Frontier Communications 2004 Annual Report Download - page 89

CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
F-45
that we disclose “the maximum potential amount of future payments (undiscounted) the guarantor could be required to
make under the guarantee.” Paragraph 13 also states that we must make such disclosure “… even if the likelihood of the
guarantor’s having to make any payments under the guarantee is remote…” As noted above, our obligation only arises
as a result of default by another VJO member such as upon bankruptcy. Therefore, to satisfy the “maximum potential
amount” disclosure requirement we must assume that all members of the VJO simultaneously default, a highly unlikely
scenario given that the two members of the VJO that have the largest potential payment obligations are publicly traded
with investment grade credit ratings, and that all VJO members are regulated utility providers with regulated cost
recovery. Regardless, despite the remote chance that such an event could occur, or that the State of Vermont could or
would allow such an event, assuming that all the members of the VJO defaulted on January 1, 2006 and remained in
default for the duration of the contract (another 10 years), we estimate that our undiscounted purchase obligation for
2006 through 2015 would be approximately $1,400,000,000. In such a scenario the Company would then own the
power and could seek to recover its costs. We would do this by seeking to recover our costs from the defaulting
members and/or reselling the power to other utility providers or the northeast power grid. There is an active market for
the sale of power. We could potentially lose money if we were unable to sell the power at cost. We caution that we
cannot predict with any degree of certainty any potential outcome.
At December 31, 2004, we have outstanding performance letters of credit as follows:
($ in thousands)
CNA $ 19,404
State of New York 2,993
ELI projects 50
Total $ 22,447
In 2004, we assumed a letter of credit with the State of New York (related to workers compensation claims) from
Global Crossing, Inc. CNA serves as our agent with respect to general liability claims (auto, workers compensation
and other insured perils of the Company). As our agent, they administer all claims and make payments for claims on
our behalf. The Company reimburses CNA for such services upon presentation of their invoice. To serve as our
agent and make payments on our behalf, CNA requires that we establish a letter of credit in their favor. CNA could
potentially draw against this letter of credit if we failed to reimburse CNA in accordance with the terms of our
agreement. The value of the letter of credit is reviewed annually and adjusted based on claims history.
None of the above letters of credit restrict our cash balances.
(27) Subsequent Events:
In February 2005, we entered into a definitive agreement to sell Conference-Call USA, LLC, our conferencing services
business, to Premiere Global Services, Inc. for $41,000,000 in cash, subject to adjustments under the terms of the
agreement. This transaction is expected to close by March 31, 2005.