Cincinnati Bell 2009 Annual Report Download

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2009 Annual Report
Letter to
Shareholders
Notice of
2010 Annual Meeting
and Proxy Statement
Report on
Form 10-K

Table of contents

  • Page 1
    2009 Annual Report Letter to Shareholders Notice of 2010 Annual Meeting and Proxy Statement Report on Form 10-K

  • Page 2
    Contents Letter to Shareholders from the Chairman, the President & Chief Executive Officer and the Chief Financial Officer Financial Highlights Board of Directors and Company Officers Notice of Annual Meeting of Shareholders Proxy Statement Report on Form 10-K

  • Page 3
    ... Data Center Operations Provide a Major Growth Area A key factor in the positive results for the Company is the growth of our Technology Solutions business, which includes our data center and managed services operations. These operations provide our business customers with access to multiple high...

  • Page 4
    ... times, we understand that it is critical to provide the best value for the customer. To that end, in 2009 we introduced the Why-Pay-For-Two campaign, which provides a free smartphone data plan for a customer that uses our DSL high-speed internet service. We saw strong interest in this new bundle...

  • Page 5
    ...revenue declines in 2009. We invested in the long-term viability of the Wireline segment in 2009 by introducing our new Fioptics suite of services. Fioptics is a fiber-to-the-home suite of services that provides entertainment, high-speed internet, and traditional voice services. We sell our Fioptics...

  • Page 6
    ...and our DSL high-speed internet service reminds us that Cincinnati Bell's wireline services remain very important to consumers. In a saturated market, we increased our high-speed internet subscribers by 9,600 to 244,000 total subscribers at the end of 2009, a 4% increase compared to 2008. High-speed...

  • Page 7
    ...produce long-term value for the shareholders of Cincinnati Bell, and we recognize that we must aggressively defend our core wireline and wireless businesses in order to provide the cash flow necessary to pursue this data center growth. At the same time, we remain committed to providing our customers...

  • Page 8
    ...of company revenue; and disruption in the company's back-office information technology systems, including its billing system. More information on potential risks and uncertainties is available in recent filings with the Securities and Exchange Commission, including Cincinnati Bell's Form 10-K report...

  • Page 9
    ...Cox (1, 2, 3*, 4) Chairman of the Board Cincinnati Bell Inc. President and Chief Executive Officer Cox Financial Corporation Bruce L. Byrnes (2, 3, 4*) Retired Vice Chairman of the Board The Procter & Gamble Company John F. Cassidy (3) President and Chief Executive Officer Cincinnati Bell Inc. Jakki...

  • Page 10
    [THIS PAGE INTENTIONALLY LEFT BLANK]

  • Page 11
    ... of Shareholders of Cincinnati Bell Inc. (the "Company") will be held on Tuesday, May 4, 2010, at 11:00 a.m., Eastern Daylight Savings Time, at the Queen City Club, 331 East Fourth Street, Cincinnati, Ohio, for the following purposes: 1. 2. 3. To elect eight directors to serve a one-year term ending...

  • Page 12
    [THIS PAGE INTENTIONALLY LEFT BLANK]

  • Page 13
    INFORMATION FOR SHAREHOLDERS THAT PLAN TO ATTEND THE 2010 ANNUAL MEETING OF SHAREHOLDERS The Queen City Club is located on the corner of Fourth Street and Broadway Street at 331 East Fourth Street, Cincinnati, Ohio. Below are directions to the Queen City Club located in downtown Cincinnati. From I-...

  • Page 14
    ... Registered Public Accounting Firm - Item 2 on Proxy Card ...Audit and Finance Committee Report ...Independent Accountants ...Stock Ownership of Certain Beneficial Owners and Management ...Compensation Committee Report ...Compensation Discussion and Analysis ...Executive Compensation ...Other...

  • Page 15
    ...2010, at 11:00 a.m., Eastern Daylight Savings Time, at the Queen City Club, 331 East Fourth Street, Cincinnati, Ohio. The Notice of Annual Meeting of Shareholders, the Proxy Statement, the Company's Annual Report on Form 10-K for the year ended December 31, 2009 and the Company's Summary 2009 Annual...

  • Page 16
    ... business customers with outsourced data center operations including related managed services in world class, state-of-the-art data center facilities. The Company operates in three segments: Wireline, Wireless, and Technology Solutions. QUESTIONS AND ANSWERS ABOUT THE PROXY MATERIALS AND THE ANNUAL...

  • Page 17
    ...business on the Record Date. This includes: (i) shares held directly in your name as the shareholder of record, including common shares purchased through the Cincinnati Bell Employee Stock Purchase Plan; (ii) shares that are held by a trust used in connection with a Company employee or director plan...

  • Page 18
    ... vote at the Annual Meeting. You may change your vote by either: (i) granting a new proxy or voting instructions bearing a later date (which automatically revokes the earlier proxy or voting instructions) whether made on the internet, by telephone or by mail; (ii) if you are a shareholder of record...

  • Page 19
    ... shares. On the Record Date, we had 201,122,890 common shares and 155,250 6 3⁄ 4% Cumulative Convertible Preferred Shares issued and outstanding. Q: What is the quorum requirement for the meeting? A: The quorum requirement for holding the meeting and transacting business is the presence, in person...

  • Page 20
    ... any internet access charges you may incur. In addition to the costs of mailing the proxy materials, the Company may also incur costs to provide additional copies of these proxy materials (if requested) and for its directors, officers and employees to solicit proxies or votes in person, by telephone...

  • Page 21
    ... informed of our business through discussions with our President and Chief Executive Officer and other officers, by reviewing materials provided to them, by visiting our offices and by participating in meetings of the Board and its committees. General Information and Corporate Governance The Company...

  • Page 22
    ... meeting of the Board. Mr. Cox presides at the meetings of the non-management directors. Committees of the Board The following table sets forth the membership of the committees of the Board for 2009: Name of Director Audit and Finance Compensation Governance and Nominating Executive Non-Employee...

  • Page 23
    ... effectively and competitively compensated in terms of base compensation and short- and long-term incentive compensation and benefits. In addition, the Compensation Committee evaluates the performance of the Chief Executive Officer and reviews with management the succession planning process for key...

