SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
OR
__ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___ to ___ .
Commission File Number 1-8519
CINCINNATI BELL INC.
Incorporated under the laws of the State of Ohio
201 East Fourth Street, Cincinnati, Ohio 45202
I.R.S. Employer Identification Number 31-1056105
Telephone - Area Code 513 397-9900
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X . No .
-- --
At October 31, 1999, 130,158,724 Common Shares were outstanding.
This Amendment No. 1 on Form 10-Q/A amends Part I, Item 1, Financial Statements
for Cincinnati Bell Inc.'s Quarterly Report on Form 10-Q for September 30, 1999.
This amendment is a result of an accounting restatement due to the step-by-step
acquisition of IXC Communications Inc. The restatement affects all financial
statements, notes 4, 8 and 10, and the MD&A. The following items were adjusted
resulting in changes to related totals and subtotals:
- -- Equity in net loss of unconsolidated subsidiaries increased $6.3 million
- -- Investment in unconsolidated entities decreased $17.9 million
- -- Decrease in accrued taxes of $2.3 million
- -- Retained Earnings was decreased $4.0 million
- -- Comprehensive income and accumulated other comprehensive income
decreased by $7.5 million.
- -- Deferred income tax liability decreased by $4.1 million.
1
Form 10-Q Part I Cincinnati Bell Inc.
PART I - FINANCIAL INFORMATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(Millions of Dollars, Except Per Share Amounts)
(Unaudited)
Three Months Nine Months
Ended September 30, Ended September 30,
-------------------- -------------------
1999 1998 1999 1998
---- ---- ---- ----
Revenues:
Local Communications Services.............................. $189.1 $179.5 $556.8 $532.9
Directory Services ........................................ 18.9 18.0 55.3 54.8
Wireless Services ......................................... 25.8 --- 61.7 ---
Other Communications Services.............................. 32.7 28.4 95.1 79.4
Intersegment............................................... (4.1) (3.3) (10.7) (8.5)
---------- ---------- ------ -----
Total Revenues.......................................... 262.4 222.6 758.2 658.6
Costs and Expenses
Cost of providing services and products sold............... 112.1 91.8 329.0 274.0
Selling, general and administrative........................ 58.2 51.9 171.4 156.0
Depreciation and amortization.............................. 33.3 28.4 98.2 82.4
Year 2000 programming costs................................ .5 2.5 4.2 7.7
Mandated telecommunications costs ......................... --- 0.9 --- 10.7
---------- ---------- ------ -----
Total Costs and Expenses................................. 204.1 175.5 602.8 530.8
Operating Income............................................. 58.3 47.1 155.4 127.8
Wireless Venture Loss........................................ --- 7.5 --- 16.2
Minority Interest ........................................... (1.7) --- (5.8) ---
Equity in net loss of unconsolidated subsidiaries............ 6.3 --- 6.3 ---
Other Expense (Income), Net.................................. (.5) (.4) (.5) 1.6
Interest Expense............................................. 13.9 7.0 31.9 17.8
---------- ---------- ------ -----
Income From Continuing Operations Before Income Taxes 40.3 33.0 123.5 92.2
Income Taxes................................................. 14.5 12.0 44.7 32.6
---------- ---------- ------ -----
Income From Continuing Operations............................ 25.8 21.0 78.8 59.6
Discontinued Operations, Net of Taxes........................ --- 27.4 --- 54.1
---------- ---------- ------ -----
Net Income................................................... 25.8 48.4 78.8 113.7
---------- ---------- ------ -----
Other comprehensive income, net of tax:
Unrealized gain on investments.............................. 4.1 (2.1) 4.1 (2.1)
Foreign currency translation adjustments.................... --- (1.0) --- (2.7)
---------- ---------- ------ -----
Total other comprehensive income.......................... 4.1 (3.1) 4.1 (4.8)
---------- ---------- ------ -----
Comprehensive income......................................... $ 29.9 $ 45.3 $ 82.9 $ 108.9
---------- ---------- ------ -----
Basic Earnings Per Common Share:
Income from Continuing Operations ......................... .19 .15 .58 .44
Income from Discontinued Operations, Net of Taxes ......... --- .21 --- .40
Net Income ................................................ $ .19 $ .36 $ .58 $ .84
Diluted Earnings Per Common Share:
Income from Continuing Operations ......................... .19 .15 .56 .43
Income from Discontinued Operations, Net of Taxes ......... --- .20 --- .39
---------- ---------- ------ -----
Net Income ................................................ $ .19 $35 $ .56 $ .82
Dividends Declared Per Common Share.......................... $--- $ .10 $ .20 $ .30
Average Common Shares Used for Earnings Per Share
Calculations (millions)
Basic...................................................... 134.1 136.0 135.8 135.9
Diluted................................................... 137.7 138.1 139.7 138.3
Retained Earnings
Beginning of Period.......................................... $ 25.8 $259.9 $ --- $221.9
Net Income................................................. 25.8 48.4 78.8 113.7
Common Share Dividends Declared............................ --- (13.7) (27.2) (41.0)
Other...................................................... --- 1.8 --- 1.8
---------- ---------- ------ -----
End of Period.............................................. $ 51.6 $296.4 $51.6 $296.4
---------- ---------- ------ -----
Accumulated Other Comprehensive Income:
Beginning of Period........................................ $(6.7) $ (9.8) $(6.7) $ (8.1)
Unrealized gain on investments............................. 4.1 (2.1) 4.1 (2.1)
Foreign currency translation adjustments................... --- (1.0) --- (2.7)
---------- ---------- ------ -----
End of period.............................................. $(2.6) $ (12.9) $(2.6) $(12.9)
---------- ---------- ------ -----
2
See Notes to Financial Statements.
Form 10-Q Part I Cincinnati Bell Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Millions of Dollars)
(Unaudited)
September 30, December 31,
1999 1998
------------- --------------
ASSETS
Current assets:
Cash and cash equivalents......................................................... $ 3.4 $ 10.1
Receivables, less allowances of $18.6 and $12.0................................... 146.2 138.0
Material and supplies............................................................. 20.5 16.9
Deferred income taxes............................................................. 21.1 13.8
Prepaid expenses and other current assets......................................... 21.6 18.6
------------ ------------
Total current assets...................................................... 212.8 197.4
Property, plant and equipment - net................................................. 748.5 698.2
Goodwill and other intangibles...................................................... 109.0 103.3
Investment in unconsolidated entities............................................... 254.8 2.5
Deferred charges and other assets................................................... 89.4 39.6
------------ ------------
Total Assets........................................................................ $ 1,414.5 $ 1,041.0
------------ ------------
------------ ------------
LIABILITIES AND SHAREOWNERS' EQUITY
Current Liabilities:
Debt maturing in one year......................................................... $ 221.8 $ 186.2
Accounts payable and accrued liabilities.......................................... 131.8 133.5
Accrued taxes..................................................................... 39.4 40.6
Advance billing and customers' deposits........................................... 28.3 26.8
Other current liabilities......................................................... 14.3 18.2
------------ ------------
Total current liabilities................................................. 435.6 405.3
Long-term debt...................................................................... 766.1 366.8
Deferred income taxes............................................................... 53.2 15.3
Other postretirement benefits....................................................... 45.7 47.5
Other long-term liabilities......................................................... 40.1 64.0
------------ ------------
Total liabilities......................................................... 1,340.7 898.9
------------ ------------
Shareowners' Equity
Preferred shares-no par value; 5,000,000 shares authorized;
no shares issued and outstanding............................................... --- ---
Common shares-$.01 par value; 480,000,000 shares authorized;
130,698,076 and 136,381,309 shares issued and outstanding...................... 1.4 1.4
Additional paid-in capital........................................................ 157.7 147.4
Treasury shares................................................................... (134.3) ---
Retained earnings................................................................. 51.6 ---
Accumulated other comprehensive income (loss)..................................... (2.6) (6.7)
------------ ------------
Total shareowners' equity................................................. 73.8 142.1
------------ ------------
Total Liabilities and Shareowners' Equity........................................... $ 1,414.5 $ 1,041.0
------------ ------------
------------ ------------
See Notes to Financial Statements.
