Exhibit 99.1
CINCINNATI BELL INC.
PRESS RELEASE
Investor/Media contact:
- -----------------------
Michael Vanderwoude
513.397.7685
mike.vanderwoude@cinbell.com
- ----------------------------
CINCINNATI BELL INC. REPORTS FINANCIAL RESULTS
FOR THE FOURTH QUARTER AND FULL YEAR 2003
- Reduces net debt* by $49 million in the quarter
- 4Q03 wireless net adds up 154 percent
- 4Q03 DSL net adds up 74 percent
CINCINNATI - March 22, 2004 - Cincinnati Bell Inc. (NYSE:CBB) today announced
its financial results for the fourth quarter and full year 2003 and confirmed
the effects of the previously announced restatement of prior financial
statements.
SUMMARY
In the fourth quarter, the company continued to execute its primary strategy of
reducing net debt. The company also achieved outstanding net activations of
wireless and DSL as compared to the fourth quarter of 2002. The cost of these
acquisitions, plus increased depreciation in the wireless business as well as
revenue declines in the local and wireless segments, contributed to a decline in
operating income when compared to the fourth quarter of 2002.
For the quarter, the company reported revenue of $311 million, operating income
of $60 million, and net income of $843 million, or $3.17 per diluted share. In
the quarter, the company reversed a previously recorded deferred tax asset
valuation allowance. As a result, the company recorded a non-cash income tax
benefit of $823 million, which
1
increased diluted earnings per share in the fourth quarter by $3.08. In
addition, during the fourth quarter, the company reduced net debt by $49
million.
For the full year, the company posted revenue of $1,558 million, operating
income of $684 million, and net income of $1,332 million, or $5.36 per diluted
share. In 2003, the company reduced net debt by $666 million, or 23 percent.
Capital expenditures for the year were $126 million, or 8 percent of total
revenue.
OPERATIONAL HIGHLIGHTS
- Strong demand for the company's Digital Subscriber Line (DSL) services
drove 7,000 net additions in the quarter, up 74 percent from the prior
year quarter. The company finished the year with nearly 100,000
subscribers, a 33 percent increase compared to the end of 2002.
- The increase in DSL lines nearly offset the effect of an access line
decline of 2.6 percent versus a year ago. One third of this decline
was due to a 13 percent decrease in second access lines. Access line
losses increased from the 2 percent annual decline reported in third
quarter primarily due to increases in company-initiated disconnects
(non-pay), competitive losses in the business market and wireless
substitution.
- During the quarter, the company accelerated wireless subscriber
acquisition, driving 13,000 net activations, a 154 percent increase
over the fourth quarter of 2002. Post-paid churn was 1.7 percent, a
0.2 point improvement from the prior quarter and the fourth quarter of
2002, as the company saw little impact from Wireless Local Number
Portability (WLNP).
- For the quarter, the company continued to drive penetration of its key
wireline feature package, Complete Connections, by adding 7,100
subscribers during the quarter, bringing its total number of
subscribers to 312,000, an increase of 8
2
percent versus a year ago. Consumer penetration of Complete
Connections now stands at 44 percent, up from 40 percent at the end of
2002.
- During the fourth quarter, the company added 16,000 net subscribers to
its Custom Connections "super-bundle" which offers local, long
distance, wireless and DSL. This helped to increase consumer revenue
per household 2 percent versus the fourth quarter of 2002 and 3
percent for the year, to a total of $75 per month.
Excluding results of operations from the Broadband Services segment, fourth
quarter revenue of $286 million was down 4 percent and operating income of $59
million was down 28 percent, or $23 million, both versus the same quarter in the
prior year. Operating income declined primarily due to increases in wireless
subscriber acquisition cost (up $7 million), depreciation (up $3 million),
restructuring charges (up $7 million) and asset impairments (up $4 million),
with the remainder due to revenue declines. Revenue declined primarily in local
service, business equipment installation and wireless service, partially offset
by an increase in DSL revenue. 2003 revenue of $1,143 million was down 2 percent
while operating income of $335 million decreased 3 percent versus 2002. Capital
expenditures for 2003 were $122 million, or 11 percent of revenue.
"Cincinnati Bell closed 2003 a stronger, more focused company than in 2002. We
said our number one priority was to de-lever the company. We accomplished that,
reducing net debt 23 percent versus the end of 2002. We also said we would
invest in customer acquisition to defend our strong market position. In the face
of significant competition and WLNP, we posted strong unit growth of our key
products, wireless and DSL, and maintained low churn levels," said Jack Cassidy,
president and chief executive officer of Cincinnati Bell Inc.
SPECIAL ITEMS
The following special items impacted Cincinnati Bell Inc.'s reported results for
the fourth quarter and full year 2003:
3
- In the quarter, the company reversed certain previously recorded
valuation allowances against deferred tax assets. The company has
maintained these valuation allowances primarily due to liquidity
concerns at the company's subsidiary, BRCOM, Inc. Because these
uncertainties have been substantially mitigated, the company recorded
a non-cash income tax benefit of $823 million. This benefit increased
diluted earnings per share in the fourth quarter by $3.08. For the
year, this reversal, plus a $12 million decrease in tax reserves
recorded in the third quarter, increased diluted earnings per share by
$3.30.
- In the quarter, the company recorded a non-cash gain of $16 million
due to the extinguishment of the company's Convertible Subordinated
Notes, which were purchased at 97 percent of accreted value. This
increased the company's diluted earnings per share by $0.06. This
fourth quarter gain offset a $17 million non-cash loss recorded in the
third quarter on the exchange of $46 million of 9% Senior Subordinated
Notes of BRCOM, Inc. for 11 million shares of common stock of
Cincinnati Bell Inc. For the year, the net impact of these items was a
loss of $1 million, reducing diluted earnings per share by less than
$0.01.
- The company recorded a gain of $10 million in the quarter due to the
modification of a lease at the company's headquarters. This
modification required the lease to be reclassified from a capital
lease to an operating lease. This increased the company's diluted
earnings per share by $0.04 for the quarter and the year.
- The company recorded a non-cash charge of $7 million in the quarter to
recognize the unamortized cost of bank debt that was refinanced during
the quarter. This decreased the company's diluted earnings per share
by $0.02. For the year, the company recorded $16 million total in
similar charges. These charges reduced diluted earnings per share by
$0.06 for the year.
4
- In the fourth quarter, the company recorded a charge of $5 million to
recognize certain costs and potential liabilities associated with the
final settlement of the previously disclosed arbitration proceedings
with El Paso Global Networks. This decreased diluted earnings per
share for the quarter and year by $0.02.
- The company recorded, in the fourth quarter, an asset impairment
charge of $4 million, substantially related to a write down of the
company's public payphone assets to fair value. This reduced the
company's diluted earnings per share by $0.02 for the quarter and
$0.01 for the year.
- In the fourth quarter, the company's Local segment recorded a
restructuring charge of $5 million related to a reduction in workforce
of approximately 100 employees. The company's Broadband segment
recorded a restructuring credit of $8 million due to the termination
of certain data center lease agreements. Finally, the company recorded
a restructuring charge of $4 million at the corporate level to
increase the reserve for a data center lease agreement. These
restructuring charges and credits netted out to a charge of less than
$1 million in the fourth quarter and reduced diluted earnings per
share by less than $0.01. Combined with a restructuring credit of $3
million in the second quarter, the company recorded a net credit of $3
million for 2003, which increased the company's diluted earnings per
share by $0.01 for the year.
- In the fourth quarter, the company recorded a charge of $2 million for
certain executive incentives and termination benefits. This reduced
the company's diluted earnings per share by $0.01. For the year, the
company recorded a total of $11 million in similar charges, reducing
diluted earnings per share by $0.04.
- As previously announced, the company recorded $337 million in gains on
the sale of substantially all of its broadband assets in the second
and third quarters. This increased the company's 2003 diluted earnings
per share by $1.33.
5
- Also as previously announced, the company recorded a gain of $86
million in the first quarter resulting from the cumulative effect of a
change in accounting principle in accordance with SFAS 143. This
increased the company's diluted earnings per share by $0.34 for the
year.
Excluding the impact of these special items, the company's operating income was
$72 million, net income was $13 million and diluted earnings per share were
$0.06 for the quarter. For 2003, excluding the impact of these special items,
the company's operating income was $365 million, net income was $100 million and
diluted earnings per share were $0.48.
