Cincinnati Bell 2012 Annual Report Download - page 173

Form 10-K Part II Cincinnati Bell Inc.
Indemnifications
During the normal course of business, the Company makes certain indemnities, commitments, and
guarantees under which it may be required to make payments in relation to certain transactions. These include
(a) intellectual property indemnities to customers in connection with the use, sale, and/or license of products and
services, (b) indemnities to customers in connection with losses incurred while performing services on their
premises, (c) indemnities to vendors and service providers pertaining to claims based on negligence or willful
misconduct of the Company, (d) indemnities involving the representations and warranties in certain contracts,
and (e) outstanding letters of credit which totaled $6.3 million as of December 31, 2012. In addition, the
Company has made contractual commitments to several employees providing for payments upon the occurrence
of certain prescribed events. The majority of these indemnities, commitments, and guarantees do not provide for
any limitation on the maximum potential for future payments that the Company could be obligated to make.
As permitted under Ohio law, the Company has agreements whereby the Company indemnifies its officers
and directors for certain events or occurrences while the officer or director is, or was, serving at the Company’s
request in such capacity. The term of the indemnification period is for the lifetime of the officer or director. The
maximum potential amount of future payments the Company could be required to make under these
indemnification agreements is unlimited; however, the Company has a director and officer insurance policy that
limits the Company’s exposure and enables the Company to recover a portion of any future amounts paid. As a
result of the Company’s insurance policy coverage, the Company believes the estimated fair value of these
indemnification agreements is minimal. The Company has no liabilities recorded for these agreements as of
December 31, 2012 or 2011.
Purchase Commitments
The Company has noncancelable purchase commitments related to certain goods and services. These
agreements range from one to three years. As of December 31, 2012 and 2011, the minimum commitments for
these arrangements were approximately $120 million and $66 million, respectively. The Company generally has
the right to cancel open purchase orders prior to delivery and to terminate the contracts without cause.
Litigation
Cincinnati Bell and its subsidiaries are subject to various lawsuits, actions, proceedings, claims and other
matters asserted under laws and regulations in the normal course of business. We believe the liabilities accrued
for legal contingencies in our Consolidated Financial Statements, as prescribed by GAAP, are adequate in light
of the probable and estimable contingencies. However, there can be no assurances that the actual amounts
required to satisfy alleged liabilities from various legal proceedings, claims, tax examinations, and other matters,
and to comply with applicable laws and regulations, will not exceed the amounts reflected in our Consolidated
Financial Statements. As such, costs, if any, that may be incurred in excess of those amounts provided as of
December 31, 2012, cannot be reasonably determined.
In 2011, the Company and certain directors and officers were named as defendants in a federal court and a
state court shareholder derivative action. Plaintiffs’ allegations, which defendants denied, in both the federal and
state court actions, were that the director defendants breached their duty of loyalty in connection with 2010
executive compensation decisions and the officer defendants were unjustly enriched. On March 1, 2012, the parties
to the case captioned: NECA-IBEW Pension Fund (The Decatur Plan) v. Cox, et al., Case No. 11-cv-00451, United
States District Court, Southern District of Ohio, Western Division (“the Federal Action”), reached an agreement
concerning the Federal Action. Pursuant to the agreement, the parties agreed to stipulate to the filing of an Amended
Complaint, which was docketed with the court, and thereafter, the parties jointly moved the court to stay the Federal
Action pending the entry of a judgment in the state court action, captioned:In re Cincinnati Bell Inc. Derivative
Litigation, Case No. A1105305, Court of Common Pleas, Hamilton County, Ohio (“the State Action”). The Federal
Action was stayed by the court. The parties to the State Action previously reached a settlement of that action which
includes certain changes to the Company’s corporate governance policies. On April 16, 2012, in the State Action,
the court held a hearing to consider final approval of the settlement and fee and expense request by plaintiffs’
counsel. The court on April 16, 2012 approved the settlement and the fees and expenses requested by plaintiffs’
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Form 10-K