Exhibit 13
To Form 10-K for 1993
SELECTED FINANCIAL AND OPERATING DATA Cincinnati Bell Inc.
Dollars in Thousands
Except Per Share Amounts 1993 1992 1991 1990 1989
- ----------------------------------------------------------------------------------------------------------------------------------
RESULTS OF OPERATIONS
Revenues and sales (d) $1,089,637 $1,101,448 $1,064,687 $ 996,025 $ 887,081
Costs and expenses (d,e) 1,108,370 1,010,258 946,823 822,547 728,451
---------- ---------- ---------- ---------- ----------
Operating income (loss) (18,733) 91,190 117,864 173,478 158,630
Other income (expense) - net 9,405 10,947 4,250 8,157 5,168
Interest expense 45,760 46,158 52,839 45,254 31,394
---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes
and extraordinary charges (55,088) 55,979 69,275 136,381 132,404
Income taxes 1,707 17,042 26,565 45,387 38,045
---------- ---------- ---------- ---------- ----------
Income (loss) before extraordinary charges (56,795) 38,937 42,710 90,994 94,359
Extraordinary charges, net of income
tax benefit -- (3,690) -- -- --
---------- ---------- ---------- ---------- ----------
Net income (loss) (56,795) 35,247 42,710 90,994 94,359
Preferred dividend requirements 2,248 4,350 4,350 4,350 4,350
---------- ---------- ---------- ---------- ----------
Income (loss) applicable to common shares $ (59,043) $ 30,897 $ 38,360 $ 86,644 $ 90,009
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Earnings (loss) per common share $ (.93) $ .50 $ .63 $ 1.44 $ 1.50
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Dividends declared per common share (a) $ .80 $ .80 $ .80 $ .76 $ .68
---------- ---------- ---------- ---------- ----------
Weighted average number of common
shares outstanding (000) 63,296 61,914 61,334 60,282 59,993
---------- ---------- ---------- ---------- ----------
Pre-tax profit percent (5.1)% 5.1% 6.5% 13.7% 14.9%
---------- ---------- ---------- ---------- ----------
After tax profit percent (5.2)% 3.2% 4.0% 9.1% 10.6%
---------- ---------- ---------- ---------- ----------
Effective tax rate 3.1 % 30.4% 38.3% 33.3% 28.7%
---------- ---------- ---------- ---------- ----------
- ----------------------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION
Telephone plant investment at cost $1,430,822 $1,408,881 $1,365,546 $1,295,564 $1,221,050
---------- ---------- ---------- ---------- ----------
Total assets $1,664,090 $1,632,521 $1,743,134 $1,656,426 $1,393,329
---------- ---------- ---------- ---------- ----------
Debt maturing within one year $ 112,029 $ 192,962 $ 172,840 $ 140,167 $ 73,591
Long-term debt 522,888 350,069 445,237 437,038 362,182
Preferred shares subject to
mandatory redemption -- 60,000 60,000 60,000 60,000
Common shareowners' equity 515,615 568,883 581,594 578,610 516,114
---------- ---------- ---------- ---------- ----------
Total capitalization $1,150,532 $1,171,914 $1,259,671 $1,215,815 $1,011,887
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
- ----------------------------------------------------------------------------------------------------------------------------------
Dollars in Thousands
Except Per Share Amounts 1988 1987 1986 1985 1984 1983
- ----------------------------------------------------------------------------------------------------------------------------------
RESULTS OF OPERATIONS
Revenues and sales (d) $ 730,258 $ 635,035 $ 533,838 $ 487,089 $ 447,417 $ 428,150
Costs and expenses (d,e) 584,732 509,128 418,567 379,829 348,265 322,416
---------- ---------- ---------- ---------- ---------- ----------
Operating income (loss) 145,526 125,907 115,271 107,260 99,152 105,734
Other income (expense) - net 850 (1,870) 136 231 2,154 (288)
Interest expense 28,846 25,279 18,436 19,596 21,365 19,535
---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes
and extraordinary charges 117,530 98,758 96,971 87,895 79,941 85,911
Income taxes 33,195 34,405 38,743 36,290 31,587 36,272
---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before extraordinary charges 84,335 64,353 58,228 51,605 48,354 49,639
Extraordinary charges, net of income
tax benefit -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Net income (loss) 84,335 64,353 58,228 51,605 48,354 49,639
Preferred dividend requirements 1,945 -- -- -- 103 660
---------- ---------- ---------- ---------- ---------- ----------
Income (loss) applicable to common shares $ 82,390 $ 64,353 $ 58,228 $ 51,605 $ 48,251 $ 48,979
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
Earnings (loss) per common share $ 1.31 $ 1.00 $ .89 $ .78 $ .72 $ .66
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
Dividends declared per common share (a) $ .56 $ .48 $ .44 $ .39 $ .37 $ .35
---------- ---------- ---------- ---------- ---------- ----------
Weighted average number of common
shares outstanding (000) 62,702 64,050 65,610 66,426 67,236 73,773
---------- ---------- ---------- ---------- ---------- ----------
Pre-tax profit percent 16.1% 15.6% 18.2% 18.0% 17.9% 20.1%
---------- ---------- ---------- ---------- ---------- ----------
After tax profit percent 11.5% 10.1% 10.9% 10.6% 10.8% 11.6%
---------- ---------- ---------- ---------- ---------- ----------
Effective tax rate 28.2% 34.8% 40.0% 41.3% 39.5% 42.2%
---------- ---------- ---------- ---------- ---------- ----------
- ----------------------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION
Telephone plant investment at cost $1,229,539 $1,195,066 $1,115,459 $1,078,808 $1,027,664 $ 988,559
---------- ---------- ---------- ---------- ---------- ----------
Total assets $1,276,586 $1,154,240 $ 993,734 $ 949,696 $ 895,335 $ 878,081
---------- ---------- ---------- ---------- ---------- ----------
Debt maturing within one year $ 1,684 $ 330 $ 824 $ 1,694 $ 1,345 $ 500
Long-term debt 322,619 319,303 210,146 210,137 211,443 214,052
Preferred shares subject to
mandatory redemption 60,000 -- -- -- -- 2,500
Common shareowners' equity 483,761 448,772 423,229 395,370 373,539 372,688
---------- ---------- ---------- ---------- ---------- ----------
Total capitalization $ 868,064 $ 768,405 $ 634,199 $ 607,201 $ 586,327 $ 589,740
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
- ----------------------------------------------------------------------------------------------------------------------------------
SELECTED FINANCIAL AND OPERATING DATA Cincinnati Bell Inc.
Dollars in Thousands
Except Per Share Amounts 1993 1992 1991 1990 1989
- ----------------------------------------------------------------------------------------------------------------------------------
OTHER DATA
Total capital additions
(including acquisitions) $ 235,411 $ 140,056 $ 193,348 $ 284,335 $ 202,532
---------- ---------- ---------- ---------- ----------
Telephone plant construction $ 111,595 $ 94,956 $ 115,931 $ 127,690 $ 142,871
---------- ---------- ---------- ---------- ----------
Common shareowners 22,478 23,010 22,244 20,530 19,173
---------- ---------- ---------- ---------- ----------
Ratio of earnings to combined fixed
charges and preferred dividends (b) (c) 1.65 1.77 2.89 3.45
---------- ---------- ---------- ---------- ----------
Access minutes of use (000)
Interstate 2,132,281 1,985,239 1,852,207 1,788,449 1,685,110
---------- ---------- ---------- ---------- ----------
Intrastate 887,769 836,018 793,037 782,679 720,301
---------- ---------- ---------- ---------- ----------
Network access lines 848,000 827,000 808,000 800,000 781,000
---------- ---------- ---------- ---------- ----------
Total employees 14,700 11,200 12,100 11,800 11,000
---------- ---------- ---------- ---------- ----------
CBT employees 3,400 3,700 3,800 4,200 4,300
---------- ---------- ---------- ---------- ----------
Network access lines per CBT employee 249 224 213 190 182
---------- ---------- ---------- ---------- ----------
Market price per share
High $ 24.375 $ 20.875 $ 25.375 $ 27.875 $ 35.000
Low $ 16.125 $ 15.375 $ 17.875 $ 18.625 $ 20.000
Close $ 18.000 $ 17.125 $ 19.375 $ 23.250 $ 27.250
Dollars in Thousands
Except Per Share Amounts 1988 1987 1986 1985 1984 1983
- ----------------------------------------------------------------------------------------------------------------------------------
OTHER DATA
Total capital additions
(including acquisitions) $ 201,354 $ 196,989 $ 112,236 $ 110,311 $ 66,530 $ 49,674
---------- ---------- ---------- ---------- ---------- ----------
Telephone plant construction $ 76,268 $ 87,269 $ 78,358 $ 86,311 $ 59,280 $ 49,674
---------- ---------- ---------- ---------- ---------- ----------
Common shareowners 18,500 18,003 17,109 16,435 16,950 17,320
---------- ---------- ---------- ---------- ---------- ----------
Ratio of earnings to combined fixed
charges and preferred dividends (b) 3.77 4.19 5.16 4.88 4.25 4.42
---------- ---------- ---------- ---------- ---------- ----------
Access minutes of use (000)
Interstate 1,558,533 1,444,253 1,344,669 1,291,228 1,158,373 n/a
---------- ---------- ---------- ---------- ---------- ----------
Intrastate 672,646 609,644 502,458 462,009 409,059 n/a
---------- ---------- ---------- ---------- ---------- ----------
Network access lines 763,000 748,000 727,000 714,000 700,000 687,000
---------- ---------- ---------- ---------- ---------- ----------
Total employees 9,800 5,900 5,300 5,100 4,900 5,000
---------- ---------- ---------- ---------- ---------- ----------
CBT employees 4,100 4,300 4,300 4,400 4,400 4,700
---------- ---------- ---------- ---------- ---------- ----------
Network access lines per CBT employee 186 174 169 162 159 146
---------- ---------- ---------- ---------- ---------- ----------
Market price per share
High $ 23.500 $ 13.438 $ 11.938 $ 7.063 $ 5.375 $ 5.188
Low $ 10.625 $ 9.688 $ 6.844 $ 5.281 $ 4.391 $ 4.078
Close $ 21.875 $ 12.375 $ 10.250 $ 6.906 $ 5.313 $ 5.078
<FN>
(a) Dividends declared per common share for 1985 exclude a special dividend of
$.03 which was a one-time payment declared by the Company to accommodate a
change in the schedule of its regular dividend payments.
(b) For the purpose of this ratio: (i) Earnings have been calculated by adding
to Income before income taxes and extraordinary charges, adjusted for
undistributed income and losses of partnerships, the amount of interest
expense and the portion of rentals representative of the interest factor;
(ii) Fixed charges comprise total interest expense, such portion of rentals
representative of the interest factor and preferred dividend requirements.
(c) Earnings before income taxes were inadequate to cover fixed charges by
$57,247 for the year ended December 31, 1993.
(d) Certain CBIS reimbursable costs previously recorded as revenues have been
reclassified as a reduction of operating expenses. This reclassification
decreased revenues and operating expenses, but had no effect on operating
income (loss) or net income (loss) for all periods presented. In addition
to this reclassification, certain prior year amounts have been reclassified
to be consistent with the 1993 presentation.
(e) Included in costs and expenses for 1993, 1992 and 1991 are approximately
$102 million, $11 million and $10 million for special charges (see note (b)
of Notes to Financial Statements).
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
THE COMPANY
Cincinnati Bell Inc. (the "Company") is a holding company whose subsidiaries
operate in four principal areas: telephone operations, information systems,
marketing services and other telecommunications. Segment data are reported for
telephone operations, information systems and marketing services. The telephone
operations segment includes Cincinnati Bell Telephone Company ("CBT"), the
information systems segment is comprised of Cincinnati Bell Information Systems
Inc. ("CBIS") and the marketing services segment is represented by MATRIXX
Marketing Inc. Other telecommunications includes Cincinnati Bell Directory,
Cincinnati Bell Long Distance Inc. and Cincinnati Bell Supply.
This discussion should be read in conjunction with the consolidated financial
statements and the accompanying notes.
RESULTS OF OPERATIONS
The Company's consolidated net loss for 1993 was $56.8 million compared to net
income of $35.2 million in 1992 and $42.7 million in 1991. The 1993 loss per
common share was $.93 compared to earnings per common share of $.50 in 1992 and
$.63 in 1991. The 1993 results include approximately $102 million of special
charges for the divesting of CBIS Federal and restructuring CBIS that reduced
net income by approximately $88 million, or $1.39 per common share.
