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EXCEL - IDEA: XBRL DOCUMENT - CINCINNATI BELL INCFinancial_Report.xls


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2014
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission File Number 1-8519
CINCINNATI BELL INC.
 
Ohio
 
31-1056105
(State of Incorporation)
 
(I.R.S. Employer Identification No.)
221 East Fourth Street, Cincinnati, Ohio 45202
(Address of principal executive offices) (Zip Code)
(513) 397-9900
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
x
  
Accelerated filer
o
 
 
 
 
 
Non-accelerated filer
o
  
Smaller reporting company
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o No  x

At July 31, 2014, there were 209,101,069 common shares outstanding.
 


Form 10-Q Part I
 
Cincinnati Bell Inc.

TABLE OF CONTENTS

PART I. Financial Information
Description
 
Page
Item 1.
Financial Statements
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 3.
Defaults upon Senior Securities – None
 
 
 
 
Item 4.
Mine Safety Disclosure – None
 
 
 
 
Item 5.
Other Information – No reportable items
 
 
 
 
Item 6.
 
 
 
 


Form 10-Q Part I
 
Cincinnati Bell Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in millions, except per share amounts)
(Unaudited)
 
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2014
 
2013
 
2014
 
2013
Revenue
 
 
 
 
 
 
 
Services
$
256.0

 
$
256.4

 
$
514.2

 
$
526.9

Products
63.9

 
55.6

 
128.2

 
110.8

Total revenue
319.9

 
312.0

 
642.4

 
637.7

Costs and expenses
 
 
 
 
 
 
 
Cost of services, excluding items below
109.2

 
103.5

 
215.5

 
212.7

Cost of products sold, excluding items below
60.5

 
54.7

 
120.4

 
107.9

Selling, general and administrative, excluding items below
54.5

 
54.7

 
109.9

 
107.8

Depreciation and amortization
60.3

 
37.2

 
107.2

 
87.8

Transaction-related compensation

 
7.1

 

 
42.6

Restructuring charges
6.4

 
8.2

 
6.4

 
10.8

Curtailment gain

 
(0.6
)
 

 
(0.6
)
(Gain) loss on sale or disposal of assets, net
(0.1
)
 
0.3

 
(0.1
)
 
2.8

Amortization of deferred gain
(6.5
)
 
(0.6
)
 
(10.1
)
 
(1.2
)
Transaction costs

 
0.7

 
0.7

 
1.1

Total operating costs and expenses
284.3

 
265.2

 
549.9

 
571.7

Operating income
35.6

 
46.8

 
92.5

 
66.0

Interest expense
40.7

 
45.4

 
81.0

 
93.3

Loss from CyrusOne equity method investment
2.4

 
4.7

 
1.9

 
6.6

Gain on sale of CyrusOne equity method investment
(192.8
)
 

 
(192.8
)
 

Other expense (income), net
0.1

 
0.1

 
0.7

 
(0.2
)
Income (loss) before income taxes
185.2

 
(3.4
)
 
201.7

 
(33.7
)
Income tax expense (benefit)
71.0

 
(4.2
)
 
80.5

 
2.2

Net income (loss)
114.2

 
0.8

 
121.2

 
(35.9
)
Preferred stock dividends
2.6

 
2.6

 
5.2

 
5.2

Net income (loss) applicable to common shareowners
$
111.6

 
$
(1.8
)
 
$
116.0

 
$
(41.1
)
Basic earnings (loss) per common share
$
0.54

 
$
(0.01
)
 
$
0.56

 
$
(0.20
)
Diluted earnings (loss) per common share
$
0.53

 
$
(0.01
)
 
$
0.55

 
$
(0.20
)


The accompanying notes are an integral part of the condensed consolidated financial statements.

1

Form 10-Q Part I
 
Cincinnati Bell Inc.


CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Dollars in millions)
(Unaudited)

 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2014
 
2013
 
2014
 
2013
Net income (loss)
$
114.2

 
$
0.8

 
$
121.2

 
$
(35.9
)
Other comprehensive income, net of tax:
 
 
 
 
 
 
 
Foreign currency translation gain (loss), net of tax of $0.0, ($0.1)

 
0.1

 

 
(0.1
)
Defined benefit pension and postretirement plans:
 
 
 
 
 
 
 
   Net gain arising from remeasurement during the period, net of tax of $4.2

 
7.3

 

 
7.3

   Amortization of prior service benefits, net of tax of ($1.4), ($1.2), ($2.8), ($2.4)
(2.4
)
 
(2.0
)
 
(4.8
)
 
(4.0
)
   Amortization of net actuarial loss, net of tax of $1.8, $2.3, $4.2, $5.1
3.0

 
4.0

 
7.2

 
8.8

   Reclassification adjustment for curtailment gain included in net income, net of tax of ($0.2)

 
(0.4
)
 

 
(0.4
)
Other comprehensive income
0.6

 
9.0

 
2.4

 
11.6

Total comprehensive income (loss)
$
114.8

 
$
9.8

 
$
123.6

 
$
(24.3
)


The accompanying notes are an integral part of the condensed consolidated financial statements.

2

Form 10-Q Part I
 
Cincinnati Bell Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions, except share amounts)(Unaudited) 
 
June 30,
2014
 
December 31,
2013
Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
347.2

 
$
4.6

Receivables, less allowances of $11.5 and $12.2
162.0

 
145.6

Receivable from CyrusOne
8.0

 
9.2

Inventory, materials and supplies
16.8

 
23.8

Deferred income taxes, net
61.0

 
55.3

Prepaid expenses
12.6

 
11.0

Other current assets
0.7

 
1.6

Total current assets
608.3

 
251.1

Property, plant and equipment, net
874.7

 
902.8

Investment in CyrusOne
290.7

 
471.0

Goodwill
14.4

 
14.4

Intangible assets, net
90.5

 
91.7

Deferred income taxes, net
259.5

 
339.7

Other noncurrent assets
38.8

 
36.6

Total assets
$
2,176.9

 
$
2,107.3

Liabilities and Shareowners’ Deficit
 
 
 
Current liabilities
 
 
 
Current portion of long-term debt
$
12.1

 
$
12.6

Accounts payable
105.1

 
89.4

Payable to CyrusOne
0.3

 
0.5

Unearned revenue and customer deposits
31.4

 
32.5

Accrued taxes
16.6

 
12.9

Accrued interest
31.5

 
31.6

Accrued payroll and benefits
37.4

 
38.0

Other current liabilities
36.2

 
36.8

Total current liabilities
270.6

 
254.3

Long-term debt, less current portion
2,214.2

 
2,252.6

Pension and postretirement benefit obligations
185.4

 
202.7

Other noncurrent liabilities
62.7

 
74.4

Total liabilities
2,732.9

 
2,784.0

Shareowners’ deficit
 
 
 