  • Page 24
    ... Nominating Committee uses the following process to identify and evaluate director nominee candidates. Any qualified individual or group, including shareholders, incumbent directors and members of senior management, may at any time propose a candidate to serve on the Board. Background information on...

  • Page 25
    ... director of the Company on the first business day of the year has his or her account under the Directors Deferred Compensation Plan credited on such date with an amount equal to the value of 6,000 common shares of the Company. Subject to future changes in the plan, each non-employee director of the...

  • Page 26
    ... account under the Directors Deferred Compensation Plan are not funded or otherwise secured, and all payments under the plan are made from the general assets of the Company. The Directors Deferred Compensation Plan must comply with the requirements of the American Jobs Creation Act of 2004 in order...

  • Page 27
    ... to the current terms of such plan, each non-employee director of the Company, at the discretion of the Board, may be granted a stock option for a number of common shares and/ or a number of restricted common shares (as determined by the Board) on the date of each annual meeting, if such director...

  • Page 28
    ...in the Annual Report on Form 10-K for the year ended December 31, 2009. (c) As of December 31, 2009, the non-employee directors (and two former directors) held an aggregate of 187,852 unvested stock awards and an aggregate of 441,175 option awards (granted in years prior to 2008), as set forth below...

  • Page 29
    ... and President and Chief Executive Officer of the Company, serves as a trustee for the Boomer Esiason Foundation (the "Foundation"), a non-profit corporation established to provide support to find a cure for cystic fibrosis. In 2009, the Company donated approximately $280,000 of in-kind services to...

  • Page 30
    ... an officer of the Company. At the 2008 Annual Meeting of Shareholders, the Company's Amended Articles of Incorporation were amended to declassify the Board in accordance with the following procedures: • Current directors, including those elected to three-year terms at the 2008 Annual Meeting of...

  • Page 31
    ...a successful business and makes him a valuable asset to the Board of Directors, as Chairman of the Governance and Nominating Committee and as a member of the Compensation Committee. Proxy Statement Bruce L. Byrnes Mr. Cox has been President and Chief Executive Officer of Cox Financial Corporation...

  • Page 32
    ... 20 years of experience as the chief executive officer of a large, publiclytraded corporation, Mr. Maier brings to the Board of Directors demonstrated management and leadership ability. In addition, Mr. Maier has valuable experience dealing with accounting principles, financial reporting regulations...

  • Page 33
    ... building products distributor) from 2007 to 2008. Prior to joining BlueLinx, she was, most recently, Vice President and Chief Financial Officer for BellSouth Corporation's Communications Group and held various other positions at BellSouth from 1985 to 2007. She is a certified public accountant and...

  • Page 34
    ... and Chief Operating Officer of Cincinnati Bell Telephone Company since May 2001, and President of Cincinnati Bell Wireless Company since 1997. Director since 2002. Age 55. Having served as the Company's Chief Executive Officer since 2003, and having served in various other senior-level management...

  • Page 35
    ...Report on Form 10-K for the Company's fiscal year ended December 31, 2009. The Board has determined that each member of the Audit and Finance Committee satisfies the independence requirements of the rules and regulations of the SEC and the independence and other requirements of the rules and listing...

  • Page 36
    ... related fees The audit related fees for the years ended December 31, 2009 and 2008 were for professional services rendered for the audits of the Company's employee benefit plans filed with the SEC, due diligence services and various accounting consultations. Tax fees Tax fees for the year ended...

  • Page 37
    ... Convertible Preferred Shares. Common Shares Beneficially Owned Percent of Common Shares Name and Address of Beneficial Owner BlackRock, Inc...40 East 52nd Street New York, NY 10022 GAMCO Investors, Inc. and affiliates ...One Corporate Center Rye, NY 10580 LSV Asset Management ...1 N. Wacker...

  • Page 38
    ... Compensation Table on page 39, and (ii) all directors and executive officers of the Company as a group. Unless otherwise indicated, the address of each director and executive officer is c/o Cincinnati Bell at the Company's address. 6 3⁄ 4% Cumulative Convertible Preferred Shares Beneficially...

  • Page 39
    ... to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement and incorporated by reference in Cincinnati Bell Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 2009. COMPENSATION COMMITTEE John M. Zrno, Chairman Phillip R. Cox...

  • Page 40
    ...elements to the Company's executive compensation program: • Fixed compensation - Base salary. • "At-risk" annual compensation - Annual incentives paid in cash. • "At-risk" long-term compensation - Long-term incentives that are equity awards generally delivered in the form of stock options and...

  • Page 41
    ... competitive compensation information. This information covers two peer groups: The first peer group consists of 18 telecommunications companies. The Company, in consultation with Towers Watson and Mr. Mazza, annually reviews the list of companies in this group to make certain that the group is...

  • Page 42
    ... International Flavors & Fragrances Partners Makino Martin Marietta Materials Mary Kay McClatchy MDS Pharma Services Media General Metavante Technologies MetroPCS Communications Millipore Monaco Coach Mueller Water Products National Semiconductor New York Times Noranda Aluminum Nypro PerkinElmer...

  • Page 43
    ... with Towers Watson, adjusts the compensation pay data of the two peer groups to take into account differences in revenue among companies using a statistical technique called "regression analysis." Using this technique, for each executive officer position whose compensation is assessed and set by...

  • Page 44
    ...the Chief Executive Officer or the Compensation Committee deems relevant for such executive, and the predicted market 50th percentile base salary data for such position. Generally, no one factor is given more weight than another, nor does the Company use a formulaic approach in setting executive pay...

  • Page 45
    ...discussion led by the Chairman of the Board. Factors considered include succession planning, overall development of the Company leadership team and community involvement/relationships. The Compensation Committee has discretion in evaluating the Chief Executive Officer's performance and may recommend...

  • Page 46
    ... stock on the date such awards are granted. At the beginning of 2009, the number of shares then available under the Cincinnati Bell Inc. 2007 Long Term Incentive Plan was substantially depleted, primarily as a result of significant grants of shares to operational management under a special five year...

  • Page 47
    ... the Company's common shares on the date of grant is generally defined in the 2007 Long Term Incentive Plan as the closing price of the stock on the NYSE on the date of grant. To encourage executives to achieve the Company's long-term goals, stock options generally vest over a three-year period with...

