Cincinnati Bell 2007 Annual Report Download - page 123

The actuarial assumptions used may differ materially from actual results due to the changing market and
economic conditions and other changes. Revisions to and variations from these estimates would impact assets,
liabilities, equity, costs of services and products, and selling, general and administrative expenses.
The following table represents the sensitivity of changes in certain assumptions related to the Company’s
pension and postretirement plans:
(dollars in millions)
% Point
Change
Pension Benefits
Postretirement and Other
Benefits
Increase/
(Decrease) in
Obligation
Increase/
(Decrease) in
Expense
Increase/
(Decrease) in
Obligation
Increase/
(Decrease) in
Expense
Discount rate .............................. +/-0.5% $19.2/(19.2) $0.1/(0.1) $13.6/(15.3) $1.4/(1.5)
Expected return on assets .................... +/-0.5% n/a $2.2/(2.2) n/a $0.2/(0.2)
Health care cost trend rate ................... +/-1% n/a n/a $29.1/(24.8) $2.9/(2.1)
At December 31, 2007, the Company had unrecognized actuarial net losses of $68.6 million for the pension
plans and $79.5 million for the postretirement and other benefit plans. The unrecognized net losses have been
primarily generated by changes in previous years related to discount rates, asset return differences and actual
health care costs. Because gains and losses reflect refinements in estimates as well as real changes in economic
values and because some gains in one period may be offset by losses in another or vice versa, the Company is not
required to recognize these gains and losses in the period that they occur. Instead, if the gains and losses exceed a
10% corridor defined in the accounting literature, the Company amortizes the excess over the average remaining
service period of active employees expected to receive benefits under the plan.
Accounting for Termination Benefits — The Company has written severance plans covering both its
management and union employees and, as such, accrues probable and estimable employee separation liabilities in
accordance with SFAS No. 112, “Employers’ Accounting for Postemployment Benefits, an Amendment of
FASB Statements No. 5 and 43.” These liabilities are based on the Company’s historical experience of severance,
historical costs associated with severance, and management’s expectation of future severance. The Company’s
fourth quarter 2007 restructuring plan gave rise to employee separation liabilities totaling $22.9 million as of
December 31, 2007. This represents severance costs for employees over the next five years that are primarily
related to the Company’s need to downsize its Wireline operations to conform to the decreased access lines being
served by the Company.
When employee terminations occur, the Company considers the guidance in SFAS No. 88, “Employers’
Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits.”
The Company offered and, by December 31, 2007, 105 management employees accepted special termination
benefits totaling $12 million. The Company determined that $8.2 million of these benefits have been earned
through December 31, 2007 under SFAS No. 88, and this amount was therefore accrued as of December 31,
2007. Remaining termination benefits are subject to future service requirements as determined by the Company
and will be amortized to expense over the future service period. The Company estimates these amounts to be
approximately $2.6 million in 2008 and $1.2 million in 2009.
The Company also considers whether employee terminations give rise to a pension and postretirement
curtailment charge under SFAS No. 88. The Company’s policy is that terminations in a calendar year involving
10% or more of the plan service years result in a curtailment of the pension or postretirement plan. Terminations
from the fourth quarter 2007 restructuring plan resulted in curtailments for the management pension and
postretirement plans totaling a charge of $6.4 million.
See Note 3 to the Consolidated Financial Statements for further discussion on the Company’s restructuring
plans.
Regulatory Matters and Competitive Trends
Federal — The Telecommunications Act of 1996 was enacted with the goal of establishing a
pro-competitive, deregulatory framework to promote competition and investment in advanced
telecommunications facilities and services to all Americans. Since 1996, federal regulators have considered a
multitude of proceedings ostensibly aimed at fulfilling the goals of the Act and this process is continuing through
numerous proceedings currently before the FCC and the federal courts. Although the Act called for a
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Form 10-K