures giving effect to the waivers and amendments pursuant to the consent solicitation. The waivers and amendments are now effective and operative and, as such,Uniti.

~~F-28~~

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

~~As previously discussed, on~~On August 2, 2018, Windstream Services completed exchange transactions resulting in the issuance of $414.9 million aggregate principal of New 2024 Notes and the issuance of $802.0 million aggregate principal amount of New 2025 Notes in exchange for a portion of the outstanding aggregate principal amount of its 2020 Notes, 2021, Notes, 2022 Notes, August 2023 Notes and 2024 Notes. Both the New 2024 Notes and New 2025 Notes are senior secured obligations and: (i) rank senior to Windstream Services’ and the guarantors’ existing and future unsecured indebtedness, including its existing senior unsecured notes, to the extent of the value of the collateral securing the New 2024 Notes and New 2025 Notes; (ii) rank equally with all of Windstream Services’ and the guarantors’ existing and future indebtedness that is secured by second-priority liens on the collateral, as defined below; (iii) rank junior to any existing and future indebtedness of Windstream Services or of the guarantors secured by first-priority liens on the collateral, including indebtedness under Windstream Services’ senior secured credit facilities and its existing first lien notes, and by liens on assets that are not part of the collateral, to the extent of the value of such assets; (iv) rank equally in right of payment with all of Windstream Services’ and the guarantors’ existing and future unsubordinated debt, including the Issuers’ existing senior notes and indebtedness under Windstream Services’ senior secured credit facilities; (v) rank senior in right of payment to any future subordinated indebtedness of Windstream Services or of the guarantors; and (vi) are structurally subordinated to all existing and future indebtedness and other liabilities of any non-guarantor subsidiary, including trade payables (other than indebtedness and liabilities owed to Windstream Services or to the guarantors).

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

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

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

Set forth below is a summary of our material contractual obligations and commitments as of December 31, 2018. We are in the process of evaluating our executory contracts in order to determine which contracts will be assumed, assumed and assigned, or rejected in our Chapter 11 Cases. Therefore, obligations as currently quantified in the table below and in the footnotes to the table are subject to change.2019.

See Notes ~~2, 5~~3, 6 and 177 for additional information regarding certain of the obligations and commitments listed above.

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

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

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

Summarized and combined balance sheet information was as follows:



(Millions)	December 31, 2019		December 31, 2018
Current assets	$	426.1	$	634.5
Noncurrent assets	$	3,119.2	$	4,521.5
Current liabilities (a)	$	718.2	$	7,566.1
Noncurrent liabilities (b)	$	7,523.6	$	184.7

Summarized and combined results of operations for the year ended December 31, 2019 was as follows:



(Millions)
Revenues and sales	$	986.6
Operating loss	$	(2,187.3	)
Loss before income taxes	$	(2,727.0	)
Net loss	$	(2,546.8	)

Market risk is comprised of three elements: interest rate risk, equity risk and foreign currency risk. ~~Following the disposition of our investment in Uniti common stock, we no longer have exposure to changes in marketable equity security prices.~~ We continue to have exposure to market risk from changes in interest ~~rates.~~rates, as further discussed below. Because we do not own any marketable equity securities nor operate in foreign countries denominated in foreign currencies, we are not exposed to equity or foreign currency risk. We have estimated our market risk using sensitivity analysis. The results of the sensitivity analysis are further discussed below. Actual results may differ from our estimates.

Prior to ~~interest rate fluctuations and implements strategies to manage~~ the ~~exposure.~~

hedging relationships ~~are~~were expected to be highly effective in mitigating cash flow risks resulting from changes in interest rates. ~~For additional information regarding our~~Following the filing of the Chapter 11 Cases, the bank counterparties exercised their rights to terminate the interest rate ~~swap agreements, see~~swaps. See Note 68 to the consolidated financial statements.

As of December 31, ~~2018~~2019 and ~~2017,~~2018, the unhedged portion of Windstream Services’ variable rate senior secured credit facility was ~~$1,390.9~~3,050.9 million and ~~$1,166.8~~$1,390.9 million, ~~or approximately 24.0 percent and 19.8 percent of Windstream Services’ total outstanding long-term debt excluding unamortized debt issuance costs,~~ respectively. For variable rate debt instruments, market risk is defined as the potential change in earnings resulting from a hypothetical adverse change in interest rates. A hypothetical increase of 100.0 basis points in variable interest rates would have ~~reduced~~increased annual ~~pre-tax~~interest expense earnings by approximately ~~$13.9~~$30.5 million and ~~$11.7~~$13.9 million for the years ended December 31, ~~2018~~2019 and ~~2017,~~2018, respectively. Actual results may differ from this estimate.

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

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

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. Our significant accounting policies are discussed in detail in Note 2 to the consolidated financial statements. Certain of these accounting policies, as discussed below, require management to make estimates and assumptions about future events that could materially affect the reported amounts of assets, liabilities, revenues and expenses and disclosure of contingent assets and liabilities. We believe that the estimates, judgments and assumptions made when accounting for the items described below are reasonable, based on information available at the time they are made. However, there can be no assurance that actual results will not differ from those estimates.

The accompanying consolidated financial statements have been prepared assuming that Windstream will continue as a going concern and contemplate the realization of assets and the satisfaction of liabilities in the normal course of business. Our ability to continue as a going concern is contingent upon our ability to successfully implement our plan of reorganization, among other factors. As a result of the adverse court ruling and subsequent filing of the Chapter 11 Cases, the realization of assets and the satisfaction of liabilities are subject to uncertainty. While operating as debtors-in-possession under Chapter 11, we may sell or otherwise dispose of or liquidate assets or settle liabilities, subject to the approval of the Bankruptcy Court or as otherwise permitted in the ordinary course of business, for amounts other than those reflected in the accompanying consolidated financial statements. Further, the plan of reorganization could materially change the amounts and classifications of assets and liabilities reported in the consolidated financial statements. Our financial condition, the defaults under our debt agreements and ~~master lease agreement~~

The calculation of depreciation and amortization expense is based on the estimated economic useful lives of the underlying property, plant and equipment and finite-lived intangible assets. Our regulated operations use a group composite depreciation method. During 2016, with the assistance of a third-party valuation advisor, we completed analyses of the depreciable lives of assets held for use of certain subsidiaries during 2016. Based on the results of the analyses, we implemented new depreciation rates in the fourth quarter of 2016, the effects of which resulted in an increase to depreciation expense. Additionally, in the fourth quarter of 2016, we reassessed the estimated useful lives of certain fiber assets, extending the useful life of such assets from 20 to 25 years. The net impact of these changes resulted in increases to depreciation expense of $35.3 million and $8.8 million for the years ended December 31, 2017 and 2016, respectively, which increased our reported net loss $22.2 million or $.66 per share in 2017 and $5.4 million or $.29 per share in 2016.

At December 31, ~~2018,~~2019, our unamortized finite-lived intangible assets totaled ~~$1,213.1~~$1,042.1 million and primarily consisted of franchise rights of ~~$870.5~~$827.7 million and customer lists of ~~$308.1~~$189.9 million. The customer lists are amortized using the sum-of-the-years digits method over estimated useful lives ranging from 5.5 to- 15 years. The franchise 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 ~~2018~~2019 by approximately ~~$6.9~~$3.1 million. We are in the process of assessing the impact to subsequent periods, if any, that the Chapter 11 Cases may have on the valuation of our long-lived assets. During 2019, we performed a quantitative recoverability test in conjunction with the filing of the Chapter 11 Cases, adoption of the new leasing standard and change in our reportable segments. We determined that for each of these triggering events our long-lived assets were not impaired.

~~Our goodwill was derived from numerous acquisitions where~~As further discussed in Note 5 to the ~~purchase price exceeded~~consolidated financial statements, during the ~~fair value~~first quarter of the net assets acquired. In accordance with authoritative guidance, goodwill is to be assigned to a company’s reporting units and tested for impairment at least annually using a consistent measurement date, which is November 1st for us, or sooner when circumstances indicate an impairment may exist. We2019, we performed a quantitative goodwill impairment test ~~as of~~comparing the fair value to carrying value for each or our ~~annual measurement date of November 1, 2018. As of that date, we had four~~three reporting units consisting of Consumer & Small Business, Enterprise, ~~Wholesale~~ and ~~Consumer CLEC,~~Wholesale, which is consistent with how we defined our ~~four~~three reportable operating segments. Our reporting units are not separate legal entities with discrete balance sheet information. Accordingly, in determining the reporting unit’s carrying value, assets and liabilities were assigned to the reporting units using a combination of specification identification and consistent and reasonable allocation methodologies as appropriate.

As described in Note 18, effective April 1, 2019, we implemented a new business unit organizational structure resulting in a change in our reportable operating segments and reporting units and reallocated the remaining goodwill of the former Wholesale reporting unit on a relative fair value to our new Kinetic, Enterprise and Wholesale reporting units. We also confirmed, immediately before the reorganization and reallocation of goodwill, that no further impairment existed in the former Wholesale reporting unit. We performed a quantitative goodwill impairment ~~existed~~test as of ~~November~~April 1, ~~2018.~~2019, which compared, for each reporting unit, its fair value to its carrying value. We estimated the fair value of our new reporting units using an income approach based on the present value of projected cash flows and a terminal value, which represents the expected normalized cash flows of the reporting unit beyond the cash flows from the discrete projection period of five years. We discounted the estimated cash flows for each of the reporting units using a rate that represents a market participant’s weighted average cost of capital commensurate with the reporting unit’s underlying business operations. The results of the goodwill impairment test indicated that the carrying values of our Kinetic and Enterprise reporting units exceeded their fair values. Accordingly, during the second quarter of 2019, we recorded an impairment of all goodwill allocated to our Kinetic reporting unit of $254.3 million and an impairment of all goodwill allocated to our Enterprise reporting unit of $119.0 million, representing the excess of the carrying value from each reporting unit’s fair value. The fair value of the Wholesale reporting unit exceeded its carrying value and was not at risk of a goodwill impairment at this time.

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

savings targets, (ii) higher than expected customer churn as the result of competition, ~~or customer concerns related to our bankruptcy~~

We maintain a non-contributory qualified defined benefit pension plan as well as supplemental executive retirement plans that provide 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 of plan assets and actuarial gains and losses due to actual experience differing from the various actuarial assumptions, including changes in our pension obligation, as pension expense or income in the fourth quarter each year, unless an earlier measurement date is required. Our projected net pension income for ~~2019,~~2020, which is estimated to be approximately ~~$3.6~~$17.5 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 and a discount rate of ~~4.34~~3.37 percent. If returns vary from the expected rate of return or there is a change in the discount rate, the estimated net pension income could vary. 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 and bond indices and include a targeted asset allocation of 31.0 percent to equities, 49.0 percent to fixed income assets and 20.0 percent to alternative investments, with an aggregate expected long-term rate of return of approximately 7.0 percent. Lowering the expected long-term rate of return on the qualified pension plan assets by 50 basis points (from 7.0 percent to 6.5 percent) would result in a decrease in our projected pension income of approximately ~~$3.5~~$4.2 million in ~~2019,~~2020, the effects of which would result in the recognition of pension income of ~~$0.1~~$13.3 million in ~~2019.~~2020.

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 bond portfolio to arrive at a single equivalent discount rate that aligns the present value of the required cash flows with the market value of the bond portfolio. The discount rate determined on this basis was ~~4.34~~3.37 percent at December 31, ~~2018.~~2019. Lowering the discount rate by 25 basis points (from ~~4.34~~3.37 percent to ~~4.09~~3.12 percent) would result in a decrease in our projected pension income of approximately ~~$25.1~~$29.9 million in ~~2019,~~2020, the effects of which would result in the recognition of pension expense of ~~$21.5~~$12.4 million in ~~2019.~~2020.

See Notes 2 and 911 to the consolidated financial statements for additional information on our pension plans.

Our estimates of income taxes and the significant items resulting in the recognition of deferred tax assets and liabilities are disclosed in Note 16 to the consolidated financial statements and reflect our assessment of future tax consequences of transactions that have been reflected in our financial statements or tax returns for each taxing jurisdiction in which we operate. Actual income taxes to be paid could vary from these estimates due to future changes in income tax law or the outcome of audits completed by federal and state taxing authorities. Included in the calculation of our annual income tax expense are the effects of changes, if any, to our income tax reserves for uncertain tax positions. We maintain income tax reserves for potential assessments from the IRS or other state taxing authorities. The reserves are determined in accordance with authoritative guidance and are adjusted, from time to time, based upon changing facts and circumstances. Changes to the income tax reserves could materially affect our future consolidated operating results in the period of change. In addition, a valuation allowance is recorded to reduce the carrying amount of deferred tax assets unless it is more likely than not that such assets will be realized. As of December 31, 2018, Windstream recorded a full valuation allowance, exclusive of a portion of deferred tax liabilities primarily associated with indefinite-lived intangible assets, due to the acceleration of all long-term debt obligations following an adverse court ruling and subsequent filing of the Chapter 11 Cases, and Windstream’s assessment that it was more likely than not that our deferred tax assets would not be realized. See ~~Notes 5,~~Note 16 ~~and 17~~ to the consolidated financial statements for additional information regarding the acceleration of long-term debt obligations, the court ruling and the related effects on income taxes.

