UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
 
 
 
 
FORM 11-K
 
 
 
 
 

x
ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2016
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 1-32422
A.
Full title of the plan and address of the plan, if different from that of the issuer named below:

Windstream 401(k) Plan
B.
Name of issuer of the securities held pursuant to the plan and the address of the principal executive office:

Windstream Holdings, Inc.
4001 Rodney Parham Road
Little Rock, Arkansas 72212























 
 
 
 
 




WINDSTREAM 401(k) PLAN
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULE
 
 
Page
Report of Independent Registered Public Accounting Firm
 
1
 
 
 
Financial Statements:
 
 
 
 
 
Statements of Net Assets Available for Benefits as of December 31, 2016 and 2015
 
2
 
 
 
Statement of Changes in Net Assets Available for Benefits for the year ended December 31, 2016
 
3
 
 
 
Notes to Financial Statements
 
4-11
 
 
 
Supplemental Schedule:
 
 
 
 
 
Schedule H, Line 4i - Schedule of Assets (Held at End of Year) as of December 31, 2016
 
12
 
 
 
Signature
 
13
 
 
 
Exhibits:
 
 
 
 
 
Index of Exhibits
 
14























Other schedules required by 29 CFR 2520.103-10 of the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974, as amended, have been omitted because they are not applicable or not required.






Report of Independent Registered Public Accounting Firm


To the Administrator of the Windstream 401(k) Plan

In our opinion, the accompanying statements of net assets available for benefits and the related statement of changes in net assets available for benefits present fairly, in all material respects, the net assets available for benefits of the Windstream 401(k) Plan (the “Plan”) as of December 31, 2016 and 2015, and the changes in net assets available for benefits for the year ended December 31, 2016 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Plan’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

The supplemental Schedule of Assets (Held at End of Year) as of December 31, 2016, has been subjected to audit procedures performed in conjunction with the audit of the Plan’s financial statements. The supplemental schedule is the responsibility of the Plan’s management. Our audit procedures included determining whether the supplemental schedule reconciles to the financial statements or the underlying accounting and other records, as applicable, and performing procedures to test the completeness and accuracy of the information presented in the supplemental schedule. In forming our opinion on the supplemental schedule, we evaluated whether the supplemental schedule, including its form and content, is presented in conformity with the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. In our opinion, the Schedule of Assets (Held at End of Year) is fairly stated, in all material respects, in relation to the financial statements as a whole.


/s/ PricewaterhouseCoopers LLP
Little Rock, Arkansas
June 22, 2017























1



WINDSTREAM 401(k) PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
As of December 31,

 
 
2016
 
2015
ASSETS:
 
 
 
 
Cash
 
$
1,124,943

 
$
1,175,099

 
 
 
 
 
Investments, at fair value:
 
 
 
 
Communication Sales & Leasing, Inc. common stock
 

 
28,858,631

Windstream Holdings, Inc. common stock
 
33,419,517

 
13,809,094

Common collective trust funds
 
93,643,590

 
60,796,737

Money market fund
 
84,546,379

 
87,891,344

Mutual funds
 
612,979,916

 
582,838,141

Participant brokerage accounts
 
4,135,325

 
3,229,495

Total investments
 
828,724,727

 
777,423,442

 
 
 
 
 
Receivables:
 
 
 
 
Employer contribution
 
23,251,120

 
24,594,420

Notes receivable from participants
 
21,922,250

 
21,369,663

Accrued dividends
 
646,970

 
1,236,284

Due from broker
 
39,450

 
380,993

Total receivables
 
45,859,790

 
47,581,360

 
 
 
 
 
NET ASSETS AVAILABLE FOR BENEFITS
 
$
875,709,460

 
$
826,179,901




























The accompanying notes are an integral part of these financial statements.

