Q3 2014 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, 2014
 
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, 2014, there were 209,237,944 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 Disclosure – 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,
 
2014
 
2013
 
2014
 
2013
Revenue
 
 
 
 
 
 
 
Services
$
249.4

 
$
255.4

 
$
763.6

 
$
782.3

Products
78.1

 
55.4

 
206.3

 
166.2

Total revenue
327.5

 
310.8

 
969.9

 
948.5

Costs and expenses
 
 
 
 
 
 
 
Cost of services, excluding items below
115.7

 
107.4

 
331.2

 
320.1

Cost of products sold, excluding items below
63.8

 
52.5

 
184.2

 
160.4

Selling, general and administrative, excluding items below
57.5

 
53.6

 
167.4

 
161.4

Depreciation and amortization
61.4

 
39.8

 
168.6

 
127.6

Transaction-related compensation
—

 
—

 
—

 
42.6

Restructuring charges
9.0

 
—

 
15.4

 
10.8

Asset impairment
7.5

 
—

 
7.5

 
—

Curtailment gain
—

 
—

 
—

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

 
(0.2
)
 
(0.1
)
 
2.6

Amortization of deferred gain
(6.4
)
 
(0.5
)
 
(16.5
)
 
(1.7
)
Transaction costs
3.0

 
0.5

 
3.7

 
1.6

Total operating costs and expenses
311.5

 
253.1

 
861.4

 
824.8

Operating income
16.0

 
57.7

 
108.5

 
123.7

Interest expense
35.8

 
46.7

 
116.8

 
140.0

Loss on extinguishment of debt
19.4

 
—

 
19.4

 
—

Loss from CyrusOne equity method investment
—

 
1.5

 
1.9

 
8.1

Gain on sale of CyrusOne equity method investment
—

 
—

 
(192.8
)
 
—

Other (income) expense, net
(0.2
)
 
(1.2
)
 
0.5

 
(1.4
)
(Loss) income before income taxes
(39.0
)
 
10.7

 
162.7

 
(23.0
)
Income tax (benefit) expense
(11.7
)
 
1.4

 
68.8

 
3.6

Net (loss) income
(27.3
)
 
9.3

 
93.9

 
(26.6
)
Preferred stock dividends
2.6

 
2.6

 
7.8

 
7.8

Net (loss) income applicable to common shareowners
$
(29.9
)
 
$
6.7

 
$
86.1

 
$
(34.4
)
Basic and diluted (loss) earnings per common share
$
(0.14
)
 
$
0.03

 
$
0.41

 
$
(0.17
)


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

1
Table of Contents
Form 10-Q Part I
 
Cincinnati Bell Inc.


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

 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2014
 
2013
 
2014
 
2013
Net (loss) income
$
(27.3
)
 
$
9.3

 
$
93.9

 
$
(26.6
)
Other comprehensive income, net of tax:
 
 
 
 
 
 
 
Foreign currency translation loss
—

 
—

 
—

 
(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 ($1.4), ($1.3), ($4.2), ($3.7)
(2.4
)
 
(2.3
)
 
(7.2
)
 
(6.3
)
   Amortization of net loss included in net income, net of tax of $2.1, $2.4, $6.3, $7.5
3.6

 
4.4

 
10.8

 
13.2

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

 
—

 
—

 
(0.4
)
Other comprehensive income
1.2

 
24.8

 
3.6

 
36.4

Total comprehensive (loss) income
$
(26.1
)
 
$
34.1

 
$
97.5

 
$
9.8



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,
2014
 
December 31,
2013
Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
181.5

 
$
4.6

Receivables, less allowances of $12.8 and $12.2
174.1

 
145.6

Receivable from CyrusOne
8.0

 
9.2

Inventory, materials and supplies
22.1

 
23.8

Deferred income taxes, net
65.8

 
55.3

Prepaid expenses
17.9

 
11.0

Other current assets
4.8

 
1.6

Total current assets
474.2

 
251.1

Property, plant and equipment, net
875.2

 
902.8

Investment in CyrusOne
284.7

 
471.0

Goodwill
14.4

 
14.4

Intangible assets, net
1.6

 
91.7

Deferred income taxes, net
268.7

 
339.7

Other noncurrent assets
33.8

 
36.6

Total assets
$
1,952.6

 
$
2,107.3

Liabilities and Shareowners’ Deficit
 
 
 
Current liabilities
 
 
 
Current portion of long-term debt
$
11.9

 
$
12.6

Accounts payable
132.7

 
89.4

Payable to CyrusOne
1.3

 
0.5

Unearned revenue and customer deposits
33.8

 
32.5

Accrued taxes
18.0

 
12.9

Accrued interest
33.8

 
31.6

Accrued payroll and benefits
32.4

 
38.0

Other current liabilities
160.2

 
36.8

Total current liabilities
424.1

 
254.3

Long-term debt, less current portion
1,887.0

 
2,252.6

Pension and postretirement benefit obligations
174.3

 
202.7

Other noncurrent liabilities
51.6

 
74.4

Total liabilities
2,537.0

 
2,784.0

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, 2014 and December 31, 2013; liquidation preference $1,000 per share ($50 per depositary share)
129.4

