Cincinnati Bell 2011 Annual Report Download - page 221

Form 10-K Part II Cincinnati Bell Inc.
The following is a reconciliation of the statutory federal income tax rate with the effective tax rate for each
year:
Year Ended December 31,
2011 2010 2009
U.S. federal statutory rate ................................................... 35.0% 35.0% 35.0%
State and local income taxes, net of federal income tax ............................ 2.9 2.6 1.3
Change in valuation allowance, net of federal income tax .......................... (4.4) (7.1) (2.4)
State net operating loss adjustments ........................................... 2.7 0.1 2.3
Nondeductible interest expense ............................................... 15.0 13.3 3.8
Medicare drug subsidy law change ............................................ — 5.8 —
Unrecognized tax benefit changes ............................................ 2.8 5.7 0.8
Nondeductible compensation ................................................ 2.1 1.5 0.1
Other differences, net ...................................................... 1.2 1.0 1.0
Effective tax rate .......................................................... 57.3% 57.9% 41.9%
The components of our deferred tax assets and liabilities are as follows:
December 31,
(dollars in millions) 2011 2010
Deferred tax assets:
Net operating loss carryforwards ............................................... $453.9 $445.8
Pension and postretirement benefits ............................................. 155.0 134.6
Other ..................................................................... 70.8 67.3
Total deferred tax assets ...................................................... 679.7 647.7
Valuation allowance ......................................................... (58.4) (60.0)
Total deferred tax assets, net of valuation allowance ................................ $621.3 $587.7
Deferred tax liabilities:
Property, plant and equipment ................................................. $159.8 $127.9
Federal deferred liability on state deferred tax assets ................................ 7.8 8.0
Total deferred tax liabilities ................................................... 167.6 135.9
Net deferred tax assets ...................................................... $453.7 $451.8
As of December 31, 2011, the Company had approximately $1.1 billion of federal tax operating loss
carryforwards with a deferred tax asset value of $394.3 million, alternative minimum tax credit carryforwards of
$14.4 million, state tax credits of $12.0 million, and $59.6 million in deferred tax assets related to state and local
tax operating loss carryforwards. The majority of the remaining tax loss carryforwards will generally expire
between 2021 and 2023. U.S. tax laws limit the annual utilization of tax loss carryforwards of acquired entities.
These limitations should not materially impact the utilization of the tax carryforwards.
The ultimate realization of the deferred income tax assets depends upon the Company’s ability to generate
future taxable income during the periods in which basis differences and other deductions become deductible, and
prior to the expiration of the net operating loss carryforwards. Due to its historical and future projected earnings,
management believes it will utilize future federal deductions and available net operating loss carryforwards prior
to their expiration. Management also concluded that it was more likely than not that certain state tax loss
carryforwards would not be realized based upon the analysis described above and therefore provided a valuation
allowance.
The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate is $21.5
million at December 31, 2011 and $20.3 million at December 31, 2010. We do not currently anticipate that the
amount of unrecognized tax benefits will change significantly over the next year.
103
Form 10-K