2



WINDSTREAM 401(k) PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
For the year ended December 31, 2016

ADDITIONS TO NET ASSETS ATTRIBUTED TO:
 
Investment income:
 
Dividend income
$
31,238,350

Other income
717,372

Net appreciation in fair value of investments
55,511,788

Net investment income
87,467,510

 
 
Interest income on notes receivable from participants
1,108,468

 
 
Contributions:
 
Employer
24,480,443

Employee
46,212,008

Employee rollovers
2,961,514

Total contributions
73,653,965

 
 
Total additions
162,229,943

 
 
DEDUCTIONS FROM NET ASSETS ATTRIBUTED TO:
 
Benefit payments and withdrawals
111,996,523

Administrative expenses
703,861

Total deductions
112,700,384

Net increase
49,529,559

 
 
 
 
NET ASSETS AVAILABLE FOR BENEFITS:
 
Beginning of year, January 1, 2016
826,179,901

End of year, December 31, 2016
$
875,709,460


















The accompanying notes are an integral part of this financial statement.

3



WINDSTREAM 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2016 AND 2015


1. Plan Description:

The following brief description of the Windstream 401(k) Plan (the “Plan”), and the administration thereof, is provided for general information purposes only. Participants should refer to the Plan document or the Summary Plan Description (“SPD”) for a more complete and comprehensive description of the Plan’s provisions. Any discrepancies between the formal Plan document and the SPD will be resolved in favor of the formal Plan document.

Organizational Structure of Plan Sponsor

Windstream Holdings, Inc. (“Windstream Holdings”) is a publicly traded holding company and the parent of Windstream Services, LLC (“Windstream Services”). Windstream Holdings owns a 100 percent interest in Windstream Services. The Plan Sponsor is Windstream Services. Unless the context requires otherwise, the use of the terms “Windstream” or the “Company” shall refer to Windstream Holdings and its subsidiaries, including Windstream Services.

General

The Plan is a defined contribution employee benefit plan which includes a cash or wage deferral arrangement that covers eligible bargaining and non-bargaining employees of the Company. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”).

Administration

The Plan is administered by the Windstream Benefits Committee (the “Administrator” or the “Committee”) which is comprised of the following members of management of Windstream: the Chief Executive Officer, Chief Financial Officer, Chief Human Resource Officer, and Director of Benefits. Members are appointed by the Board of Directors of Windstream. In February 2017, the Board of Directors appointed the Vice President of Compensation and Benefits to the Committee replacing the Director of Benefits. Merrill Lynch Trust Company, FSB (“Merrill Lynch” or the “Trustee”) is the trustee and custodian of Plan assets. Additionally, Merrill Lynch & Company, Inc. provides recordkeeping and administrative services to the Plan.

Participation

Eligible non-bargaining employees may participate immediately. Bargaining employees may participate in the Plan, to the extent specifically provided for in their collective bargaining agreement. Prior service with certain other companies may count toward the service requirements of the Plan. Each eligible employee is also allowed to make certain rollover contributions to the Plan immediately upon employment with the Company as governed by the Internal Revenue Code of 1986, as amended (the “Code”). Individuals who are not eligible to participate include leased employees, employees covered by a collective bargaining agreement where retirement benefits were the subject of good faith bargaining (unless the collective bargaining agreement where the employees are covered specifically provides for coverage under the Plan), persons not classified as an employee, and nonresident aliens with no U.S. income.

Plan Contributions

Each year, participants may contribute up to 50 percent of their annual pretax and/or aftertax eligible compensation to the Plan, as defined in the Plan document. Participant contributions are subject to certain dollar limitations established by the Internal Revenue Service (the “IRS”) each year. The annual deferral limits for the Plan are in accordance with the IRS limitations.

Eligible participants who will attain fifty (50) years of age prior to the end of the applicable Plan year are eligible to make catch-up contributions in accordance with, and subject to the limitations of Section 414(v) of the Code. Employee contributions are funded to the Plan by Windstream in the period that payroll deductions are made from Plan participants in accordance with the participant’s deferral election.

4



WINDSTREAM 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS

1. Plan Description, Continued:

Except as discussed in the succeeding two paragraphs, the Company makes matching contributions to the Plan in an amount equal to 100 percent of the first 3 percent of each participant’s eligible compensation contributed to the Plan, plus 50 percent of the next 2 percent of each participant’s eligible compensation contributed to the Plan. The Company’s matching contribution is calculated and made as soon as administratively practicable following the end of the Plan year. The Company’s matching contributions may be paid in cash or Windstream Holdings common stock at the election of the Company. Contributions of Windstream Holdings common stock will be invested in the Windstream Holdings Common Stock Fund. Once the contribution is made, participants may transfer the amount contributed to other investment options within the Plan immediately, except for the CS&L Stock Fund as further discussed in Note 3.