 
129.4

Common shares, $.01 par value; 480,000,000 shares authorized; 209,556,709 and 208,656,995 shares issued; 209,237,944 and 208,165,275 shares outstanding at September 30, 2014 and December 31, 2013
2.1

 
2.1

Additional paid-in capital
2,584.7

 
2,590.6

Accumulated deficit
(3,169.6
)
 
(3,263.5
)
Accumulated other comprehensive loss
(129.7
)
 
(133.3
)
Common shares in treasury, at cost
(1.3
)
 
(2.0
)
Total shareowners’ deficit
(584.4
)
 
(676.7
)
Total liabilities and shareowners’ deficit
$
1,952.6

 
$
2,107.3

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,
 
2014
 
2013
Cash flows from operating activities
 
 
 
Net income (loss)
$
93.9

 
$
(26.6
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities
 
 
 
Depreciation and amortization
168.6

 
127.6

Loss on extinguishment of debt
19.4

 
—

Provision for loss on receivables
8.2

 
9.0

Loss from CyrusOne equity method investment
1.9

 
8.1

Gain on sale of CyrusOne equity method investment
(192.8
)
 
—

Asset impairment
7.5

 
—

Noncash portion of interest expense
4.8

 
5.7

Deferred income tax provision
57.8

 
1.9

Pension and other postretirement payments in excess of expense
(22.4
)
 
(43.0
)
Stock-based compensation
2.5

 
4.0

Amortization of deferred gain
(16.5
)
 
(1.7
)
(Gain) loss on sale or disposal of assets, net
(0.1
)
 
2.6

Excess tax benefit for share based payments
(0.1
)
 
(0.5
)
Other, net
(1.1
)
 
(0.4
)
Changes in operating assets and liabilities, net of CyrusOne deconsolidation:
 
 
 
Increase in receivables
(35.9
)
 
(4.4
)
Increase in inventory, materials, supplies, prepaid expenses and other current assets
(2.7
)
 
(6.7
)
Increase (decrease) in accounts payable
19.5

 
(1.0
)
Increase (decrease) in accrued and other current liabilities
13.8

 
(3.8
)
Decrease in other noncurrent assets
1.3

 
0.1

Decrease in other noncurrent liabilities
(6.8
)
 
(11.1
)
Net cash provided by operating activities
120.8

 
59.8

Cash flows from investing activities
 
 
 
Capital expenditures
(121.1
)
 
(142.0
)
Proceeds from sale of CyrusOne equity method investment
355.9

 
—

Dividends received from CyrusOne
22.4

 
14.2

Proceeds from sale of Wireless spectrum licenses

194.4

 
—

Proceeds from sale of assets
2.0

 
1.8

Release of restricted cash
—

 
0.4

Cash divested from deconsolidation of CyrusOne
—

 
(12.2
)
Other, net
(5.7
)
 
—

Net cash provided by (used in) investing activities
447.9

 
(137.8
)
Cash flows from financing activities
 
 
 
Proceeds from issuance of long-term debt
—

 
536.0

Net decrease in corporate credit and receivables facilities with initial maturities less than 90 days
(33.8
)
 
(52.0
)
Repayment of debt
(350.6
)
 
(6.7
)
Debt issuance costs
—

 
(6.4
)
Dividends paid on preferred stock
(7.8
)
 
(7.8
)
Proceeds from exercise of options and warrants
1.2

 
6.8

Excess tax benefit for share based payments
0.1

 
0.5

Other, net
(0.9
)
 
(2.3
)
Net cash (used in) provided by financing activities
(391.8
)
 
468.1

Net increase in cash and cash equivalents
176.9

 
390.1

Cash and cash equivalents at beginning of period
4.6

 
23.6

Cash and cash equivalents at end of period
$
181.5

 
$
413.7

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

 
$
509.7

Accrual of CyrusOne dividends
$
6.0

 
$
7.1

Acquisition of property by assuming debt and other noncurrent liabilities
$
0.6

 
$
5.6

Acquisition of property on account
$
42.0

 
$
20.4

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, 2014, we operate our business through the following segments: Wireline, IT Services and Hardware and Wireless.
The Company has receivables with one large customer that exceed 10% of the Company’s outstanding accounts receivable balance at September 30, 2014 and December 31, 2013. This same customer contributed in excess of 10% to consolidated revenue for the three and nine months ended September 30, 2014.
On January 24, 2013, we completed the initial public offering ("IPO") of CyrusOne, Inc. ("CyrusOne"), our former Data Center Colocation segment. As of the date of the IPO, we owned approximately 1.9 million shares, or 8.6%, of CyrusOne's common stock and were a limited partner in CyrusOne LP, owning approximately 42.6 million, or 66% of its partnership units. We effectively owned 69% of CyrusOne and continued to have significant influence over the entity, but we did not control its operations. Therefore, effective January 24, 2013, we no longer include the accounts of CyrusOne in our consolidated financial statements, but account for our ownership in CyrusOne as an equity method investment.
On June 25, 2014, we consummated the sale of 16.0 million partnership units of CyrusOne LP to CyrusOne, Inc. at a price of $22.26 per unit. As of September 30, 2014, we effectively own 44% of CyrusOne, which is held in the form of 1.9 million shares of CyrusOne common stock and approximately 26.6 million CyrusOne LP partnership units. As we continue to have significant influence over CyrusOne, we account for this investment using the equity method.
The agreement to sell our wireless spectrum licenses closed on September 30, 2014. We received cash proceeds of $194.4 million and reduced the wireless segment's intangible assets by $88.2 million, the carrying value of the spectrum licenses. Simultaneously, the separate agreement to use certain spectrum licenses until we discontinue providing wireless service became effective. As we continue to operate our wireless business the gain of $112.6 million was deferred and recorded in other current liabilities on the condensed consolidated balance sheet. We plan to operate and generate cash from our wireless operations until the later of April 6, 2015 and 90 days after the transfer of the licenses. At that time, we will transfer certain leases and other assets valued at approximately $16 million to the acquiring company.

