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, 2015
 
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, 2015, there were 209,866,805 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.

 
 
 
Item 4.

 
 
 
Item 5.

 
 
 
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,
 
2015
 
2014
 
2015
 
2014
Revenue
 
 
 
 
 
 
 
Services
$
234.3

 
$
223.7

 
$
693.5

 
$
666.3

Products
65.5

 
77.7

 
185.0

 
200.3

Total revenue
299.8

 
301.4

 
878.5

 
866.6

Costs and expenses
 
 
 
 
 
 
 
Cost of services, excluding items below
120.0

 
106.6

 
348.0

 
303.2

Cost of products sold, excluding items below
55.6

 
62.9

 
156.0

 
171.1

Selling, general and administrative, excluding items below
52.5

 
52.9

 
161.7

 
151.7

Depreciation and amortization
35.8

 
32.3

 
102.4

 
94.4

Restructuring charges (reversals)
0.3

 
(1.3
)
 
6.0

 
(0.1
)
(Gain) loss on sale or disposal of assets, net
(1.4
)
 
—

 
0.3

 
(0.1
)
Curtailment loss
—

 
—

 
0.3

 
—

Transaction costs
0.8

 
0.2

 
0.8

 
0.9

Total operating costs and expenses
263.6

 
253.6

 
775.5

 
721.1

Operating income
36.2

 
47.8

 
103.0

 
145.5

Interest expense
21.5

 
34.7

 
82.2

 
113.0

Loss on extinguishment of debt
7.8

 
19.4

 
21.3

 
19.4

Loss from CyrusOne equity method investment
0.8

 
—

 
5.2

 
1.9

Gain on sale of CyrusOne equity method investment
(117.7
)
 
—

 
(412.9
)
 
(192.8
)
Other expense (income), net
0.4

 
—

 
0.8

 
(1.2
)
Income (loss) from continuing operations before income taxes
123.4

 
(6.3
)
 
406.4

 
205.2

Income tax expense
44.1

 
1.2

 
146.1

 
83.1

Income (loss) from continuing operations
79.3

 
(7.5
)
 
260.3

 
122.1

Income (loss) from discontinued operations, net of tax
1.0

 
(19.8
)
 
60.8

 
(28.2
)
Net income (loss)
80.3

 
(27.3
)
 
321.1

 
93.9

Preferred stock dividends
2.6

 
2.6

 
7.8

 
7.8

Net income (loss) applicable to common shareowners
$
77.7

 
$
(29.9
)
 
$
313.3

 
$
86.1

Basic net earnings (loss) per common share
 
 
 
 
 
 
 
Basic earnings (loss) per common share from continuing operations
$
0.37

 
$
(0.05
)
 
$
1.21

 
$
0.55

Basic earnings (loss) per common share from discontinued operations
$
—

 
$
(0.09
)
 
$
0.29

 
$
(0.14
)
Basic net earnings (loss) per common share
$
0.37

 
$
(0.14
)
 
$
1.50

 
$
0.41

Diluted net earnings (loss) per common share
 
 
 
 
 
 
 
Diluted earnings (loss) per common share from continuing operations
$
0.37

 
$
(0.05
)
 
$
1.20

 
$
0.55

Diluted earnings (loss) per common share from discontinued operations
$
—

 
$
(0.09
)
 
$
0.29

 
$
(0.14
)
Diluted net earnings (loss) per common share
$
0.37

 
$
(0.14
)
 
$
1.49

 
$
0.41



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

1
Table of Contents

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

 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Net income (loss)
$
80.3

 
$
(27.3
)
 
$
321.1

 
$
93.9

Other comprehensive income
 
 
 
 
 
 
 
Foreign currency translation loss
(0.3
)
 
—

 
(0.4
)
 
—

Defined benefit pension and postretirement plans
 
 
 
 
 
 
 
   Net loss arising from remeasurement during the period, net of tax of $0.6
—

 
—

 
1.1

 
—

   Amortization of prior service benefits, net of tax of ($1.3), ($1.4), ($4.1), ($4.2)
(2.6
)
 
(2.4
)
 
(7.4
)
 
(7.2
)
   Amortization of net actuarial loss, net of tax of $2.3, $2.1, $8.5, $6.3
4.3

 
3.6

 
15.3

 
10.8

Reclassification adjustment for curtailment loss included in net income, net of tax of $0.1
—

 
—

 
0.2

 
—

Other comprehensive income
1.4

 
1.2

 
8.8

 
3.6

Total comprehensive income (loss)
$
81.7

 
$
(26.1
)
 
$
329.9

 
$
97.5



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,
2015
 
December 31,
2014
Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
25.4

 
$
57.9

Receivables, less allowances of $10.9 and $12.4
160.2

 
160.8

Receivable from CyrusOne
3.4

 
7.7

Inventory, materials and supplies
22.3

 
25.0

Deferred income taxes, net
22.9

 
68.9

Prepaid expenses
13.8

 
10.8

Other current assets
3.3

 
1.8

Other current assets from discontinued operations
—

 
4.7

Total current assets
251.3

 
337.6

Property, plant and equipment, net
930.4

 
815.4

Investment in CyrusOne
68.8

 
273.6

Goodwill
14.4

 
14.4

Intangible assets, net
0.3

 
0.5

Deferred income taxes, net
168.2

 
300.7

Other noncurrent assets
26.8

 
33.9

Other noncurrent assets from discontinued operations
—

 
44.6

Total assets
$
1,460.2

 
$
1,820.7

Liabilities and Shareowners’ Deficit
 
 
 
Current liabilities
 
 
 
Current portion of long-term debt
$
12.4

 
$
11.6

Accounts payable
144.6

 
131.6

Payable to CyrusOne
1.6

 
0.4

Unearned revenue and customer deposits
26.7

 
30.4

Accrued taxes
13.5

 
9.9

Accrued interest
24.1

 
22.1

Accrued payroll and benefits
32.9

 
37.0

Other current liabilities
22.2

 
25.8

Other current liabilities from discontinued operations
11.9

 
142.0

Total current liabilities
289.9

 
410.8

Long-term debt, less current portion
1,236.3

 
1,689.4

Pension and postretirement benefit obligations
215.9

 
240.1

Other noncurrent liabilities
41.4

 
26.2

Other noncurrent liabilities from discontinued operations
—

 
102.7

Total liabilities
1,783.5

 
2,469.2

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, 2015 and December 31, 2014; liquidation preference $1,000 per share ($50 per depositary share)
129.4

 
129.4

Common shares, $.01 par value; 480,000,000 shares authorized; 210,004,855 and 209,571,138 shares issued; 209,863,805 and 209,296,068 shares outstanding at September 30, 2015 and December 31, 2014
2.1

 
2.1

Additional paid-in capital
2,577.6

 
2,582.9

Accumulated deficit
(2,866.8
)
 
(3,187.9
)
Accumulated other comprehensive loss
(165.1
)
 
(173.9
)
Common shares in treasury, at cost
(0.5
)
 
(1.1
)
Total shareowners’ deficit
(323.3
)
 
(648.5
)
Total liabilities and shareowners’ deficit
$
1,460.2

 
$
1,820.7

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,
 
2015
 
2014
Cash flows from operating activities
 
 
 
Net income
$
321.1

 
$
93.9

Adjustments to reconcile net income to net cash provided by operating activities
 
 
 
Depreciation and amortization
131.0

 
168.6

Loss on extinguishment of debt
21.3

 
19.4

Provision for loss on receivables
6.5

 
8.2

Loss from CyrusOne equity method investment
5.2

 
1.9

Gain on sale of CyrusOne equity method investment
(412.9
)
 
(192.8
)
Asset impairment
—

 
7.5

Noncash portion of interest expense
3.5

 
4.8

Deferred income tax provision
173.1

 
57.8

Pension and other postretirement payments in excess of expense
(9.9
)
 
(22.4
)
Stock-based compensation
3.1

 
2.5

Deferred gain on sale of Wireless spectrum licenses - discontinued operations
(112.6
)
 
—

Amortization of deferred gain - discontinued operations
(6.5
)
 
(16.5
)
Loss (gain) on sale or disposal of assets, net
0.3

 
(0.1
)
Excess tax benefit for share based payments
(0.1
)
 
(0.1
)
Gain on transfer of lease obligations - discontinued operations
(15.9
)
 
—

Other, net
(2.1
)
 
(1.1
)
Changes in operating assets and liabilities:
 
 
 
Increase in receivables
(5.9
)
 
(35.9
)
Increase in inventory, materials, supplies, prepaid expenses and other current assets
(0.3
)
 
(2.7
)
Increase in accounts payable
8.8

 
19.5

(Decrease) increase in accrued and other current liabilities
(19.8
)
 
13.8

Decrease in other noncurrent assets
1.8

 
1.3

Increase (decrease) in other noncurrent liabilities
5.0

 
(6.8
)
Net cash provided by operating activities
94.7

 
120.8

Cash flows from investing activities
 
 
 
Capital expenditures
(205.7
)
 
(121.1
)
Dividends received from CyrusOne
19.5

 
22.4

Proceeds from sale of assets
0.6

 
2.0

Proceeds from sale of CyrusOne equity method investment
596.3

 
355.9

Proceeds from sale of Wireless spectrum licenses
—

 
194.4

Other, net
(0.2
)
 
(5.7
)
Net cash provided by investing activities
410.5

 
447.9

Cash flows from financing activities
 
 
 
Net decrease in corporate credit and receivables facilities with initial maturities less than 90 days
(19.2
)
 
(33.8
)
Repayment of debt
(509.8
)
 
(350.6
)
Debt issuance costs
(0.4
)
 
—

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

 
1.2

Excess tax benefit for share based payments
0.1

 
0.1

Other, net
(0.6
)
 
(0.9
)
Net cash used in financing activities
(537.7
)
 
(391.8
)
Net (decrease) increase in cash and cash equivalents
(32.5
)
 
176.9

Cash and cash equivalents at beginning of period
57.9

 
4.6

Cash and cash equivalents at end of period
$
25.4

 
$
181.5

 
 
 
 

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

Noncash investing and financing transactions:
 
 
 
Accrual of CyrusOne dividends
$
2.7

 
$
6.0

Acquisition of property by assuming debt and other noncurrent liabilities
$
4.3

 
$
0.6

Acquisition of property on account
$
29.3

 
$
42.0

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

5
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 ("Cincinnati Bell", "we", "our", "us" or the "Company") is a full-service regional provider of entertainment, data and voice communications services over copper and fiber networks, a provider of managed and professional information technology services, and a reseller of information technology ("IT") and telephony equipment. In addition, enterprise customers across the United States rely on Cincinnati Bell Technology Solutions Inc. ("CBTS"), a wholly-owned subsidiary, for efficient, scalable communications systems and end-to-end IT solutions. As of September 30, 2015, we operate our business through the following segments: Entertainment and Communications (formerly known as "Wireline") and IT Services and Hardware.
As of December 31, 2014, we operated three business segments: Entertainment and Communications, IT Services and Hardware and Wireless. In the second quarter of 2014, we entered into agreements to sell our wireless spectrum licenses and certain other assets related to our wireless business. The agreement to sell our wireless spectrum licenses closed on September 30, 2014, for cash proceeds of $194.4 million. Simultaneously, we entered into a separate agreement to use certain spectrum licenses for $8.00 until we no longer provided wireless service. Effective March 31, 2015, all wireless subscribers were migrated off our network and we ceased providing wireless services and operations. Certain wireless tower lease obligations and other assets were transferred to the acquiring company on April 1, 2015.
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. On April 7, 2015, we sold 14.3 million operating partnership units of CyrusOne LP to CyrusOne, Inc. at a price of $29.88 per unit for proceeds of $426.0 million. On July 1, 2015, we sold 6.0 million operating partnership units of CyrusOne LP to CyrusOne, Inc. at a price of $28.41 per unit for proceeds of $170.3 million. As of September 30, 2015, we effectively owned 11% of CyrusOne, which was held in the form of 1.9 million shares of registered common stock of CyrusOne Inc. and 6.3 million economically equivalent partnership units in CyrusOne LP. We account for this investment using the equity method.
In conjunction with the ratification of the agreement with the Communications Workers of America ("CWA") in February 2015, the remaining bargained pension plan credits were frozen effective May 1, 2015 resulting in an actuarial remeasurement of the pension plan as of that date. Refer to Note 8 for additional details.

