Windstream 2015 Annual Report Download - page 121

WINDSTREAM HOLDINGS, INC.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF
THE REGISTRANT (PARENT COMPANY)
39
Background and Basis of Presentation: Notwithstanding the accounting treatment for the spin-off transaction as further discussed
below, following its formation on August 30, 2013, Windstream Holdings, Inc. (“Windstream Holdings”) has no material assets
or operations other than its ownership in Windstream Services, LLC (“Windstream Services”), formerly Windstream Corporation,
and its subsidiaries. Effective February 28, 2015, Windstream Corporation was converted to a limited liability company. Following
the conversion Windstream Holdings owns a 100 percent interest in Windstream Services.
On April 24, 2015, Windstream Holdings completed the spin-off of certain telecommunications network assets and other real
estate, into an independent, publicly traded real estate investment trust, Communications Sales & Leasing, Inc. (“CS&L”).
Immediately prior to the effective time of the spin-off, Windstream Services and its subsidiaries contributed the network assets to
Windstream Holdings for distribution to CS&L. 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. Following the spin-off transaction, on April 24, 2015, Windstream Holdings entered into a long-term triple-net
master lease with CS&L to lease back the telecommunications network assets. Due to various forms of continuing involvement,
including Windstream Services or its subsidiaries, retaining bare legal title (but not beneficial ownership) to the various easements,
permits and pole attachments related to the telecommunications network assets, the transaction was accounted for as a failed spin-
leaseback for financial reporting purposes. As a result, the accompanying condensed parent company financial statements include
the telecommunications network assets and other real estate assets, the long-term lease obligation associated with the master lease
and the related deferred income taxes. As the master lease was entered into by Windstream Holdings for the direct benefit of
Windstream Services and its subsidiaries, Windstream Services is also deemed to have continuing involvement due to retaining
its regulatory obligations associated with operating the telecommunications network assets. Accordingly, the effects of the failed
spin-leaseback transaction have also been reflected in the standalone consolidated financial statements of Windstream Services
(collectively referred to as “CS&L spin transactions”).
Certain covenants within Windstream Services’ senior secured credit facility may restrict its ability to distribute funds to Windstream
Holdings in the form of dividends, loans or advances. Accordingly, these condensed financial statements of Windstream Holdings
have been presented on a “Parent Only” basis. Under this basis of presentation, Windstream Holdings’ investment in its consolidated
subsidiaries are presented under the equity method of accounting. Amounts reflected in these condensed parent company financial
statements for investment and affiliated related balances and equity earnings from subsidiaries have been adjusted to account for
the effects of the telecommunications network assets, long-term lease obligation, depreciation expense, principal and interest
payments on the long-term lease obligation and related income tax effects that are also included in the net income and equity of
Windstream Services. Equity income (losses) from subsidiaries for 2015 includes $89.1 million of intercompany income related
to the CS&L spin transactions.
On April 24, 2015, Windstream Holdings amended its certificate of incorporation to decrease the number of authorized shares of
common stock from 1.0 billion to 166.7 million and enacted a one-for-six reverse stock split with respect to all outstanding shares
of common stock which became effective April 26, 2015. Share data of Windstream Holdings has been retrospectively adjusted
to reflect the decrease in authorized shares and the reverse stock split.
The condensed parent company financial statements should be read in conjunction with the consolidated financial statements and
notes of Windstream Holdings and subsidiaries included in the Financial Supplement to this Annual Report on Form 10-K.