LOCAL COMMUNICATIONS SERVICES
The company's local-exchange subsidiary, Cincinnati Bell Telephone (CBT),
produced revenue of $209 million for the fourth quarter, down 4 percent from the
same quarter a year ago, due largely to declines in access lines, carrier access
and installation of telecom equipment. These declines were partially offset by
an increase in DSL revenue.
For the fourth quarter, operating income was $69 million. Excluding a $3 million
increase in restructuring charges, operating income was flat to the fourth
quarter of 2002, as a $5 million decrease in depreciation offset revenue
declines. Capital investment was $23 million, or 11 percent of revenue, during
the quarter.
Access lines declined by 26,000, or 2.6 percent, to 986,000 since the fourth
quarter of 2002. Thirty-three percent of this decrease was due to declines in
second access lines. Access line losses accelerated from the 2 percent annual
decline reported in the third quarter primarily due to increases in
company-initiated disconnects, competitive losses in the business market and
wireless substitution. However, DSL subscribers increased by 25,000, or 33
percent, compared to last year. In the fourth quarter, CBT added 7,000 net DSL
subscribers, 1,600 more than the third quarter of 2003 and 3,000 more than the
same quarter a year ago. Total DSL subscribers now number nearly 100,000, for a
10 percent
6
penetration of total access lines. Eighty-six percent of CBT's access lines are
DSL-enabled.
Complete Connections, CBT's value-added services bundle, added 7,100 subscribers
during the quarter, bringing its total number of subscribers to 312,000, up 8
percent versus a year ago. Consumer penetration of Complete Connections now
stands at 44 percent. Custom Connections, the company's suite of customized
bundles that offers local, long distance, wireless and DSL, added 16,000
subscribers, increasing its subscribership 41 percent in the quarter to 55,000.
As of the end of 2003, 47 percent of the company's households subscribe to 2 or
more key services (defined as Complete Connections, long distance, wireless or
internet). Twenty-two percent subscribe to three or more of these services.
For the year 2003, CBT had revenues of $820 million, down 2 percent from 2002,
and operating income of $296 million, up 4 percent. Capital expenditures were
$81 million for the year, or 10 percent of revenue.
WIRELESS SERVICES
For the quarter, Cincinnati Bell Wireless (CBW) added 13,000 net subscribers,
nearly all postpaid, 154 percent more than the fourth quarter of 2002. Gross
activations were 59,000 for the quarter, a 20 percent increase versus the prior
year quarter. This occurred as CBW executed its stated strategy of accelerating
wireless activations upon the turn-up of its GSM/GPRS network, which is now
complete. CBW ended the fourth quarter with 474,000 total subscribers, an
increase of 1 percent versus the prior year. Penetration of covered population
is estimated at 20 percent at the end of 2003. Postpaid churn declined
approximately 0.2 points from the prior quarter and prior year to 1.7 percent.
This churn performance was especially strong considering the launch of WLNP
during the fourth quarter. CBW reported revenue of $63 million, down 4 percent
from the fourth quarter of 2002 due to a 4 percent decline in postpaid average
revenue per user (ARPU***) compared to the same period last year, and a 1
percent lower subscriber count at the beginning of the quarter.
7
The operating loss for the quarter was $1 million, a $14 million decline in
operating income versus the fourth quarter of 2002. Operating income declined
primarily due to revenue declines as well as an $8 million increase in
depreciation expense and a $7 million increase in subscriber acquisition cost
offset by other items. Of the $8 million increase in depreciation, $5 million
was due to the decrease in the estimate of the remaining economic useful life of
the TDMA assets and the remainder was due to depreciation on the GSM/GPRS assets
placed into service in October of 2003. Cost of subscriber acquisition increased
approximately 75 percent, or $7 million, versus the prior year quarter.
For the quarter, postpaid ARPU was $55, while prepaid ARPU was $17, a 4 percent
and 2 percent decline, respectively, versus the fourth quarter of 2002. ARPU
declined as CBW pursued more aggressive pricing in order to drive acquisition
within bundles with other Cincinnati Bell products. Postpaid cost per gross
addition (CPGA****) was $391, while prepaid CPGA was $98, both 25 percent
increases versus the prior year quarter. Capital investment of $8 million in the
quarter, an 85 percent increase from the fourth quarter of 2002, included $4
million associated with the deployment of the GSM/GPRS network.
For 2003, CBW posted $260 million in revenue, down 3 percent versus 2002.
Operating income of $60 million was down 13 percent from the prior year.
Excluding the increase in depreciation and increase in acquisition costs in the
fourth quarter, operating income of $75 million was 8 percent higher than 2002.
Postpaid APRU was $56 for the year, a 2 percent decline versus 2002, while
prepaid ARPU was $19, an 11 percent increase. For the year, postpaid CPGA was
$389, a 7 percent increase versus 2002, while prepaid CPGA was $64, flat
compared to 2002. Capital expenditures in 2003 of $40 million, which equaled 15
percent of 2003 revenue and a 36 percent decline from 2002, included $25 million
associated with the deployment of the GSM/GPRS network.
8
OTHER COMMUNICATIONS SERVICES
Other Communications Services, which includes the company's Cincinnati-area
retail voice long distance and public payphone operations, reported revenue of
$19 million in the fourth quarter, down 8 percent from the same quarter a year
ago. The segment's Cincinnati Bell Any Distance division reported revenue of $16
million for the quarter, down 6 percent, while the Public Communications
division reported revenue of $3 million, down 19 percent. The segment was break
even at the operating income line for the quarter. For the year, the segment had
revenue of $81 million, down 2 percent versus 2002, and operating income of $7
million, an increase of $5 million over 2002.
Estimated Cincinnati market share of CBT access lines for Cincinnati Bell Any
Distance, the company's retail voice long distance offering, was 71 percent in
the consumer market and 45 percent in the business market at the end of the
fourth quarter, an improvement year-over-year of 2 points and 3 points,
respectively.
BROADBAND SERVICES
Broadband Services produced revenue of $27 million in the quarter, all
attributable to the company's Cincinnati Bell Technology Solutions (CBTS)
business, which remains in the Broadband Services segment following the sale of
substantially all of the company's broadband assets. Operating income for the
quarter was $1 million, which included $0.3 million at CBTS, and a net $0.7
million due to offsetting charges from the settlement of outstanding legal
disputes and credits from data center lease terminations.
FINANCIAL POSITION
Cincinnati Bell Inc. reduced its net debt by $49 million to $2.26 billion during
the fourth quarter through a combination of the following:
- A reduction of $31 million from cash flow** generated during the
quarter.
- A reduction of $14 million from the modification of a lease at the
company's headquarters.
9
- A reduction of $16 million from the extinguishment of the company's
convertible subordinated debentures, which were purchased at 97
percent of accreted value.
- An increase of $12 million from in-kind interest expense and non-cash
amortization of debt discounts.
For the year, the company reduced its net debt by $666 million, or 23 percent,
versus the end of 2002. This was substantially due to a reduction of $461
million due to the exchange offers in the third quarter, $92 million of cash
flow for 2003 and $83 million in proceeds from the sale of substantially all of
the broadband assets.
"In defense of our core business, we increased our level of investment in
wireless and DSL subscriber acquisition, while simultaneously producing cash
flow to reduce net debt," said Brian Ross, Cincinnati Bell Inc.'s Chief
Financial Officer.
FINANCIAL GUIDANCE
The company provides the following guidance for 2004:
- Revenue decline, excluding Broadband Services, of low single-digit
percent
- Access line decline of 2 to 4 percent
- DSL net additions of 30,000 to 35,000
- Wireless net additions of 50,000 to 60,000
- Depreciation of $190 to $195 million
- Operating income of $295 to $310 million
- Effective tax rate of approximately 50 percent; with approximately $5
million in cash tax payments
- Capital expenditures of 10 to 12 percent of revenue
- Net debt reduction of approximately $140 million
The company has entered into an agreement to sell substantially all of the
non-Cincinnati-based CBTS assets for approximately $3 million in cash. 2003
revenue
10
associated with the divested assets was approximately $60 million, while
operating income for the same period was approximately $1 million.