During 2019, we adopted the following authoritative guidance:

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

See Note 2 for ~~Doubtful Accounts~~

The following authoritative guidance, together with our evaluation of the related impact to the consolidated financial statements, is more fully described in Note 2 to the consolidated financial statements.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations includes, and future filings on Form 10-K, Form 10-Q and Form 8-K and future oral and written statements by us and our management may include, certain forward-looking statements. We claim the protection of the safe-harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 for this Annual Report on Form 10-K.

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

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

In addition to these factors, actual future performance, outcomes and results may differ materially because of more general factors including, among others, general industry and market conditions and growth rates, economic conditions, and governmental and public policy changes.

Our management is responsible for the integrity and objectivity of all financial information included in this Financial Supplement. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The financial statements include amounts that are based on the best estimates and judgments of management. All financial information in this Financial Supplement is consistent with that in the consolidated financial statements.

PricewaterhouseCoopers LLP, an independent registered public accounting firm, has audited these consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States) and have expressed herein their unqualified opinion on those financial statements.

The Audit Committee of the Board of Directors, which oversees our financial reporting process on behalf of the Board of Directors, is composed entirely of independent directors (as defined by the NASDAQ Global Select Market). The Audit Committee meets periodically with management, the independent registered public accounting firm and the internal auditors to review matters relating to our financial statements and financial reporting process, annual financial statement audit, engagement of independent registered public accounting firm, internal audit function, system of internal controls, 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.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in ~~Note~~Notes 1 and 3 to the consolidated financial statements, the Company has defaulted on its debt and master lease agreements and filed for voluntary reorganization under Chapter 11 of the U.S. Bankruptcy Code on February 25, 2019, which raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in ~~Note 1.~~Notes 1 and 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/PricewaterhouseCoopers LLP

Little Rock, Arkansas

~~March 15, 2019~~May 19, 2020

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in ~~Note~~Notes 1 and 3 to the consolidated financial statements, the Company has defaulted on its debt and master lease agreements and filed for voluntary reorganization under Chapter 11 of the U.S. Bankruptcy Code on February 25, 2019, which raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in ~~Note 1.~~Notes 1 and 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/PricewaterhouseCoopers LLP

Little Rock, Arkansas

~~March 15, 2019~~May 19, 2020

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

Description of Business – We are a leading provider of advanced network communications and technology solutions for businesses across the U.S. We also offer broadband, entertainment and security solutions to consumers and small businesses primarily in rural areas in 18 states. Additionally, we supply core transport solutions on a local and long-haul fiber network spanning approximately ~~150,000~~164,000 miles.

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

~~Recent Developments~~ – As further discussed in Note 17, on September 22, 2017, Windstream Services received a purported notice of default under the indenture governing its 6.375 percent senior notes due August 2023 (the “August 2023 Notes”) from a purported holder of the senior notes, which alleged that Windstream Services had breached certain covenants under the indenture, primarily that the 2015 spin-off constituted a sale and leaseback transaction (as defined in the indenture). On October 12, 2017, the trustee under the indenture filed suit in the United States District Court for the Southern District of New York (the “District Court”) seeking a declaration that defaults had occurred under the indenture. On November 6, 2017, Windstream Services received consents from holders representing a majority of the outstanding aggregate principal amount of the August 2023 Notes to certain waivers and amendments to the indenture relating to the defaults alleged in the notice of default in connection with certain exchange and consent transactions completed in 2017. On December 7, 2017, the purported holder issued a notice of acceleration claiming that the principal amount, along with accrued interest, was due and payable immediately.

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

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

Due in part to recording the ~~$2.8~~$3.0 billion cumulative effect adjustment to equity ~~discussed~~presented above and the resulting increase in the carrying value of our reporting units, we ~~expect to record~~recorded a pre-tax goodwill impairment charge of ~~approximately $1.8 billion to $1.9~~$2.3 billion in the first quarter of ~~2019 resulting from~~2019. See Note 5 for additional information pertaining to the goodwill impairment charge.

The impact of adoption of ASU ~~2016-02. Of the total impairment charge, we expect to record an impairment of all remaining goodwill in~~2016-02 on our Consumer & Small Business reporting unit of $903.4 million, an impairment of goodwill in our Enterprise reporting unit of approximately $600.0 million and an impairment of goodwill in our Wholesale reporting unit of approximately $300.0 million, representing the excess of the carrying value from each reporting unit’s fair value. No other long-lived assets are expected to be impaired. Beginning in 2019 ~~our~~ consolidated ~~results~~statements of operations ~~will also reflect an~~was as follows:

As presented in the table above, the increase toin cost of services ~~for~~was due to the recognition of annual straight-line ~~rent~~ expense attributable to the ~~Uniti lease of approximately $675.0 million, a~~contractual arrangement with Uniti. The decrease in depreciation expense resulted from de-recognizing the remaining net book value of network assets transferred to Uniti and athe decrease in interest expense was due to no longer accounting for the contractual arrangement with Uniti ~~lease~~ as a failed spin-leaseback financing arrangement.

As a result of ~~this~~the change in accounting ~~change,~~for our arrangement with Uniti from a financing to an operating lease, our consolidated statement of cash flows ~~will also reflect~~for the year ended December 31, 2019 reflected a ~~reclassification~~decrease in operating cash flows of ~~the principal~~$212.0 million attributable to no longer classifying a portion of the cash rental payments made to Uniti ~~from~~as a financing ~~outflows~~outflow as was the case for periods prior to ~~operating outflows and~~the adoption of ASU 2016-02 as well as a reduction in reported cash paid for ~~interest.~~interest of $446.9 million.

See Note 7 for additional disclosures about the nature of our leases, including significant terms and conditions, total lease costs, maturity of lease liabilities and receivables reconciled to the consolidated balance sheet, weighted-average remaining lease term, weighted-average discount rate, cash paid for amounts and significant rights and obligations under leases that have not commenced.

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

Financial Instruments - Credit Losses – In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). This standard ~~introduces~~introduced a new forward-looking approach, based on expected losses, to estimate credit losses on certain types of financial instruments, including trade receivables. The estimate of expected credit losses ~~will require~~requires entities to incorporate considerations of historical information, current information and reasonable and supportable forecasts. This new standard also expands the disclosure requirements to enable users of financial statements to understand the entity’s assumptions, models and methods for estimating expected credit losses. ASU 2016-13 iswas effective for annual and interim reporting periods beginning after December 15, ~~2019, and~~2019. We adopted ASU 2016-13 using the ~~guidance is to be applied using a~~ modified retrospective transition ~~approach. Early~~method effective January 1, 2020. Upon adoption, ~~is permitted for annual and interim reporting periods beginning after December 15, 2018. We are currently assessing the timing~~we recorded a cumulative effect adjustment of ~~adoption and the impact the new standard will have on~~approximately $1.8 million, net of tax, increasing our ~~consolidated financial statements.~~accumulated deficit.

Implementation Costs in Cloud Computing Arrangements - In August 2018, the FASB issued ASU No. 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU 2018-15”). This standard requires entities that are customers in cloud computing arrangements to defer implementation costs if they would be capitalized by the entity in software licensing arrangements under the internal-use software guidance. The service element of a hosting arrangement will continue to be expensed as incurred. The guidance was effective for annual and interim reporting periods beginning after December 15, 2019 and may be applied retrospectively or prospectively to implementation costs incurred after the date of adoption. ~~ASU 2018-15 is effective for annual and interim reporting periods beginning after December 15, 2019, with early adoption permitted.~~ We ~~are currently assessing the timing of adoption and the impact the new standard will have on our consolidated financial statements.~~

Amortization expense for intangible assets subject to amortization was $171.0 million, $225.8 million and $241.0 million in 2019, 2018 and ~~$185.2 million in 2018,~~ 2017, ~~and 2016,~~ respectively. Amortization expense for intangible assets subject to amortization was estimated to be as follows for each of the years ended December 31:

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

~~F-77~~

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

Event of Default and Chapter 11 Cases –As further discussed in Notes 13 and 17, on February 15, 2019, Judge Furman ~~of the District Court~~ found that Windstream Services had defaulted under the indenture governing the August 2023 Notes, which resulted in the acceleration of the August 2023 Notes and a cross default under Windstream Services’ senior secured credit agreement governing its secured term and revolving line of credit obligations, as well as the remaining obligations under the ~~master lease agreement~~contractual arrangement with Uniti. In addition, the acceleration of the August 2023 Notes resulted in a cross-acceleration event of default under the indentures governing Windstream Services’ other series of secured and unsecured notes. As a result, all long-term debt and remaining obligations under the ~~master lease agreement~~contractual arrangement with ~~Unit have been~~Uniti were classified as current liabilities in the accompanying consolidated balance sheet as of December 31, 2018.

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

Debt was as follows at December 31:



(Millions)	2019			2018
Issued by Windstream Services:
Superpriority debtor-in-possession term loan facility	$	500.0		$	—
Senior secured credit facility, Tranche B6 – variable rates, due March 29, 2021 (a)	1,180.5			1,180.5
Senior secured credit facility, Tranche B7 – variable rates, due February 17, 2024	568.4			568.4
Senior secured credit facility, Revolving line of credit – variable rates, due April 24, 2020 (b)	802.0			1,017.0
Senior First Lien Notes – 8.625%, due October 31, 2025 (c) (f)	600.0			600.0
Senior Second Lien Notes – 10.500%, due June 30, 2024 (d) (f) (h)	414.9			414.9
Senior Second Lien Notes – 9.000%, due June 30, 2025 (d) (f) (h)	802.0			802.0
Debentures and notes, without collateral:
2020 Notes – 7.750%, due October 15, 2020 (f) (h)	78.1			78.1
2021 Notes – 7.750%, due October 1, 2021 (f) (h)	70.1			70.1
2022 Notes – 7.500%, due June 1, 2022 (f) (h)	36.2			36.2
2023 Notes – 7.500%, due April 1, 2023 (f) (h)	34.4			34.4
2023 Notes – 6.375%, due August 1, 2023 (f) (h)	806.9			806.9
2024 Notes – 8.750%, due December 15, 2024 (f) (h)	105.8			105.8
Issued by subsidiaries of Windstream Services:
Windstream Holdings of the Midwest, Inc. – 6.75%, due April 1, 2028 (e)	100.0			100.0
Net discount on long-term debt (g)	—			(28.6		)
Unamortized debt issuance costs (g)	—			(57.6		)
Debt prior to reclassification to liabilities subject to compromise	6,099.3			5,728.1
Less current portion	(500.0		)	(5,728.1		)
Less amounts reclassified to liabilities subject to compromise	(5,599.3		)	—
Total long-term debt	$	—		$	—
Weighted average interest rate	8.4		%	7.1		%

(Millions) 2018
2017
Issued by Windstream Services:
Senior secured credit facility, Tranche B6 – variable rates, due March 29, 2021 (a) $ 1,180.5
$ 1,192.6
Senior secured credit facility, Tranche B7 – variable rates, due February 17, 2024 568.4
574.2
Senior secured credit facility, Revolving line of credit – variable rates, due
April 24, 2020 (b) 1,017.0
775.0
Senior First Lien Notes – 8.625%, due October 31, 2025 (c) (f) 600.0
600.0
Senior Second Lien Notes – 10.500%, due June 30, 2024 (d) (f) 414.9
—
Senior Second Lien Notes – 9.000%, due June 30, 2025 (d) (f) 802.0
—
Debentures and notes, without collateral:
2020 Notes – 7.750%, due October 15, 2020 (f) 78.1
492.9
2021 Notes – 7.750%, due October 1, 2021 (f) 70.1
88.9
2022 Notes – 7.500%, due June 1, 2022 (f) 36.2
41.6
2023 Notes – 7.500%, due April 1, 2023 (f) 34.4
120.4
2023 Notes – 6.375%, due August 1, 2023 (f) 806.9
1,147.6
2024 Notes – 8.750%, due December 15, 2024 (f) 105.8
834.3
Issued by subsidiaries of Windstream Services:
Windstream Holdings of the Midwest, Inc. – 6.75%, due April 1, 2028 (e) (f) 100.0
100.0
Net discount on long-term debt (g) (28.6 ) (61.6 )
Unamortized debt issuance costs (g) (57.6 ) (62.0 )
5,728.1
5,843.9
Less current portion (5,728.1 ) (169.3 )
Total long-term debt $ —
$ 5,674.6
Weighted average interest rate 7.1 % 6.6 %
Weighted maturity N/A
5.1 years