The tentative agreement with the Communications Workers of America (“CWA”) on the terms of a new labor contract was not ratified by local members of the union and the two parties have resumed negotiations.

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, 2013 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 2013 Annual Report on Form 10-K. Operating results for the three and nine months ended September 30, 2014 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.

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

Equity Method Investments - We completed the IPO of CyrusOne on January 24, 2013, and as of that date, we have significant influence over CyrusOne but do not control its operations. As a result, effective January 24, 2013, our 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. For the three and nine months ended September 30, 2014, the Company received cash dividends from CyrusOne totaling $6.0 million and $22.4 million, respectively. Dividends from CyrusOne are recognized as a reduction of our investment.
During the second quarter of 2014, we invested a total of $5.5 million in two limited liability companies. These investments are accounted for under the equity method and the carrying value has been recorded within “Other noncurrent assets” in the condensed consolidated balance sheet as of September 30, 2014. During the third quarter we recognized our proportionate share of the investments’ net loss as non-operating expense in our consolidated statement of operations, which had a minimal impact on our consolidated statement of operations.
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.
In the first quarter of 2013, and in connection with our review of the estimated remaining useful lives of property, plant and equipment, we shortened the estimated useful lives assigned to the wireless network software to three years. This change resulted from smartphone-driven technology upgrades, enhancements and projected retirements. For the three months ended March 31, 2013, the increase in depreciation expense associated with this change was $8.5 million and increased basic and diluted loss per share by approximately $0.03 per share.
In conjunction with our long-lived asset impairment analysis conducted in the fourth quarter of 2013, we reassessed the useful lives of all our Wireless property, plant and equipment. The remaining useful life for all Wireless property, plant, and equipment assets was reduced to 30 months as of December 31, 2013. In the second quarter of 2014, following the agreement to sell our wireless spectrum licenses and certain other assets, we further reduced the remaining useful life of those assets not included in the sale to be fully depreciated as of March 31, 2015. As a result of these changes in estimate, depreciation expense increased by approximately $50 million for the nine months ended September 30, 2014 and reduced basic and diluted earnings per share by approximately $0.14 per share. In addition, adjusting the useful life of our Wireless property, plant and equipment also required that we reduce the amortization period of the deferred gain associated with the 2009 tower sale in a similar manner. Amortization of the deferred gain associated with the tower sale totaled $16.5 million and $1.7 million in the nine months ended September 30, 2014 and 2013, respectively. In conjunction with the close of the sale of our wireless spectrum licenses and certain other assets on September 30, 2014, an asset impairment charge of $7.5 million was recorded in the three months ended September 30, 2014 for the write-off of certain construction-in-progress projects that will no longer be completed due to the wind down of wireless operations.

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.  The company expects its effective tax rate to exceed statutory rates primarily due to non-deductible expenses, including interest on securities originally issued to acquire its broadband business or securities that the Company subsequently issued to refinance those securities.  The Company believes the full year 2014 effective tax rate will approximate the actual September 2014 year-to-date effective tax rate. 
Recently Issued Accounting Standards — In July 2013, the FASB issued new guidance under Accounting Standards Update ("ASU") 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 went into effect for annual and interim periods beginning after December 15, 2013. We adopted this new guidance beginning with our interim financial statements for the three months ended March 31, 2014. The adoption of this standard did not have a material impact on our financial statements for the nine months ending September 30, 2014.

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

In April 2014, the FASB issued ASU 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.  The amendments in this update increased the threshold for a disposal to qualify as a discontinued operation and require new disclosures of both discontinued operations and certain other disposals that do not meet the definition of a discontinued operation.  The standard will be effective for us on January 1, 2015.  The adoption of this pronouncement may affect our presentation and disclosure of any future dispositions.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This standard also includes expanded disclosure requirements that result in an entity providing users of financial statements with comprehensive information about the nature, amount, timing, and uncertainty of revenue and cash flows arising from the entity’s contracts with customers. This standard will be effective for us in the first quarter of the fiscal year ending December 31, 2017. The Company is currently in the process of evaluating the impact of adoption of this ASU on the company’s consolidated financial statements.

In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties About an Entity's Ability to Continue as a Going Concern.  The amendments provide guidance about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. The standard will be effective for us on January 1, 2016.  The adoption of this pronouncement is not expected to have a material impact on our financial statements.


7
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

Commencing January 17, 2014, we are permitted to 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, subject to certain limitations which restricted the volume of shares we are permitted to sell. On April 4, 2014, the registration statement filed by CyrusOne on March 24, 2014 became effective and eliminated all prior limitations restricting the volume of shares we are allowed to sell.
On June 25, 2014, we consummated the sale of 16.0 million operating partnership units of CyrusOne LP to CyrusOne, Inc. at a price of $22.26 per unit. The sale generated proceeds of $355.9 million and resulted in a gain of $192.8 million.
Prior to the sale of our 16.0 million partnership units of CyrusOne LP, we accounted for our 68% effective ownership of CyrusOne as an equity method investment. As of September 30, 2014, we effectively own 44% of CyrusOne, which is held in the form of 1.9 million shares of CyrusOne common stock and approximately 26.6 million CyrusOne LP partnership units. As we continue to have significant influence over CyrusOne, we account for this investment using the equity method. For the three months ended September 30, 2014, our equity method share of CyrusOne's net income was nominal. For the nine months ended September 30, 2014, our equity method share of CyrusOne's net loss was $1.9 million. 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.
As of September 30, 2014, the fair value of this investment was $684.9 million based on the quoted market price of CyrusOne's common stock, which is considered a Level 1 measurement in the fair value hierarchy.

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

Summarized financial information for CyrusOne is as follows:
 
Three Months Ended
 
Nine Months Ended September 30, 2014
 
January 24, 2013 to September 30, 2013
 
September 30,
 
 
(dollars in millions)
2014
 
2013
 
 
Revenue
$
84.8

 
$
67.5

 
$
244.0

 
$
176.1

Operating income
9.6

 
8.5

 
28.8

 
19.9

Net income (loss)
0.2

 
(2.2
)
 
(2.7
)
 
(11.8
)
    
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 - 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 incurs expenses on CyrusOne's behalf for administrative functions. Such expenses are subsequently billed to and recovered from CyrusOne at their actual cost. These expense recoveries from CyrusOne are credited to the expense account in which they were initially recorded.
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.
Revenues and operating costs and expenses from transactions with CyrusOne were as follows:
 
Three Months Ended
 
Nine Months Ended September 30, 2014
 
January 24, 2013 to September 30, 2013
 
September 30,
 
 
(dollars in millions)
2014
 
2013
 
 
Revenue:
 
 
 
 
 
 
 
Services provided to CyrusOne
$
0.4

 
$
0.5

 
$
1.3

 
$
1.6

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

 
$
—

 
$
—

 
$
20.0

Charges for services provided by CyrusOne
2.2

 
2.4

 
6.8

 
6.5

Administrative services provided to CyrusOne
(0.1
)
 
(0.1
)
 
(0.3
)
 
(0.4
)
Total operating costs and expenses
$
2.1

 
$
2.3

 
$
6.5

 
$
26.1


Dividends of $6.0 million were received in the third quarter of 2014. In addition, on August 6, 2014, CyrusOne declared dividends of $0.21 per share payable on its common shares and CyrusOne LP partnership units. This dividend was paid on October 15, 2014 to holders of record as of September 26, 2014. As of October 15, 2014, we have received dividends of $28.4 million for the year.
In addition to the agreements noted above, the Company entered into a tax sharing agreement with CyrusOne.  Under the terms of the agreement, CyrusOne will reimburse the Company for the Texas Margin Tax liability that CyrusOne would have incurred if they filed a Texas Margin Tax return separate from the consolidated filing.  The agreement will remain in effect until terminated by the mutual written consent of the parties or when the Company is no longer required to file the Texas Margin Tax return on a consolidated basis with CyrusOne.  Effective as of the date of the June 2014 sale of the CyrusOne partnership units, CyrusOne will be required to file a separate Texas Margin Tax return. As of September 30, 2014 and December 31, 2013, the receivable for prior periods covered by this agreement amounted to $1.9 million and $1.5 million, respectively. These balances are included in Receivable from CyrusOne. 

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

At September 30, 2014 and December 31, 2013, amounts receivable from and payable to CyrusOne were as follows:
(dollars in millions)
September 30, 2014
 
December 31, 2013
Accounts receivable
$
2.0

 
$
2.1

Dividends receivable
6.0

 
7.1

Receivable from CyrusOne
$
8.0

 
$
9.2

 
 
 
 
Accounts payable
$
1.3

 
$
0.5

Payable to CyrusOne
$
1.3

 
$
0.5



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 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)
2014
 
2013
 
2014
 
2013
Numerator:
 
 
 
 
 
 
 
Net (loss) income
$
(27.3
)
 
$
9.3

 
$
93.9

 
$
(26.6
)
Preferred stock dividends
2.6

 
2.6

 
7.8

 
7.8

Net (loss) income applicable to common shareowners
$
(29.9
)
 
$
6.7

 
$
86.1

 
$
(34.4
)
Denominator:
 
 
 
 
 
 
 
Weighted average common shares outstanding - basic
208.7

 
207.0

 
208.4

 
205.6

Stock-based compensation arrangements
—

 
1.5

 
1.0

 
—

Weighted average common shares outstanding - diluted
208.7

 
208.5

 
209.4

 
205.6

Basic and diluted (loss) earnings per common share
$
(0.14
)
 
$
0.03

 
$
0.41

 
$
(0.17
)

For the three months ended September 30, 2014, 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 nine months ended September 30, 2014, awards under the Company’s stock-based compensation plans for common shares of 3.3 million were excluded from the computation of diluted EPS as their inclusion would have been anti-dilutive. 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 all periods presented, 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.

