Frontier Communications 2008 Annual Report Download - page 94

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rent escalation clauses providing for increases in monthly rent at specific intervals. When rent escalation
clauses exist, we record total expected rent payments on a straight-line basis over the lease term. Certain leases
also have renewal options. Renewal options that are reasonably assured are included in determining the lease
term. Future minimum rental commitments for all long-term noncancelable operating leases as of December 31,
2008 are as follows:
($ in thousands)
Operating
Leases
Year ending December 31:
2009 ......................... $22,654
2010 ......................... 11,288
2011 ......................... 10,211
2012 ......................... 6,835
2013 ......................... 5,946
Thereafter .................... 9,566
Total minimum lease payments $66,500
Total rental expense included in our consolidated statements of operations for the years ended December
31, 2008, 2007 and 2006 was $24.3 million, $23.6 million and $16.3 million, respectively.
We are a party to contracts with several unrelated long distance carriers. The contracts provide fees based
on traffic they carry for us subject to minimum monthly fees.
At December 31, 2008, the estimated future payments for obligations under our noncancelable long
distance contracts and service agreements are as follows:
($ in thousands)
Year Amount
2009........ $23,286
2010........ 9,937
2011........ 259
2012........ 165
2013........ 165
Thereafter. . . 330
Total $34,142
We sold all of our utility businesses as of April 1, 2004. However, we have retained a potential payment
obligation associated with our previous electric utility activities in the State of Vermont. The Vermont Joint
Owners (VJO), a consortium of 14 Vermont utilities, including us, entered into a purchase power agreement
with Hydro-Quebec in 1987. The agreement contains “step-up” provisions that state that if any VJO member
defaults on its purchase obligation under the contract to purchase power from Hydro-Quebec, then the other
VJO participants will assume responsibility for the defaulting party’s share on a pro-rata basis. Our pro-rata
share of the purchase power obligation is 10%. If any member of the VJO defaults on its obligations under the
Hydro-Quebec agreement, then the remaining members of the VJO, including us, may be required to pay for a
substantially larger share of the VJO’s total power purchase obligation for the remainder of the agreement
(which runs through 2015). Paragraph 13 of FIN No. 45 requires 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 credit ratings equal to or superior to ours, and that all VJO members are regulated utility
providers with regulated cost recovery. Despite the remote chance that such an event could occur, or that the
F-43
FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements