Cincinnati Bell 2012 Annual Report Download - page 109

Form 10-K Part II Cincinnati Bell Inc.
Interest expense increased to $215.0 million in 2011 compared to $185.2 million in 2010. Average debt
outstanding was higher in 2011 compared to the prior year primarily due to the acquisition of Cyrus Networks. In
addition, the average interest rate on outstanding debt was also higher in 2011. In 2010, a loss on debt
extinguishment of $46.5 million was recognized upon the refinancing of the Company’s 8 3/8% Senior Notes due
2014 and repayment of the Tranche B Term Loan.
Income tax expense was $25.0 million in 2011 compared to $38.9 million in the prior year. The lower tax
provision reflects a decrease in pre-tax income in 2011 and the effects of one-time discrete adjustments related to
2010. The Company has certain 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. In periods without tax law changes, 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 losses to defray payment of federal and
state tax liabilities. As a result, the Company had cash income tax refunds of $1.2 million in 2011.
Discussion of Operating Segment Results
The Company manages its business based upon products and service offerings. At December 31, 2012, we
operated four business segments: Wireline, Wireless, IT Services and Hardware and Data Center Colocation.
Certain corporate administrative expenses have been allocated to our business segments based upon the nature of
the expense and the relative size of the segment. Intercompany transactions between segments have been
eliminated.
Wireline
The Wireline segment provides local voice, data, long distance, entertainment, VoIP, and other services over
its owned and other wireline networks. Local voice services include local telephone service, switched access, and
value-added services such as caller identification, voicemail, call waiting, and call return. Data services include
high-speed internet using DSL technology and over fiber using its GPON. Data services also provide data
transport for businesses, including LAN services, dedicated network access, and metro ethernet and DWDM/
optical wave data transport, which principally are used to transport large amounts of data over private networks.
These services are provided to customers in southwestern Ohio, northern Kentucky, and southeastern Indiana
through the operations of CBT, an ILEC in its operating territory of an approximate 25-mile radius of Cincinnati,
Ohio.
CBT’s network has full digital switching capability and can provide data transmission services to
approximately 96% of its in-territory access lines via DSL.
Outside of the ILEC territory, the Wireline segment provides these services through CBET, which operates
as a CLEC in the communities north of CBT’s operating territory including the Dayton, Ohio market. CBET
provides voice and data services for residential and business customers on its own network and by purchasing
unbundled network elements from the ILEC. The Wireline segment links the Cincinnati and Dayton, Ohio
geographies through its SONET, which provides route diversity via two separate paths.
In 2012, the Company continued to expand its Fioptics product suite of services, which are fiber-based
entertainment, high-speed internet 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. The penetration
rate of this product is approximately 28% of the total units that have been passed with the Fioptics network. The
Wireline segment also includes long distance, audio conferencing, other broadband services including private
line and MPLS.
35
Form 10-K