  • Page 48
    ... Revenue Code limits for qualified plans. The Company makes all contributions to this plan. In addition, the Chief Executive Officer is also covered under a nonqualified supplemental retirement plan, the Cincinnati Bell Pension Program ("SERP"), the benefits of which are payable by the Company...

  • Page 49
    ...determining retirement benefits. Each executive participates in a broad set of other benefit plans and programs, including medical, dental, vision, life and short- and long-term disability plans and home telephone service price discount programs, on the same basis as all other salaried employees. In...

  • Page 50
    ... 65% of base salary, which is 161% of the peer group benchmark. Long-Term Incentives: • For the 2009 fiscal year, Mr. Ross was granted 265,719 performance units (at target) with respect to the 2009 - 2011 performance period in January 2009, a nonqualified stock option for 362,162 common shares in...

  • Page 51
    ... chief executive officers in the two study company peer groups; The overall results achieved by the Company in a highly competitive market environment; and Mr. Cassidy's personal performance, including succession planning and his personal involvement in community affairs in the greater Cincinnati...

  • Page 52
    ... were issued and any profits from any sale of securities of the Company during that 12-month period. Compensation Limitation Section 162(m) of the Internal Revenue Code generally limits to $1,000,000 the available deduction to the Company for compensation paid to any of the Company's named executive...

  • Page 53
    ...the year ended December 31, 2009, and the three most highly compensated persons who served as executive officers (Brian A. Ross, Tara L. Khoury, Christopher J. Wilson) during the year ended December 31, 2009 (collectively, the "Named Executive Officers"): Summary Compensation Table Change in Pension...

  • Page 54
    .... Ross's salary also increased from $375,000 to $425,000 per year. (h) Amount includes $100,000 related to a signing bonus awarded to Mr. Wojtaszek on his date of hire, August 1, 2008. (i) On March 23, 2009, Tara L. Khoury joined the Company as Senior Vice President and Chief Marketing Officer. 40

  • Page 55
    ... Company's closing stock price on the date of grant, May 1, 2009. For further discussion of assumptions and valuation, refer to Note 13 to our Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2009. (d) Represents potential amounts payable...

  • Page 56
    .... Mr. Wilson's employment agreement provides for a minimum base salary of $309,000 per year and a minimum bonus target of $200,850 per year. Each of the Named Executive Officers, except for Ms. Khoury, participates in the Cincinnati Bell Management Pension Plan (the "Management Pension Plan"), which...

  • Page 57
    ...was aligned with shareholder interests, the final award payment is indexed to the percentage change in the Company's stock price from the date of grant. The award is discussed in more detail on page 32. Other Benefits Each Named Executive Officer is eligible to participate in the Cincinnati Bell Inc...

  • Page 58
    ...Awards at Fiscal Year End The following table sets forth information concerning options and other equity awards held by the Named Executive Officers at December 31, 2009: Outstanding Equity Awards at 2009 Fiscal Year-End Option Awards Stock Awards Equity Incentive Plan Awards: Market Number of Value...

  • Page 59
    ...-payment performance award, for the 2009 - 2011 performance cycle on January 30, 2009. (c) Assuming the target number of shares are earned, amounts represent the equity incentive plan awards not yet vested. The value is based on the closing price of the Company's common shares on December 31, 2009...

  • Page 60
    ... are required, under the terms of the 1997 Cincinnati Bell Inc. Executive Deferred Compensation Plan, to be invested in common shares of the Company for a period of at least six months. Shares deferred are payable upon the termination of employment in two annual installments beginning the later of...

  • Page 61
    ... our Annual Report on Form 10-K for the year ended December 31, 2009. (g) If any of the executive officers had retired on December 31, 2009, they would have been entitled to a benefit equal to the balance then credited to them, without any reduction, under the Cincinnati Bell Management Pension Plan...

  • Page 62
    ...of a plan participant's total plan compensation for 2009 that exceeds the Social Security old-age retirement taxable wage base for 2009. A participant's account under the Management Pension Plan is also generally credited with assumed interest for each calendar year at a certain interest rate. Such...

  • Page 63
    ...closing price of the Company's stock ($3.45) on December 31, 2009 with respect to deferrals made in 2009. The 1997 Cincinnati Bell Inc. Executive Deferred Compensation Plan (the "Executive Deferred Compensation Plan") generally permits under its current policies, for any calendar year, each employee...

  • Page 64
    ... Company, all of the amounts then credited under the plan to a participant's account under the plan are generally paid in a lump sum on the day after the change in control. The Executive Deferred Compensation Plan must comply with the requirements of the American Jobs Creation Act of 2004 in order...

  • Page 65
    ... payments to our Named Executive Officers directly and indirectly on their behalf under existing contracts, agreements, plans or arrangements, whether written or unwritten, for various scenarios involving a change-in-control or termination of employment, assuming a December 31, 2009 termination date...

  • Page 66
    ...base salary plus the product obtained by multiplying the fair market value of the Company's common share on the date of termination times 526,549; • A payment equal to the present value of an additional one year (two years for Mr. Cassidy) of participation in the Company's Management Pension Plan...

  • Page 67
    ... their base salary plus target bonus (2.99 times for Mr. Cassidy); • If eligible to participate in the Management Pension Plan, a payment equal to the present value of an additional one year (two years for Mr. Cassidy) of participation in the Plan as though the executive had remained employed at...

  • Page 68
    ... Year's Annual Meeting Shareholder proposals intended for inclusion in next year's Proxy Statement should be sent to Christopher J. Wilson, Vice President, General Counsel and Secretary, Cincinnati Bell Inc., 221 East Fourth Street, Cincinnati, Ohio 45202, and must be received by November 22, 2010...

  • Page 69
    ...and Corporate Governance Documents Available The Company has elected to provide access to its combined Proxy Statement, Annual Report on Form 10-K and Summary Annual Report ("Proxy Materials") over the internet. We sent the Notice to our shareholders and beneficial owners, which provides information...

  • Page 70
    ..., Vice President, General Counsel and Secretary, Cincinnati Bell Inc., 221 East Fourth Street, Cincinnati, Ohio 45202, and identify the intended recipient or recipients. All communications addressed to the Board or any identified director or directors will be forwarded to the identified person or...

