Cincinnati Bell 2011 Annual Report Download

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2011 Annual Report
Letter to
Shareholders
Notice of
2012 Annual Meeting
and Proxy Statement
Report on
Form 10-K

Table of contents

  • Page 1
    2011 Annual Report Letter to Shareholders Notice of 2012 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 revenue increased by 47% from 2010; Wireline and Wireless maintained high Adjusted EBITDA margins2 of 49% and 32%, respectively; and Revenue of $47 million generated from our fiber-based "Fioptics" product suite was up 68% compared to 2010. 763,000 square feet in 20 best-in-class...

  • Page 4
    ... 2010. Wireless Smartphone Subscribers (in thousands) 125 105 85 2009 2010 2011 Our Wireline and Wireless businesses have executed on strategies to expand products and services to meet customers' evolving communication needs. In 2011, the Company began upgrading its wireless network to 4G using...

  • Page 5
    ... our employees, as well as Cincinnati Bell's commitment to the Cincinnati community that no other telecommunications provider in the area can match. Continued Determination and Execution in 2012 12 14 2009 Voice 2010 Entertainment Internet 2011 In addition to these improvements to our product...

  • Page 6
    ... value for our shareholders and a stronger balance sheet for the Company. We believe 2012 will be a very exciting and transformational period for Cincinnati Bell, and we thank you for your investment in the Company. Phillip R. Cox Chairman of the Board John F. Cassidy President and Chief Executive...

  • Page 7
    ... EBITDA provides a useful measure of operational performance. The Company defines Adjusted EBITDA as GAAP operating income plus depreciation, amortization, restructuring charges, asset impairments, components of pension and other retirement plan costs related to interest costs, asset returns, and...

  • Page 8
    ...its data center business; and failure of or disruption in the operation of the company's data centers. 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, Form 10-Q reports and...

  • Page 9
    ... Compensation (3) Executive (4) Governance & Nominating * Committee Chair Company Officers John F. Cassidy President and Chief Executive Officer Theodore H. Torbeck President and General Manager, Cincinnati Bell Communications Group Gary J. Wojtaszek President, CyrusOne Inc. Kurt A. Freyberger Vice...

  • Page 10
    [THIS PAGE INTENTIONALLY LEFT BLANK]

  • Page 11
    ... Bell Inc. 2007 Long Term Incentive Plan; To seek shareholder approval of an amendment to the Cincinnati Bell Inc. 2007 Stock Option Plan for Non-Employee Directors; To ratify the appointment of the Company's independent accountants to audit the financial statements of the Company for the year 2012...

  • Page 12
    [THIS PAGE INTENTIONALLY LEFT BLANK]

  • Page 13
    INFORMATION FOR SHAREHOLDERS THAT PLAN TO ATTEND THE 2012 ANNUAL MEETING OF SHAREHOLDERS The Marriott at Legacy Town Center is located at 7120 Dallas Parkway, Plano, Texas 75024. Below are directions to the Marriott at Legacy Town Center. From: Sam Rayburn Tollway Northbound From: Sam Rayburn ...

  • Page 14
    ... and Management ...Compensation Committee Report ...Compensation Discussion and Analysis ...Executive Compensation ...Other Matters ...Annex A ...Appendix A - Cincinnati Bell Inc. 2007 Long Term Incentive Plan ...Appendix B - Cincinnati Bell Inc. 2007 Stock Option Plan for Non-Employee Directors...

  • Page 15
    ... on Tuesday, May 1, 2012 This Proxy Statement is furnished to the shareholders of Cincinnati Bell Inc., an Ohio corporation (the "Company"), in connection with the solicitation of proxies by the Board of Directors for use at the 2012 Annual Meeting of Shareholders. The Annual Meeting will be held on...

  • Page 16
    ... Cincinnati and Dayton, Ohio, areas primarily on its owned wireline and wireless networks with a well-regarded brand name and reputation for service. The Company also provides business customers with outsourced data center colocation operations in world class, state-of-the-art data center facilities...

  • Page 17
    ... the close of 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...

  • Page 18
    ... in person, you will need to provide proof of identification and then you will be presented a proxy card. Beneficial shares, held either in street name or credited to your account under a Company employee or director plan, cannot be voted at the Annual Meeting unless you obtain a signed proxy from...

  • Page 19
    ... instructions at any time prior to the 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...

  • Page 20
    ... a successful proxy solicitation by the Board. Occasionally, shareholders provide written comments on their proxy card, which are forwarded to the Company's management. Q: Who will bear the cost of soliciting votes for the meeting? A: The Company is making this solicitation and will pay the entire...

  • Page 21
    ... STRUCTURE AND CORPORATE GOVERNANCE Our business, property and affairs are managed under the direction of our Board. Members of our Board are kept informed of our business through discussions with our President and Chief Executive Officer and other officers, by reviewing materials provided to them...

  • 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 2011: 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
    ... senior management, may at any time propose a candidate to serve on the Board. Background information on proposed candidates is forwarded to the Governance and Nominating Committee. The Governance and Nominating Committee reviews forwarded materials relating to prospective candidates in the event of...

  • Page 25
    ...of the Company ("non-employee directors") receive compensation from the Company for their service on the Board. The table below sets forth the annual compensation for non-employee directors in 2011. Compensation Element 2011 Proxy Statement Chairman of the Board Annual Retainer (a) ...Annual Board...

  • Page 26
    ...a year of service as a non-employee director being rounded up or down to the nearest whole year) or if he or she dies while a member of the Board. A non-employee director of the Company may also have had additional amounts credited to his or her account under the Directors Deferred Compensation Plan...

  • Page 27
    ... available for issuance under the plan to be issued in the form of stock option awards. Proxy Statement For 2010 and earlier, the Board decided to annually grant time-based restricted shares with an aggregate value of $35,000 on the date of grant to each incumbent non-employee director. In 2011...

  • Page 28
    ...Note 14 to the Company's Consolidated Financial Statements included in the Annual Report on Form 10-K for the year ended December 31, 2011. (c) As of December 31, 2011, the non-employee directors held an aggregate of 294,301 unvested stock awards and an aggregate of 276,300 option awards (granted in...

  • Page 29
    ...employee of the Company. None of the Company's executive officers serve, or in the past fiscal year served, as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving on the Company's Board or Compensation Committee. CODE OF BUSINESS...

  • Page 30
    ... that Mr. Cassidy received no personal benefit in connection with the Company providing these in-kind services and, therefore, he has no interest in this transaction. • Mr. Cassidy also serves as a director of the Cincinnati City Center Development Corporation ("3CDC"), a non-profit organization...

  • Page 31
    ...on Proxy Card) The Company's Amended Regulations provide that the Board shall consist of not less than nine nor more than 17 persons, with the exact number to be fixed and determined by resolution of the Board or by resolution of the shareholders at any annual or special meeting of shareholders. The...

  • Page 32
    ... operational aspects of running 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. Ms. Haussler has served as Chairman and Chief Executive Officer of Opus Capital Group...

  • Page 33
    ... 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 34
    ... results of large corporations. This experience makes him a valuable asset to the Board of Directors, as the Chairman of the Compensation Committee and as a member of the Audit and Finance Committee. Mr. Cassidy has been the President and Chief Executive Officer of Cincinnati Bell Inc. since July...

  • Page 35
    ... to determine the frequency of the Company's submission of a say-on-pay vote to its shareholders. The Board of Directors determined that it would submit a say-on-pay vote to our shareholders annually. This year's say-on-pay vote addresses our executive compensation as disclosed in the CD&A beginning...