RESTATEMENT OF PRIOR FINANCIAL STATEMENTS
As previously disclosed, the company has restated its financial statements to
reflect the revised accounting for a particular broadband network construction
agreement entered into in 2000. The effects of this restatement on the company's
financial statements are reflected in the financial tables distributed with this
release and are further described in Note 2 to the consolidated financial
statements included in its 2003 Form 10-K.
USE OF NON-GAAP FINANCIAL MEASURES
*The company has presented certain information regarding net debt in the
preceding discussion because the company believes net debt provides a useful
measure of a company's liquidity and financial health. Net debt is defined by
the company as the sum of short-term and long-term debt, in addition to BRCOM
preferred stock (as applicable), offset by cash and cash equivalents. A detailed
reconciliation of the company's net debt to comparable GAAP financial measures
is given in the attached financial information and is posted on the company's
website at www.cincinnatibell.com, under the Investor Relations tab.
**The company has presented certain information regarding cash flow in the
preceding discussion because the company believes cash flow provides a useful
measure of a company's operational performance, liquidity and financial health.
Cash flow is defined by the company as SFAS 95 cash provided by (used in)
operating, financing and investing activities, less changes in restricted cash
in operating activities, issuance and repayment of long-term debt in financing
activities, short-term borrowings (repayments) in financing activities and
proceeds from the sale of discontinued operations and assets in investing
activities. Cash flow should not be considered as an alternative to net income
(loss), operating income (loss), cash flow from operating activities, or the
change in cash on the balance sheet and may not be comparable with cash flow as
defined by other companies. A detailed reconciliation of the company's cash flow
to comparable GAAP financial measures is given in the attached financial
information and is posted on the company's website at www.cincinnatibell.com,
under the Investor Relations tab.
These non-GAAP financial measures should not be construed as being more
important than comparable GAAP measures. They are presented because Cincinnati
Bell Inc. management uses this information when evaluating the company's results
of operations and cash flow and believes that this information provides the
users of the financial
11
statements with an additional and useful comparison of the company's current
results of operations and cash flows with past and future periods.
***The company has presented certain information regarding average revenue per
user (ARPU) because the company believes ARPU provides a useful measure of the
operational performance of the wireless business. ARPU is calculated by dividing
service revenue by our average subscriber base for the respective period. For a
given period, average subscribers is calculated by adding subscribers at the
beginning of the period to subscribers at the end of the period and dividing the
sum by two.
****The company has presented certain information regarding cost per gross
addition (CPGA) because the company believes CPGA provides a useful measure of
the initial expense to add a wireless subscriber. CPGA is calculated by adding
incentives for handsets sold (costs have historically exceeded the related
revenue) to selling expenses (which excludes bad debt) and dividing the sum by
total gross subscriber acquisitions during the relevant period.
CONFERENCE CALL/WEBCAST
Cincinnati Bell Inc. will host a conference call discussing its fourth quarter
2003 results on Tuesday, March 23, 2004 at 9:00 am EST, which will be web-cast
on the company's website at www.cincinnatibell.com. The dial-in number for the
conference call is 1-877-641-0086. International callers may dial 678-460-1867.
A taped replay of the conference call will be available one hour after the
conclusion of the teleconference until 5:00 (PST) on April 30, 2004. For U.S.
callers, the replay will be available at 866-543-6660. For international
callers, the replay will be available at 678-460-1866. The replay reference
number is 144318.
ABOUT CINCINNATI BELL INC.
Cincinnati Bell Inc. (NYSE: CBB) is parent to one of the nation's most respected
and best performing local exchange and wireless providers with a legacy of
unparalleled customer service excellence. The company was recently ranked number
one in customer satisfaction, for the third year in a row, by J.D. Power and
Associates for residential long distance among mainstream users. Cincinnati Bell
provides a wide range of telecommunications products and services to residential
and business customers in Ohio, Kentucky and Indiana. Cincinnati Bell is
headquartered in Cincinnati, Ohio. For more information, visit
www.cincinnatibell.com.
SAFE HARBOR NOTE
Certain of the statements and predictions contained in this press release
constitute forward-looking statements within the meaning of the Private
Securities Litigation Reform Act. In particular, any statements, projections or
estimates that include or reference the words "believe," "anticipates," "plans,"
"expects," "will," or any similar expression fall within the safe harbor for
forward-looking statements contained in the Reform Act. Actual results or
outcomes may differ materially from those indicated or
12
suggested by any such forward-looking statement for a variety of reasons,
including but are not limited to, Cincinnati Bell's ability to maintain its
market position in communications services, general economic trends affecting
the purchase of telecommunication services, world and national events that may
affect the ability to provide services, changes in the regulatory environment,
any rulings, orders or decrees that may be issued by any court or arbitrator and
Cincinnati Bell's ability to develop and launch new products and services. More
information on potential risks and uncertainties is available in the company's
recent filings with the Securities and Exchange Commission, including Cincinnati
Bell's annual Form 10-K report, Quarterly Form 10-Q reports, Forms 8-K, and
Forms S-4 and S-3 Registration Statements. The forward-looking statements
included in this press release represent the company's estimates as of March 22,
2004. The company anticipates that subsequent events and developments will cause
its estimates to change.
13
CINCINNATI BELL INC.
Restatement of Prior Financial Statements
(Unaudited)
The Audit Committee of the Company's Board of Directors recently completed an
investigation into the allegations contained in an amended class action
securities lawsuit filed in December 2003. These allegations relate primarily to
the manner in which the Company recognized revenue, and wrote down assets, with
respect to its former broadband business. In connection with that investigation,
adjustments have been identified related to the manner that the Company recorded
a particular broadband network construction agreement entered into in 2000.
These adjustments related to the timing of revenue recognition resulting from
the inappropriate inclusion of certain costs that had not been fully incurred
and use of estimates regarding the extent to which the construction contract had
been completed. The Company's restatement also includes the reversal of a
related unbilled account receivable that was previously written off in the
second quarter of 2003, as the account receivable was eliminated as a result of
the adjustments to revenue in 2001 and 2000. The Company has restated its
financial statements to reflect the revised accounting for this contract.
Revenue for the year-to-date period ended September 30, 2003 will remain the
same as previously reported, cost of services and products will decrease by
$50.5 million and net income will increase by $50.5 million; revenue and cost of
services and products will be unchanged in 2002 and net loss will increase by
$18.0 million due to an increase in income tax expense; revenue for 2001 will
decrease by $30.6 million, cost of services and products for 2001 will increase
by $15.1 million, and net loss for 2001 will increase by $29.4 million; and
revenue for 2000 will decrease by $22.7 million, cost of services and products
for 2000 will decrease by $17.9 million, and net loss for 2000 will increase by
$3.1 million. Thus, there is no cumulative change to net income over the
reporting period as a result of this restatement.
2003 2002 2001 2000
-------- --------- -------- --------
(through 9/30)
Revenue, as previously reported $1,246.6 $ 2,178.6 $2,282.9 $1,992.9
Adjustment -- -- (30.6) (22.7)
---------------------------------------------
Revenue, as restated $1,246.6 $ 2,178.6 $2,252.3 $1,970.2
=============================================
Cost of services and products, as previously reported $ 601.7 $ 1,035.6 $1,154.2 $ 966.3
Adjustment (50.5) -- 15.1 (17.9)
---------------------------------------------
Cost of services and products, as restated $ 551.2 $ 1,035.6 $1,169.3 $ 948.4
=============================================
Net income (loss), as previously reported $ 438.4 $(4,222.3) $ (286.2) $ (377.1)
Adjustment 50.5 (18.0) (29.4) (3.1)
---------------------------------------------
Net income (loss), as restated $ 488.9 $(4,240.3) $ (315.6) $ (380.2)
=============================================
Cincinnati Bell Inc.
