Windstream Holdings Inc., which released its Chapter 11-stricken second quarter earnings report last week, said Tuesday (Aug. 13) that its quarterly 10-Q filing would be indefinitely delayed due to its ongoing bankruptcy proceedings and stalled talks over a multi-million dollar master lease agreement with former spinoff Uniti Corp.
Under federal securities regulations, Form 10-Q is the quarterly operational and financial report mandated by the U.S. Securities and Exchange Commission (SEC) to be filed by all U.S. publicly traded corporations after each three-month fiscal period. Put in place to provide comprehensive financial information to keep investors informed of a company’s progress, the 10-Q generally offers quarter-to-quarter and year-over-year comparisons.
Although similar to the 10-K or annual report, the 10-Q is usually less detailed and includes financial statements that have not been audited yet. Under SEC rules, the report must be filed within 40 days for large fast-track filers or 45 days after the end of the fiscal quarter for all other registrants. Information for the final or fourth quarter of a firm’s fiscal year is included in the 10-K, so only three 10-Q filings are made each year.
According to Windstream’s explanation, the Little Rock-based rural broadband operator and its associated operating subsidiary, Windstream Services LLC, were unable to file their quarterly report for the period ended June 30, 2019 “due to a delay in the completion of their financial statements.”
“As previously reported, on February 25, 2019, the Companies and all of their subsidiaries filed voluntarily petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of New York,” the SEC filing stated. “In connection with the Chapter 11 Cases, the Debtors have further analyzed the contractual arrangement (the “Uniti arrangement”) among Windstream and certain subsidiaries of Uniti Group, Inc., 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.”
As reported by Talk Business & Politics, Windstream and Uniti are engaged in mediation as part of the Arkansas telecom’s Chapter 11 filing. Last month, Windstream filed a 54-page complaint in federal bankruptcy court against Uniti and its various state-held real estate investment trust vehicles to resolve ongoing disputes related to a multiyear lease following Windstream’s spinoff of the Little Rock REIT in April 2015.
The two publicly traded Little Rock telecoms first entered into talks earlier this summer on the master lease agreement, which provides for annual rent of $659 million to Uniti paid in equal monthly installments in advance, with an annual base rent escalator of 0.5%, according to securities filings.
“In light of these developments, the Companies are in the process of re-evaluating the operating lease accounting treatment for the Uniti arrangement, adopted as of January 1, 2019, pursuant to Accounting Standards Update …,” Windstream stated in the SEC filing. “As a result, the Companies are determining if there was an error in the adoption accounting for this arrangement, as it is uncertain and may change back to a financing arrangement.”
Windstream said any change in the master lease agreement between the two closely tied Arkansas companies would also have “a material impact” on its consolidated financial statements presented in the 10Q filings for the first quarter, which ended March 31, 2019. The Arkansas rural landline owner said it is also evaluating internal control deficiency considerations, including “the magnitude, associated with these developments.”
“Because the determination of the appropriate accounting treatment of the Uniti arrangement and internal control assessment have not been finalized, and, as the completion of the above-referenced evaluation may result in material changes to the Companies’ financial statements, the Companies will be unable to complete the financial statements and disclosures required to be included in the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2019, and are currently unable to determine when they will be able to do so,” the SEC filing state.
Windstream also noted that it will seek a reporting waiver from federal bankruptcy officials regarding $1 billion in so-called debtor-in-possession (DIP) funding vehicle that allows Windstream to continue operating “business as usual” and to meet its financial obligations. That loan, advanced by Citigroup Global Markets, requires Windstream to provide financial information, including a balance sheet and related statements of operations, shareholders equity and cash flows, within 45 days of quarter end.
“The Companies are currently evaluating the need for a waiver of this requirement,” said Windstream.