The Company has receivables with one Fortune 10 industrial customer that makes up 22% and 26% of the outstanding accounts receivable balance at September 30, 2015 and December 31, 2014, respectively. This same customer represented 12% of consolidated revenue for the three and nine months ended September 30, 2015 and represented 18% and 16% of consolidated revenue for the three and nine months ended September 30, 2014, respectively.

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, 2014 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 2014 Annual Report on Form 10-K. Operating results for the three and nine months ended September 30, 2015 are not necessarily indicative of the results expected for the full year or any other interim period.
The closing of our wireless operations in March 2015 represents a strategic shift in our business. Therefore, certain wireless assets, liabilities and results of operations are reported as discontinued operations in our financial statements. Accordingly, the Company has recast its prior period results to be comparable with the current discontinued operations presentation with the exception of the Condensed Consolidated Statements of Cash Flows. See Note 2 for all required disclosures.

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

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.
Equity Method Investments — Effective January 24, 2013, the completion date of CyrusOne's IPO, 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) loss in our Condensed Consolidated Statement of Operations. For the three and nine months ended September 30, 2015, the Company received cash dividends from CyrusOne totaling $4.5 million and $19.5 million, respectively. 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 the cost of our investment.
During the second quarter of 2014, we invested a total of $5.5 million in other entities, which are accounted for as equity method investments, and the carrying value has been recorded in "Other noncurrent assets" in the Condensed Consolidated Balance Sheets. The Company's proportionate share of their respective net income (loss) is recorded in "Other expense (income), net" in the Condensed Consolidated Statement of 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 rate to exceed statutory rates primarily due to non-deductible expenses, including interest on securities originally issued to acquire its broadband business or securities subsequently issued to refinance those securities. These securities were repaid in full in the second quarter of 2015.
Recently Issued Accounting Standards — In April 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") 2015-05, Intangibles-Goodwill and Other-Internal-Use Software, which amends Accounting Standard Codification ("ASC") 350-40 to provide customers with guidance on determining whether a cloud computing arrangement contains a software license that should be accounted for as internal-use software. The standard will be effective on January 1, 2016 and can be adopted retrospectively or prospectively to arrangements entered into, or materially modified, after the effective date. The Company plans to prospectively adopt this standard and estimates an immaterial impact on the Company’s consolidated financial statements.
In April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, which changes the presentation of debt issuance costs in the financial statements. The amendments in this update require companies to present such costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset and to record amortization of the costs as interest expense. The standard will be effective on January 1, 2016 and will be applied retrospectively for prior periods. The Company estimates approximately $10 million of debt issuance costs will be reclassified from "Other non-current assets" to "Long term debt, less current portion" on the Condensed Consolidated Balance Sheets on the date of adoption. The adoption is not expected to impact the Condensed Consolidated Statement of Operations.
On January 9, 2015, the FASB issued ASU 2015-01, Income Statement-Extraordinary and Unusual Items. The updated standard will no longer allow for transactions that are unusual in nature and occur infrequently to be presented net-of-tax after income from continuing operations as an extraordinary item in the statements of operations. Under the new guidance, these transactions will be separately presented within income from continuing operations similar to current guidance for transactions that are unusual in nature or occur infrequently. 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 as there are no transactions presented as an extraordinary item.
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.

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. In August of 2015, ASU 2015-14 was issued deferring the effective date of ASU 2014-09 to annual reporting periods beginning after December 15, 2017 with an optional early application date for annual reporting periods beginning after December 15, 2016. The Company has elected to adopt the standard in the first quarter of the fiscal year ending December 31, 2018. The Company is continuing to evaluate the impact of adoption of this ASU on the Company’s consolidated financial statements.
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 was effective for us on January 1, 2015 and the amended guidance has been applied to the discontinuation of our wireless operations. For a full discussion of discontinued operations and required disclosures reference Note 2.

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

2.    Discontinued Operations
Cincinnati Bell Wireless LLC ("CBW"), our former Wireless segment, provided digital wireless voice and data communications services to customers in the Company’s licensed service territory, which included Greater Cincinnati and Dayton, Ohio, and areas of northern Kentucky and southeastern Indiana. The Company’s customers were also able to place and receive wireless calls nationally and internationally due to roaming agreements the Company had with other carriers.
In the second quarter of 2014, we entered into agreements to sell our wireless spectrum licenses and certain other assets related to our wireless business, including leases to certain wireless towers and related equipment and other assets. The agreement to sell our spectrum licenses closed on September 30, 2014 for cash proceeds of $194.4 million. Prior to this date, the Company's digital wireless network utilized 50 MHz of licensed spectrum in the Cincinnati area and 40 MHz of licensed spectrum in the Dayton area, which had a carrying value of $88.2 million. Simultaneous with the close of the spectrum sale, the Company entered into a separate agreement to use certain wireless spectrum licenses for $8.00 until we no longer provided wireless service. We ceased providing wireless service effective March 31, 2015. The fair value of the lease, which is considered a Level 3 measurement based on other comparable transactions, totaled $6.4 million and was recorded as a prepaid expense and amortized over a six month period ending March 31, 2015.
As of March 31, 2015, there were no subscribers remaining on the network and we no longer required the use of the spectrum being leased. Therefore, the $112.6 million gain on the sale of the wireless spectrum licenses, which had been previously deferred, was recognized in Income (loss) from discontinued operations, net of tax in the Condensed Consolidated Statements of Operations for the three months ended March 31, 2015. On April 1, 2015, we transferred certain other assets related to our wireless business, including leases to certain wireless towers and related equipment and other assets, which resulted in a gain of $15.9 million in the second quarter of 2015. As a result, we removed the following assets and liabilities in the second quarter of 2015.

