Cincinnati Bell 2006 Annual Report Download - page 143

2005 Compared to 2004
Costs and Expenses
During 2005 and 2004, selling, general, and administrative expenses primarily consisted of the reversals of
certain operating tax reserves totaling $11.2 million and $3.5 million, respectively, primarily due to resolutions
of audits.
Adjustments to restructuring reserves in 2005 and 2004 resulted in income of $0.5 million and $1.8 million,
respectively, due to changes in estimates related to the termination of contractual obligations. The restructuring
credit in 2004 was offset by a corporate restructuring adjustment of $2.0 million. Refer to Note 3 to the
Consolidated Financial Statements.
Asset impairments and other charges (gains) in 2005 and 2004 were primarily due to proceeds received
from the sale of assets previously written off.
The gain on sale of assets of $3.7 million recorded in 2004 was due to the expiration of certain indemnities
to the buyer.
Financial Condition, Liquidity, and Capital Resources
Capital Investment, Resources and Liquidity
As the Company’s businesses mature, investments in its local, wireless, and DSL networks will be focused
on maintenance, strategic expansion, and incremental revenue-generating penetration of these services with the
bundle, cost and productivity improvements and technological enhancement initiatives undertaken to add and
retain customers on the Company’s networks.
In 2007, the Company expects to spend approximately 19% of 2007 revenue on capital expenditures,
including approximately 8% of revenue in order to construct additional data center facilities and the new third
generation (“3G”) network for its wireless business. Cash will also be used for the acquisition of a local cable
telecommunications business (see Note 5 to the Consolidated Financial Statements), repayments of debt and
related interest, dividends on the 6
3
⁄ 4 % Cumulative Convertible Preferred Stock, and working capital. As of
December 31, 2006, the Company held $79.4 million in cash and cash equivalents, which is a $53.7 million
increase compared to December 31, 2005. The Company allowed cash to accumulate rather than repay debt in
order to fund the capital expenditures in early 2007 to construct additional data center space and the 3G network.
Other than the excess cash at December 31, 2006, the Company’s primary sources of cash in 2007 will be cash
generated by operations and borrowings from the revolving credit facility under which the Company had $245.2
million of availability at December 31, 2006.
Background
As of December 31, 2006, the Company had $2.1 billion of outstanding indebtedness and an accumulated
deficit of $3.5 billion. The Company incurred a significant amount of indebtedness and a subsequent
accumulated deficit for the period of 1999 to 2003 from the purchase and operation of a broadband business.
In November of 1999, the Company acquired IXC Communications, Inc. (“IXC”) for approximately
$3.2 billion. In connection with the acquisition, the Company assumed approximately $1.0 billion of debt. IXC,
subsequently renamed BRCOM (f/k/a Broadwing Communications Inc.), provided long haul voice, data, and Internet
service over an 18,700 mile fiber optic network. From the acquisition of BRCOM through June 2003, the Company
used a total of approximately $2.3 billion of both cash flow from its other businesses and borrowings under its credit
facilities to finance the buildout of BRCOM’s national optical network and to meet BRCOM’s other cash needs. In
2001, the business environment for BRCOM and the broader telecommunications industry deteriorated rapidly and
significantly. As a result of the acquisition of BRCOM, the Company incurred substantial operating and net losses. In
2003, the Company completed the sale of substantially all of the BRCOM assets for a cash purchase price of $82.7
million.
2006 Debt Repayments
During 2006, the Company repaid debt in the amount of $13.3 million. This debt repayment amount was
lower than in 2005 and 2004 because the Company used its cash to fund the purchases of ATI and the 19.9%
interest in CBW for $86.7 million and the wireless spectrum licenses for $37.1 million.
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