Consolidated Statements of Operations
(Unaudited)
(in millions - except per share amounts)
For the Three Months For the Twelve Months
Ended December 31, % Ended December 31, %
2003 2002 Change 2003 2002 Change
-------- --------- ------ -------- --------- ------
(Restated)
Revenue $ 311.2 $ 509.3 (39%) $1,557.8 $ 2,178.6 (29%)
- -------
Costs & Expenses
Cost of Services and Products 130.3 246.3 (47%) 681.5 1,035.6 (34%)
Selling, General & Administrative 62.2 122.0 (49%) 353.1 502.2 (30%)
Depreciation and Amortization 48.7 125.6 (61%) 169.7 496.3 (66%)
Restructuring Charges (Credits) 0.8 13.5 (94%) (2.6) 37.1 n/m
Asset Impairments and Other Charges (Credits) 9.5 2,200.3 (100%) 8.8 2,200.9 (100%)
Gain on Sale of Broadband Assets (0.4) -- n/m (336.7) -- n/m
-------- --------- -------- ---------
Operating Income (Loss) 60.1 (2,198.4) n/m 684.0 (2,093.5) n/m
Minority Interest Expense (Income) (0.3) 13.2 n/m 42.2 57.6 (27%)
Loss (Gain) on Extinguishment of Debt (16.2) -- n/m 1.2 -- n/m
Other (Income) Expense, Net (10.2) 10.2 n/m (10.8) 10.2 n/m
Interest Expense and Other Financing Costs 60.4 46.8 29% 234.2 164.2 43%
-------- --------- -------- ---------
Income (Loss) from Continuing Operations before
Income Taxes, Discontinued Operations and
Cumulative Effect of
Change in Accounting Principle 26.4 (2,268.6) n/m 417.2 (2,325.5) n/m
Income Tax Expense (Benefit) (816.6) 132.8 n/m (828.8) 123.7 n/m
-------- --------- -------- ---------
Income (Loss) from Continuing Operations before
Discontinued Operations and Cumulative Effect
of Change in Accounting Principle 843.0 (2,401.4) n/m 1,246.0 (2,449.2) n/m
Discontinued Operations, Net of Taxes -- -- n/m -- 217.6 (100%)
Cumulative Effect of Change in Accounting
Principle, Net of Taxes -- -- n/m 85.9 (2,008.7) n/m
-------- --------- -------- ---------
Net Income (Loss) 843.0 (2,401.4) n/m 1,331.9 (4,240.3) n/m
Preferred Stock Dividends 2.6 2.6 -- 10.4 10.4 --
-------- --------- -------- ---------
Net Income (Loss) Applicable to Common Shareowners $ 840.4 $(2,404.0) n/m $1,321.5 $(4,250.7) n/m
======== ========= ======== =========
Basic Earnings (Loss) Per Common Share
- --------------------------------------
Income (Loss) from Continuing Operations before
Discontinued Operations and Cumulative Effect
of Change in Accounting Principle $ 3.44 $ (11.00) $ 5.44 $ (11.27)
Discontinued Operations, Net of Taxes -- -- -- 1.00
Cumulative Effect of Change in Accounting Principle,
Net of Taxes -- -- 0.38 (9.20)
-------- --------- -------- ---------
Net Earnings (Loss) Per Common Share $ 3.44 $ (11.00) $ 5.82 $ (19.47)
======== ========= ======== =========
Diluted Earnings (Loss) Per Common Share
- ----------------------------------------
Income (Loss) from Continuing Operations before
Discontinued Operations and Cumulative Effect of
Change in Accounting Principle $ 3.17 $ (11.00) $ 5.02 $ (11.27)
Discontinued Operations, Net of Taxes -- -- -- 1.00
Cumulative Effect of Change in Accounting Principle,
Net of Taxes -- -- 0.34 (9.20)
-------- --------- -------- ---------
Net Earnings (Loss) Per Common Share $ 3.17 $ (11.00) $ 5.36 $ (19.47)
======== ========= ======== =========
Weighted Average Common Shares Outstanding
- ------------------------------------------
- Basic 244.3 218.5 226.9 218.4
- Diluted 267.6 218.5 253.3 218.4
</Table>
Cincinnati Bell Inc.
Segment Information
(Unaudited)
(dollars in millions) For the Three Months For the Twelve Months
Ended December 31, % Ended December 31, %
2003 2002 Change 2003 2002 Change
------- --------- ------ -------- --------- ------
Revenue (Restated)
- -------
Local $ 208.6 $ 216.5 (4%) $ 820.4 $ 833.1 (2%)
Wireless 62.6 65.4 (4%) 259.5 267.2 (3%)
Other 19.4 21.1 (8%) 81.1 82.8 (2%)
Broadband 26.6 227.1 (88%) 448.7 1,075.4 (58%)
Corporate and eliminations (6.0) (20.8) (71%) (51.9) (79.9) (35%)
------- --------- -------- ---------
Total Revenue $ 311.2 $ 509.3 (39%) $1,557.8 $ 2,178.6 (28%)
======= ========= ======== =========
Cost of Services and Products
- -----------------------------
Local $ 68.6 $ 69.9 (2%) $ 260.0 $ 261.8 (1%)
Wireless 32.4 32.8 (1%) 110.5 119.5 (8%)
Other 12.9 16.5 (22%) 54.1 63.4 (15%)
Broadband 20.5 143.6 (86%) 296.2 655.6 (55%)
Corporate and eliminations (4.1) (16.5) (75%) (39.3) (64.7) (39%)
------- --------- -------- ---------
Total Cost of Services and Products $ 130.3 $ 246.3 (47%) $ 681.5 $ 1,035.6 (34%)
======= ========= ======== =========
Selling, General & Administrative
- ---------------------------------
Local $ 34.4 $ 36.2 (5%) $ 133.5 $ 139.5 (4%)
Wireless 15.1 11.6 30% 50.0 47.3 6%
Other 2.6 4.2 (38%) 14.8 15.8 (6%)
Broadband 7.3 72.2 (90%) 144.5 308.3 (53%)
Corporate and eliminations 2.8 (2.2) n/m 10.3 (8.7) n/m
------- --------- -------- ---------
Total Selling, General & Administrative $ 62.2 $ 122.0 (49%) $ 353.1 $ 502.2 (30%)
======= ========= ======== =========
Depreciation and Amortization
- -----------------------------
Local $ 31.9 $ 36.8 (13%) $ 125.7 $ 146.7 (14%)
Wireless 15.9 8.0 99% 38.8 31.3 24%
Other 0.6 0.5 20% 2.1 1.9 11%
Broadband 0.2 80.1 (100%) 2.5 315.9 (99%)
Corporate and eliminations 0.1 0.2 (50%) 0.6 0.5 20%
------- --------- -------- ---------
Total Depreciation and Amortization $ 48.7 $ 125.6 (61%) $ 169.7 $ 496.3 (66%)
======= ========= ======== =========
Restructuring Charges (Credits)
- -------------------------------
Local $ 4.5 $ 1.1 n/m $ 4.5 $ (0.5) n/m
Wireless - - n/m - - n/m
Other - - n/m - - n/m
Broadband (7.6) 11.6 n/m (11.0) 32.6 n/m
Corporate and eliminations 3.9 0.8 n/m 3.9 5.0 (22%)
------- --------- -------- ---------
Total Restructuring $ 0.8 $ 13.5 (94%) $ (2.6) $ 37.1 n/m
======= ========= ======== =========
Asset Impairments and Other Charges (Credits)
- ---------------------------------------------
Local $ 0.3 $ 0.3 - $ 0.6 $ 0.3 100%
Wireless - - n/m - - n/m
Other 3.5 - n/m 3.6 - n/m
Broadband 5.7 2,200.0 (100%) 4.6 2,200.6 (100%)
Corporate and eliminations - - n/m - - n/m
------- --------- -------- ---------
Total Asset Impairments and Other Charges (Credits) $ 9.5 $ 2,200.3 (100%) $ 8.8 $ 2,200.9 (100%)
======= ========= ======== =========
Gain on Sale of Broadband Assets
- --------------------------------
Local $ - $ - n/m $ - $ - n/m
Wireless - - n/m - - n/m
Other - - n/m - - n/m
Broadband (0.4) - n/m (336.7) - n/m
Corporate and eliminations - - n/m - - n/m
------- --------- -------- ---------