Revenues and sales decreased to $1,089.6 million from $1,101.4 million in 1992.
This represents a decrease of 1 percent compared to an increase of 3 percent in
1992. The decrease was primarily the result of CBT's sale of the residential
equipment leasing and PhoneCenter store businesses to AT&T in February 1993 and
CBIS's completion of the Nippon Telegraph and Telephone ("NTT") project in 1992.
Total costs and expenses increased to $1,108.4 million from $1,010.3 million in
1992. This was an increase of 10 percent compared to an increase of 7 percent
in 1992. The increase in expenses can be directly attributed to CBIS which
recorded approximately $102 million of special charges in the fourth quarter
1993. In addition to the special charges, CBIS recorded significant write-downs
of capitalized software costs to net realizable value and other costs and
expenses related to the termination of certain contracts and products.
Certain reimbursable costs previously recorded as revenues in the information
systems segment have been reclassified as a reduction of operating expenses.
The reclassification had no effect on operating income (loss) or net income
(loss) for all periods presented.
SPECIAL CHARGES - CBIS OPERATIONS
In late 1993, the Company determined the need to reorganize CBIS, its
information systems subsidiary. The reorganization focused on two phases. The
first phase was the elimination of non-strategic and under-performing
operations. This resulted in CBIS taking action to divest its holdings in its
federal operation (CBIS Federal), consolidating its foreign data center
operations, and eliminating domestic and international activities. The second
phase of the plan was to reorganize the remaining operations into strategic
business units. This change will allow the CBIS organization to better serve
its clients, align accountability with responsibility, and narrow its focus on
customer care and billing systems for the converging telecommunications market
while reducing staffing levels. These actions began in 1993 and are expected to
be completed in 1994.
These actions taken by CBIS resulted in recording special charges amounting to
approximately $102 million for restructuring the operations of CBIS. The
decision to sell CBIS Federal resulted in charges of $86 million that include
the expected loss on the sale, projected operating losses through estimated date
of sale, and other sale related expenses. CBIS Federal provides information
services to governmental agencies and employees approximately 1,000 employees.
In addition to the charges related to the sale of CBIS Federal, CBIS also
recorded approximately $16 million of charges for restructuring the remainder of
its operations. The charges include employee severance costs of approximately
$4 million, $6 million of fixed asset write-offs, and $6 million in costs
associated with discontinuing unprofitable domestic and international business
ventures. Included in the $102 million of special charges are approximately $68
million of charges that do not require future cash outlays. The write-off of
approximately $63 million of unamortized goodwill accounted for the majority of
the non-cash charges.
The net assets of the operations to be disposed or discontinued consist of $26
million of net current assets as of December 31, 1993. These amounts consist
primarily of accounts receivable, property, plant and equipment and related
liabilities. Included in the Consolidated Statements of Income for the year
ended December 31, 1993 are $67.4 million of
revenues and $88.6 million of expenses related to the operations to be disposed
or discontinued.
The Company expects that future financial results will benefit from the actions
taken by CBIS to reorganize its operations. The exclusion of operating losses
and other costs recognized by CBIS in 1993 related to CBIS Federal and other
under-performing operations will help to restore profitability to CBIS. It is
currently estimated that 1994 operating income could be increased up to $10
million, net of increased software product development costs, as a result of the
above actions.
In the fourth quarter 1992, CBIS recorded special charges totaling approximately
$11 million for the consolidation of its European operations. Included in these
charges were write-offs of fixed assets, lease termination payments, employee
severance and relocation costs and estimated operating losses.
In the fourth quarter 1991, the Company recorded special charges of
approximately $10 million to expense special termination benefits related to an
early retirement incentive package, employee costs for involuntary separations
and other related costs. Of this amount, $6 million was recorded at CBIS.
CHANGES IN REVENUES AND SALES
TELEPHONE OPERATIONS
Increase (Decrease)
Thousands of Dollars
-------------------------------------
1993 1992
- -------------------------------------------------------------------
Local service $ 10,677 4 % $ 6,876 2 %
In 1993, the increase in revenues was attributable to an increase in access
lines, greater sales of advanced calling features, increased use of directory
assistance services and higher public telephone revenues.
In 1992, the increase was caused primarily by access line growth and greater
sales of advanced calling features.
Access lines increased by 21,000 or 2.5 percent to 848,000 from 827,000 in 1992
compared to an increase of 19,000 or 2.4 percent in 1992 over 1991.
Increase (Decrease)
Thousands of Dollars
-------------------------------------
1993 1992
- -------------------------------------------------------------------
Network access $ (6,702) (5)% $ 12,022 10 %
During 1993, CBT recorded a $6.6 million reduction in interstate access revenues
as the result of orders from the Federal Communications Commission ("FCC"). The
FCC orders involved complaints against CBT alleging that CBT had exceeded
targeted earnings levels for interstate access services for the 1987-1988
monitoring period. Other decreases were caused by reductions in July, 1992 and
1993 in rates for common carrier access. Partially offsetting the decreases
were increases in end user charges from access line growth and increases in
multi-line rates.
The increase in 1992 was the result of increased common carrier access and end
user charges, transport services provided to independent carriers and
settlements, which more than offset common carrier access rate reductions in
July 1992.
Increase (Decrease)
Thousands of Dollars
-------------------------------------
1993 1992
- -------------------------------------------------------------------
Long distance $ 8,297 25 % $ (2,733) (8)%
The increase in 1993 was caused primarily by higher settlements and increased
IntraLATA message toll revenues.
In 1992, lower settlement revenues was the principal cause for the decrease.
Increase (Decrease)
Thousands of Dollars
-------------------------------------
1993 1992
- -------------------------------------------------------------------
Other $(31,200) (28)% $ (35,005) (24)%
The primary reason for the 1993 decrease was significant reductions in
residential equipment leasing and PhoneCenter store revenues. These businesses
were sold to AT&T Consumer Products in February 1993 and were responsible for
approximately $24 million of the decrease in revenues. Billing and collection
revenues decreased primarily as the result of AT&T's decision to perform certain
functions in-house in 1992. Revenues from CBT owned leasing business
telecommunications equipment decreased in 1993 as CBT discontinued this service
and commission revenues were lower from concluding certain business activities.
Partially
offsetting the decreases were increases from new services offered, maintenance
contracts and sales of used equipment.
In 1992, the decrease was caused by decreases in billing and collection revenues
primarily from AT&T, lower commission revenues from reduced sales and leases of
equipment and less lease revenues. In addition, lower sales of material and
merchandise also contributed to the decrease. Partially offsetting the
decreases were lower provisions for uncollectibles, discounts and allowances.
INFORMATION SYSTEMS
Increase (Decrease)
Thousands of Dollars
-------------------------------------
1993 1992
- -------------------------------------------------------------------
$(18,217) (6)% $ 39,036 14 %
Professional and consulting revenues decreased in 1993 from 1992 as a result of
the completion of the NTT project in 1992. Also contributing to the decrease
were lower federal government contract revenues resulting from a decision in
late 1992 by the Internal Revenue Service ("IRS") not to renew an automated data
processing support contract. Partially offsetting the decreases were increased
revenues from international contracts for the customization of
telecommunications software and data processing revenues for increased business
with existing customers.
The increase in 1992 was caused primarily from data processing revenues for
increased business with existing customers, partially offset by a decrease in
professional and consulting revenues caused by the completion of the NTT
project.
Because of the decision to sell CBIS Federal and discontinue certain other
unprofitable business ventures, revenues for 1994 will be lower than 1993. In
addition, data processing revenues from card billing services provided to AT&T
are expected to decline significantly in 1994. The negative impact should be
partially offset by growth in CBIS' core business.
MARKETING SERVICES
Increase (Decrease)
Thousands of Dollars
-------------------------------------
1993 1992
- -------------------------------------------------------------------
$ 21,217 25 % $ 1,953 2 %
The acquisition of WATS Marketing of America ("WATS Marketing") in November 1993
accounted for $11.9 million of the increase in 1993 and will continue to
contribute significant revenue increases in 1994. The remaining increase was
from increased volume of business from new and existing customers. The
increases were partially offset by a decrease caused from the completion of a
major telephone marketing contract at the end of 1992.
The increase in 1992 was principally the result of increased volume of business
from new and existing customers. Partially offsetting the increase was lower
foreign telephone marketing revenues from the termination of lower profit margin
contracts.
OTHER TELECOMMUNICATIONS
Increase (Decrease)
Thousands of Dollars
-------------------------------------
1993 1992
- -------------------------------------------------------------------
$ 4,117 4 % $ 14,612 14 %
The increases in 1993 and 1992 were principally caused by increased revenues in
the long distance business from expansion into new market areas and additional
product offerings. The directory and supply businesses also contributed to the
increase in 1992 because of higher sales.
CHANGES IN COSTS AND EXPENSES
Operating Expenses
Increase (Decrease)
Thousands of Dollars
-------------------------------------
1993 1992
- -------------------------------------------------------------------
$ (5,859) (1)% $ 51,006 9 %
One of the significant reasons for the decrease in 1993 was the result of fewer
expenses related to the NTT project at CBIS that was completed in 1992. Costs
also were lower in 1993 because of reduced work on government contracts at CBIS
Federal. Additionally, the selling of the residential equipment leasing and
PhoneCenter store businesses in early 1993, reduced cost of sales and operating
expenses. Employee costs were lower in 1993 as the result of workforce
reductions primarily at CBT and a change in CBT vacation policy.
Even though operating expenses decreased overall in 1993, there were several
increases. CBIS recorded charges of $5.1 million to withdraw from certain
unprofitable international contracts and products. Product development expenses
increased approximately $15.6 million in 1993 over the prior year. The
acquisition of WATS Marketing in November 1993, also
contributed to the increase in costs over the prior period. The adoption of
Statement of Financial Accounting Standards ("SFAS") SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions", in 1993 increased
expenses by approximately $6 million over the 1992 expense. Other reasons for
increases in 1993 were increased provisions for inventory losses primarily at
Cincinnati Bell Supply and various other costs.
Expenses for 1994 will be increased by the full-year effects for the acquired
WATS Marketing and the absence of the one-time benefit of the change in the CBT
vacation policy. Cost and expenses related to the businesses to be disposed and
the withdrawal from unprofitable ventures will help to decrease 1994 amounts.
During 1993, CBT revised its vacation policy for management and non-management
employees to be on an equivalent basis with the Company's other subsidiaries.
The policy changed the period in which the employees earn vacation. The change
in vacation policy decreased operating expenses and plant and building services
expenses by approximately $6.2 million in 1993 compared to 1992.
The increase in 1992 was attributable to higher product development expenses of
approximately $7.6 million at CBIS, greater expenses related to revenue
generation efforts and increased advertising costs. Also included were
increases in employee costs and consulting fees. Partially offsetting the
increases were decreased expenses associated with the NTT project.
PLANT AND BUILDING SERVICES
Increase (Decrease)
Thousands of Dollars
-------------------------------------
1993 1992
- -------------------------------------------------------------------
$ (8,879) (5)% $ 3,943 2 %
Lower employee costs resulting from CBT workforce reductions was a significant
reason for the decrease in 1993. The CBT vacation policy change and a reduction
in supplies and expensed purchases of equipment also contributed to the 1993
decrease. Partially offsetting the decreases were increases in expenses in 1993
over 1992 caused by higher office lease costs, increased telecommunications
costs related to higher marketing service revenues, and the inclusion of the
inclusion of the acquired WATS Marketing expenses.
In 1992, the increase was caused principally from increases in office lease
costs. The increases were partially offset by lower employee costs from a
reduction of employees at CBT
and lower telecommunications costs directly related to a major telephone
marketing contract.
DEPRECIATION AND AMORTIZATION
Increase (Decrease)
Thousands of Dollars
-------------------------------------
1993 1992
- -------------------------------------------------------------------
$ 21,492 16 % $ 5,173 4 %
The increase in 1993 was mainly the result of charges made in the third and
fourth quarters by CBIS to reduce the carrying value of certain capitalized
software to net realizable value. These charges increased amortization of
software costs by approximately $17 million. The remaining increase was
attributed to the acquisition of WATS Marketing and higher investment in
property, plant and equipment.