  • Page 36
    ...3 on Proxy Card) The Board is requesting shareholder reapproval of the material terms of the performance goals that may be used in setting conditions for the payment of certain awards made under the Cincinnati Bell Inc. 2007 Long Term Incentive Plan (the "2007 Long Term Incentive Plan"). The Company...

  • Page 37
    ...). Unless changed by the Board, the Committee shall be the Compensation Committee of the Board. The Committee may delegate to the Company's Chief Executive Officer its right to make awards under the 2007 Long Term Incentive Plan to employees who (i) are not otherwise subject to the stock reporting...

  • Page 38
    ... is granted under the 2007 Long Term Incentive Plan to an employee (and that is intended to be performance-based compensation) in the event a change in control of the Company or the employee's death or disability occurs, regardless of whether or not the performance goals applicable to the award are...

  • Page 39
    ... Long Term Incentive Plan to any employee during each and any calendar year may be based (that is, the maximum number of common shares that can be issued or paid under such awards or have their fair market value or increase in fair market value over a period used to determine the amount of payments...

  • Page 40
    ... (xii) the issuance of stock options and/or other stock-based compensation; (xiii) the early retirement of debt; and/or (xiv) the conversion of convertible debt securities. Plan Benefits Awards made under the 2007 Long Term Incentive Plan to the executive officers of the Company named in the Summary...

  • Page 41
    ...paid under the Cincinnati Bell Inc. 2007 Long Term Incentive Plan requires the affirmative vote of the holders of the majority of the common shares and 6 3⁄ 4% Cumulative Convertible Preferred Shares, voting as one class, present in person or represented by proxy at the annual meeting and entitled...

  • Page 42
    ... market value of all common shares subject to such outstanding options was approximately $135,000 (based on the closing sale price of $3.76 for the Company's common shares as reported on the NYSE on such date). As of March 2, 2012, no shares had been issued upon exercise of any stock options granted...

  • Page 43
    ...A stock option represents an option to purchase, over a certain time period not to exceed ten years, a number of common shares at a fixed purchase price. The fixed purchase price of any common share acquired under any stock option will not be less than 100% of the fair market value of a common share...

  • Page 44
    ...fair market value of any then outstanding stock option provided that the then fair market value of the common shares that are subject to such option exceeds the option's purchase price as to such shares. 7. Adjustments for Stock Dividends, Stock Splits, and Other Corporate Transactions. In the event...

  • Page 45
    ... the Cincinnati Bell Inc. 2007 Stock Option Plan for Non-Employee Directors requires the affirmative vote of the holders of a majority of the common shares and 6 3⁄ 4% Cumulative Convertible Preferred Shares, voting as one class, present or represented at the annual meeting, in person or by proxy...

  • Page 46
    ... independent registered public accounting firm to audit the financial statements of the Company for the fiscal year ending December 31, 2012. One or more members of the firm of Deloitte & Touche LLP will attend the Annual Meeting, will have an opportunity to make a statement and will be available to...

  • Page 47
    ... 31, 2011 regarding securities of the Company to be issued and remaining available for issuance under the equity compensation plans of the Company: Number of securities to be issued upon exercise of stock options, warrants and rights (a) Weighted-average exercise price of outstanding stock options...

  • Page 48
    ... the management of the Company and has reviewed a report from management assessing the Company's internal controls. The Audit and Finance Committee has discussed with Deloitte & Touche LLP, the Company's Independent Registered Public Accounting Firm for the fiscal year ended December 31, 2011, the...

  • Page 49
    ...162 Proxy Statement The audit fees for the years ended December 31, 2011 and 2010 were for services rendered in connection with the audit of the Company's annual financial statements, review of quarterly financial statements included in the Company's reports filed with the SEC and services related...

  • Page 50
    ... Cumulative Convertible Preferred Shares. Name and Address of Beneficial Owner Common Shares Beneficially Owned Percent of Common Shares GAMCO Investors, Inc. and affiliates ...One Corporate Center Rye, NY 10580 BlackRock, Inc...40 East 52nd Street New York, NY 10022 Wells Fargo and Company ...420...

  • Page 51
    ...Proxy Statement 11,554,804 5.9% - * * indicates ownership of less than 1% of issued and outstanding shares. (a) Includes common shares subject to outstanding options and SARs under the Cincinnati Bell Inc. 1997 Long Term Incentive Plan, the Cincinnati Bell Inc. 2007 Long Term Incentive Plan...

  • Page 52
    ... our review and discussions with management, we have recommended 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, 2011...

  • Page 53
    ... and Chief Executive Officer Chief Financial Officer since August 5, 2011 President and General Manager, Cincinnati Bell Communications Group President of CyrusOne Inc. since August 5, 2011, former Chief Financial Officer of the Company Vice President, General Counsel and Secretary Proxy Statement...

  • Page 54
    ... business. The Company's revenue for 2011 increased $85 million, or 6%, compared to 2010. The Data Center Colocation segment revenue increased $59 million in 2011 compared to 2010 primarily due to the acquisition of CyrusOne in June 2010 and new business earned in 2011. In addition, the IT Services...

  • Page 55
    ... specific peer group. • Annual Incentive Plan Data Center Performance Metrics. Historically, the Cincinnati Bell Inc. 2011 Short Term Incentive Plan performance metrics have been set on a company-wide basis without focusing on a particular business segment. However, the Compensation Committee and...

  • Page 56
    ...• Stock option grants that vest solely on the passage of time. In 2009, in conjunction with shareholders approval increasing the number of common shares available for issuance under the 2007 Long Term Incentive Plan, the Compensation Committee adopted a policy limiting the number of common shares...

  • Page 57
    ... the 2010 compensation, 2011 compensation targets and incentives had been determined and set. However, based on its review and analysis as described above, for fiscal year 2012, the Compensation Committee has made the following decisions regarding the executive compensation program: Proxy Statement...

  • Page 58
    ... Practices The Company reviews and modifies its executive compensation programs and practices regularly to address changes in the Company's short- and long-term business objectives and strategies, new regulatory standards and to implement evolving best practices. Listed below are some of the...

  • Page 59
    ... time discouraging unnecessary or excessive risk-taking; and • To align the interests of the executives and the shareholders by attributing a significant portion of total executive compensation to the achievement of specific short-term and long-term goals set by the Compensation Committee. Proxy...

  • Page 60
    ...and by market positioning Used to calculate other components of compensation Annual Incentives • Motivate executive to contribute to • Performance-based incentive compensation • Bonus target set as a percentage of base salary • Long-Term Incentives Non-qualified Stock Options and Stock...

  • Page 61
    ... of additional operational responsibilities in January 2011 in implementing the Company's data center strategy, while retaining his position as Chief Financial Officer until August 5, 2011 when he became President of CyrusOne Inc. Mr. Freyberger received a 27% increase in salary commensurate with...

  • Page 62
    ... officers. In addition, it reflects the Compensation Committee's preference to not increase Mr. Cassidy's base salary over the past seven years as comparative market data would dictate, but instead to compensate Mr. Cassidy by increasing the percentage used to determine his annual incentive. In 2011...

  • Page 63
    ...Company to compensate executive management based upon a combination of stock price appreciation and operating results that are consistent with its long-term business strategy. Stock options/SARs directly align the executive's interest with the shareholders' interest because any actual realized value...

  • Page 64
    ... Data Center Performance Plan. Stock Options and SARs Stock options and SARs are used to align the interests of management with those of the Company's shareholders because they are designed to provide long-term equity-based compensation tied to future appreciation of the Company's common share price...

  • Page 65
    ... significant enterprise value through the growth of the Data Center Colocation segment, (iii) bring about a significant change in the strategic direction of the Company's business in a short time frame and (iv) provide management and the Board with strategic flexibility. The Compensation Committee...