10
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,
2014
 
December 31,
2013
Current portion of long-term debt:
 
 
 
Corporate Credit Agreement - Tranche B Term Loan
$
5.4

 
$
5.4

Capital lease obligations and other debt
6.5

 
7.2

Current portion of long-term debt
11.9

 
12.6

Long-term debt, less current portion:
 
 
 
Corporate Credit Agreement
—

 
40.0

Receivables Facility
112.4

 
106.2

8 3/4% Senior Subordinated Notes due 2018
300.0

 
625.0

Corporate Credit Agreement - Tranche B Term Loan
529.2

 
533.2

8 3/8% Senior Notes due 2020
683.9

 
683.9

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
90.4

 
96.1

 
1,890.4

 
2,258.9

Net unamortized discount
(3.4
)
 
(6.3
)
         Long-term debt, less current portion
1,887.0

 
2,252.6

Total debt
$
1,898.9

 
$
2,265.2


Effective with the sale of our 16.0 million partnership units to CyrusOne, Inc. on June 25, 2014 for $355.9 million, the amount available under the Corporate Credit Agreement was reduced to $150.0 million from its original capacity of $200.0 million. As of September 30, 2014, the Company had no outstanding borrowings on its Corporate Credit Agreement, leaving $150.0 million available. This revolving credit facility expires in July 2017.

On September 10, 2013, the Company amended and restated its Corporate Credit Agreement, originally dated as of November 20, 2012, to include a $540 million Tranche B Term Loan facility ("Tranche B Term Loan") that matures on September 10, 2020. The Tranche B Term Loan requires quarterly principal payments of 0.25% of the original principal amount.
On June 2, 2014, the Company executed an amendment of its accounts receivable securitization facility (“Receivables Facility”), which replaced, amended, and added certain provisions and definitions to increase the credit availability and also extended the term to June 1, 2015. As of September 30, 2014, the Company had $112.4 million of borrowings and $5.2 million of letters of credit outstanding under the Receivables Facility, leaving $2.4 million of remaining availability on the total borrowing capacity of $120.0 million. The Receivables Facility is subject to renewal every 364 days and expires in June 2016. In the event the Receivables Facility is not renewed, the Company has the ability to refinance any outstanding borrowings with borrowings under 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.

On August 8, 2014, the Company redeemed $325.0 million of the outstanding 8 ¾% Senior Subordinated Notes due 2018 at a redemption price of 104.375%. As a result of the redemption, the Company recorded a debt extinguishment loss of $19.4 million. On October 1, 2014, the Company redeemed $22.7 million of the outstanding 8 3/8% Senior Notes due 2020 at par.

Effective November 6, 2014, Cincinnati Bell Inc. amended its Corporate Credit Agreement to, among other things, modify certain financial covenants governing leverage ratios and capital expenditures.


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, 2014 and December 31, 2013, except for the Company's investment in CyrusOne and long-term debt. The carrying and fair values of these financial instruments are as follows: 
 
September 30, 2014
 
December 31, 2013
(dollars in millions)
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
Investment in CyrusOne
$
284.7

 
$
684.9

 
$
471.0

 
$
993.2

Long-term debt, including current portion*
1,802.9

 
1,863.5

 
2,162.7

 
2,248.3

 *Excludes capital leases

 
 
 
 
 
 
 

The fair value of our investment in CyrusOne was based on the closing market price of CyrusOne's common stock on September 30, 2014 and December 31, 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 the closing or estimated market prices of the Company’s debt at September 30, 2014 and December 31, 2013, which is considered Level 2 of the fair value hierarchy.

6.    Restructuring Charges
As of September 30, 2014, 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
 
Contract Terminations
 
Total
Balance as of December 31, 2013
$
9.7

 
$
6.0

 
$
0.1

 
$
15.8

Charges
—

 
—

 
—

 
—

Utilization
(2.6
)
 
(0.9
)
 
—

 
(3.5
)
Balance as of March 31, 2014
$
7.1

 
$
5.1

 
$
0.1

 
$
12.3

Charges
3.5

 
—

 
2.9

 
6.4

Utilization
(0.3
)
 
(0.8
)
 
—

 
(1.1
)
Balance as of June 30, 2014
$
10.3

 
$
4.3

 
$
3.0

 
$
17.6

Charges
0.7

 
(1.3
)
 
9.6

 
9.0

Utilization
(2.5
)
 
(0.6
)
 
(0.1
)
 
(3.2
)
Balance as of September 30, 2014
$
8.5

 
$
2.4

 
$
12.5

 
$
23.4

The Company made severance payments during the nine months ended September 30, 2014, pursuant to its written severance plan and certain management contracts. In the second quarter of 2014, we recorded employee separation charges of $1.2 million attributable to outsourcing a portion of our IT function. Lease abandonment costs represent future minimum lease obligations, net of expected sublease income, for abandoned facilities. During the third quarter the Company reversed $1.3 million of lease abandonment reserve associated with leased space that was reoccupied. Lease payments on abandoned facilities will continue through 2015.