In 1992, the increase was caused by federal and state depreciation rate
represcriptions at CBT and higher investment in property, plant and equipment.
Partially offsetting the increases was a decrease resulting from the reduction
of the carrying value of capitalized software costs to net realizable value in
June 1991.
TAXES OTHER THAN INCOME TAXES
Increase (Decrease)
Thousands of Dollars
-------------------------------------
1993 1992
- -------------------------------------------------------------------
$ 273 - $ 2,759 3 %
The increase in 1992 was caused by property taxes increasing as a result of
higher rates and amounts of property, plant and equipment and gross receipts
taxes increasing from higher revenue subject to taxes. Partially offsetting the
increase was a decrease in payroll taxes resulting from workforce reductions.
CHANGES IN OTHER INCOME (EXPENSE) - NET
Increase (Decrease)
Thousands of Dollars
-------------------------------------
1993 1992
- -------------------------------------------------------------------
$ (1,542) (14)% $ 6,697 158 %
The decrease in 1993 included the recording of $4.2 million in provisions for
losses related to an investment in and loans to an international distributor of
CBIS products and services. Other decreases were from lower interest charged
construction and the effect of recording interest income in 1992 from IRS tax
refunds. Mainly offsetting the decreases was an
increase from the difference between the gain on the 1993 sale by CBT of its
residential equipment and PhoneCenter store business to AT&T and the gain
recognized in 1992 for an amendment to CBT's marketing agency relationship with
AT&T.
For the past ten years, the Company has been a partner in the Anixter-Cincinnati
joint venture with Anixter Bros., Inc. This joint venture sold equipment and
material to CBT. According to the terms of the partnership agreement, the
partnership was terminated at the end of 1993. The Company's share of the
profits from this partnership for 1993 was $2.7 million, which is expected to be
discontinued in 1994.
The increase in 1992 was primarily the result of a gain from an amendment to
CBT's marketing agency relationship with AT&T and the effect of the Company's
write-off of its investment in AT&E Corporation in 1991. There were higher
amounts of interest charged construction and lower foreign exchange losses in
1992 compared to 1991.
CHANGES IN INTEREST EXPENSE
Increase (Decrease)
Thousands of Dollars
-------------------------------------
1993 1992
- -------------------------------------------------------------------
$ (398) (1)% $ (6,681) (13)%
The decrease in 1993 was primarily caused by decreasing interest rates and the
effect of long-term refinancing activities in 1992 to take advantage of lower
interest rates. Mostly offsetting the decreases was $4.2 million of interest
expense which CBT recorded related to the FCC orders to refund interstate access
revenues.
In 1992, the decrease was caused primarily by decreasing interest rates, lower
average debt outstanding and the absence in 1992 of interest expense related to
a 1991 federal tax settlement.
Interest expense in 1994 is expected to increase over 1993 as a consequence of
higher total debt levels and a higher weighted average interest rate. The
Company issued $170 million of long-term debt, mostly in late 1993 at long-term
interest rates that were higher than short-term debt rates that the Company used
as financing during most of 1993.
CHANGES IN INCOME TAXES
Increase (Decrease)
Thousands of Dollars
-------------------------------------
1993 1992
- -------------------------------------------------------------------
$(15,335) (90)% $ (9,523) (36)%
The decrease in 1993 was principally the result of lower U. S. income before
taxes. The decision to sell CBIS Federal resulted in losses which did not
create income tax benefits.
The decrease in 1992 was attributable to lower U.S. income before taxes, the
realization of research and development and foreign sales corporation tax
benefits and higher amortization of investment tax credits.
OTHER FINANCIAL INFORMATION
The Financial Accounting Standards Board has issued SFAS No. 112, "Employers'
Accounting for Postemployment Benefits". Implementation of SFAS 112 is required
in 1994. SFAS 112 requires the accrual of the obligation for benefits provided
to former or inactive employees, their beneficiaries and covered dependents
after employment but before retirement. These benefits include workers'
compensation, disability benefits and health care coverage for a limited time.
SFAS 112 will change the Company's current method of accounting for
postemployment benefits from recognizing costs as benefits are paid to accruing
the expected costs of providing these benefits. The Company estimates that the
adoption of SFAS 112 will increase result in a one-time charge of approximately
$5 million in the first quarter 1994. Preliminary estimates indicate that the
on-going expense recognized under SFAS 112 will not be significantly different
from that recorded under existing methods.
REGULATORY MATTERS
In November 1993, CBT filed modifications to its proposed alternative regulation
plan with the Public Utilities Commission of Ohio ("PUCO"). CBT's original
proposal was filed in May 1993. CBT filed its request under alternative
regulation guidelines that were approved by the PUCO in January 1993, to give
regulated telephone companies the flexibility to price services competitively
and bring services to the market more quickly. The request only applies to Ohio
and Indiana customers. It has not been filed in Kentucky. The May 1993 filing
included a request to raise the prices of most regulated local services by
approximately 9 percent and if approved in its entirety, the proposal would
yield about $17 million in new revenue annually from business and residence
customers.
There is no assurance that the request, in whole or in part, will be
approved or when any increase would be effective.
CBT presently gives accounting recognition to the actions of regulators where
appropriate, as prescribed by SFAS No. 71, Accounting for the Effects of Certain
Types of Regulation". Under SFAS 71, CBT records certain assets and liabilities
because of the actions of regulators. Amounts charged to operations for
depreciation expense reflect estimated useful lives and methods prescribed by
regulators rather than those that might otherwise apply to unregulated
enterprises. In the event CBT determines that it no longer meets the criteria
for following SFAS 71, the accounting impact to CBT would be an extraordinary
non-cash charge to operations of an amount which would be material. Criteria
that give rise to the discontinuance of SFAS 71 include increasing competition,
which restricts CBT's ability to establish prices to recover specific costs and
a significant change in the manner in which rates are set by regulators from
cost-based regulation to another form of regulation. CBT periodically reviews
these criteria to ensure that continuing application of SFAS 71 is appropriate.
FINANCIAL CONDITION
Cash provided by operating activities in 1993 was $198.1 million compared to
$268.7 million in 1992. The 1992 amount included almost $100 million of
non-recurring cash receipts related to the completion of the NTT project and was
the primary explanation of the $70.6 million decrease between 1992 and 1993.
Lower cash payments for interest and income taxes in 1993 helped to partially
offset the decrease in cash from operating activities. In September 1993, the
Company and First Data Corporation announced an agreement in principle for the
Company to acquire First Data's telephone marketing subsidiary, WATS Marketing
of America. The finalized agreement was signed in November 1993. The cost of
the acquisition was $67.8 million, which included the purchase price of $63
million and $4.8 million of related acquisition costs and working capital
adjustments. The purchase was financed by the issuance of short-term debt. The
agreement contains provisions which could increase the purchase price up to
$87.5 million, if certain conditions are met.
Investing activities used $72.2 million more cash in 1993 compared to 1992.
Capital expenditures were $234.3 million and $147.2 million for 1993 and 1992,
respectively. The 1993 capital expenditures include the acquisition of WATS
Marketing mentioned above. Included in the capital expenditures were
capitalized software costs of $26.2 million and $14.8 million, respectively. In
1994, capital expenditures are expected to be approximately $160 million of
which $95 million is for telephone property, plant and equipment.
Financing activities provided $29.8 million in 1993 while using $123.9 million
in 1992. In 1993, debt increased as a result of less cash available from
operating activities and additional cash needed for the acquisition of WATS
Marketing. In 1992, debt decreased as a result of using NTT project cash
collections to reduce outstanding debt.
The Company was authorized by its Board of Directors to purchase up to 1,000,000
common shares in open market transactions through December 1993. The Company
acquired 281,000 common shares for $5.5 million during 1993 under this program.
The Company's debt to capitalization ratio at December 31, 1993 was 55.2 percent
compared to 46.3 percent at December 31, 1992. The increase was caused by a
decrease in equity resulting primarily from the special charges and an increase
in debt.
In May 1993, CBT filed a shelf registration with the Securities Exchange
Commission for the issuance of up to $120 million of guaranteed debt securities.
Pursuant to the shelf registration, CBT issued the $120 million during November
and December 1993 with various interest rates and redemption and maturity dates.
The debt securities are guaranteed by the Company on a subordinated basis. The
net proceeds from the sale were used, in part, to reduce CBT' outstanding
indebtedness which was incurred in December 1992 to redeem $75 million of CBT's
long-term debt.
In July 1993, pursuant to a November 1992 shelf registration, the Company issued
$50 million of thirty-year 7.25 percent notes due June 15, 2023. The net
proceeds from the sale were used to reduce the Company's short-term borrowings.
In July 1993, the Western and Southern Life Insurance Company
("Western-Southern") elected to convert the outstanding preferred shares to
common shares. The Company issued 3,157,896 common shares which increased
Western-Southern's ownership of the Company's outstanding common shares to
6,627,696 shares or 10.2 percent of the shares then outstanding.
Western-Southern's ownership has subsequently been reduced to 6,452,696 shares
or 9.9 percent of the shares outstanding at December 31, 1993. The elimination
of the preferred dividend approximately offsets the dilution in earnings per
common share for 1993 that results from issuing these additional common shares.
In July 1993, CBT's debt rating on its senior notes and debentures was lowered
by Duff & Phelps from AA+ to AA-. The deterioration in telephone company's
earnings was the reason
cited by Duff & Phelps for the change in the rating.
In February 1994, Duff & Phelps said that in light of the CBIS write-offs, which
occurred in the fourth quarter 1993, it would be expanding again its credit
rating review of the Company. At the same time, Moody's Investor Service
lowered the ratings of the Company's senior long-term debt from A-1 to A-2,
citing the continuing difficulties in achieving adequate earnings from its
diversification strategy.
Management believes that the Company has adequate internal and external
resources available to finance its business development, construction and
dividend programs. The Company maintains adequate lines of credit with several
institutions to provide support for borrowings and general corporate purposes.
Inflation did not have a material effect in 1993 on the operations of the
Company. The Company continually attempts to minimize the impact from inflation
through greater productivity and cost improvement programs.
COMPETITION
Regulatory, legislative and judicial decisions, new technologies and the
convergence of other industries with the telecommunications industry are causes
of increasing competition in the telecommunications 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. Federal and state regulators are encouraging changes that promote
competition in the industry. These impacts are expected to make it difficult to
maintain and grow telephone revenues. The telephone company will need to
respond with active programs to market products and reduce costs.
BUSINESS OUTLOOK
Cincinnati Bell operates businesses in several different markets. Each of the
businesses has fluctuations in revenues and operating earnings as the result of
the overall level, timing and terms of many contracts. These circumstances may
increase the variability of financial results on a quarter-to-quarter basis.
Important to the Company's growth is the success of products developed using
CBIS's new "Edge" system, an object-oriented, open-architecture, distributed
processing platform. Precedent 2000, an important product using the CBIS Edge
platform, is expected to be in use by certain customers later in the year. It
is too early to predict the success of this system.
CBT continues to monitor the technological changes and competitive and
regulatory environment of the telecommunications business and to develop
strategies to address these changes.
CBT is evaluating the way it conducts business in order to further improve
customer responsiveness and quality. CBT is evaluating regulatory changes that
will be needed. Also, CBT is evaluating productively improvement programs that
could involve retraining of employees, re-engineering of systems, restructure of
its organization, resource levels and other operating costs.
As previously announced the Company estimated that earnings for the first
quarter 1994 will be below results for the first quarter 1993. Improvement is
contingent on the following: CBT must successfully navigate new technology,
changes in regulatory policy and the competitive environment; CBIS must improve
operational processes and generate sufficient revenues to recover its software
costs; and, MATRIXX must successfully integrate the WATS acquisition.
The Company will continue to look carefully at its options in each of the
business to improve shareowner value.
REPORT OF MANAGEMENT
The management of Cincinnati Bell Inc. is responsible for the information and
representations contained in this Annual Report. Management believes that the
financial statements have been prepared in accordance with generally accepted
accounting principles and that the other information in the Annual Report is
consistent with those statements. In preparing the financial statements,
management is required to include amounts based on estimates and judgments which
it believes are reasonable under the circumstances.
