SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
December 29, 1999
(Date of earliest event reported)
CINCINNATI BELL INC.
(Exact name of registrant as specified in its charter)
Ohio 1-8519 31-1056105
------------ --------- -------------
State or other jurisdiction of (Commission I.R.S. Employer Identification
organization File Number)
Number)
201 East Fourth Street
Cincinnati, Ohio 45202
(Address of principal executive offices) (Zip Code)
(513) 397-9900
(Registrant's telephone number, including area code)
Item 7. Financial Statements and Exhibits
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
On November 9, 1999, Cincinnati Bell Inc. consummated its acquisition
of IXC Communications, Inc. ("IXC"). Cincinnati Bell Inc. currently conducts
business and its common stock is traded on the New York Stock Exchange under
the name "Broadwing Inc." In the following pro forma combined condensed
financial statements we refer to Cincinnati Bell Inc. d/b/a Broadwing Inc. as
"Cincinnati Bell," unless the context clearly indicates otherwise.
The following unaudited pro forma combined condensed financial
statements give effect to the merger of Cincinnati Bell and IXC under the
purchase method of accounting. These pro forma statements are presented for
illustrative purposes only. The pro forma adjustments are based upon
available information and certain assumptions that management believes are
reasonable. The pro forma combined condensed financial statements do not
purport to represent what the results of operations or financial position of
Cincinnati Bell would actually have been if the merger and related
transactions had in fact occurred on such dates, nor do they purport to
project the results of operations or financial position of Cincinnati Bell
for any future period or as of any date.
Under the purchase method of accounting, tangible and identifiable
intangible assets acquired and liabilities assumed are recorded at their
estimated fair values. The excess of the purchase price, including estimated
fees and expenses related to the merger, over the net assets acquired is
classified as goodwill on the accompanying unaudited pro forma combined
condensed balance sheet. The estimated fair values and useful lives of assets
acquired and liabilities assumed are based on a preliminary valuation and are
subject to final valuation adjustments which may cause certain of the
intangibles to be amortized over a shorter life than the goodwill
amortization period of 40 years.
The unaudited pro forma combined condensed balance sheet as of
September 30, 1999 was prepared by combining the balance sheet at September
30, 1999 for Cincinnati Bell with the balance sheet at September 30, 1999 for
IXC, giving effect to the merger as though it had been completed on September
30, 1999.
The unaudited pro forma combined condensed statements of income for
the periods presented was prepared by combining Cincinnati Bell's statements
of income for the year ended December 31, 1998, and the nine months ended
September 30, 1999, with IXC's statements of income for the year ended
December 31, 1998, and the nine-month period ended September 30, 1999,
respectively, giving effect to the merger as though it had occurred on
January 1, 1998. This unaudited pro forma combined condensed financial data
does not give effect to any restructuring costs or to any potential cost
savings or other synergies that could result from the merger.
The consolidated historical financial statements of Cincinnati Bell
and IXC for the year ended December 31, 1998, are derived from audited
consolidated financial statements. The condensed consolidated historical
financial statements of Cincinnati Bell and IXC for the nine months ended
September 30, 1999, are derived from unaudited condensed consolidated
financial statements.
Unaudited Pro Forma Combined Condensed Balance Sheet
as of September 30, 1999
(Dollars in millions)
Cincinnati Pro Forma Pro Forma
ASSETS Bell IXC Adjustments Combined
(c) (c)
Current Assets:
Cash and cash equivalents $ 3.4 $ 147.6 $ 151.0
Receivables, net 146.2 86.5 232.7
Other current assets 63.2 17.8 81.0
-------- -------- -------- --------
Total current assets 212.8 251.9 464.7
Property, plant and equipment, net 748.5 1,420.2 2,168.7
Non-current marketable securities 272.7 373.0 (250.0)(o) 395.7
Goodwill and other noncurrent assets 198.4 174.4 2,616.4 (d) 2,877.2
(10.5)(n)
45.2 (d)
(146.7)(l)
-------- -------- -------- --------
Total assets $1,432.4 $2,219.5 $2,254.4 $5,906.3
======== ======== ======== ========
LIABILITIES AND SHAREOWNERS'
EQUITY
Current Liabilities:
Debt maturing in one year $ 221.8 $ 162.3 $ 384.1
Current portion of unearned revenue - 52.2 52.2
Payables and other current liabilities 216.1 318.5 46.3 (n) 580.9
-------- -------- -------- --------
Total Current Liabilities 437.9 533.0 46.3 1,017.2
Long-term debt 766.1 813.7 (7.9)(d) 1556.4
(15.5)(d)