On April 6, 2014, the Company announced that it had entered into agreements to sell its wireless spectrum licenses and certain other assets related to its wireless business. Severance charges totaling $3.0 million were recorded during the nine months ending September 30, 2014. In anticipation of the close of this transaction, the Company identified certain contracts that will no longer be utilized once the wireless business ceases operations. In the second quarter of 2014 the company recorded contract termination costs totaling $2.9 million related to an IT support vendor that will no longer be used subsequent to the wind down of the wireless operations. An additional $9.6 million of contract termination costs were recorded during the third quarter of 2014. Additional restructuring charges associated with the shutdown of our wireless operations will be recognized once the accounting criteria are achieved. The payments associated with the exit of the business are expected to be paid out through 2015.

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
 
IT Services and Hardware
 
Wireless
 
Corporate
 
Total
Balance as of December 31, 2013
$
10.5

 
$
0.8

 
$
1.5

 
$
3.0

 
$
15.8

Charges
—

 
—

 
—

 
—

 
—

Utilizations
(1.8
)
 
—

 
(0.3
)
 
(1.4
)
 
(3.5
)
Balance as of March 31, 2014
$
8.7

 
$
0.8

 
$
1.2

 
$
1.6

 
$
12.3

Charges
1.1

 
—

 
5.2

 
0.1

 
6.4

Utilizations
(0.6
)
 
(0.1
)
 
(0.3
)
 
(0.1
)
 
(1.1
)
Balance as of June 30, 2014
$
9.2

 
$
0.7

 
$
6.1

 
$
1.6

 
$
17.6

Charges
(1.3
)
 
—

 
10.3

 
—

 
9.0

Utilizations
(2.3
)
 
(0.1
)
 
(0.4
)
 
(0.4
)
 
(3.2
)
Balance as of September 30, 2014
$
5.6

 
$
0.6

 
$
16.0

 
$
1.2

 
$
23.4

At September 30, 2014 and December 31, 2013, $21.5 million and $7.8 million, respectively, of the restructuring liabilities were included in “Other current liabilities,” and $1.9 million and $8.0 million, respectively, were included in “Other noncurrent liabilities” in the condensed consolidated balance sheet.

7.    Pension and Postretirement Plans
The Company sponsors three noncontributory defined benefit plans and a postretirement health and life insurance plan. For the three and nine months ended September 30, 2014 and 2013, approximately 10% of the costs were capitalized as a component of property, plant and equipment related to construction of our wireline network. Effective July 1, 2013, the management pension plan was amended to eliminate all future pension service credits. As a result, we recognized a curtailment gain of $0.6 million in the three months ended June 30, 2013 and remeasured the associated pension obligation. This remeasurement resulted in a reduction of our pension liability of $10.3 million. During the third quarter of 2013 the Board approved several amendments to the postretirement plan that required remeasurement of the associated benefit obligation. As a result, the Company recorded a $26.1 million reduction of the postretirement liability in the third quarter of 2013.
As of December 31, 2013, $30.8 million of the pension plan assets were invested in real estate pooled funds, representing 8% of total pension plan assets. During the third quarter of 2014, the Company put in redemption requests to liquidate the real estate pooled funds within the pension plan master trust. The real estate pooled funds are categorized as Level 3 investments. The proceeds from the sale will be reinvested in equity securities and investment grade fixed income securities similar to those currently held by the pension plan master trust. These new investments will be classified as Level 1 investments. Subsequent to September 30, 2014, the Company amended our target allocation policy to reflect this change in investment strategy and plan to only invest in equity securities and investment grade fixed income securities in the future.
For the three and nine months ended September 30, 2014 and 2013, pension and postretirement benefit costs were as follows:
 
Three Months Ended September 30,
 
2014
 
2013
 
2014
 
2013
(dollars in millions)
Pension Benefits
 
Postretirement and
Other Benefits
Service cost
$
0.3

 
$
0.3

 
$
0.1

 
$
0.1

Interest cost on projected benefit obligation
5.2

 
4.7

 
1.0

 
1.0

Expected return on plan assets
(7.0
)
 
(6.3
)
 
—

 
—

Amortization of:
 
 
 
 
 
 
 
Prior service cost (benefit)
0.1

 
0.1

 
(3.9
)
 
(3.7
)
Actuarial loss
4.3

 
5.4

 
1.4

 
1.4

       Total amortization
4.4

 
5.5

 
(2.5
)
 
(2.3
)
Benefit costs
$
2.9

 
$
4.2

 
$
(1.4
)
 
$
(1.2
)


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

 
Nine Months Ended September 30,
 
2014
 
2013
 
2014
 
2013
(dollars in millions)
Pension Benefits
 
Postretirement and
Other Benefits
Service cost
$
0.8

 
$
1.7

 
$
0.2

 
$
0.3

Interest cost on projected benefit obligation
15.7

 
14.1

 
3.0

 
3.0

Expected return on plan assets
(21.1
)
 
(19.2
)
 
—

 
—

Curtailment gain
—

 
(0.6
)
 
—

 
—

Amortization of:
 
 
 
 
 
 
 
Prior service cost (benefit)
0.2

 
0.2

 
(11.6
)
 
(10.2
)
Actuarial loss
13.0

 
16.4

 
4.1

 
4.3

       Total amortization
13.2

 
16.6

 
(7.5
)
 
(5.9
)
Benefit costs
$
8.6

 
$
12.6

 
$
(4.3
)
 
$
(2.6
)

Amortizations of prior service cost (benefit), actuarial loss, and curtailment gain represent reclassifications from accumulated other comprehensive income.