  • Page 66
    ... retirement benefits. Each executive participates in a broad set of other benefit plans and programs, including medical, dental, vision, life, short- and long-term disability plans and home telephone service price discount programs, on the same basis as all other salaried employees. The Company...

  • Page 67
    ... Digital Realty Trust Inc. Equinix, Inc. Fairpoint Communications, Inc. Frontier Communications Corporation Global Crossing Ltd. Leap Wireless International Inc. 53 Sprint Nextel Corp. Telephone & Data Systems Inc. Time Warner Inc. tw telecom inc. United States Cellular Corporation USA Mobility...

  • Page 68
    ... peer group because they were acquired or are no longer publicly traded: Mediacom Communications Corp., Qwest Communications, and Global Crossing Ltd. The following companies were added to this year's peer group: Digital Realty Trust Inc., Equinix, Inc., Fairpoint Communications Corporation and...

  • Page 69
    ... well as from Company management (primarily the Chief Executive Officer and the Vice President of Human Resources & Administration), the Compensation Committee allocates total target direct compensation among base salary, annual bonus and long-term incentive compensation. For 2011, the below charts...

  • Page 70
    ...date, about each executive's current compensation (including the value of any applicable benefit programs) and wealth accumulation, including the value of accrued and vested pay, such as shares of Company stock, vested stock options and other equity awards owned by the executive and the value of any...

  • Page 71
    ... from the Chief Executive Officer and Chief Financial Officer any bonus or other incentive-based or equity-based compensation received during the 12-month period following the date the applicable financial statements were issued and any profits from any sale of securities of the Company during that...

  • Page 72
    ... as executive officers (Theodore H. Torbeck, Gary J. Wojtaszek, Christopher J. Wilson) during the year ended December 31, 2011 (collectively, the "NEOs"): Summary Compensation Table - Fiscal 2011 Change in Pension Value and Non-Equity Non-Qualified Incentive Deferred Stock Option Plan Compensation...

  • Page 73
    ... change in the discount rate as mentioned above. The Company froze its qualified pension plan for management employees in 2009; therefore, Mr. Torbeck is not entitled to any benefits under this plan. None of the executives receive any preferential treatment or above-market interest under the Company...

  • Page 74
    ... 2007 Long Term Incentive Plan, the maximum would only be obtained if the Company's closing stock price on January 30, 2014 would equal or exceed $8.60 and the maximum level of incentive payout was achieved. See the Summary Compensation Table for the amount earned in 2011 and paid in 2012 related to...

  • Page 75
    ... supplemental retirement plan. Mr. Cassidy's nonqualified supplemental retirement plan benefit under his employment agreement has vested and is equal to the portion of his accrued pension under the Cincinnati Bell Management Pension Plan that is attributable to his first ten years of service. Mr...

  • Page 76
    ... 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. Salary and Cash Incentive Awards in Proportion to Total Compensation The percentage of total compensation in 2011 for each named executive represented...

  • Page 77
    ...: Option Awards Stock Awards Equity Equity Incentive Incentive Plan Awards: Equity Plan Awards: Market or Incentive Plan Market Number of Payout Value Awards: Number of Value of Unearned of Unearned Number of Number of Number of Shares or Shares or Shares, Units Shares, Units Securities Securities...

  • Page 78
    ... value is based on the closing price of the Company's common shares on December 31, 2011 ($3.03). Option Exercises and Stock Vested The following table sets forth information concerning the exercise of options and the vesting of stock held by the NEOs during the year ended December 31, 2011: Option...

  • Page 79
    ... our Annual Report on Form 10-K for the year ended December 31, 2011. (g) If any of the executive officers had retired on December 31, 2011, 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 80
    ... the Company provides an additional retirement benefit. Pursuant to such employment agreement, Mr. Cassidy is entitled to an additional non-qualified retirement benefit equal to a portion of his accrued pension under the Management Pension Plan that is attributable to his first ten years of service...

  • Page 81
    ... price of the Company's stock ($3.03) on December 31, 2011 with respect to deferrals made prior to 2011. 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 82
    ... a change in control or termination of employment, assuming a December 31, 2011 termination or change in control date and, where applicable, using the closing price of our common shares on December 31, 2011 of $3.03. Potential Payments upon Termination of Employment or a Change in Control: 2011...

  • Page 83
    ... 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 and SERP, if applicable, as though the executive had remained employed at the same base rate of pay and target...

  • Page 84
    ... 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 the same base rate of pay and target bonus; • Continued medical, dental, vision and life insurance...

  • Page 85
    ... 31, 2011, all such persons complied on a timely basis with the filing requirements of Section 16(a). Shareholder Proposals for Next 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...

  • Page 86
    ...and Corporate Governance Documents Available The Company has elected to provide access to its Proxy Statement, Annual Report on Form 10-K and Summary Annual Report over the internet. We sent the Notice of Internet Availability to our shareholders and beneficial owners, which provides information and...

  • Page 87
    ... or recipients. All communications addressed to the Board or any identified director or directors will be forwarded to the identified person or persons. By Order of the Board of Directors Proxy Statement Christopher J. Wilson Vice President, General Counsel and Secretary March 16, 2012 73

  • Page 88
    ...below, see the Company's Current Reports on Form 8-K filed with the SEC on February 9, 2012 and February 15, 2011. This information is also available in the "Investor Relations" section of the Company's website, www.cincinnatibell.com. Twelve Months Ended December 31, 2011 2010 (dollars in millions...

  • Page 89
    ... in millions) Twelve Months Ended December 31, 2011 2010 Reconciliation of GAAP Cash Flow to Free Cash Flow (as defined by the company) Net (decrease) increase in cash and cash equivalents ...Less adjustments: Proceeds from issuance of long-term debt ...Increase (decrease) in corporate credit and...

  • Page 90
    [THIS PAGE INTENTIONALLY LEFT BLANK]

  • Page 91
    ... is the Cincinnati Bell Inc. 2007 Long Term Incentive Plan, and its sponsor is CBI. 1.2 Purposes of Plan. The purposes of this Plan are (i) to further the long term growth of the Company by offering competitive incentive compensation related to long term performance goals to those Employees of the...

  • Page 92
    ... issuance or payments (upon, if applicable, its exercise or the meeting of certain performance goals or other criteria or conditions) of fixed numbers of Common Shares or of amounts determined with reference to the fair market value (or the change in fair market value over a period of time) of fixed...

  • Page 93
    ... the making of awards to such Employees, the terms of such awards, and the verification that all conditions applicable to the payment under or the exercise of such awards have been met shall be read to refer to CBI's Chief Executive Officer as if such person was the Committee. 4. Class of Employees...

  • Page 94
    ...but separately from all other types of stock options and other forms of awards listed in section 5 hereof) granted under the Plan during the Plan's entire existence shall be equal to 2,000,000 Common Shares. (4) The maximum number of Common Shares which may be issued or paid under or with respect to...

  • Page 95
    ... number of Common Shares that ultimately could, in the event any and all performance goals and other criteria or conditions applicable to the award are met, either be issued or paid under the award or have their fair market value (or the change in their fair market value over a period of time) used...

  • Page 96
    ..., up to a fixed maximum number of Common Shares, exceeds a fixed price (for purposes of this section 8, the "Exercise Price") of the Common Shares to which the exercise relates. A SAR may be granted free-standing, in relation to a new stock option being granted at the same time as the SAR is granted...

  • Page 97
    ... in the terms of the applicable restricted stock award restrictions related to the meeting of certain performance goals in all or just certain cases (such as in all cases other than when there occurs a Change in Control or the Participant's termination of employment with the Company because of...