Preferred stock, 2,357,299 shares authorized, 155,250 shares (3,105,000 depositary shares) of 6 3/4% Cumulative Convertible Preferred Stock issued and outstanding at June 30, 2014 and December 31, 2013; liquidation preference $1,000 per share ($50 per depositary share)
129.4

 
129.4

Common shares, $.01 par value; 480,000,000 shares authorized; 209,556,709 and 208,656,995 shares issued; 209,101,069 and 208,165,275 shares outstanding at June 30, 2014 and December 31, 2013
2.1

 
2.1

Additional paid-in capital
2,587.5

 
2,590.6

Accumulated deficit
(3,142.3
)
 
(3,263.5
)
Accumulated other comprehensive loss
(130.9
)
 
(133.3
)
Common shares in treasury, at cost
(1.8
)
 
(2.0
)
Total shareowners’ deficit
(556.0
)
 
(676.7
)
Total liabilities and shareowners’ deficit
$
2,176.9

 
$
2,107.3

The accompanying notes are an integral part of the condensed consolidated financial statements.

3

Form 10-Q Part I
 
Cincinnati Bell Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
(Unaudited)
 
Six Months Ended
 
June 30,
 
2014
 
2013
Cash flows from operating activities
 
 
 
Net income (loss)
$
121.2

 
$
(35.9
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities
 
 
 
Depreciation and amortization
107.2

 
87.8

Provision for loss on receivables
4.6

 
6.6

Loss from CyrusOne equity method investment
1.9

 
6.6

Gain on sale of CyrusOne equity method investment
(192.8
)
 

Noncash portion of interest expense
3.4

 
3.8

Deferred income tax provision
73.2

 
1.6

Pension and other postretirement payments in excess of expense
(13.3
)
 
(10.7
)
Stock-based compensation
1.7

 
3.2

Amortization of deferred gain
(10.1
)
 
(1.2
)
(Gain) loss on sale or disposal of assets, net
(0.1
)
 
2.8

Excess tax benefit for share based payments
(0.8
)
 
(0.5
)
Other, net
(0.6
)
 
0.2

Changes in operating assets and liabilities, net of CyrusOne deconsolidation:
 
 
 
(Increase) decrease in receivables
(20.2
)
 
2.6

Decrease (increase) in inventory, materials, supplies, prepaid expenses and other current assets
5.8

 
(4.8
)
Increase (decrease) in accounts payable
12.6

 
(3.6
)
Increase (decrease) in accrued and other current liabilities
1.3

 
(20.7
)
Decrease in other noncurrent assets
0.8

 
0.3

Decrease in other noncurrent liabilities
(2.0
)
 
(8.7
)
Net cash provided by operating activities
93.8

 
29.4

Cash flows from investing activities
 
 
 
Capital expenditures
(75.5
)
 
(95.9
)
Proceeds from sale of CyrusOne equity method investment
355.9

 

Dividends received from CyrusOne
16.4

 
7.0

Proceeds from sale of assets
2.0

 
1.6

Release of restricted cash

 
0.4

Cash divested from deconsolidation of CyrusOne

 
(12.2
)
Other, net
(5.7
)
 

Net cash provided by (used in) investing activities
293.1

 
(99.1
)
Cash flows from financing activities
 
 
 
Net (decrease) increase in corporate credit and receivables facilities with initial maturities less than 90 days
(31.4
)
 
56.8

Repayment of debt
(8.3
)
 
(4.8
)
Dividends paid on preferred stock
(5.2
)
 
(5.2
)
Proceeds from exercise of options and warrants
1.2

 
6.6

Excess tax benefit for share based payments
0.8

 
0.5

Other, net
(1.4
)
 
(2.3
)
Net cash (used in) provided by financing activities
(44.3
)
 
51.6

Net increase (decrease) in cash and cash equivalents
342.6

 
(18.1
)
Cash and cash equivalents at beginning of period
4.6

 
23.6

Cash and cash equivalents at end of period
$
347.2

 
$
5.5

 
 
 
 
Noncash investing and financing transactions:
 
 
 
Investment in CyrusOne resulting from deconsolidation
$

 
$
509.7

Accrual of CyrusOne dividends
$
6.0

 
$
7.1

Acquisition of property by assuming debt and other noncurrent liabilities
$
0.2

 
$
1.9

Acquisition of property on account
$
20.8

 
$
22.6

The accompanying notes are an integral part of the condensed consolidated financial statements.

4

Form 10-Q Part I
 
Cincinnati Bell Inc.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 

1.
Description of Business and Accounting Policies
Description of Business — Cincinnati Bell Inc. and its consolidated subsidiaries (the “Company” or “we”) provide diversified telecommunications and technology services. As of June 30, 2014, we operate our business through the following segments: Wireline, IT Services and Hardware and Wireless.
The Company has receivables with one large customer that exceed 10% of the Company’s outstanding accounts receivable balance at June 30, 2014 and December 31, 2013. This same customer contributed in excess of 10% to consolidated revenue for the three and six months ended June 30, 2014.
On January 24, 2013, we completed the initial public offering ("IPO") of CyrusOne, Inc. ("CyrusOne"), our former Data Center Colocation segment. As of the date of the IPO, we owned 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 June 30, 2014, we effectively own 44% of CyrusOne, which is held in the form of 1.9 million shares of common stock of CyrusOne and approximately 26.6 million partnership units in CyrusOne LP. As we continue to have significant influence over CyrusOne, we account for this investment using the equity method.
On April 6, 2014, we entered into agreements to sell our wireless spectrum licenses and certain other assets related to our wireless business valued at approximately $210 million. The agreements are subject to customary closing conditions, including regulatory approval by the Federal Communications Commission. We plan to operate and generate cash from our wireless operations until the later of April 6, 2015 and 90 days after the transfer of the licenses.

On August 4, 2014, the Company reached a tentative agreement with the Communications Workers of America (“CWA”) on the terms of a new labor contract. The tentative agreement is subject to ratification by the local CWA membership.

Basis of Presentation — The Condensed 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, other comprehensive income, financial position, and cash flows for each period presented.
The adjustments referred to above are of a normal and recurring nature. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to SEC rules and regulations for interim reporting.
The Condensed Consolidated Balance Sheet as of December 31, 2013 was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. These Condensed Consolidated Financial Statements should be read in conjunction with the Company’s 2013 Annual Report on Form 10-K. Operating results for the three and six months ended June 30, 2014 are not necessarily indicative of the results expected for the full year or any other interim period.
Use of Estimates — Preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported. Actual results could differ from those estimates. In the normal course of business, the Company is subject to various regulatory and tax proceedings, lawsuits, claims, and other matters. The Company believes adequate provision has been made for all such asserted and unasserted claims in accordance with U.S. GAAP. Such matters are subject to many uncertainties and outcomes that are not predictable with assurance.