  • Page 71
    ...computed by reference to the closing sale price of the common stock on the New York Stock Exchange on June 30, 2009, the last trading day of the registrant's most recently completed second fiscal quarter. The Company has no non-voting common shares. At February 1, 2010, there were 201,126,463 common...

  • Page 72
    ..., Executive Officers and Corporate Governance ...Executive Compensation ...Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ...Certain Relationships and Related Transactions, and Director Independence ...Principal Accountant Fees and Services ...104...

  • Page 73
    ..., call waiting, call return and text messaging. Data services include high-speed internet using digital subscriber line ("DSL") technology, dial-up internet access, dedicated network access, and Gigabit Ethernet ("Gig-E") and Asynchronous Transfer Mode ("ATM") data transport, which businesses...

  • Page 74
    ...data revenue in 2009. The remaining 3% of Wireline data revenue in 2009 consisted mainly of dial-up internet access. Long distance and VoIP services The Company provides long distance and VoIP services primarily through its Cincinnati Bell Any Distance Inc. ("CBAD") and eVolve Business Solutions LLC...

  • Page 75
    ...000 homes. As of December 31, 2009, the Company had 11,100 entertainment, 10,200 high-speed fiber internet, and 7,500 voice Fioptics customers. In addition to providing entertainment over coaxial cable and fiber optical cable in limited areas, the Company also is an authorized sales agent and offers...

  • Page 76
    ...a 3G Universal Mobile Telecommunications System ("3G") network overlay, which is able to provide enhanced high-speed data services such as streaming video. Wireless services are provided to customers in the Company's licensed service territory, which includes Greater Cincinnati and Dayton, Ohio, and...

  • Page 77
    ... Company's wireline network services, Technology Solutions provides end-to-end IT telecommunications infrastructure management designed to reduce cost and mitigate risk while optimizing performance for its customers. The Company's data center and managed services product line includes the operations...

  • Page 78
    .... The Technology Solutions segment produced operating income of $22.1 million in 2009 and $18.1 million in both 2008 and 2007. Customers As the Company's growth products and services, such as data center services and wireline data and entertainment services, continue to increase in revenue, and...

  • Page 79
    ... its obligations and on its business and prospects generally. Uncertainty in the U.S. and world securities markets and adverse medical cost trends could cause the Company's pension and postretirement costs to increase. Investment returns of the Company's pension funds depend largely on trends in...

  • Page 80
    ... to fully fund its qualified pension plans for the years 2010 to 2017. Further, adverse changes to plan assets could require the Company to contribute additional material amounts of cash to the plan or could accelerate the timing of required payments. The servicing of the Company's indebtedness...

  • Page 81
    ...; declare or pay dividends or other distributions to shareholders; repurchase equity interests; redeem debt that is junior in right of payment to such indebtedness; enter into agreements that restrict dividends or other payments from subsidiaries; issue or sell capital stock of certain of...

  • Page 82
    ... others offer VoIP and long distance services in Cincinnati and Dayton. Wireless providers offer plans with no additional fees for long distance. Partially as a result of this increased competition, the Company's access lines decreased by 7% and long distance subscribers decreased by 4% in 2009. If...

  • Page 83
    ... address all of the problems that may be encountered in the event of a disaster or other unanticipated problem, which may result in disruption of service to data center customers. Time Warner Cable has made significant investments in Clearwire, a company created by combining the wireless businesses...

  • Page 84
    ... manage customer billing, business data, communications, supply chain, order entry and fulfillment and other business processes. A failure of the Company's information technology systems to perform as anticipated could disrupt the Company's business and result in a failure to collect accounts...

  • Page 85
    ... a particular sale or customer that may not result in revenue. Delays in the length of the data center sales cycle may have a material adverse effect on the Technology Solutions segment and results of its operations. The Company's failure to meet performance standards under its agreements could...

  • Page 86
    ... can offer alternatives to the Company's existing services. The development of new technologies and products could accelerate the Company's loss of access lines and increase wireless customer churn, which could have a material adverse effect on the Company's revenue, results of operations, and...

  • Page 87
    ...generates a substantial portion of its revenue by serving customers in the Greater Cincinnati and Dayton, Ohio areas. An economic downturn or natural disaster occurring in this limited operating territory could have a disproportionate effect on the Company's business, financial condition, results of...

  • Page 88
    ... carriers. CBW's tower leases are typically either for a fixed 20-year term ending in December 2029 or renewable on a long-term basis at CBW's option, both with predetermined rate escalations. In addition, CBW leases 22 Company-run retail locations. Technology Solutions operates eleven data centers...

  • Page 89
    ...additional information about the Company's properties, see Note 4 to the Consolidated Financial Statements. Item 3. Legal Proceedings The information required by this Item is included in Note 11 to the Consolidated Financial Statements. Item 4. Submission of Matters to a Vote of the Security Holders...

  • Page 90
    ... Securities (a) Market Information The Company's common shares (symbol: CBB) are listed on the New York Stock Exchange. The high and low closing sales prices during each quarter for the last two fiscal years are listed below: First Quarter Second Quarter Third Quarter Fourth Quarter 2009 2008 High...

  • Page 91
    ... information regarding the Company's purchases of its common stock during the quarter ended December 31, 2009: Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs** Approximate Dollar Value of Shares that May Yet Be Purchased Under Publicly Announced Plans...

  • Page 92
    ... 2010, the Board of Directors approved an additional plan for the repurchase of the Company's outstanding common stock in an amount up to $150 million. This new plan does not have a stated end date. The Company plans to repurchase shares to the extent its available cash is not needed for data center...

  • Page 93
    ... equipment sales, increased depreciation on more data center assets and costs for additional headcount to support the growing operations. Wireless Wireless service revenue decreased by 2% to $284.3 million in 2009 compared to 2008, primarily due to an average of 20,000 fewer subscribers. The Company...

  • Page 94
    ...by an increase of 7,000 VoIP access line equivalents sold to business customers. Data revenue grew 3% to $281.4 million from additional data transport revenue, primarily from business customers. In 2009, the Company launched in limited areas its Fioptics product suite of services, which are fiber-to...

