Frontier Communications 2010 Annual Report Download - page 100

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included in determining the lease term. Future minimum rental commitments for all long-term noncancelable
operating leases as of December 31, 2010 are as follows:
($ in thousands)
Operating
Leases
Year ending December 31:
2011................................................... $ 68,087
2012................................................... 19,061
2013................................................... 12,511
2014................................................... 9,975
2015................................................... 3,018
Thereafter .................................................. 6,528
Total minimum lease payments . . . . . . . . . . . . . . . . . . . . . . . . . $119,180
Total rental expense included in our consolidated statements of operations for the years ended December
31, 2010, 2009 and 2008 was $48.5 million, $25.9 million and $24.3 million, respectively.
We are a party to contracts with several unrelated long distance carriers. The contracts provide fees based
on traffic they carry for us subject to minimum monthly fees.
At December 31, 2010, the estimated future payments for obligations under our noncancelable long
distance contracts and service agreements are as follows:
($ in thousands)
Year Amount
2011 . . . . . . . . . . . $ 45,722
2012 . . . . . . . . . . . 33,829
2013 . . . . . . . . . . . 29,053
2014 . . . . . . . . . . . 256
2015 . . . . . . . . . . . 192
Thereafter . . . . . . —
Total. . . . . . . $109,052
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 purchase power obligation for the remainder of the agreement
(which runs through 2015). U.S. GAAP rules require that we disclose “the maximum potential amount of future
payments (undiscounted) the guarantor could be required to make under the guarantee.” U.S. GAAP rules also
state 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, an unlikely
scenario given 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 State of Vermont could or would allow such an event,
assuming that all the members of the VJO defaulted on January 1, 2011 and remained in default for the
duration of the contract (another 5 years), we estimate that our undiscounted purchase obligation for 2011
through 2015 would be approximately $474.2 million. 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
F-41
FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements