Q3 2013 Form 10-Q


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2013
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission File Number 1-8519
CINCINNATI BELL INC.
 
Ohio
 
31-1056105
(State of Incorporation)
 
(I.R.S. Employer Identification No.)
221 East Fourth Street, Cincinnati, Ohio 45202
(Address of principal executive offices) (Zip Code)
(513) 397-9900
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
x
  
Accelerated filer
o
 
 
 
 
 
Non-accelerated filer
o
  
Smaller reporting company
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o No  x

At October 31, 2013, there were 208,037,869 common shares outstanding.
 

Table of Contents
Form 10-Q Part I
 
Cincinnati Bell Inc.

TABLE OF CONTENTS

PART I. Financial Information
Description
 
Page
Item 1.
Financial Statements
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 3.
Defaults upon Senior Securities – None
 
 
 
 
Item 4.
Mine Safety Disclosures – None
 
 
 
 
Item 5.
Other Information – No reportable items
 
 
 
 
Item 6.
 
 
 
 

Table of Contents
Form 10-Q Part I
 
Cincinnati Bell Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in millions, except per share amounts)
(Unaudited)
 
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2013
 
2012
 
2013
 
2012
Revenue
 
 
 
 
 
 
 
Services
$
255.4

 
$
319.5

 
$
782.3

 
$
956.4

Products
55.4

 
48.7

 
166.2

 
142.8

Total revenue
310.8

 
368.2

 
948.5

 
1,099.2

Costs and expenses
 
 
 
 
 
 
 
Cost of services, excluding items below
106.9

 
123.4

 
318.4

 
365.4

Cost of products sold, excluding items below
52.5

 
48.9

 
160.4

 
144.4

Selling, general and administrative, excluding items below
53.6

 
72.2

 
161.4

 
199.6

Depreciation and amortization
39.8

 
55.4

 
127.6

 
160.2

Transaction-related compensation
—

 
—

 
42.6

 
—

Restructuring charges
—

 
0.9

 
10.8

 
3.0

Curtailment gain
—

 
—

 
(0.6
)
 
—

(Gain) loss on sale or disposal of assets, net
(0.2
)
 
(0.6
)
 
2.6

 
(0.6
)
Transaction costs
0.5

 
1.7

 
1.6

 
1.7

Asset impairments
—

 
0.3

 
—

 
13.3

Total operating costs and expenses
253.1

 
302.2

 
824.8

 
887.0

Operating income
57.7

 
66.0

 
123.7

 
212.2

Interest expense
46.7

 
55.2

 
140.0

 
163.3

Loss from CyrusOne equity method investment
1.5

 
—

 
8.1

 
—

Other (income) expense, net
(1.2
)
 
0.1

 
(1.4
)
 
1.6

Income (loss) before income taxes
10.7

 
10.7

 
(23.0
)
 
47.3

Income tax expense
1.4

 
6.8

 
3.6

 
26.3

Net income (loss)
9.3

 
3.9

 
(26.6
)
 
21.0

Preferred stock dividends
2.6

 
2.6

 
7.8

 
7.8

Net income (loss) applicable to common shareowners
$
6.7

 
$
1.3

 
$
(34.4
)
 
$
13.2

Basic and diluted earnings (loss) per common share
$
0.03

 
$
0.01

 
$
(0.17
)
 
$
0.07



The accompanying notes are an integral part of the condensed consolidated financial statements.

1
Table of Contents

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in millions)
(Unaudited)

 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2013
 
2012
 
2013
 
2012
Net income (loss)
$
9.3

 
$
3.9

 
$
(26.6
)
 
$
21.0

Other comprehensive income, net of tax:
 
 
 
 
 
 
 
Foreign currency translation gain (loss), net of tax of ($0.1), $0.0, ($0.2), $0.0
—

 
0.1

 
(0.1
)
 
0.1

Defined benefit pension and postretirement plans:
 
 
 
 
 
 
 
   Net gain arising from remeasurement during the period, net of tax of $13.1, $17.3
22.7

 
—

 
30.0

 
—

   Amortization of prior service benefits, net of tax of ($1.3), ($1.2), ($3.7), ($3.5)
(2.3
)
 
(2.0
)
 
(6.3
)
 
(6.2
)
   Amortization of net actuarial loss, net of tax of $2.4, $2.2, $7.5, $7.0
4.4

 
4.2

 
13.2

 
12.5

   Reclassification adjustment for curtailment gain included in net income, net of tax of ($0.2)
—

 
—

 
(0.4
)
 
—

Other comprehensive income
24.8

 
2.3

 
36.4

 
6.4

Total comprehensive income
$
34.1

 
$
6.2

 
$
9.8

 
$
27.4



The accompanying notes are an integral part of the condensed consolidated financial statements.

2
Table of Contents
Form 10-Q Part I
 
Cincinnati Bell Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions, except share amounts)(Unaudited) 
 
September 30,
2013
 
December 31,
2012
Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
413.7

 
$
23.6

Receivables, less allowances of $13.0 and $13.3
153.4

 
199.0

Receivable from CyrusOne
8.0

 
—

Inventory, materials and supplies
26.4

 
30.7

Deferred income taxes, net
34.1

 
26.8

Prepaid expenses
11.1

 
11.8

Other current assets
3.6

 
11.6

Total current assets
650.3

 
303.5

Property, plant and equipment, net
892.5

 
1,587.4

Investment in CyrusOne
480.7

 
—

Goodwill
14.4

 
290.6

Intangible assets, net
92.8

 
196.8

Deferred income taxes, net
376.9

 
407.8

Other noncurrent assets
44.1

 
86.3

Total assets
$
2,551.7

 
$
2,872.4

Liabilities and Shareowners’ Deficit
 
 
 
Current liabilities
 
 
 
Current portion of long-term debt
$
508.9

 
$
13.4

Accounts payable
107.3

 
135.6

Payable to CyrusOne
1.0

 
—

Unearned revenue and customer deposits
34.3

 
51.2

Accrued taxes
19.7

 
21.6

Accrued interest
52.4

 
41.3

Accrued payroll and benefits
41.7

 
52.1

Other current liabilities
32.2

 
40.2

Total current liabilities
797.5

 
355.4

Long-term debt, less current portion
2,108.2

 
2,676.0

Pension and postretirement benefit obligations
262.3

 
362.7

Other noncurrent liabilities
70.9

 
176.5

Total liabilities
3,238.9

 
3,570.6

Shareowners’ deficit
 
 
 
Preferred stock, 2,357,299 shares authorized, 155,250 shares (3,105,000 depositary shares) of 6 3/4% Cumulative Convertible Preferred Stock issued and outstanding at September 30, 2013 and December 31, 2012; liquidation preference $1,000 per share ($50 per depositary share)
129.4

 
129.4

Common shares, $.01 par value; 480,000,000 shares authorized; 208,559,589 and 202,960,430 shares issued; 208,037,869 and 202,468,710 shares outstanding at September 30, 2013 and December 31, 2012
2.1

 
2.0

Additional paid-in capital
2,592.1

 
2,590.9

Accumulated deficit
(3,235.4
)
 
(3,208.8
)
Accumulated other comprehensive loss
(173.3
)
 
(209.7
)
Common shares in treasury, at cost
(2.1
)
 
(2.0
)
Total shareowners’ deficit
(687.2
)
 
(698.2
)
Total liabilities and shareowners’ deficit
$
2,551.7

 
$
2,872.4

The accompanying notes are an integral part of the condensed consolidated financial statements.