3
Form 10-Q Part I Cincinnati Bell Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Millions of Dollars)
(Unaudited)
Nine Months Ended
September 30
--------------------
1999 1998
----- -----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income....................................................................................... $ 78.8 $ 113.7
Less: income from discontinued operations, net of taxes.......................................... --- 54.1
-------- --------
Net income from continuing operations............................................................ 78.8 59.6
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization................................................................. 98.2 82.4
Provision for loss on receivables............................................................. 11.6 9.5
Equity in net loss of unconsolidated subsidiaries............................................. 6.3 ---
Changes in assets and liabilities net of effects from acquisitions and
disposals:
Decrease (increase) in receivables............................................................ (19.8) (28.9)
Decrease (increase) in other current assets................................................... (6.7) (7.0)
Increase (decrease) in accounts payable and accrued liabilities............................... (1.7) 67.5
Increase (decrease) in other current liabilities.............................................. (1.3) (42.6)
Decrease (increase) in deferred income taxes and unamortized
investment tax credits - net................................................................. (0.9) 12.4
Decrease (increase) in other assets and liabilities-net....................................... (12.5) (16.1)
--------- ---------
Net cash provided by operating activities................................................... 152.0 136.8
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures-telephone plant.......................................................... (99.9) (105.4)
Capital expenditures-other.................................................................... (47.9) (13.1)
Acquisitions (including costs of IXC merger).................................................. (24.3) ---
Purchase of treasury shares................................................................... (134.3) ---
Purchase of available-for-sale equity securities.............................................. (2.0) ---
Purchase of common stock of IXC Communications, Inc........................................... (250.0) ---
Other, net....................................................................................... --- 0.5
--------- ---------
Net cash used in investing activities....................................................... (558.4) (118.0)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in short-term debt.................................................... 35.6 9.5
Repayment of long-term debt................................................................... (.7) 0.1
Issuance of new long-term debt................................................................ 400.0 ---
Issuance of common shares..................................................................... 5.9 4.9
Dividends paid................................................................................ (41.1) (41.0)
--------- ---------
Net cash provided by (used in) financing activities......................................... 399.7 (26.5)
-------- ---------
Net cash provided by (used in) discontinued operations...................................... --- (.7)
--------- ---------
Net increase in cash and cash equivalents........................................................ (6.7) (7.7)
Cash and cash equivalents at beginning of period................................................. 10.1 7.8
--------- ---------
Cash and cash equivalents at end of period....................................................... $ 3.4 $ .1
--------- ---------
--------- ---------
Cash paid for:
Interest (net of amount capitalized)........................................................... $ 16.1 $ 16.9
Income taxes................................................................................... $ 41.1 $ 41.9
See Notes to Financial Statements.
4
Form 10-Q Part I Cincinnati Bell Inc.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
(1) BASIS OF PRESENTATION - The consolidated financial statements include
the accounts of Cincinnati Bell Inc. and its wholly owned subsidiaries
(the Company). The Company is a diversified telecommunications company
with principal businesses in four industry segments: Local
Communications Services, Directory Services, Wireless Services and
Other Communications Services.
The Local Communications Services segment provides local telephone
service, network access, high-speed data transport, Internet access,
communications equipment, long distance, and other ancillary
telecommunications services through its Cincinnati Bell Telephone
subsidiary. Data networking and Internet-based services are provided
through the Company's new ZoomTown.com subsidiary. Together, these two
subsidiaries function as a fully integrated, wireline communications
provider.
The Directory Services segment is comprised of the operations of the
Company's Cincinnati Bell Directory subsidiary, which publishes Yellow
Pages directories and sells directory advertising and informational
services primarily to business customers in Cincinnati Bell Telephone's
franchise area.
The Wireless Services segment is comprised of the operations of
Cincinnati Bell Wireless LLC (an 80%-owned venture with AT&T Wireless
PCS, Inc.), which provides advanced digital personal communications
services and related communications equipment in Cincinnati and Dayton,
Ohio.
The Other Communications Services segment holds the Company's
Cincinnati Bell Long Distance (CBLD), Cincinnati Bell Supply (CBS), and
EnterpriseWise IT Consulting (EnterpriseWise) subsidiaries. CBLD
resells long distance, Internet access, data services and
communications equipment to small- and medium-sized business customers.
CBS resells telecommunications equipment in the secondary market and
sells new computers. EnterpriseWise provides network integration and
consulting services.
Effective November 15, 1999, the Company notified the New York Stock
Exchange that it would begin doing business as Cincinnati Bell Inc.
and, accordingly, requested that its stock ticker symbol be changed
from CSN to BRW, also effective November 15, 1999.
The consolidated financial statements of Cincinnati Bell Inc. have been
prepared pursuant to the rules and regulations of the Securities and
Exchange Commission (SEC) and, in the opinion of Management, include
all adjustments necessary for a fair presentation of the results of
operations, financial position and cash flows for each period shown.
All adjustments are of a normal and recurring nature except for those
outlined in Notes 2 and 3. Certain prior year amounts have been
reclassified to conform to the current classifications with no effect
on overall financial results. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to SEC rules and regulations. The
December 31, 1998 condensed balance sheet was derived from audited
financial statements, but does not include all disclosures required by
generally accepted accounting principles. It is suggested that these
financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's 1998 Annual
Report on Form 10-K and other filings with the Securities and Exchange
Commission.
(2) SPIN-OFF OF CONVERGYS CORPORATION - On December 31, 1998, the Company
completed a tax-free spin-off by distributing one share of Convergys
common stock for each share of Company common stock owned by Company
shareholders of record on December 1, 1998. Accordingly, the Company
now has no ownership interest in Convergys, and consolidated financial
results for 1998 reflect the disposition of Convergys and its
subsidiaries as "discontinued operations".
(3) ACQUISITIONS - On November 9, 1999, the Company completed its
acquisition of IXC Communications, Inc. (IXC), a leading nationwide
next-generation fiber network carrier providing advanced
telecommunications services. IXC is headquartered in Austin, Texas.
Further discussion of this matter follows in Note 11 of the Notes to
Financial Statements.
As a result of the Company's acquisition of an 80% interest in a PCS
wireless business on December 31, 1998, the Company now includes the
results of its Cincinnati Bell Wireless subsidiary in its operating
results. Of the $173 million purchase price, $162 million was recorded
on December 31, 1998, with an additional $11 million adjustment
recorded in the first quarter of 1999 as a result of the determination
of the final purchase price. The Company has recorded approximately $85
million of goodwill and other intangibles that will be
5
amortized over a period ranging from 20 to 40 years.
(4) INVESTMENT IN UNCONSOLIDATED ENTITIES - In May 1999, the Company
invested $2.0 million in the convertible preferred stock of Purchase
Pro International, Inc. (Purchase Pro) prior to the initial public
offering (IPO) of its equity securities in June 1999. Effective with
Purchase Pro's IPO, this investment has now been converted to 571,429
shares of publicly traded common stock (NASDAQ ticker symbol PPRO)
having a market value of $19.9 million at September 30, 1999. This
investment is classified as an available-for-sale security under the
provisions of Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities".
Accordingly, the Company recorded an unrealized holding gain of $11.6
million, net of tax, in comprehensive income and has adjusted the
carrying value of this investment.
As discussed in the Company's Form 10-Q for the quarterly period ended
June 30, 1999, the Company has, as part of its merger with IXC,
acquired approximately five million shares of IXC common stock from
General Electric Pension Trust. These shares represent an ownership
interest of approximately 13%. Since the Company subsequently merged
with IXC, the Company must account for these shares under the
step-by-step purchase method in accordance with Accounting Principal
Board Opinion (APB) No.18, "The Equity Method of Accounting for
Investments in Common Stock." Accordingly, the Company has accounted
for this investment under the equity method and recorded net losses
equaling 13% of IXC's net loss from August 16, 1999 to September 30,
1999. These losses totaled $6.3 million pre-tax and are reflected as an
Equity loss in unconsolidated subsidiaries. The Company also recorded
13% of IXC's comprehensive loss, or $7.5 million net of tax, for the
same time period. The loss was the result of IXC's unrealized loss on
the carrying value of its PSINet investment.
(5) LONG-TERM DEBT - In July 1999, pursuant to a private placement, the
Company sold $400 million of 10-year, convertible subordinated
debentures to Oak Hill Capital Partners, L.P. These notes are
convertible into common stock of Cincinnati Bell at a price of $29.89
per common share at the option of the holder. For as long as this debt
is outstanding, these notes bear a coupon rate of 6.75% per annum with
the associated interest expense being added to the debt principal
amount (commonly referred to as "payment in kind", or PIK). Payment in
kind will take place for a five-year period, assuming that Oak Hill
does not exercise conversion rights prior to that time. On November 9,
1999, the Company filed a registration statement on these notes on Form
S-3 with the Securities and Exchange Commission.
The Company had previously guaranteed a revolving credit facility with
a capacity of $310 million on behalf of IXC in anticipation of the
Company's merger with IXC. Of this $310 million capacity, approximately
$150 million had been drawn by IXC on September 30, 1999. The Company
refinanced this amount on November 9, 1999, the merger closing date,
with funds drawn from a new credit facility further described below.
Concurrent with the close of the merger, the Company entered into a
$1.8 billion credit facility consisting of a five-year term loan and a
five-year revolving credit line with equal capacities of $900 million.
As of the date of this filing, the Company has used approximately $700
million of the term loan to refinance its previously existing debt, as
well as IXC's outstanding debt at the merger closing date
(approximately $391 million). To date, the Company has not drawn from
the revolving credit line. Terms and conditions of this credit facility
are still subject to change during the bank syndication process. The
Company expects this process to conclude on or near November 29, 1999.
Also concurrent with the close of the merger, the Company assumed
approximately $600 million of IXC's additional debt. This debt, in
combination with the $391 million described above, represents the
approximately $1 billion in net debt of IXC previously disclosed in
connection with announcement of the merger agreement on July 21, 1999.
