8. Commitments and Contingencies

Operating Lease Commitments

The Company leases certain circuits, facilities, and equipment used in its operations. Operating lease expense was $20.4 million, $16.2 million, and $19.3 million in 2011, 2010, and 2009, respectively. Certain facility leases and tower site leases provide for renewal options with fixed rent escalations beyond the initial lease term.

At December 31, 2011, future minimum lease payments required under operating leases having initial or remaining non-cancellable lease terms in excess of one year, exclusive of exited leases which are recorded as a restructuring liability, are as follows:



(dollars in millions)
2012	$	17.4
2013	13.9
2014	10.5
2015	7.0
2016	2.3
Thereafter	1.9
Total	$	53.0

Data Center Customer Commitments

The Company leases data center space to customers for which it recognized rent revenue of $126.1 million, $83.4 million, and $49.4 million in 2011, 2010, and 2009, respectively. Contractual minimum rent revenue, assuming no renewals, is $114.0 million in 2012, $86.1 million in 2013, $54.1 million in 2014, $42.4 million in 2015, and $29.7 million in 2016.

Asset Retirement Obligations

Asset retirement obligations exist for leased wireless towers and certain other assets. The following table presents the activity for the Company’s asset retirement obligations, which are included in "Other noncurrent liabilities" in the Consolidated Balance Sheets:



	December 31,
(dollars in millions)	2011			2010
Balance, beginning of period	$	5.1		$	5.0
Liabilities settled	—			(0.2		)
Liabilities incurred	0.2			—
Revisions to estimated cash flow	(0.2		)	—
Accretion expense	0.3			0.3
Balance, end of period	$	5.4		$	5.1

Indemnifications

During the normal course of business, the Company makes certain indemnities, commitments, and guarantees under which it may be required to make payments in relation to certain transactions. These include (a) intellectual property indemnities to customers in connection with the use, sale, and/or license of products and services, (b) indemnities to customers in connection with losses incurred while performing services on their premises, (c) indemnities to vendors and service providers pertaining to claims based on negligence or willful misconduct of the Company, (d) indemnities involving the representations and warranties in certain contracts, and (e) outstanding letters of credit which totaled $23.2 million as of December 31, 2011. In addition, the Company has made contractual commitments to several employees providing for payments upon the occurrence of certain prescribed events. The majority of these indemnities, commitments, and guarantees do not provide for any limitation on the maximum potential for future payments that the Company could be obligated to make.

As permitted under Ohio law, the Company has agreements whereby the Company indemnifies its officers and directors for certain events or occurrences while the officer or director is, or was, serving at the Company's request in such capacity. The term of the indemnification period is for the lifetime of the officer or director. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited; however, the Company has a director and officer insurance policy that limits the Company's exposure and enables the Company to recover a portion of any future amounts paid. As a result of the Company's insurance policy coverage, the Company believes the estimated fair value of these indemnification agreements is minimal. The Company has no liabilities recorded for these agreements as of December 31, 2011 or 2010.

Purchase Commitments

As of December 31, 2011, the Company was committed to purchase a 700,000 square foot building located on 30 acres of land in Dallas, Texas for approximately $23 million. In January 2012, the purchase of this property was completed. This building will be redeveloped into a data center.

The Company also has noncancellable purchase commitments related to certain goods and services. These agreements range from one to three years. As of December 31, 2011, the minimum commitments for these arrangements were approximately $66 million. The Company generally has the right to cancel open purchase orders prior to delivery and to terminate the contracts without cause.

Litigation

Cincinnati Bell and its subsidiaries are involved in a number of legal proceedings. Liabilities are established for legal claims when losses associated with the claims are judged to be probable, and the loss can be reasonably estimated. In many lawsuits and arbitrations, including most class action lawsuits, it is not possible to determine whether a liability has been incurred, or to estimate the ultimate or minimum amount of the liability until the case is close to resolution, in which case a liability will not be recognized until that time.