3
Table of Contents
Form 10-Q Part I
 
Cincinnati Bell Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
(Unaudited)
 
Nine Months Ended
 
September 30,
 
2013
 
2012
Cash flows from operating activities
 
 
 
Net (loss) income
$
(26.6
)
 
$
21.0

Adjustments to reconcile net (loss) income to net cash provided by operating activities
 
 
 
Depreciation and amortization
127.6

 
160.2

Provision for loss on receivables
9.0

 
11.6

Loss from CyrusOne equity method investment
8.1

 
—

Asset impairments
—

 
13.3

Noncash portion of interest expense
5.7

 
5.8

Deferred income tax provision
1.9

 
25.8

Pension and other postretirement payments in excess of expense
(43.0
)
 
(24.3
)
Stock-based compensation
4.0

 
3.6

Loss (gain) on sale or disposal of assets, net
2.6

 
(0.6
)
Excess tax benefit for share based payments
(0.5
)
 
—

Other, net
(2.1
)
 
(1.2
)
Changes in operating assets and liabilities, net of CyrusOne deconsolidation:
 
 
 
Increase in receivables
(4.4
)
 
(26.1
)
Increase in inventory, materials, supplies, prepaid expenses and other current assets
(6.7
)
 
(13.4
)
Decrease in accounts payable
(1.0
)
 
(10.4
)
Decrease in accrued and other current liabilities
(3.8
)
 
(9.6
)
Decrease (increase) in other noncurrent assets
0.1

 
(4.2
)
(Decrease) increase in other noncurrent liabilities
(11.1
)
 
3.5

Net cash provided by operating activities
59.8

 
155.0

Cash flows from investing activities
 
 
 
Capital expenditures
(142.0
)
 
(242.9
)
Dividends received from CyrusOne
14.2

 
—

Proceeds from sale of assets
1.8

 
0.6

Increase in restricted cash
—

 
(11.1
)
Release of restricted cash
0.4

 
0.7

Cash divested from deconsolidation of CyrusOne
(12.2
)
 
—

Net cash used in investing activities
(137.8
)
 
(252.7
)
Cash flows from financing activities
 
 
 
Proceeds from issuance of long-term debt
536.0

 
—

(Decrease) increase in revolving facilities, net
(52.0
)
 
44.0

Repayment of debt
(6.7
)
 
(11.3
)
Debt issuance costs
(6.4
)
 
—

Dividends paid on preferred stock
(7.8
)
 
(7.8
)
Common stock repurchase
—

 
(0.3
)
Proceeds from exercise of options and warrants
6.8

 
8.1

Excess tax benefit for share based payments
0.5

 
—

Other, net
(2.3
)
 
(1.0
)
Net cash provided by financing activities
468.1

 
31.7

Net increase (decrease) in cash and cash equivalents
390.1

 
(66.0
)
Cash and cash equivalents at beginning of period
23.6

 
73.7

Cash and cash equivalents at end of period
$
413.7

 
$
7.7

 
 
 
 
Noncash investing and financing transactions:
 
 
 
Investment in CyrusOne resulting from deconsolidation
$
509.7

 
$
—

Accrual of CyrusOne dividends
$
7.1

 
$
—

Acquisition of property by assuming debt and other noncurrent liabilities
$
5.6

 
$
7.8

Acquisition of property on account
$
20.4

 
$
37.9

The accompanying notes are an integral part of the condensed consolidated financial statements.

4
Table of Contents
Form 10-Q Part I
 
Cincinnati Bell Inc.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 

1.
Description of Business and Accounting Policies
Description of Business — Cincinnati Bell Inc. and its consolidated subsidiaries (the “Company” or “we”) provide diversified telecommunications and technology services. As of September 30, 2013, we operate our business through the following segments: Wireline, Wireless, and IT Services and Hardware.
On January 24, 2013, we completed the initial public offering (“IPO”) of CyrusOne Inc. (“CyrusOne”), which owns and operates our former Data Center Colocation segment. CyrusOne conducts its data center business through CyrusOne LP, an operating partnership. As of September 30, 2013, we own approximately 1.9 million shares of CyrusOne's common stock and are a limited partner in CyrusOne LP, owning approximately 42.6 million of its partnership units. Although we effectively own approximately 69% of CyrusOne through our ownership of its common stock and partnership units of CyrusOne LP, we no longer control its operations. As such, effective January 24, 2013, we no longer include the accounts of CyrusOne in our consolidated financial statements and now account for our ownership in CyrusOne as an equity method investment.
Basis of Presentation — The Condensed Consolidated Financial Statements of the Company have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) and, in the opinion of management, include all adjustments necessary for a fair presentation of the results of operations, other comprehensive income, financial position, and cash flows for each period presented.
The adjustments referred to above are of a normal and recurring nature. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to SEC rules and regulations for interim reporting.
The Condensed Consolidated Balance Sheet as of December 31, 2012 was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. These Condensed Consolidated Financial Statements should be read in conjunction with the Company’s 2012 Annual Report on Form 10-K. Operating results for the three and nine months ended September 30, 2013 are not necessarily indicative of the results expected for the full year or any other interim period.
Use of Estimates — Preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported. Actual results could differ from those estimates. In the normal course of business, the Company is subject to various regulatory and tax proceedings, lawsuits, claims, and other matters. The Company believes adequate provision has been made for all such asserted and unasserted claims in accordance with U.S. GAAP. Such matters are subject to many uncertainties and outcomes that are not predictable with assurance.
Investment in CyrusOne - We completed the IPO of CyrusOne on January 24, 2013, and as of that date, we no longer control its operations. As a result, effective January 24, 2013, our 69% ownership in CyrusOne is accounted for as an equity method investment. From that date, we recognize our proportionate share of CyrusOne's net income or loss as non-operating income or expense in our consolidated statement of operations. For the period January 1, 2013 through January 23, 2013, we consolidated CyrusOne's operating results. During the three and nine months ended September 30, 2013, the Company received cash dividends from CyrusOne totaling $7.2 million and $14.2 million, respectively. Dividends from CyrusOne are recognized as a reduction of our investment.
Property, Plant and Equipment — Property, plant and equipment is stated at original cost and presented net of accumulated depreciation and impairment losses. Depreciation expense is generally calculated using either the group depreciation method or the straight-line method. During the three months ended March 31, 2013, and in connection with ongoing reviews of the estimated remaining useful lives of property, plant and equipment, we shortened the estimated useful lives assigned to wireless network software to three years.  This change resulted from smartphone-driven technology upgrades, enhancements and projected retirements. As a result of this change in estimate, we recorded depreciation expense of $8.5 million ($5.1 million net of tax) in the first quarter of 2013, which had the impact of increasing basic and diluted loss per share by approximately $0.03 per share.

5
Table of Contents
Form 10-Q Part I
 
Cincinnati Bell Inc.

Income Taxes — The Company’s income tax provision for interim periods is determined through the use of an estimated annual effective tax rate applied to year-to-date ordinary income, as well as the tax effects associated with discrete items. For 2013, the Company expects its effective tax rate to be lower than statutory rates on its pre-tax loss. The Company's tax expense for the three months ended September 30, 2013 decreased from the prior year due to a reduction in the expected annual effective tax rate, which was driven by lower expected pre-tax income year-over-year. The Company's tax expense for the nine months ended September 30, 2013 decreased from the prior year primarily due to lower pre-tax income and a reduction in the annual effective tax rate. The tax impact of lower income was partially offset by a valuation allowance provision of $10.7 million for Texas margin credits, which effective with CyrusOne's IPO on January 24, 2013, are unlikely to be realized before their expiration date.
Operating Taxes — Certain operating taxes such as property, sales, use and gross receipts taxes are reported as expenses in operating income primarily within cost of services. These taxes are not included in income tax expense because the amounts to be paid are not dependent on our level of income. Liabilities for audit exposures are established based on management's assessment of the probability of payment. The provision for such liabilities is recognized as either property, plant and equipment, operating tax expense, or depreciation expense depending on the nature of the audit exposure. Upon resolution of an audit, any remaining liability not paid is released against the account in which it was originally recorded.
Recently Issued Accounting Standards — In February 2013, the Financial Accounting Standards Board ("FASB") amended the guidance in Accounting Standards Codification ("ASC") 220 on comprehensive income. The new guidance requires additional information to be disclosed about the amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amounts reclassified are required under U.S. generally accepted accounting principles to be reclassified in their entirety to net income. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, cross references to other disclosures will be required. We adopted this new guidance beginning with our interim financial statements for the three months ended March 31, 2013. See Note 9 for our disclosures.
In July 2013, the FASB issued new guidance under Accounting Standards Update 2013-11 regarding the presentation of unrecognized tax benefits in financial statements. This new standard requires the netting in the balance sheet of unrecognized tax benefits against a deferred tax asset for a same-jurisdiction loss or other carryforward that would apply in settlement of the uncertain tax positions. To the extent a net operating loss ("NOL") or tax credit carryforward is not available under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position, the unrecognized tax benefit would be presented in the balance sheet as a liability. This standard is effective for annual and interim periods beginning after December 15, 2013. We expect that the adoption of this standard will not have a material impact on our financial statements.


6
Table of Contents
Form 10-Q Part I
 
Cincinnati Bell Inc.

2.    Investment in CyrusOne
On January 24, 2013, we completed the initial public offering of CyrusOne, our former Data Center Colocation segment. As of this date, we no longer control CyrusOne's operations, and we removed the following assets and liabilities of CyrusOne from our consolidated financial statements:
(dollars in millions)
 
 
Cash
 
$
12.2

Receivables
 
41.5

Other current assets
 
13.4

Property, plant and equipment
 
736.2

Goodwill and intangibles
 
377.7

Other noncurrent assets
 
44.0

Total assets
 
1,225.0

 
 
 
Current portion of long-term debt
 
6.3

Accounts payable
 
29.4

Unearned revenue and customer deposits
 
24.1

Other current liabilities
 
12.9

Long-term debt
 
550.3

Other noncurrent liabilities
 
92.3

Total liabilities
 
715.3

 
 
 
Net assets
 
$
509.7

We effectively own approximately 69% of CyrusOne and account for our investment using the equity method as we no longer control its operations. For the three and nine months ended September 30, 2013, our equity method share of CyrusOne's net loss was $1.5 million and $8.1 million, respectively.
Commencing January 17, 2014, we may exchange the partnership units of CyrusOne LP into cash, or shares of common stock of CyrusOne, as determined by CyrusOne, on a one-for-one basis based upon the fair value of a share of CyrusOne common stock. As of September 30, 2013, the fair value of this investment was $845.1 million based on the quoted market price of CyrusOne's common stock, which is considered a Level 1 measurement in the fair value hierarchy.

Summarized financial information for CyrusOne is as follows:
(dollars in millions)
Three Months Ended September 30, 2013
 
January 24, 2013 to September 30, 2013
Revenue
$
67.5

 
$
176.1

Operating income
8.5

 
19.9

Net loss
(2.2
)
 
(11.8
)


7
Table of Contents
Form 10-Q Part I
 
Cincinnati Bell Inc.

Transactions with CyrusOne
Revenues - The Company records service revenue from CyrusOne under contractual service arrangements which include, among others, providing services such as fiber transport, network support, service calls, monitoring and management, storage and back-up, and IT systems support.
Operating Expenses - For the nine months ended September 30, 2013, we recognized transaction-related compensation of $20.0 million associated with CyrusOne employees. These payments were made in April 2013. See Note 8 for further discussion of this compensation plan.
We lease data center and office space from CyrusOne at certain locations in the Cincinnati area under operating leases and are also billed for other services provided by CyrusOne under contractual service arrangements. In the normal course of business, the Company also provides certain administrative services to CyrusOne. These services are billed to CyrusOne based on agreed-upon rates and could include, but are not limited to, services for cash management, legal, treasury, human resources, accounting, tax, internal audit, information technology and risk management services. For the period to date, the services provided have been primarily limited to cash management. These expense recoveries from CyrusOne are credited to the expense account in which they were initially recorded.
Revenues and operating costs and expenses from transactions with CyrusOne were as follows:
(dollars in millions)
 
Three Months Ended September 30, 2013
 
January 24, 2013 to September 30, 2013
Revenue:
 
 
 
 
Services provided to CyrusOne
 
$
0.5

 
$
1.6

 
 
 
 
 
Operating costs and expenses:
 
 
 
 
Transaction-related compensation to CyrusOne employees
 
$
—

 
$
20.0

Charges for services provided by CyrusOne
 
2.4

 
6.5

Administrative services provided to CyrusOne
 
(0.1
)
 
(0.4
)
Total operating costs and expenses
 
$
2.3

 
$
26.1

        
Dividends of $7.2 million were received in the third quarter of 2013. In addition, on September 4, 2013, CyrusOne declared a dividend of $0.16 per share payable on its common shares and CyrusOne LP partnership units. This dividend was paid on October 15, 2013 to holders of record as of September 27, 2013. At September 30, 2013, amounts receivable from and payable to CyrusOne were as follows:
(dollars in millions)
 
September 30, 2013
Accounts receivable
 
$
0.9

Dividends receivable
 
7.1

Receivable from CyrusOne
 
$
8.0

 
 
 
Accounts payable
 
$
1.0

Payable to CyrusOne
 
$
1.0



8
Table of Contents
Form 10-Q Part I
 
Cincinnati Bell Inc.