Contributions in 2014 to the Company’s pension and postretirement plans are expected to be approximately $21 million and $13 million, respectively. The reduction to planned pension contributions as compared to our second quarter estimate of $32 million is the result of new legislation which lowered the required minimum contributions for 2014. For the nine months ended September 30, 2014, contributions to the pension plans were $19.3 million and contributions to the postretirement plan were $9.3 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, 2014, the Company recognized stock-based compensation expense of $0.3 million and $2.9 million, respectively, inclusive of $0.7 million and $0.5 million of mark-to-market gains on awards indexed to the Company's stock price. 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, which reflected $0.6 million and $5.4 million of mark-to-market gains, respectively. As of September 30, 2014, there was $6.4 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 one year, and the remaining expense for performance-based awards will be recognized within approximately two years.
The Company also has deferred compensation plans for its Board of Directors and certain executives. Under these plans, participants can elect to invest their deferrals in the Company’s common stock. At September 30, 2014 and 2013, the number of common shares deferred under these plans was 0.5 million and 0.8 million, respectively. 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. The Company recognized a benefit of $0.6 million and $0.2 million for the three and nine months ended September 30, 2014, respectively. For the three and nine months ended September 30, 2013, the company recognized a benefit of $0.3 million and $2.0 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 represented 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 condensed 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 which 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. During the first quarter of 2013, warrant holders elected to exercise a total of 14.3 million warrants, leaving no remaining warrants outstanding as of March 31, 2013. As a result, 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 warrants which were cash settled.
Accumulated Other Comprehensive Loss
For the nine months ended September 30, 2014, 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, 2013
$
(133.1
)
 
$
(0.2
)
 
$
(133.3
)
Reclassifications, net
3.6

(a)
—

 
3.6

Balance as of September 30, 2014
$
(129.5
)
 
$
(0.2
)
 
$
(129.7
)
(a) These reclassifications are included in the components of net period pension and postretirement benefit costs. See Note 7 for additional details. The components of net periodic pension and postretirement benefit cost are reported within "Cost of services", "Cost of products sold", and "Selling, general and administrative" expenses on the condensed consolidated statements of operations.
10.    Business Segment Information
For the period January 1, 2013 through January 23, 2013, we operated four business segments: Wireline, IT Services and Hardware, Wireless and Data Center Colocation. Effective January 24, 2013, the date of the CyrusOne IPO, we no longer include CyrusOne, our former Data Center Colocation segment, in our consolidated financial statements and now account for our ownership in CyrusOne as an equity method investment. As of September 30, 2014, the carrying value of our investment in CyrusOne was $284.7 million and is included as an asset of the Corporate segment. 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.
As of September 30, 2014, we operated three business segments: Wireline, IT Services and Hardware, and Wireless. 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 products and services such as local voice, high-speed internet, data transport, long distance, entertainment, voice over internet protocol (VoIP), and other services. 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.

The agreement to sell our wireless spectrum licenses closed on September 30, 2014. We received cash proceeds of $194.4 million, which were transferred to the Corporate segment, and reduced intangible assets by $88.2 million, the carrying value of the spectrum licenses. We plan to provide wireless services until the later of April 6, 2015 and 90 days after the transfer of the licenses.

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)
2014

2013
 
2014
 
2013
Revenue
 
 
 
 
 
 
 
Wireline
$
184.0

 
$
181.4

 
$
552.3

 
$
542.7

IT Services and Hardware
120.0

 
87.5

 
323.5

 
258.0

Wireless
30.1

 
49.1

 
116.0

 
154.1

Data Center Colocation
—

 
—

 
—

 
15.6

Intersegment
(6.6
)
 
(7.2
)
 
(21.9
)
 
(21.9
)
Total revenue
$
327.5

 
$
310.8

 
$
969.9

 
$
948.5

Intersegment revenue
 
 
 
 
 
 
 
Wireline
$
3.9

 
$
4.2

 
$
12.0

 
$
12.8

IT Services and Hardware
2.3

 
2.5

 
8.4

 
7.0

Wireless
0.4

 
0.5

 
1.5

 
1.7

       Data Center Colocation
—

 
—

 
—

 
0.4

Total intersegment revenue
$
6.6

 
$
7.2

 
$
21.9

 
$
21.9

Operating income (loss)
 
 
 
 
 
 
 
Wireline
$
43.9

 
$
47.8

 
$
147.0

 
$
146.8

IT Services and Hardware
8.1

 
4.4

 
16.3

 
6.6

Wireless
(33.0
)
 
7.0

 
(40.8
)
 
19.1

Data Center Colocation
—

 
—

 
—

 
3.2

Corporate
(3.0
)
 
(1.5
)
 
(14.0
)
 
(52.0
)
Total operating income
$
16.0

 
$
57.7

 
$
108.5

 
$
123.7

Expenditures for long-lived assets
 
 
 
 
 
 
 
Wireline
$
41.8

 
$
41.2

 
$
106.1

 
$
114.3

IT Services and Hardware
3.5

 
2.7

 
8.5

 
7.6

Wireless
0.3

 
2.2

 
6.5

 
12.4

Data Center Colocation
—

 
—

 
—

 
7.7

Total expenditures for long-lived assets
$
45.6

 
$
46.1

 
$
121.1

 
$
142.0

Depreciation and amortization
 
 
 