  • Page 98
    ... one year or terminate employment with the Company in special circumstances (such as the Participant's retirement, disability, or death); and (ii) conditions related to the meeting of certain performance goals (except that the Committee may provide in the terms of the applicable performance share...

  • Page 99
    ... at least one year or terminate employment with the Company in special circumstances (such as the Participant's retirement, disability, or death); and (ii) conditions related to the meeting of certain performance goals (except that the Committee may provide in the terms of the applicable share-based...

  • Page 100
    .... Fair Market Value of Common Shares. For purposes of the Plan, the fair market value of a Common Share on any date (for purposes of this section 12, the "subject date") shall be deemed to be the closing price of a Common Share on the New York Stock Exchange on the subject date (or, if no trading in...

  • Page 101
    ...; (11) currency fluctuations; (12) an expense relating to the issuance of stock options and/or other stock-based compensation; (13) an expense relating to the early retirement of debt; and/or (14) an impact of the conversion of convertible debt securities. Each of the adjustments described in this...

  • Page 102
    ...cash payment shall be equal to the amount by which (i) the aggregate fair market value (on the date of the Change in Control) of the Common Shares that are subject to such stock option or stock appreciation right exceeds (ii) the aggregate exercise price of such Common Shares under such stock option...

  • Page 103
    ...Voting Securities among the holders thereof immediately prior to the Reorganization or Sale; (2) no person (other than any employee benefit plan sponsored or maintained by the Surviving Entity or the Parent Entity or the related trust of any such plan) is or becomes the beneficial owner, directly or...

  • Page 104
    ... CBI Voting Securities beneficially owned by such person, a Change in Control shall then occur. 16. Adjustments. 16.1 Adjustments for Stock Dividends, Stock Splits, and Other Corporate Transactions. (a) In the event of any change affecting the Common Shares by reason of any stock dividend or split...

  • Page 105
    ...and/or (e) by having the Company retain an amount of cash that is payable under any other compensation applicable to the Participant (or such other person) and equal to the amount of such payment/withholding requirements. 17.3 Limitation on Common Shares Used to Meet Payment/Withholding Requirements...

  • Page 106
    ... event shall the exercise or other similar price applicable to an award granted under the Plan, including a stock option or a stock appreciation right granted under the Plan, be reduced, directly or indirectly, by an amendment to the award, by the cancellation of the award and the granting of a new...

  • Page 107
    ... CBI Affiliate May Be Made In Shares of Subsidiary. Notwithstanding any other provision of the Plan, any award granted under the Plan to an Employee who is, at the time of the grant of the award, an employee of a corporation (other than CBI) that is part of a controlled group of corporations (within...

  • Page 108
    [THIS PAGE INTENTIONALLY LEFT BLANK]

  • Page 109
    ... Plan is the Cincinnati Bell Inc. 2007 Stock Option Plan for Non-Employee Directors, and its sponsor is CBI. 1.2 Purposes of Plan. The purposes of this Plan are (i) to attract and retain the services of experienced and knowledgeable persons to serve as independent directors of CBI for the benefit...

  • Page 110
    ... as of a later date. 2.9 "Outside Director" means any member of the Board who is not an employee (on an employee payroll) of the Company. 2.10 "Plan" means this document, named the "Cincinnati Bell Inc. 2007 Stock Option Plan for Non-Employee Directors," as set forth herein and as it may be amended...

  • Page 111
    ...be subject to and constrained by the limits of section 6 hereof and the other terms of this Plan. (c) The Board shall (i) exercise its discretion when changing the number of Common Shares to be subject to any stock option award granted to any Outside Director under the provisions of paragraph (a) or...

  • Page 112
    ...signed by the Board or a representative thereof, which agreement shall contain the terms and conditions of the stock option (as set by the Board). 7.3 Exercise Price of Stock Option. Unless otherwise prescribed by the Board to be higher, the Exercise Price with respect to any number of Common Shares...

  • Page 113
    ...the next subsequent date on which trading of stocks occurred on such exchange). Notwithstanding the foregoing, if Common Shares are not listed or traded at all on the New York Stock Exchange on the date as of which a Common Share's fair market value for the subject date is to be B-5 Proxy Statement

  • Page 114
    ... the aggregate fair market value (on the date of the Change in Control) of the Common Shares that are subject to such stock option exceeds the aggregate exercise price of such Common Shares under such stock option. In the event the Board exercises its discretion to cause such cash payment to be made...

  • Page 115
    ...Voting Securities among the holders thereof immediately prior to the Reorganization or Sale; (2) no person (other than any employee benefit plan sponsored or maintained by the Surviving Entity or the Parent Entity or the related trust of any such plan) is or becomes the beneficial owner, directly or...

  • Page 116
    ... Shares which are otherwise being purchased, issued, or paid under the award and have a fair market value on the date of payment equal to the amount of such payment/ withholding requirements; and/or (d) by having CBI retain an amount of cash that is payable under any other compensation applicable...

  • Page 117
    ... (i) increase the total number of Common Shares which may be issued or paid during the existence of the Plan; (ii) change the class of persons eligible to receive awards under the Plan; or (iii) make any other change in the Plan that is required by applicable law to be approved by CBI's shareholders...

  • Page 118
    ... deemed advisable by the Board. 15.6 Applicable Law. Except to the extent preempted by any applicable Federal law, the Plan shall be subject to and construed in accordance with the laws of the State of Ohio. 15.7 Counterparts and Headings. The Plan may be executed in any number of counterparts, each...

  • Page 119
    ..., computed by reference to the closing sale price of the common stock on the New York Stock Exchange on June 30, 2011, the last trading day of the registrant's most recently completed second fiscal quarter. The Company has no non-voting common shares. At January 31, 2012, there were 196,589,670...

  • Page 120
    ... Matters and Issuer Purchases of Equity Securities ...Selected Financial Data ...Management's Discussion and Analysis of Financial Condition and Results of Operations ...Quantitative and Qualitative Disclosure About Market Risk ...Financial Statements and Supplementary Data ...Changes in and...

  • Page 121
    ... telephone service, switched access, and value-added services such as caller identification, voicemail, call waiting, and call return. Data services include high-speed internet using digital subscriber line ("DSL") technology and over fiber using its gigabit passive optical network ("GPON"). Data...

  • Page 122
    ... DSL high-speed internet access, Fioptics high-speed internet access, and LAN interconnection services. The Company's wireline network includes the use of fiber optic cable, with SONET rings linking Cincinnati's downtown with other area business centers. These SONET rings offer increased reliability...

  • Page 123
    ...subscribers, consistent with the CBT access line loss. VoIP services are provided to business customers in the Company's traditional Greater Cincinnati and Dayton, Ohio operating territory and, to a lesser extent, to businesses outside of this area, primarily in Ohio, Indiana, Illinois, and Kentucky...

  • Page 124
    ... under a 20-year lease agreement. Also during 2009, the Company sold almost all of its owned wireless licenses for areas outside of its Cincinnati and Dayton, Ohio operating territories. Service revenue A variety of monthly rate plans are available to postpaid subscribers. These plans can include...

  • Page 125
    ...-K Part I Cincinnati Bell Inc. line, and/or local minutes for a flat monthly rate. For plans with a fixed number of minutes, postpaid subscribers can purchase additional minutes at a per-minute-of-use rate. Postpaid subscribers are billed monthly in arrears. Prepaid i-wirelessSM subscribers pay in...

  • Page 126
    ... these tasks. These on-site services primarily include tape management and hardware maintenance. The Company's data centers employ military-grade security protocols to protect all physical assets, such as: On-site security guards 24 hours a day, 365 days a year; Video surveillance and recording...