3.    Earnings Per Common Share
Basic earnings per common share (“EPS”) is based upon the weighted average number of common shares outstanding during the period. Diluted EPS reflects the potential dilution that would occur upon issuance of common shares for awards under stock-based compensation plans, exercise of warrants or conversion of preferred stock, but only to the extent that they are considered dilutive.
The following table shows the computation of basic and diluted EPS:
 
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
(in millions, except per share amounts)
2013
 
2012
 
2013
 
2012
Numerator:
 
 
 
 
 
 
 
Net income (loss)
$
9.3

 
$
3.9

 
$
(26.6
)
 
$
21.0

Preferred stock dividends
2.6

 
2.6

 
7.8

 
7.8

Net income (loss) applicable to common shareholders - basic and diluted
$
6.7

 
$
1.3

 
$
(34.4
)
 
$
13.2

Denominator:
 
 
 
 
 
 
 
Weighted average common shares outstanding - basic
207.0

 
196.4

 
205.6

 
195.8

Warrants
—

 
5.6

 
—

 
3.9

Stock-based compensation arrangements
1.5

 
3.6

 
—

 
3.3

Weighted average common shares outstanding - diluted
208.5

 
205.6

 
205.6

 
203.0

Basic and diluted earnings (loss) per common share
$
0.03

 
$
0.01

 
$
(0.17
)
 
$
0.07


For the three months ended September 30, 2013, awards under the Company's stock-based compensation plans for common shares of 7.0 million were excluded from the computation of diluted EPS as their inclusion would have been anti-dilutive. For the nine months ended September 30, 2013, the Company had a net loss available to common shareholders and, as a result, all common stock equivalents were excluded from the computation of diluted EPS as their inclusion would have been anti-dilutive. For the three and nine months ended September 30, 2012, awards under the Company’s stock-based compensation plans for common shares of 4.4 million and 6.2 million, respectively, were excluded from the computation of diluted EPS as their inclusion would have been anti-dilutive. For the three and nine months ended September 30, 2013 and 2012, preferred stock convertible into 4.5 million common shares was excluded from the computation of diluted EPS as the result would have been anti-dilutive.


9
Table of Contents
Form 10-Q Part I
 
Cincinnati Bell Inc.

4.    Debt
The Company’s debt consists of the following:
 
(dollars in millions)
September 30,
2013
 
December 31,
2012
Current portion of long-term debt:
 
 
 
Corporate Credit Agreement - Tranche B Term Loan
$
5.4

 
$
—

8 1/4% Senior Notes due 2017
500.0

 
—

Capital lease obligations and other debt
7.2

 
13.4

Net unamortized discount on 8 1/4% Senior Notes due 2017
(3.7
)
 
—

Current portion of long-term debt
508.9

 
13.4

Long-term debt, less current portion:
 
 
 
Receivables Facility
—

 
52.0

8 1/4% Senior Notes due 2017
—

 
500.0

8 3/4% Senior Subordinated Notes due 2018
625.0

 
625.0

Corporate Credit Agreement - Tranche B Term Loan
534.6

 
—

8 3/8% Senior Notes due 2020
683.9

 
683.9

CyrusOne 6 3/8% Senior Notes due 2022
—

 
525.0

7 1/4% Senior Notes due 2023
40.0

 
40.0

Various Cincinnati Bell Telephone notes
134.5

 
134.5

Capital lease obligations and other debt
96.9

 
123.1

 
2,114.9

 
2,683.5

Net unamortized discount
(6.7
)
 
(7.5
)
         Long-term debt, less current portion
2,108.2

 
2,676.0

Total debt
$
2,617.1

 
$
2,689.4


In 2013, upon completion of the IPO of CyrusOne, we removed CyrusOne's debt from our consolidated financial statements. The Company no longer has any obligations related to CyrusOne's indebtedness which includes CyrusOne's $525 million of 6 3/8% Senior Notes due 2022, capital lease obligations and other financing arrangements. In addition, the Company no longer has access to the $225 million CyrusOne Credit Agreement.

Accounts Receivable Securitization Facility
On June 3, 2013, the Company executed an amendment of its accounts receivable securitization facility (“Receivables Facility”) which, in addition to modifying some of the defined terms and purchaser parties under the prior agreement, provided for an increase in the maximum credit availability under the Receivables Facility from $105.0 million to $120.0 million and extended the facility's expiration through June 2016. As of September 30, 2013, the Company had no borrowings and $5.2 million of letters of credit outstanding under the Receivables Facility, leaving $102.7 million of remaining availability on the total borrowing capacity of $107.9 million. The Receivables Facility is subject to renewal every 364 days until its expiration in June 2016 and, in the event that it is not renewed, the Company has the ability to refinance any outstanding borrowings with borrowings under its existing revolving corporate credit facility (the "Corporate Credit Agreement"). The permitted borrowings vary depending on the level of eligible receivables and other factors. Under the Receivables Facility, certain subsidiaries, or originators, sell their respective trade receivables on a continuous basis to Cincinnati Bell Funding LLC (“CBF”). Although CBF is a wholly-owned consolidated subsidiary of the Company, CBF is legally separate from the Company and each of the Company’s other subsidiaries. Upon and after the sale or contribution of the accounts receivable to CBF, such accounts receivable are legally assets of CBF and, as such, are not available to creditors of other subsidiaries or the Company.


10
Table of Contents
Form 10-Q Part I
 
Cincinnati Bell Inc.

Corporate Credit Agreement - Amendment for Tranche B Term Loan Facility

On September 10, 2013, the Company amended and restated its Corporate Credit Agreement, originally dated as of November 20, 2012, to include a new $540 million Tranche B Term Loan facility ("Tranche B Term Loan") that matures on September 10, 2020. The Tranche B Term Loan was issued with 0.75% of original issue discount and requires quarterly principal payments of 0.25% of the original principal amount. Loans under the Tranche B Term Loan bear interest, at the Company's election, at a rate per annum equal to (i) LIBOR (subject to a 1.00% floor) plus 3.00% or (ii) the base rate plus 2.00%. Base rate is the greatest of (a) the bank prime rate, (b) the one-month LIBOR rate plus 1.00% and (c) the federal funds rate plus 0.5%.

The Company received $529.6 million in net proceeds from the Tranche B Term Loan on September 10, 2013, after deducting the original issue discount, fees and expenses. These proceeds were used to redeem all of the Company's $500 million of 8 1/4% Senior Notes due 2017 ("8 1/4% Senior Notes") on October 15, 2013 at a redemption price of 104.125%, including payment of accrued interest thereon totaling $20.6 million. In accordance with the indenture governing these 8 1/4% Senior Notes, the Company filed a notification with the trustee on September 11, 2013 of its election to redeem these 8 1/4% Senior Notes on the redemption date, October 15, 2013. As a result of the redemption, the Company expects to record a debt extinguishment loss of $29.6 million in the fourth quarter of 2013 which consists of $20.6 million of call premiums and the write-off of $5.3 million of issuance costs and $3.7 million of debt discount. As of September 30, 2013, the 8 1/4% Senior Notes and the associated discount are presented as a current liability on the Company's consolidated balance sheet.