6
(6) CINCINNATI BELL TELEPHONE COMPANY - The following summarized financial
information, in millions of dollars, is for the Company's consolidated
wholly owned subsidiary, Cincinnati Bell Telephone Company:
Three Months Nine Months Ended
Ended September 30, September 30,
------------------- --------------------
1999 1998 1999 1998
----- ---- ------ -----
Revenues $ 189.1 $ 179.5 $ 556.8 $ 532.9
Costs and Expenses:
Costs of providing services and products sold 71.9 74.9 214.5 217.9
Selling, general and administrative 34.1 37.2 103.5 115.3
Depreciation and amortization 28.0 26.9 83.3 78.8
Year 2000 programming costs 0.5 2.5 4.2 7.7
Mandated telecommunications costs --- 0.9 --- 10.7
----- ----- ----- -----
Total Costs and Expenses 134.5 142.4 405.5 430.4
----- ----- ----- -----
Operating Income 54.6 37.1 151.3 102.5
Net Income $ 32.0 $ 20.8 $ 88.1 $ 57.7
"Year 2000 programming costs" refers to costs incurred in order to
ready the Company's network, facilities, and internal computer systems
for the advent of the new millennium. "Mandated telecommunications
costs" refers to costs that were necessary to modify CBT's network to
accommodate connections with competing carriers, and allow customers to
maintain their telephone numbers when they switch local service
providers. Year 2000 and mandated telecommunications costs decreased
net income by $2.7 million and $12.1 million for the nine months ended
September 30, 1999 and 1998, respectively.
September 30, December 31,
MILLIONS OF DOLLARS 1999 1998
------------- -------------
Current Assets............................................................ $ 153.2 $ 151.6
Telephone Plant-Net....................................................... 589.3 580.8
Other Noncurrent Assets................................................... 35.9 17.1
---------- ----------
Total Assets.............................................................. $ 778.4 $ 749.5
========== =========
Current Liabilities....................................................... $ 154.8 $ 144.2
Noncurrent Liabilities.................................................... 52.9 38.7
Long-Term Debt............................................................ 316.5 317.1
Shareowner's Equity....................................................... 254.2 249.5
---------- ----------
Total Liabilities and Shareowner's Equity................................. $ 778.4 $ 749.5
========== ===========
(7) CONTINGENCIES - The Company is from time to time subject to routine
complaints incidental to its business. The Company believes that the
results of any complaints and proceedings will not have a material
adverse effect on the Company's financial condition.
On March 24, 1999, CBT was served with a copy of a complaint filed with
the Public Utilities Commission of Ohio (PUCO) by Time Warner Telecom
of Ohio, L.P. (Time Warner). The complaint seeks a determination that
internet service provider (ISP) traffic is "local traffic" under the
parties' August 1, 1997 interconnection agreement, and that CBT is
required to pay reciprocal compensation to Time Warner for calls placed
by CBT customers to ISPs who obtain local service from Time Warner. On
April 12, 1999, CBT responded by denying the essential allegations
contained in the complaint. A hearing on this matter took place on July
27, 1999. The Company and Time Warner subsequently settled the case
prior to issuance of a PUCO order.
On July 23, 1999, the Company was named as a defendant in a lawsuit
filed against IXC Communications, Inc., the Company's merger partner. A
further discussion of this and other matters follows in Note 11 of the
Notes to Financial Statements, and in Item 1, Part II of this Quarterly
Report on Form 10-Q.
7
(8) EARNINGS PER SHARE - Basic earnings per share is based upon the average
number of common shares outstanding during the period. Diluted earnings
per share reflect the potential dilution that would occur if common
stock equivalents were exercised. The following table is a
reconciliation of the numerators and denominators of the basic and
diluted earnings per share computations for income from continuing
operations for the following periods:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -------------------
Dollars and shares in millions (except per share amounts)
1999 1998 1999 1998
---- ---- ---- ----
Basic earnings per share:
Income from continuing operations $25.8 $21.0 $78.8 $59.6
Average common shares outstanding 134.1 136.0 135.8 135.9
----- ----- ----- -----
Basic earnings per share from continuing operations $.19 $.15 $ .58 $ .44
---- ---- ----- -----
Diluted earnings per share:
Income from continuing operations $25.8 $21.0 $78.8 $59.6
Effect of dilutive securities:
Average common shares, basic earnings per share calculation 134.1 136.0 135.8 135.9
Stock options 2.8 1.5 3.1 1.8
Stock-based compensation arrangements .8 .6 .8 .6
------ ---- ---------- ---------- ----
Average common shares, fully diluted 137.7 138.1 139.7 138.3
----- ----- ----- -----
Diluted earnings per share from continuing operations $ .19 $.15 $ .56 $ .43
------- ---- -------- -----
Stock options representing 212,893 and 432,367 shares were outstanding
during the nine-month period and three-month periods ended September
30, 1999, but were not included in the computation of diluted earnings
per share. This results from the weighted-average per share exercise
price of $22.58 and $22.48 for these options being greater than the
average market price of the Company's common shares for the respective
periods.
As previously discussed, the Company sold $400 million of convertible
subordinated debentures to Oak Hill Capital Partners, L.P. in July
1999. Although these bonds can be converted into common shares, they
have not been included in the calculation of diluted earnings per share
for the quarter. This results from the conversion price of $29.89 per
share being in excess of the average market price of the Company's
common shares for the quarterly period.
(9) RECENTLY ISSUED ACCOUNTING STANDARDS - On January 1, 1999, the Company
adopted AICPA Statement of Position (SOP) 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use". SOP
98-1 requires the capitalization of certain expenditures for software
that is purchased or internally developed for use in the business. As
compared to prior years when these types of expenditures were expensed
as incurred, the adoption of SOP 98-1 is estimated to result in the
capitalization of as much as $9 million of internal use software
development costs in 1999. These costs will be amortized over a
three-year period. For the first nine months of 1999, the Company
capitalized $5.8 million of software development costs, resulting in a
$3.8 million increase to net income in comparison to prior period
results.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities". SFAS 133 establishes
accounting and reporting standards requiring that a derivative
instrument be recorded in the balance sheet as either an asset or
liability, measured at its fair value. SFAS 133 has been subsequently
amended through the release of SFAS 137, which provides for a deferral
of the effective date of SFAS 133 to all fiscal years beginning after
June 15, 2000. Management has not yet assessed the impact of SFAS 133
on the Company's results of operations, cash flows and financial
position.
8
(10) BUSINESS SEGMENT INFORMATION - The Company operates primarily in four
industry segments; Local Communications Services, Directory Services,
Wireless Services, and Other Communications Services. Certain corporate
administrative expenses have been allocated to segments based upon the
nature of the expense. Assets are those assets used in the operations
of the segment. The Company's business segment information is as
follows:
Three Months Nine Months
Millions of Dollars Ended September 30, Ended September 30,
------------------- ------------------------------- ---------------------------------
1999 1998 1999 1998
---- ---- ---- ----
REVENUES
Local Communications Services $189.1 $179.5 $556.8 $ 532.9
Directory Services 18.9 18.0 55.3 54.8
Wireless Services 25.8 --- 61.7 ---
Other Communications Services 32.7 28.4 95.1 79.4
Intersegment (4.1) (3.3) (10.7) (8.5)
------------- ------------ ------------- ------------
$262.4 $222.6 $758.2 $658.6
============= ============ ============= ============
INTERSEGMENT REVENUES
Local Communications Services $ 1.9 $ 1.4 $ 5.2 $ 3.4
Directory Services 0.7 1.0 1.5 2.3
Wireless Services 0.5 --- 1.0 ---
Other Communications Services 1.0 0.9 3.0 2.8
============= ============ ============= ============
$ 4.1 $ 3.3 $ 10.7 $ 8.5
============= ============ ============= ============
OPERATING INCOME (LOSS)
Local Communications Services $ 54.6 $ 37.1 $ 151.3 $ 102.5
Directory Services 7.0 6.3 20.1 19.0
Wireless Services (7.5) --- (25.4) (0.6)
Other Communications Services 0.9 3.4 3.0 8.9
Corporate and Eliminations 3.4 0.3 6.4 (2.0)
------------- ------------ ------------- ------------
$ 58.3 $ 47.1 $ 155.4 $ 127.8
============= ============ ============= ============
ASSETS
Local Communications Services 778.4 $ 739.2
Directory Services 23.5 28.9
Wireless Services 247.9 33.1
Other Communications Services 56.7 49.7
Net Assets of Discontinued Operations --- 471.4
Corporate and Eliminations 308.0 69.5
============= ============
$ 1,414.5 $ 1,391.8
============= ============
CAPITAL ADDITIONS
Local Communications Services $ 30.9 $ 23.2 $ 99.9 $ 105.4
Directory Services --- --- --- ---
Wireless Services 23.4 6.9 42.3 7.7
Other Communications Services 1.1 .7 5.6 2.6
Corporate --- 2.0 --- 2.5
============= ============ ============= ============
$ 55.4 $ 32.8 $ 147.8 $ 118.2
============= ============ ============= ============
DEPRECIATION AND AMORTIZATION
Local Communications Services $ 28.0 $ 26.9 $ 83.3 $78.9
Directory Services --- --- --- ---
Wireless Services 3.7 --- 10.4 ---
Other Communications Services 1.6 1.2 4.5 2.7
Corporate --- 0.3 --- 0.8
------------- ------------ ------------- ------------
$ 33.3 $ 28.4 $ 98.2 $ 82.4
============= ============ ============= ============
Since the close of the last fiscal year on December 31, 1998, the
Company has added a segment known as Wireless Services, and created a
new subsidiary known as EnterpriseWise IT Consulting (whose operating
results are included in the Other Communications Services segment).