In meeting its responsibility for the reliability of the financial statements,
management maintains a system of internal accounting controls which is
continually reviewed and evaluated. Our internal auditors monitor compliance
with it in connection with their program of internal audits. However, there are
inherent limitations that should be recognized in considering the assurances
provided by any system of internal accounting controls. The concept of
reasonable assurance recognizes that the costs of a system of internal
accounting controls should not exceed, in management's judgment, the benefits to
be derived. Management believes that its system provides reasonable assurance
that assets are safeguarded and that transactions are properly recorded and
executed in accordance with management's authorization, that the recorded
accountability for assets is compared with the existing assets at reasonable
intervals, and that appropriate action is taken with respect to any differences.
Management also seeks to assure the objectivity and integrity of its financial
data by the careful selection of its managers, by organizational arrangements
that provide an appropriate division of responsibility, and by communications
programs aimed at assuring that its policies, standards and managerial
authorities are understood throughout the organization.
The financial statements have been audited by Coopers & Lybrand, independent
accountants. Their audit was conducted in accordance with generally accepted
auditing standards.
The Audit Committee of the Board of Directors (see page 60), which is composed
of three directors who are not employees, meets periodically with management,
the internal auditors and Coopers & Lybrand to review the manner in which they
are performing their responsibilities and to discuss auditing, internal
accounting controls and financial reporting matters. Both the internal auditors
and the independent accountants periodically meet alone with the Audit Committee
and have free access to the Audit Committee at any time.
/s/ Brian C. Henry
Executive Vice President and Chief Financial Officer
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREOWNERS OF CINCINNATI BELL INC.
We have audited the accompanying consolidated balance sheets of Cincinnati
Bell Inc. and subsidiaries as of December 31, 1993 and 1992, and the related
consolidated statements of income, common shareowners' equity and cash flows for
each of the three years in the period ended December 31, 1993. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Cincinnati Bell
Inc. and subsidiaries as of December 31, 1993, and 1992, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1993, in conformity with generally accepted
accounting principles.
As discussed in note (d) to the financial statements, the Company changed its
method of accounting for postretirement benefits other than pensions in 1993.
/s/ Coopers & Lybrand
Cincinnati, Ohio
February 11, 1994
CONSOLIDATED STATEMENTS OF INCOME Cincinnati Bell Inc.
Thousands of Dollars Except Per Share Amounts Year Ended December 31 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------------
Revenues and Sales
Telephone operations
Local service $ 301,412 $ 290,735 $ 283,859
Network access 129,663 136,365 124,343
Long distance 41,448 33,151 35,884
Other 80,008 111,208 146,213
---------- ---------- ----------
552,531 571,459 590,299
Information systems 309,684 327,901 288,865
Marketing services 107,780 86,563 84,610
Other telecommunications 119,642 115,525 100,913
---------- ---------- ----------
Total revenues and sales 1,089,637 1,101,448 1,064,687
---------- ---------- ----------
- -----------------------------------------------------------------------------------------------------------------------
Costs and Expenses
Operating expenses 603,574 609,433 558,427
Plant and building services 153,614 162,493 158,550
Depreciation and amortization 158,515 137,023 131,850
Taxes other than income taxes 91,037 90,764 88,005
Special charges 101,630 10,545 9,991
---------- ---------- ----------
Total costs and expenses 1,108,370 1,010,258 946,823
---------- ---------- ----------
Operating income (loss) (18,733) 91,190 117,864
---------- ---------- ----------
- -----------------------------------------------------------------------------------------------------------------------
Other Income (Expense) - Net 9,405 10,947 4,250
---------- ---------- ----------
- -----------------------------------------------------------------------------------------------------------------------
Interest Expense 45,760 46,158 52,839
---------- ---------- ----------
- -----------------------------------------------------------------------------------------------------------------------
Income (Loss) Before Income Taxes and
Extraordinary Charges (55,088) 55,979 69,275
Income Taxes 1,707 17,042 26,565
---------- ---------- ----------
- -----------------------------------------------------------------------------------------------------------------------
Income (Loss) Before Extraordinary Charges (56,795) 38,937 42,710
Extraordinary Charges, Net of Income Tax Benefit -- (3,690) --
---------- ---------- ----------
- -----------------------------------------------------------------------------------------------------------------------
Net Income (Loss) 35,247 42,710
Preferred Dividend Requirements 2,248 4,350 4,350
---------- ---------- ----------
- -----------------------------------------------------------------------------------------------------------------------
Income (Loss) Applicable to Common Shares $ (59,043) $ 30,897 $ 38,360
---------- ---------- ----------
---------- ---------- ----------
- -----------------------------------------------------------------------------------------------------------------------
Weighted Average Number of Common Shares Outstanding (000) 63,296 61,914 61,334
Earnings (Loss) Per Common Share
Income (Loss) Before Extraordinary Charges $ (.93) $ .56 $ .63
Extraordinary Charges -- (.06) --
---------- ---------- ----------
Net Income (Loss) $ (.93) $ .50 $ .63
---------- ---------- ----------
---------- ---------- ----------
- -----------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
CONSOLIDATED STATEMENTS OF COMMON SHAREOWNERS' EQUITY Cincinnati Bell Inc.
Common Shareowners' Equity
---------------------------------------------
Foreign Common
Additional Currency Shares
Common Paid-In Reinvested Translation Outstanding
Thousands of Dollars Except Per Share Amounts Total Shares Capital Earnings Adjustment (000)
- -----------------------------------------------------------------------------------------------------------------------------
Balance at January 1, 1991 $578,610 $ 60,937 $139,400 $378,273 $ -- 60,937
Shares issued under shareowner plans 4,835 218 4,617 -- -- 218
Shares issued under employee plans 10,612 540 10,305 (233) -- 540
Acquisition of shares (1,833) (100) (246) (1,487) -- (100)
Net income 42,710 -- -- 42,710 -- --
Adjustment for foreign currency translation 138 -- -- -- 138 --
Dividends:
Preferred shares 7.25% (4,350) -- -- (4,350) -- --
Common shares $.80 per share (49,128) -- -- (49,128) -- --
- -----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1991 581,594 61,595 154,076 365,785 138 61,595
Shares issued under shareowner plans 4,553 256 4,297 -- -- 256
Shares issued under employee plans 7,126 426 6,917 (217) -- 426
Acquisition of shares (5,593) (322) (845) (4,426) -- (322)
Net income 35,247 -- -- 35,247 -- --
Adjustment for foreign currency translation (138) -- -- -- (138) --
Dividends:
Preferred shares 7.25% (4,350) -- -- (4,350) -- --
Common shares $.80 per share (49,556) -- -- (49,556) -- --
- -----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1992 568,883 61,955 164,445 342,483 -- 61,955
Shares issued under shareowner plans 1,467 64 1,403 -- -- 64
Shares issued under employee plans 1,115 86 1,313 (284) -- 86
Acquisition of shares (5,480) (281) (746) (4,453) -- (281)
Preferred shares converted to common shares 60,000 3,158 56,842 -- -- 3,158
Net income (loss) (56,795) -- -- (56,795) -- --
Adjustment for foreign currency translation (16) -- -- -- (16) --
Dividends:
Preferred shares 7.25% (2,248) -- -- (2,248) -- --
Common shares $.80 per share (51,311) -- -- (51,311) -- --
- -----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1993 $515,615 $ 64,982 $223,257 $227,392 $ (16) 64,982
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
- -----------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
CONSOLIDATED BALANCE SHEETS
Thousands of Dollars at December 31 1993 1992
- ----------------------------------------------------------------------------------------------------
Assets
Current Assets
Cash and cash equivalents $ 8,668 $ 5,304
Receivables, less allowances of
$14,031 and $6,705, respectively 241,669 219,169
Material and supplies 21,627 27,522
Prepaid expenses 30,391 31,041
Deferred charges 22,471 11,780
---------- ----------
324,826 294,816
---------- ----------
- ----------------------------------------------------------------------------------------------------
Property, Plant and Equipment - At Cost
Telephone plant
In service 1,416,016 1,385,463
Under construction 14,806 23,418
---------- ----------
1,430,822 1,408,881
Less: Accumulated depreciation (541,690) (525,215)
---------- ----------
889,132 883,666
---------- ----------
Other property 303,917 253,988
Less: Accumulated depreciation
and amortization (145,480) (100,846)
---------- ----------
158,437 153,142
---------- ----------
1,047,569 1,036,808
---------- ----------
- ----------------------------------------------------------------------------------------------------
Other Assets
Intangibles, primarily goodwill-net 192,161 223,751
Deferred charges and other 56,504 33,967
Other investments 43,030 45,179
---------- ----------
291,695 300,897
---------- ----------
- ----------------------------------------------------------------------------------------------------
Total Assets $1,664,090 $1,632,521
---------- ----------
---------- ----------
- ----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
Cincinnati Bell Inc.
Thousands of Dollars at December 31 1993 1992
- ----------------------------------------------------------------------------------------------------
Liabilities and Invested Capital
Current Liabilities
Debt maturing within one year $ 112,029 $ 192,962
Accounts payable 132,648 108,797
Accrued disposal and restructuring costs 35,385 10,545
Accrued taxes 38,135 33,538
Advance billing and customers' deposits 31,553 26,464
Accrued compensated absences 7,414 19,404
Other 17,173 17,234
---------- ----------
374,337 408,944
---------- ----------
- ----------------------------------------------------------------------------------------------------
Long-Term Debt 522,888 350,069
- ----------------------------------------------------------------------------------------------------
Deferred Credits and Other Liabilities
Deferred income taxes 158,438 144,391
Unamortized investment tax credits 19,371 22,258
Other 73,441 77,976
---------- ----------
251,250 244,625
---------- ----------
- ----------------------------------------------------------------------------------------------------
Commitments and Contingencies
- ----------------------------------------------------------------------------------------------------
Preferred Shares Subject to Mandatory Redemption -- 60,000
- ----------------------------------------------------------------------------------------------------
Common Shareowners' Equity
Common shares - $1.00 par value 64,982 61,955
Authorized shares: 240,000,000
Outstanding shares: 1993 - 64,982,178
1992 - 61,954,967
Additional paid-in capital 223,257 164,445
Reinvested earnings 227,392 342,483
Foreign currency translation adjustment (16) --
---------- ----------
515,615 568,883
---------- ----------
- ----------------------------------------------------------------------------------------------------
Total Liabilities and Invested Capital $1,664,090 $1,632,521
---------- ----------
---------- ----------
- ----------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS Cincinnati Bell Inc.
Thousands of Dollars Year Ended December 31 1993 1992 1991
- ----------------------------------------------------------------------------------------------------
Cash Flows From Operating Activities:
Net income (loss) $ (56,795) $ 35,247 $ 42,710
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 158,515 137,023 131,850
Special charges 101,630 10,545 9,991
Provision for loss on receivables 14,614 8,225 9,772
Extraordinary charges -- 5,591 --
Other-net (2,122) 6,830 18,158
Change in assets and liabilities net of effects
from acquisitions:
Decrease (increase) in receivables (11,354) 55,801 (39,458)
Decrease (increase) in other current assets 12,677 26,652 (25,808)
Increase (decrease) in accounts payable 9,083 (5,259) 5,152
Increase (decrease) in other current liabilities (2,816) (12,848) 12,235
Decrease in deferred income taxes and
unamortized investment tax credits (6,850) (6,061) (4,324)
Decrease (increase) in other assets and
liabilities-net (18,440) 6,941 19,523
--------- --------- ---------
Net cash provided by operating activities 198,142 268,687 179,801
--------- --------- ---------
- ----------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Capital expenditures - telephone plant (109,279) (103,896) (103,131)
Capital expenditures - other (57,206) (43,318) (58,524)
Payments made for acquisitions, net of cash
acquired (67,795) -- (4,653)
Other-net 9,683 (5,190) 4,184
--------- --------- ---------
Net cash used in investing activities (224,597) (152,404) (162,124)
--------- --------- ---------
- ----------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Proceeds from long-term debt 169,615 99,956 --
Redemption of long-term debt -- (169,168) --
Principal payments on long-term debt (28,115) (3,465) (2,676)
Proceeds from (payments on) notes payable (55,467) (3,445) 32,842
Proceeds from issuance of common shares 2,582 11,679 15,447
Dividends paid (53,294) (53,853) (52,740)
Payments made to acquire common shares (5,480) (5,593) (1,833)
--------- --------- ---------
Net cash provided by (used in) financing
activities 29,841 (123,889) (8,960)
--------- --------- ---------
- ----------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash
equivalents (22) (662) 786
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 3,364 (8,268) 9,503
Cash and cash equivalents at beginning of year 5,304 13,572 4,069
--------- --------- ---------
Cash and cash equivalents at end of year $ 8,668 $ 5,304 $ 13,572
--------- --------- ---------
--------- --------- ---------
- ----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(a) Accounting Policies
The consolidated financial statements of Cincinnati Bell Inc.
reflect the application of the accounting policies described in
this note. These statements have been prepared in conformity
with generally accepted accounting principles.