  • Page 127
    ... a number of distribution channels to acquire customers. As of December 31, 2011, the Company operated 13 retail stores in its operating territory. The Company works to locate retail stores in high traffic but affordable areas, with a distance between each store that considers optimal returns per...

  • Page 128
    ... the sale of the Fioptics products to residents. Aside from Company resources, there are 155 third-party agent locations that sell Wireline and Wireless products and services at their retail locations. The Company supports these agents with discounted prices for wireless handsets and other equipment...

  • Page 129
    ...as VoIP and long distance voice services in the Company's operating areas. Partially as a result of wireless substitution and increased competition, the Company's access lines decreased by 8% and long distance subscribers decreased by 7% in 2011 compared to 2010. In addition, the high-speed internet...

  • Page 130
    ...executive officers of the registrant. Business Segment Information The amounts of revenue, intersegment revenue, operating income, expenditures for long-lived assets, and depreciation and amortization attributable to each of the Company's business segments for the years ended December 31, 2011, 2010...

  • Page 131
    ... create liens; make investments; enter into transactions with affiliates; sell assets; guarantee indebtedness; 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...

  • Page 132
    ... from paying dividends or making distributions to the parent company, it may not be able to make the scheduled interest and principal repayments on its debt. This would have a material adverse effect on the Company's liquidity and the trading price of the Company's common stock, preferred stock, and...

  • Page 133
    ... as VoIP and long distance voice services in the Company's operating areas. Partially as a result of wireless substitution and increased competition, CBT's access lines decreased by 8% and long distance subscribers decreased by 7% in 2011 compared to 2010. In addition, the high-speed internet market...

  • Page 134
    ... geographic area. The Company generates a substantial portion of its revenue by serving customers in the Greater Cincinnati and Dayton, Ohio areas for its Wireline, Wireless and IT Services and Hardware segments. In addition, most of its Data Center Colocation operations are located within Ohio and...

  • Page 135
    ... years through increased capital expenditures for fiber optic cable in limited areas of its operating network, and in 2011, the Company began upgrading its wireless network to 4G, using HSPA+ technologies. In order to provide appropriate levels of service to the Company's customers, the network...

  • Page 136
    ...world-class data center facilities on a timely basis; sale of the available data center space to enable appropriate returns; recruiting and maintaining a motivated work force; and installing and implementing new financial and other systems, procedures and controls to support this expansion plan with...

  • Page 137
    ... in the Company's IT outsourcing subsidiary, Cincinnati Bell Technology Solutions Inc. ("CBTS") and its data center colocation subsidiary, CyrusOne, are designed to enable a customer to focus on its core business while CBTS and CyrusOne manage and ensure the quality and security of the information...

  • Page 138
    ... to customers, or the increase in power costs may impact additional sales of data center space. The Company's failure to effectively integrate its acquisition of CyrusOne could result in an inability to realize the anticipated benefits of the purchase and adversely affect the Company's business and...

  • Page 139
    ... condition. The efficient operation of the Company's business depends on back-office information technology systems. The Company relies on back-office information technology systems to effectively manage customer billing, business data, communications, supply chain, order entry and fulfillment and...

  • Page 140
    ...; or • significant technology changes occur. In addition, the price of wireless licenses could decline as a result of the FCC's pursuit of policies designed to increase the number of wireless licenses available in each of the Company's markets. If the market value of wireless licenses were to...

  • Page 141
    ... and prescription drug costs increase significantly, the Company would expect to face even higher annual net pension and postretirement costs. Adverse changes in the value of assets or obligations associated with the Company's employee benefit plans could negatively impact shareowners' deficit...

  • Page 142
    ... and in connection with the current and historical use of hazardous materials and other operations at its sites, the Company could incur significant costs resulting from complying with or violations of such laws, the imposition of cleanup obligations, and third-party suits. For instance, a number of...

  • Page 143
    ... local telephone franchise area (i.e., Greater Cincinnati), the infrastructure associated with its wireless business in the Greater Cincinnati and Dayton, Ohio operating areas, and data center facilities. Each of the Company's subsidiaries maintains some investment in furniture and office equipment...

  • Page 144
    ... Agreement. The terms of the settlement are set forth in the Stipulation and include (1) a variety of corporate governance changes to be initiated by the Company and the Compensation Committee of the Board of Directors, that, among other things, more clearly communicate the Company's executive...

  • Page 145
    ... II Cincinnati Bell Inc. PART II Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities (a) Market Information The Company's common shares (symbol: CBB) are listed on the New York Stock Exchange. The high and low closing sale prices...

  • Page 146
    ... of the Company's outstanding common stock in an amount up to $150 million. The Company may repurchase shares when management believes the share price offers an attractive value and to the extent its available cash is not needed for data center growth and other opportunities. This new plan does not...

  • Page 147
    ... an operating tax settlement. (c) Total long-term obligations comprise long-term debt less current portion, pension and postretirement benefit obligations, and other noncurrent liabilities. See Notes 7, 10 and 11 to the Consolidated Financial Statements for discussion related to 2011 and 2010. 29

  • Page 148
    ... statements. Executive Summary Cincinnati Bell Inc. and its consolidated subsidiaries (the "Company" or "we") is a full-service regional provider of data and voice communications services over wireline and wireless networks, a full-service provider of data center colocation and related managed...

  • Page 149
    Form 10-K Part II Cincinnati Bell Inc. Company had 39,600 entertainment customers as of December 31, 2011, an increase of 41% compared to the end of 2010. The Company also provided and bundled internet and voice service with Fioptics, resulting in 39,300 high-speed internet customers and 29,200 ...

  • Page 150
    ... Bell Inc. in 2010. Network costs increased by $7.2 million in 2011 due to growth in Fioptics, audio conferencing and VoIP services, and increased data usage. Contract services increased by $2.3 million in 2011 primarily due to a large number of telephony installations and out-of-territory support...

  • Page 151
    ...to changes in the management pension and postretirement plans. Acquisition costs of $9.1 million in 2010 represent costs incurred due to the acquisition of CyrusOne. During 2009, the Company sold almost all of its owned wireless licenses for areas outside of its Cincinnati and Dayton, Ohio operating...

  • Page 152
    ... voice telephone service and custom calling features, and data services, including 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 southeastern Indiana through the operations...

  • Page 153
    ...expenses ...Operating income ...Operating margin ...Capital expenditures ...Metrics information (in thousands): Local access lines ...High-speed internet subscribers DSL subscribers ...Fioptics internet subscribers ...Long distance lines ...Fioptics entertainment subscribers ...2011 Compared to 2010...

  • Page 154
    ..., long distance residential revenue declined by $4.1 million in 2011. As of December 31, 2011, long distance subscriber lines were 447,400, a 7% decrease compared to a year earlier. Long distance subscriber lines have declined as consumers opt to utilize wireless and VoIP services. Entertainment...

  • Page 155
    ... in the use of local access lines from the prior year. Access lines decreased by 49,400, or 7%. Data revenue was $283.3 million in 2010, which was essentially flat compared to the same period in 2009. As of December 31, 2010, the Company had 27,200 high-speed internet Fioptics subscribers, which is...

  • Page 156
    ... Wireless Cincinnati Bell Inc. The Wireless segment provides advanced digital voice and data communications services through the operation of a regional wireless network in the Company's licensed service territory, which surrounds Cincinnati and Dayton, Ohio and includes areas of northern Kentucky...

  • Page 157
    ...-K Part II Cincinnati Bell Inc. in voice minutes of use, partially offset by higher data usage. The Company believes it continued to lose subscribers in 2011 due in part to customer preference for competitor smartphones, such as the iPhoneTM. The Company continued to focus its marketing efforts on...