Where applicable, prior year amounts have been reclassified to conform
to the current segments. A further discussion of the accounting for
Wireless Services in 1999 and 1998 can be found in the "Management
Discussion and Analysis" section of this Quarterly Report.
9
(11) MERGER WITH IXC COMMUNICATIONS - On July 20, 1999, the Company entered
into a definitive merger agreement with IXC Communications, Inc.
("IXC"), a leading nationwide next-generation fiber network carrier
providing advanced telecommunications services. IXC's fiber optic
network includes approximately 13,800 route miles of fiber optic
transmission facilities. The merger is a stock-for-stock transaction
that will be accounted for using the purchase method of accounting.
Based on the weighted average closing price of the Company's common
stock on the three days before and after the July 21, 1999 merger
announcement, and the assumption of approximately $1.0 billion in IXC's
net debt, this transaction is valued at approximately $3.0 billion.
Concurrent with the announcement of the merger agreement, Oak Hill
Capital Partners, L.P. purchased $400 million of 10-year convertible
subordinated debentures of Cincinnati Bell on July 21, 1999. Also, in
accordance with the terms of the merger agreement, the Company
completed the purchase of approximately five million shares of IXC
common stock at $50 per share from the General Electric Pension Trust
on August 16, 1999 (see Note 5 and Note 4 of the Notes to Financial
Statements, respectively).
A discussion of certain other matters relevant to the merger,
particularly IXC's indebtedness and the Company's establishment of a
$1.8 billion credit facility, is contained in Note 5 of the Notes to
Financial Statements.
As previously mentioned, the Company successfully completed its merger
with IXC on November 9, 1999. The Company is in the process of
evaluating the fair value of assets and liabilities received in an
effort to establish the amount that will be allocated to goodwill and
other intangibles. As discussed in the Company's Form S-4 as filed with
the Securities and Exchange Commission on September 13, 1999, the
Company's preliminary estimate of goodwill and other intangible assets
resulting from this purchase is approximately $2.5 billion. Of this
amount, the Company anticipates that as much as $300 million could be
allocated to other intangible assets, which would be amortized to
expense over periods ranging from 10 to 20 years. Amounts allocated to
goodwill are expected to be amortized over a 40-year period.
As of the date of this filing, five stockholder class action suits were
filed in the Delaware Court of Chancery against IXC and certain present
and former members of IXC's Board of Directors in connection with the
merger between the Company and IXC. The Company was named as a
defendant in one of these suits. These complaints allege, among other
things, that the defendants have breached their fiduciary duties to
IXC's stockholders by failing to maximize stockholder value in
connection with entering into the merger agreement. The complaints
sought, among other things, a court order enjoining completion of the
merger. In an October 27, 1999 ruling, the Court issued an order
denying plaintiff's request for a preliminary injunction against the
merger. However, the Court did not rule on the merits of the suits, and
these suits remain pending. The Company believes that the complaints
are without merit and intends to continue vigorously defending these
actions.
Further details regarding the merger with IXC can be found in various
of the Company's Forms 8-K filed with the Securities and Exchange
Commission since the announcement of the merger agreement on July 21,
1999.
10
Form 10-Q Part I Cincinnati Bell Inc.
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Information included in this Quarterly Report on Form 10-Q contains certain
forward-looking statements that involve potential risks and uncertainties. The
Company's future results could differ materially from those discussed herein.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed herein, and those discussed in the Form 10-K for the
year ended December 31, 1998. Readers are cautioned not to place undue reliance
on these forward-looking statements that speak only as of the date thereof.
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the consolidated
financial statements and segment data. Results for interim periods may not be
indicative of the results for the full year.
CONSOLIDATED OVERVIEW
Third quarter revenues of $262.4 million were 18% improved over the prior year
quarter, representing nearly $40 million in growth. Year-to-date revenues of
$758.2 million were nearly $100 million higher than the respective prior period,
a 15% improvement. While the Company continues to enjoy growth in its core
telephone business, the majority of the revenue increase is coming from new
businesses such as Cincinnati Bell Wireless and EnterpriseWise IT Consulting
which, in the aggregate, contributed more than 70% of the revenue increase
during both periods.
The Local Communications Services segment contributed an additional $9.6 million
of revenue for the quarter, and $23.9 million year-to-date, owing to growth in
several areas. Revenues from broadband and digital transport services increased
22%, while revenues from value-added voice services such as Caller ID and new
product bundling solutions such as Complete Connections-SM- increased 32% over
prior year-to-date results. Since its introduction in March 1999, nearly 80,000
households have signed up for Complete Connections; representing more than 12%
of CBT's residential customer base and nearly $6 million in additional revenues.
Access minutes of use increased 7% from the third quarter of 1998, while access
lines grew 2% (largely due to business access line growth). The Wireless
Services segment added revenues of $25.8 million for the quarter and $61.7
million year-to-date on the strength of one of the nation's most successful
wireless service introductions. The Other Communications Services segment
produced $4.3 million in new revenues for the quarter, and $15.7 million
year-to-date, with all businesses in the segment showing growth.
In addition to increasing revenues, the Company's focus on controlling costs has
resulted in improved operating margins. For the three-month and nine-month
period ended September 30, 1999, operating margins were 22.2% and 20.5%,
respectively. For the same periods in 1998, operating margins were 21.2% and
19.4%. The current year improvement occurred despite the $25.4 million operating
loss of the Wireless Services segment. Excluding this operating loss, the
Company's operating margin was 27.8% for the quarter and 26.0% year-to-date. The
improvement in operating margin is largely attributable to the operations of the
Local Communications Services segment.
Costs and expenses were $204.1 million for the quarter and $602.8 million
year-to-date; representing 16% and 14% increases over the respective prior
periods. Although expenses increased $28.6 million for the quarter and $72.0
million year-to-date, aggregate costs and expenses for the operating segments
other than Wireless Services decreased (the expense increase for Wireless
Services was $33.2 million for the quarter and $86.5 million year-to-date).
Despite the introduction of new products and services and the growth of its
ZoomTown.com initiative, the Local Communications Services segment reduced its
core operating expenses by $5 million for the quarter and $10.7 million
year-to-date. Although this segment incurred higher advertising and depreciation
costs, its lower headcount, reduced spending on temporary labor sources and
contract services, and lower computer programming expenses resulted in a net
reduction in expense. As a measure of efficiency, access lines per telephone
employee increased from 344 to 364 during this period; a 6% improvement.
The Company incurred lower costs for Year-2000 programming during the third
quarter of 1999. These costs totaled $0.5 million for the three months ended
September 30, 1999, and $4.2 million year-to-date. Additional details regarding
the Company's Year-2000 readiness appear later in this report.
Mandated telecommunications costs were incurred by CBT in 1998 to modify its
network to accommodate connections with competing carriers and allow customers
to maintain their telephone numbers when they switch local service
11
providers. For the nine-month period ended September 30, 1998, CBT incurred
costs of $10.6 million. The program was completed during 1998. On February 1,
1999, CBT began to recover costs associated with this initiative through a
surcharge imposed on end-user customers.
Operating income was $58.3 million for the quarter, up 24% from $47.1 million in
the third quarter of 1998. For the nine-month period, operating income was
$155.4 million; a 22% increase over the same period in the prior year. Excluding
the operating loss of the wireless business, operating income increased 39% for
the quarter and 41% year-to-date.
Equity in loss of unconsolidated subsidiaries was $6.3 million in 1999 as a
result of recognizing the Company's share of IXC's losses from the date it
purchased a minority investment, August 16, 1999, until the acquisition was
completed, November 9, 1999.
For the quarter, interest expense increased $6.8 million, or 103%, and $12.0
million year-to-date, or 62%. These increases are attributable to higher average
debt levels associated with the acquisition of the wireless business, the
issuance of $400 million in convertible subordinated debentures to Oak Hill
Capital Partners, L.P. in July 1999.
Income taxes decreased $2.5 million over the prior-year quarter, or 21%, as a
function of higher pre-tax income. Year-to-date income tax expense increased
$12.1 million, or 37%, versus the same period in 1998.
Income from continuing operations was $25.8 million, or $.19 per common share
for the quarter; $78.8 million, or $.56 per common share year-to-date. Earnings
per share from continuing operations increased 13% for the quarter and 27%
year-to-date. Excluding the $18.8 million year-to-date net loss for the wireless
business and the $6.3 million loss in unconsolidated subsidiaries, income from
continuing operations was $101.6 million, or $.73 per common share.