Total Gain on Sale of Broadband Assets $ (0.4) $ - n/m $ (336.7) $ - n/m
======= ========= ======== =========
Operating Income
- ----------------
Local $ 68.9 $ 72.2 (5%) $ 296.1 $ 285.3 4%
Wireless (0.8) 13.0 n/m 60.2 69.1 (13%)
Other (0.2) (0.1) 100% 6.5 1.7 n/m
Broadband 0.9 (2,280.4) n/m 348.6 (2,437.6) n/m
Corporate and eliminations (8.7) (3.1) 181% (27.4) (12.0) 128%
------- --------- -------- ---------
Total Operating Income $ 60.1 $(2,198.4) n/m $ 684.0 $(2,093.5) n/m
======= ========= ======== =========
CINCINNATI BELL INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in millions - except debt covenants and segment information)
December 31, December 31,
2003 2002
------------- ------------
(Restated)
Assets
Cash and Cash Equivalents $ 26.0 $ 44.9
Restricted Cash - 7.0
Receivables - Net 140.5 240.1
Materials and Supplies 33.6 32.2
Other Current Assets 59.3 70.6
Property, Plant and Equipment - Net 898.8 867.9
Goodwill 40.9 40.9
Other Intangible Assets - Net 47.2 47.8
Noncurrent Deferred Tax Assets 696.9 -
Other Noncurrent Assets 130.3 101.2
--------- ---------
Total Assets $ 2,073.5 $ 1,452.6
========= =========
Liabilities and Shareowners' Deficit
Current Portion of Long-Term Debt $ 13.3 $ 203.7
Current Portion of Unearned Revenue and Customer Deposits 41.5 118.9
Accounts Payable 64.5 129.4
Accrued Taxes 43.7 84.4
Other Current Liabilities 143.8 213.2
Long-Term Debt, Less Current Portion 2,274.5 2,354.7
Unearned Revenue, Less Current Portion 11.9 306.0
Other Noncurrent Liabilities 120.0 197.2
Minority Interest 39.7 443.9
Shareowners' Deficit (679.4) (2,598.8)
--------- ---------
Total Liabilities and Shareowners' Deficit $ 2,073.5 $ 1,452.6
========= =========
Other Data:
Common Shares Outstanding at Balance Sheet Date 244.6 218.7
Net Debt $ 2,261.8 $ 2,927.9
Credit Facility Availability $ 299.5 $ 163.9
Debt Covenants (See Note 1):
Debt to EBITDA Ratio - Calculated 4.70 n/a
Debt to EBITDA Ratio - Required 6.20 n/a
Senior Secured Debt to EBITDA Ratio - Calculated 1.87 n/a
Senior Secured Debt to EBITDA Ratio - Required 4.00 n/a
Interest Coverage Ratio - Calculated 3.56 n/a
Interest Coverage Ratio - Required 2.50 n/a
Year-to-date Capital Expenditures - Restricted Group Actual 122.2 n/a
Maximum Annual Capital Expenditures - Restricted Group Allowed 146.0 n/a
Segment Information (in thousands):
Local Access Lines 985.8 1,011.9
Complete Connections Subscribers 312.5 288.9
DSL Subscribers 99.5 74.8
Custom Connections Subscribers 54.7 -
Postpaid Wireless Subscrbers 311.9 311.2
Prepaid Wireless Subscrers 162.5 159.2
--------- ---------
Total Wireless Subscribers 474.4 470.4
Consumer Long Distance Lines 414.4 431.3
Business Long Distance Lines 124.6 123.5
--------- ---------
Total Long Distance Lines 539.0 554.8
Note 1: The company renegotiated its debt covenants in March 2003 in conjunction
with its refinancing, which rendered historical covenant information
irrelevant.
CINCINNATI BELL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(dollars in millions) For the Three Months For the Twelve Months
Ended December 31, Ended December 31,
CONSOLIDATED CASH FLOW 2003 2002 2003 2002
-------- ------- --------- ----------
(Restated)
Cash provided by operating activities $ 79.9 $ 62.6 $ 310.6 $ 192.6
Capital expenditures (31.6) (36.0) (126.4) (175.9)
Cash provided by sale of Broadband assets - - 82.7 -
Proceeds from the sale of discontinued operations - - - 345.0
Other (0.1) - 0.9 23.3
------ ------ --------- -------
Cash used in investing activities (31.7) (36.0) (42.8) 192.4
Issuance of long-term debt 540.0 38.0 1,390.0 151.0
Repayment of long-term debt (576.2) (51.2) (1,585.1) (470.0)
Short-term borrowings (repayments), net (1.7) 0.5 (5.5) (6.9)
Debt issuance costs (15.2) (0.8) (80.4) (9.2)
Issuance of common shares - exercise of stock options 0.7 0.3 2.2 0.8
Purchase of Cincinnati Bell shares for treasury and
employee benefit-plans - (0.6) - (0.6)
Preferred stock dividends paid (2.6) (2.6) (7.9) (35.2)
------ ------ --------- -------
Cash used in financing activities (55.0) (16.4) (286.7) (370.1)
------ ------ --------- -------
Net increase in cash and cash equivalents (6.8) 10.2 (18.9) 14.9
Cash and cash equivalents at beginning of period 32.8 34.7 44.9 30.0
------ ------ --------- -------
Cash and cash equivalents at end of period $ 26.0 $ 44.9 $ 26.0 $ 44.9
====== ====== ========= =======
RECONCILIATION OF GAAP CASH FLOW TO CASH FLOW AS
DEFINED BY THE COMPANY
Net increase (decrease) in cash and cash equivalents $ (6.8) $ 10.2 $ (18.9) $ 14.9
Less adjustments:
Issuance of long-term debt 540.0 38.0 1,390.0 151.0
Repayment of long-term debt (financing activities) (576.2) (51.2) (1,585.1) (470.0)
Short-term borrowings (repayments), net
(financing activities) (1.7) 0.5 (5.5) (6.9)
Restricted Cash (7.0) 6.9 (7.0)
Proceeds from the sale of discontinued operations 345.0
Cash provided by sale of Broadband assets 82.7
------ ------ --------- -------
Cash flow (as defined by the company) $ 31.1 $ 29.9 $ 92.1 $ 2.8
====== ====== ========= =======
Cash Expenditures for Restructuring $ (9.0) $(12.4) $ (21.3) $ (72.4)
Income Tax Refunds Received $ - $ - $ 0.3 $ (40.3)
CINCINNATI BELL INC.
CONSOLIDATED REVENUE AND OPERATING INCOME EXCLUDING BROADBAND
(UNAUDITED)
(dollars in millions) For the Three Months For the Twelve Months
Ended December 31, % Ended December 31, %
2003 2002 Change 2003 2002 Change
-------- --------- ------- ---------- ---------- ------
(Restated)
RECONCILIATION OF CONSOLIDATED REVENUE TO
CONSOLIDATED REVENUE EXCLUDING BROADBAND
Revenue $ 311.2 $ 509.3 (39%) $ 1,557.8 $ 2,178.6 (28%)
Less adjustments:
Broadband Revenue 26.6 227.1 (88%) 448.7 1,075.4 (58%)
Broadband Intercompany Activity (1.2) (16.7) (93%) (34.1) (62.6) (46%)
------- ---------- --------- ----------
Consolidated Revenue Excluding Broadband $ 285.8 $ 298.9 (4%) $ 1,143.2 $ 1,165.8 (2%)
======= ========== ========= ==========
RECONCILIATION OF CONSOLIDATED OPERATING INCOME TO
CONSOLIDATED OPERATING INCOME EXCLUDING BROADBAND
Operating Income $ 60.1 $ (2,198.4) n/m $ 684.0 $ (2,093.5) n/m
Less adjustments:
Broadband Operating Income (Loss) 0.9 (2,280.4) n/m 348.6 (2,437.6) n/m
------- ---------- --------- ----------
Consolidated Operating Income Excluding Broadband $ 59.2 $ 82.0 (28%) $ 335.4 $ 344.1 (3%)
======= ========== ========= ==========
CINCINNATI BELL INC.