  • Page 158
    .... During 2009, the Company sold almost all of its owned wireless licenses for areas outside of its Cincinnati and Dayton, Ohio operating territories. These licenses, which were primarily for the Indianapolis, Indiana region, were sold for $6.0 million, resulting in a loss on sale of the spectrum...

  • Page 159
    ... Revenue Data center service revenue consists of recurring colocation rents and nonrecurring revenue for installation of customer equipment. Revenue increased $59.4 million in 2011 as compared to 2010 primarily due to the acquisition of CyrusOne in June 2010 and new business earned in 2011. Changes...

  • Page 160
    ...for payments to be made in order to conform the Cincinnati-based operation's commission incentive program to the CyrusOne program. Capital Expenditures Capital expenditures were $118.5 million in 2011, an increase of $87.4 million from the prior year. During 2011, the Data Center Colocation business...

  • Page 161
    ... equipment sales arising from increased capital spending by business customers. Managed services revenue consists of managed VoIP solutions and IT services that include network management, electronic data storage, disaster recovery and data security management. In 2011, managed services revenue...

  • Page 162
    ... managed services and professional services revenues. SG&A expenses were $37.7 million in 2010, an increase of $5.4 million, or 17%, from the prior year. The increase in 2010 was due to an increase of $6.1 million in payroll and employee related costs to support the growing operations. The increase...

  • Page 163
    ... costs on the purchase of CyrusOne and higher payroll and related costs. These cost increases were partially offset by lower stock-based compensation costs. The mark-to-market impact for the cash-payment compensation plans that are indexed to the change in the Company's stock price was $1.0 million...

  • Page 164
    ... Part II Cincinnati Bell Inc. Management believes that cash on hand, cash generated from operations, and cash from its credit facilities will be adequate to meet the Company's investing and financing needs for 2012. Long-term view, including debt covenants As of December 31, 2011, the Company had...

  • Page 165
    ..., we sold substantially all of our wireless towers for $99.9 million and sold almost all of our wireless licenses for areas outside of the Cincinnati and Dayton, Ohio operating territories for $6.0 million. In June 2010, the Company used cash of approximately $526 million to acquire CyrusOne. Cash...

  • Page 166
    .... Also, the Company paid preferred stock dividends of $10.4 million in 2009. Future Operating Trends Wireline In 2011, Wireline suffered an 8% loss of ILEC access lines as additional customers elected to use wireless communication in lieu of the traditional local service, purchase service from other...

  • Page 167
    ... growth in data center revenues in 2012 and beyond. We expect gross margins to compress in 2012 as we incur start-up costs related to new locations and invest in additional human resources to support the growth of this business. In 2012, the Company's board of directors authorized management to...

  • Page 168
    ... a building to be redeveloped into a data center. (4) Included in pension and postretirement benefit obligations are payments for postretirement benefits, qualified pension plans, non-qualified pension plan and other employee retirement agreements. Amounts for 2012 include $21.6 million expected to...

  • Page 169
    ... Agreement. The terms of the settlement are set forth in the Stipulation and include (1) a variety of corporate governance changes to be initiated by the Company and the Compensation Committee of the Board of Directors, that, among other things, more clearly communicate the Company's executive...

  • Page 170
    ...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, sale, and/or license of products and services...

  • Page 171
    ... of accounting. Wireline - Revenues from local telephone, special access, and internet product services, which are billed monthly prior to performance of service, are not recognized upon billing or cash receipt but rather are deferred until the service is provided. Long distance and switched access...

  • Page 172
    ... Part II Cincinnati Bell Inc. Certain agreements with data center customers require specified levels of service or performance. If we fail to meet these service levels, customers may be able to receive service credits on their accounts. We record these credits against revenue when an event occurs...

  • Page 173
    ...values, and discount rate selection. These assumptions are subject to change as the Company's long-term plans and strategies are updated each year. Reviewing the Carrying Values of Long-Lived Assets - Depreciation of our Wireline telephone plant is determined on a straight-line basis using the group...

  • Page 174
    ... or technology. In 2011, we finalized the CyrusOne purchase price allocation. No significant changes were made in 2011 to the estimates or assumptions applied in the preliminary purchase price allocation. Accounting for Taxes Income Taxes The Company and its subsidiaries file income tax returns in...

  • Page 175
    ... quarter of 2011, the Company entered into a new labor agreement with its bargained employees which eliminated future pension credits for certain employees effective January 1, 2012. As a result of this event, we remeasured the projected benefit obligation of the non-management benefit plan and...

  • Page 176
    ... upon the timing of expected future benefit payments. Our discount rates are developed based upon a yield curve developed to reflect yields available on high-quality corporate bonds as of the measurement date. As of December 31, 2011 and 2010, the discount rate used to value the pension plans was...

  • Page 177
    ... average remaining service period of active employees for the pension and bargained postretirement plans (approximately 10-14 years) and average life expectancy of retirees for the management postretirement plan (approximately 16 years). Accounting for Termination Benefits - The Company has written...

  • Page 178
    ... incumbent local exchange carriers while increasing opportunities for new competitive entrants 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...

  • Page 179
    ... reforms is a bill-and-keep system under which all per-minute intercarrier charges are eliminated. Beginning in 2012, terminating switched access and reciprocal compensation rates are phased out over a six-year period for CBT and a nine-year period for rate-of-return carriers. The plan establishes...

  • Page 180
    ...basic local exchange service prices expired in July 2011 and CBT increased rates for basic local exchange service for residential lines in December 2011 and business lines in January 2012. Ohio and Kentucky Cable Franchises The state of Ohio permits statewide video service authorization. The Company...

  • Page 181
    ...• changing market conditions and growth rates within the telecommunications and data center industries or generally within the overall economy; Form 10-K changes in competition in markets in which the Company operates; pressures on the pricing of the Company's products and services; advances...

  • Page 182
    ... by our field operations group, and network and building materials, such as steel, fiber and copper, used in the construction of our networks and data centers. In addition, the lead time to purchase certain equipment for our data centers is substantial which could result in increased costs for these...

  • Page 183
    ... Statements Consolidated Financial Statements: Cincinnati Bell Inc. Page Management's Report on Internal Control over Financial Reporting ...Reports of Independent Registered Public Accounting Firm ...Consolidated Balance Sheets ...Consolidated Statements of Operations ...Consolidated Statements...

  • Page 184
    ... reliable financial statements in conformity with accounting principles generally accepted in the United States. Management assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2011. In making this assessment, management used the criteria set forth...

  • Page 185
    ... PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareowners of Cincinnati Bell Inc. Cincinnati, Ohio We have audited the internal control over financial reporting of Cincinnati Bell Inc. and subsidiaries (the "Company") as of December 31, 2011, based on criteria established in Internal Control...

  • Page 186
    ... PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareowners of Cincinnati Bell Inc. Cincinnati, Ohio We have audited the accompanying consolidated balance sheets of Cincinnati Bell Inc. and subsidiaries (the "Company") as of December 31, 2011 and 2010, and the related consolidated statements...

  • Page 187
    ... 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 December 31, 2011 and 2010; liquidation preference $1,000 per share ($50 per depositary share) ...Common shares, $.01 par value...

  • Page 188
    ... Bell Inc. CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in millions, except per share amounts) Cincinnati Bell Inc. Year Ended December 31, 2011 2010 2009 Revenue Services ...Products ...Total revenue ...Costs and expenses Cost of services, excluding items below ...Cost of products sold...