The Company annually makes matching contributions in an amount equal to 50 percent of the first 6 percent of eligible compensation contributed to the Plan for participants covered by certain collective bargaining agreements with Valor Telecommunications of Texas, LLC, who were hired prior to March 1, 2014. The Company may also make, at its sole discretion, an additional discretionary matching contribution. No such contribution was made for the year ended December 31, 2016 .

Annually, the Company makes matching contributions to the Plan in an amount equal to 100 percent of the first 3 percent of eligible compensation contributed to the Plan, plus 50 percent of the next 2 percent of eligible compensation to the Plan for participants covered by certain collective bargaining agreements with Windstream Iowa Telecommunications, Inc. Such participants are also eligible for an additional Company contribution of 3 percent of the participant’s eligible compensation if they are not a participant in any other Company-sponsored defined benefit plan.

For employees in unions covered by the National Pension Plan and who participate in the Windstream Pension Plan (“Pension Plan”), such employees were permitted to make a one-time irrevocable election to permanently discontinue participation in the Pension Plan and receive a one-time Company contribution to the Plan in the amount of $15,000. The one-time Company contribution for employees making such election totaled $1.1 million and was funded to the Plan in the form of Windstream Holdings common stock on November 30, 2016.
  
For employees covered by certain collective bargaining agreements with Windstream Nebraska, Inc. and Windstream Systems of the Midwest, Inc., who participate in the Pension Plan, such employees may make a one-time irrevocable election to permanently discontinue participation in the Pension Plan and receive a one-time Company contribution to the Plan in the amount of $10,000. The one-time contribution will be allocated to the employees’ account under the Plan as soon as administratively practicable after the close of the third quarter of 2017. Effective December 31, 2018, benefits under the Pension Plan will be frozen for all employees covered by the aforementioned collective bargaining agreements. Such employees will receive a one-time Company contribution to the Plan in the amount of $10,000, which will be allocated to the employees’ account under the Plan as soon as administratively practicable after the freezing of the Pension Plan. Effective November 1, 2016, new employees and employees electing either the voluntary pension freeze or subject to the mandatory pension freeze are automatically enrolled in the Plan at a rate of 2 percent of eligible compensation unless the employee elects a different contribution amount.

Participant Accounts and Investment Options

Each participant’s account is credited with the participant’s contributions and related employer matching and discretionary contributions, if any, as well as the participant’s share of the Plan’s earnings and any related administrative expenses. The participant contributions are invested in accordance with a participant’s investment election. If no investment election has been made, the contributions are invested in a manner deemed appropriate by the Administrator. The Plan’s earnings and administrative expenses, if applicable, are allocated to participants’ accounts based upon participant account balances. The benefit to which a participant is entitled is the benefit that can be provided from the participant’s vested account.

Plan participants may direct their contributions among the various investment options offered by the Plan, which include a participant-directed brokerage account. The Merrill Lynch Self-Direct Brokerage Account allows participants to invest in a large variety of Merrill Lynch mutual funds. The Plan also provides its participants the option to invest in the Company’s common stock at the participants’ election. The Plan places no restrictions on the participants’ ability to change this investment option.



5



WINDSTREAM 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS

1. Plan Description, Continued:

Vesting, Benefits and Payments

Participants are immediately fully vested in their employee contributions and matching employer contributions to the Plan and the accumulated earnings thereon. There were no material forfeitures created during the year ended December 31, 2016. Under terms of the Plan document, forfeitures can be used to pay Plan expenses or can be used to reduce future Company contributions. There were no material forfeitures available for future use at December 31, 2016 or 2015.

Participants or their beneficiaries, as applicable, are entitled to receive distribution of their Plan account when they retire, become permanently disabled, upon death or upon separation from service with the Company. The Plan provides benefits upon early retirement between ages 55 and 65.

Participants may elect upon termination of employment to defer payment of their account balance if it exceeds $5,000. If a participant’s account balance is equal to or less than $1,000, the account will be automatically distributed. All distributions will be made in the form of a lump-sum payment, unless the distribution is in accordance with a grandfathered provision from a prior plan that merged into the Plan. If a participant’s account balance is between $1,001 and $5,000, the Company will rollover the account balance into a Merrill Lynch individual retirement account following termination if the employee does not rollover the investment into another qualified retirement plan or take a distribution following termination.