The Company's ability to make restricted payments, which include share repurchases and common stock dividends, is limited to a total of $15 million, with certain permitted exceptions, given that its Consolidated Total Leverage Ratio, as defined in the credit agreement, exceeds 3.50 to 1.00 as of September 30, 2013.  The Company may make restricted payments of $45 million annually when the Consolidated Total Leverage Ratio is less than or equal to 3.50 to 1.00.  There are no dollar limits on restricted payments when the Consolidated Total Leverage Ratio is less than or equal to 3.00 to 1.00. These restricted payment limitations do not impact the Company's ability to make regularly scheduled dividend payments on its 6 3/4% Cumulative Convertible Preferred Stock. Furthermore, the Company may make restricted payments in the form of share repurchases or dividends up to 15% of CyrusOne sale proceeds, subject to a $35 million annual cap with carryovers.

The Corporate Credit Agreement was also modified to provide that the Tranche B Term Loan participates in mandatory prepayments applicable to the Company's existing revolving corporate credit facility, subject to the terms and conditions (including with respect to payment priority) set forth in the restated Corporate Credit Agreement. In addition, the Corporate Credit Agreement was modified to provide that 85%, rather than 100%, of proceeds of CyrusOne Sales are applied to mandatory prepayments under the restated Corporate Credit Agreement, subject to the terms and conditions set forth therein. Other revisions were also effected pursuant to the amended agreement, including with respect to financial covenant compliance levels.

The Tranche B Term Loan is subject to the same affirmative and negative covenants and events of default as the Corporate Credit Agreement, except that a breach of the financial covenants will not result in an event of default under the Tranche B Term Loan unless and until the agent or a majority in interest of the lenders under the Corporate Credit Agreement have terminated the commitments under the Corporate Credit Agreement or accelerated the loans then outstanding under the Corporate Credit Agreement in response to such breach.

As of September 30, 2013, the Company had no outstanding borrowings on its Corporate Credit Agreement, leaving $200.0 million available. The Corporate Credit Agreement expires in July 2017.


11
Table of Contents
Form 10-Q Part I
 
Cincinnati Bell Inc.


5.    Financial Instruments and Fair Value Measurements
Fair Value of Financial Instruments

The carrying values of the Company's financial instruments approximate the estimated fair values as of September 30, 2013 and December 31, 2012, except for the Company's investment in CyrusOne, long-term debt and other financing arrangements. The carrying and fair values of these financial instruments are as follows: 
 
September 30, 2013
 
December 31, 2012
(dollars in millions)
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
Investment in CyrusOne
$
480.7

 
$
845.1

 
$
—

 
$
—

Long-term debt, including current portion
2,617.1

 
2,701.2

 
2,689.4

 
2,834.6

Other financing arrangements
—

 
—

 
60.8

 
69.5


The fair value of our investment in CyrusOne was based on the closing market price of CyrusOne's common stock on September 30, 2013. This fair value measurement is considered Level 1 of the fair value hierarchy.

The fair value of our long-term debt was based on closing or estimated market prices of the Company’s debt at September 30, 2013 and December 31, 2012, which is considered Level 2 of the fair value hierarchy.

As of January 24, 2013, upon completion of the IPO of CyrusOne, we no longer consolidate CyrusOne. Therefore, the other financing arrangements related to CyrusOne are no longer accounted for in our consolidated financial statements. As of December 31, 2012, the fair value of other financing arrangements was calculated using a discounted cash flow model that incorporates current borrowing rates for obligations of similar duration, which is considered Level 3 of the fair value hierarchy.

6.    Restructuring Charges
As of September 30, 2013, restructuring liabilities have been established for employee separations, lease abandonments and contract terminations. A summary of the activity in our restructuring liabilities is presented below:
(dollars in millions)
Employee
Separation
 
Lease
Abandonment
 
Other
 
Total
Balance as of December 31, 2012
$
7.8

 
$
5.5

 
$
0.2

 
$
13.5

Charges
0.9

 
1.7

 
—

 
2.6

Utilizations
(2.8
)
 
(0.7
)
 
(0.1
)
 
(3.6
)
Balance as of March 31, 2013
$
5.9

 
$
6.5

 
$
0.1

 
$
12.5

Charges
5.4

 
2.8

 
—

 
8.2

Utilizations
(2.8
)
 
(1.1
)
 
—

 
(3.9
)
Balance as of June 30, 2013
$
8.5

 
$
8.2

 
$
0.1

 
$
16.8

Charges
—

 
(0.6
)
 
0.6

 
—

Utilizations
(1.2
)
 
(1.3
)
 
—

 
(2.5
)
Balance as of September 30, 2013
$
7.3

 
$
6.3

 
$
0.7

 
$
14.3

For the nine months ended September 30, 2013, employee separation charges were primarily comprised of severance and consulting fees related to a workforce optimization initiative. During this period, the Company made severance payments pursuant to a written severance plan, certain management contracts, and also a voluntary termination program that was offered to certain Wireline call center employees. These severance payments are expected to continue through 2014. Lease abandonment costs represent future minimum lease obligations, net of expected sublease income, for abandoned facilities. Lease payments on abandoned facilities will continue through 2018. In the third quarter of 2013, the Company re-occupied certain floors at leased facilities that were previously abandoned. Other consists of amounts due to distributors to terminate their contractual agreements and to telecommunication carriers to cancel circuits.

12
Table of Contents
Form 10-Q Part I
 
Cincinnati Bell Inc.

A summary of restructuring activity by business segment is presented below:
(dollars in millions)
Wireline
 
Wireless
 
IT Services and Hardware
 
Corporate
 
Total
Balance as of December 31, 2012
$
8.6

 
$
1.6

 
$
0.5

 
$
2.8

 
$
13.5

Charges
1.4

 
—

 
—

 
1.2

 
2.6

Utilizations
(2.1
)
 
—

 
(0.3
)
 
(1.2
)
 
(3.6
)
Balance as of March 31, 2013
$
7.9

 
$
1.6

 
$
0.2

 
$
2.8

 
$
12.5

Charges
4.4

 
—

 
0.7

 
3.1

 
8.2

Utilizations
(1.7
)
 
(0.1
)
 
(0.1
)
 
(2.0
)
 
(3.9
)
Balance as of June 30, 2013
$
10.6

 
$
1.5

 
$
0.8

 
$
3.9

 
$
16.8

Charges
—

 
—

 
—

 
—

 
—

Utilizations
(2.1
)
 
—

 
—

 
(0.4
)
 
(2.5
)
Balance as of September 30, 2013
$
8.5

 
$
1.5

 
$
0.8

 
$
3.5

 
$
14.3

At September 30, 2013 and December 31, 2012, $8.5 million and $5.8 million, respectively, of the restructuring liabilities were included in “Other current liabilities,” and $5.8 million and $7.7 million, respectively, were included in “Other noncurrent liabilities” in the Condensed Consolidated Balance Sheets.