  • Page 189
    ......Comprehensive income ...Shares issued under employee plans ...Shares purchased under employee plans and other ...Stock-based compensation ...Repurchase and retirement of shares ...Dividends on preferred stock ...Balance at December 31, 2010 . . Net income ...Pension and postretirement liabilities...

  • Page 190
    ... from issuance of long-term debt ...Increase (decrease) in corporate credit and receivables facilities with initial maturities less than 90 days ...Repayment of debt ...Debt issuance costs and consent fees ...Dividends paid on preferred stock ...Common stock repurchase ...Financing obligations...

  • Page 191
    ...and similar companies operating in different geographic areas. Revenue derived from foreign operations is less than 1% of consolidated revenue. The Company manages its business by product and service offerings in four segments: Wireline, Wireless, Data Center Colocation, and IT Services and Hardware...

  • Page 192
    ...II Cincinnati Bell Inc. depreciated over the asset's remaining life. The majority of the Wireline network property, plant and equipment used to generate its voice and data revenue is depreciated using the group method, which develops a depreciation rate annually based on the average useful life of...

  • Page 193
    ... of accounting. Wireline - Revenues from local telephone, special access, and internet product services, which are billed monthly prior to performance of service, are not recognized upon billing or cash receipt but rather are deferred until the service is provided. Long distance and switched access...

  • Page 194
    ...-K Part II Cincinnati Bell Inc. Wireless handset revenue and the related activation revenue are recognized when the products are delivered to and accepted by the customer, as this is considered to be a separate earnings process from the sale of wireless services. Wireless equipment costs are also...

  • Page 195
    ... 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 196
    ... that market participants would use in pricing the asset or liability. These inputs are developed based on the best information available, including our own data. Foreign Currency Translation and Transactions - The financial position of foreign subsidiaries is translated at the exchange rates in...

  • Page 197
    ... our financial statements. 3. Acquisitions and Dispositions Acquisition of Cyrus Networks, LLC On June 11, 2010, the Company purchased Cyrus Networks, LLC, a data center operator based in Texas, for approximately $526 million, net of cash acquired, which was subsequently merged into its CyrusOne Inc...

  • Page 198
    ...operating efficiencies that could result from the acquisition or (ii) transaction or integration costs relating to the acquisition. Acquisition of Virtual Blocks Inc. and Cintech LLC In 2009, for a total acquisition price of $2.5 million, Cincinnati Bell Technology Solutions, Inc. ("CBTS") purchased...

  • Page 199
    ... statements for the years ended December 31, 2011, 2010 and 2009. Disposition of Cincinnati Bell Complete Protection Inc. Assets On August 1, 2011, we sold substantially all of the assets associated with our home security monitoring business for $11.5 million. The pre-tax gain recognized on the sale...

  • Page 200
    ...years ended December 31, 2011 and 2010 are as follows: Data Center Colocation IT Services and Hardware (dollars in millions) Wireless Wireline Total Balance as of December 31, 2009 ...Business acquisitions ...Balance as of December 31, 2010 ...Impairment ...Disposition of home security business...

  • Page 201
    ... II Cincinnati Bell Inc. In 2011, we sold substantially all the assets of our home security monitoring business for a gain of $8.4 million. Goodwill of $0.8 million was associated with the assets sold and included within "(Gain) loss on sale of assets" on the Consolidated Statements of Operations...

  • Page 202
    ... rate swaps. Corporate Credit Facilities On June 11, 2010, the Company entered into a new Corporate credit facility agreement, which included a new revolving credit facility, replacing the existing revolving credit facility that would have expired in August 2012, and a $760 million secured term...

  • Page 203
    ... limit. CBT, CBET, Cincinnati Bell Wireless, LLC ("CBW"), Cincinnati Bell Any Distance Inc. ("CBAD"), Cincinnati Bell Any Distance of Virginia LLC, CBTS, eVolve Business Solutions LLC ("eVolve"), and CyrusOne Inc. (collectively, "transferors") sell their respective trade receivables on a continuous...

  • Page 204
    ... 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 of subsidiaries; and redemption of debt that...

  • Page 205
    ...generally 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 of subsidiaries; and redemption of debt that...

  • Page 206
    ... by Cincinnati Bell Inc. but not the subsidiaries of Cincinnati Bell Inc. All of these 2028 notes may be called at any time, subject to proper notice and redemption price. The indentures governing these notes provide for customary events of default, including for failure to make any payment when...

  • Page 207
    ..., including wireless towers, data center facilities and various equipment. These leases generally contain renewal options. We hold a purchase option on two leased data center facilities. Other Financing Arrangements CyrusOne leases certain buildings used in its data center operations. Structural...

  • Page 208
    ... Agreement basket providing full access to the Corporate credit facility. Also, the Company's ability to make Restricted Payments (as defined by the individual indentures) would be limited, including common stock dividend payments or repurchasing outstanding Company shares. As of December 31, 2011...

  • Page 209
    ...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, sale, and/or license of products and services...

  • Page 210
    ... completed. This building will be redeveloped into a data center. The Company also has noncancellable purchase commitments related to certain goods and services. These agreements range from one to three years. As of December 31, 2011, the minimum commitments for these arrangements were approximately...

  • Page 211
    .... Contingent Compensation Plan In 2010, the Company's Board of Directors approved a new long-term incentive program for certain executives of the Data Center Colocation business as well as the Corporate group. In 2011, the program was implemented through the grant of cash-payment performance units...

  • Page 212
    ... market prices of the Company's debt at December 31, 2011 and 2010. The fair value of other financing arrangements was calculated using a discounted cash flow model that incorporates current borrowing rates for obligations of similar duration. Non-Recurring Fair Value Measurements Certain long...

  • Page 213
    ... plan to conform sales commission programs between our data center operations. These obligations were paid in full in 2011. A summary of restructuring activity by business segment is presented below: (dollars in millions) Wireline Wireless Data Center Colocation IT Services and Hardware Corporate...

  • Page 214
    ... executives. The management pension plan is a cash balance plan in which the pension benefit is determined by a combination of compensation-based credits and annual guaranteed interest credits. The non-management pension plan is also a cash balance plan in which the combination of service and job...

  • Page 215
    ...long-term rate of return on plan assets, developed using the building block approach, is based on the mix of investments held directly by the plans and the current view of expected future returns, which is influenced by historical averages. Changes in actual asset return experience and discount rate...

  • Page 216
    ...following are the weighted-average assumptions used in accounting for and measuring the projected benefit obligations: Pension Benefits December 31, 2011 2010 Postretirement and Other Benefits December 31, 2011 2010 Discount rate ...Future compensation growth rate ... 3.90% 3.00% 4.90% 3.50% 3.60...

  • Page 217
    ... objective for the trusts holding the assets of the pension and postretirement plans is preservation of capital with a reasonable amount of long-term growth and income without undue exposure to risk. This is provided by a balanced strategy using fixed income and equity securities. The target...

  • Page 218
    ... pension plans at December 31, 2011 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 investment grade corporate...

  • Page 219
    ... at any time at the option of the holder into common stock of the Company at a conversion rate of 1.44 shares of the Company common stock per depositary share of 6 3⁄ 4% convertible preferred stock. Annual dividends on the outstanding 6 3⁄ 4% convertible preferred stock are payable quarterly in...

  • Page 220
    ... Loss Cincinnati Bell Inc. Shareowners' deficit includes an accumulated other comprehensive loss that is comprised of pension and postretirement unrecognized prior service cost and unrecognized actuarial losses, and foreign currency translation loss. At December 31, 2011 and 2010, pension and...