A participant may elect to have a portion of their account invested in Windstream Holdings common stock to be distributed in shares of Windstream Holdings common stock. Additionally, actively employed participants may withdraw certain funds from their Plan account with the approval of the Administrator, for “hardship” reasons as defined by the IRS. Participants may also receive an in-service withdrawal of a portion of their vested account balance on or after attaining age 59 1/2. In addition, participants may withdraw voluntary after-tax and rollover contributions at any time.

Plan Termination

While it has not expressed any intention to do so, the Plan Sponsor has the right to terminate the Plan. In the event that the Plan is terminated, participants and shall be entitled to receive the entire amount of his/her account balance in accordance with the Plan provisions. Participants in the Plan are entitled to certain rights and protections under ERISA.

2. Summary of Significant Accounting Policies:

Basis of Presentation and Use of Estimates

The accompanying financial statements have been prepared on the accrual basis of accounting reported in accordance with accounting principles generally accepted in the United States of America.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the Administrator to make estimates and assumptions that affect the amount of assets, liabilities, income and expenses, and disclosures of certain contingent assets and liabilities reported or disclosed in the financial statements. The estimates and assumptions used in preparing the accompanying financial statements are based upon the Administrator’s evaluation of the relevant facts and circumstances as of the dates of the financial statements. Actual results may differ from these estimates and assumptions used in preparing the accompanying financial statements and such differences could be material.

Investment Valuation and Income Recognition

Investments are reported at fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Administrator determines the Plan’s valuation policies utilizing information provided by its investment advisers and custodians. See Note 4 for a discussion of fair value measurements.

Purchases and sales of securities are recorded on a trade-date basis. Dividends are recorded on the ex-dividend date. Gains and losses on sales of investment securities are determined based on the specific identification method. Net appreciation in fair value of investments includes the Plan’s gains and losses on investments bought and sold as well as held during the year.

6



WINDSTREAM 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS

2. Summary of Significant Accounting Policies, Continued:

Notes Receivable From Participants

Notes receivable from participants are measured at their unpaid principal balance plus any accrued but unpaid interest. Interest income is recorded on the accrual basis. Related fees are recorded as administrative expenses and are expensed when they are incurred. No allowance for credit losses has been recorded as of December 31, 2016 or 2015 . If a participant ceases to make loan repayments and the Administrator deems the participant loan to be in default, the participant loan balance is reduced and a benefit payment is recorded.

Payment of Benefits

Benefit payments to participants are recorded upon distribution.

Plan Expenses

As outlined in the Plan document, certain expenses related to the Plan’s operations are paid from the Plan’s assets and are included in administrative expenses. Administrative costs paid directly by Windstream are not reflected in the Plan’s financial statements. Certain administrative expenses of the Plan are paid through revenue sharing arrangements between the Plan’s investment funds and the Plan’s trustee, and through fees deducted directly from participant accounts. Revenue sharing and sub transfer fees are credited directly into the Plan’s trust accounts and are reported in the Plan’s financial statements as other income. The Plan allocates fee income into the accounts of those participants investing in those funds that have revenue sharing arrangements. Investment related expenses are included in net appreciation in fair value of investments.

3. Spin-off of Certain Network and Real Estate Assets:

On April 24, 2015, Windstream Holdings completed the spin-off of certain telecommunications network assets, including fiber and copper networks and other real estate, into an independent, publicly traded real estate investment trust. Pursuant to the plan of distribution and immediately prior to the effective time of the spin-off, Windstream Services contributed the network assets and its consumer competitive local exchange business to Communications Sales & Leasing, Inc. (“CS&L”), a wholly owned subsidiary of Windstream Holdings, in exchange for among other consideration the issuance to Windstream Services of CS&L common stock of which 80.4 percent of the shares were distributed on a pro rata basis to Windstream Holdings’ stockholders, with Windstream Services retaining a passive ownership interest in approximately 19.6 percent of the common stock of CS&L. After giving effect to the interest in CS&L retained by Windstream Services, each Windstream Holdings shareholder, including participants in the Plan, received one share of CS&L for every five shares of Windstream Holdings common stock held as of the record date of April 10, 2015 in the form of a tax-free dividend. No fractional shares were distributed in the spin-off, with a cash payment being made in lieu of any fractional shares. The number of Windstream Holdings’ common shares outstanding did not change due to the spin-off. Other than the issuance of the CS&L common stock to Plan participants, no other changes to the provisions of the Plan or administration thereof occurred as a result of the spin-off.