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

~~“Debtor-in-Possession” Financing~~Debtor-in-Possession Credit Facility –~~Pursuant to~~On the Petition Date, Windstream Holdings and Windstream Services entered into a commitment letter (as amended, the “DIP Commitment Letter”) dated as of February 25, 2019 ~~by and among Windstream Holdings, Windstream Services and~~with Citigroup Global Markets Inc. (together with ~~certain of its affiliates, “Citi”~~Barclays Bank, PLC, Credit Suisse Loan Funding, Deutsche Bank Securities Inc., Goldman Sachs Bank USA and JPMorgan Chase Bank, N.A., the “Arrangers”), ~~Citi has~~pursuant to which the Arrangers or their affiliates committed to provide senior secured superpriority debtor-in-possession credit facilities in an aggregate principal amount of $1.0 billion, subject to conditions described therein. In connection with the Chapter 11 Cases and in accordance with the DIP Commitment Letter, Windstream Holdings and Windstream Services entered into a Superpriority Secured Debtor-in-Possession Credit Agreement, dated as of March 13, 2019 (the “DIP Credit Agreement”), by and among Windstream Services, as the borrower (the “Borrower”), Windstream Holdings, the other guarantors party thereto, the lenders party thereto (together with such other financial institutions from time to time party thereto, the “DIP Lenders”) and Citibank, N.A., as administrative agent and collateral agent (the “Agent”). The DIP Credit Agreement provides for $1.0 billion in superpriority secured debtor-in-possession credit facilities comprising of (i) a superpriority revolving credit facility in an aggregate amount of $500.0 million (the “Revolving Facility”) and (ii) a superpriority term loan facility ~~(the “Term Facility”)~~ in an aggregate principal amount of ~~up to~~ $500.0 million (the “Term Loan ~~Commitments”) and a superpriority revolving credit facility (the “Revolving~~ Facility” and, together with the ~~Term~~Revolving Facility, the “DIP Facilities”) ~~in an aggregate principal amount~~, subject to the terms and conditions set forth therein. As of ~~up to~~December 31, 2019, $500.0 million ~~subject to availability as described below.~~

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

The maturity date of the DIP Facilities ~~will be 24 months after the closing date of the DIP Facilities.~~is February 26, 2021. Loans under the Term Loan Facility and the Revolving Facility will bear interest, at the option of ~~Windstream Services,~~the Borrower, at (1) ~~a margin~~1.50 percent plus a base rate of the highest of (i) Citibank, N.A.’s base rate, (ii) the ~~three-month certificate of deposit rate plus 1/2 of 1%, (iii) the~~ Federal funds effective rate plus 1/2 of 1%1 percent and ~~(iv)~~(iii) the one-month LIBOR plus ~~1.00%~~1.00 percent per annum; or (2) ~~a margin~~2.50 percent plus LIBOR. From and after the ~~closing date for the DIP Facilities,~~Effective Date, a non-refundable unused commitment fee will accrue at the rate of ~~0.50%~~0.50 percent per annum on the daily average unused portion of the Revolving Facility (whether or not then available).

~~On February 26, 2019,~~The DIP Credit Agreement includes usual and customary negative covenants for debtor-in-possession loan agreements of this type, including covenants limiting Windstream Holdings’ and its subsidiaries’ ability to, among other things, incur additional indebtedness, create liens on assets, make investments, loans or advances, engage in mergers, consolidations, sales of assets and acquisitions, pay dividends and distributions and make payments in respect of junior or pre-petition indebtedness, in each case subject to customary exceptions for debtor-in-possession loan agreements of this type.

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

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

Senior Secured Credit Facility –Prior to the filing of the Chapter 11 Cases, the amended credit facility provided Windstream Services the ability to obtain incremental revolving or term loans in an unlimited amount subject to maintaining a maximum secured leverage ratio and other customary conditions, including obtaining commitments and pro forma compliance with financial maintenance covenants consisting of a maximum debt to consolidated earnings before interest, taxes, depreciation and amortization (“EBITDA”) ratio and a minimum interest coverage ratio. In addition, Windstream Services could have requested extensions of the maturity date under any of its existing revolving or term loan facilities. On February 17, 2017, Windstream Services issued an aggregate principal amount of $580.0 million in borrowings under Tranche B7 of its senior secured credit facility, the proceeds of which were used to pay down amounts outstanding under Tranche B5, including accrued interest, and to pay related fees and expenses. conditions.

The incremental Tranche B7 term loan matures on February 17, 2024 and was issued at a price of 99.5 percent of the principal amount of the loan.

The incremental loans were issued at a price of 99.0 percent of the principal amount of the loan. The incremental loans are repayable at any time. During the fourth quarter of 2017, Windstream Services repaid $139.0 million of amounts outstanding under Tranche B6 using proceeds from the issuance of new debt, as further discussed below. At the time of repayment, unamortized debt issuance and discount related to this portion of Tranche B6 totaling $2.9 million were included in the loss on debt extinguishment.

Prior to the filing of the Chapter 11 Cases, Windstream Services borrowed $155.0 million under the revolving line of credit and retired $370.0 million of borrowings during the period January 1, 2019 to February 24, 2019.

During 2018, Windstream Services borrowed $816.0 million under the revolving line of credit ~~in its senior secured credit facility~~ and through the ~~issuance~~completion of ~~new debt~~a debt-for-debt exchange and repayments retired $574.0 million of these borrowings. Borrowings under the revolving line of credit included $150.0 million for the one-time mandatory redemption payment applicable to the 2024 Notes paid on February 26, 2018. ~~Letters of credit of $23.4 million were outstanding at December 31, 2018.~~

During 2017, Windstream Services borrowed $1,196.0 million under the revolving line of credit and through the completion of a debt-for-debt exchange and repayments retired $896.0 million of these borrowings in 2017. Borrowings under the revolving line of credit included $160.0 million to repay amounts outstanding under Broadview’s revolving credit facility and to redeem Broadview’s 2017 Notes.

The variable interest rate on the revolving line of credit ranged from ~~3.40~~4.38 percent to ~~6.50~~8.50 percent, and the weighted average rate on amounts outstanding was ~~4.02~~7.65 percent during ~~2018,~~2019, as compared to variable interest rates during ~~2017~~2018 which ranged from ~~2.65~~3.40 percent to ~~5.50~~6.50 percent with a weighted average rate on amounts outstanding of ~~3.16~~4.02 percent.

Following the filing of the Chapter 11 Cases, interest rates applicable to the revolving line of credit, Tranche B6 term loan and Tranche B7 term loan were converted from LIBOR to the alternate base rate, the effects of which increased interest rates 2.00 percent for borrowings under the senior secured credit facility. The Bankruptcy Court also approved an additional 2.00 percent default rate applicable to borrowings under the senior secured credit facility. As of December 31, 2019, interest rates applicable to the revolving line of credit, Tranche B6 term loan and Tranche B7 term loan were 8.50 percent, 10.50 percent and 9.75 percent, respectively. All payments to holders of debt obligations under the senior secured credit facility, senior first lien notes and Midwest Bonds remitted subsequent to the filing of the Chapter 11 Cases have been classified as interest expense in the accompanying consolidated statements of operations.

Consent Solicitation and Amendments to 2025 Notes and Senior Secured Credit Facility - During the second quarter of 2018, Windstream Services and Windstream Finance Corp. (together the “issuers”) received the requisite consents to amend the indenture governing the 8.625 percent senior first lien notes due October 31, 2025 (“2025 Notes”). Holders of the 2025 Notes who validly delivered (and did not validly revoke) consents to the amendments to the indenture received a one-time consent payment equal to $2.50 per $1,000 principal amount of 2025 Notes provided that such consent was received prior to the expiration of the consent solicitation on June 6, 2018. The consent solicitation (i) permitted the issuers and guarantors under the indenture to issue or incur indebtedness on a junior lien basis and (ii) authorized the collateral agent under the indenture to enter into a junior lien intercreditor agreement upon the issuance or incurrence of junior lien secured indebtedness by the issuers and the guarantors under the indenture. In conjunction with receiving the requisite consents, the amendments to the indenture became effective and operative. All holders of the 2025 Notes are bound by the terms thereof, even if they did not deliver consents to the amendments. Except for the amendments, all existing terms of the 2025 Notes and the Indenture remain unchanged.

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

In completing the consent solicitation and amendments, Windstream Services incurred $11.5 million in fees, consisting of $8.8 million in consent fees payable to lenders and $2.7 million in arrangement, legal and other third-party fees. In accordance with debt modification accounting, the $2.7 million in arrangement, legal and other third-party fees were expensed as additional interest expense and the $8.8 million in consent fees were capitalized as debt issuance costs and amortized over the respective terms of the 2025 Notes and senior secured credit facility.

On August 2, 2018, Windstream Services completed the settlement of exchange offers, which expired on July 31, 2018, for (1) its 7.75 percent senior notes due October 15, 2020 (“2020 Notes”) for new ~~10.500%~~10.500 percent senior second lien notes due June 30, 2024 (the “New 2024 Notes”) and (2) its 7.75 percent senior notes due October 1, 2021 (“2021 Notes”), 7.50 percent senior notes due June 1, 2022 (“2022 Notes”), 7.50 percent senior notes due April 1, 2023 (“April 2023 Notes”), 6.375 percent senior notes due August 1, 2023 (“August 2023 Notes”) and 8.75 percent senior notes due December 15, 2024 (“2024 Notes”) for new 9.00 percent senior second lien notes due June 30, 2025 (the “New 2025 Notes”) as follows:

The New 2024 Notes and New 2025 Notes will not be registered under the Securities Act of 1933, as amended (the “Securities Act”) or any state securities laws. As such, these notes may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements of the Securities Act and any applicable state securities laws.

In completing the exchange transactions, Windstream Services incurred $18.4 million in arrangement, legal and other third-party fees. The exchanges of the 2020 and 2021 Notes were accounted for as a debt modification, and the remaining exchanges of 2022 Notes, April 2023 Notes, August 2023 Notes and 2024 Notes were accounted for as a debt extinguishment. In assessing the accounting treatment for the debt exchanges, we determined that no concessions were granted by our creditors due to the additional collateral and securitization provided to holders of the new notes, as well as consideration of other qualitative factors. For the exchanges accounted for under the extinguishment method of accounting, Windstream Services recognized a net gain of $190.3 million, consisting of the net principal reduction of $226.0 million reduced by the write-off of a portion of the unamortized discount and debt issuance costs related to the original notes of $35.7 million. Of the total legal and other third-party fees incurred, $6.5 million were expensed as additional interest expense under debt modification accounting while the remaining $11.9 million of fees were capitalized and amortized over the terms of the new notes in accordance with the extinguishment method of accounting.

On November 8, 2017, Windstream Services completed a private placement offering of $400.0 million in aggregate principal amount of 8.625 percent senior first lien notes due October 31, 2025 (“2025 Notes”). The notes were issued at a price of 99.0 percent to yield 8.802 percent. The notes were co-issued by Windstream Finance Corp. (“Windstream Finance”), a direct wholly-owned subsidiary of Windstream Services, and are guaranteed by each of our domestic subsidiaries that guarantees debt under Windstream Services’ senior secured credit facility. The notes and the guarantees are secured by a first priority lien on Windstream Services’ and the guarantors’ assets that secure the obligations under the senior secured credit facility. Windstream Services used the net proceeds of the offering to repay approximately $250.0 million of borrowings under its revolving line of credit and to repay$139.0 million of amounts outstanding under its Tranche B6 term loan.

In November 2017, Windstream Services completed exchange offers for its 2020 Notes, 2021 Notes, 2022 Notes, and April 2023 Notes as follows:

In completing these exchange offers, Windstream Services issued $561.9 million aggregate principal amount of new August 2023 Notes and issued $200.0 million aggregate principal amount of 2025 Notes.

In completing the exchange transactions, Windstream Services incurred $27.7 million in fees, consisting of $6.0 million in consent fees payable to lenders and $21.7 million in arrangement, legal and other third-party fees, and the lenders received a net exchange premium of $95.1 million in the form of additional future principal payments. Based on an analysis of participating creditors, Windstream Services concluded that a portion of the exchanges should be accounted for as a debt modification and the remainder as a debt extinguishment. For the portion of the exchanges accounted for under the extinguishment method of accounting, Windstream Services recognized a net loss of $55.5 million, consisting of the write-off of a portion of the net exchange premium and consent fees and unamortized premium and debt issuance costs related to the original notes. The remaining $45.2 million of net exchange premium and $4.0 million of consent fees were capitalized and deferred over the terms of the new notes in accordance with debt modification accounting. The $21.7 million in arrangement, legal and other third-party fees were allocated on a lender-by-lender basis to creditors resulting in $13.8 million of fees expensed as additional interest expense under debt modification accounting, while the remaining $7.9 million of fees were capitalized and amortized over the terms of the new notes in accordance with the extinguishment method of accounting.

During 2017, under a debt repurchase program authorized by Windstream Services’ board of directors, Windstream Services repurchased in the open market $49.1 million aggregate principal amount of its 2020 Notes at a repurchase price of $45.3 million, including accrued and unpaid interest. At the time of repurchase, there was $0.3 million in unamortized net premium and debt issuance costs related to the repurchased notes. The repurchases were funded utilizing available borrowings under the amended revolving line of credit and were accounted for under the extinguishment method of accounting.

~~Debentures and Notes Repaid in 2016~~

The net gain (loss) on early extinguishment of debt was comprised of the following:



(Millions)	Discount (Premium) on early redemption			Third-party fees for early redemption			Unamortized (discount) premium on original issuance, net			Unamortized debt issuance costs on original issuance			Net gain (loss) on early extinguishment of debt
Year ended December 31, 2018:
Exchanges of 2021, 2022, April 2023, August 2023 and 2024 Notes	$	226.0		$	—		$	(22.9	)	$	(12.8	)	$	190.3
Total	$	226.0		$	—		$	(22.9	)	$	(12.8	)	$	190.3
Year ended December 31, 2017:
Senior secured credit facility	$	—		$	—		$	(1.8	)	$	(2.3	)	$	(4.1	)
Broadview 2017 Notes	—			—			0.2			—			0.2
EarthLink 2019 and 2020 Notes	(18.3		)	—			16.3			—			(2.0		)
Partial repurchase of 2020 Notes	5.3			—			0.1			(0.4		)	5.0
Exchanges of 2020, 2021, 2022, and April 2023 Notes	(49.9		)	(2.0		)	2.2			(5.8		)	(55.5		)
Total	$	(62.9	)	$	(2.0	)	$	17.0		$	(8.5	)	$	(56.4	)

(Millions) (Premium) discount on early redemption Third-party fees for early redemption Unamortized (discount) premium on original issuance, net Unamortized debt issuance costs on original issuance Net gain (loss) on early extinguishment of debt
Year ended December 31, 2018:
Exchanges of 2021, 2022, April
  2023, August 2023 and 2024 Notes
$ 226.0
$ —
$ (22.9 ) $ (12.8 ) $ 190.3
Total $ 226.0
$ —
$ (22.9 ) $ (12.8 ) $ 190.3
Year ended December 31, 2017:
Senior secured credit facility $ —
$ —
$ (1.8 ) $ (2.3 ) $ (4.1 )
Broadview 2017 Notes —
—
0.2
—
0.2
EarthLink 2019 and 2020 Notes (18.3 ) —
16.3
—
(2.0 )
Partial repurchase of 2020 Notes 5.3
—
0.1
(0.4 ) 5.0
Exchanges of 2020, 2021, 2022,
   and April 2023 Notes
(49.9 ) (2.0 ) 2.2
(5.8 ) (55.5 )
Total $ (62.9 ) $ (2.0 ) $ 17.0
$ (8.5 ) $ (56.4 )
Year ended December 31, 2016:
Senior secured credit facility $ —
$ —
$ (1.7 ) $ (1.4 ) $ (3.1 )
2017 Notes (67.5 ) (2.4 ) (3.0 ) (5.4 ) (78.3 )
Partial repurchases of 2021, 2022,
   April 2023 and August 2023 Notes
68.7
—
0.9
(6.2 ) 63.4
Total $ 1.2
$ (2.4 ) $ (3.8 ) $ (13.0 ) $ (18.0 )

Interest expense was as follows for the years ended December 31:



(Millions)	2019			2018			2017
Interest expense - long-term debt	$	338.7		$	429.0		$	376.1
Interest expense - long-term lease obligations:
Telecommunications network assets	—			467.0			484.9
Real estate contributed to pension plan	6.2			6.2			6.2
Impact of interest rate swaps	(12.2		)	(3.5		)	10.1
Interest on capital leases and other	5.8			6.3			5.1
Less capitalized interest expense	(6.6		)	(3.7		)	(7.0		)
Total interest expense	$	331.9		$	901.3		$	875.4

As previously discussed in Note 2, we adopted ASU 2016-02 effective January 1, 2019 using the modified retrospective transition method. We lease network assets and equipment, real estate, office space and office equipment. Leases with an initial term of 12 months or less are not recorded on the balance sheet, and we recognize lease expense for these leases on a straight-line basis over the lease term. We have lease agreements with lease and nonlease components, which are generally accounted for separately. For certain agreements in which we lease space for data storage and communications equipment within data centers, central offices of other interexchange carriers and alternative access providers, we account for the lease and nonlease components as a single lease component when the timing and pattern of transfer of the lease and nonlease components are identical, and the lease classification would have been an operating lease absent the combination.

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

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

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

Leaseback of ~~Telecommunications~~Telecommunication Network Assets –~~On April 24, 2015, we completed the spin-off of certain telecommunications network assets, including~~ - Under our ~~fiber and copper networks and other real estate, to Uniti. Following the spin-off transaction, Windstream Holdings entered into a long-term triple-net master lease~~contractual arrangement with Uniti, ~~to lease back the telecommunications network assets. Under terms of the master lease,~~ Windstream Holdings has the exclusive right to use ~~the~~certain telecommunications network assets, including fiber and copper networks, for an initial term of 15 years ending in April 2030, with up to four, five-year renewal options. ~~Windstream Holdings is required to pay all property taxes, insurance, and repair or maintenance costs associated~~The contractual arrangement with ~~the leased property. The master lease~~Uniti provides for ana current annual ~~rent~~payment of ~~$650.0~~$659.0 million paid in equal monthly installments in advance ~~and is fixed for the first three years. Thereafter, rent will increase on~~with an annual ~~basis at a base rent~~ escalator of 0.5 percent. Future ~~lease~~ payments due under the ~~agreement~~contractual arrangement reset to fair market ~~rental~~ rates upon Windstream Holdings’ execution of the renewal options. ~~During December 2015, we requested and Uniti agreed to fund $43.1 million~~The remaining term of ~~capital expenditures. As~~the contractual arrangement is 10.3 years with a ~~result, the annual lease payment increased at a~~discount rate of ~~8.125~~13.9 percent.

Finance Leases - Finance leases consist principally of facilities and equipment for use in our operations. Generally, lease agreements that include a bargain purchase option, transfer of ownership, contractual lease term equal to or greater than 75 percent of the funds received from Uniti, or from $650.0 million to $653.5 million. Uniti also has the right, but not the obligation, upon Windstream’s request, to fund additional capital expenditures of Windstream in an aggregate amount of up to $250.0 million for a maximum period of five years. Monthly rent paid by us to Uniti will increase in accordance with the master lease effective asremaining estimated economic life of the ~~date of the funding. If Uniti exercises this right, the~~leased facilities or equipment or minimum lease payments ~~under the master lease will be adjusted at a rate of 8.125~~equal to or greater than 90 percent of the capital expenditures funded by Uniti during the first two years and at a floating rate based on Uniti’s cost of capital thereafter. Additionally, if Uniti agrees to fund the entire $250.0 million, the initial term of the master lease will be increased from 15 years to 20 years and the number of renewal terms will be reduced from four renewal terms of five years each to three renewal terms of five years each.

At inception of the master lease, we recorded a long-term lease obligation of approximately $5.1 billion 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 Uniti in December 2015 for capital expenditures was recorded as an increase to the long-term lease obligation. The effective interest rate on the long-term lease obligation is approximately 10.1 percent. As annual lease payments are made, a portion of the payment will decrease the long-term lease obligation with the balance of the payment charged to interest expense using the effective interest method.

Supplemental balance sheet information related to leases was as follows:

Supplemental cash flow information related to leases was as follows for the year ended December 31, 2019:

As of December 31, 2019, future minimum lease payments ~~during~~under non-cancellable leases were as follows:

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

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

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

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

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

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

~~Windstream Services enters into interest rate swap agreements~~Prior to ~~mitigate~~ the interest rate risk inherent in its variable rate senior secured credit facility. Derivative instruments are accounted for in accordance with authoritative guidance for recognition, measurement and disclosures about derivative instruments and hedging activities, including when a derivative or other financial instrument can be designated as a hedge. This guidance requires recognitionfiling of ~~all derivative instruments at fair value, and accounting for~~ the ~~changes in fair value depends on whether the derivative has been designated as, qualifies as and is effective as a hedge.~~

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

~~All of the swaps are hedging probable variable cash flows which extend up~~Due to one year beyond the maturity of certain components of Windstream Services’ variable rate debt. Consistent with past practice, Windstream Services expects to extend or otherwise replace these components of its debt with variable rate debt.

~~All~~Prior to the filing of the Chapter 11 Cases, all derivative instruments ~~are~~were recognized at fair value ~~in the accompanying consolidated balance sheets~~ as either assets or liabilities, depending on the rights or obligations under the related contracts.

The agreements with each of the derivative counterparties ~~contain~~contained cross-default provisions, whereby if Windstream Services were to default on certain indebtedness, it could also be declared in default on its derivative obligations and may be required to net settle any outstanding derivative liability positions with its counterparties at the swap termination value, ~~of $9.9 million~~ including accrued interest and excluding the credit valuation adjustment to measure non-performance risk. ~~As a result of~~Due to the adverse court ruling, ~~and~~ subsequent filing of the Chapter 11 Cases and cross-default provisions contained within the interest rate swap agreements, the interest rate swaps ~~have been~~were classified as current assets and liabilities in the accompanying consolidated balance sheet as of December 31, 2018.

Following the adverse court ruling, each of the ~~agreements with~~bank counterparties exercised their rights to terminate the counterparties contain provisions where if a specified 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, 2018, Windstream Services had not posted any collateral related to its interest rate swap agreements. Accordingly, Windstream Services ceased the application of hedge accounting for all 6 interest rate swaps, effective February 15, 2019. For those swaps in an asset position at the date of termination, as determined by the counterparty, Windstream Services received cash proceeds of $9.6 million to settle the derivative contracts. For swaps in a liability position at the date of termination, as determined by the counterparty, the interest rate swaps were adjusted to their termination value of $6.1 million and reclassified as liabilities subject to compromise in the accompanying consolidated balance sheet as of December 31, 2019.

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

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



(Millions, except for percentages)	2019			2018
Designated portion, measured at fair value
Other current assets	$	—		$	15.3
Other current liabilities	$	—		$	6.8
Accumulated other comprehensive income	$	—		$	39.7
De-designated portion, unamortized value
Liabilities subject to compromise	$	6.1		$	—
Accumulated other comprehensive income (loss)	$	23.6		$	(2.4	)
Weighted average fixed rate paid	2.31		%	2.31		%
Variable rate received	2.48		%	2.46		%

Prior to their termination, payments on the swaps were presented in the financing activities section of the accompanying consolidated statements of cash flows due to the embedded financing element discussed above.

Changes in derivative instruments were as follows for the years ended December 31:



(Millions)	2019			2018		2017
Changes in fair value, net of tax	$	(2.4	)	$	2.8	$	7.0
Amortization of net unrealized (gains) losses on de-designated interest rate swaps, net of tax	$	(7.9	)	$	2.3	$	3.3

As of December 31, 2019, Windstream Services expects to recognize net gains of $9.8 million, net of taxes, in interest expense during the next twelve months related to the unamortized value of the de-designated portion of its terminated interest rate swaps.

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

The following tables present the assets and liabilities subject to an enforceable master netting arrangement as of December 31, ~~2018 and 2017.~~



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

Gross Amounts Not Offset in the Consolidated
Balance Sheets

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

December 31, 2017:
Interest rate swaps $ 11.8
$ (2.9 ) $ —
$ 8.9

Information pertaining to derivative liabilities was as follows:



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

Gross Amounts Not Offset in the Consolidated
Balance Sheets

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

December 31, 2017:
Interest rate swaps $ 18.3
$ (2.9 ) $ —
$ 15.4

The fair values of cash equivalents, interest rate swaps and ~~long-term~~ debt were determined using the following inputs at December 31:

In calculating the fair value 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 to the debt instruments. In calculating the fair value of the Windstream Holdings of the Midwest, Inc. notes, an appropriate market price of similar instruments in an active market considering credit quality, nonperformance risk and maturity of the instrument was used.

We do not have any assets or liabilities measured for purposes of the fair value hierarchy at fair value using significant unobservable inputs (Level 3). There were no transfers within the fair value hierarchy during the year ended December 31, ~~2018.~~2019.

~~As previously discussed in Note 2, we adopted ASU 2014-09 effective January 1, 2018 using the modified retrospective transition method.~~ The majority of our revenue is derived from providing access to or usage of our networks and facilities we operate.

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

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

Contract assets and liabilities from contracts with customers were as follows ~~at:~~at December 31:

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

Remaining performance obligations reflect recurring charges billed, adjusted for discounts and promotional credits and revenue adjustments. At December 31, ~~2018,~~2019, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately ~~$3.4~~$2.5 billion for contracts with original expected durations of more than one year remaining. We expect to recognize approximately ~~43.8~~42 percent, ~~30.8~~28 percent and ~~14.9~~17 percent of our remaining performance obligations as revenue during ~~2019,~~ 2020, 2021 and ~~2021,~~2022, with the remaining balance thereafter.

Revenue by Category – We disaggregate our revenue from contracts with customers by product type for each of our segments, as we believe it best depicts the nature, amount and timing of our revenue. Revenues recognized from contracts with customers by customer and product type for the year ended December 31, 2019 was as follows:

Revenues recognized from contracts with customers by customer and product type for the year ended December 31, 2018 was as follows:

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

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

Collectively, deferred commissions and other costs to fulfill a contract are referred to as deferred contract costs. We classify deferred contract costs as current or noncurrent based on the timing of when we expect to recognize the expense. The current and noncurrent portions of deferred contract costs are included in prepaid expenses and other and other assets, respectively, in ~~our~~the accompanying consolidated balance sheets. Deferred contract costs totaled ~~$45.5~~$53.8 million at December 31, ~~2018,~~2019, of which ~~$30.4~~$34.9 million and ~~$15.1~~$18.9 million ~~was~~were included in prepaid expenses and other and other assets, respectively. At ~~January 1,~~December 31, 2018, deferred contract costs were ~~$44.6~~$45.5 million, of which ~~$30.3~~$30.4 million and ~~$14.3~~$15.1 million ~~was~~were included in prepaid expenses and other and other assets, respectively.

Amortization of deferred contract costs was $41.2 million and $42.0 million for the ~~year~~years ended December 31, ~~2018.~~2019 and 2018, respectively. There was no0 impairment loss recognized for the ~~year~~years ended December 31, 2019 and 2018, related to deferred contract ~~cost.~~costs.

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

The components of pension benefit expense (income) ~~expense~~ (including provision for executive retirement agreements) and postretirement benefits ~~(income)~~ expense were as follows for the years ended December 31:



	Pension Benefits									Postretirement Benefits
(Millions)	2019			2018			2017			2019			2018			2017
Benefits earned during the year (a)	$	3.0		$	3.5		$	8.1		$	—		$	—		$	—
Interest cost on benefit obligation (b)	43.8			43.1			46.3			0.8			0.8			1.1
Net actuarial loss (b)	6.7			14.9			10.5			—			—			—
Amortization of net actuarial loss (b)	—			—			—			—			0.2			0.1
Amortization of prior service credit (b)	(1.0		)	(4.8		)	(0.4		)	(0.3		)	(0.3		)	(0.3		)
Plan curtailments (b)	—			(2.7		)	—			(0.1		)	—			—
Expected return on plan assets (b)	(49.5		)	(55.0		)	(54.4		)	—			—			—
Net periodic benefit expense (income)	$	3.0		$	(1.0	)	$	10.1		$	0.4		$	0.7		$	0.9

Pension Benefits Postretirement Benefits
(Millions) 2018
2017
2016
2018
2017
2016
Benefits earned during the year $ 3.5
$ 8.1
$ 8.7
$ —
$ —
$ —
Interest cost on benefit obligation 43.1
46.3
53.2
0.8
1.1
1.3
Net actuarial loss 14.9
10.5
60.7
—
—
—
Amortization of net actuarial loss —
—
—
0.2
0.1
0.2
Amortization of prior service credit (4.8 ) (0.4 ) (0.3 ) (0.3 ) (0.3 ) (0.8 )
Plan curtailments and settlements (2.7 ) —
0.1
—
—
(5.5 )
Expected return on plan assets (55.0 ) (54.4 ) (63.3 ) —
—
—
Net periodic benefit (income) expense $ (1.0 ) $ 10.1
$ 59.1
$ 0.7
$ 0.9
$ (4.8 )

During 2018, we amended the qualified defined benefit pension plan for certain eligible bargaining participants, the effects of which (i) froze benefit accruals upon reaching 30 years of service, (ii) provided for an unreduced early retirement benefit for participants with 30 years of service and (iii) added a lump-sum payment option. Changes to these benefit provisions required remeasurement of the pension plan’s funded status as of June 30, 2018 based on updated census data and actuarial assumptions, including the discount rate, which increased from 3.68 percent to 4.31 percent, and fair value of plan assets. As a result of the remeasurement, we recognized a curtailment gain of $2.7 million, prior service credits of $2.8 million and a net actuarial gain of $5.6 million.

In determining our annual postretirement benefits cost, we amortize unrecognized actuarial gains and losses exceeding 10.0 percent of the projected benefit obligation over the lesser of 10 years or the average remaining service life of active employees or life expectancy of inactive participants. We do not amortize unrecognized actuarial gains and losses below the 10.0 percent corridor.

A summary of plan assets, projected benefit obligation and funded status of the plans (including executive retirement agreements) were as follows at December 31:

Significant changes in the pension projected benefit obligation for the ~~year-ended 2018~~year ended 2019 include ~~a $75.6~~an actuarial loss of $109.0 million ~~actuarial gain~~ attributable to the change in discount rate from ~~3.68~~4.34 percent to ~~4.34~~3.37 percent ~~a $20.8~~and an actuarial loss of $3.0 million ~~actuarial gain~~ attributable to other assumption changes, including ~~changes made as a result of the 2018 experience study,~~ the update to the lump sum conversion ~~rate,~~basis and the update to the base mortality table and generational mortality projection scale to reflect the most recently published ~~scale,~~tables.

Significant changes in the postretirement projected benefit obligation for 2019 included an actuarial loss of $2.5 million attributable to the ~~year-ended 2018 include a $4.1~~change in discount rate from 4.38 percent to 3.37 percent, an actuarial loss of $0.5 million ~~actuarial gain due to plan experience, a $1.6 million actuarial gain is~~ attributable to other assumption changes, including ~~changes made as a result of the 2018 experience study, the~~ updates to per capita claims cost and medical trend ~~rate experience,~~rates, and ~~the update~~updates to the base mortality tables and generational mortality projection scale to reflect the most recently published ~~scale,~~tables and ~~a $1.5 million~~scales, an actuarial gain of $0.4 million attributable to ~~the change~~changes in ~~discount rate from 3.74 percent~~plan provisions for various participants and an actuarial gain of $0.3 million due to ~~4.38 percent.~~plan experience.

The accumulated benefit obligation of our pension plan and executive retirement agreements was $1,133.1 million, $1,033.2 million ~~$1,141.7 million~~ and ~~$1,105.5~~$1,141.7 million at December 31, 2019, 2018 ~~2017~~ and ~~2016,~~2017, respectively.

Assumptions – Actuarial assumptions used to calculate pension and postretirement benefits expense (income) were as follows for the years ended December 31:



	Pension Benefits						Postretirement Benefits
(Millions)	2019		2018		2017		2019		2018		2017
Discount rate	4.34	%	4.00	%	4.19	%	4.38	%	3.74	%	4.26	%
Expected return on plan assets	7.00	%	7.00	%	7.00	%	7.00	%	7.00	%	7.00	%
Rate of compensation increase	2.00	%	2.00	%	2.00	%	—	%	—	%	—	%

Pension Benefits (a) Postretirement Benefits
(Millions) 2018
2017
2016
2018
2017
2016
Discount rate 4.00 % 4.19 % 4.40 % 3.74 % 4.26 % 4.67 %
Expected return on plan assets 7.00 % 7.00 % 7.00 % 7.00 % 7.00 % 7.00 %
Rate of compensation increase 2.00 % 2.00 % 2.00 % — % — % — %

Actuarial assumptions used to calculate the benefit obligations were as follows at December 31:



	Pension Benefits				Postretirement Benefits
	2019		2018		2019		2018
Discount rate	3.37	%	4.34	%	3.37	%	4.38	%
Expected return on plan assets	7.00	%	7.00	%	7.00	%	7.00	%
Rate of compensation increase	2.00	%	2.00	%	—	%	—	%

Pension Benefits Postretirement Benefits

2018
2017
2018
2017
Discount rate 4.34 % 3.68 % 4.38 % 3.74 %
Expected return on plan assets 7.00 % 7.00 % 7.00 % 7.00 %
Rate of compensation increase 2.00 % 2.00 % — % — %

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 and bond indices and include a targeted asset allocation of 31.0 percent to equities, 49.0 percent to fixed income securities, and 20.0 percent to alternative investments, with an aggregate expected long-term rate of return of approximately 7.0 percent.

Information regarding the healthcare cost trend rate was as follows for the years ended December 31:



	2019		2018
Healthcare cost trend rate assumed for next year	7.00	%	6.25	%
Rate that the cost trend ultimately declines to	5.00	%	5.00	%
Year that the rate reaches the terminal rate	2028		2024

2018
2017
Healthcare cost trend rate assumed for next year 6.25 % 6.50 %
Rate that the cost trend ultimately declines to 5.00 % 5.00 %
Year that the rate reaches the terminal rate 2024
2024



	Target Allocation	Percentage of Plan Assets
Asset Category	2020	2019		2018
Equity securities	23.7% - 38.7%	32.3	%	24.4	%
Fixed income securities	32.6% - 62.6%	46.8	%	53.5	%
Alternative investments	12.3% - 27.3%	19.2	%	21.6	%
Money market and other short-term interest bearing securities	0.0% - 6.5%	1.7	%	0.5	%
		100.0	%	100.0	%

We utilize a third party to assist in evaluating the allocation of the total assets in the pension trust, taking into consideration the pension liabilities and funded status of the pension plan. Assets are managed utilizing a liability driven investment approach, meaning that assets are managed within a risk management framework which addresses the need to generate incremental returns in the context of an appropriate level of risk, based on plan liability profiles and changes in funded status. The return objectives are to satisfy funding obligations when and as prescribed by law and to keep pace with the growth of the pension plan liabilities. Given the long time horizon for paying out benefits and our strong financial condition, the pension plan can accept an average level of risk relative to other similar plans. The liquidity needs 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 asset growth. Domestic equities may include modest holdings of non-U.S. equities, purchased by domestic equity managers as long as they are traded in the U.S and denominated in U.S. dollars and both active and passive (index) investment strategies. International equities provide a broad exposure to return opportunities and investment characteristics associated with the world equity markets outside the U.S. The pension plan’s equity holdings are diversified by investment style, market capitalization, market or region, and economic sector. The pension plan is permitted to make investments in our common stock.

Fixed income securities include securities issued by the U.S. Government and other governmental agencies, asset-backed securities and debt securities issued by domestic and international entities, and derivative instruments comprised of swaps, futures, forwards and options. These securities are expected to provide diversification benefits, and are expected to reduce asset volatility and pension funding volatility, and a stable source of income.

Alternative investments may include hedge ~~funds and hedge funds of~~ funds, commodities, both private and public real estate and private equity investments. In addition to attractive diversification benefits, the alternative investments are expected to provide both income and capital appreciation.

Investments in money market and other short-term interest bearing securities are maintained to provide liquidity for benefit payments with protection of principal being the primary objective.

Quoted Price in
Active
Markets for
Identical Assets

Significant
Other
Observable
Inputs

Significant
Unobservable
Inputs
(Millions) Fair Value Level 1 Level 2 Level 3
Money market fund and interest bearing cash (a) $ 41.0
$ —
$ 41.0
$ —
Common collective and other trust funds (b) 137.6
—
137.6
—
Government and agency securities (c) 241.1
—
241.1
—
Corporate bonds and asset backed securities (c) 21.6
—
21.6
—
Common and preferred stocks - domestic (c) 21.8
21.8
—
—
Common and preferred stocks - international (c) 29.2
29.2
—
—
Mutual fund (c) 42.5
42.5
—
—
Real estate LLCs (d) 70.3
—
—
70.3
Derivative financial instruments (e) —
—
—
—
Other investments (f) 1.2
0.4
—
0.8
Investments included in fair value hierarchy 606.3
$ 93.9
$ 441.3
$ 71.1
Other investments measured at NAV:
Pooled funds (g) 96.5

Real estate and private equity funds (h) 40.0

Total investments 742.8

Dividends and interest receivable 1.0

Pending trades and other liabilities (2.9 )
Total plan assets $ 740.9

(Millions) Real estate LLCs Guaranteed annuity contract Total
Balance at December 31, 2016 $ 78.4
$ 0.8
$ 79.2
Unrealized (loss) gains (5.7 ) 0.1
(5.6 )
Purchases and sales, net —
(0.1 ) (0.1 )
Balance at December 31, 2017 72.7
0.8
73.5
Unrealized (loss) gains (2.4 ) 0.1
(2.3 )
Purchases and sales, net —
(0.1 ) (0.1 )
Balance at December 31, 2018 $ 70.3
$ 0.8
$ 71.1

There were no transfers within the fair value hierarchy during the years ended December 31, ~~2018~~2019 and ~~2017.~~2018.

There have been no significant changes in the methodology used to value investments from prior year. The valuation methods used may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, although the valuation methods are consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different 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, ~~2018:~~2019:



(Millions)	Pension Benefits		Postretirement Benefits
Expected employer contributions in 2020	$	53.7	$	1.3
Expected benefit payments:
2020	$	80.1	$	1.3
2021	79.0		1.2
2022	77.5		1.2
2023	75.2		1.2
2024	74.1		1.1
2025-2029	345.6		6.1

(Millions)
Pension
Benefits

Postretirement
Benefits
Expected employer contributions in 2019 $ 16.0
$ 1.3
Expected benefit payments:
2019 $ 77.2
$ 1.3
2020 76.1
1.2
2021 74.7
1.2
2022 73.5
1.1
2023 72.5
1.1
2024-2028 338.5
5.8

For ~~2019,~~2020, the expected employer contribution for pension benefits consists of ~~$15.2~~$52.8 million to the qualified pension plan to satisfy our remaining ~~2018~~2019 and ~~our 2017~~2018 annual funding requirements and ~~$0.8~~$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 ~~our common stock, cash or a combination thereof.~~cash.

Employee Savings Plan – We also sponsor an employee savings plan under section 401(k) of the Internal Revenue Code, which covers substantially all salaried employees and certain bargaining unit employees. Windstream matches on an annual basis up to a maximum of 4.0 percent of employee pre-tax contributions to the plan for employees contributing up to 5.0 percent of their eligible pre-tax compensation. Excluding amounts capitalized, we recorded expense of $25.5 million, $22.0 million and $22.9 million in 2019, 2018 and ~~$21.1 million in 2018,~~ 2017, ~~and 2016,~~ respectively, related to our matching contribution under the employee savings plan, which was included in cost of services and selling, general and administrative expenses in our consolidated statements of operations. ~~Expense related to our 2018~~Our 2019 matching contribution will be funded in 2020 and made in cash. In 2019, we contributed $26.4 million in cash to the plan for the 2018 annual matching and other contributions. During 2018, we contributed 3.6 million shares of our common stock with a fair value of $28.3 million, as determined by the plan trustee, to the plan for the 2017 annual matching and other contributions. During 2017, we contributed 0.6 million shares of our common stock with a value of approximately $22.7 million, as determined by the plan trustee, and $0.6 million in cash to the plan for the 2016 annual matching contribution. During 2016, we contributed 0.6 million shares of our common stock to the plan for the 2015 annual matching contribution. At the time of these contributions, the shares had a value of approximately $24.0 million as determined by the plan trustee.