NET DEBT CALCULATION
(UNAUDITED)
Change
December 31, December 31, --------------------------
(dollars in millions) 2003 2002 $ %
------------ ------------ ---------- ------
Credit Facilities $ 608.4 $ 1,648.1 $ (1,039.7) (63%)
Cincinnati Bell Telephone notes 250.0 270.0 (20.0) (7%)
9% Senior subordinated notes of BRCOM - 46.0 (46.0) (100%)
7 1/4% Senior notes due 2013 of Cincinnati Bell Inc. 500.0 - 500.0 n/m
16% Senior subordinated notes of Cincinnati Bell Inc. 360.6 - 360.6 n/m
7 1/4% Senior notes due 2023 of Cincinnati Bell Inc. 50.0 50.0 - -
8 3/8% Senior notes due 2014 of Cincinnati Bell Inc. 540.0 - 540.0 n/m
Convertible subordinated notes of Cincinnati Bell Inc. - 502.8 (502.8) (100%)
Capital leases 18.2 39.0 (20.8) (53%)
Other short-term debt of BRCOM 2.7 2.6 0.1 4%
Unamortized discount (42.1) (0.9) (41.2) n/m
12 1/2% Senior Notes of BRCOM - 0.8 (0.8) (100%)
12 1/2% Series B Junior Exchangeable Preferred Stock
of BRCOM Inc. - 414.4 (414.4) (100%)
--------- --------- ----------
Total Debt and Minority Interest 2,287.8 2,972.8 (685.0) (23%)
Less: Cash and Cash Equivalents 26.0 44.9 (18.9) (42%)
--------- --------- ----------
Net Debt (as defined by the company) $ 2,261.8 $ 2,927.9 $ (666.1) (23%)
========= ========= ==========
CINCINNATI BELL INC.
NET DEBT CALCULATION
(UNAUDITED)
Change
December 31, September 30, ------------------
(dollars in millions) 2003 2003 $ %
----------- ------------- -------- ------
Credit Facilities $ 608.4 $ 639.9 $ (31.5) (5%)
Cincinnati Bell Telephone notes 250.0 270.0 (20.0) (7%)
9% Senior subordinated notes of BRCOM - - - n/m
7 1/4% Senior notes due 2013 of Cincinnati Bell Inc. 500.0 500.0 - -
16% Senior subordinated notes of Cincinnati Bell Inc. 360.6 357.1 3.5 1%
7 1/4% Senior notes due 2023 of Cincinnati Bell Inc. 50.0 50.0 - -
8 3/8% Senior notes due 2014 of Cincinnati Bell Inc. 540.0 - 540.0 n/m
Convertible subordinated notes of Cincinnati Bell Inc. - 534.5 (534.5) (100%)
Capital leases 18.2 33.6 (15.4) (46%)
Other short-term debt of BRCOM 2.7 2.8 (0.1) (4%)
Unamortized discount (42.1) (44.2) 2.1 (5%)
12 1/2% Senior Notes of BRCOM - - - n/m
12 1/2% Series B Junior Exchangeable
Preferred Stock of BRCOM Inc. - - - n/m
--------- --------- -------
Total Debt and Minority Interest 2,287.8 2,343.7 (55.9) (2%)
Less: Cash and Cash Equivalents 26.0 32.9 (6.9) (21%)
--------- --------- -------
Net Debt (as defined by the company) $ 2,261.8 $ 2,310.8 $ (49.0) (2%)
========= ========= =======
CINCINNATI BELL INC.
NORMALIZED STATEMENTS OF OPERATIONS - RECONCILIATION TO REPORTED RESULTS
(UNAUDITED)
(in millions - except per share amounts)
SPECIAL AND NONRECURRING ITEMS
----------------------------------------------------------------------
For the Twelve
Months Ended Income Debt
December 31, Tax Extin- Asset Rest- El Paso
2003 (GAAP) Benefits guishment Impairments ructuring Settlement
----------------------------------------------------------------------
A B C D E
Revenue $1,557.8 $ -- $ -- $ -- $ -- $ --
Costs & Expenses
Cost of Services and Products 681.5 -- -- -- -- --
Selling, General & Administrative 353.1 -- -- -- -- --
Depreciation and Amortization 169.7 -- -- -- -- --
Restructuring Charges (Credits) (2.6) -- -- -- (2.6) --
Asset Impairments and Other Charges (Credits) 8.8 -- -- 3.6 -- 5.2
Gain on Sale of Broadband Assets (336.7) -- -- -- --
------------------------------------------------------------------
Operating Income (loss) 684.0 -- -- (3.6) 2.6 (5.2)
Minority Interest Expense (Income) 42.2 -- -- -- -- --
Loss (Gain) on Extinguishment of Debt 1.2 -- 1.2 -- -- --
Other (Income) Expense, Net (10.8) -- -- -- -- --
Interest Expense and Other Financing Costs 234.2 -- 16.4 -- -- --
------------------------------------------------------------------
Income (Loss) from Continuing Operations before
Income Taxes, Discontinued Operations and
Cumulative Effect of Change in Accounting Principle 417.2 -- (17.6) (3.6) 2.6 (5.2)
Income Tax Expense (Benefit) (828.8) (834.7) -- -- -- --
------------------------------------------------------------------
Income (Loss) from Continuing Operations before
Discontinued Operations and Cumulative Effect of
Change in Accounting Principle 1,246.0 834.7 (17.6) (3.6) 2.6 (5.2)
Discontinued Operations, Net of Taxes -- -- -- -- -- --
Cumulative Effect of Change in Accounting Principle,
Net of Taxes 85.9 -- -- -- -- --
------------------------------------------------------------------
Net Income (Loss) 1,331.9 834.7 (17.6) (3.6) 2.6 (5.2)
Preferred Stock Dividends 10.4 -- -- -- -- --
------------------------------------------------------------------
Net Income (Loss) Applicable to Common Shareowners $1,321.5 $ 834.7 $ (17.6) $ (3.6) $ 2.6 $(5.2)
===================================================================
Weighted average diluted shares 253.3 253.3 253.3 253.3 253.3 253.3
Diluted Earnings (Loss) Per Common Share $ 5.36 $ 3.30 $ (0.07) $ (0.01) $ 0.01 $ (0.02)
SPECIAL AND NONRECURRING ITEMS
----------------------------------------------------------------------
Executive Gain on For the Twelve
Incentives and Sale of Change in Other Months Ended
Termination Broadband Accounting Special December 31, 2003
Benefits Assets Principle Items Before Special Items
----------------------------------------------------------------------
F G H I
Revenue $ -- $ -- $ -- $ -- $ 1,557.8
Costs & Expenses
Cost of Services and Products -- -- -- -- 681.5
Selling, General & Administrative 11.2 -- -- -- 341.9
Depreciation and Amortization -- -- -- -- 169.7
Restructuring Charges (Credits) -- -- -- -- --
Asset Impairments and Other Charges (Credits) -- -- -- -- --
Gain on Sale of Broadband Assets -- (336.7) -- -- --
------------------------------------------------------------------
Operating Income (loss) (11.2) 336.7 -- -- 364.7
Minority Interest Expense (Income) -- -- -- -- 42.2
Loss (Gain) on Extinguishment of Debt -- -- -- -- --
Other (Income) Expense, Net -- -- -- (10.0) (0.8)
Interest Expense and Other Financing Costs -- -- -- -- 217.8
------------------------------------------------------------------
Income (Loss) from Continuing Operations before
Income Taxes, Discontinued Operations and
Cumulative Effect of Change in Accounting Principle (11.2) 336.7 -- 10.0 105.5
Income Tax Expense (Benefit) -- -- -- -- 5.9
------------------------------------------------------------------
Income (Loss) from Continuing Operations before
Discontinued Operations and Cumulative Effect of
Change in Accounting Principle (11.2) 336.7 -- 10.0 99.6
Discontinued Operations, Net of Taxes -- -- -- -- --
Cumulative Effect of Change in Accounting Principle,
Net of Taxes -- -- 85.9 -- --
------------------------------------------------------------------
Net Income (Loss) (11.2) 336.7 85.9 10.0 99.6
Preferred Stock Dividends -- -- -- -- 10.4
------------------------------------------------------------------
Net Income (Loss) Applicable to Common Shareowners $ (11.2) $336.7 $85.9 $10.0 $89.2
===================================================================
Weighted average diluted shares 253.3 253.3 253.3 253.3 253.3
Diluted Earnings (Loss) Per Common Share $ (0.04) $1.33 $0.34 $0.04 $0.48
NORMALIZED RESULTS HAVE BEEN ADJUSTED FOR THE FOLLOWING:
A The company reversed certain previously recorded valuation allowances
against deferred tax assets. The Company has maintained these valuation
allowances primarily due to liquidity concerns at the company's subsidiary,
BRCOM, Inc. Because these uncertainties have been substantially mitigated,
the company recorded a non-cash income tax benefit of $823.0 million in the
fourth quarter of 2003. In addition, the Company recorded a tax benefit of
$11.7 million in the third quarter of 2003 related to the reversal of
certain income tax reserves due to the closure of certain recent IRS audit
periods. Due to the reversal of valuation allowance, special items have not
been tax effected as they were initially recorded at a 0% effective tax
rate.
