Windstream 2013 Annual Report Download - page 196

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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F-60
5. Long-term Debt and Capital Lease Obligations, Continued:
Future minimum lease payments under capital lease obligations were as follows for the years ended December 31:
Year (Millions)
2014 $ 29.7
2015 28.7
2016 19.7
2017 4.9
2018 0.5
Thereafter 2.4
Total future payments 85.9
Less: Amounts representing interest 6.7
Present value of minimum lease payments $ 79.2
Interest Expense
Interest expense was as follows for the years ended December 31:
(Millions) 2013 2012 2011
Interest expense related to long-term debt $ 584.7 $ 576.4 $ 500.0
Impacts of interest rate swaps 48.0 56.4 64.8
Interest on capital leases and other 2.9 3.2 0.3
Less capitalized interest expense (7.9)(10.9)(6.8)
Total interest expense $ 627.7 $ 625.1 $ 558.3
6. Derivatives:
Windstream Corp. enters into interest rate swap agreements 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 recognition 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. Changes in fair value of the effective portions of cash flow hedges are recorded as a component of other
comprehensive income in the current period. Any ineffective portion of the hedges is recognized in earnings in the current
period.
In 2006, Windstream Corp. entered into four pay fixed, receive variable interest rate swap agreements to serve as cash flow
hedges of the interest rate risk inherent in our senior secured credit facilities. Windstream Corp. renegotiated the four interest
rate swap agreements on December 3, 2010, and again on August 21, 2012, each time lowering the fixed interest rate paid and
extending the maturity.
As a result of the August 21, 2012 transaction, Windstream Corp. reduced its fixed rate paid from 4.553 percent to 3.391
percent effective October 17, 2012. The fixed interest rate paid includes a component which serves to settle the liability existing
on Windstream Corp. swaps at the time of the transaction. The variable rate received resets on the seventeenth day of each
month to the one-month London Interbank Offered Rate ("LIBOR"). The swaps had a notional value of $900.0 million as of
December 31, 2013, where it will remain until maturity on October 17, 2019.
On May 31, 2013, Windstream Corp. entered into six new pay fixed, receive variable interest rate swap agreements, designated
as cash flow hedges of the previously unhedged interest rate risk inherent in its senior secured credit facilities. These swaps
have a fixed notional value of $750.0 million and mature on June 17, 2016. The fixed rate paid ranges from 1.026 to 1.040
percent plus a fixed spread of 2.750 percent. The variable rate received resets on the seventeenth day of each month to the one-
month LIBOR subject to a minimum rate of 0.750 percent.