  • Page 95
    ... to attract new smartphone subscribers, loss on sale of spectrum and higher depreciation partially offset by lower operating costs; and • $4.0 million increase in Technology Solutions segment due to increased data center and managed services revenue and lower incentive compensation costs offset...

  • Page 96
    ... Wireline segment provides local voice telephone service, including custom calling features, and data services, including DSL high-speed internet access, dedicated network access, ATM - Gig-E based data transport, and dial-up internet access to customers in southwestern Ohio, northern Kentucky, and...

  • Page 97
    ... to residential and business customers in its CLEC territory. The Company had approximately 73,300 CLEC access lines at December 31, 2009, which is a 3% increase from December 31, 2008. Data revenue consists of data transport, DSL high-speed internet access, dial-up internet access, and local area...

  • Page 98
    ... offset its access line loss in its ILEC territory with increased services to residential and business customers in its CLEC territory. The Company had approximately 71,200 CLEC access lines at December 31, 2008, which was a 14% increase from December 31, 2007. Data revenue increased $14.9 million...

  • Page 99
    ... of eGIX, which generated revenue of $13.0 million during 2008. The remaining increase was due to an increase in minutes of use for long distance, VoIP and new broadband services including private line and MPLS. The Company had 531,600 subscribed long distance access lines as of December 31...

  • Page 100
    ... also sells wireless handset devices and related accessories to support its service business. (dollars in millions, except for operating metrics) 2009 2008 $ Change 2009 vs. 2008 % Change 2009 vs. 2008 2007 $ Change 2008 vs. 2007 % Change 2008 vs. 2007 Revenue: Service ...Equipment ...Total revenue...

  • Page 101
    ... 3G wireless network that was launched in late 2008. The decrease in amortization expense from the prior year is due to the Company's accelerated amortization methodology. During 2009, the Company sold almost all of its owned wireless licenses for areas outside of its Cincinnati and Dayton operating...

  • Page 102
    ... recurring collocation rents from customers residing in the Company's data centers, and revenue for managed VoIP solutions, and IT services that include network management, electronic data storage, disaster recovery and data security management. Revenue increased $13.5 million in 2009 as compared to...

  • Page 103
    ... data center and managed services and professional services revenues. Selling, general and administrative increased by $1.9 million in 2009 compared to 2008. The increase in 2009 was primarily due to an increase of $3.7 million in payroll and employee related costs to support the growing operations...

  • Page 104
    ... four years at an appropriate and acceptable fixed rate. • Sale of 196 wireless towers for $99.9 million in cash and leaseback of the Cincinnati Bell Wireless space used on those towers, which equates to a $46.7 million capital lease obligation for the 148 towers sold without purchase price...

  • Page 105
    ... made to its pension and postretirement plans and a prepayment of $24.2 million to its medical trust for its active employees in 2009, a customer prepayment of $21.5 million received in 2008 for data center services and an increase in working capital, mainly due to timing of year-end payments. This...

  • Page 106
    ... access lines in 2009 as some customers elected to use wireless communication in lieu of the traditional local service, elected to use service from other providers, or can no longer pay for phone service. The Company believes these same factors will continue to affect its operations in future years...

  • Page 107
    ... Fioptics customers. The penetration rate of this product is almost 30% after only a six-month period. The Company expects the number of Fioptics customers to increase in 2010 and plans to construct additional fiber network in 2010, subject to capital availability. Long distance and VoIP revenues...

  • Page 108
    ...noted previously in Item 1 under "Customers," the Company's revenue from consumer access line customers has decreased as a percentage of its total revenue, and revenue from other products, such as data center service for business customers, has increased. The Company expects these trends to continue...

  • Page 109
    ... consist of amounts under open purchase orders. (4) Included in pension and postretirement benefit obligations are payments for the Company's postretirement benefits, qualified pension plans, non-qualified pension plan and other employee retirement agreements. Amounts for 2010 include $13 million of...

  • Page 110
    ...been rendered, the sales price is fixed or determinable, and collectibility is reasonably assured. Service revenue - The Company recognizes service revenue as services are provided. Revenue from local telephone, special access and data and internet product services, which are billed monthly prior to...

  • Page 111
    ... is provided. Technology Solutions also provides maintenance services on telephony equipment under one to four year contract terms. This revenue is deferred and recognized ratably over the term of the underlying customer contract. Product revenue - The Company recognizes equipment revenue upon the...

  • Page 112
    ... group changes as the composition of the group of assets and their related lives change. Such estimated life of the group is based on historical experience with similar assets, as well as taking into account anticipated technological or other changes. The Company reviews the carrying value of long...

  • Page 113
    ... Consolidated Statement of Operations. For reporting periods prior to the end of the Company's fiscal year, the Company records income tax expense based upon an estimated annual effective tax rate. This rate is computed using the statutory tax rate and an estimate of annual net income adjusted for...

  • Page 114
    ... executives. The Company also provides health care and group life insurance benefits for eligible retirees. The Company's measurement date for its pension and postretirement obligations is as of December 31st of each year. When changes to the plans occur during interim periods, the Company reviews...

  • Page 115
    ...determining the selection of a discount rate, the Company estimates the timing and expected future benefit payment, and applies a yield curve developed to reflect yields available on high-quality bonds. Based on the analysis, the discount rate was set at 5.50% for the pension plans and 5.10% for the...

  • Page 116
    ... 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 Increase/ Increase/ (Decrease...

  • Page 117
    ... and new services by applying minimal regulation. While the Company has expanded beyond its incumbent local exchange operations by offering wireless, long distance, broadband, Internet access, VoIP and out-of-territory competitive local exchange services, a significant portion of its revenue is...

  • Page 118
    ...interstate end-user revenue. The National Broadband Plan may call for a substantial overhaul of the federal USF programs and funding mechanism. Although some changes, such as redirecting certain high-cost funding to broadband and removing barriers on the use of E-rate funds for broadband connections...

  • Page 119
    ... video franchise agreement rather than negotiating individual agreements with all local entities in Ohio. This legislation holds no build-out requirements for the Company, limits the franchise fee to the federally authorized maximum of 5% of gross revenues from the Company's cable operations...

  • Page 120
    ...H1N1 influenza virus; • changes in the Company's relationships with current large customers, a small number of whom account for a significant portion of Company revenue; and • disruption in the Company's back-office information technology systems, including its billing system. You are cautioned...

  • Page 121
    ... call $250 million of the notional amount of long-term interest rate swaps for the 8 3⁄ 8% Subordinated Notes. The Company received $10.5 million in the first quarter of 2009 upon termination of these swaps. In the third quarter of 2009, the Company terminated the remaining long-term interest rate...

  • Page 122
    ...: For each of the three years in the period ended December 31, 2009: II - Valuation and Qualifying Accounts ...113 53 54 56 57 58 59 60 Page Financial statement schedules other than those listed above have been omitted because the required information is contained in the financial statements...

  • Page 123
    ... of the Company's internal control over financial reporting has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report included herein. February 25, 2010 /s/ John F. Cassidy John F. Cassidy President and Chief Executive Officer /s/ Gary...

  • Page 124
    ... with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the year ended December 31, 2009 of the Company and our report dated February 25, 2010 expressed an unqualified opinion on...

  • Page 125
    ... of Cincinnati Bell Inc. and subsidiaries (the "Company") as of December 31, 2009 and 2008, and the related consolidated statements of operations, shareowners' equity (deficit) and comprehensive income (loss), and cash flows for each of the three years in the period ended December 31, 2009. Our...

  • Page 126
    Cincinnati Bell Inc. CONSOLIDATED STATEMENTS OF OPERATIONS (Millions of Dollars, Except Per Share Amounts) Year Ended December 31, 2009 2008 2007 Revenue Services ...Products ...Total revenue ...Costs and expenses Cost of services, excluding items below ...Cost of products sold, excluding items ...

  • Page 127
    ...-term debt ...Accounts payable ...Unearned revenue and customer deposits ...Accrued taxes ...Accrued interest ...Accrued payroll and benefits ...Deposit received for sale of wireless towers ...Other current liabilities ...Total current liabilities ...Long-term debt, less current portion ...Pension...

  • Page 128
    ... of businesses ...Proceeds/deposits from sale of wireless towers ...Proceeds from sale of wireless licenses ...Return of deposit and (purchase/deposit) of wireless licenses ...Other, net ...Net cash used in investing activities ...Cash flows from financing activities Issuance of long-term debt...

  • Page 129
    ... employee plans ...Shares purchased under employee plans and other ...Restricted stock and stock options amortization ...Repurchase of shares ...Retirement of shares ...Dividends on preferred stock ...Balance at December 31, 2008 ...Net income ...Amortization of pension and postretirement benefits...

  • Page 130
    ...telecommunications services through businesses in three segments: Wireline, Wireless, and Technology Solutions. See Note 14 for information on the Company's reportable segments. The Company generates a large portion of its revenue by serving customers in the Greater Cincinnati and Dayton, Ohio areas...

  • Page 131
    ...in connection with business acquisitions. Indefinite-lived intangible assets consist of FCC licenses for wireless spectrum and trademarks of the Wireless segment. The Company may renew the wireless licenses in a routine manner every ten years for a nominal fee, provided the Company continues to meet...

  • Page 132
    ...been rendered, the sales price is fixed or determinable, and collectibility is reasonably assured. Service revenue - The Company recognizes service revenue as services are provided. Revenue from local telephone, special access and data and internet product services, which are billed monthly prior to...

  • Page 133
    ... the amount of unrecognized tax benefits will change significantly over the next year. Refer to Note 12 for further discussion related to income taxes. The Company incurs certain operating taxes that are reported as expenses in operating income, such as property, sales, use, and gross receipts taxes...

  • Page 134
    ... is determined using the Black-Scholes option-pricing model using assumptions such as volatility, risk-free interest rate, holding period and dividends. The fair value of stock awards is based on the Company's closing share price on the date of grant. For all share-based payments, an assumption...

  • Page 135
    ... to be material to the Company's financial statements. In September 2009, new accounting guidance under ASC 605 related to revenue arrangements with multiple deliverables was issued. The guidance addresses the unit of accounting for arrangements involving multiple deliverables, how arrangement...

  • Page 136
    ... its Wireline operations to the decreased access lines being served by the Company, resulting in a charge of $10.5 million for additional employee separation obligations. • Special termination benefits - The Company offered and, by December 31, 2007, 105 management employees accepted special...

  • Page 137
    ... services and products. 5. Sale of Wireless Towers and Acquisitions of Businesses Sale of Wireless Towers In December 2009, the Company sold 196 wireless towers for $99.9 million in cash proceeds, and leased back a portion of the space on these towers for a term of 20 years. The 196 towers sold...

  • Page 138
    ... in the Technology Solutions segment and were immaterial to the Company's financial statements for the year ended December 31, 2009. eGIX Inc. In February 2008, the Company purchased eGIX Inc, a competitive local exchange carrier provider of voice and long distance services to business customers in...

  • Page 139
    ... in 2009 of prepaid subscriber customer relationship intangibles. The decrease in Wireless FCC licenses at December 31, 2009 compared to December 31, 2008, was due to the sale of almost all of its owned wireless licenses for areas outside of its Cincinnati and Dayton operating territories. These...

  • Page 140
    ... called amounts received on terminated interest rate swaps at December 31, 2009. Corporate Credit Facilities In February 2005, Cincinnati Bell Inc. ("CBI"), the parent company, entered into a corporate credit facility ("Corporate credit facility") which had a $250.0 million revolving line...

  • Page 141
    ... four quarterly installments of $50.4 million ending on August 31, 2012. Voluntary prepayments of the Corporate credit facility and voluntary reductions of the unutilized portion of the revolving line of credit are permitted at any time at no cost to the Company. The average interest rate charged on...

  • Page 142
    ... Company's subsidiaries such that the subsidiaries are not permitted to enter into an agreement that would limit their ability to make dividend payments to the parent; issuance of indebtedness; asset dispositions; transactions with affiliates; liens; investments; issuances and sales of capital stock...

  • Page 143
    ... Company's subsidiaries such that the subsidiaries are not permitted to enter into an agreement that would limit their ability to make dividend payments to the parent; issuance of indebtedness; asset dispositions; transactions with affiliates; liens; investments; issuances and sales of capital stock...