Certain reimbursable costs previously recorded as information
systems revenues have been reclassified as a reduction of
operating expenses. The reclassification amounted to $43.2
million, $34.9 million and $23.3 million for 1993, 1992 and
1991, respectively. This reclassification had no effect on
operating income (loss) or net income (loss) for all periods
presented. In addition to the information systems revenues,
certain prior year amounts have been reclassified to be
consistent with the 1993 presentation.
Consolidation - These consolidated financial statements
include the accounts of Cincinnati Bell Inc. and its wholly
owned subsidiaries (the "Company"). The significant
subsidiaries include: Cincinnati Bell Telephone Company
("CBT"), Cincinnati Bell Information Systems Inc. ("CBIS") and
MATRIXX Marketing Inc. ("MATRIXX"). Investments in certain
partnerships and joint ventures are accounted for using the
equity method. The Company has a 45 percent interest in a
limited partnership which provides cellular mobile telephone
service to an area of Southern Ohio with a population of over
four million people. The Company's share of income from such
investments is included in Other Income (Expense) - Net in the
Consolidated Statements of Income. All significant intercompany
transactions and balances have been eliminated in consolidation.
Regulatory Accounting - CBT follows the accounting for
regulated enterprises under Statement of Financial Accounting
Standards ("SFAS") 71, "Accounting for the Effects of Certain
Types of Regulation". This accounting reflects the rate actions
of regulators in the financial statements. The rate actions can
provide reasonable assurance of the existence of an asset,
reduce or eliminate the value of an asset, or impose a
liability. Actions of a regulator can also eliminate a
liability previously imposed by the regulator. The Company
continually reviews the applicability of SFAS 71 based on the
developments in its current regulatory
and competitive environment.
Foreign Currency Translation - Assets and liabilities of
foreign subsidiaries are translated to U.S. dollars at year-end
exchange rates and revenue and expense items are translated at
average rates of exchange prevailing during the year. The
foreign currency translation adjustments are recorded in a
separate component of shareowners' equity.
Financial Instruments - Certain foreign currency transactions
are designated as effective hedges of the net investment in
foreign subsidiaries. The related gains and losses are included
in the foreign currency translation adjustment account. Foreign
currency transaction gains and losses related to forward
contracts that are designated and effective as hedges are
deferred and recognized with the assets, liabilities or
transactions being hedged. All other foreign currency
transaction gains and losses are reflected in income. The
interest rate differential to be paid or received on interest
rate swap agreements is accrued as interest rates change and is
recognized as an adjustment of interest expense.
Cash Equivalents - Cash equivalents represent highly liquid
debt instruments with original maturities of three months or
less and are stated at cost, which approximates market value.
Material and Supplies - New and reusable material, related to
the regulated telephone operations, are carried in inventory at
average original cost, except that specific costs are used in
the case of large individual items. Nonreusable material is
carried at estimated salvage value. All other material and
supplies are stated at the lower of cost or market principally
on an average cost basis.
Property, Plant and Equipment - Property, plant and equipment
is stated at its original cost and does not purport to represent
reproduction costs or current value. Telephone plant dedicated
to providing communication services, other than minor items
thereof which are replaced, is retired at the amount at which
such plant has been carried in telephone plant in service and is
charged to accumulated depreciation.
The Company's provision for depreciation of telephone plant is
based on the remaining life method of depreciation and straight-
line composite rates. The remaining life method provides for
the full recovery of the investment in telephone plant.
Provision for depreciation of other property is based on the
straight-line method over the estimated useful life.
Software Development Costs - Research and development
expenditures are charged to expense as incurred. The
development costs of software to be marketed are charged to
research and development expense until technological feasibility
is established. After that time, the remaining software
production costs are capitalized as Other Property in the
Consolidated Balance Sheets. Amortization of the capitalized
amounts is computed on a product-by-product basis using the
straight-line method over the remaining estimated economic life
of the product. Reductions in the carrying value of capitalized
software costs to net realizable value are also included in
amortization expense.
Intangibles, Primarily Goodwill-Net - Intangible assets
consists primarily of goodwill, which represents the excess of
the purchase price over the fair value of net assets acquired in
business combinations accounted for using the purchase method.
These amounts are amortized on a straight-line basis over
periods benefited, principally in the range of twenty to forty
years. Other intangible assets are amortized on a straight-line
basis over periods of five to nine years. Accumulated
amortization of intangible assets at December 31, 1993 and 1992
was $49 million and $40 million, respectively. The Company
periodically evaluates the carrying amount of its recorded
goodwill related to acquired businesses. Management uses their
best estimate of the future cash flows expected to result from
the operations of the business and its eventual disposition. If
future expected undiscounted net cash flows are insufficient to
recover the carrying amount of the asset, then an impairment
loss is recognized.
Revenue Recognition - Local telephone service revenues are
generally billed monthly in advance and revenues are recognized
in the following month when services are provided. Software
license revenue is recognized at the time of delivery if the
Company does not have to provide additional significant service
under the contract. All anticipated future costs under the
contract are accrued at the time the revenue is recognized. If
the contract requires significant additional obligations in
addition to the delivery of the software license, the Company
recognizes revenue under the percentage of completion method of
accounting. Information systems maintenance revenue is
generally recognized over the term of the agreement. All other
revenues are recognized when services are performed regardless
of the period in which they are billed.
Income Taxes - The provision for income taxes consists of an
amount for taxes currently payable and a provision for tax
consequences deferred to future periods.
During 1992, the Company implemented the provisions of SFAS
109, "Accounting for Income Taxes". SFAS 109 supersedes SFAS 96
which the Company had adopted in 1990. The Statement requires
the use of the asset and liability approach for financial
accounting and reporting for income taxes. CBT has recorded a
regulatory asset and liability to recognize the cumulative
effects of ratemaking activities. Financial statements for 1991
have not been restated and the cumulative effect of the
accounting change was not material.
For financial statement purposes, deferred investment tax
credits of CBT are being amortized as a reduction of the
provision for income taxes over the estimated useful lives of
the related property, plant and equipment.
Earnings (Loss) Per Common Share - Earnings (loss) per common
share are calculated by using the weighted average number of
common shares outstanding. The dilutive effect of the Company's
common share equivalents (shares under option) is insignificant.
- --------------------------------------------------------------------------------
(b) Special Charges - CBIS Operations
In late 1993, the Company determined the need to reorganize
CBIS, its information systems subsidiary. This reorganization
focused on two phases. The first phase was the elimination of
non-strategic and underperforming operations. This resulted in
CBIS taking action to divest its holdings in its federal
operation (CBIS Federal), consolidating its foreign data center
operations, and eliminating unprofitable domestic and
international activities. The second phase of the plan was to
reorganize the remaining operations into strategic business
units. These actions began in 1993 and are expected to be
completed in 1994.
These actions taken by CBIS resulted in recording special
charges amounting to approximately $102 million ($88 million
after tax, or $1.39 per common share) for divesting of its
federal operations and restructuring the operations of CBIS.
The decision to sell CBIS Federal resulted in charges of $86
million that include the expected loss on the sale, projected
operating losses through estimated date of sale, and other sale
related expenses. CBIS Federal provides information services to
governmental agencies and employs approximately 1,000 employees.
In addition to the charges related to the sale of CBIS
Federal, CBIS also recorded approximately $16 million of charges
for restructuring the remainder of its operations. The charges
include employee severence costs of approximately $4 million, $6
million of fixed asset write-offs, and $6 million in costs
associated with discontinuing unprofitable domestic and
international business ventures.
Included in the $102 million of special charges are
approximately $68 million of charges that do not require future
cash outlays. The write-off of approximately $63 million of
unamortized goodwill accounted for the majority of the non-cash
charges.
The net assets of the operations to be disposed or
discontinued consist of $26 million of net current assets and
$10.2 million of net non-current assets as of December 31, 1993.
These amounts consist primarily of accounts receivable,
property, plant and equipment and related liabilities. Included
in the Consolidated Statements of Income for the year ended
December 31, 1993 are $67.4 million of revenues and $88.6
million of expenses related to the operations to be disposed or
discontinued.
In the fourth quarter of 1992, CBIS recorded special charges
totaling $10.5 million for the consolidation of its European
operations. Included in these charges were write-offs of fixed
assets, lease termination payments, employee severance and
relocation costs and estimated operating losses.
In the fourth quarter of 1991, the Company recorded special
charges of approximately $10 million to expense special
termination benefits related to an early retirement incentive
package, employee severance costs for involuntary separations
and other related costs. Of this amount, $6 million was
recorded at CBIS.
Also, during the fourth quarter 1993, the Company recorded
significant other charges unrelated to the restructuring of
CBIS. CBIS has accrued and included in operating expenses $5.1
million of costs to withdraw from certain international
contracts and products. CBIS also recorded additional software
amortization expense of $12 million in the fourth quarter 1993
and $5 million in the third quarter of 1993 related to the
write-down of capitalized software costs to net realizable value
(see note (f)).
In addition, a $4.2 million reserve for losses has been
established related to an investment in and loans to an
international distributor of CBIS products and services. These
charges are included in Other Income (Expense)-net.
- -------------------------------------------------------------------------------
(c) Income Taxes
The components of income tax expense are as follows:
Thousands of Dollars Year Ended December 31 1993 1992 1991
------------------------------------------------------------------------------
Current:
Federal $19,113 $18,482 $32,475
Foreign 1,658 512 1,028
State and Local 2,282 3,327 2,556
------- ------- -------
Total current 23,053 22,321 36,059
------- ------- -------
Deferred:
Federal (14,592) (1,593) (7,932)
State and Local 15 (419) 520
------- ------- -------
Total deferred (14,577) (2,012) (7,412)
------- ------- -------
Investment tax credits (2,888) (3,267) (2,082)
------- ------- -------
Adjustment of valuation allowance related
to net operating and capital losses (3,881) -- --
------- ------- -------
Total $ 1,707 $17,042 $26,565
------- ------- -------
------- ------- -------
The components of the Company's deferred tax assets and
liabilities are as follows:
Thousands of Dollars at December 31 1993 1992
------------------------------------------------------------------------------
Deferred tax asset:
Unamortized investment tax credit $10,432 $11,468
Net operating loss carryforwards 7,510 6,711
Deferred tax consequences of net
regulatory liability 4,823 7,152
Allowance for doubtful accounts 3,321 892
Accrual for disposal and restructuring costs 12,964 3,077
Accrued rent liability 3,969 2,231
FCC complaint 3,779 --
Property, plant and equipment depreciation
and amortization 3,194 3,352
Accrual for compensated absences 1,102 3,323
Other 10,200 5,605
-------- --------
61,294 42,919
Less: Valuation allowance (3,391) (6,711)
-------- --------
Net deferred tax asset 57,903 36,208
-------- --------
Deferred tax liability:
Property, plant and equipment depreciation
and amortization 164,080 149,589
Basis differences on items previously flowed
through to ratepayers 15,914 16,961
Accrual for property taxes 2,496 7,838
Other 5,620 1,748
-------- --------
Total deferred tax liability 188,110 176,136
-------- --------
Total net deferred tax liability $130,207 $139,928
-------- --------
-------- --------
The Company's deferred tax asset valuation allowance decreased
approximately $3.3 million in 1993 principally as a result of
certain business strategies involving the Company's operations
in France.