7.    Pension and Postretirement Plans
The Company sponsors three noncontributory defined benefit plans and a postretirement health and life insurance plan. During the third quarter of 2013, the Board approved several amendments to the postretirement plan that required a remeasurement of the associated benefit obligations. As a result, the Company recorded a $26.1 million reduction to the postretirement liability in the third quarter of 2013. Pension plan amendments were approved by the Board in the second quarter of 2013, and the Company remeasured the associated pension obligations. As a result of the pension plan amendment, the Company recorded a curtailment gain of $0.6 million and a $10.3 million reduction to the associated pension obligations in the three months ended June 30, 2013. For the three and nine months ended September 30, 2013 and 2012, pension and postretirement benefit costs were as follows:
 
Three Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
(dollars in millions)
Pension Benefits
 
Postretirement and
Other Benefits
Service cost
$
0.3

 
$
0.7

 
$
0.1

 
$
0.2

Interest cost on projected benefit obligation
4.7

 
5.3

 
1.0

 
1.4

Expected return on plan assets
(6.3
)
 
(6.6
)
 
—

 
—

Amortization of:
 
 
 
 
 
 
 
Prior service cost (benefit)
0.1

 
—

 
(3.7
)
 
(3.2
)
Actuarial loss
5.4

 
4.8

 
1.4

 
1.6

       Total amortization
5.5

 
4.8

 
(2.3
)
 
(1.6
)
Benefit costs
$
4.2

 
$
4.2

 
$
(1.2
)
 
$
—




13
Table of Contents
Form 10-Q Part I
 
Cincinnati Bell Inc.

 
Nine Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
(dollars in millions)
Pension Benefits
 
Postretirement and
Other Benefits
Service cost
$
1.7

 
$
2.0

 
$
0.3

 
$
0.4

Interest cost on projected benefit obligation
14.1

 
16.0

 
3.0

 
4.2

Expected return on plan assets
(19.2
)
 
(19.6
)
 
—

 
—

Curtailment gain
(0.6
)
 
—

 
—

 
—

Amortization of:
 
 
 
 
 
 
 
Prior service cost (benefit)
0.2

 
0.1

 
(10.2
)
 
(9.8
)
Actuarial loss
16.4

 
14.5

 
4.3

 
5.0

       Total amortization
16.6

 
14.6

 
(5.9
)
 
(4.8
)
Benefit costs
$
12.6

 
$
13.0

 
$
(2.6
)
 
$
(0.2
)

Amortizations of prior service cost (benefit) and actuarial loss, and curtailment gain represent reclassifications from accumulated other comprehensive income. For the nine months ended September 30, 2013 and 2012, approximately 12% and 8%, respectively, of pension costs were capitalized as a component of property, plant and equipment related to construction of our wireline network.

Contributions in 2013 to the Company’s pension and postretirement plans are expected to be approximately $44 million and $18 million, respectively. For the nine months ended September 30, 2013, contributions to the pension plans were $39.9 million and contributions to the postretirement plan were $13.3 million.

8.    Stock-Based and Other Compensation Plans
The Company grants stock options, stock appreciation rights (“SARs”), performance-based awards, and time-based restricted shares, some of which are cash-settled awards with the final payment indexed to the percentage change in the Company’s stock price from the date of grant.
For the three and nine months ended September 30, 2013, the Company recognized stock-based compensation expense of $0.3 million and a benefit of $0.7 million, respectively, inclusive of $0.6 million and $5.4 million of mark-to-market gains on awards indexed to the Company's stock price. For the three and nine months ended September 30, 2012, the Company recognized stock-based compensation expense of $6.4 million and $11.2 million, respectively, which reflected a mark-to-market expense of $4.6 million and $5.5 million, respectively. As of September 30, 2013, there was $4.2 million of unrecognized compensation expense related to these awards. The remaining compensation expense for the stock options, SARs and restricted awards is expected to be recognized over a weighted-average period of approximately two years, and the remaining expense for performance-based awards will be recognized within approximately one year.
The Company also has deferred compensation plans for its Board of Directors and certain executives. As these awards can be settled in cash, the Company records compensation costs each period based on the change in the Company’s stock price. Under these plans, participants can elect to invest their deferrals in the Company’s common stock. The Company recognized a benefit of $0.3 million and $2.0 million for the three and nine months ended September 30, 2013, respectively. For the three and nine months ended September 30, 2012, the Company recognized an expense of $1.4 million and an expense of $1.9 million, respectively. At September 30, 2013 and 2012, the number of common shares deferred under these plans was 0.8 million and 0.7 million, respectively.

In 2010, the Company's Board of Directors approved long-term incentive programs for certain members of management. Payment was contingent upon the completion of a qualifying transaction and attainment of an increase in the equity value of the data center business, as defined in the plans. On January 24, 2013, the initial public offering of CyrusOne was completed, which represents a qualifying transaction requiring payment under these compensation plans. For the nine months ended September 30, 2013, compensation expense of $42.6 million was recognized for these awards and other transaction-related incentives, of which $20.0 million was associated with CyrusOne employees. This expense has been presented as transaction-related compensation in our consolidated statement of operations for the nine months ended September 30, 2013.


14
Table of Contents

9.    Shareowners' Deficit
Warrants
In March 2003, the Company entered into a series of recapitalization transactions which included the issuance of 17.5 million warrants that expired on March 26, 2013. Each warrant allowed the holder to purchase one share of Cincinnati Bell common stock at an exercise price of $3.00 each. At December 31, 2012, there were 14.3 million warrants outstanding, all of which were exercised by warrant holders during the three months ended March 31, 2013. As a result of the 14.3 million warrants being exercised during the first quarter, the Company issued a total of 4.4 million shares of common stock and received $5.1 million of cash proceeds for the 1.7 million of such warrants which were cash settled.
Accumulated Other Comprehensive Loss
For the nine months ended September 30, 2013, the changes in accumulated other comprehensive loss by component were as follows:
(dollars in millions)
Unrecognized Net Periodic Pension and Postretirement Benefit Cost
 
Foreign Currency Translation Loss
 
Total
Balance as of December 31, 2012
$
(209.6
)
 
$
(0.1
)
 
$
(209.7
)
Reclassifications, net
6.5

(a)
—

 
6.5

Remeasurement of benefit obligations
30.0

 
—

 
30.0

Foreign currency loss
—

 
(0.1
)
 
(0.1
)
Balance as of September 30, 2013
$
(173.1
)
 
$
(0.2
)
 
$
(173.3
)
(a) These reclassifications are included in the components of net period pension and postretirement benefit costs. See Note 7 for additional details.
10.    Business Segment Information
During the nine months ended September 30, 2013, the Company operated in the following segments: Wireline, Wireless, IT Services and Hardware and Data Center Colocation. The Company’s segments are strategic business units that offer distinct products and services and are aligned with its internal management structure and reporting.
The Wireline segment provides local voice, data, long distance, entertainment, voice over internet protocol (“VoIP”), and other services over its owned and other wireline networks. The Wireless segment provides advanced digital voice and data communications services and sales of related handset equipment to customers in the Greater Cincinnati and Dayton, Ohio operating areas. The IT Services and Hardware segment provides a range of fully managed and outsourced information technology (“IT”) and telecommunications services along with the sale, installation, and maintenance of major branded IT and telephony equipment.