In May 2018, our stockholders approved amendments to our Amended and Restated 2006 Equity Incentive Plan (the “Incentive Plan”) which (i) extended the term of the Incentive Plan through February 6, 2023 and (ii) increased the maximum number of shares authorized for issuance or delivery under the Incentive Plan ~~on a post-reverse stock split basis from 4.9 million~~ to 6.8 million. Under the Incentive Plan, we may issue equity stock awards in the form of restricted stock, restricted stock units, stock appreciation rights or stock options. As of December 31, ~~2018,~~2019, the Incentive Plan had remaining capacity of ~~2.1~~2.3 million awards.

Stock Options – ~~During~~There were 0 stock options granted during the year ended December 31, 2019. In 2018, our Board of Directors granted 1.1 million stock options to certain officers, executives and other key management employees. Under terms of the grant award, the stock options vest ratably over a three-year period from the date of grant and the exercise price of the option ~~equals~~equaled the market value of our common stock on the date of grant. The maximum term for each option granted is 10 years. ~~Our practice is to issue new shares of common stock upon the exercise of stock options.~~

The weighted average fair value of stock options granted during the year ended December 31, 2018 was $4.25 per share using the Black-Scholes option-pricing model ~~and~~based on the following weighted average assumptions:

We had 0.9 million and 1.0 million of stock option awards outstanding as of December 31, 2019 and 2018, respectively, all of which ~~was computed based on~~have exercise prices that are significantly higher than the ~~average of the vesting and contractual terms of the stock options. Expected volatility was based on the historical volatility~~current market price of our common stock ~~using the weighted average of historical daily price changes of our common stock including the most recent period equal~~and, therefore, are not likely to the expected life of the stock option on the date of grant. The expected dividend yield reflects the elimination of our quarterly common stock dividend in the third quarter of 2017. The risk-free interest rate was determined using the implied yield currently available for zero-coupon U.S. government issues with a remaining term equal to the expected life of the stock options.

Restricted Stock and Restricted Stock Units - Our board of directors may approve grants of restricted stock and restricted stock units to officers, executives, non-employee directors and certain management employees. Grants may include time-based and performance-based awards. Time-based awards granted to employees generally vest over a service period of two or three years. Performance-based restricted stock units may vest in a number of shares from ~~zero~~0 to 150.0 percent of their award based on attainment of specified targets over a three-year period.

There were no ~~performance-based~~service-based restricted stock units granted in 2019. In February 2019, we granted 0.7 million performance-based restricted stock units with a grant date fair value of $2.4 million that were scheduled to vest three years from the date of grant. These awards were subsequently canceled and replaced with cash-based awards during the second quarter of 2019. There were no performance-based restricted units granted in 2018. In 2017, Windstream granted 0.7 million performance-based restricted stock units with a grant date fair value of $26.1 million that vest ratably over the remaining service period (up to 3 years) or vest contingently at the end of the performance period. The three-year operating ~~targets~~target for the performance-based restricted stock units granted in 2017 ~~were~~was approved by the board of directors in May 2017. ~~The 2016~~During the second quarter of 2019, we determined that the three-year operating ~~targets for the performance-based restricted stock units were approved by the board of directors in February 2016. For the 2017 and 2016 annual measurement periods, each of the operating targets were~~target would not be met by the end of ~~their respective~~the measurement ~~periods.~~period, and accordingly, all compensation expense previously recognized for these performance-based awards was reversed.

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

The vesting periods and grant date fair ~~value~~values for restricted stock and restricted stock units issued, including the EarthLink replacement awards issued in 2017, were as follows for the years ended December 31:



(Number of shares in thousands)	2019		2018		2017
Service-based restricted stock and restricted units:
Vest variably over remaining service period, up to three-years	—		—		571.7
Vest ratably over a three-year service period	—		—		490.3
Vest one year from date of grant, service based - granted to non-employee directors	—		109.6		41.4
Vest immediately on date of grant, service based - granted to non-employee directors	—		41.1		—
Vest three years from date of grant, service based	—		—		6.8
Total granted	—		150.7		1,110.2
Grant date fair value (Dollars in millions)	$	—	$	1.1	$	33.3

(Number of shares in thousands) 2018
2017
2016
Service-based restricted stock and restricted units:
Vest variably over remaining service period, up to three-years —
571.7
276.2
Vest ratably over a three-year service period —
490.3
—
Vest one year from date of grant, service based - granted to
non-employee directors
109.6
41.4
39.6
Vest immediately on date of grant, service based - granted to
non-employee directors
41.1
—
—
Vest two years from date of grant, service based —
—
10.6
Vest three years from date of grant, service based —
6.8
10.7
Total granted 150.7
1,110.2
337.1
Grant date fair value (Dollars in millions) $ 1.1
$ 166.5
$ 49.5
Performance restricted units:
Vest variably over remaining required service period, up to three years —
474.2
—
Vest contingently at the end of the respective performance period —
251.7
276.0
Total granted —
725.9
276.0
Grant date fair value (Dollars in millions) $ —
$ 130.5
$ 39.5



	Service-Based				Performance-Based
	(Thousands) Underlying Number of Shares		Weighted Average Fair Value Per Share		(Thousands) Underlying Number of Shares		Weighted Average Fair Value Per Share
Non-vested at December 31, 2018	522.1		$	23.34	325.4		$	28.35
Granted	—		$	—	698.5		$	3.40
Vested	(143.5	)	$	32.57	(160.8	)	$	28.91
Forfeited	(19.0	)	$	34.83	(740.1	)	$	4.77
Non-vested at December 31, 2019	359.6		$	19.05	123.0		$	27.80

(Thousands)
Underlying Number of
Shares

Weighted
Average Fair
Value Per Share
Non-vested at December 31, 2017 1,022.8
$ 31.45
Granted 150.7
$ 7.30
Vested (576.1 ) $ 32.87
Forfeited (75.3 ) $ 28.37
Non-vested at December 31, 2018 522.1
$ 23.34

At December 31, ~~2018,~~2019, unrecognized compensation expense for restricted stock and restricted stock units totaled ~~$7.2~~$0.6 million and ~~is expected to~~will be recognized ~~over the weighted average vesting period of 0.7 years. Unrecognized compensation expense is included~~ in ~~additional paid-in capital in the accompanying consolidated balance sheets and statements of shareholders’ and member equity.~~2020. The total fair value of shares vested was $9.3 million, $22.7 million and $40.0 million during 2019, 2018 and ~~$22.9 million during 2018,~~ 2017, ~~and 2016,~~ respectively. Share-based compensation expense recognized for restricted stock and restricted stock units was ~~$11.3~~$1.6 million, $10.3 million and $32.5 million for 2019, 2018 and ~~$19.9 million for 2018,~~ 2017, ~~and 2016,~~ respectively.

In addition to including amounts related to restricted stock and restricted units, 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 participants ~~are expected to be~~were made in Windstream Holdings common stock. A summary of share-based compensation expense was as follows for the years ended December 31:

We incur costs to complete a merger or acquisition and integrate its operations into our business which are presented as merger and integration expense in our consolidated results of operations. These costs include transaction costs, such as accounting, legal, consulting and broker fees; severance and related costs; IT and network conversion; rebranding and marketing; and contract termination fees. During 2017, we incurred investment banking fees, legal, accounting and other consulting fees, severance and employee benefit costs, contract and lease termination costs, and other integration expenses related to the mergers with EarthLink and Broadview. We also incurred legal fees in 2018 and 2017 for litigation related to the Uniti spin-off. During the fourth quarter ofIn 2017, we completed a network optimization project ~~begun in late 2015~~ designed to consolidate traffic onto network facilities operated by us and reduce the usage of other carriers’ networks in our acquired CLEC markets. In undertaking this initiative, we incurred exit costs to migrate traffic to existing lower cost circuits and to terminate existing contracts prior to their expiration. During 2016, we renegotiated the terms of the lease resulting in the elimination of any future rental payments due under the original lease agreement. As a result, we recorded a $2.0 million reduction in the liability associated with this lease.

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

During 2019 and 2018, we completed separate restructurings of our workforce to improve our overall cost structure and gain operational efficiencies. In undertaking these efforts, we eliminated approximately 730 positions and incurred severance and employee benefit costs of $28.5 million in 2019, and we eliminated approximately 800 positions and incurred ~~restructuring charges of $24.6 million consisting of~~ severance and employee benefit ~~costs. We~~costs of $24.6 million in 2018. Restructuring charges for 2018 also ~~incurred~~included lease termination costs of $20.4 million ~~as a result of~~due to vacating certain facilities.

The following is a summary of the merger, integration and other costs and restructuring charges recorded for the years ended December 31:



(Millions)	2019		2018		2017
Merger, integration and other costs:
Costs related to merger with EarthLink (a)	$	6.8	$	15.5	$	104.1
Costs related to merger with Broadview (b)	—		4.1		14.3
Costs related to acquisitions of MASS and ATC	—		2.5		—
Legal fees related to Uniti spin-off litigation (see Note 17)	0.3		7.2		7.5
Network optimization and contract termination costs	—		—		8.5
IT conversion, consulting and other costs	1.2		2.6		3.0
Total merger, integration and other costs	8.3		31.9		137.4
Restructuring charges	28.5		45.0		43.0
Total merger, integration and other costs and restructuring charges	$	36.8	$	76.9	$	180.4

(Millions) 2018
2017
2016
Merger, integration and other costs:
Information technology conversion costs $ 1.1
$ 3.0
$ 0.3
Costs related to merger with EarthLink (a) 15.5
104.1
2.7
Costs related to merger with Broadview (b) 4.1
14.3
—
Costs related to acquisitions of MASS and ATC 2.5
—
—
Legal fees related to Uniti spin-off litigation (see Note 17) 7.2
7.5
—
Costs related to sale of data center business —
—
0.9
Network optimization and contract termination costs —
8.5
11.9
Consulting and other costs 1.5
—
—
Reversal of lease termination costs —
—
(2.0 )
Total merger, integration and other costs 31.9
137.4
13.8
Restructuring charges 45.0
43.0
20.3
Total merger, integration and other costs and restructuring charges $ 76.9
$ 180.4
$ 34.1

After giving consideration to tax benefits on deductible items, merger, integration and other costs and restructuring charges decreased net income $27.5 million, $56.4 million ~~$113.6 million~~ and ~~$21.0~~$113.6 million for the years ended December 31, 2019, 2018 ~~2017~~ and ~~2016,~~2017, respectively.

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

Restructuring Charges
(Millions) Merger, Integration and Other Charges Severance and Benefit Costs Lease Termination Costs Total
Balance at December 31, 2016 $ 1.5
$ 4.3
$ —
$ 5.8
Expenses incurred in period 137.4
35.0
8.0
180.4
Cash outlays during the period (128.6 ) (34.3 ) (3.8 ) (166.7 )
Balance at December 31, 2017 10.3
5.0
4.2
19.5
Expenses incurred in period 31.9
24.6
20.4
76.9
Cash outlays during the period (38.2 ) (17.0 ) (9.3 ) (64.5 )
Balance at December 31, 2018 $ 4.0
$ 12.6
$ 15.3
$ 31.9

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

On December 31, 2018, Windstream Services completed the sale of substantially all of its consumer competitive local exchange carrier (“CLEC”) business to an affiliate of Trive Capital Fund III LLP and nQue Technologies for $320.9 million in cash, net of a working capital adjustment, and recorded a pre-tax gain of $145.4 million. The Consumer CLEC operations sold consisted solely of the former EarthLink Holdings Corp (“EarthLink”) consumer business that we acquired in February 2017 (see Note 3)4). The sold operations comprised approximately 3.0 percent of our total consolidated revenues and sales for 2018 and less than 2.0 percent of our total consolidated assets at the date of disposition. The sale of the consumer CLEC business did not represent a strategic shift in our operations nor have a major effect on our consolidated results of operations, financial position or cash flows, and accordingly, did not qualify for reporting as a discontinued operation. Excluding the effects of the gain, the consumer CLEC business generated pre-tax income of $92.5 million and $87.3 million in 2018 and 2017, respectively.