  • Page 144
    ... are not available to creditors of other subsidiaries or the parent company. For the purposes of consolidated financial reporting, the Receivables Facility is accounted for as a secured financing. Because CBF has the ability to prepay the Receivables Facility at any time by making a cash payment and...

  • Page 145
    ... 48 wireless towers sold subject to purchase price contingencies have not been recognized as a sale (refer to Note 5) and, accordingly, the related leaseback payments are not included in the table above. Payments including interest for these sites are approximately $1 million annually from 2010 to...

  • Page 146
    ... credit facility. In 2009, the Company wrote-off $7.5 million of deferred financing costs related to the redemption of the 7 1⁄ 4% Senior Notes due 2013, the amendment of the Corporate credit facility and the purchase and extinguishment of a portion of the Cincinnati Bell Telephone notes. In 2008...

  • Page 147
    ... 31, 2009 and 2008 were $1,792 million and $1,523 million, respectively. These fair values were estimated based on the year-end closing market prices of the Company's debt and of similar liabilities. 9. Employee Benefit Plans and Postretirement Benefits Savings Plans The Company sponsors several...

  • Page 148
    ... care cost trend rates and cost sharing with retirees. Significant Events In 2009, the Company announced significant changes to its management pension plan and its postretirement plans. The Company announced that it will freeze pension benefits for certain management employees below 50 years of age...

  • Page 149
    ...following information relates to all Company noncontributory defined benefit pension plans, postretirement health care, and life insurance benefit plans. Approximately 10% in 2009 and 9% in 2008 and 2007 of these costs were capitalized to property, plant and equipment related to network construction...

  • Page 150
    ...Status Reconciliation of the beginning and ending balances of the plans' funded status follows: Pension Benefits 2009 2008 Postretirement and Other Benefits 2009 2008 (dollars in millions) Change in benefit obligation: Benefit obligation at January 1, ...Service cost ...Interest cost ...Amendments...

  • Page 151
    ... pension plans at December 31, 2009, as well as stock of international companies located in both developed and emerging markets around the world. Fixed income securities primarily include holdings of funds which generally invest in a variety of intermediate and long-term investments grade corporate...

  • Page 152
    ... assumptions used in accounting for the pension and postretirement benefit cost: Pension Benefits 2009 2008 2007 Postretirement and Other Benefits 2009 2008 2007 Discount rate ...Expected long-term rate of return on pension and health and life plan assets ...Future compensation growth rate ... 6.35...

  • Page 153
    ...150 million. This new plan does not have a stated end date. The Company plans to repurchase shares to the extent its available cash is not needed for data center growth and other opportunities. Preferred Shares The Company is authorized to issue 1,357,299 shares of voting preferred stock without par...

  • Page 154
    ... 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...

  • Page 155
    ... retained earnings consists of the following: (dollars in millions) Year Ended December 31, 2009 2008 2007 Income tax provision (benefit) related to: Continuing operations ...Other comprehensive income (loss) ...Excess tax benefits or stock option exercises ...Implementation of ASC 740 ... $64.7 24...

  • Page 156
    ... 31, 2008 ...Changes for tax positions for the current year ...Unrecognized tax benefits balance at December 31, 2009 ... $14.7 0.1 $14.8 0.8 $15.6 1.1 $16.7 The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, and various states and local jurisdictions. With...

  • Page 157
    ... award payment indexed to the percentage change in the Company's stock price from the date of grant. The expense recorded for 2009 was $3.3 million, and there is no remaining unrecognized compensation. Time-Based Restricted Awards The grant date fair value of time-based restricted shares generally...

  • Page 158
    ... period of two years. Stock Option and Stock Appreciation Right Awards Generally, these awards have ten-year terms and vesting terms of three years. The following table provides a summary of the Company's outstanding awards: 2009 WeightedAverage Exercise Prices Per Shares Share 2008 WeightedAverage...

  • Page 159
    ...investment funds including the Company's common stock. In addition, the Company annually grants 6,000 phantom shares to each non-employee director on the first business day of each year, which are fully vested once a director has five years of service. Distributions to the directors are generally in...

  • Page 160
    ... and an asset impairment charge of $1.2 million. The Wireless segment provides advanced digital wireless voice and data communications services and sales of related handset equipment to customers in the Greater Cincinnati and Dayton, Ohio operating areas. In 2009, the Company sold 196 towers for $99...

  • Page 161
    ... transactions between segments have been eliminated. The Company's business segment information is as follows: (dollars in millions) Year Ended December 31, 2009 2008 2007 Revenue Wireline ...Wireless ...Technology Solutions ...Intersegment ...Total revenue ...Intersegment revenue Wireline...

  • Page 162
    ... Company's service and product revenues including eliminations are as follows: (dollars in millions) Year Ended December 31, 2009 2008 2007 Service revenue Wireline ...Wireless ...Data center and managed services ...Telephony installation and maintenance ...Other ...Total service revenue ...Product...

  • Page 163
    ... meet CBI's debt service obligations. Separately, in connection with a fifteen year contract for data center space between CBTS and a data center customer, CBI has guaranteed the performance obligations of CBTS in relation to providing the data center space and managed services under that long-term...

  • Page 164
    ...) Year Ended December 31, 2007 Other CBT (Non-guarantors) Eliminations Total Revenue ...Operating costs and expenses ...Operating income (loss) ...Interest expense ...Other expense (income) ...Income (loss) before equity in earnings of subsidiaries and income taxes ...Income tax expense (benefit...

  • Page 165
    ..., plant and equipment, net ...Goodwill and other intangibles, net ...Investments in and advances to subsidiaries ...Other noncurrent assets ...Total assets ...Current portion of long-term debt ...Accounts payable ...Other current liabilities ...Total current liabilities ...Long-term debt, less...

  • Page 166
    ... expenditures ...Acquisition of businesses ...Proceeds/deposits from sales of wireless licenses and towers ...Other investing activities ...Cash flows provided by (used in) investing activities ...Funding between Parent and subsidiaries, net ...Issuance of long-term debt ...Net change in credit and...

  • Page 167
    ... of businesses and wireless licenses ...Other investing activities ...Cash flows used in investing activities ...Funding between Parent and subsidiaries, net ...Issuance of long-term debt ...Net change in credit and receivables facilities with initial maturities less than 90 days ...Repayment...

