Cincinnati Bell 2005 Annual Report Download - page 126

The indenture governing these notes provides for an event of default upon the default and associated right to
acceleration of any other existing debt instrument of Cincinnati Bell Inc. or Cincinnati Bell Telephone, which
exceeds $20 million. The Company recorded $16.5 million, $16.5 million and $17.7 million of interest expense
in 2005, 2004, and 2003, respectively, related to these CBT notes.
Capital Lease Obligations
The Company leases facilities and equipment used in its operations, some of which are required to be
capitalized in accordance with Statement of Financial Accounting Standards No. 13, “Accounting for Leases”
(“SFAS 13”). SFAS 13 requires the capitalization of leases meeting certain criteria, with the related asset being
recorded in property, plant and equipment and an offsetting amount recorded as a liability discounted to the
present value. The Company had $22.2 million in total indebtedness relating to capitalized leases as of
December 31, 2005, $17.3 million of which was considered long-term. The underlying leased assets generally
secure the capital lease obligations. The Company recorded a gain of $10.0 million in the fourth quarter of 2003
included in “Other income, net” in the Consolidated Statements of Operations due to the modification of a capital
lease for the Company’s headquarters. This modification required the lease to be reclassified from a capital lease
to an operating lease. This modification reduced capital lease obligations and related accrued interest by $14.0
million and gross fixed assets by $6.2 million at December 31, 2003. For 2005, 2004 and 2003, the Company
recorded $1.3 million, $1.6 million and $4.0 million, respectively, of interest expense related to capital lease
obligations.
Debt Maturity Schedule
As of December 31, 2005, the following table summarizes the Company’s annual principal maturities of
debt and capital leases for the five years subsequent to December 31, 2005, and thereafter:
(dollars in millions) Debt Capital Leases Total Debt
Year ended December 31,
2006 ..................................... $ 6.4 $ 4.9 $ 11.3
2007 ..................................... 4.3 2.2 6.5
2008 ..................................... 4.0 1.9 5.9
2009 ..................................... 4.0 2.0 6.0
2010 ..................................... 4.0 6.4 10.4
Thereafter ................................. 2,049.0 4.8 2,053.8
2,071.7 22.2 2,093.9
Interest rate swaps .......................... (10.2) — (10.2)
Net unamortized premiums ................... 1.0 — 1.0
Total debt ............................... $2,062.5 $22.2 $2,084.7
For capital leases, total lease payments including interest are $6.5 million for 2006, $3.6 million for 2007,
$3.1 million for 2008, $3.2 million for 2009, $7.3 million for 2010, and $6.1 million thereafter.
Deferred Financing Costs
Deferred financing costs are costs incurred in connection with obtaining long-term financing. These costs
are amortized as interest expense over the terms of the related debt agreements. As of December 31, 2005 and
2004, deferred financing costs totaled $39.2 million and $42.1 million, respectively. The related expense,
included in the Consolidated Statements of Operations under the caption “Interest expense,” amounted to $7.1
million, $12.5 million, and $17.3 million during 2005, 2004 and 2003, respectively. In 2005, the Company
wrote-off unamortized deferred financing costs of $7.9 million and $9.1 million related to the extinguishment of
the previous credit facility and the 16% Notes, respectively. In 2003, the Company incurred $16.4 million of
expense for the write-off of deferred financing costs associated with the prepayment of and amendments to the
previous credit facility. Write-offs of deferred financing costs are presented in the Consolidated Statements of
Operations under the caption “Loss on extinguishment of debt, net.”
Fair Value
The carrying amounts of debt, excluding capital leases and net unamortized premium and discount, at
December 31, 2005 and 2004 were $2,061.5 million and $2,159.5 million, respectively. The estimated fair values
at December 31, 2005 and 2004 were $2,059 million and $2,242 million, respectively. These fair values were
estimated based on the year-end closing market prices of the Company’s debt and of similar liabilities.
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