 
 
 
 
Wireline
$
29.3

 
$
29.7

 
$
85.6

 
$
83.8

IT Services and Hardware
3.0

 
2.5

 
8.6

 
7.5

Wireless
29.1

 
7.4

 
74.2

 
30.7

Data Center Colocation
—

 
—

 
—

 
5.2

Corporate
—

 
0.2

 
0.2

 
0.4

Total depreciation and amortization
$
61.4

 
$
39.8

 
$
168.6

 
$
127.6

 
 
 
 
 
 
 
 
  
September 30,
2014
 
December 31,
2013
 
 
 
 
Assets
 
 
 
 
 
 
 
Wireline
$
819.7

 
$
780.8

 
 
 
 
IT Services and Hardware
58.2

 
48.9

 
 
 
 
Wireless
148.0

 
247.5

 
 
 
 
Corporate and eliminations
926.7

 
1,030.1

 
 
 
 
Total assets
$
1,952.6

 
$
2,107.3

 
 
 
 

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


11.    Supplemental Guarantor Information
Cincinnati Bell Telephone Notes
As of September 30, 2014, 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 (Loss) for the three and nine months ended September 30, 2014 and 2013, Condensed Consolidating Balance Sheets as of September 30, 2014 and December 31, 2013, and Condensed Consolidating Statements of Cash Flows for the nine months ended September 30, 2014 and 2013 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 (Loss)
  
Three Months Ended September 30, 2014
(dollars in millions)
Parent
(Guarantor)
 
CBT
(Issuer)
 

Non-guarantors
 
Eliminations
 
Total
Revenue
$
—

 
$
163.8

 
$
176.9

 
$
(13.2
)
 
$
327.5

Operating costs and expenses
2.9

 
121.2

 
200.6

 
(13.2
)
 
311.5

Operating (loss) income
(2.9
)
 
42.6

 
(23.7
)
 
—

 
16.0

Interest expense (income), net
34.8

 
(1.3
)
 
2.3

 
—

 
35.8

Other expense (income), net
18.9

 
1.6

 
(1.3
)
 
—

 
19.2

(Loss) income before equity in earnings of subsidiaries and income taxes
(56.6
)
 
42.3

 
(24.7
)
 
—

 
(39.0
)
Income tax (benefit) expense
(18.1
)
 
15.4

 
(9.0
)
 
—

 
(11.7
)
Equity in earnings of subsidiaries, net of tax
11.2

 
—

 
—

 
(11.2
)
 
—

Net (loss) income
(27.3
)
 
26.9

 
(15.7
)
 
(11.2
)
 
(27.3
)
Other comprehensive income
1.2

 
—

 
—

 
—

 
1.2

Total comprehensive (loss) income
$
(26.1
)
 
$
26.9

 
$
(15.7
)
 
$
(11.2
)
 
$
(26.1
)
 
 
 
 
 
 
 
 
 
 
Net (loss) income
(27.3
)
 
26.9

 
(15.7
)
 
(11.2
)
 
(27.3
)
Preferred stock dividends
2.6

 
—

 
—

 
—

 
2.6

Net (loss) income applicable to common shareowners
$
(29.9
)
 
$
26.9

 
$
(15.7
)
 
$
(11.2
)
 
$
(29.9
)
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30, 2013
 
Parent
(Guarantor)
 
CBT
(Issuer)
 

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




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

Condensed Consolidating Statements of Operations and Comprehensive Income (Loss)
  
Nine Months Ended September 30, 2014
(dollars in millions)
Parent
(Guarantor)
 
CBT
(Issuer)
 

Non-guarantors
 
Eliminations
 
Total
Revenue
$
—

 
$
491.4

 
$
520.5

 
$
(42.0
)
 
$
969.9

Operating costs and expenses
13.8

 
349.8

 
539.8

 
(42.0
)
 
861.4

Operating (loss) income
(13.8
)
 
141.6

 
(19.3
)
 
—

 
108.5

Interest expense (income), net
109.8

 
(3.1
)
 
10.1

 
—

 
116.8

Other expense (income), net
18.2

 
5.5

 
(194.7
)
 
—

 
(171.0
)
(Loss) income before equity in earnings of subsidiaries and income taxes
(141.8
)
 
139.2

 
165.3

 
—

 
162.7

Income tax (benefit) expense
(40.6
)
 
50.8

 
58.6

 
—

 
68.8

Equity in earnings of subsidiaries, net of tax
195.1

 
—

 
—

 
(195.1
)
 
—

Net income
93.9

 
88.4

 
106.7

 
(195.1
)
 
93.9

Other comprehensive income
3.6

 
—

 
—

 
—

 
3.6

Total comprehensive income
$
97.5

 
$
88.4

 
$
106.7

 
$
(195.1
)
 
$
97.5

 
 
 
 
 
 
 
 
 
 
Net income
93.9

 
88.4

 
106.7

 
(195.1
)
 
93.9

Preferred stock dividends
7.8

 
—

 
—

 
—

 
7.8

Net income applicable to common shareowners
$
86.1

 
$
88.4

 
$
106.7

 
$
(195.1
)
 
$
86.1

 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2013
 
Parent
(Guarantor)
 
CBT
(Issuer)
 

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
)


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

Condensed Consolidating Balance Sheets