5

Form 10-Q Part I
 
Cincinnati Bell Inc.

Equity Method Investments - We completed the IPO of CyrusOne on January 24, 2013, and as of that date, we have significant influence over CyrusOne but do not control its operations. As a result, effective January 24, 2013, our ownership in CyrusOne is accounted for as an equity method investment. From that date, we recognize our proportionate share of CyrusOne's net income or loss as non-operating income or expense in our consolidated statement of operations. For the period January 1, 2013 through January 23, 2013, we consolidated CyrusOne's operating results. For the three and six months ended June 30, 2014, the Company received cash dividends from CyrusOne totaling $9.3 million and $16.4 million, respectively. Dividends from CyrusOne are recognized as a reduction of our investment.
During the second quarter of 2014, we invested a total of $5.5 million in two limited liability companies. These investments are accounted for under the equity method and the carrying value has been recorded within “Other noncurrent assets” in the Condensed Consolidated Balance Sheet as of June 30, 2014. We will recognize our proportionate share of the investments’ net income or loss as non-operating income or expense in our consolidated statement of operations. Dividends received will reduce the carrying value of our investment.
Property, Plant and Equipment — Property, plant and equipment is stated at original cost and presented net of accumulated depreciation and impairment losses. Depreciation expense is generally calculated using either the group depreciation method or the straight-line method.
In the first quarter of 2013, and in connection with our review of the estimated remaining useful lives of property, plant and equipment, we shortened the estimated useful lives assigned to the wireless network software to three years. This change resulted from smartphone-driven technology upgrades, enhancements and projected retirements. For the three months ended March 31, 2013, the increase in depreciation expense associated with this change was $8.5 million and increased basic and diluted loss per share by approximately $0.03 per share.
In conjunction with our long-lived asset impairment analysis conducted in the fourth quarter of 2013, we reassessed the useful lives of all our Wireless property, plant and equipment. The remaining useful life for all Wireless property, plant, and equipment assets was reduced to 30 months as of December 31, 2013. In the second quarter of 2014, following the agreement to sell our wireless spectrum licenses and certain other assets, we further reduced the remaining useful life of those assets not included in the sale to be fully depreciated as of March 31, 2015. As a result of these changes in estimate, depreciation expense increased by approximately $30 million for the six months ended June 30, 2014 and reduced basic and diluted earnings per share by approximately $0.09 per share. In addition, adjusting the useful life of our Wireless property, plant and equipment also required that we reduce the amortization period of the deferred gain associated with the 2009 tower sale in a similar manner. Amortization of the deferred gain associated with the tower sale totaled $10.1 million and $1.2 million in the six months ended June 30, 2014 and 2013, respectively.

Income Taxes — The Company’s income tax provision for interim periods is determined through the use of an estimated annual effective tax rate applied to year-to-date ordinary income as well as the tax effects associated with discrete items. The Company's tax expense for the three and six months ended June 30, 2014 increased from the prior year primarily due to higher pre-tax income predominantly caused by the gain on the sale of the CyrusOne partnership units. In addition, during the first quarter of 2013, the Company recorded a valuation allowance provision of $10.7 million for Texas margin credits which, effective with CyrusOne's IPO on January 24, 2013, are unlikely to be realized before their expiration date.
Recently Issued Accounting Standards — In July 2013, the FASB issued new guidance under Accounting Standards Update ("ASU") 2013-11 regarding the presentation of unrecognized tax benefits in financial statements. This new standard requires the netting in the balance sheet of unrecognized tax benefits against a deferred tax asset for a same-jurisdiction loss or other carryforward that would apply in settlement of the uncertain tax positions. To the extent a net operating loss ("NOL") or tax credit carryforward is not available under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position, the unrecognized tax benefit would be presented in the balance sheet as a liability. This standard went into effect for annual and interim periods beginning after December 15, 2013. We adopted this new guidance beginning with our interim financial statements for the three months ended March 31, 2014. The adoption of this standard did not have a material impact on our financial statements for the six months ending June 30, 2014.
In April 2014, the FASB issued ASU 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.  The amendments in this update increased the threshold for a disposal to qualify as a discontinued operation and require new disclosures of both discontinued operations and certain other disposals that do not meet the definition of a discontinued operation.  The standard will be effective for us on January 1, 2015.  The adoption of this pronouncement may affect our presentation and disclosure of any future dispositions.

6

Form 10-Q Part I
 
Cincinnati Bell Inc.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This standard also includes expanded disclosure requirements that result in an entity providing users of financial statements with comprehensive information about the nature, amount, timing, and uncertainty of revenue and cash flows arising from the entity’s contracts with customers. This standard will be effective for us in the first quarter of the fiscal year ending December 31, 2017. The Company is currently in the process of evaluating the impact of adoption of this ASU on the company’s consolidated financial statements.


7

Form 10-Q Part I
 
Cincinnati Bell Inc.

2.    Investment in CyrusOne
On January 24, 2013, we completed the initial public offering of CyrusOne, our former Data Center Colocation segment. As of this date, we no longer control CyrusOne's operations, and we removed the following assets and liabilities of CyrusOne from our consolidated financial statements:

(dollars in millions)
 
 
Cash
 
$
12.2

Receivables
 
41.5

Other current assets
 
13.4

Property, plant and equipment
 
736.2

Goodwill and intangibles
 
377.7

Other noncurrent assets
 
44.0

Total assets
 
1,225.0

 
 
 
Current portion of long-term debt
 
6.3

Accounts payable
 
29.4

Unearned revenue and customer deposits
 
24.1

Other current liabilities
 
12.9

Long-term debt
 
550.3

Other noncurrent liabilities
 
92.3

Total liabilities
 
715.3

 
 
 
Net assets
 
$
509.7

Commencing January 17, 2014, we are permitted to exchange the partnership units of CyrusOne LP into cash or shares of common stock of CyrusOne, as determined by CyrusOne, on a one-for-one basis based upon the fair value of a share of CyrusOne common stock, subject to certain limitations which restricted the volume of shares we are permitted to sell. On April 4, 2014, the registration statement filed by CyrusOne on March 24, 2014 became effective and eliminated all prior limitations restricting the volume of shares we are allowed to sell.
On June 25, 2014, we consummated the sale of 16.0 million operating partnership units of CyrusOne LP to CyrusOne, Inc. at a price of $22.26 per unit. The sale generated proceeds of $355.9 million and resulted in a gain of $192.8 million.
Prior to the sale of our 16.0 million partnership units of CyrusOne LP, we accounted for our 68% effective ownership of CyrusOne as an equity method investment. As of June 30, 2014, we effectively own 44% of CyrusOne, which is held in the form of 1.9 million shares of common stock of CyrusOne and approximately 26.6 million partnership units in CyrusOne LP. As we continue to have significant influence over CyrusOne, we account for this investment using the equity method. For three and six months ended June 30, 2014, our equity method share of CyrusOne's net loss was $2.4 million and $1.9 million, respectively. For the three and six months ended June 30, 2013, our equity method share of CyrusOne's net loss was $4.7 million and $6.6 million, respectively.
As of June 30, 2014, the fair value of this investment was $709.4 million based on the quoted market price of CyrusOne's common stock, which is considered a Level 1 measurement in the fair value hierarchy.

