Cincinnati Bell 2005 Annual Report Download - page 138

The following is a reconciliation of the statutory federal income tax rate with the effective tax rate for
each year:
Year Ended December 31,
2005 2004 2003
U.S. federal statutory rate ....................................... 35.0% 35.0% 35.0%
State and local income taxes, net of federal income tax benefit ......... 35.3 10.5 (11.9)
Change in valuation allowance, net of federal income tax expense ...... (390.1) (18.0) (225.5)
State law changes ............................................. (120.7) — —
Dividends on 12
1
⁄ 2 % exchangeable preferred stock .................. — — 2.7
Nondeductible interest expense .................................. (72.7) 7.7 1.8
Other differences, net .......................................... (19.2) 0.8 (0.8)
Effective rate ................................................ (532.4)% 36.0% (198.7)%
The total income tax expense (benefit) recognized by the Company consists of the following:
Year Ended December 31,
(dollars in millions) 2005 2004 2003
Income tax provision (benefit) related to:
Continuing operations .............................. $54.3 $36.1 $(828.8)
Other comprehensive income (loss) ................... (24.6) (2.2) 5.7
Cumulative effect of change in accounting principle ...... — — 47.5
Total income tax provision (benefit) ................. $29.7 $33.9 $(775.6)
On June 30, 2005, legislation was passed in the state of Ohio instituting a gross receipts tax and phasing out
Ohio’s corporate franchise and income tax over a five year period. As a result of this legislation, the Company
does not expect it will be able to realize income tax benefits associated with $47.5 million of deferred tax assets
previously recorded, of which approximately $36.5 million relates to Ohio net operating losses. The remaining
amount of approximately $11 million relates to the revaluation of other Ohio deferred tax assets to estimates of
future realizable value. Therefore, the Company recognized additional income tax expense of approximately
$47.5 million in 2005. This additional income tax expense is based upon projections of taxable income, timing of
reversing temporary differences, and the Company’s current business structure.
The Company recognized an income tax benefit from the exercise of certain stock options in 2005, 2004,
and 2003 of $0.1 million, $1.3 million, and $0.6 million, respectively. This benefit resulted in a decrease in
current income taxes payable and an increase in additional paid in capital.
The components of the Company’s deferred tax assets and liabilities are as follows:
December 31,
(dollars in millions) 2005 2004
Deferred tax assets:
Net operating loss carryforwards ............................ $817.3 $ 860.6
Pension and postretirement benefits .......................... 58.7 17.2
Other .................................................. 31.9 38.0
Total deferred tax assets ................................... 907.9 915.8
Valuation allowance ...................................... (183.9) (144.2)
Total deferred income tax assets, net of valuation allowance .... 724.0 771.6
Deferred tax liabilities:
Property, plant and equipment .............................. 32.1 27.4
Federal deferred liability on state deferred tax assets ............ 11.3 36.4
Total deferred tax liabilities ................................ 43.4 63.8
Net deferred tax assets .................................. $680.6 $ 707.8
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