During 1991, deferred income taxes were provided for
significant temporary differences in the recognition of certain
expenses for tax and financial statement purposes. These items,
in thousands of dollars, for the year ended December 31, 1991,
consisted of the following:
Depreciation $ 4,265
Compensated absences (1,430)
Property taxes 1,142
Capital loss (1,700)
Pension and employee benefits (7,409)
Other (2,280)
-------
Total $(7,412)
-------
-------
The following is a reconciliation of the statutory Federal
income tax rate of 35% for 1993 and 34% for 1992 and 1991
with the effective tax rate for each year:
1993 1992 1991
-----------------------------------------------------------------------------
U.S. Federal statutory rate (35.0%) 34.0% 34.0%
Plant basis differences, net of depreciation 2.0 2.0 2.0
Amortization of investment tax credits (5.2) (5.8) (2.3)
Rate differential on reversing temporary
differences (4.0) (3.0) (3.0)
Disposal losses without income tax benefit 40.0 -- --
Amortization of intangible assets 5.2 4.3 3.8
Foreign subsidiaries' losses for which no tax
benefit has been recognized -- 2.6 3.2
Change in valuation allowance (6.0) -- --
State and local income taxes, net of federal
income tax benefit 2.7 3.4 2.9
Research and development tax credit (4.1) (2.3) --
Taxes related to prior years 5.6 -- --
Other differences 1.9 (4.8) (2.3)
----- ----- -----
Effective rate 3.1% 30.4% 38.3%
----- ----- -----
----- ----- -----
The Omnibus Budget Reconciliation Act of 1993, which was
enacted in August 1993, increased the Federal income tax rate
to 35 percent effective January 1, 1993. Pursuant to SFAS
71, the effect of the income tax rate increase on the
deferred tax balances of CBT was primarily deferred through
the establishment of regulatory assets of $.5 million and the
reduction of regulatory liabilities of $5.6 million. The
effect of the income tax rate increase on the deferred tax
balances of the other subsidiaries was not material to the
financial statements.
At December 31, 1993 and 1992, the liability for income
taxes includes approximately $16 million and $17 million,
respectively, representing the cumulative amount of income
taxes on temporary differences which were previously flowed
through to ratepayers. CBT also recorded a corresponding
regulatory asset on the balance sheet for these items,
representing amounts which will be recovered through the
ratemaking process, which is recorded in Deferred Charges and
Other. These deferrals have been increased for the tax
effect of the future revenue requirement and will be
amortized over the lives of the related depreciable assets
concurrently with their recovery in rates.
In addition, Other Deferred Credits and Liabilities
includes a regulatory liability at December 31, 1993 and 1992
of approximately $34.5 million and $45.1 million,
respectively. A substantial portion of the regulatory
liability represents the excess deferred taxes on depreciable
assets, resulting primarily from the reduction in the
statutory federal income tax rate from 46 percent to 35
percent. This amount will be amortized over the lives of the
related depreciable assets in accordance with the average
rate assumption method required by the Tax Reform Act of
1986. Another item included in the regulatory liability is
associated with unamortized investment tax credits. This
amount will be amortized in the same manner as the underlying
investment tax credits. These regulatory liabilities have
been increased to reflect future revenue requirement levels.
The Company has net operating loss carryforwards applicable
to foreign subsidiaries at December 31, 1993 and 1992 of
approximately $19.4 million and $16.7 million, respectively.
Net operating loss carryforwards acquired through a business
combination with a domestic subsidiary are approximately $3.0
million at December 31, 1993 and 1992. Utilization of both
the U.S. and foreign carryforwards is dependent upon future
earnings of each subsidiary with foreign carryforwards
expiring 1994 through 2003 and the U.S. carryforwards
expiring in 2003 through 2005. The Company has capital loss
carry forwards of approximately $4.7 million at December 31,
1993. Utilization of these capital losses is dependent upon
the generation of future capital gains with the carryforwards
expiring in 1996 through 1998.
- -------------------------------------------------------------------------------
(d) Employee Retirement and Postemployment Benefits
PENSIONS
The Company sponsors three noncontributory defined benefit
pension plans: one for eligible management employees, one
for nonmanagement employees and one supplementary,
nonqualified, unfunded plan for certain senior managers. The
pension benefit formula for the management plan was based on
a stated percentage of adjusted career income for retirees
prior to 1993. Effective December 31, 1993, the management
pension plan change the method of calculating the defined
benefit payable at retirement date to a cash balance benefit.
The annual credits are based on a combination of age, rate of
pay, the Social Security Taxable Wage Base and annual
guaranteed interest credits. Further, the supplementary
death benefit payable from the pension plan was frozen at the
December 31, 1993 compensation level. The benefit formula
for the nonmanagement plan is based on a flat dollar amount
according to job classification times years of service.
Benefits for the supplementary plan are based on years of
service and eligible pay.
Funding of the management and nonmanagement plans is
achieved through contributions made to an irrevocable trust
fund. The contributions are determined in accordance with
the Aggregate Cost Method.
The Company uses the Projected Unit Credit Cost Method for
determining pension cost for financial reporting purposes and
accounts for certain benefits provided under early retirement
packages discussed below as a special termination benefit.
Pension cost includes the following components:
Thousands of Dollars Year Ended December 31 1993 1992 1991
----------------------------------------------------------------------------------
Service cost (benefits earned during
the period) $ 10,045 $ 12,605 $ 14,520
Interest cost on projected benefit
obligations 40,270 39,874 34,933
Actual return on plan assets (79,576) (64,852) (111,179)
Amortization and deferrals - net 29,424 15,091 63,451
Charge to expense for special
termination benefits 7,616 -- 2,760
Settlement gain (7,901) -- --
-------- -------- ---------
Pension cost (income) $ (122) $ 2,718 $ 4,485
-------- -------- --------
-------- -------- --------
The following table sets forth the plans' funded status:
Thousands of Dollars at December 31 1993 1992
-----------------------------------------------------------------------------
Actuarial present value of accumulated benefit
obligations including vested benefits of
$458,415 and $409,772, respectively $515,807 $465,531
-------- --------
-------- --------
Plan assets at fair value (primarily listed
stocks, bonds and real estate, including
$62,230 and $59,205, respectively in common
shares of Cincinnati Bell Inc.) $706,385 $689,839
Actuarial present value of projected benefit
obligation (557,192) (534,556)
-------- --------
Excess of assets over projected benefit
obligation 149,193 155,283
Unrecognized prior service cost 7,818 23,021
Unrecognized transition asset (45,292) 52,770
Unrecognized net gain (92,997) 114,233
Recognition of minimum liability (8,946) 8,527
-------- --------
Prepaid pension cost $ 9,776 $ 2,774
-------- --------
-------- --------
The Company used the following rates in determining the
actuarial present value of the projected benefit obligation
and pension cost:
At December 31 1993 1992 1991
-----------------------------------------------------------------------------
Discount rate - projected benefit obligation 7.25% 8.00% 8.00%
Future compensation growth rate 4.00% 5.00% 5.00%
Expected long-term rate of return on plan assets 8.25% 8.25% 8.25%
Pension cost has been determined in such a manner as to
anticipate that improvements in the pension plans will
continue in the future. In the event of a change of control
of the Company, the excess plan assets are to be used
solely for providing pension benefits or post-retirement
medical benefits for a period of five years.
Collective bargaining was completed with the Communication
Workers of America in May 1993. As a result of the
bargaining, nonmanagement pension plan participants were
granted an increase in the flat dollar pension amount of 5
percent effective October 1, 1993, an additional 5 percent
effective October 1, 1994 and an additional 4 percent
effective October 1, 1995. Further, the supplementary death
benefit payable from the pension plan was frozen at the
December 31, 1993 compensation level.
In November 1991, the Company offered an early retirement
incentive package to certain management employees. The
package included an amendment to the management pension plan
which was accounted for as a special termination benefit.
The impact of the workforce reduction on 1991 earnings,
including the special termination benefit, severance pay
related to involuntary separations and related costs, reduced
net income by approximately $7 million or, $.11 per common
share.
In December 1992, the Company offered a voluntary
separation incentive package to certain management employees.
The package provided for enhancements to the benefit payments
of the management pension plan or allowed for a lump sum
payment. There were 137 employees who accepted the offer in
1993 and as a result, the Company recorded an expense for
special termination benefits of $7.6 million and a settlement
gain of $7.9 million.
EMPLOYEE POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company provides health care and group life insurance
benefits for its retired employees. Substantially all the
Company's employees may become eligible for these benefits if
they retire with a service pension. Effective January 1,
1993, the Company adopted SFAS 106, "Employers Accounting for
Postretirement Benefits Other Than Pensions". SFAS 106
requires that the cost of the net periodic postretirement
benefit is to be recognized in the period in which employees
render services necessary to earn such benefits. Prior to
1993, the Company's accrual method did not consider the
health care inflation factor in the calculation of future
benefits as required by SFAS 106. The Company used the
Projected Unit Credit Cost Method for the determination of
postretirement health care and life insurance benefits cost.
In adopting SFAS 106, the Company elected to amortize the
accumulated postretirement benefit obligation over twenty
years.
The Company has funded its group life insurance benefits
through Retirement Funding Accounts ("RFAs") for many years
and began funding trusts for health care benefits in 1989
using Voluntary Employee Benefit Associations ("VEBAs").
Contributions are determined in accordance with the Aggregate
Cost Method. The associated plan assets, primarily corporate
securities and bonds and temporary investments, were
considered in determining the transition obligation under
SFAS 106. The investments held by the management VEBAs earn
income after a deduction for income taxes, whereas the
nonmanagement VEBAs and RFAs earn income without tax. The
Company intends to continue to fund the VEBAs and RFAs, and
is exploring other available funding and cost containment
alternatives.
The components of postretirement benefit cost for the year
ended December 31, 1993, in thousands of dollars, are as
follows:
Service cost (benefits earned during the period) $ 2,431
Interest cost on accumulated postretirement
benefit obligation 13,283
Actual return on plan assets (5,369)
Amortization and deferrals - net 9,495
--------
Postretirement benefit cost $ 19,840
--------
--------
The funded status of the plans, in thousands of dollars, at
December 31, 1993:
Retirees and dependents $130,143
Fully eligible active participants 18,272
Other active participants 47,632
--------
Total Accumulated postretirement benefit obligation 196,047
Less: plan assets at fair value 46,926
--------
Accumulated postretirement benefit obligation
in excess of plan assets 149,121
Less: unrecognized transition obligation 129,063
Less: unrecognized net loss 19,407
--------
Accrued postretirement benefit obligation $ 651
--------
--------
The assumed discount rate used to measure the accumulated
postretirement benefit obligation was 7.25 percent. The
expected long-term rate of return on plan assets was 8.25
percent on VEBAs and 8.0 percent on RFAs. The
assumed health care cost trend rate used to measure the
postretirement health benefit obligation at December 31, 1993
was 9 percent and is assumed to decrease gradually to 4.5
percent. A one percent increase in the assumed health care
cost trend rate would have increased the aggregate of the
service and interest cost components of 1993 postretirement
health benefits by approximately $.6 million, and would
increase the accumulated postretirement benefit obligation as
of December 31, 1993, by approximately $8 million.
Collective bargaining was completed with the Communication
Workers of America in May 1993. As a result of the
bargaining agreement, bargained employees reimbursement of
the Medicare Part B was capped at $50 per month. The
provision for retiree contributions in excess of the
Company's reimbursement was amended. Retiree contributions
shall not begin before January 1, 1997.
As of December 31, 1993, the Company had approximately
2,500 retirees eligible to receive health care and group life
insurance benefits.
A substantial portion of the cost recognized under SFAS 106
is related to the Company's telephone subsidiary, CBT, which
is subject to rate regulation. In April 1993, CBT received
approval from the Public Utilities Commission of Ohio
("PUCO") to defer the incremental SFAS 106 costs, subject to
certain return on equity limits. Deferrals began January 1,
1993, and will cease the earliest of December 31, 1997, the
day prior to the effective date of rates which include
postretirement costs on a SFAS 106 basis, or the date of the
Company's consent to or withdrawal of a PUCO approved
alternative regulation plan currently pending. During 1993,
CBT recorded approximately $3.6 million in postretirement
benefit cost as a regulatory asset related to the recovery of
future incremental costs. The recording of a regulatory
asset is in accordance with SFAS 71.
Prior to the adoption of SFAS 106, the Company had accrued
and funded an actuarially determined amount. For the years
1992 and 1991, postretirement health care and life insurance
benefit expense were approximately $10.2 million and $7.6
million, respectively. The effect of adoption of SFAS 106 on
1993 results (excluding the amounts deferred by CBT) was to
increase postretirement expense by approximately $6 million
or $.06 per common share.
SAVINGS PLANS
The Company sponsors several defined contribution plans
covering substantially all employees. The Company's
contributions to the plans are based on matching a portion of
the employee contributions or on a percentage of employee
earnings or net income for the year. Total Company
contributions to the defined contribution plans were $7.3
million, $7.9 million and $7.2 million for 1993, 1992 and
1991, respectively.