Shares of CS&L common stock issued to Plan participants were invested in a newly established CS&L Stock Fund. No additional investments into this fund from contributions or investment transfers were permitted, although dividends paid on the CS&L common stock were automatically reinvested into the CS&L Stock Fund. Participants were required to liquidate their investment in the CS&L Stock Fund prior to October 24, 2016. If a participant did not liquidate his/her investment in the CS&L Stock Fund by that date, the investment was transferred to the Plan’s qualified default investment alternative, the Vanguard Target Retirement Date Fund that most closely matched the year the participant would retire, assuming a retirement age of 65.



7



WINDSTREAM 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
 
4. Investments:

Investment Valuation and Income Recognition

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

Level 1 - Quoted prices in active markets for identical assets or liabilities
Level 2 - Observable inputs other than quoted prices in active markets for identical assets or liabilities
Level 3 - Unobservable inputs

Assets and liabilities are classified into the hierarchy in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels. The valuation techniques 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 Plan believes its valuation methods are appropriate and 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.

The fair values of the Plan’s investments were determined using the following inputs at December 31, 2016 :
 
 
 
 
Quoted Price
 
Significant
 
 
 
 
 
 
in Active
 
Other
 
Significant
 
 
 
 
Markets for
 
Observable
 
Unobservable
 
 
 
 
Identical Assets
 
Inputs
 
Inputs
 
 
Fair Value
 
Level 1
 
 Level 2
 
 Level 3
Windstream Holdings common stock (a)
 
$
33,419,517

 
$
33,419,517

 
$

 
$

Mutual funds (b)
 
612,979,916

 
612,979,916

 

 

Money market fund (c)
 
84,546,379

 

 
84,546,379

 

Participant-directed brokerage accounts (b)
 
4,135,325

 
4,135,325

 

 

Investments included in fair value hierarchy
 
735,081,137

 
$
650,534,758

 
$
84,546,379

 
$

Other investments measured at NAV:
 
 
 
 
 
 
 
 
   Common collective trust funds (d)
 
93,643,590

 
 
 
 
 
 
Total investments (e)
 
$
828,724,727

 
 
 
 
 
 


















8



WINDSTREAM 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS

4. Investments, Continued:
The fair values of the Plan’s assets were determined using the following inputs at December 31, 2015 :
 
 
 
 
Quoted Price
 
Significant
 
 
 
 
 
 
in Active
 
Other
 
Significant
 
 
 
 
Markets for
 
Observable
 
Unobservable
 
 
 
 
Identical Assets
 
Inputs
 
Inputs
 
 
Fair Value
 
Level 1
 
 Level 2
 
 Level 3
CS&L common stock (a)
 
$
28,858,631

 
$
28,858,631

 
$

 
$

Windstream Holdings common stock (a)
 
13,809,094

 
13,809,094

 

 

  Total common stock
 
42,667,725

 
42,667,725

 

 

Mutual funds (b)
 
582,838,141

 
582,838,141

 

 

Participant-directed brokerage accounts (b)
 
3,229,495

 
3,229,495

 

 

Money market fund (c)
 
87,891,344

 

 
87,891,344

 

Investments included in fair value hierarchy
 
716,626,705

 
$
628,735,361

 
$
87,891,344

 
$

Other investments measured at NAV:
 
 
 
 
 
 
 
 
   Common collective trust funds (d)
 
60,796,737

 
 
 
 
 
 
Total investments (e)
 
$
777,423,442

 
 
 
 
 
 

(a)
Shares of CS&L and Windstream Holdings common stock are valued at their quoted market price on the last business day of the year.

(b)
Shares of mutual funds are valued at the net asset value (“NAV”) of shares held by the Plan at year-end based on their quoted market price on the last business day of the year.

