Cincinnati Bell 2014 Annual Report Download - page 114

Table of Contents
Form 10-K Part II
Cincinnati Bell Inc.
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As of December 31, 2012, and for the period January 1, 2013 through January 23, 2013, we operated four business segments: Wireline, IT Services and
Hardware, Wireless, and Data Center Colocation. Effective January 24, 2013, the date of the CyrusOne IPO, we no longer include CyrusOne, our former Data
Center Colocation segment, in our consolidated financial statements and now account for our ownership in CyrusOne as an equity method investment.
Therefore, as of December 31, 2013 and 2014, we operated three business segments: Wireline, IT Services and Hardware, and Wireless. For further details of
the CyrusOne IPO, see Note 1 and Note 3 of Notes to Consolidated Financial Statements.
The Wireline segment provides products and services such as data transport, high-speed internet, entertainment, local voice, long distance, VoIP, and other
services. These services are primarily provided to customers in southwestern Ohio, northern Kentucky, and southeastern Indiana. Data services include
Fioptics high-speed internet and DSL internet access. Data services also provide data transport for businesses, including local area network services,
dedicated network access, metro-ethernet and Dense Wavelength Division Multiplexing ("DWDM"), which principally are used to transport large amounts of
data over private networks. Entertainment services are comprised of television media through our Fioptics product suite. Voice local service revenue includes
local service, digital trunking, switched access, information services, and other value-added services such as caller identification, voicemail, call waiting, and
call return. Long distance and VoIP services include long distance voice, audio conferencing, VoIP and other broadband services including private line and
multi-protocol label switching, a technology that enables a business customer to privately interconnect voice and data services at its locations. Other services
primarily include inside wire installation for business enterprises, rental revenue, and revenue under the agreement for selling Verizon Wireless handsets and
service.
In 2014, Wireline reversed restructuring charges totaling $1.4 million related to abandoned office space that was reoccupied. This was offset by $0.9 million
of restructuring charges for employee severance. Wireline also recognized restructuring charges of $9.1 million and $3.5 million in 2013 and 2012,
respectively, for costs associated with employee separation, lease abandonments and contract termination costs. An asset impairment charge of $4.6 million
was recorded in 2014 related to the abandonment of an internal use software project that was written off in the fourth quarter. There were no impairment
charges recorded in 2013 and $0.5 million of charges in 2012.
The IT Services and Hardware segment provides a range of fully managed and outsourced IT and telecommunications services along with the sale,
installation, and maintenance of major branded IT and telephony equipment. IT Services and Hardware revenue increased $88.9 million from the prior year as
a result of $65.1 million additional telecom and IT equipment sales in 2014. Managed and professional service revenue was also up $23.8 million in 2014
compared to the prior year.
The Wireless segment provides 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 the second quarter of 2014, the Company agreed to sell its wireless spectrum licenses and certain other
assets. As a result, Wireless recognized restructuring charges of $16.3 million, asset impairments of $7.5 million, and transaction costs of $3.2 million during
2014. Wireless also incurred restructuring charges of $0.2 million in 2013 and $1.6 million in 2012. In addition, the agreement to sell the spectrum licenses
coincided with reducing the useful life of all long-lived assets (excluding the spectrum licenses) to 30 months as of December 31, 2013 resulting in
depreciation and amortization expense increasing by $62.2 million in 2014. These changes also resulted in accelerating the amortization of deferred gain on
the tower sale by $19.6 million in 2014. In 2013, Wireless recorded a $3.5 million loss on disposal of assets for equipment that had no resale market or had
either been disconnected from the wireless network, abandoned or demolished.
The Data Center Colocation segment provided data center colocation services to primarily large businesses. The Data Center Colocation results for 2013
shown in the accompanying table reflect the revenues and expenses of our former data center business for the period January 1, 2013 through January 23,
2013. Effective January 24, 2013, we no longer include CyrusOne's operating results in our consolidated financial statements. In 2014 and 2013, we
recognized losses of $7.0 million and $10.7 million, respectively, from our investment in CyrusOne which represented our equity method share of CyrusOne's
losses. These losses from CyrusOne were recognized as a component of non-operating income. As of December 31, 2014 and 2013, the carrying value of our
investment in CyrusOne was $273.6 million and $471.0 million, respectively, and is included as an asset of the Corporate segment. In 2012, the Data Center
Colocation segment recognized impairment losses of $13.3 million on long-lived assets and a customer relationship intangible asset.
In 2013, Corporate operating results include compensation expense of $42.6 million associated with awards and other transaction-related incentives
associated with the IPO of CyrusOne on January 24, 2013. Other transaction costs were $1.2 million in 2014, $1.6 million in 2013, and $6.3 million in 2012.
Corporate recognized restructuring charges of $0.1 million and $3.7 million in 2014 and 2013, respectively, and reversed restructuring costs of $1.0 million
in 2012.
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