On January 24, 2013, we completed the initial public offering of CyrusOne. Although we effectively own approximately 69% of CyrusOne through our ownership of its common stock and partnership units of CyrusOne LP, we no longer control its operations. The Data Center Colocation results shown in the accompanying tables reflect the revenues and expenses of our former data center business for the period January 1, 2013 through January 23, 2013. Effective January 24, 2013, we no longer include CyrusOne's operating results in our consolidated financial statements. For the three and nine months ended September 30, 2013, we recognized losses of $1.5 million and $8.1 million, respectively, from our investment in CyrusOne which represented our equity method share of CyrusOne's losses. These losses from CyrusOne were recognized as a component of non-operating income. As of September 30, 2013, the carrying value of our investment in CyrusOne was $480.7 million and is included as an asset of the Corporate segment.
Certain corporate administrative expenses have been allocated to the segments based upon the nature of the expense and the relative size of the segment. Intercompany transactions between segments have been eliminated.


15
Table of Contents
Form 10-Q Part I
 
Cincinnati Bell Inc.

Selected financial data for the Company’s business segment information is as follows:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
(dollars in millions)
2013

2012
 
2013
 
2012
Revenue
 
 
 
 
 
 
 
Wireline
$
181.4

 
$
182.3

 
$
542.7

 
$
548.4

Wireless
49.1

 
59.5

 
154.1

 
185.0

IT Services and Hardware
87.5

 
78.3

 
258.0

 
228.8

Data Center Colocation
—

 
56.7

 
15.6

 
163.3

Intersegment
(7.2
)
 
(8.6
)
 
(21.9
)
 
(26.3
)
Total revenue
$
310.8

 
$
368.2

 
$
948.5

 
$
1,099.2

Intersegment revenue
 
 
 
 
 
 
 
Wireline
$
4.2

 
$
4.8

 
$
12.8

 
$
14.5

Wireless
0.5

 
0.5

 
1.7

 
1.7

IT Services and Hardware
2.5

 
1.8

 
7.0

 
5.4

       Data Center Colocation
—

 
1.5

 
0.4

 
4.7

Total intersegment revenue
$
7.2

 
$
8.6

 
$
21.9

 
$
26.3

Operating income
 
 
 
 
 
 
 
Wireline
$
47.8

 
$
50.9

 
$
146.8

 
$
162.8

Wireless
7.0

 
12.6

 
19.1

 
43.5

IT Services and Hardware
4.4

 
3.8

 
6.6

 
7.2

Data Center Colocation
—

 
11.2

 
3.2

 
22.5

Corporate
(1.5
)
 
(12.5
)
 
(52.0
)
 
(23.8
)
Total operating income
$
57.7

 
$
66.0

 
$
123.7

 
$
212.2

Expenditures for long-lived assets
 
 
 
 
 
 
 
Wireline
$
41.2

 
$
27.8

 
$
114.3

 
$
77.5

Wireless
2.2

 
4.2

 
12.4

 
12.4

IT Services and Hardware
2.7

 
1.9

 
7.6

 
6.6

Data Center Colocation
—

 
41.6

 
7.7

 
146.4

Total expenditures for long-lived assets
$
46.1

 
$
75.5

 
$
142.0

 
$
242.9

Depreciation and amortization
 
 
 
 
 
 
 
Wireline
$
29.7

 
$
26.6

 
$
83.8

 
$
78.9

Wireless
7.4

 
8.1

 
30.7

 
24.0

IT Services and Hardware
2.5

 
2.4

 
7.5

 
6.3

Data Center Colocation
—

 
18.3

 
5.2

 
50.9

Corporate
0.2

 
—

 
0.4

 
0.1

Total depreciation and amortization
$
39.8

 
$
55.4

 
$
127.6

 
$
160.2

 
 
 
 
 
 
 
 
  
September 30,
2013
 
December 31,
2012
 
 
 
 
Assets
 
 
 
 
 
 
 
Wireline
$
766.7

 
$
723.7

 
 
 
 
Wireless
252.2

 
275.6

 
 
 
 
IT Services and Hardware
51.8

 
43.3

 
 
 
 
Data Center Colocation
—

 
1,208.5

 
 
 
 
Corporate and eliminations
1,481.0

 
621.3

 
 
 
 
Total assets
$
2,551.7

 
$
2,872.4

 
 
 
 

16
Table of Contents
Form 10-Q Part I
 
Cincinnati Bell Inc.

11.    Supplemental Guarantor Information
Cincinnati Bell Telephone Notes
As of September 30, 2013, Cincinnati Bell Telephone Company LLC (“CBT”), a wholly-owned subsidiary of Cincinnati Bell Inc. (the “Parent Company”), had $134.5 million in notes outstanding, that are guaranteed by the Parent Company and no other subsidiaries of the Parent Company. The guarantee is full and unconditional. The Parent Company’s subsidiaries generate substantially all of its income and cash flow and generally distribute or advance the funds necessary to meet the Parent Company’s debt service obligations.

The following information sets forth the Condensed Consolidating Statements of Operations and Comprehensive Income for the three and nine months ended September 30, 2013 and 2012, Condensed Consolidating Balance Sheets as of September 30, 2013 and December 31, 2012, and Condensed Consolidating Statements of Cash Flows for the nine months ended September 30, 2013 and 2012, of (1) the Parent Company, as the guarantor, (2) CBT, as the issuer, and (3) the non-guarantor subsidiaries on a combined basis.

17
Table of Contents
Form 10-Q Part I
 
Cincinnati Bell Inc.

