Cincinnati Bell 2012 Annual Report Download - page 124

Cash flows used in financing activities were $48.8 million in 2011. Cash was used to pay $10.4 million of
preferred stock dividends, repurchase 3.4 million shares of common stock for $10.4 million, repay $11.5 million
of long-term debt, and settle $16.0 million of other financing obligations.
Cash flows provided by financing activities for 2010 were $429.8 million. During 2010, the Company issued
$2.1 billion of debt consisting of $625 million of 8
3
⁄ 4 % Senior Subordinated Notes due 2018, a $760 million
secured term loan credit facility due 2017, and $775 million of 8
3
⁄ 8 % Senior Notes due 2020. The net proceeds from
these borrowings were used to redeem the $560 million of outstanding 8
3
⁄ 8 % Senior Subordinated Notes due 2014,
repay the Company’s previous credit facility of $204.3 million, fund the acquisition of Cyrus Networks, repay the
secured term loan facility totaling $756.2 million and to pay debt issuance fees and expenses. The Company paid
$42.6 million of debt issuance costs related to the various issuances of these instruments in 2010. Also, during 2010,
the Company repaid $85.9 million of borrowings under the Receivables Facility, repurchased approximately
4 million shares of common stock for $10.0 million, and paid $10.4 million of preferred stock dividends.
Future Operating Trends
Wireline
The Company expects to increase revenues from its Fioptics suite of products, high speed data transmission,
managed voice and data, cloud computing and professional services. Fioptics is a fiber-based product offering
that provides one of the fastest internet speeds in the Company’s operating territory, as well as entertainment and
voice services. At year end 2012, the Company passed and can provide Fioptics service to 205,000 homes and
businesses, or approximately 26% of Greater Cincinnati, and had 55,100 entertainment, 56,800 high-speed
internet, and 40,800 voice Fioptics customers. The penetration rate of this product is approximately 28% of the
total units that have been passed with the Fioptics network. Management plans to continue its investment in
Fioptics and expects to pass an additional 72,000 units by year end 2013.
Wireline legacy products with declining future revenues include local voice, DSL, and long distance. In
2012, Wireline suffered a 7% loss of ILEC access lines and a 7% loss of long distance subscribers as additional
customers elected to use wireless communication in lieu of the traditional local service, purchased service from
other providers, or service was disconnected due to non-payment. DSL subscribers decreased from 218,000 in
2011 to 202,600 in 2012 and are projected to continue to decline as customers switch to higher speed services,
such as our Fioptics product. We expect revenues from these legacy products to become a smaller percentage of
our total revenues over the next few years.
Wireless
Churn in our Wireless postpaid subscribers accelerated in the last few months of 2012. As of December 31,
2012, Wireless postpaid subscribers decreased to 251,300, down 19% compared to the prior year. Our operating
territory is well saturated with competitors, which include Verizon, AT&T, Sprint Nextel, T-Mobile, Leap and
TracFone. Both Verizon and AT&T have implemented LTE networks within our operating territory. In 2013, both
T-Mobile and Sprint Nextel are expected to begin to offer LTE service in our operating territory. LTE provides
higher-speed data transmission which is attractive to smartphone users. The Company has piloted an LTE network
trial program in limited operating territories, and has not yet determined whether it will upgrade its network to LTE
or, if it does upgrade, the timing of the LTE upgrade and the extent of its network that it will upgrade with LTE. Our
limited handset offerings are also a factor in our ability to attract and retain customers. Although we believe our
handsets are technologically equivalent to those being offered by the national carriers, we do not carry the premium
brand-name handsets such as the iPhoneTM. These competitive factors will likely result in a continued loss of
wireless subscribers and adversely affect our wireless revenues and operating margins.
IT Services and Hardware
Growth in managed services and professional services was strong in 2012, up 18%, driven by strong
demand from one of our largest customers. We expect growth in 2013 to be more moderate. Investment in this
segment has generally been limited by the availability of cash and the deployment of capital to support other
business initiatives, such as the expansion of our Fioptics service territory.
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Form 10-K Part II Cincinnati Bell Inc.