LOCAL COMMUNICATIONS SERVICES
Three Months Ended September 30, Nine Months Ended September 30,
------------------------------------ ----------------------------------
($ Millions) 1999 1998 Change % 1999 1998 Change %
---- ---- ------ - ---- ---- ------ -
Revenues:
Local service $108.5 $102.3 $6.2 6 $317.3 $303.8 $13.5 4
Network access 46.2 44.5 1.7 4 138.8 134.8 4.0 3
Other services 34.4 32.7 1.7 5 100.7 94.3 6.4 7
--------- --------- --- --------- --------- -----
Total Revenues 189.1 179.5 9.6 5 556.8 532.9 23.9 4
Costs and expenses:
Costs of providing services 71.9 74.9 (3.0) (4) 214.5 217.9 (3.4) (2)
Selling, general and administrative 34.1 37.2 (3.1) (8) 103.5 115.3 (11.8) (10)
Depreciation and amortization 28.0 26.9 1.1 4 83.3 78.8 4.5 6
Year 2000 programming costs 0.5 2.5 (2.0) (80) 4.2 7.7 (3.5) (45)
Mandated telecommunications costs --- 0.9 (0.9) --- --- 10.7 (10.7) ---
--------- --------- --- --------- --------- -----
Total Costs and Expenses 134.5 142.4 (7.9) (6) 405.5 430.4 (24.9) (6)
Operating income $54.6 $37.1 $17.5 47 $ 151.3 $ 102.5 $ 48.8 48
Operating margin 28.9% 20.7% 27.2% 19.2%
Access lines (In thousands) 1,056 1,031 25 2
Minutes of use (In millions) 1,155 1,078 77 7 3,407 3,167 240 8
The Local Communications Services segment provides local telephone service,
network access, high-speed data transport, Internet access, communications
equipment, long distance, and other ancillary telecommunications services
through its Cincinnati Bell Telephone subsidiary. Data networking and
Internet-based services are provided through
12
the Company's new ZoomTown.com subsidiary. Together, these two subsidiaries
function as a fully integrated, wireline communications provider.
For the quarter, segment revenues of $189.1 million were 5% higher than in the
prior year quarter. Year-to-date revenues increased 4% from $532.9 million to
$556.8 million.
The local service category provided most of the revenue growth for the segment.
Local service revenues increased 6% for the quarter, growing from $102.3 million
to $108.5 million. Year-to-date revenues increased nearly $14 million to $317.3
million; a 4% increase. Growth is coming primarily from increased usage of the
Company's suite of custom calling services, new product bundling offers, and
data transport, which in the aggregate contributed more than 80% (or $11 million
year-to-date) of the increase for the category. Access line growth was
responsible for the remainder of the increase, with a 2% increase in access
lines contributing approximately $1 million in new revenue for the quarter and
$3 million year-to-date.
Network access revenues for the quarter increased 4% to $46.2 million.
Year-to-date results were 3% higher than in the prior year, increasing from
$134.8 million to $138.8 million. Growth in this category is coming primarily
from high-capacity digital services and the recovery of mandated
telecommunications costs from end-users (beginning in February 1999). Although
access minutes of use increased 7% for the quarter and 8% year-to-date, switched
access revenues actually decreased due to the lower rates contained in pricing
plans approved by the Federal Communications Commission and state regulatory
commissions.
Other services revenue increased 5% for the quarter and 7% year-to-date, growing
to $34.4 million and $100.7 million, respectively. Revenues from the Company's
FUSE-SM- Internet access service increased nearly $1 million for the quarter and
$2 million year-to-date, representing 57% growth for this service over the prior
periods. Additional increases in the category are primarily attributable to
higher rent and collocation revenues. Slightly higher inside wire installation
and maintenance contract revenue is being more than offset by lower local toll
revenue as customers migrate to extended area service plans. For the quarter,
the provision for loss on receivables is slightly less than in the prior year,
but is nearly $1 million higher than the prior year on a year-to-date basis.
Total operating expenses of $134.5 million for the quarter were $7.9 million
less than the same period last year, representing a 6% decrease. For the
nine-month period, operating expenses also decreased 6% ($24.9 million) from
$430.4 million to $405.5 million.
Costs of providing services decreased $3.0 million for the quarter and $3.4
million year-to-date. This is primarily due to lower expenditures for payroll
and temporary labor sources resulting from CBT's continuing efforts at
increasing productivity. These efforts have resulted in a 6% increase in access
lines per employee since the beginning of 1999.
Selling, general and administrative expenses decreased by $3.1 million for the
current quarter, with an $11.8 million decrease in this category year-to-date.
Advertising expense increased approximately $1 million for the quarter, and $3
million year-to-date, in support of new calling services and the Company's
ZoomTown.com Internet presence. Consulting and contract services were
approximately $1 million and $5 million lower for the quarter and nine months,
respectively, as CBT seeks to increase productivity and control costs through
lower usage of external labor sources. Computer programming expenses and
right-to-use fees decreased by approximately $4 million for the quarter and $12
million year-to-date. This is due to a reduction in projects initiated, and the
capitalization of approximately $6 million in internal use software as required
by AICPA Statement of Position 98-1, nearly $3 million of which was incurred in
the third quarter (similar costs were expensed in the prior year; see Note 9 of
Notes to Financial Statements). Depreciation expense increased $1.1 million for
the quarter and $4.5 million year-to-date as a function of higher telephone
plant balances.
Year-2000 programming expenses were lower than in the prior year, reflecting the
progress previously made on critical systems. Current quarter expenditures of
$0.5 million were $2.0 million less than in the prior year, with a similar
reduction in year-to-date spending ($4.2 million versus $7.7 million in prior
year). Mandated telecommunications costs decreased by $0.9 million for the
quarter and $10.7 million for the nine-month period, reflecting the completion
of the local number portability initiative and initial interconnection expenses
in 1998.
13
For the quarter, operating income improved by $17.5 million, or 47%, over the
same period in the prior year. Similarly, year-to-date operating income
increased $48.8 million, or 48%, over the first nine months of 1998. This led to
substantial gains in operating margin percentage for the quarter and for the
year, improving approximately eight percentage points over the same periods in
the prior year.
14
DIRECTORY SERVICES
Three Months Ended September 30, Nine Months Ended September 30,
----------------------------------- ------------------------------------
($ Millions) 1999 1998 Change % 1999 1998 Change %
---- ---- ------ - ---- ---- ------ -
Revenues $18.9 $18.0 $0.9 5 $55.3 $ 54.8 $ 0.5 1
Costs and Expenses:
Costs of providing services 7.0 6.7 0.3 4 20.5 21.0 (0.5) (2)
Selling, general and administrative 4.9 5.0 (0.1) (2) 14.7 14.8 (0.1) (1)
----- ---- ---- ----- ---- -----
Total Costs and Expenses 11.9 11.7 0.2 2 35.2 35.8 (0.6) (2)
----- ---- ---- ----- ---- -----
Operating income $ 7.0 $ 6.3 $ .7 11 $20.1 $19.0 $ 1.1 6
Operating margin 37.0% 35.0% 36.3% 34.7%
The Directory Services segment is comprised of the operations of the Company's
Cincinnati Bell Directory subsidiary, which publishes Yellow Pages directories
and sells directory advertising and informational services in Cincinnati Bell
Telephone's franchise area. These services are available to the customer via the
traditional printed directory, an Internet-based service known as "Cincinnati
Exchange," or on CD-Rom.
The majority of the revenues for this segment come from Yellow Pages publishing,
and it is the Company's practice to recognize revenues, and associated direct
expenses, over the lifespan of the respective publications (generally twelve
months). Primary expenses of this segment are sales commissions paid to sales
agents and printing costs associated with its directory publications.
Third quarter revenues of $18.9 million exceeded results of the prior year
quarter by nearly $1 million, as the positive outcome of the 1999 sales campaign
began to materialize. The strong third quarter performance helped to reverse
lower revenues during the early part of the year that were attributable to a
more difficult sales climate in 1998. In the current quarter, local advertising
revenues are beginning to improve, as are contributions from the "Cincinnati
Exchange" service, but these are being somewhat offset by lower national
advertising revenues due to business consolidations. Year-to-date revenues of
$55.3 million exceeded results in the prior year period by $0.5 million, with
the largest increase coming from the national advertising category.
Costs and expenses were virtually unchanged for the quarter, increasing $0.2
million to $11.9 million. The 2% increase during the third quarter is
attributable to the sales commissions that are a function of advertising revenue
(however, the Company benefited in the earlier part of the year from the lower
sales commissions that prevailed with the prior sales campaign). Printing costs
were equivalent during the comparative three-month periods, with a slight
increase in this expense category for the nine-month period. Selling, general
and administrative expenses were virtually unchanged versus the prior year. On a
year-to-date basis, costs and expenses trended lower by 2%, or $0.6 million.
Operating income and operating margin increased during both periods. Operating
income increased by $0.7 million for the quarter and $1.1 million year-to-date,
representing an 11% and 6% improvement, respectively. Operating margin increased
from 35% to 37% in the third quarter, representing a 6% improvement.
15
WIRELESS SERVICES
Three Months Ended September 30, Nine Months Ended June 30,
------------------------------------ ---------------------------------
($ Millions, except ARPU) 1999 1998 Change % 1999 1998 Change %
---- ---- ------ - ---- ---- ------ -
Revenues
Service $23.0 $--- $23.0 --- $53.2 $--- $53.2 ---
Equipment 2.8 --- 2.8 --- 8.5 --- 8.5 ---
--- --- --- --- ----- --- ----- ---
Total Revenues 25.8 --- 25.8 --- 61.7 --- 61.7 ---
Costs and Expenses:
Costs of providing services 15.1 --- 15.1 --- 41.1 --- 41.1 ---
Selling, general and administrative 14.5 0.1 14.4 --- 35.6 0.6 35.0 ---
Depreciation and amortization 3.7 --- 3.7 --- 10.4 --- 10.4 ---
--------- -------- --------- -------- -------- ----------
Total Costs and Expenses 33.3 0.1 33.2 --- 87.1 0.6 86.5 ---
--------- -------- --------- -------- -------- ----------
Operating income (loss) $(7.5) $ (0.1) $ (7.4) --- $ (25.4) $ (0.6) $ (24.8) ---
Operating margin (29.1)% --- (41.2)% ---
Number of subscribers 112,471 112,471
Average revenue per unit (ARPU) $78 $72
Customer churn 1.51% 1.43%
The Wireless Services segment is comprised of the operations of Cincinnati Bell
Wireless LLC (an 80%-owned venture with AT&T Wireless PCS, Inc.) which provides
advanced digital personal communications services and related communications
equipment in Cincinnati and Dayton, Ohio.
