Cincinnati Bell 2014 Annual Report Download - page 77

Table of Contents
Form 10-K Part II
Cincinnati Bell Inc.


 
 Cincinnati Bell Inc. and its consolidated subsidiaries ("Cincinnati Bell", "we", "our", "us" or the "Company") provides diversified
telecommunications and technology services. The Company generates a large portion of its revenue by serving customers in the Greater Cincinnati and
Dayton, Ohio areas. An economic downturn or natural disaster occurring in this, or a portion of this, limited operating territory could have a disproportionate
effect on our business, financial condition, results of operations and cash flows compared to similar companies of a national scope and similar companies
operating in different geographic areas. Revenue derived from foreign operations is less than 1% of consolidated revenue.
As of December 31, 2014, the Company managed its business by product and service offerings in three segments: Wireline, IT Services and Hardware, and
Wireless. On January 24, 2013, we completed the initial public offering ("IPO") of CyrusOne Inc. ("CyrusOne"), which owns and operates our former Data
Center Colocation business. CyrusOne conducts its data center business through CyrusOne LP, an operating partnership. Effective with the IPO, we retained
ownership of approximately 1.9 million shares, or 8.6%, of CyrusOne's common stock and were a limited partner in CyrusOne LP, owning approximately 42.6
million, or 66%, of its partnership units. We effectively owned 69% of CyrusOne and continued to have significant influence over the entity, but we did not
control its operations. Therefore, effective January 24, 2013, we no longer include the accounts of CyrusOne in our consolidated financial statements, but
account for our ownership in CyrusOne as an equity method investment.
On June 25, 2014, we consummated the sale of 16.0 million partnership units of CyrusOne LP to CyrusOne, Inc. at a price of $22.26 per unit. As of December
31, 2014, we effectively own 44% of CyrusOne, which is held in the form of 1.9 million shares of CyrusOne common stock and approximately 26.6 million
CyrusOne LP partnership units. We continue to account for our investment in CyrusOne using the equity method.
In the second quarter of 2014, we entered into agreements to sell our wireless spectrum licenses and certain other assets related to our wireless business. This
agreement to sell our wireless spectrum license closed on September 30, 2014, for cash proceeds of $194.4 million. As a result, we derecognized the $88.2
million carrying value of the licenses previously reported as "Intangible assets, net" in the Consolidated Balance Sheets. Also on September 30, 2014, we
entered into a separate agreement to use certain spectrum licenses for $8.00 until we no longer provide wireless service. We recorded the fair value of the
leased spectrum of $6.4 million in "Prepaid expenses" in the Consolidated Balance Sheets. This fair value is considered a Level 3 measurement based on
other comparable transactions. The asset is being amortized over a six month period and had a net carrying value of $3.2 million as of December 31, 2014. In
addition, as we continue to use the licenses, we deferred the gain of $112.6 million related to the sale of the spectrum. We plan to operate and generate cash
from our wireless operations until no later than April 6, 2015. At that time, we will transfer certain leases and other assets to the acquiring company valued at
approximately $25 million.
 The consolidated financial statements of the Company have been prepared pursuant to the rules and regulations of the U.S.
Securities and Exchange Commission ("SEC") and, in the opinion of management, include all adjustments necessary for a fair presentation of the results of
operations, comprehensive income, financial position, and cash flows for each period presented.
The consolidated financial statements include the consolidated accounts of Cincinnati Bell Inc. and its majority-owned
subsidiaries over which it exercises control. Intercompany accounts and transactions have been eliminated in the consolidated financial statements.
Investments over which the Company exercises significant influence are recorded under the equity method. Investments in which we own less than 20% of
the ownership interests and cannot exercise significant influence over the investee’s operations are recorded at cost.
The preparation of financial statements in conformity with generally accepted accounting principles ("GAAP") requires management to
make estimates and assumptions that affect the amounts reported. Actual results could differ from those estimates. Significant items subject to such estimates
and judgments include: the carrying value of property, plant and equipment; the valuation of insurance and claims liabilities; the valuation of allowances for
receivables and deferred income taxes; reserves recorded for income tax exposures; the valuation of asset retirement obligations; assets and liabilities related
to employee benefits; and the valuation of goodwill and intangibles. In the normal course of business, the Company is also subject to various regulatory and
tax proceedings, lawsuits, claims, and other matters. The Company believes adequate
76