(dollars in millions)
As of April 1, 2015
Property, plant and equipment, net
$
16.0

 
 
Current portion of long-term debt
0.5

Long-term debt, less current portion
24.8

Other non-current liabilities
6.6

Total liabilities
$
31.9


In the third quarter of 2015, we released $2.1 million from the current restructuring reserve as a result of finalizing negotiations on certain contractual obligations and operating lease agreements.

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

Wireless financial results for the three and nine months ended September 30, 2015 and 2014 reported as Income (loss) from discontinued operations, net of tax on the Condensed Consolidated Statements of Operations are as follows:

 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
(dollars in millions)
2015
 
2014
 
2015
 
2014
Revenue
$
—

 
$
30.1

 
$
4.4

 
$
116.0

Costs and expenses
 
 
 
 
 
 
 
Cost of products and services
—

 
13.7

 
12.0

 
53.2

Selling, general and administrative
—

 
4.9

 
2.2

 
16.3

Depreciation and amortization expense
—

 
29.1

 
28.6

 
74.2

Restructuring (reversals) charges
(2.1
)
 
10.3

 
4.3


15.5

Asset impairment
—

 
7.5

 
—

 
7.5

Transaction costs
—

 
2.8

 
—

 
2.8

Amortization of deferred gain
—

 
(6.4
)
 
(6.5
)
 
(16.5
)
Total operating costs and expenses
(2.1
)

61.9

 
40.6

 
153.0

Operating income (loss)
2.1


(31.8
)
 
(36.2
)
 
(37.0
)
Interest expense (income)
—

 
1.1

 
(1.7
)
 
3.8

Other (income) expense
(0.1
)

(0.2
)
 
(0.2
)
 
1.7

Gain on transfer of tower lease obligations and other assets
—

 
—

 
15.9

 
—

Gain on sale of wireless spectrum licenses
—

 
—

 
112.6

 
—

Income (loss) before income taxes
2.2

 
(32.7
)
 
94.2

 
(42.5
)
Income tax expense (benefit)
1.2

 
(12.9
)
 
33.4

 
(14.3
)
Income (loss) from discontinued operations
$
1.0

 
$
(19.8
)
 
$
60.8

 
$
(28.2
)


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

Wireless assets and liabilities presented as discontinued operations as of September 30, 2015 and December 31, 2014 are as follows:
(dollars in millions)
September 30, 2015
 
December 31, 2014
Current assets
 
 
 
Prepaid rent - spectrum license
$
—

 
$
3.2

Other current assets
—

 
1.5

Total current assets from discontinued operations
—

 
4.7

     Property, plant and equipment
—

 
44.1

     Other noncurrent assets
—

 
0.5

Total noncurrent assets from discontinued operations
—

 
44.6

Total assets from discontinued operations
$
—

 
$
49.3

 
 
 
 
Current liabilities
 
 
 
Current portion of long-term debt
$
—

 
$
1.6

Accounts payable
0.2

 
5.0

Restructuring liability
8.9

 
15.4

Deferred gain on sale of wireless spectrum
licenses
—

 
112.6

     Other current liabilities
2.8

 
7.4

Total current liabilities from discontinued
operations
11.9

 
142.0

      Long-term debt, less current portion
—

 
81.6

      Deferred gain on sale of towers
—

 
13.1

      Other noncurrent liabilities
—

 
8.0

Total noncurrent liabilities from discontinued operations
—

 
102.7

 Total liabilities from discontinued operations
$
11.9

 
$
244.7



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

Certain capital lease and retirement obligations were reported as liabilities from discontinued operations as of December 31, 2014 as we continued to operate the wireless business at that time. The following capital lease and asset retirement obligations will be retained by the Company and have not been included in liabilities from discontinued operations at September 30, 2015:
 
Continuing Operations
 
Discontinued Operations
 
As of September 30, 2015
 
As of December 31, 2014
(dollars in millions)
 
 
 
Current portion of long-term debt
$
1.2

 
$
1.1

Long-term debt, less current portion
52.4

 
57.0

Other noncurrent liabilities
8.2

 
7.5

Total liabilities
$
61.8

 
$
65.6

Following is selected operating and investing cash flow activity from discontinued operations included in Condensed Consolidated Statements of Cash Flows:

 
Nine Months Ended
 
September 30,
(dollars in millions)
2015
 
2014
Depreciation and amortization
28.6

 
74.2

Impairment loss
—

 
7.5

Amortization of deferred gain on sale of towers
(6.5
)
 
(16.5
)
Non-cash spectrum lease
3.2

 
—

Deferred gain on sale of spectrum licenses
(112.6
)
 
—

Gain on transfer of tower lease obligations and other assets
(15.9
)
 
—

Restructuring payments
(11.2
)
 