  • Page 168
    ... LLC, Cincinnati Bell Wireless Company, Cincinnati Bell Wireless LLC, GramTel Inc., BRCOM Inc., CBTS Software LLC, IXC Internet Services Inc., Cincinnati Bell Shared Services LLC, Cincinnati Bell Technology Solutions Inc., Cincinnati Bell Any Distance of Virginia LLC, and eVolve Business Solutions...

  • Page 169
    ..., plant and equipment, net ...Goodwill and other intangibles, net ...Investments in and advances to subsidiaries ...Other noncurrent assets ...Total assets ...Current portion of long-term debt ...Accounts payable ...Other current liabilities ...Total current liabilities ...Long-term debt, less...

  • Page 170
    ... expenditures ...Acquisition of businesses ...Proceeds/deposits from sales of wireless licenses and towers ...Other investing activities ...Cash flows provided by (used in) investing activities ...Funding between Parent and subsidiaries, net ...Issuance of long-term debt ...Net change in credit and...

  • Page 171
    ... of businesses and wireless licenses ...Other investing activities ...Cash flows used in investing activities ...Funding between Parent and subsidiaries, net ...Issuance of long-term debt ...Net change in credit and receivables facilities with initial maturities less than 90 days ...Repayment...

  • Page 172
    ...31, 2009 (the "Evaluation Date"). Based on that evaluation, Cincinnati Bell Inc.'s Chief Executive Officer and Chief Financial Officer have concluded that, as of the Evaluation Date, such controls and procedures were effective to ensure that information the Company is required to disclose in reports...

  • Page 173
    ... with generally accepted accounting principles. Cincinnati Bell Inc.'s management, with the participation of the Chief Executive Officer and Chief Financial Officer, have evaluated any changes in the Company's internal control over financial reporting that occurred during the fourth quarter of 2009...

  • Page 174
    ...; President and Chief Operating Officer of Cincinnati Bell Telephone since May 2001; President of Cincinnati Bell Wireless since 1997; Senior Vice President, National Sales & Distribution of Rogers Cantel in Canada from 1992-1996; Vice President, Sales and Marketing, Ericsson Mobile Communications...

  • Page 175
    ... of the Cincinnati Operations, 2000-2003; Director of Labor Relations, Staffing and Safety of the Company, 1988-2000. KURT A. FREYBERGER, Vice President, Investor Relations and Controller of the Company since May 2009; Vice President and Controller from March 2005 to May 2009; Assistant Corporate...

  • Page 176
    ... dated as of October 27, 1993 by and among Cincinnati Bell Telephone Company LLC (as successor entity to Cincinnati Bell Telephone Company), as Issuer, Cincinnati Bell Inc. as Guarantor, and The Bank of New York, as Trustee (Exhibit 4(c)(ii)(3) to Annual Report on Form 10-K for the year ended...

  • Page 177
    ... dated as of November 30, 1998 among Cincinnati Bell Telephone Company LLC (as successor entity Cincinnati Bell Telephone Company), as Issuer, Cincinnati Bell Inc. as Guarantor, and The Bank of New York, as Trustee (Exhibit (4)(c)(iii)(3) to Annual Report on Form 10-K for the year ended December...

  • Page 178
    ... to the Purchase and Sale Agreement, dated as of July 1, 2009, to Purchase and Sale Agreement dated as of March 23, 2007, among eVolve Business Solutions LLC as a New Originator, the Originators identified therein, Cincinnati Bell Funding LLC, and Cincinnati Bell Inc. as Servicer (Exhibit 99...

  • Page 179
    ...to Cincinnati Bell Inc. 1997 Stock Option Plan for Non-Employee Directors effective as of May 27, 2003 (Exhibit (10)(iii)(A)(6.1) to Annual Report on Form 10-K for the year ended December 31, 2007, File No. 1-8519). Cincinnati Bell Inc. 2007 Long Term Incentive Plan (Appendix A to the Company's 2007...

  • Page 180
    ...Cincinnati Bell Inc. 2007 Performance Unit Agreement (Exhibit 10 to Quarterly Report on Form 10-Q for the quarter ended March 31, 2007, File No. 1-8519). Cincinnati Bell Management Pension Plan effective as of January 1, 1997 (Exhibit (10)(iii)(A)(17) to Annual Report on Form 10-K for the year ended...

  • Page 181
    ... Bell Inc. Form of 2008-2010 Performance Share Agreement (2007 Long Term Incentive Plan). (Exhibit (10)(iii)(A)(24) to Annual Report on Form 10-K for the year ended December 31, 2008, File No. 1-8519). Amended and Restated Employment Agreement effective as of January 1, 2009, between Cincinnati Bell...

  • Page 182
    ... Employment Agreement effective as of January 1, 2009 between Cincinnati Bell Inc. and Brian G. Keating (Exhibit (10)(iii)(A)(8) to Annual Report on Form 10-K for the year ended December 31, 2008, File No. 1-8519). Calculation of Ratio of Earnings to Combined Fixed Charges and Preferred Dividends...

  • Page 183
    ... CINCINNATI BELL INC. VALUATION AND QUALIFYING ACCOUNTS (dollars in millions) Beginning of Period Charge (Benefit) to Expenses To (from) Other Accounts Deductions End of Period Allowance for Doubtful Accounts Year 2009 ...Year 2008 ...Year 2007 ...Deferred Tax Valuation Allowance Year 2009 ...Year...

  • Page 184
    ... BELL INC. February 25, 2010 By /s/ Gary J. Wojtaszek Gary J. Wojtaszek Chief Financial Officer By /s/ Kurt A. Freyberger Kurt A. Freyberger Chief Accounting Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons...

  • Page 185
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  • Page 187
    ... reports; listen to webcasts of presentations to investors and security analysts; retrieve stock prices; and review frequently asked questions. Phone: Individual investors may also contact us via our Shareholder Information Line at (800) 345-6301. Mail: Contact us via U.S. Mail at Cincinnati Bell...

  • Page 188
    221 East Fourth Street P.O. Box 2301 Cincinnati, Ohio 45202 513.397.9900 www.cincinnatibell.com