8

Form 10-Q Part I
 
Cincinnati Bell Inc.

Summarized financial information for CyrusOne is as follows:
 
Three Months Ended
 
Six Months Ended June 30, 2014
 
January 24, 2013 to June 30, 2013
 
June 30,
 
 
(dollars in millions)
2014
 
2013
 
 
Revenue
$
81.7

 
$
63.6

 
$
159.2

 
$
108.6

Operating income
7.4

 
5.6

 
19.2

 
11.4

Net loss
(3.6
)
 
(6.8
)
 
(2.9
)
 
(9.6
)
    
Transactions with CyrusOne
Revenues - The Company records service revenue from CyrusOne under contractual service arrangements which include, among others, providing services such as fiber transport, network support, service calls, monitoring and management, storage and back-up, and IT systems support.
Operating Expenses - We lease data center and office space from CyrusOne at certain locations in the Cincinnati area under operating leases and are also billed for other services provided by CyrusOne under contractual service arrangements. In the normal course of business, the Company also incurs expenses on CyrusOne's behalf for administrative functions. Such expenses are subsequently billed to and recovered from CyrusOne at their actual cost. These expense recoveries from CyrusOne are credited to the expense account in which they were initially recorded.
For the six months ended June 30, 2013, we recognized transaction-related compensation of $20.0 million associated with CyrusOne employees. These payments were made in April 2013. See Note 8 for further discussion of this compensation plan.
Revenues and operating costs and expenses from transactions with CyrusOne were as follows:
 
Three Months Ended
 
Six Months Ended June 30, 2014
 
January 24, 2013 to June 30, 2013
 
June 30,
 
 
(dollars in millions)
2014
 
2013
 
 
Revenue:
 
 
 
 
 
 
 
Services provided to CyrusOne
$
0.4

 
$
0.6

 
$
0.9

 
$
1.1

 
 
 
 
 
 
 
 
Operating costs and expenses:
 
 
 
 
 
 
 
Transaction-related compensation to CyrusOne employees
$

 
$

 
$

 
$
20.0

Charges for services provided by CyrusOne
2.3

 
2.6

 
4.6

 
4.1

Administrative services provided to CyrusOne
(0.1
)
 
(0.2
)
 
(0.2
)
 
(0.3
)
Total operating costs and expenses
$
2.2

 
$
2.4

 
$
4.4

 
$
23.8


Dividends of $9.3 million were received in the second quarter of 2014. In addition, on May 7, 2014, CyrusOne declared dividends of $0.21 per share payable on its common shares and CyrusOne LP partnership units. This dividend was paid on July 15, 2014 to holders of record as of June 27, 2014.
In addition to the agreements noted above, the Company entered into a tax sharing agreement with CyrusOne.  Under the terms of the agreement, CyrusOne will reimburse the Company for the Texas Margin Tax liability that CyrusOne would have incurred if they filed a Texas Margin Tax return separate from the consolidated filing.  The agreement will remain in effect until terminated by the mutual written consent of the parties or when the Company is no longer required to file the Texas Margin Tax return on a consolidated basis with CyrusOne.  Effective as of the date of the June 2014 sale of the CyrusOne partnership units, CyrusOne will be required to file a separate Texas Margin Tax return. As of June 30, 2014 and December 31, 2013, the receivable for prior periods covered by this agreement amounted to $1.9 million and $1.5 million, respectively. These balances are included in Receivable from CyrusOne. 

9

Form 10-Q Part I
 
Cincinnati Bell Inc.

At June 30, 2014 and December 31, 2013, amounts receivable from and payable to CyrusOne were as follows:
(dollars in millions)
June 30, 2014
 
December 31, 2013
Accounts receivable
$
2.0

 
$
2.1

Dividends receivable
6.0

 
7.1

Receivable from CyrusOne
$
8.0

 
$
9.2

 
 
 
 
Accounts payable
$
0.3

 
$
0.5

Payable to CyrusOne
$
0.3

 
$
0.5



3.    Earnings Per Common Share
Basic earnings per common share (“EPS”) is based upon the weighted average number of common shares outstanding during the period. Diluted EPS reflects the potential dilution that would occur upon issuance of common shares for awards under stock-based compensation plans or conversion of preferred stock, but only to the extent that they are considered dilutive.
The following table shows the computation of basic and diluted EPS:
 
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
(in millions, except per share amounts)
2014
 
2013
 
2014
 
2013
Numerator:
 
 
 
 
 
 
 
Net income (loss)
$
114.2

 
$
0.8

 
$
121.2

 
$
(35.9
)
Preferred stock dividends
2.6

 
2.6

 
5.2

 
5.2

Net income (loss) applicable to common shareowners
$
111.6

 
$
(1.8
)
 
$
116.0

 
$
(41.1
)
Denominator:
 
 
 
 
 
 
 
Weighted average common shares outstanding - basic
208.5

 
206.9

 
208.2

 
204.8

Stock-based compensation arrangements
0.9

 

 
1.0

 

Weighted average common shares outstanding - diluted
209.4

 
206.9

 
209.2

 
204.8

Basic earnings (loss) per common share
$
0.54

 
$
(0.01
)
 
$
0.56

 
$
(0.20
)
Diluted earnings (loss) per common share
$
0.53

 
$
(0.01
)
 
$
0.55

 
$
(0.20
)

For the three and six months ended June 30, 2014, awards under the Company’s stock-based compensation plans for common shares of 3.2 million and 3.5 million, respectively, were excluded from the computation of diluted EPS as their inclusion would have been anti-dilutive. For the three and six months ended June 30, 2013, the Company had a net loss available to common shareholders and, as a result, all common stock equivalents were excluded from the computation of diluted EPS as their inclusion would have been anti-dilutive. For all periods presented, preferred stock convertible into 4.5 million common shares was excluded from the computation of diluted EPS as the result would have been anti-dilutive.

10

Form 10-Q Part I
 
Cincinnati Bell Inc.