The Company acquired an 80% ownership interest in this business on December 31,
1998. Accordingly, current year results for the wireless business are now
reflected in the operating results of the Company. This differs from the
accounting treatment given this investment in the prior year, where the results
attributable the Company's minority interest (then 20%) were reflected in the
Consolidated Statements of Income and Retained Earnings under the caption
"Wireless Venture Loss". As a result, current and prior year amounts are not
comparable.
Revenues for the quarter were $25.8 million, a 25% increase over the $20.7
million reported for the second quarter of 1999. Service revenues accounted for
$23.0 million of the total, with the remaining $2.8 million coming from the sale
of handsets and related equipment. Service revenues are growing on the basis of
increasing subscribership, higher average revenue per unit, and relatively low
customer churn. Current quarter equipment revenues are a function of
subscribership and have remained steady across all quarters this year.
For the quarter, expenses of $33.3 million were 14% higher than in the prior
quarter. Costs of providing services were $15.1 million for the quarter, the
majority of which is attributable to incollect expense (incollect expense is
incurred when subscribers use their handset while outside the Company's service
area). The Company's cost per gross activation is decreasing with each
successive quarter. Selling, general and administrative expenses were $14.5
million for the quarter and include such costs as sales commissions,
advertising, customer support, and equipment subsidies (handsets are typically
sold at a negative margin and the Company expects this trend to continue in the
near term). Depreciation and amortization increased $3.7 million for the quarter
and $10.4 million year-to-date, as the Company continues its build-out of its
digital network and other facilities, and amortize the goodwill resulting from
its acquisition of this business from AT&T PCS.
The third quarter operating loss was $7.5 million and increased the operating
loss for the year to $25.4 million. The net loss (which includes interest and
income tax expense, offset by minority interest income) of $6.0 million for the
quarter and $18.8 million year-to-date, is dilutive to the Company's earnings in
the amount of $.04 and $.13 per common share, respectively.
16
OTHER COMMUNICATIONS SERVICES
Three Months Ended September 30, Nine Months Ended September 30,
------------------------------------- ------------------------------------
($ Millions) 1999 1998 Change % 1999 1998 Change %
---- ---- ------ - ---- ---- ------ -
Revenues $32.7 $28.4 $4.3 15 $95.1 $79.4 $15.7 20
Costs and Expenses:
Costs of providing services 21.5 18.3 3.2 17 62.4 50.6 11.8 23
Selling, general and administrative 8.8 5.5 3.2 58 25.2 17.2 8.0 47
Depreciation and amortization 1.6 1.2 0.4 33 4.5 2.7 1.8 67
----- ----- ---- ----- ----- -----
Total Costs and Expenses 32.0 25.0 6.8 27 92.1 70.5 21.6 31
----- ----- ---- ----- ----- -----
Operating income $ 0.8 $ 3.4 $ (2.5) (74) $ 3.0 $ 8.9 $ (5.9) (66)
Operating margin 2.8% 12.0% 3.2% 11.2%
The Other Communications Services segment holds the Company's Cincinnati Bell
Long Distance (CBLD), Cincinnati Bell Supply (CBS), and EnterpriseWise IT
Consulting (EnterpriseWise) subsidiaries. CBLD resells long distance, Internet
access, data services and communications equipment to small- and medium-sized
business customers. CBS resells telecommunications equipment in the secondary
market and sells new computers. EnterpriseWise provides network integration and
consulting services.
For the quarter, revenues increased to $32.7 million, or 15% higher than for the
same period in the prior year. Year-to-date revenues increased to $95.1 million;
a 20% gain. Revenue from the long distance operations was unchanged in
comparison to the prior year quarter, but was $2 million higher on a
year-to-date basis, as an increase in billed minutes and revenues from the
introduction of the new services was offset by lower rates necessitated by
increasing competition. CBS benefited from new services and sales contracts,
contributing an additional $.8 million for the quarter and $5.0 million
year-to-date. EnterpriseWise provided additional revenue of $3.5 million for the
quarter and $8.7 million year-to-date through its original sales channels and
its acquisition of KSM Consulting (subsequently renamed to "EnterpriseWise") in
October 1998.
Operating expenses increased $6.8 million for the quarter and $21.6 million
year-to-date; 27% and 31% increases, respectively. Costs of providing services
were approximately $3 million higher for the quarter and $12 million for the
nine-month period, with all subsidiaries experiencing increases due to higher
sales volumes. Selling, general and administrative costs (SG&A) were
approximately $3 million higher for the quarter and $8 million year-to-date. The
increase in SG&A expenses can be largely attributed to entry into new lines of
business. CBLD experienced a $1.9 million increase in SG&A for the quarter and
$4.4 million year-to-date in support of its introduction of data transport,
high-speed Internet, and local exchange services. An additional $1.1 million for
the quarter and $2.8 million year-to-date in SG&A expense is attributable to
EnterpriseWise; a business that reported no SG&A costs for the first nine months
of 1998 due to its acquisition by the Company late in 1998. CBS incurred higher
expenses to establish a new call center in support of a sales agency arrangement
they have with a large equipment vendor.
Operating income of $0.9 million for the quarter and $3.0 million year-to-date
was $2.5 million and $5.9 million less than in the respective prior periods,
representing a 74% decrease for the quarter and 66% decline year-to-date.
Operating margin suffered a substantial decline versus both prior periods and is
the result of increasing pressure on per-minute long distance rates, and the
operating loss of EnterpriseWise.
17
OTHER INCOME STATEMENT ITEMS
Three Months Ended September 30, Nine Months Ended September 30,
------------------------------------ -------------------------------------
($ Millions) 1999 1998 Change % 1999 1998 Change %
---- ---- ------ - ---- ---- ------ -
Wireless Venture Loss $ --- $ 7.5 $(7.5) --- $ --- $16.2 $ (16.2) ---
Minority Interest $(1.7) $ --- $(1.7) --- $ (5.8) $ --- $ (5.8) ---
Equity in net loss of unconsolidated
subsidiaries $(6.3) $ --- $(6.3) --- $ (6.3) $ --- $ (6.3) ---
Other Expense (Income), Net $(0.5) $ (0.4) $(0.1) (25) $ (0.5) $ 1.6 $ (2.1) (131)
Interest Expense $13.9 $ 7.0 $ 6.9 99 $31.9 $17.8 $ 14.1 79
Income Taxes $14.5 $ 12.0 $ 2.5 21 $44.7 $32.6 $ 12.1 37
WIRELESS VENTURE LOSS AND MINORITY INTEREST - In 1998, the Company agreed to
fund losses during the period of time that the wireless business was operated by
AT&T PCS. Accordingly, a $16.2 million loss was recorded and shown in the
Consolidated Statements of Income and Retained Earnings under the caption
"Wireless Venture Loss" ($7.5 million of which was reflected in the third
quarter of 1998). With the Company's acquisition of an 80% ownership interest in
this business on December 31, 1998, current year results for the wireless
business are now reflected in the operating results of the Company. In 1999, the
Company has recorded $5.8 million in minority interest income in order to
recognize AT&T PCS' 20% ownership interest in the operating loss of the wireless
business; $1.7 million of which was reflected in the third quarter. Due to the
distinction between these two accounting methods, comparisons to prior year do
not yield meaningful results.
EQUITY IN NET LOSS OF UNCONSOLIDATED SUBSIDIARIES - As discussed in the
Company's Form 10-Q for the quarterly period ended June 30, 1999, the Company
has, as part of its merger with IXC, acquired approximately five million shares
of IXC common stock from General Electric Pension Trust. These shares represent
an ownership interest of approximately 13%. Since the Company subsequently
merged with IXC, the Company must account for these shares under the
step-by-step purchase method in accordance with Accounting Principal Board
Opinion (APB) No.18, "The Equity Method of Accounting for Investments in Common
Stock." Accordingly, the Company has accounted for this investment under the
equity method and recorded net losses equaling 13% of IXC's net loss from August
16, 1999 to September 30, 1999. These losses totaled $6.3 million and are
reflected as an Equity loss in unconsolidated subsidiaries.
INTEREST AND OTHER EXPENSE - Interest and other expense increased $6.8 million,
or 103%, and $12.0 million year-to-date, or 62%. These increases are
attributable to higher average debt levels associated with the acquisition of
the wireless business and the issuance of $400 million in convertible
subordinated debentures to Oak Hill Capital Partners, L.P. in July 1999.
INCOME TAXES - Income taxes of $14.5 million for the quarter increased by $2.5
million over the same period in 1998, representing an 21% increase. For the
nine-month period, income taxes of $44.7 million are $12.1 million higher than
in the prior year; a 37% increase. The approximate effective composite tax rate
for the current year is 36%, as compared to 35% in the prior year.