(c)
The money market fund is valued based on the fair value of the underlying assets held by the fund divided by the number of units outstanding as of the valuation date.  The fund seeks to maintain a stable value of $1.00 per unit and invests principally in short-term government and agencies obligations and repurchase agreements.

(d)
Common collective trust funds are valued based on the NAV of the units held by the Plan as determined by the fund managers on the last day of the Plan year. These investments have not been classified within the fair value hierarchy. The fair value amounts presented in the tables above were intended to permit reconciliation to the total investments presented in the statements of net assets available for benefits.

This category consists of the Northern Trust Collective Aggregate Bond Index Fund - Lending, Blackrock Extended Equity Market Fund and Blackrock MSCI EAFE Equity Index Fund. The primary investment objectives of each of these funds is as follows:

Northern Trust Collective Aggregate Bond Index Fund - Lending seeks to provide returns consistent with the overall United States bond and debt markets by investing in United States Treasury securities and other debt securities. The Blackrock Extended Equity Market Fund seeks investment returns approximating the total weighted average rate-of-return of the United States market for publicly traded equity securities by investing in a portfolio of mid-cap stocks. The Blackrock MSCI EAFE Equity Index Fund seeks investment returns approximating the total rate-of-return for markets in certain countries for equity securities traded outside the United States, including Japan, Britain, France and Germany by investing in a portfolio of large-cap stocks.

(e) Transfers between levels of the fair value hierarchy are recognized at the end of the reporting period. There were no transfers in or out of levels 1, 2, or 3 for the years ended December 31, 2016 and 2015. There have been no significant changes in the methodology used to value investments from the prior year.




9



WINDSTREAM 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS

4. Investments, Continued:

The following table summarizes the Plan’s investments with a reported fair value using NAV per share:
 
 
Fair Value as of December 31,
 
Unfunded Commitments
 
Redemption
Frequency
 
Redemption
Notice Period *
 
 
2016
 
2015
 
 
 
Blackrock Government Short-Term
Investment Fund
 
$
84,546,379

 
$
87,891,344

 
$

 
Daily
 
None
Northern Trust Collective Aggregate Bond
   Index Fund - Lending
 
19,504,603

 
17,876,582

 

 
Daily
 
30 days
Blackrock Extended Equity Market Fund
 
44,121,090

 
30,525,272

 

 
Daily
 
None
Blackrock MSCI EAFE Equity Index Fund
 
30,017,897

 
12,394,883

 

 
Daily
 
None

* Were the Plan to initiate a full redemption of the investment fund, the investment adviser reserves the right to temporarily delay withdrawal from the trust to ensure that securities liquidations will be carried out in an orderly business manner.

The Windstream Holdings Common Stock Fund is designated as an “employee stock ownership plan” that is intended to qualify as a stock bonus plan. This fund invests primarily in Windstream Holdings common stock. Participants in this fund may elect that dividends received be paid in cash or reinvested in Windstream Holdings common stock.

Investment securities, in general, are exposed to various risks, such as interest rate, credit and overall market volatility risks. Due to the level of risk associated with certain investment securities, it is reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect the amounts reported in the accompanying financial statements.
        
5. Employer Contribution Receivable:

Contributions in the amount of $23,251,120 and $24,594,420 due to the Plan from Windstream had not been funded or allocated among the Plan’s investments as of December 31, 2016 and 2015 , respectively. The employee contributions receivable were funded in the form of Windstream Holdings common stock, except as required to be made in cash in accordance with collective bargaining agreements. The Windstream Holdings common stock contributed to the Plan was valued based on the closing market price of the shares on March 6, 2017 and February 29, 2016 , respectively. Participants can leave the contribution in the Windstream Holdings Common Stock Fund or transfer it into other investment options offered by the Plan.

6. Notes Receivable from Participants:

Participants can borrow from their account balances amounts not to exceed 50 percent of their account balance, up to a maximum loan amount of $50,000 in accordance with section 72(p) of the Code. Such loans must be repaid through payroll deductions within five years, unless used to purchase a principal residence. Principal and interest is paid ratably through payroll deductions over the term of the loan. If a participant’s employment terminates with an outstanding loan and the termination was not a result of a divestiture by the Company, the entire loan must be repaid in full. If the loan is not repaid in full, the unpaid portion will be considered taxable income to the individual. Loans are collateralized by the balance in the participant’s account and bear interest at rates determined by the Administrator upon execution of the loan. Interest rates on the loans outstanding at December 31, 2016 ranged from 4.25 percent to 9.75 percent . For participant loans issued under the Plan, the interest rate is calculated by adding 2 percent to the published Prime Rate from The Wall Street Journal as of the close of business on the last business day of the month prior to loan issuance. At December 31, 2016 , the Prime Rate from The Wall Street Journal was 3.75 percent .
 


10



WINDSTREAM 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS

7. Tax Status:

Effective January 1, 2015, the Plan document was restated incorporating all previous amendments to the Plan. The Plan requested and received a favorable determination letter from the IRS dated April 26, 2017, applicable to the restated Plan document. The Plan document has been subsequently amended. The Administrator and the Plan’s tax counsel have reviewed the Plan’s tax-exempt status and analyzed the tax positions taken by the Plan. The Administrator and the Plan’s tax counsel believe the Plan is designed and operating in accordance with applicable IRS requirements, and therefore believes the Plan is qualified and is tax-exempt as of the financial statement date for the purposes of Section 401(a) of the Code. Furthermore, the Administrator has concluded there are no uncertain tax positions taken or expected to be taken that would require recognition or disclosure in the financial statements during the year or within the next 12 months. The Plan is subject to routine audits by taxing authorities. On May 17, 2017, the IRS notified the Administrator of their audit for the 2015 Plan year. All requested information has been provided to the IRS and the results of the audit are pending. Contributions and income of the Plan are generally not taxable to the participants until withdrawals or distributions are made.

8. Party-In-Interest Transactions:

Plan investments in the Merrill Lynch Self-Direct Brokerage Account totaled $ 4,135,325 and $ 3,229,495 as of December 31, 2016 and 2015 , respectively. These investments included shares of mutual funds managed by Merrill Lynch. The Plan also invests in Windstream Holdings common stock. For the year ended December 31, 2016 , the Plan’s purchases and sales of Windstream Holdings common stock were $38,744,561 and $21,330,520 , respectively. The Vanguard Group (“Vanguard”) beneficially owns more than 10 percent of the outstanding common stock of Windstream Holdings. Investments of the Plan include shares of mutual funds managed by Vanguard totaling $275,494,327 and $229,420,338 as of December 31, 2016 and 2015 , respectively. Since Merrill Lynch is the Plan trustee and Windstream is the Plan sponsor, these transactions qualify as exempt party-in-interest transactions. The Plan permits participants to make loans from the Plan in accordance with section 72(p) of the Code.

9. Reconciliation to Form 5500:

As of December 31, 2016 and 2015 , the Plan had pending distributions to participants who elected to withdraw from the Plan of $1,123,636 and $ 1,178,728 , respectively. These amounts are recorded as a liability in the Plan’s Form 5500; however, these amounts are not recorded as a liability in the accompanying statements of net assets available for benefits in accordance with accounting principles generally accepted in the United States of America.

The following is a reconciliation of net assets available for benefits per the financial statements to the amounts reflected in the Form 5500 as filed or to be filed by the Company as of December 31:
 
 
2016
 
2015
Net assets available for benefits per financial statements
 
$
875,709,460

 
$
826,179,901

Accrued benefits payable
 
(1,123,636
)
 
(1,178,728
)
Net assets available for benefits per Form 5500
 
$
874,585,824

 
$
825,001,173


The following is a reconciliation of benefit payments per the financial statements to the amounts reflected in the Form 5500 as filed or to be filed by the Company for the year ended December 31, 2016 :
Benefits paid to participants per the financial statements
 
$
111,996,523

Accrued benefits payable - current year
 
1,123,636

Accrued benefits payable - prior year
 
(1,178,728
)
Benefits paid to participants per Form 5500
 
$
111,941,431





11



WINDSTREAM 401(k) PLAN
Schedule H, Line 4i - SCHEDULE OF ASSETS (HELD AT END OF YEAR)
Plan No. 009, EIN 20-0792300
As of December 31, 2016
(a)
(b) Identity of issue, borrower, lessor or
similar party
 
(c) Description of investment
      including maturity date, rate of
      interest, collateral, par, or
      maturity value
 
(d) Cost (1)
 
(e) Current value
 
Northern Trust Collective Aggregate Bond
   Index Fund - Lending
 
Common collective trust fund
 
 
 
$
19,504,603

 
Blackrock Extended Equity Market Fund
 
Common collective trust fund
 
 
 
44,121,090

 
Blackrock MSCI EAFE Equity Index Fund
 
Common collective trust fund
 
 
 
30,017,897

 
Total common collective trust funds
 
 
 
 
 
93,643,590

 
 
 
 
 
 
 
 
 
Blackrock Government Short-Term
Investment Fund
 
Money market fund
 
 
 
84,546,379

 
Total money market fund
 
 
 
 
 
84,546,379

 
 
 
 
 
 
 
 
 
American EuroPacific Growth Fund R6
 
Mutual fund
 
 
 
66,130,820

 
BlackRock Core Bond Portfolio
 
Mutual fund
 
 
 
83,413,876

 
Columbia Small Cap Value Fund
 
Mutual fund
 
 
 
45,734,836

 
Loomis Sayles High Income Fund
 
Mutual fund
 
 
 
16,491,591

 
DWS RREEF Real Estate Securities Fund
 
Mutual fund
 
 
 
35,931,922

 
Pioneer Equity Income Fund
 
Mutual fund
 
 
 
52,125,040

 
Sentinel Small Company Fund
 
Mutual fund
 
 
 
37,657,504

*
Vanguard Institutional Index Fund
 
Mutual fund
 
 
 
211,834,159

*
Vanguard 2015 Target Retirement
 
Mutual fund
 
 
 
1,965,868

*
Vanguard 2020 Target Retirement
 
Mutual fund
 
 
 
7,309,511

*
Vanguard 2025 Target Retirement
 
Mutual fund
 
 
 
10,287,571

*
Vanguard 2030 Target Retirement
 
Mutual fund
 
 
 
10,547,368

*
Vanguard 2035 Target Retirement
 
Mutual fund
 
 
 
11,047,496

*
Vanguard 2040 Target Retirement
 
Mutual fund
 
 
 
7,769,504

*
Vanguard 2045 Target Retirement
 
Mutual fund
 
 
 
5,933,109

*
Vanguard 2050 Target Retirement
 
Mutual fund
 
 
 
4,399,152

*
Vanguard 2055 Target Retirement
 
Mutual fund
 
 
 
2,668,443

*
Vanguard 2060 Target Retirement
 
Mutual fund
 
 
 
1,222,835

*
Vanguard Target Income Retirement
 
Mutual fund
 
 
 
509,311

 
Total mutual funds
 
 
 
 
 
612,979,916

 
 
 
 
 
 
 
 
*
Merrill Lynch Self-Direct Brokerage
   Account
 
Mutual funds
 
 
 
4,135,325

 
Total participant brokerage accounts
 
 
 
 
 
4,135,325

 
 
 
 
 
 
 
 
*
Windstream Holdings, Inc.
 
Common stock, $0.0001 par value
 
 
 
33,419,517

 
Total common stock
 
 
 
 
 
33,419,517

 
 
 
 
 
 
 
 
*
Notes receivable from participants
 
Loans with interest rates ranging from
 
 
 
 
 
 
 
   4.25 percent to 9.75 percent
 
 
 
21,922,250

 
Total investments
 
 
 
 
 
$
850,646,977

* Indicates a party-in-interest.
(1) Not required, as investments are participant-directed.

12



SIGNATURE


The Plan . Pursuant to the requirements of the Securities Exchange Act of 1934, the Windstream 401(k) Plan has duly caused this annual report to be signed on its behalf by the undersigned thereunto duly authorized.


Windstream 401(k) Plan
 
 
By:
/s/Robert E. Gunderman
 
Robert E. Gunderman
Chief Financial Officer
Windstream Services, LLC
June 22, 2017

13



WINDSTREAM 401(k) PLAN
FORM 11-K
INDEX OF EXHIBITS
Exhibit No.
Description of Exhibits
 
 
 
23.1
Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm
(a)
 
 
 
 
 
(a)
Filed herewith.
 
 
 




14