B The Company recorded a non-cash gain of $16.2 million during the fourth
quarter due to the extinguishment of the Company's convertible subordinated
debentures (Oak Hill), which were purchased at 97% of accreted value. This
gain was offset by a non-cash charge of $17.4 million related to the
exhange of $46 million of 9% senior subordianted notes of BRCOM in the
thrid quarter. Additionally, the Company recorded a charge of $16.4 million
in 2003 related to the write-off of deferred financing cost associated with
the refinancing of the Company's credit facilities.
C The Company recorded an asset impairment charge in the fourth quarter,
substantially related to a write down the value of the Company's public
payphone assets to fair value.
D The Company recorded a restructuring credit of $2.6 million during 2003.
E The Company reached a final settlement in February 2004 of an arbitration
proceeding with El Paso Global Networks regarding a broadband network
construction contract entered into in 2000. As part of the settlement, both
parties agreed to drop their respective claims for monetary damages. The
Company recorded a $5.2 million charge in the fourth quarter as a result of
this settlement.
F The Company recorded a charge of $11.2 million for certain executive
incentives and termination benefits, $2.6 million of which consisted of a
non-cash charge for the accelerated vesting of stock options.
G The Company's recorded a gain on the sale of its broadband assets of $336.7
million.
H The Company recorded a non-cash gain of $85.9 million resulting from the
cumulative effect of a change in accounting principle in accordance with
SFAS 143.
I The Company recorded a gain of $10.0 million due to the modification of a
lease at the Company's headquarters. This modification required the lease
to be reclassified from a capital lease to an operating lease.
CINCINNATI BELL INC.
NORMALIZED STATEMENTS OF OPERATIONS - RECONCILIATION TO REPORTED RESULTS
(UNAUDITED)
(in millions - except per share amounts) SPECIAL AND NONRECURRING ITEMS
--------------------------------------------------------------------------
For the
Three
For the Months
Three Executive Ended
Months Incentives December 31,
Ended Income Debt Asset and Other 2003 Before
December 31, Tax Extin- Impair- Restruc- EPGN Termination Special Special
2003(GAAP) Benefits guishment ments turing Settlement Benefits Items Items
-----------------------------------------------------------------------------------------------------
A B C D E F G
Revenue $ 311.2 $ -- $ -- $ -- $ -- $ 311.2
- -------
Costs & Expenses
- ----------------
Cost of Services and Products 130.3 -- -- -- -- -- -- -- 130.3
Selling, General &
Administrative 62.2 -- -- -- -- -- 2.0 -- 60.2
Depreciation and Amortization 48.7 -- -- -- -- -- -- -- 48.7
Restructuring Charges (Credits) 0.8 -- -- -- 0.8 -- -- -- --
Asset Impairments and Other
Charges (Credits) 9.5 -- -- 4.3 -- 5.2 -- -- --
Gain on Sale of Broadband
Assets (0.4) -- -- -- -- -- -- -- (0.4)
-------------------------------------------------------------------------------------------------
Operating Income (loss) 60.1 -- -- (4.3) (0.8) (5.2) (2.0) -- 72.4
Minority Interest Expense
(Income) (0.3) -- -- -- -- -- -- -- (0.3)
Loss (Gain) on Extinguishment
of Debt (16.2) -- (16.2) -- -- -- -- -- --
Other (Income) Expense, Net (10.2) -- -- -- -- -- -- (10.0) (0.2)
Interest Expense and Other
Financing Costs 60.4 -- 6.5 -- -- -- -- -- 53.9
-------------------------------------------------------------------------------------------------
Income (Loss) from Continuing
Operations before Income
Taxes, Discontinued
Operations and Cumulative
Effect of Change in
Accounting Principle 26.4 -- 9.7 (4.3) (0.8) (5.2) (2.0) 10.0 19.0
Income Tax Expense (Benefit) (816.6) (823.0) -- -- -- -- -- -- 6.4
-------------------------------------------------------------------------------------------------
Income (Loss) from Continuing
Operations before
Discontinued Operations and
Cumulative Effect of Change
in Accounting Principle 843.0 823.0 9.7 (4.3) (0.8) (5.2) (2.0) 10.0 12.6
Discontinued Operations,
Net of Taxes -- -- -- -- -- -- -- -- --
Cumulative Effect of Change
in Accounting Principle,
Net of Taxes -- -- -- -- -- -- -- -- --
-------------------------------------------------------------------------------------------------
Net Income (Loss) 843.0 823.0 9.7 (4.3) (0.8) (5.2) (2.0) 10.0 12.6
Preferred Stock Dividends 2.6 -- -- -- -- -- -- -- 2.6
-------------------------------------------------------------------------------------------------
Net Income (Loss) Applicable
to Common Shareowners $ 840.4 $ 823.0 $ 9.7 $ (4.3) $ (0.8) $ (5.2) $ (2.0) $ 10.0 $ 10.0
=================================================================================================
Weighted average diluted shares 267.6 267.6 267.6 267.6 267.6 267.6 267.6 267.6 267.6
Diluted Earnings (Loss) Per
Common Share $ 3.17 $ 3.08 $ 0.04 $ (0.02) $ (0.00) $(0.02) $ (0.01) $ 0.04 $ 0.06
NORMALIZED RESULTS HAVE BEEN ADJUSTED FOR THE FOLLOWING:
A The company reversed certain previously recorded valuation allowances
against deferred tax assets. The Company has maintained these valuation
allowances primarily due to liquidity concerns at the company's subsidiary,
BRCOM, Inc. Because these uncertainties have been substantially mitigated,
the company recorded a non-cash income tax benefit of $823.0 million in the
fourth quarter of 2003. Due to the reversal of valuation allowance, special
items have not been tax effected as they were initialy recorded at a 0%
effective tax rate.
B The Company recorded a non-cash gain of $16.2 million during the fourth
quarter of 2003 due to the extinguishment of the Company's convertible
subordinated debentures (Oak Hill), which were purchased at 97% of accreted
value. Additionally, the Company recorded a charge of $6.5 million in the
fourth quarter related to the write-off of deferred financing cost
associated with the refinancing of the Company's credit facilities.
C The Company recorded an asset impairment charge of $4.3 million in the
fourth quarter of 2003, substantially related to a write down the value of
the Company's public payphone assets to fair value.
D The Company recorded a restructuring charge of $0.8 million during the
fourth quarter of 2003. The net restructuring charge was comprised
primarily of a $4.6 million charge related to employee separation benefits,
offset by a $4.1 million reversal of a restructuring charge previously
recorded related to the November 2001 restructuring plan.
E The Company reached a final settlement in February 2004 of an arbitration
proceeding with El Paso Global Networks regarding a broadband network
construction contract entered into in 2000. As part of the settlement, both
parties agreed to drop their respective claims for monetary damages. The
Company recorded a $5.2 million charge in the fourth quarter of 2003 as a
result of this settlement.
F The Company recorded a charge of $2.0 million for certain executive
incentives and termination benefits in the fourth quarter of 2003.
G The Company recorded a gain of $10.0 million due to the modification of a
lease at the Company's headquarters. This modification required the lease
to be reclassified from a capital lease to an operating lease in the fourth
quarter of 2003.
CINCINNATI BELL INC.
