Cincinnati Bell 2006 Annual Report Download - page 146

•Establishment of health reimbursement accounts for future retirees with an annual account balance and a
3% inflation factor. To the extent the actual cost of health care premiums for a future retiree exceeds the
value credited to their account, the retiree will be responsible for the difference;
•Establishment of health care premium payments for active employees beginning in 2007; and
•Contribution increases of 10% to the union employees’ pension plan.
Commitments and Contingencies
Commitments
In 1998, the Company entered into a ten-year contract with Convergys Corporation (“Convergys”), a
provider of billing, customer service and other services, which, in 2004, was extended to December 31, 2010.
The contract states that Convergys will be the primary provider of certain data processing, professional and
consulting and technical support services for the Company within CBT’s operating territory. In return, the
Company will be the exclusive provider of local telecommunications services to Convergys. The contract
extension reduced the Company’s annual commitment in 2004 and 2005 to $35.0 million from $45.0 million.
Beginning in 2006, the minimum commitment is reduced 5% annually. The Company paid $34.3 million, $36.1
million and $37.5 million under the contract in 2006, 2005 and 2004, respectively.
Contingencies
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 accounting principles generally accepted in the United States. Such
matters are subject to many uncertainties and outcomes that are not predictable with assurance.
In re Broadwing Inc. Securities Class Action Lawsuits, (Gallow v. Broadwing Inc., et al), U.S. District Court,
Southern District of Ohio, Western Division, Case No. C-1-02-795
Between October and December 2002, five virtually identical class action lawsuits were filed against
Broadwing Inc. and two of its former Chief Executive Officers in U.S. District Court for the Southern District of
Ohio.
These complaints were filed on behalf of purchasers of the Company’s securities between January 17, 2001 and
May 20, 2002, inclusive, and alleged violations of Section 10(b) and 20(a) of the Securities and Exchange Act of
1934 by, inter alia, (1) improperly recognizing revenue associated with Indefeasible Right of Use (“IRU”)
agreements; and (2) failing to write-down goodwill associated with the Company’s 1999 acquisition of IXC
Communications, Inc. The plaintiffs sought unspecified compensatory damages, attorney’s fees, and expert expenses.
On April 28, 2006, the Company and plaintiffs entered into a Memorandum of Understanding (“MOU”),
which set forth an agreement in principle to settle this matter. For these lawsuits and the derivative complaint
discussed below, the Company reserved $6.3 million in the first quarter of 2006 to reflect its contribution to the
settlement fund and to cover other settlement-related expenses. Under the MOU agreement, the Company and
certain of its insurance carriers agreed to contribute a total of $36 million to settle the claims in this matter and
obtain in exchange a release of all claims from the class members.
On July 12, 2006, the Company and plaintiffs entered into a definitive Stipulation and Agreement of
Settlement reflecting the terms of the above-referenced MOU. On July 21, 2006, Judge Rice issued a Preliminary
Order approving the notice and proof of claim forms to be mailed to class members and scheduled a Settlement
Fairness Hearing. The Settlement Fairness Hearing took place on September 6, 2006. On December 1, 2006, all
objections to the proposed settlement were withdrawn and the court gave final approval of the settlement and
dismissed all claims with prejudice.
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