Cincinnati Bell 2006 Annual Report Download - page 120

•repurchase equity interests;
•redeem debt that is junior in right of payment to such indebtedness;
•enter into agreements that restrict dividends or other payments from subsidiaries;
•issue or sell capital stock of certain of its subsidiaries; and
•consolidate, merge, or transfer all or substantially all of its assets and the assets of its subsidiaries on a
consolidated basis.
In addition, the Company’s credit facilities and debt instruments include restrictive covenants that may
materially limit the Company’s ability to prepay debt and preferred stock. The agreements governing the credit
facilities also require the Company to achieve and maintain compliance with specified financial ratios.
The restrictions contained in the terms of the credit facilities and its other debt instruments could:
•limit the Company’s ability to plan for or react to market conditions or meet capital needs or otherwise
restrict the Company’s activities or business plans; and
•adversely affect the Company’s ability to finance its operations, strategic acquisitions, investments or
alliances, or other capital needs, or to engage in other business activities that would be in its interest.
A breach of any of these restrictive covenants or the Company’s inability to comply with the required
financial ratios would result in a default under some or all of the debt agreements. During the occurrence and
continuance of a default, lenders may elect to declare all outstanding borrowings, together with accrued interest
and other fees, to be immediately due and payable. Additionally, under the credit facilities, the lenders may elect
not to provide loans until such default is cured or waived. The Company’s debt instruments also contain cross-
acceleration provisions, which generally cause each instrument to demand early repayment of outstanding
principal and related interest upon a qualifying acceleration of any other debt instrument.
The Company’s future cash flows could be adversely affected if it is unable to realize fully its deferred tax
assets.
As of December 31, 2006, the Company had a net deferred tax asset of $694.7 million, which includes U.S.
federal net operating loss carryforwards of approximately $559.4 million, alternative minimum tax credit
carryforwards of $6.7 million, state and local net operating loss carryforwards of approximately $155.3 million,
deferred tax temporary differences and other tax attributes of $124.0 million, offset by valuation allowances of
$150.7 million. The valuation allowances have been provided against certain state and local net operating losses
and other deferred assets due to the uncertainty of the Company’s ability to utilize the assets within the statutory
expiration period. For more information concerning the Company’s net operating loss carryforwards, deferred
tax assets, and valuation allowance, see Note 13 to the Consolidated Financial Statements. The use of the
Company’s deferred tax assets enable it to satisfy current and future tax liabilities without the use of the
Company’s cash resources. If the Company is unable for any reason to fully realize its deferred tax assets, its
business and future cash flows could be adversely affected.
The Company operates in highly competitive industries and its customers may not continue to purchase
services, which could result in reduced revenue and loss of market share.
The telecommunications industry is very competitive. Competitors may reduce pricing, create new bundled
offerings, or develop new technologies, products, or services. If the Company cannot continue to offer reliable,
competitively priced, value-added services, or if the Company does not keep pace with technological advances,
competitive forces could adversely affect it through a loss of market share or a decrease in revenue and profit
margins. The Company has lost, and will likely continue to lose, access lines as a part of its customer base
utilizes service of competitive wireline or wireless providers in lieu of the Company’s local wireline service.
CBT faces competition from other local exchange carriers, wireless service providers, inter-exchange
carriers, and cable, broadband, and Internet service providers. The Company believes CBT could face greater
competition as new facilities-based service providers with existing service relationships with CBT’s customers
compete more aggressively and focus greater resources on the Greater Cincinnati operating area. In June 2004,
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