Cincinnati Bell 2006 Annual Report Download - page 197

$11 million, which payment has been made on their behalf by their insurers, to a fund to settle the claims of, and
obtain a release of all claims from, the class members. On March 13, 2006, the Court issued an order giving
preliminary approval of the Agreement and scheduled a Settlement Fairness Hearing. The Settlement Fairness
Hearing took place on June 22, 2006. On October 5, 2006, the Court issued a final order approving the Stipulation
and Agreement of Settlement as submitted by the parties. Accordingly, this case has been dismissed with prejudice.
Freedom Wireless vs. BCGI, et al U.S. District Court, District of Massachusetts, Case No. 05-110620-EFH.
On September 16, 2005, Freedom Wireless filed a patent infringement action against 24 wireless service
providers, including CBW. The suit alleged that the defendant wireless service providers were in violation of a
patent owned by Freedom Wireless. CBW obtained its rights to use the technology in question through Boston
Communications Group Inc. (“BCGI”). BCGI has acknowledged its obligation to indemnify CBW in accordance
with the terms of the license agreement. This lawsuit was preceded by a direct patent infringement suit against
BCGI by Freedom Wireless, in which BCGI was found liable. On July 21, 2006, BCGI issued a press release
indicating that it had reached a settlement agreement with Freedom Wireless in the underlying patent
infringement action. On October 16, 2006, Freedom Wireless filed a Notice of Dismissal dismissing with
prejudice all patent infringement claims against CBW arising from the alleged patent infringement by BCGI.
Accordingly, the Company considers this case to be closed.
Indemnifications Related to the Sale of Broadband Assets
The Company indemnified the buyer of the broadband assets against certain potential claims, but all
indemnifications have expired except for those related to title and authorization. The title and authorization
indemnification was capped at 100% of the purchase price of the broadband assets, which is approximately $71
million.
In order to determine the fair value of the indemnity obligations, the Company performed a probability-
weighted discounted cash flow analysis, utilizing the minimum and maximum potential claims and several
scenarios within the range of possibilities. In 2006, the Company decreased the liability related to the indemnity
obligations from $4.1 million to $1.2 million and recorded $2.9 million of income as a result of the expiration of
certain warranties and guarantees. This income was included in “Gain on sale of broadband assets” in the
Consolidated Statement of Operations. During 2005, no additional representations or warranties expired. In 2004,
the Company decreased the liability related to the indemnity obligations to $4.1 million due to the expiration of
the general representations and warranties and no broker warranties, and recorded $3.7 million as “Gain on sale
of broadband assets” in the Consolidated Statement of Operations.
Additionally, in 2004, the Company paid $2.7 million related to indemnity obligations under a legal
settlement agreement.
13. Income Taxes
Income tax provision (benefit) consists of the following:
Year Ended December 31,
(dollars in millions) 2006 2005 2004
Current:
Federal ........................................ $ 2.6 $ 1.0 $ (0.5)
State and local .................................. 3.7 1.2 1.5
Total current .................................... 6.3 2.2 1.0
Investment tax credits ................................ (0.4) (0.5) (0.3)
Deferred:
Federal ........................................ 50.1 (21.2) 52.8
State and local .................................. 45.5 34.1 10.4
Total deferred ................................... 95.6 12.9 63.2
Valuation allowance .................................. (33.2) 39.7 (27.8)
Total ...................................... $68.3 $ 54.3 $ 36.1
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