EMPLOYEE POSTEMPLOYMENT BENEFITS
The Financial Accounting Standards Board issued SFAS 112,
"Employers Accounting for Postemployment Benefits".
Implementation of SFAS 112 is required in 1994. SFAS 112
requires the accrual of the obligation for benefits provided
to former or inactive employees, their beneficiaries and
covered dependents after employment but before retirement.
These benefits include workers' compensation, disability
benefits and health care coverage for a limited time. SFAS
112 will change the Company's current method of accounting
for postemployment benefits from recognizing costs as
benefits are paid, to accruing the expected costs of
benefits. The Company estimates that the adoption of SFAS
112 will result in a one-time charge of approximately $5
million in the first quarter 1994. Preliminary estimates
indicate that the on-going expense recognized under SFAS 112
will not be significantly different from that recorded under
existing methods.
- -------------------------------------------------------------------------------
(e) Extraordinary Charges
On August 15, 1992, the Company redeemed $90 million of 8
5/8 percent notes due July 1997 at a redemption price of
101.5 percent of the principal amount. The call premium
paid, associated call expenses and the unamortized note issue
costs and issue discount reduced Net Income by $1.7 million
or $.03 per common share.
On December 24, 1992, CBT redeemed $35 million of 8 3/8
percent debentures due October 2009 at a redemption price of
102.38 percent of the principal amount and $40 million of
9.60 percent debentures due October 2015 at a redemption
price of 104.94 percent of the principal amount. The call
premiums paid, associated call expenses and the unamortized
note issue costs and issue discounts reduced Net Income by $2
million or $.03 per common share.
The charges resulting from the above redemptions were
recognized as extraordinary charges in the Consolidated
Statements of Income.
- -------------------------------------------------------------------------------
(f) Software Development Costs
Capitalized software costs, net of amortization, amounted
to $35.3 million and $34.7 million at December 31, 1993 and
1992, respectively. The Company incurred product development
costs totaling approximately $29.9 million, $14.3 million and
$6.7 million, which were expensed in 1993, 1992 and 1991,
respectively. Amortization amounted to $25.8 million, $4.8
million and $14.0 million for 1993, 1992 and 1991,
respectively, and is included in depreciation and
amortization expense. Included in amortization expense were
charges of approximately $5 million and $12 million the
Company recorded during the third and fourth quarter 1993,
respectively, to reduce the carrying value of certain
capitalized software costs to net realizable value. Included
in amortization expense for 1991 is a charge of approximately
$10.5 million to reduce the carrying value of capitalized
software costs to net realizable value.
- -------------------------------------------------------------------------------
(g) Debt Maturing Within One Year and Lines of Credit
Debt maturing within one year consists of the following:
Thousands of Dollars at December 31 1993 1992 1991
-------------------------------------------------------------------------------------
Notes Payable
Commercial paper $ 91,420 $140,047 $168,200
Other 18,200 25,041 489
Current maturities of long-term debt 2,409 27,874 4,151
-------- -------- --------
Total $112,029 $192,962 $172,840
-------- -------- --------
-------- -------- --------
Weighted Average Interest Rates on
Notes Payable 3.3% 3.4% 4.7%
Average notes payable and the related interest rates for the
last three years are as follows:
Thousands of Dollars 1993 1992 1991
-------------------------------------------------------------------------------------
Average amounts of notes payable
outstanding during the year* $162,504 $158,251 $170,535
Weighted average interest rate
during the year** 3.2% 3.8% 6.0%
Maximum amounts of notes payable at
any month-end during the year $202,475 $209,823 $184,039
<FN>
* Amounts represent the average daily face amount of notes.
** Weighted average interest rates are computed by dividing
the daily average face amount of notes into the aggregate
related interest expense.
At December 31, 1993, the Company had approximately $170
million of unused bank lines of credit, which are available
to provide support for commercial paper borrowings. These
lines of credit are available for general corporate purposes.
There are no material compensating balances or commitment fee
agreements under these credit arrangements.
- --------------------------------------------------------------------------------
(h) Long-Term Debt
Interest rates and maturities of long-term debt outstanding,
at December 31, in thousands of dollars, were as follows:
Description 1993 1992
-------------------------------------------------------------------------------
Debentures/Notes
Year of Maturity Interest Rate
---------------- -------------
1993 4 1/2 $ -- $ 25,000
1996 7.30 40,000 40,000
1997 6.70 100,000 100,000
1999 8 5/8 40,000 40,000
2000 9.10 75,000 75,000
2002 4 3/8 20,000 20,000
2003 6.24 20,000 --
2005 6.33 20,000 --
2011 7 3/8 50,000 50,000
2023 7 1/4 50,000 --
2023 7.18-7.27 80,000 --
Capital lease obligations 29,986 26,982
Other 919 1,222
Unamortized discount-net (608) (261)
Less: Current maturities of
long-term debt (2,409) (27,874)
-------- --------
Total $522,888 $350,069
-------- --------
-------- --------
In November 1992, the Company filed a shelf registration
statement with the Securities and Exchange Commission ("SEC")
for the sale of up to $150 million in debt securities with
terms to be determined at the time of sale. Pursuant to the
shelf registration, the Company issued $100 million of 6.70
percent unsecured notes on December 15, 1992 which will
mature in December 1997 and $50 million of 7 1/4 percent
unsecured notes on July 12, 1993 which will mature in June
2023. The proceeds were used to reduce short-term notes
payable and for other general corporate purposes.
CBT filed a shelf registration on May 5, 1993 with the SEC
for the
issuance of up to $120 million in debt securities. Pursuant
to the shelf registration, CBT has issued $120 million of
notes during November and December 1993 with various interest
rates and redemption and maturity dates. The debt securities
are guaranteed by the Company on a subordinated basis. The
net proceeds from the sale were used, in part, to reduce
CBT's outstanding indebtedness which was incurred in December
1992 to redeem $75 million of CBT's long-term debt.
- --------------------------------------------------------------------------------
(i) Off-Balance-Sheet Risk and Concentration of Credit Risk
The Company has entered into a foreign currency and
interest rate swap agreement with Morgan Guaranty Trust
Company of New York to reduce the impact of changes in
interest rates and currency translation rates. At December
31, 1993, the Company had outstanding a currency and interest
rate swap agreement with a notional principal amount of
225,000,000 French francs which will be swapped for
approximately $41.7 million in the year 2000. This agreement
effectively changed the Company's interest rate exposure on a
portion of its variable rate short-term borrowings to a long-
term fixed rate and reduced the currency risk associated with
non-U.S. dollar denominated assets.
The Company continually monitors its positions and the
credit ratings of its contracting parties. While the Company
may be exposed to credit losses in the event of
nonperformance by its contracting parties, it does not expect
to incur such losses.
- --------------------------------------------------------------------------------
(j) Fair Value of Financial Instruments
The following methods and assumptions were used to estimate
the fair value of each class of financial instruments for
which it is practicable to estimate that value:
Cash and cash equivalents, commercial paper and short-term
notes payable - the carrying amount approximates fair value
because of the short maturity of those instruments.
Long-term debt - the fair value of long-term debt is
estimated based on the quotes for similar liabilities
obtained from an underwriter.
Foreign currency and interest rate swap agreement - the
fair value of foreign currency and interest rate swaps (used
for hedging purposes) is the estimated amount that the
Company would receive or (pay) to terminate the swap
agreements at the reporting date, taking into account current
currency translation and interest rates and the current
credit-worthiness of the swap counterparty.
Cash and cash equivalents have both a carrying value and an
estimated fair value of $8.7 at December 31, 1993 and $5.3
million at December 31, 1992.
Commercial paper and short-term notes payable have both a
carrying value and an estimated fair value of $109.6 million
at December 31, 1993 and $165.3 million at December 31, 1992.
Long-term debt had a carrying value of $495.3 million and
an estimated fair value of $513.0 million at December 31,
1993. Long-term debt had a carrying value of $351.0 million
and an estimated fair value of $358.8 million at December 31,
1992.
As described in note (i) the Company has entered into a
foreign currency and interest rate swap agreement. At
December 31, 1993 and 1992, if the Company had closed its
position on this agreement, additional costs of approximately
$9.9 million and $6.7 million, respectively, would have been
incurred.
- --------------------------------------------------------------------------------
(k) Preferred Shares Subject to Mandatory Redemption
The Company is authorized to issue up to 4,000,000 voting
preferred shares and 1,000,000 nonvoting preferred shares.
On July 22, 1988, the Company issued to The Western and
Southern Life Insurance Company ("Western-Southern")
1,578,948 7.25 percent Cumulative Convertible Voting
Preferred Shares ("Voting Preferred Shares"), without par
value, for $38 per share.
On July 7, 1993, Western-Southern elected to convert the
Voting Preferred Shares to common shares. The Company issued
3,157,896 common shares which increased Western-Southern's
ownership of the Company's outstanding common shares to
6,627,696 shares or 10.2 percent of the shares then
outstanding. Western-Southern's ownership of the Company's
common shares has subsequently been reduced to 6,452,696
shares or 9.9 percent of the shares outstanding at December
31, 1993.
- --------------------------------------------------------------------------------
(l) Common Shares
The Company initiated programs to repurchase its common
shares as market conditions warrant. As part of these
programs, the Company repurchased 281,000 common shares for
$5.5 million in 1993, 322,000 common shares in 1992 for $5.6
million, and 100,000 common shares in 1991 for $1.8 million.
The most recent program expired in December 1993.
SHARE PURCHASE RIGHTS PLAN
On November 5, 1986, the Company granted a dividend of one
preferred share purchase right for each outstanding common
share. The number of rights associated with each common
share is subject to adjustment in certain situations,
including a share split, share dividend or a combination of
shares. At December 31, 1993, the number of rights
associated with each common share was one quarter right.
Under certain conditions, each right entitles the holder to
purchase one one-hundredth of a newly-issued Series A
Preferred Share, without par value, for $125. The rights may
only be exercised or transferred apart from the common shares
after a person or group has acquired 20 percent or more of
the Company's common shares, or after commencement of a
tender offer by a third party which would result in such
person or group controlling 30 percent or more of the
outstanding common shares of the Company. Thereafter, if the
Company is the surviving corporation in a merger, or if an
acquirer becomes the beneficial owner of more than 40 percent
of the common shares of the Company, or in the event of
certain self-dealing transactions between the acquirer and
the Company, each holder of a right will be entitled to
purchase common shares of the Company having a value equal to
two times the exercise price of the right. If the Company is
not the surviving corporation in a merger, or if 50 percent
or more of the Company's assets or earning power is sold or
transferred, each holder of a right will be entitled to
purchase common shares of the surviving company equal to two
times the exercise price of the right. In either of these
circumstances, any rights owned by the acquirer would be null
and void. The rights, which expire on November 5, 1996, may
be redeemed by the Company at a price of $.01 per right at
any time prior to ten days (or such longer period as the
Board of Directors may determine) after the acquisition of 20
percent of the Company's common shares.
- --------------------------------------------------------------------------------
(m) Stock Option and Other Incentive Plans
The Company has several incentive plans which allow for the
granting of options, stock appreciation rights ("SARs") and
other awards.
The Cincinnati Bell Inc. 1988 Long Term Incentive Plan
provides for the granting of stock options, SARs in tandem
with stock options or free standing, and other awards. Under
the Plan, one percent of the Company's outstanding common
shares as of the first day of each calendar year is available
for grant in such year. All shares available for grant in
any year which are not granted under the Plan shall be
available for grant in subsequent years. The exercise price
of any stock option or award will be the fair market value of
the shares on the date of the grant. Options generally may
be exercised no earlier than one year after the date of the
grant and no later than ten years after the date of the
grant. Under the Plan, exercise of either a related option
or a related SAR cancels the other to the extent of such
exercise. There were no SARs issued under the Plan during
1993, 1992, and 1991. Prior to the adoption of this plan,
stock options were granted under the Cincinnati Bell Inc.
1984 Stock Option Plan, under which no new options can be
granted.
The Cincinnati Bell Inc. 1988 Stock Option Plan for Non-
Employee Directors provides for the granting of stock options
to non-employee directors. Under this Plan, options to
purchase the Company's common shares are granted at the fair
market value of the shares on the date of the grant, for a
term not to exceed ten years.
The Cincinnati Bell Inc. 1989 Stock Option Plan provides
for the granting of stock options to certain employees.
