Windstream 2014 Annual Report Download - page 174

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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F-58
4. Long-term Debt and Lease Obligations, Continued:
Other Lease Obligations
During the third quarter of 2014, we contributed certain of our owned real property to the Windstream Pension Plan and then
entered into agreements to leaseback the properties for continued use by our operating subsidiaries. Independent appraisals of the
properties contributed were obtained and at the dates of contribution the properties’ aggregate fair value was $80.9 million. The
lease agreements include initial lease terms of 10 years for certain properties and 20 years for the remaining properties at an
aggregate annual rent of approximately $6.3 million. The lease agreements provide for annual rent increases ranging from 2.0
percent to 3.0 percent over the initial lease term and may be renewed for up to three additional five-year terms. The properties are
managed on behalf of the Windstream Pension Plan by an independent fiduciary and terms of the lease agreements were negotiated
with the fiduciary on an arm’s-length basis.
Due to various forms of continuing involvement, including Windstream Corp.’s benefit from the future appreciation of the property,
the transaction has been accounted for as a failed contribution-leaseback. Accordingly, the properties continue to be reported as
assets of Windstream and depreciated over their remaining useful lives until termination of the lease agreement. We recorded a
long-term lease obligation equal to the fair value of the properties at the date of contribution. No gain or loss has been recognized
on the contribution. As lease payments are made to the Windstream Pension Plan, a portion of the payment will decrease the long-
term lease obligation with the balance of the payment charged to interest expense using the effective interest method. At
December 31, 2014, the total lease obligation was $81.0 million and was included within other current liabilities and other liabilities
in the accompanying consolidated balance sheet.
Future minimum payments during the initial terms of the leases were as follows for the years ended December 31:
Year (Millions)
2015 $6.3
2016 6.5
2017 6.7
2018 6.9
2019 7.1
Thereafter 92.0
Total $ 125.5
Interest Expense
Interest expense was as follows for the years ended December 31:
(Millions) 2014 2013 2012
Interest expense related to long-term debt $ 539.9 $ 584.7 $ 576.4
Impact of interest rate swaps 29.0 48.0 56.4
Interest on capital and other lease obligations 6.6 2.9 3.2
Less capitalized interest expense (3.7)(7.9)(10.9)
Total interest expense $ 571.8 $ 627.7 $ 625.1