(1.0
)
Capital expenditures
—

 
(6.5
)
Proceeds from sale of wireless spectrum licenses
—

 
194.4



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

3.    Investment in CyrusOne
On January 24, 2013, we completed the IPO of CyrusOne, our former Data Center Colocation segment. As of that date, we no longer control CyrusOne's operations.
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. The registration statement filed by CyrusOne on March 24, 2014 became effective on April 4, 2014 and eliminated all prior limitations restricting the volume of shares we are allowed to sell.
In the second quarter of 2014, we sold 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.
In the second quarter of 2015, we sold 14.3 million operating partnership units of CyrusOne LP to CyrusOne, Inc. at a price of $29.88 per unit. The sale generated proceeds of $426.0 million and resulted in a gain of $295.2 million.
On July 1, 2015, we sold 6.0 million operating partnership units of CyrusOne LP to CyrusOne, Inc. at a price of $28.41 per unit. The sale generated proceeds of $170.3 million and resulted in a gain of $117.7 million that was recognized in the third quarter of 2015.
As of September 30, 2015, we effectively owned 11% of CyrusOne, which was held in the form of 1.9 million shares of registered common stock of CyrusOne Inc. and 6.3 million economically equivalent partnership units in CyrusOne LP. We account for this investment using the equity method. As of September 30, 2015, the fair value of this investment was $269.0 million based on the quoted market price of CyrusOne's common stock, which is considered a Level 1 measurement in the fair value hierarchy. For the three and nine months ended September 30, 2015, our equity method share of CyrusOne's net loss was $0.8 million and $5.2 million, respectively. 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.
Summarized financial information for CyrusOne is as follows:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
(dollars in millions)
2015
 
2014
 
2015
 
2014
Revenue
$
111.2

 
$
84.8

 
$
286.0

 
$
244.0

Operating income
7.5

 
9.6

 
11.7

 
28.8

Net income (loss)
(5.3
)
 
0.2

 
(19.0
)
 
(2.7
)

Transactions with CyrusOne
Revenues - The Company records 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 provides certain administrative services to CyrusOne which are billed based on agreed-upon rates.

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

Revenues and operating costs and expenses from transactions with CyrusOne were as follows:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
(dollars in millions)
2015
 
2014
 
2015
 
2014
Revenue:
 
 
 
 
 
 
 
Services provided to CyrusOne
$
0.3

 
$
0.4

 
$
1.0

 
$
1.3

 
 
 
 
 
 
 
 
Operating costs and expenses:
 
 
 
 
 
 
 
Charges for services provided by CyrusOne
2.6

 
2.2

 
7.6

 
6.8

Administrative services provided to CyrusOne
(0.1
)
 
(0.1
)
 
(0.3
)
 
(0.3
)
Total operating costs and expenses
$
2.5

 
$
2.1

 
$
7.3

 
$
6.5

Dividends of $4.5 million were received in the third quarter of 2015. Additionally, on August 5, 2015, CyrusOne declared dividends of $0.315 per share payable on its common shares and CyrusOne LP partnership units. This dividend was paid on October 15, 2015 to holders of record as of September 25, 2015.
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 the Texas Margin Tax return for the period ending December 31, 2014 is filed. As of September 30, 2015 and December 31, 2014, the receivable related to this agreement totaled $0.7 million and $1.7 million, respectively. These balances are included in Receivable from CyrusOne. 

At September 30, 2015 and December 31, 2014, amounts receivable from and payable to CyrusOne were as follows:
 
 
September 30,
 
December 31,
(dollars in millions)
 
2015
 
2014
Accounts receivable
 
$
0.7

 
$
1.7

Dividends receivable
 
2.7

 
6.0

  Receivable from CyrusOne
 
$
3.4

 
$
7.7

 
 
 
 
 
Accounts payable
 
$
1.6

 
$
0.4

  Payable to CyrusOne
 
$
1.6

 
$
0.4





14
Table of Contents
Form 10-Q Part I
 
Cincinnati Bell Inc.

4.    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
 
Three Months Ended
 
September 30, 2015
 
September 30, 2014
(in millions, except per share amounts)
Continuing Operations
 
Discontinued Operations
 
Total
 
Continuing Operations
 
Discontinued Operations
 
Total
Numerator:
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
$
79.3

 
$
1.0

 
$
80.3

 
$
(7.5
)
 
$
(19.8
)
 
$
(27.3
)
Preferred stock dividends
2.6

 
—

 
2.6

 
2.6

 
—

 
2.6

Net income (loss) applicable to common shareowners - basic and diluted
$
76.7

 
$
1.0

 
$
77.7

 
$
(10.1
)
 
$
(19.8
)
 
$
(29.9
)
Denominator:
 
 
 
 
 
 
 
 
 
 
 
Weighted average common shares outstanding - basic
209.8

 
209.8

 
209.8

 
208.7

 
208.7

 
208.7

Stock-based compensation arrangements
0.4

 
0.4

 
0.4

 
—

 
—

 
—

Weighted average common shares outstanding - diluted
210.2

 
210.2

 
210.2

 
208.7

 
208.7

 
208.7

Basic earnings (loss) per common share
$
0.37

 
$
—

 
$
0.37

 
$
(0.05
)
 
$
(0.09
)
 
$
(0.14
)
Diluted earnings (loss) per common share
$
0.37

 
$
—

 
$
0.37

 
$
(0.05
)
 
$
(0.09
)
 
$
(0.14
)

 
Nine Months Ended
 
Nine Months Ended
 
September 30, 2015
 
September 30, 2014
(in millions, except per share amounts)
Continuing Operations
 
Discontinued Operations
 
Total
 
Continuing Operations
 
Discontinued Operations
 
Total
Numerator:
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
$
260.3

 
$
60.8

 
$
321.1

 
$
122.1

 
$
(28.2
)
 