NORMALIZED STATEMENTS OF OPERATIONS - RECONCILIATION TO REPORTED RESULTS
(UNAUDITED)
(in millions - except per share amounts)
SPECIAL AND NONRECURRING ITEMS
---------------------------------------------------------------------------------
For the
Twelve
Months
Ended
December
For the 31,
Twelve Change 2002
Months Ended Income Termination in Discon- Other Before
December 31, Tax Asset Restruc- El Paso of Accounting tinued Special Special
2002 (GAAP) Benefits Impairments turing Charge IRUs Principle Operations Items Items
----------------------------------------------------------------------------------------------------------
(Restated) A B C D E F G H (Restated)
Revenue $ 2,178.6 $ -- $ -- $ -- $ -- $ 58.7 $ -- $ -- $ -- $2,119.9
- -------
Costs & Expenses
- ----------------
Cost of Services and
Products 1,035.6 -- -- -- 13.3 -- -- -- -- 1,022.3
Selling, General &
Administrative 502.2 -- -- -- -- -- -- -- -- 502.2
Depreciation and
Amortization 496.3 -- -- -- -- -- -- -- -- 496.3
Restructuring Charges
(Credits) 37.1 -- -- 37.1 -- -- -- -- -- --
Asset Impairments and
Other Charges (Credits) 2,200.9 -- 2,200.3 -- -- -- -- -- -- 0.6
Gain on Sale of
Broadband Assets -- -- -- -- -- -- -- -- -- --
---------------------------------------------------------------------------------------------------------
Operating Income (loss) (2,093.5) -- (2,200.3) (37.1) (13.3) 58.7 -- -- -- 98.5
Minority Interest Expense
(Income) 57.6 -- -- -- -- -- -- -- -- 57.6
Other (Income) Expense, Net 10.2 -- -- -- -- -- -- -- 11.2 (1.0)
Interest Expense and
Other Financing Costs 164.2 -- -- -- -- -- -- -- -- 164.2
---------------------------------------------------------------------------------------------------------
Income (Loss) from
Continuing Operations
before Income Taxes,
Discontinued Operations
and Cumulative Effect of
Change in Accounting
Principle (2,325.5) -- (2,200.3) (37.1) (13.3) 58.7 -- -- (11.2) (122.3)
Income Tax Expense
(Benefit) 123.7 912.8 (770.1) (13.0) (4.7) 20.5 -- -- (3.9) (17.9)
---------------------------------------------------------------------------------------------------------
Income (Loss) from
Continuing Operations
before Discontinued
Operations and
Cumulative Effect of
Change in Accounting
Principle (2,449.2) (912.8) (1,430.2) (24.1) (8.6) 38.2 -- -- (7.3) (104.4)
Discontinued Operations,
Net of Taxes 217.6 -- -- -- -- -- -- 217.6 -- --
Cumulative Effect of
Change in Accounting
Principle, Net of Taxes (2,008.7) -- -- -- -- -- (2,008.7) -- -- --
---------------------------------------------------------------------------------------------------------
Net Income (Loss) (4,240.3) (912.8) (1,430.2) (24.1) (8.6) 38.2 (2,008.7) 217.6 (7.3) (104.4)
Preferred Stock Dividends 10.4 -- -- -- -- -- -- -- -- 10.4
---------------------------------------------------------------------------------------------------------
Net Income (Loss)
Applicable to
Common Shareowners $(4,250.7) $(912.8) $(1,430.2) $ (24.1) $ (8.6) $ 38.2 $(2,008.7) $ 217.6 $ (7.3) $ (114.8)
=========================================================================================================
Weighted average diluted
shares 218.4 218.4 218.4 218.4 218.4 218.4 218.4 218.4 218.4 218.4
Diluted Earnings (Loss)
Per Common Share $ (19.47) $ (4.18) $ (6.55) $ (0.11) $ (0.04) $ 0.17 $ (9.20) $ 1.00 $ (0.03) $ (0.53)
Normalized Results have been adjusted for the following:
A As a result of the liquidity restrictions and uncertainties at the
Company's subsidiary, BRCOM, Inc., the company's federal income tax
provision included a charge of $912.8 million to establish a valuation
reserve against certain deferred tax assets. These uncertainties were
substantially mitigated and $823 million of the valuation reserve was
reversed in the fourth quarter of 2003.
B In accordance with SFAS 144, the company recorded a non-cash asset
impairment charge of $2.2 billion to reduce the carrying value of the
Broadband unit's assets to estimated fair market value.
C The company recorded restructuring charges of $37.1 million in 2002, which
comprised $16.5 million recorded in the first quarter of 2002 for employee
termination benefits, the termination of a contractual commitment with a
vendor related to the November 2001 restructuring, $7.1 million recorded in
the third quarter of 2002 primarily for employee termination benefits
related to the September 2002 restructuring, and $14.7 million recorded in
the fourth quarter of 2002 related to the October 2002 restructuring.
D In the second quarter of 2002 the Company incurred a charge of $13.3
million for costs associated with the termination of the Company's
uncompleted network construction with El Paso Global Networks.
E In the second and third quarter of 2002, the Company terminated IRU
contracts as a result of the bankruptcy of two carrier customers, releasing
the Company from its service obligations.
F The Company recorded a non-cash charge of $2,008.7 million resulting from
the cumulative effect of a change in accounting principle in accordance
with SFAS 142.
G In the first quarter of 2002, the Company sold substantially all of the
assets of its Cincinnati Bell Directory subsidiary.
H During the fourth quarter, the company recorded a non-cash charge of $11.2
million for the write-down of an investment security.
CINCINNATI BELL INC.
NORMALIZED STATEMENTS OF OPERATIONS - RECONCILIATION TO REPORTED RESULTS
(UNAUDITED)
(in millions - except per share amounts) SPECIAL AND NONRECURRING ITEMS
----------------------------------------------------------------
For the Three
For the Three Months Ended
Months Ended Other December 31,
December 31, Income Tax Asset Special 2002 Before
2002 (GAAP) Benefits Impairments Restructuring Items Special Items
-------------------------------------------------------------------------------
A B C D
Revenue $ 509.3 $ -- $ -- $ -- $ -- $ 509.3
- -------
Costs & Expenses
- ----------------
Cost of Services and Products 246.3 -- -- -- -- 246.3
Selling, General & Administrative 122.0 -- -- -- -- 122.0
Depreciation and Amortization 125.6 -- -- -- -- 125.6
Restructuring Charges (Credits) 13.5 -- -- 13.5 -- --
Asset Impairments and Other Charges (Credits) 2,200.3 -- 2,200.3 -- -- --
Gain on Sale of Broadband Assets -- -- -- -- -- --
----------------------------------------------------------------------------
Operating Income (loss) (2,198.4) -- (2,200.3) (13.5) -- 15.4
Minority Interest Expense (Income) 13.2 -- -- -- -- 13.2
Other (Income) Expense, Net 10.2 -- -- -- 11.2 (1.0)
Interest Expense and Other Financing Costs 46.8 -- -- -- -- 46.8
----------------------------------------------------------------------------
Income (Loss) from Continuing Operations
before Income Taxes, Discontinued Operations
and Cumulative Effect of Change in
Accounting Principle (2,268.6) -- (2,200.3) (13.5) (11.2) (43.6)
Income Tax Expense (Benefit) 132.8 912.8 (770.1) (4.7) (3.9) (1.3)
----------------------------------------------------------------------------
Income (Loss) from Continuing Operations before
Discontinued Operations and Cumulative Effect
of Change in Accounting Principle (2,401.4) (912.8) (1,430.2) (8.8) (7.3) (42.3)
Discontinued Operations, Net of Taxes -- -- -- -- -- --
Cumulative Effect of Change in Accounting Principle,
Net of Taxes -- -- -- -- -- --
----------------------------------------------------------------------------
Net Income (Loss) (2,401.4) (912.8) (1,430.2) (8.8) (7.3) (42.3)
Preferred Stock Dividends 2.6 -- -- -- -- 2.6
----------------------------------------------------------------------------
Net Income (Loss) Applicable to Common Shareowners $ (2,404.0) $(912.8) $ (1,430.2) $ (8.8) $ (7.3) $ (44.9)
============================================================================
Weighted average diluted shares 218.5 218.5 218.5 218.5 218.5 218.5
Diluted Earnings (Loss) Per Common Share $ (11.00) $ (4.18) $ (6.55) $ (0.04) $ (0.03) $ (0.20)
Normalized Results have been adjusted for the following:
A As a result of the liquidity restrictions and uncertainties at the
Company's subsidiary, BRCOM, Inc., the company's federal income tax
provision included a charge of $912.8 million to establish a valuation
reserve against certain deferred tax assets. These uncertainties were
substantially mitigated and $823 million of the valuation reserve was
reversed in the fourth quarter of 2003.
B In accordance with SFAS 144, the company recorded a non-cash asset
impairment charge of $2.2 billion to reduce the carrying value of the
Broadband unit's assets to estimated fair market value.
C The company recorded restructuring charges of $13.5 million in the fourth
quarter of 2002. The restructuring of BRCOM was intended to reduce annual
expenses.
D During the fourth quarter, the company recorded a non-cash charge of $11.2
million for the write-down of an investment security.