Cincinnati Bell 2006 Annual Report Download - page 132

Income tax expense was $68.3 million in 2006 compared to $54.3 million for 2005. This increase was
primarily due to the income tax benefit in 2005 associated with the $99.8 million loss on extinguishment of debt,
a $3.6 million charge in the first quarter of 2006 related to new Kentucky state tax regulations issued in February
2006, which limited the Company’s ability to use its state net operating loss carryforwards against future state
taxable income, and higher pretax income. These increases were partially offset by an income tax charge of $47.5
million in 2005 resulting from the state of Ohio instituting a gross receipts tax and phasing out Ohio’s corporate
franchise and income tax which caused certain deferred tax assets to become unrealizable. Additionally, the
Company has non-deductible expenses including interest on securities originally issued to acquire its broadband
business (the “Broadband Securities”) or securities that the Company has subsequently issued to refinance the
Broadband Securities. For the future, the Company expects its effective tax rate to exceed statutory rates
primarily due to the non-deductible expenses associated with the Broadband Securities. The Company used
federal and state net operating loss carryforwards to substantially defray payment of federal and state tax
liabilities. As a result, the Company had cash income tax payments of $6.6 million during the year.
2005 Compared to 2004
Consolidated revenue totaled $1,209.6 million in 2005, an increase of $2.5 million, compared to 2004. The
increase was primarily due to the following:
•$38.0 million increased revenues in the Technology Solutions segment primarily due to increased telecom
and IT equipment sales;
•$24.2 million lower revenues in the Wireless segment due to lower service revenue;
•$6.1 million lower revenues in the Local segment due to access line loss, partially offset by increased data
and DSL revenues; and
•$0.9 million lower revenues in the Other segment, as $6.2 million of increased long distance revenues
partially offset $7.1 million of decreases from businesses that the Company has exited.
Operating income for 2005 was $258.8 million, a decrease of $40.5 million compared to 2004. The decrease
was primarily due to the following:
•$50.3 million decrease in Wireless operating income primarily due to decreased revenue discussed above
and increased impairment charges of $36.4 million associated with TDMA assets, partially offset by
decreases in roaming expense of $8.9 million and $5.9 million of decreased depreciation and amortization,
primarily associated with the accelerated amortization in 2004 of certain intangibles;
•$3.0 million decrease in Local operating income primarily as a result of lower revenue discussed above,
$22.7 million increased pension, postretirement benefits and medical expenses, and an increase of $5.4
million in network and other related expenses from the out-of-territory expansion, partially offset by lower
operating taxes of $11.9 million, lower depreciation of $9.0 million, and lower restructuring charges of
$8.9 million;
•$8.6 million increase in the Other segment primarily related to an increase at CBAD in long distance
revenue, and lower long distance costs resulting from the installation of a long distance switch in June
2004; and
•$0.7 million increase in Technology Solutions operating income primarily due to the margin on increased
hardware revenues.
The minority interest caption relates to the 19.9% minority interest of Cingular in the net income of CBW.
The TDMA asset impairment charges discussed above gave rise to CBW losses in 2005, and the minority interest
income add back of $11.0 million in 2005 represents Cingular’s portion of the CBW losses.
Interest expense decreased to $184.4 million for 2005 compared to $203.3 million in 2004. This decrease is
primarily a result of the net decrease of $16 million from the extinguishment of the 16% Notes in August 2005,
partially offset by interest on the Corporate credit facility, which funded the repayment of the 16% Notes.
The loss on extinguishment of debt of $99.8 million for 2005 was comprised of a $91.9 million loss related
to the repurchase of the 16% Notes and $7.9 million associated with the repayment of previously existing credit
facilities. See Note 7 to the Consolidated Financial Statements for further details.
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