On July 5, 2011, a shareholder derivative action, captioned NECA-IBEW Pension Fund (The Decatur Plan), derivatively on behalf of Cincinnati Bell Inc. v. Phillip R. Cox, et al., was filed in the United States District Court for the Southern District of Ohio, naming certain directors and officers of the Company and Towers Watson & Co. (the Company's compensation consulting firm), as defendants, and naming the Company as a nominal defendant. The complaint alleges that the director defendants breached their duty of loyalty in connection with 2010 executive compensation decisions and that the officer defendants were unjustly enriched. The complaint seeks unspecified compensatory damages on behalf of the Company from the director and officer defendants and Towers Watson & Co., various forms of equitable and/or injunctive relief, and attorneys' and other professional fees and costs. On September 20, 2011, the court denied the motion to dismiss the officer and director defendants, which sought dismissal for failure to make demand on the directors and for failure to state a claim. On September 26, 2011, the court denied plaintiff's motion for preliminary injunction, which sought an injunction enjoining the directors from effectuating the 2010 executive compensation plan and the imposition of a constructive trust. On October 4, 2011, the officer and director defendants filed a motion to dismiss the action for lack of subject matter jurisdiction. That motion has not been ruled upon by the court. The officer and director defendants believe the suit is without merit and intend to vigorously defend against it.

Two additional shareholder derivative actions, captioned Pinchus E. Raul, derivatively on behalf of Cincinnati Bell Inc. v. John F. Cassidy, et al. and Dennis Palkon, derivatively on behalf of Cincinnati Bell Inc. v. John F. Cassidy, et al., were filed in the Court of Common Pleas, Hamilton County, Ohio, on July 8, 2011 and July 13, 2011, respectively. The two state court actions name the current directors and certain officers as defendants and the Company as a nominal defendant, assert allegations similar to those asserted in the federal court action, and seek relief similar to that requested in the federal action. The state court actions also allege that the director defendants breached their fiduciary duties by participating in issuing materially false and/or misleading statements in the Company's 2011 Proxy Statement. On August 11, 2011, the state court actions were consolidated under Case No. A1105305. On November 1, 2011, Plaintiff Raul filed a Second Amended Verified Shareholder Derivative Complaint ("State Court Action"). On November 29, 2011, the director and officer defendants filed a motion to dismiss the State Court Action, for failing to make demand on the directors and failing to state a claim. On the same day, Plaintiff Raul filed a motion seeking preliminary approval of the proposed settlement and notice to shareholders.

On December 20, 2011, Cincinnati Bell Inc. and the other defendants entered into a Stipulation and Agreement of Settlement (the "Settlement Agreement") with the plaintiff in the State Court Action. On January 13, 2012, the Hamilton County, Ohio, Court of Common Pleas entered a preliminary approval order approving the Settlement Agreement. The terms of the settlement are set forth in the Stipulation and include (1) a variety of corporate governance changes to be initiated by the Company and the Compensation Committee of the Board of Directors, that, among other things, more clearly communicate the Company's executive compensation practices to its shareholders, thus assisting the Company's shareholders' understanding of how these policies are applied to covered employees; and (2) payment of plaintiff's counsel's attorney fees and expenses. The settlement is specifically contingent on the entry of a final order and judgment of the Court approving the settlement and dismissing the action with prejudice. The Court has scheduled a fairness hearing for April 16, 2012 to determine whether to approve the proposed settlement and dismiss all claims.

Based on information currently available, consultation with counsel, available insurance coverage and established reserves, management believes the eventual outcome of all claims will not individually, or in the aggregate, have a material effect on its financial position, results of operations or cash flows.

Contingent Compensation Plan

In 2010, the Company’s Board of Directors approved a new long-term incentive program for certain executives of the Data Center Colocation business as well as the Corporate group. In 2011, the program was implemented through the grant of cash-payment performance units with a potential value of up to $49.4 million. Payment is contingent on the attainment of established enterprise value increases in the Data Center Colocation segment and the completion of a qualifying transaction. For the year ended December 31, 2011, no compensation expense was recorded for the awards as the completion of a qualifying transaction is currently not deemed probable. Additional awards may be granted pursuant to this plan in future periods.