4.    Debt
The Company’s debt consists of the following:
 
(dollars in millions)
June 30,
2014
 
December 31,
2013
Current portion of long-term debt:
 
 
 
Corporate Credit Agreement - Tranche B Term Loan
$
5.4

 
$
5.4

Capital lease obligations and other debt
6.7

 
7.2

Current portion of long-term debt
12.1

 
12.6

Long-term debt, less current portion:
 
 
 
Corporate Credit Agreement

 
40.0

Receivables Facility
114.8

 
106.2

3/4% Senior Subordinated Notes due 2018
625.0

 
625.0

Corporate Credit Agreement - Tranche B Term Loan
530.5

 
533.2

3/8% Senior Notes due 2020
683.9

 
683.9

1/4% Senior Notes due 2023
40.0

 
40.0

Various Cincinnati Bell Telephone notes
134.5

 
134.5

Capital lease obligations and other debt
91.1

 
96.1

 
2,219.8

 
2,258.9

Net unamortized discount
(5.6
)
 
(6.3
)
         Long-term debt, less current portion
2,214.2

 
2,252.6

Total debt
$
2,226.3

 
$
2,265.2


Effective with the sale of our 16.0 million partnership units to CyrusOne, Inc. on June 25, 2014 for $355.9 million, the amount available under the Corporate Credit Agreement was reduced to $150.0 million from its original capacity of $200.0 million. As of June 30, 2014, the Company had no outstanding borrowings on its Corporate Credit Agreement, leaving $150.0 million available. This revolving credit facility expires in July 2017.

On September 10, 2013, the Company amended and restated its Corporate Credit Agreement, originally dated as of November 20, 2012, to include a $540 million Tranche B Term Loan facility ("Tranche B Term Loan") that matures on September 10, 2020. The Tranche B Term Loan requires quarterly principal payments of 0.25% of the original principal amount.
On June 2, 2014, the Company executed an amendment of its accounts receivable securitization facility (“Receivables Facility”), which replaced, amended, and added certain provisions and definitions to increase the credit availability and also extended the term to June 1, 2015. As of June 30, 2014, the Company had $114.8 million of borrowings and $5.2 million of letters of credit outstanding under the Receivables Facility, leaving no remaining availability on the total borrowing capacity of $120.0 million. The Receivables Facility is subject to renewal every 364 days and expires in June 2016. In the event the Receivables Facility is not renewed, the Company has the ability to refinance any outstanding borrowings with borrowings under the Corporate Credit Agreement. The permitted borrowings vary depending on the level of eligible receivables and other factors. Under the Receivables Facility, certain subsidiaries, or originators, sell their respective trade receivables on a continuous basis to Cincinnati Bell Funding LLC (“CBF”). Although CBF is a wholly-owned consolidated subsidiary of the Company, CBF is legally separate from the Company and each of the Company’s other subsidiaries. Upon and after the sale or contribution of the accounts receivable to CBF, such accounts receivable are legally assets of CBF and, as such, are not available to creditors of other subsidiaries or the Company.

On July 9, 2014, the Company notified its trustee of the intent to redeem $325.0 million of the outstanding 8 ¾% Senior Subordinated Notes due 2018, at a redemption rate of 104.375% on August 8, 2014. As a result of the redemption, the Company expects to record a debt extinguishment loss of approximately $19 million in the third quarter of 2014.

11

Form 10-Q Part I
 
Cincinnati Bell Inc.

5.    Financial Instruments and Fair Value Measurements
Fair Value of Financial Instruments

The carrying values of the Company's financial instruments approximate the estimated fair values as of June 30, 2014 and December 31, 2013, except for the Company's investment in CyrusOne and long-term debt. The carrying and fair values of these financial instruments are as follows: 
 
June 30, 2014
 
December 31, 2013
(dollars in millions)
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
Investment in CyrusOne
$
290.7

 
$
709.4

 
$
471.0

 
$
993.2

Long-term debt, including current portion*
2,129.2

 
2,230.7

 
2,162.7

 
2,248.3

 *Excludes capital leases

 
 
 
 
 
 
 

The fair value of our investment in CyrusOne was based on the closing market price of CyrusOne's common stock on June 30, 2014 and December 31, 2013. This fair value measurement is considered Level 1 of the fair value hierarchy.

The fair value of our long-term debt was based on the closing or estimated market prices of the Company’s debt at June 30, 2014 and December 31, 2013, which is considered Level 2 of the fair value hierarchy.

6.    Restructuring Charges
As of June 30, 2014, restructuring liabilities have been established for employee separations, lease abandonments and contract terminations. A summary of the activity in our restructuring liabilities is presented below:
(dollars in millions)
Employee Separation
 
Lease Abandonment
 
Contract Terminations
 
Total
Balance as of December 31, 2013
$
9.7

 
$
6.0

 
$
0.1

 
$
15.8

Charges

 

 

 

Utilization
(2.6
)
 
(0.9
)
 

 
(3.5
)
Balance as of March 31, 2014
$
7.1

 
$
5.1

 
$
0.1

 
$
12.3

Charges
3.5

 

 
2.9

 
6.4

Utilization
(0.3
)
 
(0.8
)
 

 
(1.1
)
Balance as of June 30, 2014
$
10.3

 
$
4.3

 
$
3.0

 
$
17.6

The Company made severance payments during the six months ended June 30, 2014, pursuant to its written severance plan and certain management contracts. During the three months ended June 30, 2014, the Company recorded employee separation charges of $1.2 million attributable to the outsourcing of a portion of the Company's IT function. These payments are expected to be paid out during the current year. Lease abandonment costs represent future minimum lease obligations, net of expected sublease income, for abandoned facilities. Lease payments on abandoned facilities will continue through 2015.

On April 7, 2014, the Company announced that it had entered into an arrangement to sell its wireless spectrum licenses and certain other assets related to its wireless business. In anticipation of the close of this transaction, the Company identified certain employees that will be terminated and contracts that will no longer be utilized once the wireless business ceases to exist. Severance charges totaling $2.3 million were recorded during the three months ending June 30, 2014. Contract termination costs of $2.9 million were recorded during the quarter associated with an IT support vendor that will no longer be used subsequent to winding down the wireless operations. Additional restructuring charges associated with the shut down of our wireless operations will be recognized once the accounting criteria are achieved. The payments associated with the exit of the business are expected to be paid out through 2015.

12

Form 10-Q Part I
 
Cincinnati Bell Inc.