Income tax ~~expense (benefit)~~benefit (expense) was as follows for the years ended December 31:



(Millions)	2019			2018			2017
Current:
Federal	$	(0.1	)	$	(0.3	)	$	0.3
State	0.5			(7.6		)	(4.9		)
	0.4			(7.9		)	(4.6		)
Deferred:
Federal	254.6			(356.1		)	328.0
State	65.0			(85.1		)	84.7
	319.6			(441.2		)	412.7
Income tax benefit (expense)	$	320.0		$	(449.1	)	$	408.1

(Millions) 2018
2017
2016
Current:
Federal $ 0.3
$ (0.3 ) $ (2.7 )
State 7.6
4.9
1.0
7.9
4.6
(1.7 )
Deferred:
Federal 356.1
(328.0 ) (130.2 )
State 85.1
(84.7 ) (8.1 )
441.2
(412.7 ) (138.3 )
Income tax expense (benefit) $ 449.1
$ (408.1 ) $ (140.0 )

Differences between the federal income tax statutory rates and effective income tax rates, which include both federal and state income taxes, were as follows for the years ended December 31:



	2019		2018		2017
Statutory federal income tax rate	21.0	%	21.0	%	35.0	%
Increase (decrease)
State income taxes, net of federal benefit	4.2		3.9		3.6
Adjust deferred taxes for state net operating loss carryforward	—		0.1		—
Transaction costs	—		—		(0.1	)
Valuation allowance	(1.7	)	(183.1	)	(0.1	)
Research and development credit	—		(1.0	)	0.1
Share-based compensation	—		(1.0	)	(0.1	)
Debt exchange	(0.2	)	6.8		(6.1	)
2017 federal tax reform	—		—		(7.6	)
Goodwill impairment	(13.2	)	—		(8.4	)
Sale of Consumer CLEC business	—		(9.3	)	—
Reorganization items, net	(0.8	)	—		—
Other items, net	(0.1	)	(1.4	)	(0.1	)
Effective income tax rate	9.2	%	(164.0	)%	16.2	%

2018
2017
2016
Statutory federal income tax rate 21.0 % 35.0 % 35.0 %
Increase (decrease)
State income taxes, net of federal benefit 3.9
3.6
3.7
Adjust deferred taxes for state net operating loss carryforward 0.1
—
(0.6 )
Transaction costs —
(0.1 ) (0.2 )
Valuation allowance (183.1 ) (0.1 ) —
Income tax reserves —
—
0.1
Research and development credit (1.0 ) 0.1
0.8
Disallowed loss —
—
(12.1 )
Share-based compensation (1.0 ) (0.1 ) —
Debt exchange 6.8
(6.1 ) —
2017 federal tax reform —
(7.6 ) —
Goodwill impairment —
(8.4 ) —
Sale of Consumer CLEC business (9.3 ) —
—
Other items, net (1.4 ) (0.1 ) —
Effective income tax rate (164.0 )% 16.2 % 26.7 %

In 2018, we assessed our valuation allowance after considering the adverse court ruling and the resulting acceleration of all of our long-term debt obligations and payments due under the ~~master lease~~contractual arrangement with Uniti and subsequent filing of the Chapter 11 Cases. We determined, based upon all available evidence, that a full valuation allowance was necessary, exclusive of a portion of deferred tax liabilities primarily associated with indefinite-lived intangible assets. Additionally, we recorded incremental tax expense from the sale of the consumer CLEC business. In conjunction with the 2018 debt exchange, there was also a non-taxable gain on extinguishment of debt for financial statement purposes, partially offset by COD income for tax purposes.

In 2019, we recorded the impact of the portion of the goodwill impairment that was non-deductible.

The significant components of the net deferred income tax liability (asset) were as follows at December 31:



(Millions)	2019			2018
Property, plant and equipment	$	422.6		$	825.5
Goodwill and other intangible assets	215.6			477.7
Operating loss and credit carryforward	(548.0		)	(576.8		)
Postretirement and other employee benefits	(77.4		)	(79.6		)
Unrealized holding loss and interest rate swaps	(1.0		)	7.2
Deferred compensation	(2.2		)	(2.3		)
Bad debt	(21.4		)	(15.1		)
Long-term lease obligations	(1,033.8		)	(1,170.9		)
Operating lease right-of-use assets	1,008.0			—
Deferred debt costs	(36.8		)	(19.2		)
Share-based compensation	(4.5		)	(6.8		)
Interest expense	(30.4		)	—
Other, net	(7.3		)	(20.4		)
	(116.6		)	(580.7		)
Valuation allowance	189.2			685.0
Less amounts reclassified to liabilities subject to compromise	(72.6		)	—
Deferred income taxes, net	$	—		$	104.3
Deferred tax assets	$	(1,813.7	)	$	(1,954.0	)
Deferred tax liabilities	1,886.3			2,058.3
Less amounts reclassified to liabilities subject to compromise	(72.6		)	—
Deferred income taxes, net	$	—		$	104.3

(Millions) 2018
2017
Property, plant and equipment $ 825.5
$ 876.3
Goodwill and other intangible assets 477.7
532.5
Operating loss and credit carryforward (576.8 ) (595.6 )
Postretirement and other employee benefits (79.6 ) (85.6 )
Unrealized holding loss and interest rate swaps 7.2
4.5
Deferred compensation (2.3 ) (2.8 )
Bad debt (15.1 ) (14.5 )
Long-term lease obligations (1,170.9 ) (1,226.3 )
Deferred debt costs (19.2 ) (2.0 )
Share-based compensation (6.8 ) (7.9 )
Other, net (20.4 ) (29.0 )
(580.7 ) (550.4 )
Valuation allowance 685.0
179.6
Deferred income taxes, net $ 104.3
$ (370.8 )
Deferred tax assets $ (1,954.0 ) $ (2,000.7 )
Deferred tax liabilities 2,058.3
1,629.9
Deferred income taxes, net $ 104.3
$ (370.8 )

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences representing net future deductible amounts become deductible. We consider the scheduled reversal of deferred tax assets and liabilities, carryback potential, projected future taxable income and tax planning strategies in making this assessment. As a result of the adverse court ruling and subsequent filing of the Chapter 11 Cases, we considered the reversal of taxable temporary differences and carryback potential as a source of income as of December 31, 2018. After consideration of these factors, we recorded a full valuation allowance for the year ended December 31, 2018, exclusive of a portion of deferred tax liabilities primarily associated with indefinite-lived intangible assets. ~~Accordingly, the valuation allowance for the year ended~~Therefore, as of December 31, 2018, ~~increased by $505.4~~we had valuation allowances of approximately $685.0 million. The impact of adoption of ASU 2016-02 in 2019 resulted in an increase to deferred tax liabilities of approximately $833.8 million. This increase caused a re-evaluation of our valuation allowances as of January 1, 2019 and resulted in a release of valuation allowance of approximately $541.5 million, ~~which is included~~recorded as an adjustment to equity. Changes in valuation allowance not associated with the adoption of ASU 2016-02 were recorded through income tax expense. AtAs of December 31, ~~2017,~~2019, we were in a net deferred tax liability position and recorded income tax benefit during 2019. We will monitor our ~~valuation allowance consisted~~deferred tax asset position each quarter and determine the appropriate income tax benefit to record based upon the reversal of ~~$173.0 million related to federal and state loss carryforwards and $6.6 million related to our state tax credit carryforward.~~taxable temporary differences.

At December 31, ~~2018~~2019 and ~~2017,~~2018, we had federal net operating loss carryforwards of approximately ~~$1,920.2~~$1,807.9 million and ~~$1,796.6~~$1,920.2 million, respectively. Net operating losses generated prior to 2018 expire in varying amounts from ~~2019~~2020 through 2037. Under the 2017 Tax Cuts and Jobs Act, federal net operating losses generated in 2018 and future years can be carried forward indefinitely. The loss carryforwards at December 31, 2019 and 2018 were primarily losses acquired in conjunction with our acquisitions including PAETEC, EarthLink and Broadview. The ~~2018 increase~~2019 decrease is primarily associated with estimated utilization for the ~~increased IRC Section 382 limitation for EarthLink losses due to the sale of the consumer CLEC business.~~year.

At December 31, ~~2018~~2019 and ~~2017,~~2018, we had state net operating loss carryforwards of approximately ~~$2,456.6~~$2,471.8 million and ~~$2,805.4~~$2,456.6 million, respectively, which expire annually in varying amounts from ~~2019~~2020 through ~~2038.~~2039. The loss carryforwards ~~at December 31, 2018~~ were primarily losses acquired in conjunction with our acquisitions including PAETEC and EarthLink.

As previously noted, we establish valuation allowances when necessary to reduce deferred tax assets to amounts expected to be realized. Therefore, as of December 31, 2019 and 2018 we recorded valuation allowances of approximately $162.5 million and $541.0 million, respectively, related to federal and state loss carryforwards which are expected to expire before they are utilized. The amount of federal tax credit carryforward at December 31, ~~2018~~2019 and ~~2017,~~2018, was approximately $21.8 million, ~~and $44.2 million, respectively,~~ which expire in varying amounts from 2031 through 2036. The amount of state tax credit carryforward at December 31, ~~2018~~2019 and ~~2017,~~2018, was approximately ~~$17.7~~$14.9 million and ~~$19.9~~$17.7 million, respectively, which expire in varying amounts from ~~2019~~2020 through 2027.

We account for uncertainty in taxes in accordance with authoritative guidance. A reconciliation of the unrecognized tax benefits is as follows:



(Millions)	2019		2018			2017
Beginning balance	$	8.0	$	8.7		$	8.8
Additions based on EarthLink acquisition	—		—			2.5
Additions based on tax positions related to current year	—		—			0.7
Reductions for tax positions of prior years	—		(0.7		)	(1.2		)
Settlements	—		—			(2.1		)
Ending balance	$	8.0	$	8.0		$	8.7

(Millions) 2018
2017
2016
Beginning balance $ 8.7
$ 8.8
$ 10.1
Additions based on EarthLink acquisition —
2.5
—
Additions based on tax positions related to current year —
0.7
0.7
Reductions for tax positions of prior years (0.7 ) (1.2 ) (1.6 )
Settlements —
(2.1 ) (0.4 )
Ending balance $ 8.0
$ 8.7
$ 8.8

We do not expect or anticipate a significant increase or decrease over the next twelve months in the unrecognized tax benefits reported above. The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate are $7.6 million, ~~$8.3~~$7.6 million and ~~$8.6~~$8.3 million (net of indirect benefits) for the years ended December 31, 2019, 2018 ~~2017~~ and ~~2016,~~2017, respectively.

We file income tax returns in the U.S. federal jurisdiction and various states. With few exceptions, we are no longer subject to U.S. federal, state and local income tax examinations by tax authorities for years prior to ~~2015.~~2016. However, due to acquired net operating losses, tax authorities have the ability to adjust those net operating losses related to closed years. We have identified Arkansas, California, Florida, Georgia, Illinois, Iowa, Kentucky, Nebraska, New York, North Carolina, Pennsylvania, Texas and Virginia as “major” state taxing jurisdictions.

We recognize accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense. During the years ended December 31, 2019, 2018 ~~2017~~ and ~~2016,~~2017, we recognized approximately $0.2 million, $0.1 million, ~~$0.2 million,~~ and ~~$0.1~~$0.2 million in interest and penalties, respectively. Furthermore, we had approximately ~~$0.3~~$0.5 million, $0.3 million, and ~~$0.1~~$0.3 million of interest and penalties accrued as of December 31, 2019, 2018 ~~2017~~ and ~~2016,~~2017, respectively.

~~Lease Commitments~~Litigation

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

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

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

~~On November 22, 2017, Windstream Services filed~~After a motion seeking dismissal of the Trustee’s complaint, which motion was denied without prejudice. On the same date, Aurelius filed counterclaims seeking a declaration that the new 6.375 percent notes were improperly issued and that the debt exchange offers and consent solicitation were void. Windstream Services asserted that such counterclaims should be dismissed pursuant to Section 6.06 of the 2013 Indenture, which contains a “no-action” clause. On November 27, 2017, Windstream Services received a second purported notice of default (the “Second Notice”) from Aurelius which alleged that certain of the exchange and consent transactions described above violated the terms of the 2013 Indenture. Aurelius withdrew the Second Noticetrial in July 2018, on December 6, 2017, and served an alleged notice of an Event of Default and acceleration on December 7, 2017 (“Notice of Acceleration”). The Notice of Acceleration claimed that the principal amount, and all accrued interest, owed under the 2013 Indenture was now due and payable as result of Windstream Services allegedly not curing the alleged defaults set forth in the Original Notice within the sixty-day cure period.

On ~~February 25,~~March 1, 2019, ~~Windstream Holdings and all of its subsidiaries, including Windstream Services, filed Chapter 11 Cases in~~Judge Furman issued an Order that he cannot enter a final judgment due to the ~~Bankruptcy Court. The~~Automatic Stay imposed by the filing of the Chapter 11 ~~Cases also constitutes an event~~Cases. The matter has been administratively closed subject to the right of ~~default under our debt agreements. Due~~any party to move to reopen it within twenty-one (21) days of the conclusion of the Chapter 11 Cases ~~however,~~or the ~~creditors’ ability to exercise remedies under our debt agreements were stayed as~~lifting or modification of the ~~Petition Date. See Note 5 to our consolidated financial statements for more information about the debt agreements.~~automatic stay.

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

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

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

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

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

Windstream and one of its ~~business~~Enterprise customers ~~had~~entered into an agreement ~~pursuant to~~in which Windstream provided communication services to several of the customer’s locations. The majority of funding for the services iswas administered by ~~the Universal Service Administrative Company (“USAC”)~~USAC pursuant to the Universal Service Rural Health Care Telecommunications Program ~~that~~which offers reduced rates for broadband and telecommunications services to rural health care facilities. In March 2017, USAC issued a funding denial to the customer on the basis that certain rules of the FCC were violated with the selection of Windstream as the service provider. Due to an alleged conflict of interest created by a third-party Windstream channel partner that acted as a consultant for the customer regarding the agreement, USAC asserted that Windstream’s selection was not based upon a fair and open competitive bidding process. USAC’s denial addressed accrued funding of approximately ~~$16.6~~$16.6 million, as well as funding of approximately ~~$6.0~~$6.0 million previously remitted to us. Windstream, along with the customer, appealed the denial; USAC rejected the appeal on June 29, 2018, ~~and~~upholding its previous denial of funding. Windstream appealed ~~USAC’s~~the denial to the FCC onin August ~~23,~~ 2018. The FCC has yet to rule on the ~~appeal. While the ultimate resolution~~appeal and timing of ~~any~~a decision by the FCC is ~~not currently predictable, if there is~~unknown. We recorded a ~~future adverse legal ruling against us, the ruling could result in financial exposure to Windstream~~reserve for the ~~total amounts listed above.~~funding denial from USAC during the second quarter of 2019, and as a result, we have no additional loss exposure related to this matter.