Options are granted at or greater than the fair market value
of the shares at the grant date, with the term of the options
not to exceed ten years.
Option transactions during 1993, 1992 and 1991 are
summarized as follows:
Options 1993 1992 1991
-----------------------------------------------------------------------------------------
Outstanding at beginning of year 1,972,135 1,483,354 1,058,709
Granted 923,050 717,725 644,985
Exercised (239,245) (102,194) (102,900)
Cancelled (123,112) (126,750) (117,440)
--------- --------- ---------
Outstanding at end of year 2,532,828 1,972,135 1,483,354
--------- --------- ---------
--------- --------- ---------
Exercisable at December 31 1,326,053 926,315 601,459
Price of options exercised $10.97-$21.13 $10.97-$11.13 $7.57-$21.13
Exercise price of options
outstanding $12.00-$26.50 $10.97-$26.50 $10.97-$26.50
There were 4,049,000, 4,124,000 and 4,101,000 common shares
available for granting of options under the Plans at December
31, 1993, 1992 and 1991, respectively. During 1993, 1992 and
1991, 5,500 shares, 1,000 shares and 45,000 shares,
respectively, were granted as other awards under the 1988
Long Term Incentive Plan.
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(n) Lease Commitments
The Company leases certain facilities and equipment used in
its operations. Total rental expenses amounted to
approximately $71 million, $67.6 million and $62.4 million in
1993, 1992 and 1991, respectively.
At December 31, 1993, the aggregate minimum rental
commitments under noncancelable leases for the periods shown,
in thousands of dollars, are as follows:
Operating Capital
Years Leases Leases
------------------------------------------------------------------------
1994 $ 50,414 $ 6,558
1995 42,218 4,737
1996 28,695 4,446
1997 20,471 4,431
1998 22,286 6,313
Thereafter 45,284 50,968
-------- --------
Total $209,368 77,453
--------
--------
Amount representing interest 47,467
--------
Present value of net minimum lease payments $ 29,986
--------
--------
Capital lease obligations incurred were approximately
$5.8 million, $.9 million and $14.2 million in 1993,
1992 and 1991 respectively.
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(o) Quarterly Financial Information (Unaudited)
All adjustments necessary for a fair statement of income
for each period have been included.
Thousands of Dollars
-----------------------------------------------------------
Calendar Total Revenues Operating Earnings (Loss) Per
Quarter and Sales Income (Loss) Net Income (Loss) Common Share
------------------------------------------------------------------------------------------------
1993
1st $ 262,467 $ 31,197 $ 20,827 $ .32
2nd 262,602 28,240 13,500 .20
3rd 277,357 32,185 15,645 .24
4th 287,211 (110,355) (106,767) (1.69)
---------- -------- -------- -----
Total $1,089,637 $(18,733) $(56,795) $(.93)
---------- -------- -------- -----
---------- -------- -------- -----
1992
1st $ 290,242 $ 30,010 $14,451 $.22
2nd 266,976 27,902 11,410 .16
3rd 268,223 26,318 10,783 .16
4th 276,007 6,960 (1,397) (.04)
---------- -------- -------- ----
Total $1,101,448 $ 91,190 $ 35,247 $.50
---------- -------- -------- ----
---------- -------- -------- ----
Fourth quarter 1993 results were affected by several
significant charges as described in notes (b), (f) and (q).
On a combined basis, these charges increased Net Loss by
approximately $108.6 million or $1.72 per common share.
Net Income for the third quarter 1993 was reduced by $2.8
million or $.04 per common share because of capitalized
software adjustments as described in note (f).
Net Income for the second quarter 1993 was reduced by $2.0
million or $.03 per common share charge recorded by
Cincinnati Bell Supply to reduce the carrying amount of its
inventory to net realizable value.
First quarter 1993 results include the $6.5 million or $.10
per common share gain on the sale of certain CBT businesses
as described in note (q).
Fourth quarter 1992 results include extraordinary charges
because of the
early redemption of CBT debentures as described in note (e).
The charges reduced net income by $2 million or $.03 per
common share. The results for the quarter also included
special charges of $7 million or $.12 per common share for
restructuring as described in note (b). CBIS also recorded
charges of $5.9 million or $.09 per common share related to
the write-off of the IRS contract acquisition costs and
related expenses in the quarter.
Third quarter 1992 results include extraordinary charges
because of the early redemption of the Company's notes as
described in note (e). The charges reduced Net Income by
$1.7 million or $.03 per common share.
First quarter 1992 results include an increase in Net
Income of $3.1 million or $.05 per common share resulting
from an amendment to CBT's marketing agency agreement as
described in note (q).
- --------------------------------------------------------------------------------
(p) Additional Financial Information
Thousands of Dollars Year Ended December 31 1993 1992 1991
-----------------------------------------------------------------------------------------
Taxes other than income taxes:
Property $39,065 $39,869 $34,583
Gross receipts 18,232 18,031 17,422
Payroll-related 33,085 32,460 35,331
Other 655 404 669
------- ------- -------
Total $91,037 $90,764 $88,005
------- ------- -------
------- ------- -------
Interest expense:
Long-term debt $35,983 $39,242 $39,391
Notes payable and other 9,777 6,916 13,448
------- ------- -------
Total $45,760 $46,158 $52,839
------- ------- -------
------- ------- -------
Cash paid for:
Interest (net of amount capitalized) $36,584 $40,255 $48,236
Income taxes $22,667 $35,153 $24,008
In November 1993, the Company finalized an agreement to
acquire WATS Marketing of America ("WATS Marketing") from
First Data Corporation. WATS Marketing provides inbound and
outbound telephone marketing services and as been combined
with MATRIXX as part of the Marketing Services segment. The
cost of the acquisition was $67.8 million which includes the
purchase price of $63 million and $4.8 million of related
acquisition costs and working capital adjustments. The
purchase was financed by the issuance of short-term debt.
The purchase contract contains provisions that could increase
the purchase price up to $87.5 million if certain conditions
are met. Any increases in the purchase price will be
recorded as goodwill. This transaction was accounted for as
a purchase and the resulting goodwill of $45.6 million is
being amortized over twenty years. In conjunction with this
acquisition, $7.6 million in liabilities were assumed. The
operating results of WATS Marketing, which were not
significant, are included in the accompanying Consolidated
Statements of
Income since the date of acquisition.
In 1991, the Company also incurred additional costs related
to 1990 acquisitions.
- --------------------------------------------------------------------------------
(q) Cincinnati Bell Telephone Company
The following summarized financial information is for the
Company's consolidated wholly owned subsidiary, Cincinnati
Bell Telephone Company:
Thousands of Dollars Year Ended December 31 1993 1992 1991
-----------------------------------------------------------------------------------------
Revenues and sales $575,511 $594,273 $612,581
Costs and expenses $481,944 $506,162 $510,961
Net income $ 59,224 $ 53,450 $ 58,364
Thousands of Dollars At December 31 1993 1992
-----------------------------------------------------------------------------------------
Current assets $ 159,641 $ 113,696
Telephone plant-net 900,141 895,259
Other noncurrent assets 32,161 24,686
---------- ----------
Total assets $1,091,943 $1,033,641
---------- ----------
---------- ----------
Current liabilities $ 139,438 $ 199,239
Noncurrent liabilities 196,389 195,974
Long-term debt 310,500 184,959
Common shareowner's equity 445,616 453,469
---------- ----------
Total liabilities and invested
capital $1,091,943 $1,033,641
---------- ----------
---------- ----------
Results in all four quarters of 1993 reflect a decrease in
Operating Expenses and Plant and Building Services expenses as
a result of CBT revising its vacation policy. The policy
changed the period in which employees earn vacations. The
change decreased Net Loss for the year by approximately $3.9
million ($.06 per common share).
CBT's results for 1993 include amounts accrued related to
orders by the Federal Communications Commission ("FCC") to
refund to interexchange carriers earnings in excess of the
FCC's target range in the 1987-1988 monitoring period. CBT is
appealing the FCC's order to the Federal Court of Appeals.
The accruals reduced Network Access Revenues by approximately
$6.6 million and increased Interest Expense by approximately
$4.2 million. These charges increased Net Loss by
approximately $7 million.
CBT's results for 1993 include a gain recorded in Other
Income (Expense)-Net from the sale of the residential
equipment leasing and PhoneCenter stores businesses to AT&T
Consumer Products which reduced Net Loss by approximately $6.5
million ($.10 per common share).
Fourth quarter 1992 results include extraordinary charges
because of the early redemption of CBT debentures as described
in note (e). The charges reduced Net Income by approximately
$2 million ($.03 per common share).
CBT's results for 1992 also include a gain recorded in Other
Income (Expense)-Net from an amendment to the marketing agency
relationship with AT&T which increased Net Income by
approximately $3.1 million ($.05 per common share).
- --------------------------------------------------------------------------------
(r) Business Segment Information
The Company operates primarily in three industry segments,
Telephone Operations, Information Systems and Marketing
Services. Telephone Operations provides telecommunications
network services. Information Systems designs, markets, and
manages information systems for telecommunications and general
business needs. Marketing Services provides telephone
marketing, research, fulfillment and data base services.
For the years ended December 31, 1993, 1992 and 1991, the
Company's segment information is as follows:
Corporate,
Telephone Information Marketing Other and
Thousands of Dollars Operations Systems Services Eliminations Consolidated
----------------------------------------------------------------------------------------------------------------
1993
Revenues and sales to
unaffiliated customers $ 552,531 $ 309,684 $ 107,780 $ 119,642 $1,089,637
Intersegment revenues
and sales $ 22,980 $ 46,876 $ 415 $ (70,271) $ --
Operating income (loss) $ 93,568 $ (124,579) $ 2,018 $ 10,260 $ (18,733)
Assets $1,091,943 $ 293,394 $ 225,238 $ 53,515 $1,664,090
Capital additions (includes $ 111,595 $ 40,053 $ 73,726 $ 10,037 $ 235,411
acquisitions)
Depreciation and amortization $ 99,179 $ 46,977 $ 8,422 $ 3,937 $ 158,515
----------------------------------------------------------------------------------------------------------------
1992
Revenues and sales to
unaffiliated customers $ 571,459 $ 327,901 $ 86,563 $ 115,525 $1,101,448
Intersegment revenues
and sales $ 22,814 $ 58,719 $ 1,701 $ (83,234) $ --
Operating income (loss) $ 88,111 $ (11,833) $ 744 $ 14,168 $ 91,190
Assets $1,033,641 $ 355,636 $ 140,200 $ 103,044 $1,632,521
Capital additions $ 94,596 $ 32,286 $ 5,268 $ 7,906 $ 140,056
Depreciation and amortization $ 100,262 $ 26,085 $ 7,574 $ 3,102 $ 137,023
----------------------------------------------------------------------------------------------------------------
1991
Revenues and sales to $ 590,299 $ 288,865 $ 84,610 $ 100,913 $1,064,687
unaffiliated customers
Intersegment revenues
and sales $ 22,282 $ 62,850 $ 1,726 $ (86,858) $ --
Operating income (loss) $ 101,620 $ 7,418 $ (5,410) $ 14,236 $ 117,864
Assets $1,109,511 $ 438,042 $ 145,696 $ 49,885 $1,743,134
Capital additions $ 115,931 $ 57,623 $ 11,576 $ 8,218 $ 193,348
Depreciation and amortization $ 88,554 $ 34,796 $ 6,341 $ 2,159 $ 131,850
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.
Certain reimbursable costs previously recorded as revenues
in the Information Systems segment have been reclassified.
This reclassification decreased revenues and operating
expenses but had no effect on operating income (loss) for all
periods presented.
During 1993, 1992 and 1991 the Information Systems segment
had special charges of approximately $102 million, $10.5
million and $6 million, respectively (see note (b)).
During November 1993, the Company acquired WATS Marketing.
The results, assets and the cost of the acquisition are
included in the Marketing Services segment (see note (p)).
- --------------------------------------------------------------------------------
(s) Contingencies
The Company is from time to time subject to routine
complaints incidental to the business. The Company believes
that the results of any complaints and proceedings will not
have a materially adverse effect on the Company's financial
condition.
- --------------------------------------------------------------------------------
(t) Major Customer
The Company derives significant revenue from AT&T by
providing network services, information management systems and
marketing services. During 1993, 1992, and 1991, revenues
from AT&T accounted for 11.7 percent, 13.7 percent and 12.2
percent of consolidated revenues, respectively.