A summary of restructuring activity by business segment is presented below:
(dollars in millions)
Wireline
 
IT Services and Hardware
 
Wireless
 
Corporate
 
Total
Balance as of December 31, 2013
$
10.5

 
$
0.8

 
$
1.5

 
$
3.0

 
$
15.8

Charges

 

 

 

 

Utilizations
(1.8
)
 

 
(0.3
)
 
(1.4
)
 
(3.5
)
Balance as of March 31, 2014
$
8.7

 
$
0.8

 
$
1.2

 
$
1.6

 
$
12.3

Charges
1.1

 

 
5.2

 
0.1

 
6.4

Utilizations
(0.6
)
 
(0.1
)
 
(0.3
)
 
(0.1
)
 
(1.1
)
Balance as of June 30, 2014
$
9.2

 
$
0.7

 
$
6.1

 
$
1.6

 
$
17.6

At June 30, 2014 and December 31, 2013, $11.6 million and $7.8 million, respectively, of the restructuring liabilities were included in “Other current liabilities,” and $6.0 million and $8.0 million, respectively, were included in “Other noncurrent liabilities” in the Condensed Consolidated Balance Sheets.

7.    Pension and Postretirement Plans
The Company sponsors three noncontributory defined benefit plans and a postretirement health and life insurance plan. For the three and six months ended June 30, 2014 and 2013, approximately 10% of the costs were capitalized as a component of property, plant and equipment related to construction of our wireline network. Effective July 1, 2013, the management pension plan was amended to eliminate all future pension service credits. As a result, we recognized a curtailment gain of $0.6 million in the three months ended June 30, 2013 and remeasured the associated pension obligation. This remeasurement resulted in a reduction of our pension liability of $10.3 million.
For the three and six months ended June 30, 2014 and 2013, pension and postretirement benefit costs were as follows:
 
Three Months Ended June 30,
 
2014
 
2013
 
2014
 
2013
(dollars in millions)
Pension Benefits
 
Postretirement and
Other Benefits
Service cost
$
0.2

 
$
0.8

 
$

 
$
0.1

Interest cost on projected benefit obligation
6.0

 
4.2

 
1.1

 
0.7

Expected return on plan assets
(7.3
)
 
(6.8
)
 

 

Curtailment gain

 
(0.6
)
 

 

Amortization of:
 
 
 
 
 
 
 
Prior service cost (benefit)
0.1

 
0.1

 
(3.9
)
 
(3.3
)
Actuarial loss
3.4

 
5.0

 
1.4

 
1.3

       Total amortization
3.5

 
5.1

 
(2.5
)
 
(2.0
)
Benefit costs
$
2.4

 
$
2.7

 
$
(1.4
)
 
$
(1.2
)


13

Form 10-Q Part I
 
Cincinnati Bell Inc.

 
Six Months Ended June 30,
 
2014
 
2013
 
2014
 
2013
(dollars in millions)
Pension Benefits
 
Postretirement and
Other Benefits
Service cost
$
0.5

 
$
1.4

 
$
0.1

 
$
0.2

Interest cost on projected benefit obligation
10.5

 
9.4

 
2.0

 
2.0

Expected return on plan assets
(14.1
)
 
(12.9
)
 

 

Curtailment gain

 
(0.6
)
 

 

Amortization of:
 
 
 
 
 
 
 
Prior service cost (benefit)
0.1

 
0.1

 
(7.7
)
 
(6.5
)
Actuarial loss
8.7

 
11.0

 
2.7

 
2.9

       Total amortization
8.8

 
11.1

 
(5.0
)
 
(3.6
)
Benefit costs
$
5.7

 
$
8.4

 
$
(2.9
)
 
$
(1.4
)

Amortizations of prior service cost (benefit) and actuarial loss, and curtailment gain represent reclassifications from accumulated other comprehensive income.

Contributions in 2014 to the Company’s pension and postretirement plans are expected to be approximately $32 million and $13 million, respectively. For the six months ended June 30, 2014, contributions to the pension plans were $10.7 million and contributions to the postretirement plan were $6.6 million.

8.    Stock-Based and Other Compensation Plans
The Company grants stock options, stock appreciation rights (“SARs”), performance-based awards, and time-based restricted shares, some of which are cash-settled awards with the final payment indexed to the percentage change in the Company’s stock price from the date of grant.
For the three and six months ended June 30, 2014, the Company recognized stock-based compensation expense of $1.7 million and $2.6 million, respectively, inclusive of $0.4 million and $0.2 million of mark-to-market expense on awards indexed to the Company's stock price. For the three and six months ended June 30, 2013, the Company recognized stock-based compensation expense of $0.7 million and a benefit of $1.0 million, respectively, which reflected $0.9 million and $4.8 million of mark-to-market gains, respectively. As of June 30, 2014, there was $8.0 million of unrecognized compensation expense related to these awards. The remaining compensation expense for the stock options, SARs and restricted awards is expected to be recognized over a weighted-average period of approximately one year, and the remaining expense for performance-based awards will be recognized within approximately two years.
The Company also has deferred compensation plans for its Board of Directors and certain executives. Under these plans, participants can elect to invest their deferrals in the Company’s common stock. At June 30, 2014 and 2013, the number of common shares deferred under these plans was 0.6 million and 0.8 million, respectively. As these awards can be settled in cash, the Company records compensation costs each period based on the change in the Company’s stock price. The Company recognized expense of $0.4 million for both the three and six months ended June 30, 2014. For the three and six months ended June 30, 2013, the company recognized a benefit of $0.1 million and $1.7 million, respectively.

In 2010, the Company's Board of Directors approved long-term incentive programs for certain members of management. Payment was contingent upon the completion of a qualifying transaction and attainment of an increase in the equity value of the data center business, as defined in the plans. On January 24, 2013, the initial public offering of CyrusOne was completed, which represented a qualifying transaction requiring payment under these compensation plans. For the three and six months ended June 30, 2013, compensation expense of $7.1 million and $42.6 million, respectively, was recognized for these awards and other transaction-related incentives, of which $20.0 million was associated with CyrusOne employees. This expense has been presented as transaction-related compensation in our Condensed Consolidated Statement of Operations for the three and six months ended June 30, 2013.

