Cincinnati Bell 2007 Annual Report Download - page 115

Anthem Demutualization Claim
In November 2007, a class action complaint was filed against the Company and Wellpoint Inc., formerly
known as Anthem, Inc. The complaint alleges that the Company improperly received stock as a result of the
demutualization of Anthem and that a class of insured persons should have received the stock instead. In
February 2008, the Company filed a response in which it denied all liability and raised a number of defenses. The
Company believes that it has meritorious defenses and intends to vigorously defend this action. The Company
does not believe this claim will have a material effect on its financial condition.
Other
At December 31, 2006, the Company had certain regulatory tax liabilities totaling $18.0 million, net of expected
refunds, related to past filing positions that were being questioned by the applicable regulatory agency. As a
result of payments made in 2007, at December 31, 2007, the Company liability has decreased to $2.5 million.
The issues have not been fully resolved, and the Company believes it has meritorious defenses related to the
payment of these regulatory taxes and intends to defend its position in order to limit the ultimate payment of
these regulatory taxes.
Off-Balance Sheet Arrangements
Indemnifications
During the normal course of business, the Company makes certain indemnities, commitments, and
guarantees under which it may be required to make payments in relation to certain transactions. These include
(a) intellectual property indemnities to customers in connection with the use, sales, and/or license of products and
services, (b) indemnities to customers in connection with losses incurred while performing services on their
premises, (c) indemnities to vendors and service providers pertaining to claims based on negligence or willful
misconduct of the Company, and (d) indemnities involving the representations and warranties in certain
contracts. In addition, the Company has made contractual commitments to several employees providing for
payments upon the occurrence of certain prescribed events. The majority of these indemnities, commitments, and
guarantees do not provide for any limitation on the maximum potential for future payments that the Company
could be obligated to make. Except for amounts recorded in relation to insured losses, the Company has not
recorded a liability for these indemnities, commitments, and other guarantees in the Consolidated Balance
Sheets, except as described in “Indemnifications Related to the Sale of Broadband Assets” above.
Warrants
As part of the issuance of the 16% Notes in March 2003, the purchasers of the 16% Notes received
17.5 million common stock warrants, which expire in March 2013, to purchase one share of Cincinnati Bell
common stock at $3.00 each. Of the total gross proceeds received for the 16% Notes, $47.5 million was allocated
to the fair value of the warrants using the Black-Scholes option-pricing model. This value less applicable
issuance costs was recorded to “Additional paid-in capital” in the Consolidated Balance Sheet. There were no
exercises of warrants in 2007 or 2006. In 2005, 50,000 warrants were exercised.
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Form 10-K