  • Page 221
    ...2011 2010 2009 U.S. federal statutory rate ...State and local income taxes, net of federal income tax ...Change in valuation allowance, net of federal income tax ...State net operating loss adjustments ...Nondeductible interest expense ...Medicare drug subsidy law change ...Unrecognized tax benefit...

  • Page 222
    ... expire ten years from grant date. The Company generally issues new shares when options to purchase common shares or stock appreciation rights are exercised. The following table summarizes stock options and stock appreciation rights activity: 2011 WeightedAverage Exercise Price Per Shares Share 2010...

  • Page 223
    ...16 $1.45 Form 10-K The Company did not grant any stock options or stock-settled stock appreciation rights in the year ended December 31, 2011. The expected volatility assumption used in the Black-Scholes pricing model was based on historical volatility. The risk-free interest rate is based on the...

  • Page 224
    ... expense for the year ...Tax benefit related to compensation expense ...Grant date fair value of awards vested ... $ 0.8 $(0.3) $ 0.2 $ 0.5 $(0.2) $ 0.3 $ 0.9 $ (0.3) $ 0.8 As of December 31, 2011, there was $1.5 million of unrecognized compensation expense related to these shares, which is...

  • Page 225
    ... local telephone service, switched access, and value-added services such as caller identification, voicemail, call waiting, and call return. Data services include high-speed internet using digital subscriber line technology and over fiber using its gigabit passive optical network. Data services...

  • Page 226
    ..., and special termination benefits. 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 2011, the Wireless segment recognized a goodwill...

  • Page 227
    Form 10-K Part II Our business segment information is as follows: (dollars in millions) Cincinnati Bell Inc. Year Ended December 31, 2011 2010 2009 Revenue Wireline ...Wireless ...Data Center Colocation ...IT Services and Hardware ...Intersegment ...Total revenue ...Intersegment revenue Wireline ...

  • Page 228
    ... in millions) Cincinnati Bell Inc. Year Ended December 31, 2011 2010 2009 Service revenue Wireline ...Wireless ...Data Center Colocation ...IT Services and Hardware ...Total service revenue ...Product revenue Handsets and accessories ...IT, telephony and other equipment ...Total product revenue...

  • Page 229
    ... Inc. was merged into Cincinnati Bell Inc. The following information sets forth the Condensed Consolidating Balance Sheets of the Company as of December 31, 2011 and 2010 and the Condensed Consolidating Statements of Operations and Cash Flows for the years ended December 31, 2011, 2010, and 2009 of...

  • Page 230
    ... 10-K Part II Condensed Consolidating Statements of Operations Parent (Guarantor) Cincinnati Bell Inc. (dollars in millions) Year Ended December 31, 2009 CBT Other (Issuer) Non-guarantors Eliminations Total Revenue ...Operating costs and expenses ...Operating income (loss) ...Interest expense...

  • Page 231
    ....6 Condensed Consolidating Statements of Cash Flows Parent (Guarantor) Year Ended December 31, 2011 CBT Other (Issuer) Non-guarantors Eliminations Form 10-K (dollars in millions) Total Cash flows provided by (used in) operating activities ...Capital expenditures ...Proceeds from sale of assets...

  • Page 232
    ... of businesses, net of cash acquired ...Proceeds from the sale of assets ...Other investing activities ...Cash flows provided by (used in) investing activities ...Funding between Parent and subsidiaries, net ...Proceeds from issuance of long-term debt, net of financing costs ...Increase/(decrease...

  • Page 233
    ... necessary to meet the Parent Company's debt service obligations. The following information sets forth the Condensed Consolidating Balance Sheets of the Company as of December 31, 2011 and 2010 and the Condensed Consolidating Statements of Operations and Cash Flows for the three years ended December...

  • Page 234
    ...(loss) before equity in earnings of subsidiaries and income taxes ...Income tax expense (benefit) ...Equity in earnings of subsidiaries, net of tax ...Net income ...Preferred stock dividends ...Net income applicable to common shareowners ... $ 5.5 34.5 (29.0) 137.9 45.2 (212.1) (61.3) 179.1 28.3 10...

  • Page 235
    ... ...Total current assets ...Property, plant and equipment, net ...Goodwill and 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...

  • Page 236
    ... II Condensed Consolidating Statements of Cash Flows Cincinnati Bell Inc. Year Ended December 31, 2011 (dollars in millions) Parent (Issuer) Guarantors Non-guarantors Eliminations Total Cash flows provided by (used in) operating activities ...Capital expenditures ...Proceeds from sale of assets...

  • Page 237
    ... will not necessarily equal the per share results for the full year. During the three months ended December 31, 2011, the Company recognized a goodwill impairment loss of $50.3 million in the Wireless business segment. The impairment loss arose from declines in revenues and wireless subscribers. 119

  • Page 238
    ... Registered Public Accounting Firm are set forth in Part II, Item 8 of this Annual Report on Form 10-K. (c) Changes in internal control over financial reporting. There were no changes to Cincinnati Bell Inc.'s internal control over financial reporting during the fourth quarter of 2011 that...

  • Page 239
    ...Cincinnati Bell Communications Group since September 2010; Chief Executive Officer of The Freedom Group, Inc. from 2008-2010; Vice President of Operations of General Electric Industrial from 2006-2008. GARY J. WOJTASZEK, President of CyrusOne since August 2011; Chief Financial Officer of the Company...

  • Page 240
    .... Items 11. Executive Compensation The information required by this item can be found in the Proxy Statement for the 2012 Annual Meeting of Shareholders and is incorporated herein by reference. Items 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters...

  • Page 241
    ... to the Indenture dated as of October 27, 1993 by and among Cincinnati Bell Telephone Company as Issuer, Cincinnati Bell Inc. as Guarantor, and The Bank of New York, as Trustee (Exhibit 4(c)(ii)(2) to Annual Report on Form 10-K for the year ended December 31, 2004, File No. 1-8519). (4.2) Form 10...

  • Page 242
    ... 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)(iii)(3) to Annual Report on Form 10-K for the year ended December 31, 2004, File No. 1-8519). Warrant Agreement...

  • Page 243
    ...-One Parent LLC, Cy-One Holdings LLC, the interest holders of Cy-One Holdings LLC and Cyrus Networks LLC (Exhibit 2.1 to Current Report on Form 8-K, date of Report May 13, 2010, File No. 1-8519). Cincinnati Bell Inc. 2011 Short Term Incentive Plan (Appendix A to the Company's 2010 Proxy Statement on...

  • Page 244
    ... to Annual Report on Form 10-K for the year ended December 31, 2008, File No. 1-8519). Cincinnati Bell Inc. 2007 Stock Option Plan for Non-Employee Directors (Appendix B to the Company's 2007 Proxy Statement on Schedule 14A filed on March 14, 2007, File No. 1-8519). Executive Compensation Recoupment...

  • Page 245
    ... 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. Code of Ethics for Senior Financial Officers, as...

  • Page 246
    ... millions) Beginning of Period Charge (Benefit) to Expenses To (from) Other Accounts Cincinnati Bell Inc. Deductions End of Period Allowance for Doubtful Accounts Year 2011 ...Year 2010 ...Year 2009 ...Deferred Tax Valuation Allowance Year 2011 ...Year 2010 ...Year 2009 ... $14.0 $17.2 $18.0 $60...

  • Page 247
    ... Cincinnati Bell Inc. Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: February 28, 2012 /s/ Kurt A. Freyberger Kurt A. Freyberger Chief Financial Officer...

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  • Page 251
    ... 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 Inc., Investor Relations, 221 East 4th Street, Cincinnati, Ohio...

  • Page 252
    221 East Fourth Street P.O. Box 2301 Cincinnati, Ohio 45202 513.397.9900 www.cincinnatibell.com