14


9.    Shareowners' Deficit
Warrants
In March 2003, the Company entered into a series of recapitalization transactions which included the issuance of 17.5 million warrants which expired on March 26, 2013. Each warrant allowed the holder to purchase one share of Cincinnati Bell common stock at an exercise price of $3.00 each. During the first quarter of 2013, warrant holders elected to exercise a total of 14.3 million warrants, leaving no remaining warrants outstanding as of March 31, 2013. As a result, the Company issued a total of 4.4 million shares of common stock and received $5.1 million of cash proceeds for the 1.7 million warrants which were cash settled.
Accumulated Other Comprehensive Loss
For the six months ended June 30, 2014, the changes in accumulated other comprehensive loss by component were as follows:
(dollars in millions)
Unrecognized Net Periodic Pension and Postretirement Benefit Cost
 
Foreign Currency Translation Loss
 
Total
Balance as of December 31, 2013
$
(133.1
)
 
$
(0.2
)
 
$
(133.3
)
Reclassifications, net
2.4

(a)

 
2.4

Balance as of June 30, 2014
$
(130.7
)
 
$
(0.2
)
 
$
(130.9
)
(a) These reclassifications are included in the components of net period pension and postretirement benefit costs. See Note 7 for additional details. The components of net periodic pension and postretirement benefit cost are reported within "Cost of services", "Cost of products sold", and "Selling, general and administrative" expenses on the Condensed Consolidated Statements of Operations.
10.    Business Segment Information
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. As of June 30, 2014, the carrying value of our investment in CyrusOne was $290.7 million and is included as an asset of the Corporate segment. The Data Center Colocation results shown in the accompanying tables reflect the revenues and expenses of our former data center business for the period January 1, 2013 through January 23, 2013.
As of June 30, 2014, we operated three business segments: Wireline, IT Services and Hardware, and Wireless. The Company’s segments are strategic business units that offer distinct products and services and are aligned with its internal management structure and reporting.
The Wireline segment provides products and services such as local voice, high-speed internet, data transport, long distance, entertainment, voice over internet protocol (VoIP), and other services. The IT Services and Hardware segment provides a range of fully managed and outsourced information technology (“IT”) and telecommunications services along with the sale, installation, and maintenance of major branded IT and telephony equipment.

The Wireless segment provides digital voice and data communications services and sales of related handset equipment to customers in the Greater Cincinnati and Dayton, Ohio operating areas. On April 6, 2014, we entered into agreements to sell our wireless spectrum licenses and certain other assets related to our wireless business, including leases to certain wireless towers and related equipment and other assets valued at approximately $210 million. The agreements are subject to customary closing conditions, including regulatory approval by the Federal Communications Commission. We plan to operate and generate cash from our wireless operations until the later of April 6, 2015 and 90 days after the transfer of the licenses. Effective July 1, 2014, we discontinued our lifeline program which included 21,300 subscribers as of June 30, 2014. For the first half of 2014, revenue from prepaid subscribers enrolled in the lifeline program totaled approximately $5 million.

Certain corporate administrative expenses have been allocated to the segments based upon the nature of the expense and the relative size of the segment. Intercompany transactions between segments have been eliminated.

15

Form 10-Q Part I
 
Cincinnati Bell Inc.

Selected financial data for the Company’s business segment information is as follows:
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
(dollars in millions)
2014

2013
 
2014
 
2013
Revenue
 
 
 
 
 
 
 
Wireline
$
184.7

 
$
181.6

 
$
368.3

 
$
361.3

IT Services and Hardware
101.6

 
86.0

 
203.5

 
170.5

Wireless
41.2

 
51.7

 
85.9

 
105.0

Data Center Colocation

 

 

 
15.6

Intersegment
(7.6
)
 
(7.3
)
 
(15.3
)
 
(14.7
)
Total revenue
$
319.9

 
$
312.0

 
$
642.4

 
$
637.7

Intersegment revenue
 
 
 
 
 
 
 
Wireline
$
4.0

 
$
4.2

 
$
8.1

 
$
8.6

IT Services and Hardware
3.0

 
2.5

 
6.1

 
4.5

Wireless
0.6

 
0.6

 
1.1

 
1.2

       Data Center Colocation

 

 

 
0.4

Total intersegment revenue
$
7.6

 
$
7.3

 
$
15.3

 
$
14.7

Operating income
 
 
 
 
 
 
 
Wireline
$
50.5

 
$
48.9

 
$
103.1

 
$
99.0

IT Services and Hardware
2.8

 
0.3

 
8.2

 
2.2

Wireless
(13.1
)
 
11.4

 
(7.8
)
 
12.1

Data Center Colocation

 

 

 
3.2

Corporate
(4.6
)
 
(13.8
)
 
(11.0
)
 
(50.5
)
Total operating income
$
35.6

 
$
46.8

 
$
92.5

 
$
66.0

Expenditures for long-lived assets
 
 
 
 
 
 
 
Wireline
$
38.1

 
$
39.3

 
$
64.3

 
$
73.1

IT Services and Hardware
2.5

 
3.7

 
5.0

 
4.9

Wireless
0.6

 
2.0

 
6.2

 
10.2

Data Center Colocation

 

 

 
7.7

Total expenditures for long-lived assets
$
41.2

 
$
45.0

 
$
75.5

 
$
95.9

Depreciation and amortization
 
 
 
 
 
 
 
Wireline
$
28.2

 
$
27.3

 
$
56.3

 
$
54.1

IT Services and Hardware
2.8

 
2.5

 
5.6

 
5.0

Wireless
29.3

 
7.3

 
45.1

 
23.3

Data Center Colocation

 

 

 
5.2

Corporate

 
0.1

 
0.2

 
0.2

Total depreciation and amortization
$
60.3

 
$
37.2

 
$
107.2

 
$
87.8

 
 
 
 
 
 
 
 
  
June 30,
2014
 
December 31,
2013
 
 
 
 
Assets
 
 
 
 
 
 
 
Wireline
$
791.2

 
$
780.8

 
 
 
 
IT Services and Hardware
46.6

 
48.9

 
 
 
 
Wireless
202.9

 
247.5

 
 
 
 
Corporate and eliminations
1,136.2

 
1,030.1

 
 
 
 
Total assets
$
2,176.9

 
$
2,107.3

 
 
 
 

16

Form 10-Q Part I
 
Cincinnati Bell Inc.

11.    Supplemental Guarantor Information
Cincinnati Bell Telephone Notes
As of June 30, 2014, Cincinnati Bell Telephone Company LLC (“CBT”), a wholly-owned subsidiary of Cincinnati Bell Inc. (the “Parent Company”), had $134.5 million in notes outstanding, that are guaranteed by the Parent Company and no other subsidiaries of the Parent Company. The guarantee is full and unconditional. The Parent Company’s subsidiaries generate substantially all of its income and cash flow and generally distribute or advance the funds necessary to meet the Parent Company’s debt service obligations.

The following information sets forth the Condensed Consolidating Statements of Operations and Comprehensive Income (Loss) for the three and six months ended June 30, 2014 and 2013, Condensed Consolidating Balance Sheets as of June 30, 2014 and December 31, 2013, and Condensed Consolidating Statements of Cash Flows for the six months ended June 30, 2014 and 2013 of (1) the Parent Company, as the guarantor, (2) CBT, as the issuer, and (3) the non-guarantor subsidiaries on a combined basis.

17

Form 10-Q Part I
 
Cincinnati Bell Inc.