$
93.9

Preferred stock dividends
7.8

 
—

 
7.8

 
7.8

 
—

 
7.8

Net income (loss) applicable to common shareowners - basic and diluted
$
252.5

 
$
60.8

 
$
313.3

 
$
114.3

 
$
(28.2
)
 
$
86.1

Denominator:
 
 
 
 
 
 
 
 
 
 
 
Weighted average common shares outstanding - basic
209.5

 
209.5

 
209.5

 
208.4

 
208.4

 
208.4

Stock-based compensation arrangements
0.6

 
0.6

 
0.6

 
1.0

 
1.0

 
1.0

Weighted average common shares outstanding - diluted
210.1

 
210.1

 
210.1

 
209.4

 
209.4

 
209.4

Basic earnings (loss) per common share
$
1.21

 
$
0.29

 
$
1.50

 
$
0.55

 
$
(0.14
)
 
$
0.41

Diluted earnings (loss) per common share
$
1.20

 
$
0.29

 
$
1.49

 
$
0.55

 
$
(0.14
)
 
$
0.41


For the three and nine months ended September 30, 2015, awards under the Company's stock-based compensation plans for common shares of 3.6 million were excluded from the computation of diluted EPS as the inclusion would have been anti-dilutive. 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 the 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 the inclusion would have been anti-dilutive. For all periods presented, preferred stock convertible into 4.5 million common shares was excluded as it was anti-dilutive.

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

5.    Debt
The Company’s debt consists of the following:
 
(dollars in millions)
September 30,
2015
 
December 31,
2014
Current portion of long-term debt:
 
 
 
Corporate Credit Agreement - Tranche B Term Loan
$
5.4

 
$
5.4

Capital lease obligations and other debt
7.0

 
6.2

Current portion of long-term debt
12.4

 
11.6

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

 
19.2

8 3/4% Senior Subordinated Notes due 2018
—

 
300.0

Corporate Credit Agreement - Tranche B Term Loan
523.8

 
527.8

8 3/8% Senior Notes due 2020
478.5

 
661.2

       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
61.4

 
9.9

 
1,238.2

 
1,692.6

Net unamortized discount
(1.9
)
 
(3.2
)
         Long-term debt, less current portion
1,236.3

 
1,689.4

Total debt
$
1,248.7

 
$
1,701.0



The Company entered into an Incremental Assumption Agreement to the Company's existing Corporate Credit Agreement on April 6, 2015. Effective with the sale of our 14.3 million CyrusOne LP operating partnership units on April 7, 2015, the aggregate available borrowings on the Corporate Credit Agreement's revolving credit facility increased to $175.0 million for the remainder of the term. There were no outstanding borrowings on the Corporate Credit Agreement's revolving credit facility, leaving $175.0 million available for borrowings as of September 30, 2015. This revolving credit facility expires in July 2017.

On June 1, 2015, the Company executed an amendment of its accounts receivable securitization facility (“Receivables Facility”). The amendment replaced, amended, and added certain provisions and definitions to increase the credit availability, renew the facility, which is subject to renewal every 364 days, until May 30, 2016, extend the facility's termination date to May 30, 2018, and include a Libor Market Index Rate floor of zero. As of September 30, 2015, the Company had no borrowings and $6.3 million of letters of credit outstanding under the Receivables Facility, leaving $103.0 million remaining availability on the total borrowing capacity of $109.3 million. 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. Under the terms of the Receivables Facility, the Company could obtain up to $120.0 million depending on the quantity and quality of accounts receivable. Under this agreement, 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 May 7, 2015, the Company redeemed the remaining $300.0 million of its outstanding 8 ¾% Senior Subordinated Notes due 2018, at a redemption rate of 102.188%. As a result, a loss on extinguishment of debt of $10.4 million was recorded in the second quarter of 2015. Additionally, during the second quarter of 2015, the Company redeemed $45.1 million of its outstanding 8 3/8 % Senior Notes due 2020 at an average redemption price of 106.450% which resulted in recording a loss on extinguishment of debt of $3.1 million.

During the third quarter of 2015, the Company redeemed $137.6 million of its outstanding 8 3/8 % Senior Notes due 2020 at an average redemption price of 105.242% which resulted in recording a loss on extinguishment of debt of $7.8 million.




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

6.    Financial Instruments and Fair Value Measurements
The carrying values of the Company's financial instruments approximate the estimated fair values as of September 30, 2015 and December 31, 2014, 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, 2015
 
December 31, 2014
(dollars in millions)
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
Investment in CyrusOne
$
68.8

 
$
269.0

 
$
273.6

 
$
785.0

Long-term debt, including current portion*
1,181.1

 
1,173.3

 
1,686.1

 
1,717.4

   *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, 2015 and December 31, 2014. 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, 2015 and December 31, 2014, which is considered Level 2 of the fair value hierarchy.


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

7.    Restructuring Charges
As of September 30, 2015, 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, 2014
$
3.0

 
$
1.8

 
$
0.1

 
$
4.9

Charges
2.2

 
—

 
1.2

 
3.4

Utilizations
(3.1
)
 
(0.2
)
 
(1.2
)
 
(4.5
)
Balance as of March 31, 2015
$
2.1

 
$
1.6

 
$
0.1

 
$
3.8

Charges
0.9

 
0.2

 
1.2

 
2.3

Utilizations
(1.5
)
 
(0.8
)
 
(1.2
)
 
(3.5
)
Balance as of June 30, 2015
$
1.5

 
$
1.0

 
$
0.1

 
$
2.6

Charges
0.2

 
0.1

 
—

 
0.3

Utilizations
(1.2
)
 
(0.2
)
 