18
FINANCIAL CONDITION
CAPITAL INVESTMENT, RESOURCES AND LIQUIDITY
Although the Company's cash flow from operations is generally sufficient to
provide for investing activities, the merger with IXC Communications, Inc. (IXC)
will significantly alter the Company's capital structure and capital
requirements (and has to a certain degree already). Concurrent with its July 21,
1999 announcement of the merger with IXC, the Company sold $400 million of
10-year convertible subordinated debentures to Oak Hill Capital Partners, L.P.
(Oak Hill). These notes are convertible into common stock of Cincinnati Bell at
a price of $29.89 per common share at the option of the holder. For as long as
this debt is outstanding, these notes bear a coupon rate of 6.75% per annum with
the associated interest expense being added to the debt principal amount
(commonly referred to as "payment in kind", or PIK). Payment in kind will take
place for a five-year period, assuming that Oak Hill does not exercise
conversion rights prior to that time. Assuming conversion, these notes would not
require a future cash payment.
Of the $400 million in debt issue proceeds received in July 1999, the Company
has used $250 million to purchase approximately five million shares of IXC
common stock held by General Electric Pension Trust. The remainder of the
proceeds has been used for working capital requirements and a stock repurchase
plan for the purchase of the Company's common stock. As of the date of this
filing, the stock repurchase plan has required approximately $145 million of the
$200 million authorized for this program.
Effective with the closing of the merger with IXC, the Company assumed
approximately $1 billion in net debt of IXC (further discussed in Note 5 of the
Notes to Financial Statements). Furthermore, the considerable capital investment
required to complete IXC's fiber-optic network, combined with IXC's operating
losses and the Company's own investment in new and existing businesses, will
significantly increase the amount of cash needed by the Company in Year 2000 and
beyond. Accordingly, the Company has obtained a $1.8 billion credit facility
that is being used to refinance currently existing IXC debt, fund capital
expenditures, and provide working capital to the newly combined company. This
consists of a five-year term loan and a five-year revolving credit line with
equal capacities of $900 million. As of the date of this filing, the Company has
used approximately $700 million of the term loan to refinance its previously
existing debt, as well as IXC's outstanding debt. To date, the Company has not
drawn from the revolving credit line (further discussion of this credit facility
is contained in Note 5 of the Notes to Financial Statements) .
CASH FLOW
Income from continuing operations, adjusted for non-cash expenses, was $193
million for the first nine months of 1999 compared to $152 million in 1998; a
$41 million increase. Receivables grew at a smaller rate in 1999 than in 1998,
contributing an additional $9 million versus the prior year. Accounts payable
and accrued liabilities, and other current liabilities, decreased approximately
$27 million versus the prior year, largely due to the liquidation of prior year
liabilities for the wireless venture. An increase in other assets and
liabilities in 1999 served to reduce cash flows by $8 million. As a result of
the above, cash provided by operating activities equaled $152 million; $15
million more than the $137 million during the same period in 1998.
The Company has engaged in many significant investment activities during the
first nine months of 1999, several of which are related to its merger with IXC,
and are further described above and in the Notes to Financial Statements.
Through the first nine months of 1999, capital expenditures (excluding
acquisitions) were approximately $148 million; a $29 million increase versus the
prior year (the estimate of 1999 capital expenditures, including capitalization
of software as required by AICPA Statement of Position 98-1, is $210 million).
This increase in capital expenditures is the result of investment in the
infrastructure of the Company's wireless business.
In the current year, acquisitions totaled $24 million due to the additional
investment in the wireless business, the incurrence of merger-related costs, and
the purchase of a long distance reseller. The Company has expended approximately
$134 million to acquire its own common shares, and $250 million to purchase
approximately five million shares of IXC's common stock as part of the Company's
merger with IXC. Additionally, $2 million was invested in the equity securities
of an unaffiliated e-commerce vendor.
In order to fund the items noted above, the Company incurred an additional $36
million in short-term debt in 1999. Additionally, the Company sold $400 million
in convertible subordinated debentures to Oak Hill Partners, L.P. in July 1999
(see Note 5 of Notes to Financial Statements). Dividends paid to shareholders
reduced cash equally ($41 million) in both periods. Concurrent with its
announcement of the merger with IXC, the Company discontinued its dividend
19
payment effective after the second quarter 1999 payment in August 1999. At
current levels, this will provide approximately $14 million per quarter in
reduced cash requirements.
BALANCE SHEET
The $7 million decrease in cash and cash equivalents is the net result of the
items discussed above. Although the Company increased its provision for doubtful
accounts, net receivables increased $8 million as a function of higher revenues
(receivables as a percent of sales actually decreased in the quarter). Inventory
levels increased by $4 million due to the inventory requirements of the
Company's wireless business. Goodwill and other intangibles increased $6 million
as a result of the acquisition of a long-distance reseller and the adjustment to
the purchase price for the wireless business (described in Note 3 of the Notes
to Financial Statements). The $50 million increase in net property, plant and
equipment is a function of current year capital expenditures, less depreciation.
The $36 million increase in short-term debt and the approximately $400 million
increase to long-term debt are discussed in more detail above. The $68 million
decrease to shareowners' equity is the net result of the buyback of the
Company's common shares more than offsetting year-to-date net income, stock
option exercises, and an unrealized gain on investments.
CAPITALIZATION
As of the date of this filing, the Company maintains the following debt and
corporate credit ratings:
Duff & Phelps
Standard and Credit Rating Moody's Investor
Entity Description Poor's Service Service
- ------ ----------- ------ ------- -------
CBI Senior Unsecured Debt A A A3
CBI Corporate Credit Rating A --- A3
CBI Commercial Paper A-1 D-1 P-2
CBT Senior Unsecured Debt AA- AA- A-2
Each of the aforementioned ratings services has placed the Company's ratings
under review for possible downgrade as a result of the Company's merger with
IXC. As of the date of this filing, the Company is not aware of any changes to
these ratings but expects to be informed of these changes in the course of the
next several weeks.
REGULATORY MATTERS AND COMPETITIVE TRENDS
FEDERAL - In February 1996, Congress enacted the Telecommunications Act of 1996
(the 1996 Act), the primary purpose of which was to introduce greater
competition into the market for telecommunications services. The 1996 Act seeks
to facilitate competition by eliminating many of the legal and regulatory
barriers that, until then, had operated to restrict competitive entry in the
areas of local exchange telephone service, long distance telephone service, and
cable television service. Since February 1996, the Federal Communications
Commission (FCC) has initiated numerous rulemaking proceedings to adopt
regulations pursuant to the 1996 Act. Some of these regulations have already
taken effect; others are currently being challenged before various United States
Circuit Courts of Appeal. The 1996 Act and the FCC's rulemaking proceedings can
be expected to impact CBT's in-territory local exchange operations in the form
of greater competition. However, these statutes and regulations also create
opportunities for the Company to expand the scope of its operations, both
geographically and in terms of products and services offered.
OHIO - In March 1998, CBT and several intervening parties reached agreement on
the terms of a proposed settlement of most of the outstanding issues associated
with CBT's application for approval of an alternative regulation plan known as
CBT's "Commitment 2000" plan. The proposed settlement was subsequently approved
by the Public Utilities Commission of Ohio (PUCO) on April 9, 1998. The terms of
the Commitment 2000 plan approved by the PUCO include: (1) the elimination of
rate-of-return regulation and greater pricing flexibility for most services; (2)
no increase in basic residential access line rates for the term of the plan; (3)
greater pricing flexibility for business services; and (4) a 30% reduction in
basic rates for qualified, low-income residential consumers. The plan has an
initial term of three and one-half years, which can be extended up to two
additional years at CBT's discretion so long as certain service quality
benchmarks are maintained. The portion of CBT's alternative regulation case
dealing with the rates CBT can charge to competitive local exchange carriers for
unbundled network elements is still pending. The hearing on this portion of the
case was conducted in March and April 1999. On November 4, 1999, the PUCO issued
its Supplemental Opinion and Order, specifying certain parameters and methods
CBT must use to set its rates for unbundled network elements and
20
requiring compliant cost studies within three months. We have not yet been
able to assess the full impact of this decision on CBT's rates, but believe
that most rates will be below the levels CBT had requested, particularly with
respect to local loops. CBT is considering whether to seek rehearing or an
appeal of the decision.
21
KENTUCKY - On June 29, 1998, CBT filed an application with the Public Service
Commission of Kentucky (PSCK) seeking approval of an alternative regulation plan
similar to the Commitment 2000 plan approved by the PUCO in Ohio. On January 25,
1999, the PSCK issued an order approving the Kentucky alternative regulation
plan with certain modifications. One of the modifications was the adoption of an
earnings-sharing provision whereby customers would receive one-half of earnings
on equity in excess of 13.5%. The PSCK also ordered that residential rates be
frozen for three years and required rate reductions of approximately $3 million
per year versus current rates. On February 12, 1999, CBT filed a petition
seeking rehearing of the PSCK's January 25, 1999 order. On July 26, 1999, the
PSCK issued an order that eliminated the automatic earnings-sharing provision
and revised the required rate reductions to $2.3 million per year, instead of
the $3 million per year previously ordered.