 
Condensed Consolidating Statements of Operations and Comprehensive Income (Loss)
  
Three Months Ended June 30, 2014
(dollars in millions)
Parent
(Guarantor)
 
CBT
(Issuer)
 

Non-guarantors
 
Eliminations
 
Total
Revenue
$

 
$
164.3

 
$
170.0

 
$
(14.4
)
 
$
319.9

Operating costs and expenses
4.8

 
115.7

 
178.2

 
(14.4
)
 
284.3

Operating (loss) income
(4.8
)
 
48.6

 
(8.2
)
 

 
35.6

Interest expense (income), net
37.9

 
(1.0
)
 
3.8

 

 
40.7

Other (income) expense, net
(0.4
)
 
2.0

 
(191.9
)
 

 
(190.3
)
(Loss) income before equity in earnings of subsidiaries and income taxes
(42.3
)
 
47.6

 
179.9

 

 
185.2

Income tax (benefit) expense
(11.0
)
 
17.3

 
64.7

 

 
71.0

Equity in earnings of subsidiaries, net of tax
145.5

 

 

 
(145.5
)
 

Net income
114.2

 
30.3

 
115.2

 
(145.5
)
 
114.2

Other comprehensive income
0.6

 

 

 

 
0.6

Total comprehensive income
$
114.8

 
$
30.3

 
$
115.2

 
$
(145.5
)
 
$
114.8

 
 
 
 
 
 
 
 
 
 
Net income
114.2

 
30.3

 
115.2

 
(145.5
)
 
114.2

Preferred stock dividends
2.6

 

 

 

 
2.6

Net income applicable to common shareowners
$
111.6

 
$
30.3

 
$
115.2

 
$
(145.5
)
 
$
111.6

 
 
 
 
 
 
 
 
 
 
 
Three Months Ended June 30, 2013
 
Parent
(Guarantor)
 
CBT
(Issuer)
 

Non-guarantors
 
Eliminations
 
Total
Revenue
$

 
$
161.6

 
$
164.4

 
$
(14.0
)
 
$
312.0

Operating costs and expenses
13.6

 
113.6

 
152.0

 
(14.0
)
 
265.2

Operating (loss) income
(13.6
)
 
48.0

 
12.4

 

 
46.8

Interest expense (income), net
46.3

 
(5.6
)
 
4.7

 

 
45.4

Other (income) expense, net
(0.3
)
 
0.9

 
4.2

 

 
4.8

(Loss) income before equity in earnings of subsidiaries and income taxes
(59.6
)
 
52.7

 
3.5

 

 
(3.4
)
Income tax (benefit) expense
(21.2
)
 
18.3

 
(1.3
)
 

 
(4.2
)
Equity in earnings of subsidiaries, net of tax
39.2

 

 

 
(39.2
)
 

Net income
0.8

 
34.4

 
4.8

 
(39.2
)
 
0.8

Other comprehensive income
8.9

 

 
0.1

 

 
9.0

Total comprehensive income
$
9.7

 
$
34.4

 
$
4.9

 
$
(39.2
)
 
$
9.8

 
 
 
 
 
 
 
 
 
 
Net income
0.8

 
34.4

 
4.8

 
(39.2
)
 
0.8

Preferred stock dividends
2.6

 

 

 

 
2.6

Net (loss) income applicable to common shareowners
$
(1.8
)
 
$
34.4

 
$
4.8

 
$
(39.2
)
 
$
(1.8
)



18

Form 10-Q Part I
 
Cincinnati Bell Inc.

Condensed Consolidating Statements of Operations and Comprehensive Income (Loss)
  
Six Months Ended June 30, 2014
(dollars in millions)
Parent
(Guarantor)
 
CBT
(Issuer)
 

Non-guarantors
 
Eliminations
 
Total
Revenue
$

 
$
327.6

 
$
343.6

 
$
(28.8
)
 
$
642.4

Operating costs and expenses
10.9

 
228.6

 
339.2

 
(28.8
)
 
549.9

Operating (loss) income
(10.9
)
 
99.0

 
4.4

 

 
92.5

Interest expense (income), net
75.0

 
(1.8
)
 
7.8

 

 
81.0

Other (income) expense, net
(0.7
)
 
3.9

 
(193.4
)
 

 
(190.2
)
(Loss) income before equity in earnings of subsidiaries and income taxes
(85.2
)
 
96.9

 
190.0

 

 
201.7

Income tax (benefit) expense
(22.5
)
 
35.4

 
67.6

 

 
80.5

Equity in earnings of subsidiaries, net of tax
183.9

 

 

 
(183.9
)
 

Net income
121.2

 
61.5

 
122.4

 
(183.9
)
 
121.2

Other comprehensive income
2.4

 

 

 

 
2.4

Total comprehensive income
$
123.6

 
$
61.5

 
$
122.4

 
$
(183.9
)
 
$
123.6

 
 
 
 
 
 
 
 
 
 
Net income
121.2

 
61.5

 
122.4

 
(183.9
)
 
121.2

Preferred stock dividends
5.2

 

 

 

 
5.2

Net income applicable to common shareowners
$
116.0

 
$
61.5

 
$
122.4

 
$
(183.9
)
 
$
116.0

 
 
 
 
 
 
 
 
 
 
 
Six Months Ended June 30, 2013
 
Parent
(Guarantor)
 
CBT
(Issuer)
 

Non-guarantors
 
Eliminations
 
Total
Revenue
$

 
$
320.9

 
$
344.9

 
$
(28.1
)
 
$
637.7

Operating costs and expenses
49.7

 
224.7

 
325.4

 
(28.1
)
 
571.7

Operating (loss) income
(49.7
)
 
96.2

 
19.5

 

 
66.0

Interest expense (income), net
82.1

 
(1.1
)
 
12.3

 

 
93.3

Other (income) expense, net
(0.7
)
 
2.6

 
4.5

 

 
6.4

(Loss) income before equity in earnings of subsidiaries and income taxes
(131.1
)
 
94.7

 
2.7

 

 
(33.7
)
Income tax (benefit) expense
(41.3
)
 
34.8

 
8.7

 

 
2.2

Equity in earnings of subsidiaries, net of tax
53.9

 

 

 
(53.9
)
 

Net (loss) income
(35.9
)
 
59.9

 
(6.0
)
 
(53.9
)
 
(35.9
)
Other comprehensive income (loss)
11.7

 

 
(0.1
)
 

 
11.6

Total comprehensive (loss) income
$
(24.2
)
 
$
59.9

 
$
(6.1
)
 
$
(53.9
)
 
$
(24.3
)
 
 
 
 
 
 
 
 
 
 
Net (loss) income
(35.9
)
 
59.9

 
(6.0
)
 
(53.9
)
 
(35.9
)
Preferred stock dividends
5.2

 

 

 

 
5.2

Net (loss) income applicable to common shareowners
$
(41.1
)
 
$
59.9

 
$
(6.0
)
 
$