Cincinnati Bell 2014 Annual Report Download - page 81

Table of Contents
Form 10-K Part II
Cincinnati Bell Inc.
Revenue was recognized for services or products that were deemed separate units of accounting. When a customer made an advance payment which was not
deemed a separate unit of accounting, deferred revenue was recorded. This revenue was recognized ratably over the expected term of the customer
relationship, unless the pattern of service suggested otherwise.
Certain customer contracts required specified levels of service or performance. If we failed to meet these service levels, our customers may have been eligible
to receive credits on their contractual billings. These credits were recognized against revenue when an event occurred that gave rise to such credits.
Costs related to advertising are expensed as incurred. Advertising costs were $8.9 million, $12.2 million, and $16.6 million in
2014, 2013, and 2012, respectively.
In the normal course of business, the Company is involved in various claims and legal proceedings. Legal costs incurred in connection
with loss contingencies are expensed as incurred. Legal claim accruals are recorded once determined to be both probable and estimable.

Income taxes — The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction as well as various foreign, state and local
jurisdictions. The provision for income taxes is based upon income in the consolidated financial statements, rather than amounts reported on the income tax
return. The income tax provision consists of an amount for taxes currently payable and an amount for tax consequences deferred to future periods. Deferred
investment tax credits are amortized as a reduction of the provision for income taxes over the estimated useful lives of the related property, plant and
equipment. Deferred income taxes are provided for temporary differences between financial statement and income tax assets and liabilities. Deferred income
taxes are recalculated annually at rates then in effect. Valuation allowances are recorded to reduce deferred tax assets to amounts that are more likely than not
to be realized. The ultimate realization of the deferred income tax assets depends upon the ability to generate future taxable income during the periods in
which basis differences and other deductions become deductible and prior to the expiration of the net operating loss carryforwards.
Previous tax filings are subject to normal reviews by regulatory agencies until the related statute of limitations expires.
Operating taxes — Certain operating taxes such as property, sales, use, and gross receipts taxes are reported as expenses in operating income primarily within
cost of services. These taxes are not included in income tax expense because the amounts to be paid are not dependent on our level of income. Liabilities for
audit exposures are established based on management's assessment of the probability of payment. The provision for such liabilities is recognized as either
property, plant and equipment, operating tax expense, or depreciation expense depending on the nature of the audit exposure. Upon resolution of an audit,
any remaining liability not paid is released against the account in which it was originally recorded.
Regulatory taxes — The Company incurs federal regulatory taxes on certain revenue producing transactions. We are permitted to recover certain of these
taxes by billing the customer; however, collections cannot exceed the amount due to the federal regulatory agency. These federal regulatory taxes are
presented in sales and cost of services on a gross basis because, while the Company is required to pay the tax, it is not required to collect the tax from
customers and, in fact, does not collect the tax from customers in certain instances. The amounts recorded as revenue for 2014, 2013, and 2012 were $17.9
million, $18.9 million, and $22.2 million, respectively. The amounts expensed for 2014, 2013, and 2012 were $19.6 million, $19.2 million, and $24.4
million, respectively. We record all other federal taxes collected from customers on a net basis.
Compensation cost is recognized for all share-based awards to employees and non-employee directors. We value all share-
based awards to employees at fair value on the date of grant and expense this amount over the required service period, generally defined as the applicable
vesting period. For awards which contain a performance condition, compensation expense is recognized over the service period, when achievement of the
performance condition is deemed probable. The fair value of stock options and stock appreciation rights is determined using the Black-Scholes option-
pricing model using assumptions such as volatility, risk-free interest rate, holding period and dividends. The fair value of stock awards is based on the
Company’s closing share price on the date of grant. For all share-based payments, an assumption is also made for the estimated forfeiture rate based on the
historical behavior of employees. The forfeiture rate reduces the total fair value of the awards to be recognized as compensation expense. Our accounting
policy for graded vesting awards is to recognize compensation expense on a straight-line basis over the vesting period. We have also granted employee
awards to be ultimately paid in cash which are indexed to the change in the Company’s common stock price. These awards are adjusted to the fair value of
the Company's common stock, and the adjusted fair value is expensed on a pro-rata basis over the vesting period. When an award is granted to an employee
who is retirement eligible, the compensation cost is recognized over the service period up to the date that the employee first becomes eligible to retire.
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