 
Condensed Consolidating Statements of Operations and Comprehensive Income
  
Three Months Ended September 30, 2013
(dollars in millions)
Parent
(Guarantor)
 
CBT
(Issuer)
 
Other
Non-guarantors
 
Eliminations
 
Total
Revenue
$
—

 
$
161.4

 
$
163.5

 
$
(14.1
)
 
$
310.8

Operating costs and expenses
1.5

 
115.3

 
150.4

 
(14.1
)
 
253.1

Operating (loss) income
(1.5
)
 
46.1

 
13.1

 
—

 
57.7

Interest expense (income), net
42.9

 
(0.3
)
 
4.1

 
—

 
46.7

Other (income) expense, net
(0.4
)
 
1.8

 
(1.1
)
 
—

 
0.3

(Loss) income before equity in earnings of subsidiaries and income taxes
(44.0
)
 
44.6

 
10.1

 
—

 
10.7

Income tax (benefit) expense
(18.5
)
 
16.4

 
3.5

 
—

 
1.4

Equity in earnings of subsidiaries, net of tax
34.8

 
—

 
—

 
(34.8
)
 
—

Net income
9.3

 
28.2

 
6.6

 
(34.8
)
 
9.3

Other comprehensive income
24.8

 
—

 
—

 
—

 
24.8

Total comprehensive income
$
34.1

 
$
28.2

 
$
6.6

 
$
(34.8
)
 
$
34.1

 
 
 
 
 
 
 
 
 
 
Net income
9.3

 
28.2

 
6.6

 
(34.8
)
 
9.3

Preferred stock dividends
2.6

 
—

 
—

 
—

 
2.6

Net income applicable to common shareowners
$
6.7

 
$
28.2

 
$
6.6

 
$
(34.8
)
 
$
6.7

 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30, 2012
 
Parent
(Guarantor)
 
CBT
(Issuer)
 
Other
Non-guarantors
 
Eliminations
 
Total
Revenue
$
—

 
$
160.8

 
$
222.8

 
$
(15.4
)
 
$
368.2

Operating costs and expenses
12.5

 
112.0

 
193.1

 
(15.4
)
 
302.2

Operating (loss) income
(12.5
)
 
48.8

 
29.7

 
—

 
66.0

Interest expense (income), net
41.1

 
(0.6
)
 
14.7

 
—

 
55.2

Other (income) expense, net
(0.5
)
 
0.6

 
—

 
—

 
0.1

(Loss) income before equity in earnings of subsidiaries and income taxes
(53.1
)
 
48.8

 
15.0

 
—

 
10.7

Income tax (benefit) expense
(16.1
)
 
18.1

 
4.8

 
—

 
6.8

Equity in earnings of subsidiaries, net of tax
40.9

 
—

 
—

 
(40.9
)
 
—

Net income
3.9

 
30.7

 
10.2

 
(40.9
)
 
3.9

Other comprehensive income
2.2

 
—

 
0.1

 
—

 
2.3

Total comprehensive income
$
6.1

 
$
30.7

 
$
10.3

 
$
(40.9
)
 
$
6.2

 
 
 
 
 
 
 
 
 
 
Net income
3.9

 
30.7

 
10.2

 
(40.9
)
 
3.9

Preferred stock dividends
2.6

 
—

 
—

 
—

 
2.6

Net income applicable to common shareowners
$
1.3

 
$
30.7

 
$
10.2

 
$
(40.9
)
 
$
1.3










18
Table of Contents
Form 10-Q Part I
 
Cincinnati Bell Inc.


Condensed Consolidating Statements of Operations and Comprehensive Income
  
Nine Months Ended September 30, 2013
(dollars in millions)
Parent
(Guarantor)
 
CBT
(Issuer)
 
Other
Non-guarantors
 
Eliminations
 
Total
Revenue
$
—

 
$
482.3

 
$
508.4

 
$
(42.2
)
 
$
948.5

Operating costs and expenses
51.2

 
340.0

 
475.8

 
(42.2
)
 
824.8

Operating (loss) income
(51.2
)
 
142.3

 
32.6

 
—

 
123.7

Interest expense (income), net
125.0

 
(1.4
)
 
16.4

 
—

 
140.0

Other (income) expense, net
(1.1
)
 
4.4

 
3.4

 
—

 
6.7

(Loss) income before equity in earnings of subsidiaries and income taxes
(175.1
)
 
139.3

 
12.8

 
—

 
(23.0
)
Income tax (benefit) expense
(59.8
)
 
51.2

 
12.2

 
—

 
3.6

Equity in earnings of subsidiaries, net of tax
88.7

 
—

 
—

 
(88.7
)
 
—

Net (loss) income
(26.6
)
 
88.1

 
0.6

 
(88.7
)
 
(26.6
)
Other comprehensive income (loss)
36.5

 
—

 
(0.1
)
 
—

 
36.4

Total comprehensive income
$
9.9

 
$
88.1

 
$
0.5

 
$
(88.7
)
 
$
9.8

 
 
 
 
 
 
 
 
 
 
Net (loss) income
(26.6
)
 
88.1

 
0.6

 
(88.7
)
 
(26.6
)
Preferred stock dividends
7.8

 
—

 
—

 
—

 
7.8

Net (loss) income applicable to common shareowners
$
(34.4
)
 
$
88.1

 
$
0.6

 
$
(88.7
)
 
$
(34.4
)
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2012
 
Parent
(Guarantor)
 
CBT
(Issuer)
 
Other
Non-guarantors
 
Eliminations
 
Total
Revenue
$
—

 
$
482.0

 
$
663.6

 
$
(46.4
)
 
$
1,099.2

Operating costs and expenses
23.6

 
324.8

 
585.0

 
(46.4
)
 
887.0

Operating (loss) income
(23.6
)
 
157.2

 
78.6

 
—

 
212.2

Interest expense (income), net
122.5

 
(0.8
)
 
41.6

 
—

 
163.3

Other (income) expense, net
(1.2
)
 
2.9

 
(0.1
)
 
—

 
1.6

(Loss) income before equity in earnings of subsidiaries and income taxes
(144.9
)
 
155.1

 
37.1

 
—

 
47.3

Income tax (benefit) expense
(45.9
)
 
56.6

 
15.6

 
—

 
26.3

Equity in earnings of subsidiaries, net of tax
120.0

 
—

 
—

 
(120.0
)
 
—

Net income
21.0

 
98.5

 
21.5

 
(120.0
)
 
21.0

Other comprehensive income
6.3

 
—

 
0.1

 
—

 
6.4

Total comprehensive income
$
27.3

 
$
98.5

 
$
21.6

 
$
(120.0
)
 
$
27.4

 
 
 
 
 
 
 
 
 
 
Net income
21.0

 
98.5

 
21.5

 
(120.0
)
 
21.0

Preferred stock dividends
7.8

 
—

 
—

 
—

 
7.8

Net income applicable to common shareowners
$
13.2

 
$
98.5

 
$
21.5

 
$
(120.0
)
 
$
13.2





19
Table of Contents
Form 10-Q Part I
 
Cincinnati Bell Inc.

Condensed Consolidating Balance Sheets
 
 
 
 
 
 
 
 
 
  
As of September 30, 2013
(dollars in millions)
Parent
(Guarantor)
 
CBT
(Issuer)
 
Other
Non-guarantors
 
Eliminations
 
Total
Cash and cash equivalents
$
411.1

 
$
2.0

 
$
0.6

 
$
—

 
$
413.7

Receivables, net
1.6

 
—

 
159.8

 
—

 
161.4

Other current assets
2.6

 
29.3

 
43.7

 
(0.4
)
 
75.2

Total current assets
415.3

 
31.3

 
204.1

 
(0.4
)
 
650.3

Property, plant and equipment, net
0.1

 
694.2

 
198.2

 
—

 
892.5

Investment in CyrusOne
—

 
—

 
480.7

 
—