Windstream 2011 Annual Report Download - page 148

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
____
F-40
Net property, plant and equipment consisted of the following as of December 31:
(Millions)
Land
Building and improvements
Central office equipment
Outside communications plant
Furniture, vehicles and other equipment
Construction in progress
Less accumulated depreciation
Net property, plant and equipment
Depreciable Lives
3-40 years
3-40 years
7-47 years
3-23 years
2011
$ 45.5
621.2
4,945.5
5,822.5
1,031.1
297.4
12,763.2
(7,055.1)
$ 5,708.1
2010
$ 34.8
561.5
4,449.4
5,332.1
691.7
184.7
11,254.2
(6,490.0)
$ 4,764.2
Our regulated operations use a group composite depreciation method. Under this method, when plant is retired, the original
cost, net of salvage value, is charged against accumulated depreciation and no immediate gain or loss is recognized on the
disposition of the plant. For our non-regulated operations, when depreciable plant is retired or otherwise disposed of, the related
cost and accumulated depreciation are deducted from the plant accounts, with the corresponding gain or loss reflected in
operating results.
We capitalize interest in connection with the acquisition or construction of plant assets. Capitalized interest is included in the
cost of the asset with a corresponding reduction in interest expense. Capitalized interest amounted to $6.8 million in 2011, $2.1
million in 2010 and $1.7 million in 2009.
Asset Retirement Obligations – We recognize asset retirement obligations in accordance with authoritative guidance on
accounting for asset retirement obligations and on accounting for conditional asset retirement obligations, which requires
recognition of a liability for the fair value of an asset retirement obligation if the amount can be reasonably estimated. Our asset
retirement obligations include legal obligations to remediate the asbestos in certain buildings if we exit them and to properly
dispose of our chemically-treated telephone poles at the time they are removed from service and to restore certain leased
properties to their previous condition upon exit. These asset retirement obligations totaled $50.2 million and $41.7 million as of
December 31, 2011 and 2010, respectively, and are included in other long term liabilities in the accompanying consolidated
balance sheets.
Derivative Instruments – We account for our derivative instruments using authoritative guidance for disclosures about
derivative instruments and hedging activities, including when a derivative or other financial instrument can be designated as a
hedge, and requires recognition of all derivative instruments at fair value. Accounting for the changes in fair value depends on
whether the derivative has been designated as, qualifies as and is effective as a hedge. Changes in fair value of the effective
portions of cash flow hedges should be recorded as a component of other comprehensive income in the current period. Changes
in fair values of the derivative instruments not qualifying as hedges, or of any ineffective portion of hedges, should be
recognized in earnings in the current period.
In 2006, due to the interest rate risk inherent in the variable rate senior secured credit facilities, we entered into four pay fixed,
receive variable interest rate swap agreements, designated as a cash flow hedge, with a maturity on July 17, 2013. The
counterparty for each of the swap agreements is a bank with a current credit rating at or above A. The variable rate we received
on the swaps was the three-month LIBOR (London-Interbank Offered Rate), which was 0.29 percent at December 31, 2010.
The weighted-average fixed rate paid by us was 5.604 percent. On October 19, 2009, we completed an amendment and
restatement of our credit facility and as part of this amendment the maturity date associated with a portion of term loan B was
extended.
In December of 2010, we renegotiated the four interest rate swap agreements. The modified swaps, commonly referred to as
blend and extends, will amortize quarterly to a notional value of $900.0 million in 2013, where it will remain until maturity on
October 17, 2015 ($1,018.7 million as of December 31, 2011) and the weighted average fixed rate paid by us was lowered to
4.553 percent effective January 17, 2011. The variable rate received resets on the seventeenth day of each quarter to the three-
month LIBOR. Our interest rate swap agreements are designated as cash flow hedges of the interest rate risk created by the
variable interest rate paid on Tranche B of the senior secured credit facilities, which has varying maturity dates from July 17,
2013 to December 17, 2015 as a result of an amendment to the credit facility (See Note 5). The variable interest rate paid on
Tranche B is based on the three-month LIBOR, and it also resets on the seventeenth day of each quarter.