—

 
(1.4
)
Balance as of September 30, 2015
$
0.5

 
$
0.9

 
$
0.1

 
$
1.5

The Company made severance payments during the three and nine months ended September 30, 2015 pursuant to its written severance plan. Lease abandonment costs represent future minimum lease obligations, net of expected sublease income, for abandoned facilities. Lease payments on abandoned facilities will continue through 2019. Other represents project related expenses as we continue to identify opportunities to integrate the business markets within our Entertainment and Communications and IT Services & Hardware segments.
A summary of restructuring activity by business segment is presented below:
(dollars in millions)
Entertainment and Communications
 
IT Services and Hardware
 
Corporate
 
Total
Balance as of December 31, 2014
$
3.9

 
$
0.3

 
$
0.7

 
$
4.9

Charges
0.8

 
2.2

 
0.4

 
3.4

Utilizations
(3.2
)
 
(0.8
)
 
(0.5
)
 
(4.5
)
Balance as of March 31, 2015
$
1.5

 
$
1.7

 
$
0.6

 
$
3.8

Charges
0.8

 
0.3

 
1.2

 
2.3

Utilizations
(1.1
)
 
(0.8
)
 
(1.6
)
 
(3.5
)
Balance as of June 30, 2015
$
1.2

 
$
1.2

 
$
0.2

 
$
2.6

Charges
—

 
0.3

 
—

 
0.3

Utilizations
(0.3
)
 
(0.9
)
 
(0.2
)
 
(1.4
)
Balance as of September 30, 2015
$
0.9

 
$
0.6

 
$
—

 
$
1.5

At September 30, 2015 and December 31, 2014, $1.2 million and $4.9 million, respectively, of the restructuring liabilities were included in “Other current liabilities,” and $0.3 million was included in “Other noncurrent liabilities” in the Condensed Consolidated Balance Sheets as of September 30, 2015.



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

8.    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, 2015 and 2014, approximately 12% and 10%, respectively, of the costs were capitalized as a component of property, plant and equipment related to construction of our copper and fiber networks. During the second quarter of 2015, the bargained pension plan was amended to eliminate all future pension credits and transition benefits. As a result, we recognized a curtailment loss of $0.3 million in the three months ended June 30, 2015 and remeasured the associated pension obligation. This remeasurement resulted in a decrease of our pension liability of $1.7 million.
For the three and nine months ended September 30, 2015 and 2014, pension and postretirement benefit costs were as follows:
 
Three Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
(dollars in millions)
Pension Benefits
 
Postretirement and
Other Benefits
Service cost
$
—

 
$
0.3

 
$
0.1

 
$
0.1

Interest cost on projected benefit obligation
4.8

 
5.2

 
0.8

 
1.0

Expected return on plan assets
(7.3
)
 
(7.0
)
 
—

 
—

Amortization of:
 
 
 
 
 
 
 
Prior service cost (benefit)
—

 
0.1

 
(3.9
)
 
(3.9
)
Actuarial loss
5.2

 
4.3

 
1.4

 
1.4

       Total amortization
5.2

 
4.4

 
(2.5
)
 
(2.5
)
Benefit costs
$
2.7

 
$
2.9

 
$
(1.6
)
 
$
(1.4
)
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
(dollars in millions)
Pension Benefits
 
Postretirement and
Other Benefits
Service cost
$
0.3

 
$
0.8

 
$
0.2

 
$
0.2

Interest cost on projected benefit obligation
14.3

 
15.7

 
2.5

 
3.0

Expected return on plan assets
(21.8
)
 
(21.1
)
 
—

 
—

Curtailment loss
0.3

 
—

 
—

 
—

Amortization of:
 
 
 
 
 
 
 
Prior service cost (benefit)
0.1

 
0.2

 
(11.6
)
 
(11.6
)
Actuarial loss
19.7

 
13.0

 
4.1

 
4.1

       Total amortization
19.8

 
13.2

 
(7.5
)
 
(7.5
)
Benefit costs
$
12.9

 
$
8.6

 
$
(4.8
)
 
$
(4.3
)


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

Contributions in 2015 to the Company’s pension and postretirement plans are expected to be approximately $20 million. For the nine months ended September 30, 2015, contributions to the pension plans were $11.9 million and contributions to the postretirement plan were $6.1 million.


19
Table of Contents

9.    Stock-Based and Other Compensation Plans
The Company grants stock options, stock appreciation rights (“SARs”), long-term incentive plan 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, 2015, the Company recognized stock-based compensation expense of $0.1 million and $3.4 million, respectively, inclusive of $1.1 million and $0.2 million of mark-to-market gains on awards indexed to the Company's stock price. 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, which reflected $0.7 million and $0.5 million of mark-to-market gains on awards indexed to the Company's stock price. As of September 30, 2015, there was $12.8 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 long-term incentive plan 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, 2015 and 2014, the number of common shares deferred under these plans was 0.3 million and 0.5 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. For the three months ended September 30, 2015, the Company recognized a benefit of $0.2 million. For the nine months ended September 30, 2015, the Company recognized nominal expense. The Company recognized a benefit of $0.6 million and $0.2 million for the three and nine months ended September 30, 2014, respectively.

10.    Shareowners' Deficit
Accumulated Other Comprehensive Loss
For the nine months ended September 30, 2015, 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, 2014
$
(173.6
)
 
$
(0.3
)
 
$
(173.9
)
Reclassifications, net (a)
8.1

 
—

 
8.1

Remeasurement of benefit obligations
1.1

 
—

 
1.1

Foreign currency loss
—

 
(0.4
)
 
(0.4
)
Balance as of September 30, 2015
$
(164.4
)
 
$
(0.7
)
 
$
(165.1
)
(a) These reclassifications are included in the components of net periodic pension and postretirement benefit costs (see Note 8 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.

20
Table of Contents
Form 10-Q Part I
 
Cincinnati Bell Inc.

11.    Business Segment Information
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 Entertainment and Communications segment provides products and services such as data transport, high-speed internet, entertainment, local voice, long distance, voice over internet protocol (VoIP) and other services. The IT Services and Hardware segment provides a range of fully managed and outsourced IT and telecommunications services along with the sale, installation and maintenance of major branded IT and telephony equipment.
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.

