Cincinnati Bell 2004 Annual Report Download - page 103

between the carrying value of the capital lease assets and the related lease obligation at the date of
modification. The Company recorded a $10.7 million non-cash loss on investments in 2002 due to an other
than temporary decline in value of one of the Company’s cost-based investments.
The Company reported an income tax benefit of $828.8 million in 2003. This compares to an expense of
$123.7 million reported in 2002. The income tax benefit recorded in 2003 relates substantially to the reversal
of a previously recorded deferred tax valuation allowance due to the uncertainties surrounding the liquidity of
the Company’s subsidiary, BRCOM Inc. In the fourth quarter of 2003, the Company reversed $823.0 million
of the valuation allowance as the uncertainties surrounding BRCOM’s liquidity were substantially mitigated.
In 2002, the Company had income tax expense of $123.7 million, due substantially to the establishment of a
valuation allowance of $1,110.7 million against certain federal and state deferred tax assets (including net
operating loss carryforwards), offset substantially by the tax effect of the $2.2 billion asset impairment. The
effective rate of negative (198.7%) in 2003 was 193.4 points lower than the effective rate of negative (5.3%)
in the same period of 2002. The decrease in the rate was due to reversal of a previously recorded deferred tax
valuation allowance. Refer to Note 13 of the Notes to Consolidated Financial Statements.
As a result of the items previously discussed, income from continuing operations before discontinued
operations and cumulative effect of change in accounting principle increased $3,695.2 million in 2003 to
$1,246.0 million compared to a loss of $2,449.2 million in 2002. In addition, the corresponding diluted
earnings per share from continuing operations totaled $5.02 in 2003 compared to the diluted loss per share
from continuing operations of $11.27 in 2002.
Substantially all of the assets of Cincinnati Bell Directory (“CBD”) were sold on March 8, 2002 for
$345.0 million cash and a 2.5% equity interest in the newly formed company. Income from discontinued
operations totaled zero in 2003 compared to $217.6 million in 2002. The net gain from the sale of
substantially all of the assets of CBD of $211.8 million was recorded in 2002 and the remaining income was
related to the operations of CBD from January 1 through March 8, 2002. A detailed discussion of discontinued
operations is provided in Note 16 of the Notes to Consolidated Financial Statements.
Effective January 1, 2003, the Company recorded a benefit of $85.9 million as a cumulative effect of a
change in accounting principle, net of taxes, related to the adoption of SFAS 143. The benefit principally
related to the estimated telephone plant removal costs previously included in accumulated depreciation, which
were reversed. Refer to Note 1 of the Notes to Consolidated Financial Statements for a detailed discussion of
the adoption of SFAS 143.
Effective January 1, 2002, the Company recorded a $2,008.7 million charge as a cumulative effect of a
change in accounting principle, net of taxes, related to the adoption of SFAS 142. The write-down of
goodwill, finalized in the second quarter of 2002, was related to the fair value of goodwill associated with the
broadband business acquired in 1999. See Note 4 of the Notes to Consolidated Financial Statements for a
detailed discussion of the adoption of SFAS 142.
Discussion of Operating Segment Results
The Company realigned its business segments during the first quarter of 2004. CBTS, a data equipment
and managed services subsidiary, was previously reported in the Broadband segment and is now reported in
the Hardware and Managed Services segment. Additionally, the sale of telephony equipment of Cincinnati Bell
Telephone (“CBT”) and its associated installation and maintenance business, previously reported in the Local
segment, is now included in the Hardware and Managed Services segment. Accordingly, the historical results
of operations of the Local, Hardware and Managed Services and Broadband segments have been recast to
reflect the current segment reporting. As of January 1, 2002, the high-speed digital subscriber lines (“DSL”)
and dial-up Internet operations of ZoomTown, formerly reported in the Other segment, were merged with the
operations of CBT and are reflected in the Local segment in all periods presented.
Local
The Local segment provides local voice telephone service, including enhanced custom calling features,
and data services, which include dedicated network access, Gigabit Ethernet (“Gig-E”) and Asynchronous
Transfer Mode (“ATM”) based data transport, and DSL and dial-up Internet access, to customers in
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Form 10-K