Cincinnati Bell 2014 Annual Report Download - page 82

Table of Contents
Form 10-K Part II
Cincinnati Bell Inc.
 The Company maintains qualified and non-qualified defined benefit pension plans, and also provides
postretirement healthcare and life insurance benefits for eligible employees. We recognize the overfunded or underfunded status of the defined benefit
pension and other postretirement benefit plans as either an asset or liability. Changes in the funded status of these plans are recognized as a component of
comprehensive income (loss) in the year they occur. Pension and postretirement healthcare and life insurance benefits earned during the year and interest on
the projected benefit obligations are accrued and recognized currently in net periodic benefit cost. Prior service costs and credits are amortized over the
average life expectancy of participants or remaining service period, based upon whether plan participants are mostly retirees or active employees. Net gains
or losses resulting from differences between actuarial experience and assumptions or from changes in actuarial assumptions, are recognized as a component of
annual net periodic benefit cost. Unrecognized actuarial gains or losses that exceed 10% of the projected benefit obligation are amortized on a straight-line
basis over the average remaining service life 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).
The Company has written severance plans covering both its management and union employees and, as such, accrues probable and
estimable employee separation liabilities in accordance with ASC 712, “Compensation — Nonretirement Postemployment Benefits.” These liabilities are
based on the Company’s historical experience of severance, historical severance costs, and management’s expectation of future separations.
Special termination benefits are recognized upon acceptance by an employee of a voluntary termination offer. For terminations involving a large group of
employees, we consider whether a pension and postretirement curtailment event has occurred. We define a curtailment as an event that reduces the expected
years of future service of present employees by 10% or more.
In accounting for business combinations, we apply the accounting requirements of ASC 805, “Business Combinations,” which
requires the recording of net assets of acquired businesses at fair value. In developing estimates of fair value of acquired assets and assumed liabilities,
management analyzes a variety of factors including market data, estimated future cash flows of the acquired operations, industry growth rates, current
replacement cost for fixed assets, and market rate assumptions for contractual obligations. Such a valuation requires management to make significant
estimates and assumptions, particularly with respect to the intangible assets. In addition, contingent consideration is presented at fair value at the date of
acquisition. Transaction costs are expensed as incurred.
Fair value of financial and non-financial assets and liabilities is defined as the price representing the amount that would be
received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Fair value is utilized to measure certain
investments on a recurring basis. Fair value measurements are also utilized to determine the initial value of assets and liabilities acquired in a business
combination, to perform impairment tests, and for disclosure purposes.
Management uses quoted market prices and observable inputs to the maximum extent possible when measuring fair value. In the absence of quoted market
prices or observable inputs, fair value is determined using valuation models that incorporate assumptions that a market participant would use in pricing the
asset or liability.
Fair value measurements are classified within one of three levels, which prioritize the inputs used in the methodologies of measuring fair value for assets and
liabilities, as follows:
Level 1 — Quoted market prices for identical instruments in an active market;
Level 2 — Quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that
are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that are
derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs); and
Level 3 — Unobservable inputs that reflect management's determination of assumptions 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.
 The financial position of foreign subsidiaries is translated at the exchange rates in effect at the end of
the period, while revenues and expenses are translated at average rates of exchange during the period. Gains or losses from translation of foreign operations
where the local currency is the functional currency are included as components of accumulated other comprehensive income (loss). Gains and losses arising
from foreign currency transactions are recorded in other income (expense) in the period incurred.
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