BUSINESS OUTLOOK
Evolving technology, the preferences of consumers, the legislative and
regulatory initiatives of policy makers and the convergence of other industries
with the communications industry are causes for increasing competition
throughout the communications industry. The range of communications services,
the equipment available to provide and access such services, and the number of
competitors offering such services, continue to increase. These initiatives and
developments could make it difficult for the Company to maintain current revenue
and profit levels.
CBT's current and potential competitors include other incumbent local exchange
carriers, wireless services providers, interexchange carriers, competitive local
exchange carriers and others. To date, CBT has signed various interconnection
agreements with competitors and approximately 7,200 net access lines have been
transferred to competitors.
The Company's other subsidiaries face intense competition in their markets,
principally from larger companies. These subsidiaries primarily seek to
differentiate themselves by leveraging the strength and recognition of the
Company brand equity, by providing customers with superior service and by
focusing on niche markets and opportunities to develop and market customized
packages of services.
CBD's competitors are directory services companies, newspapers and other media
advertising services providers in the Cincinnati metropolitan market area. CBD
now competes with its former sales representative for Yellow Pages directory
customers. This competition may affect CBD's ability to grow or maintain profits
and revenues.
CBW is one of six active wireless service providers in the Cincinnati and
Dayton, Ohio metropolitan market areas.
CBLD's competitors include interexchange carriers and certain local exchange
companies. As evidenced by its acquisition of Discounted Long Distance, CBLD is
now expanding its reach into other markets. In addition to long distance and
local exchange services, CBLD is also offering new services such as data
transport and Internet access. CBS's competitors include vendors of new and used
computer and communications equipment operating regionally and across the
nation. EnterpriseWise competes with Intranet hardware vendors, wiring vendors,
and other integration and consulting businesses.
The Company's merger with IXC is a response to these competitive pressures and
represents a belief that the Company's reputation for quality service and
innovative products can be successfully exported outside of its current
franchise area. The Company plans to blend its provisioning and marketing
expertise with IXC's next-generation, fiber-optic network to introduce advanced
calling and data transport services throughout the U.S. The Company hopes to
retain market share with respect to its current service offerings, and pursue
rapid growth in data transport services. The Company also expects that each of
its current subsidiaries would benefit from this business combination through
the addition of new potential customers, sales channels, and markets.
22
YEAR 2000 PROGRAMMING -
Since 1996, the Company has devoted significant time and resources to achieve
Year-2000 (Y2K) compliance.
A Steering Committee, chaired by a Senior Vice President of the Company and
composed of upper-level management personnel, sets the direction and monitors
the activity of the Y2K Program Management Office (PMO). The PMO's
responsibility is to make CBT Y2K compliant and to provide oversight for the
Company's other subsidiaries as they track the status of their Y2K projects. In
addition to internal Y2K activities, the PMO is communicating with suppliers and
clients with which CBT's systems interface or rely upon to determine their
progress toward Y2K compliance.
For the first nine months of 1999 and 1998, the Company incurred Y2K expenses of
$4.2 million and $7.7 million, respectively. Y2K expenses in 1999 are estimated
to be in the range of $5 million to $8 million.
CBT and the rest of the Company's subsidiaries have completed all remediation,
replacement, and compliance testing efforts for critical components of its
Network, Facilities, and Information Technology. Each of the Company's
subsidiaries will spend the remainder of the year performing additional
enterprise testing and testing interfaces with outside business partners. Work
will continue with suppliers and business partners to monitor their progress.
CBT is also testing and refining its contingency plans working with the U.S.
Government's National Communications System, National Telecommunications
Alliance (NTA), and other industry members. These organizations will link to
other communications companies through the Alerting and Coordinating Network, a
private emergency network built by the major communications carriers and managed
by the NTA. The Communications/Command Center will monitor and report on the
status of the telecommunications industry across the world during the rollover
period.
Although the Company anticipates minimal business disruption as a result of the
century change, failure to ready the Company's software and systems for the Year
2000 or preparing adequate plans to avoid business interruption would have a
material adverse impact on the Company. This material adverse effect could
include a disruption to the provision of services to its customers and damaged
customer relationships, which could result in lost revenues or material
contractual penalties.
The failure of one of the Company's significant customers to modify its systems
for the Year 2000 successfully or to provide the appropriate business continuity
planning also could have an adverse impact on the Company as the Company is, to
a certain extent, dependent on the success of its customers.
The Company's success in becoming Y2K compliant largely depends on the Company's
vendors and business partners being Y2K compliant. The PMO is working diligently
with the Company's vendors and business partners to assure itself, to the extent
possible, that the vendors and business partners are taking the necessary steps
to become Y2K compliant. To the extent that any of the Company's vendors or
business partners experience Y2K technology difficulties which materially affect
their businesses, such difficulties could have a material adverse effect on the
Company's business, results of operations and financial condition.
BUSINESS DEVELOPMENT - To enhance shareholder value, the Company continues to
review opportunities for acquisitions, divestitures, and strategic partnerships.
23
Form 10-Q Part II Cincinnati Bell Inc.
ITEM 1. LEGAL PROCEEDINGS
As of the date of this filing, five stockholder class action suits were filed in
the Delaware Court of Chancery (the Court) against IXC and certain present and
former members of IXC's Board of Directors in connection with the announcement
of the merger between the Company and IXC. The Company has been named as a
defendant in one of these suits. These complaints allege, among other things,
that the defendants have breached their fiduciary duties to IXC's stockholders
by failing to maximize stockholder value in connection with entering into the
merger agreement. The complaints sought, among other things, a court order
enjoining completion of the merger. In an October 27, 1999 ruling, the Court
issued an order denying plaintiff's request for a preliminary injunction against
the merger. However, the Court did not rule on the merits of the suits, and
these suits remain pending. The Company believes that the complaints are without
merit and intends to continue vigorously defending these actions.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On July 21, 1999, Oak Hill Capital Partners, L.P. purchased $400 million of the
Company's 10-year convertible subordinated debentures. These bonds bear a coupon
rate of 6.75% per annum, and are initially convertible at a price of $29.89 per
share of Cincinnati Bell common stock. Now that the merger with IXC has been
consummated, these notes are convertible into common stock of Cincinnati Bell at
$29.89 per common share at the option of the holder.
Of the $400 million in debt issue proceeds received in July 1999, the Company
has used $250 million to purchase approximately five million shares of IXC
common stock held by General Electric Pension Trust. The remainder of the
proceeds has been used for a stock repurchase plan for the purchase of the
Company's common stock. As of the date of this filing, the stock repurchase plan
has required approximately $145 million of the $200 million authorized for this
program. The combination of these two stock purchase initiatives has required
approximately $395 million of the proceeds. The excess of the debt issue
proceeds over the cash requirements for these initiatives has been used for
working capital purposes.
The Company did not employ an underwriter or placement agent in connection with
the issuance of these securities, nor did it pay fees or incur discounts
associated with the sale of these debentures. The Company initially claimed
exemption from registration of these securities pursuant to Regulation D of the
Securities and Exchange Commission's Rule 501, but has subsequently filed a
registration statement for these notes on Form S-3 with the Securities and
Exchange Commission (filed on November 9, 1999).
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On October 29, 1999, the Company conducted a special meeting of its security
holders in order to vote on the issuance of Cincinnati Bell common stock to
stockholders of IXC in the merger of IXC and a subsidiary of Cincinnati Bell.
This was the only item submitted for a vote of security holders during this
special meeting. The Company's shareholders approved the merger, with 82,156,679
common shares (87.04%) voting in favor of the merger, 12,238,220 common shares
(12.04%) voting against the merger, and 1,417,918 common shares.
ITEM 5. OTHER INFORMATION
Other information pertaining to the Company and its merger with IXC can be found
on the Company's Forms 8-K described in Item 6(b). Certain information
pertaining to IXC can be found on IXC's Forms 8-K and on its Form 10-Q as filed
with the Securities and Exchange Commission on November 15, 1999.
Effective November 15, 1999, the Company notified the New York Stock Exchange,
Inc. that it would begin doing business as Broadwing Inc. and, accordingly,
requested that its stock ticker symbol be changed from CSN to BRW effective with
the opening of trading on Monday, November 15, 1999.
24
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
The following is filed as an Exhibit to Part I of this Form 10-Q:
Exhibit
Number
------
27 Financial Data Schedule
(b) Reports on Form 8-K.
Form 8-K, date of report October 13, 1999, reporting that certain
sections of the Company's merger agreement with IXC Communications,
Inc. had been amended in response to a decision of the Delaware Court
of Chancery in the case of Phelps Dodge Corporation vs. Cyprus Amax
Minerals Company. The Company's merger agreement with IXC
Communications, Inc. was previously filed in a Form 8-K, date of
report July 23, 1999.
Form 8-K, date of report October 22, 1999, reporting on the Company's
results of operations for the three months ended September 30, 1999.
Form 8-K, date of report November 8, 1999, setting forth certain
historical financial statements of the Company's merger partner, IXC
Communications, Inc.
Form 8-K, date of report November 12, 1999, reporting that the
Company's merger with IXC Communications, Inc. was successfully
completed on November 9, 1999.
25
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Cincinnati Bell Inc.
Date: March 17, 2000 /s/ Kevin W. Mooney
------------------- ------------------------------------------
Kevin W. Mooney
Chief Financial Officer