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)
2015

2014
 
2015
 
2014
Revenue
 
 
 
 
 
 
 
Entertainment and Communications
$
185.4

 
$
184.0

 
$
555.9

 
$
552.3

IT Services and Hardware
117.0

 
120.0

 
330.9

 
323.5

Intersegment
(2.6
)
 
(2.6
)
 
(8.3
)
 
(9.2
)
Total revenue
$
299.8

 
$
301.4

 
$
878.5

 
$
866.6

Intersegment revenue
 
 
 
 
 
 
 
Entertainment and Communications
$
0.2

 
$
0.3

 
$
0.9

 
$
0.8

IT Services and Hardware
2.4

 
2.3

 
7.4

 
8.4

Total intersegment revenue
$
2.6

 
$
2.6

 
$
8.3

 
$
9.2

Operating income
 
 
 
 
 
 
 
Entertainment and Communications
$
30.4

 
$
43.0

 
$
101.8

 
$
144.4

IT Services and Hardware
8.2

 
8.1

 
15.5

 
16.3

Corporate
(2.4
)
 
(3.3
)
 
(14.3
)
 
(15.2
)
Total operating income
$
36.2

 
$
47.8

 
$
103.0

 
$
145.5

Expenditures for long-lived assets
 
 
 
 
 
 
 
Entertainment and Communications
$
69.4

 
$
41.8

 
$
193.5

 
$
106.1

IT Services and Hardware
3.8

 
3.5

 
12.1

 
8.5

Corporate
—

 
—

 
0.1

 
—

Total expenditures for long-lived assets
$
73.2

 
$
45.3

 
$
205.7

 
$
114.6

Depreciation and amortization
 
 
 
 
 
 
 
Entertainment and Communications
$
32.6

 
$
29.3

 
$
93.1

 
$
85.6

IT Services and Hardware
3.1

 
3.0

 
9.2

 
8.6

Corporate
0.1

 
—

 
0.1

 
0.2

Total depreciation and amortization
$
35.8

 
$
32.3

 
$
102.4

 
$
94.4

 
 
 
 
 
 
 
 
  
September 30,
2015
 
December 31,
2014
 
 
 
 
Assets
 
 
 
 
 
 
 
Entertainment and Communications
$
942.3

 
$
833.2

 
 
 
 
IT Services and Hardware
68.6

 
61.4

 
 
 
 
Total assets from discontinued operations
—

 
49.3

 
 
 
 
Corporate and eliminations
449.3

 
876.8

 
 
 
 
Total assets
$
1,460.2

 
$
1,820.7

 


 



21
Table of Contents
Form 10-Q Part I
 
Cincinnati Bell Inc.

12.    Supplemental Guarantor Information
Cincinnati Bell Telephone Notes
As of September 30, 2015, 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. During the nine months ended September 30, 2015, certain entities issued dividends to the Parent Company which impacted equity and intercompany accounts on the balance sheets of certain non-guarantor entities.

The following information sets forth the Condensed Consolidating Statements of Operations and Comprehensive Income (Loss) for the three and nine months ended September 30, 2015 and 2014, Condensed Consolidating Balance Sheets as of September 30, 2015 and December 31, 2014, and Condensed Consolidating Statements of Cash Flows for the nine months ended September 30, 2015 and 2014 of (1) the Parent Company, as the guarantor, (2) CBT, as the issuer, and (3) the non-guarantor subsidiaries on a combined basis.

22
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, 2015
(dollars in millions)
Parent
(Guarantor)
 
CBT
(Issuer)
 
Other
Non-guarantors
 
Eliminations
 
Total
Revenue
$
—

 
$
164.5

 
$
144.8

 
$
(9.5
)
 
$
299.8

Operating costs and expenses
2.4

 
135.9

 
134.8

 
(9.5
)
 
263.6

Operating income (loss)
(2.4
)
 
28.6

 
10.0

 
—

 
36.2

Interest expense (income), net
25.3

 
—

 
(3.8
)
 
—

 
21.5

Other expense (income), net
7.4

 
1.7

 
(117.8
)
 
—

 
(108.7
)
Income (loss) before equity in earnings of subsidiaries and income taxes
(35.1
)
 
26.9

 
131.6

 
—

 
123.4

Income tax expense (benefit)
(12.1
)
 
10.1

 
46.1

 
—

 
44.1

Equity in earnings of subsidiaries, net of tax
103.3

 
—

 
—

 
(103.3
)
 
—

Income (loss) from continuing operations
80.3


16.8


85.5


(103.3
)

79.3

Income (loss) from discontinued operations, net of tax
—

 
—

 
1.0

 
—

 
1.0

Net income (loss)
80.3


16.8


86.5


(103.3
)

80.3

Other comprehensive income (loss)
1.7

 
—

 
(0.3
)
 
—

 
1.4

Total comprehensive income (loss)
$
82.0

 
$
16.8

 
$
86.2

 
$
(103.3
)
 
$
81.7

 
 
 
 
 
 
 
 
 
 
Net income (loss)
80.3

 
16.8

 
86.5

 
(103.3
)
 
80.3

Preferred stock dividends
2.6

 
—

 
—

 
—

 
2.6

Net income (loss) applicable to common shareowners
$
77.7

 
$
16.8

 
$
86.5

 
$
(103.3
)
 
$
77.7

 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30, 2014
 
Parent
(Guarantor)
 
CBT
(Issuer)
 
Other
Non-guarantors
 
Eliminations
 
Total
Revenue
$
—

 
$
163.8

 
$
146.8

 
$
(9.2
)
 
$
301.4

Operating costs and expenses
3.3

 
122.1

 
137.4