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

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

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

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

~~Consumer & Small Business~~ ~~- We manage as one business~~For financial reporting purposes, our ~~residential and small~~segments consist of:

•

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

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



	For the Year Ended December 31, 2019
(Millions, except per share amounts)	Total			4th			3rd			2nd			1st
Revenues and sales	$	5,115.4		$	1,238.2		$	1,270.1		$	1,286.5		$	1,320.6
Operating loss	$	(2,877.5	)	$	(38.8	)	$	(34.5	)	$	(422.9	)	$	(2,381.3	)
Net loss	$	(3,157.8	)	$	(187.9	)	$	(115.5	)	$	(544.1	)	$	(2,310.3	)
Basic and diluted loss per share: (a)
Net loss		($74.06	)		($4.41	)		($2.71	)		($12.76	)		($54.26	)

Significant items affecting our historical operating trends in the quarterly periods of 2019 were as follows:



	For the Year Ended December 31, 2018
(Millions, except per share amounts)	Total			4th			3rd		2nd			1st
Revenues and sales	$	5,713.1		$	1,393.8		$	1,420.6	$	1,444.4		$	1,454.3
Operating income	$	296.6		$	63.7		$	75.6	$	88.3		$	69.0
Net (loss) income	$	(723.0	)	$	(549.2	)	$	41.3	$	(93.7	)	$	(121.4	)
Basic and diluted (loss) earnings per share: (a)
Net (loss) income		($17.72	)		($12.92	)		$.97		($2.30	)		($3.25	)

Significant items affecting our historical operating trends in the quarterly periods of 2018 were as follows:

~~As previously discussed in Notes 5 and 17,~~

In March 2020, Windstream Services ~~received a notice of default from Aurelius, which alleged that Windstream Services had breached certain covenants~~borrowed $400 million under the indenture governing its August 2023 Notes relating to the transfer of certain assets and the subsequent lease of those assets in connection with the Uniti spin-off. On November 6, 2017, Windstream Services received consents from holders representing a majorityRevolving Facility of the ~~outstanding aggregate principal amount of its August 2023 Notes~~DIP Facilities to ~~certain waivers~~assist with working capital and ~~amendments to~~other general corporate purposes during the Indenture relating to the defaults alleged in the notice of default in connection with certain exchange and consent transactions completed in 2017. On October 12, 2017, the trustee under the indenture filed suit in the United States District Court for the Southern District of New York (the “Court”) seeking a declaration that defaults had occurred under the indenture. Windstream Services filed an answer and affirmative defenses in response to the trustee’s complaint as well as counterclaims against the trustee and Aurelius for declaratory relief. Aurelius filed counterclaims seeking a declaration that the new August 2023 Notes were improperly issued in the 2017 exchange and consent transactions and the consents received from holders representing a majority of the outstanding aggregate principal amount of August 2023 Notes did not cure the defaults alleged in the Notice. On December 7, 2017, Aurelius sent a notice of acceleration to Windstream Services purporting to declare the Notes to be due and payable immediately on the basis of the defaults alleged in the notice of default and Windstream Services’ failure to cure such alleged breaches by the end of the cure period.coronavirus, COVID-19, global pandemic.

On February 15, 2019, Judge Furman of the Court issued certain findings of fact and conclusions of law regarding the Uniti spin-off and 2017 exchange and consent transactions. Judge Furman found that the trustee under the Indenture and/or Aurelius are entitled to a judgment against Windstream as previously outlined in Note 17.

Uniti Settlement Agreement - As previously discussed in Note 3, on March 2, 2020, the Debtors announced that they had reached an agreement in principle with Uniti to settle any and all claims and causes that were or could have been asserted against Uniti by Windstream. Among the terms of ~~its subsidiaries, including~~the settlement, Uniti agreed to fund up to $1.75 billion in capital improvements to the network; pay Windstream ~~Services (collectively,~~$400 million payable in quarterly cash installments over five years, at an annual interest rate of 9.0 percent, which amount may be fully paid after one year, resulting in total cash payments ranging from $432 - $490 million; purchase certain unused and underutilized dark filer assets from Windstream and Uniti will transfer to Windstream $244.5 million of proceeds from, and conditioned upon, the ~~“Debtors”),~~sale of Uniti’s common stock to certain first lien creditors of Windstream Services. On May 8, 2020, the Bankruptcy Court approved the settlement with Uniti.

Plan of Reorganization - As previously discussed in Note 3, on April 1, 2020, the Debtors filed ~~voluntary petitions for reorganization under~~a Joint Chapter 11 Plan of Reorganization (“the Plan”) with the Bankruptcy Court. On the same date, the Debtors filed a Disclosure Statement relating to the Plan, along with a motion seeking approval of the Disclosure Statement. On May 8, 2020, the Disclosure Statement was approved by the Bankruptcy Court, allowing Windstream to begin soliciting the requisite accepting votes in favor of the Plan. The Debtors retain the exclusive right to file the Plan through and including June 22, 2020, as well as the right to seek further extensions of such period up to the statutory maximum date of August 25, 2020. The Plan can be supplemented and revised based upon discussions with the Debtors’ creditors and other interested parties and in response to creditor claims and objections and the requirements of the Bankruptcy Code inor the ~~U.S.~~ Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”). The Debtors intend to use the court-supervised process to address obligations that have been accelerated as a result of the decision by Judge Furman against Windstream Services, discussed above.

See Note 3 for additional information regarding the PSA, Uniti settlement agreement and ~~orders of~~ the Bankruptcy Court. To ensure their ability to continue operating in the ordinary course of business and minimize the effect of bankruptcy on the Debtors’ customers and employees, the Debtors filed with the Bankruptcy Court motions seeking a variety of “first-day” relief, including authority to obtain debtor-in-possession financing, pay employee wages and benefits, and pay vendors and suppliers in the ordinary course for all goods and services. On February 26, 2019, the Bankruptcy Court granted the “first day” relief.Plan.

On February 25, 2019, Windstream Holdings received a letter from the listing qualifications department staff of the NASDAQ notifying us that, as a result of the Chapter 11 Cases and in accordance with NASDAQ Listing Rules 5101, 5110(b) and IM-5101-1, NASDAQ has determined that our common stock will be delisted from NASDAQ. Accordingly, trading of our common stock was suspended at the opening of business on March 6, 2019 and a Form 25-NSE was filed with the SEC, which removed our common stock from listing and registration on NASDAQ. Beginning on March 6, 2019, shares of our common stock are quoted for trading on the OTC Pink Sheets market under the trading symbol “WINMQ”.



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




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

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



Title of each class		Name of each exchange on which registered
Common Stock ($0.0001 par per share) ~~(1)~~		~~NASDAQ Global Select~~Over-the-Counter Pink Sheets Market ~~(1)~~



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



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



For the transition period from ____________ to ________________



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



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

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



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



Document
Items 10, 11, 12, 13 and 14 of Part III will be incorporated by reference from the Proxy statement for the 2019 Annual Meeting of Stockholders or a Form 10-K/A to be filed with the Securities and Exchange Commission.
The Exhibit Index is located on pages 5271 to ~~57.~~76.



		Page No.
	Part I

Item 1.	Business	2

Item 1A.	Risk Factors	18

Item 1B.	Unresolved Staff Comments	3432

Item 2.	Properties	3432

Item 3.	Legal Proceedings	3533

Item 4.	Mine Safety Disclosures	3635

	Part II

Item 5.	Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	3735

Item 6.	Selected Financial Data	3836

Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3836

Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	3936

Item 8.	Financial Statements and Supplementary Data	3936

Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	3936

Item 9A.	Controls and Procedures	3936

Item 9B.	Other Information	4139

	Part III

Item 10.	Directors, Executive Officers, and Corporate Governance	4240

Item 11.	Executive Compensation	4340

Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	4359

Item 13.	Certain Relationships and Related Transactions, and Director Independence	4361

Item 14.	Principal Accountant Fees and Services	4362

	Part IV

Item 15.	Exhibits, Financial Statement Schedules	4463

Item 16.	Form 10-K Summary	4463


•	High-speed Internet access: We offer speeds up to 1 Gbps with an option of high-speed Internet or a private, non-shared dedicated solution.


•	Hosted voice services:OfficeSuite® is an award-winning cloud-based, hosted-voice solution that includes a fully featured phone system, and real-time audio and video communications available from the office phone, computer or on the go with connected smart devices.


•	Software Defined Wide-Area Network: Set to launch in 2020, SD-WAN is the next-generation technological wide-area network solution that ensures optimal application performance irrespective of the underlying transport and allows for business continuity as well as routing control via a customer-facing portal.


•	Internet wireless back-up: Always On Internet Wireless Back-up virtually eliminates Internet downtime by automatically switching over to a wireless Internet back-up connection, backed by 99.999% Internet uptime SLA (service level agreement) for businesses.


•	Online backup: Our online backup solution is dedicated to keeping files safe, secure and easily accessible from any location. These services include hosting mission critical servers and computer systems with full redundant subsystems with the ability to set up scheduled backups.


•	Remote IT: We provide a remote tech help service that provides remote support 24x7 and serves as a virtual information technology (“IT”) department without the high expense.


•	Web and audio conferencing: We are able to connect businesses through our audio, web and event conferencing which enables quick and easy access to organizing, securing, attending and recording conferences all from a telephone keypad.


•	Managed web design: We provide a professionally developed website design, whether it is a simple site or a complex store, to keep our small business customers competitive in today’s digital world.


•	Web and E-mail hosting: With our web and e-mail hosting services, our customers are in control of customizing and branding their own professional online presence. We provide the tools to quickly and efficiently develop a web presence that suits their business needs.


•	Fax-to-e-mail: We offer the ability to leverage the advantage of mobility to send and receive faxes online from anywhere they can access their email or Internet. We also offer a Health Insurance Portability and Accountability Act (“HIPAA”) compliant option to support our customers in the healthcare industry to maintain compliance with current health standards and regulations.


•	Improved customer experience: Continued improvement in the customer experience for both small businesses and consumers is the key to improved retention that drives stabilized market share. We map the customer journey and target initiatives that improve the processes, systems, and policies that impact the manner in which customers interact with us and our products.


•	Product simplification: We sell double and triple play bundle packages to customers at competitive price points, offering high-speed Internet, voice and video services at a better value than when purchasing those services individually or from different providers.


•	Cable television companies: Cable television providers are aggressively offering high-speed Internet, voice and video services in the majority of our service areas. These services are typically bundled and offered to our customers at competitive prices. For small business customers, cable providers leverage discounted TV and broadband pricing to win larger bundles of service.


•	Wireless carriers: Wireless providers primarily compete for voice services in our markets. Consumers continue to disconnect voice service in favor of wireless service. In addition, wireless companies continue to expand their high-speed Internet offerings, which may provide another alternative for customers, intensifying the level of competition in our markets.


•	SD-WAN: Our next-generation technological wide-area network solution, SD-WAN, ensures optimal application performance irrespective of the underlying transport and allows for business continuity as well as routing control via a customer-facing portal.


•	Multi-site networking: Our advanced network provides private, secure multi-site connections for large businesses with multiple locations. Our core growth networking products include SD-WAN, multiprotocol label switching (“MPLS”), Ethernet - Local Area Network (“LAN”) and Wavelength connectivity solutions.


•	Integrated voice and data services: Our integrated services deliver voice and data over a single connection, which helps our customers manage voice and data usage and related costs. These services are delivered over an Internet connection, as opposed to a traditional voice line, and can be managed through equipment at the customer premise or through hosted equipment options.


•	Managed services: We provide a breadth of managed services, for both our core networking and UCaaS services, that allow our customers IT organizations to focus on other mission critical activities.


•	High-speed Internet: We offer a range of high-speed 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 traditional copper lines.



~~Description~~	~~Moody’s~~	~~Fitch~~
~~DIP facility~~	~~Baa3~~	~~BBB-~~


(Millions)	Assets Owned by Windstream		Assets Leased from Uniti (a)		Total
							(Millions)
Land	$	24.4	$	28.6	$	53.0	$	24.2
Building and improvements	334.2		326.5		660.7		358.5
Central office equipment	7,074.1		0.2		7,074.3		6,765.4
Outside communications plant	2,036.8		6,250.8		8,287.6		2,902.3
Furniture, vehicles and other equipment	1,930.6		10.2		1,940.8		1,863.4
Construction in progress	403.6		—		403.6		347.3
Total	$	11,803.7	$	6,616.3	$	18,420.0	$	12,261.1


~~(a)~~	In connection with the spin-off, Windstream Holdings entered into a long-term triple-net master lease with Uniti to lease back the telecommunications network assets. For financial reporting purposes, the transaction was accounted for as a failed spin-leaseback. As a result, the net book value of the network assets transferred to Uniti continue to be reported in our consolidated balance sheet.


(2)	Represents shares available for issuance under the Windstream Plan.