Noncurrent unearned revenue - 557.5 557.5
Deferred credits and other liabilities 143.1 55.8 17.4 (k) 216.3
-------- -------- -------- --------
Total liabilities 1,347.1 1,960.0 40.3 3,347.4
7 1/4% preferred stock - 104.0 68.5 (d) 172.5
12 1/2% preferred stock - 379.3 (379.3)(j) -
Minority interest - - 406.2 (d)(j) 406.2
Shareowners' Equity:
6 3/4% convertible preferred stock - - 129.4 (d) 129.4
Common shares 1.4 0.4 (0.4)(f) 2.1
0.7 (g)
Treasury stock (134.3) - (134.3)
Additional paid in capital 157.7 238.3 (238.3)(f) 1,921.4
1,549.5 (g)
213.6 (h)
0.6 (h)
Retained earnings 55.6 (551.8) 551.8 (f) 56.7
1.1 (n)
Other comprehensive income 4.9 89.3 (89.3)(f) 4.9
-------- -------- -------- --------
Total shareowners' equity 85.3 (223.8) 2,118.7 1,980.2
Total liabilities and shareowners'
equity $1,432.4 $2,219.5 $2,254.4 $5,906.3
======== ======== ======== ========
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
Unaudited Pro Forma Combined Condensed Income Statement
For the nine months ended September 30, 1999
(Dollars in millions, except per share amounts)
Cincinnati Pro Forma Pro Forma
Bell IXC Adjustments Combined
(c) (c)
Revenues $ 758.2 $ 489.4 $ 1,247.6
Costs and Expenses:
Costs of providing services and products sold 329.0 319.5 648.5
Selling, general and administrative 175.6 179.1 354.7
Depreciation and amortization 98.2 126.4 (18.9) (i) 254.8
49.1 (i)
Restructuring Charge - 32.6 32.6
Other infrequent costs - 1.2 1.2
------- ------- ------ ---------
Total costs and expenses 602.8 658.8 30.2 1,291.8
------- ------- ------ ---------
Operating (loss) income 155.4 (169.4) (30.2) (44.2)
Loss from unconsolidated subsidiaries - 19.1 19.1
Interest income - (8.7) (8.7)
Interest expense 31.9 30.6 15.2(e) 77.7
Minority interest (5.8) 0.6 40.4(j) 35.2
Other (income) expense, net (0.5) 12.7 12.2
------- ------- ------ ---------
Income (loss) from continuing operations
before income taxes 129.8 (223.7) (85.8) (179.7)
Income taxes 47.0 1.8 (3.6)(k) 45.2
------- ------- ------ ---------
Income (loss) from continuing operations 82.8 (225.5) (82.2) (224.9)
Dividend requirements on preferred stock - 49.1 (38.6) (l) 10.5
------- ------- ------ ---------
Income (loss) from continuing operations
attributable to common shareowners $ 82.8 $(274.6) $(43.6) $ (235.4)
======= ======= ====== =========
Income (loss) per common share:
Income (loss) from continuing operations
attributable to common shareholders:
Basic $ 0.61 $ (7.43) $ (1.16)
Diluted $ 0.59 $ (7.43) $ (1.16)
Shares used in computing information
attributable to common shareholders (m):
Basic 135.8 36.9 203.6
Diluted 139.7 36.9 203.6
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
Unaudited Pro Forma Combined Condensed Income Statement
Year ended December 31, 1998
(Dollars in millions, except per share amounts)
Pro Forma Pro Forma
Cincinnati Bell IXC Adjustments Combined
(c) (c)
Revenues $885.1 $668.6 $1,553.7
Costs and expenses:
Costs of providing services and products sold 369.6 $ 433.3 802.9
Selling, general and administrative 204.0 144.5 348.5
Depreciation and amortization 111.1 113.6 $ 65.4 (i) 269.3
(20.8)(i)
Other infrequent costs 20.4 8.0 28.4
------ ------- -------- --------
Total costs and expenses 705.1 699.4 44.6 1,449.1
------ ------- -------- --------
Operating (loss) income 180.0 (30.8) (44.6) 104.6
Loss from unconsolidated subsidiaries 27.3 33.0 60.3
Interest income (14.3) (14.3)
Interest expense 24.2 31.7 27.5 (e) 83.4
Minority interest 0.7 48.8 (j) 49.5
Other (income) expense, net 2.4 (.2) 2.2
------ ------- -------- --------
Income (loss) from continuing operations
before income taxes 126.1 (81.7) (120.9) (76.5)
Income taxes 44.3 13.9 (11.3)(k) 46.9
------ ------- -------- --------
Income (loss) from continuing operations 81.8 (95.6) (109.6) (123.4)
Dividend requirements on preferred stock 58.2 (43.1)(l) 15.1
------ ------- -------- --------
Income (loss) from continuing operations
attributable to common shareowners $ 81.8 $(153.8) $ (66.5) $ (138.5)
====== ======= ======== ========
Income (loss) per common share:
Income (loss) from continuing operations
attributable to common shareowners:
Basic $ 0.60 $ (4.28) $ (.68)
Diluted 0.59 (4.28) $ (.68)
Shares used in computing information attributable
to common shareowners (n):
Basic 136.0 35.9 203.8
Diluted 138.2 35.9 203.8
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
Notes to Unaudited Pro Forma Combined Condensed Financial Statements
(a) The unaudited pro forma combined condensed balance sheet assumes that
the merger took place on September 30, 1999, and the unaudited pro forma
combined condensed statements of income assume that the merger took
place as of January 1, 1998.
On a combined basis, there were no material transactions between
Cincinnati Bell and IXC during the period presented. There are no
material differences between the accounting policies of Cincinnati Bell
and IXC.
(b) The unaudited pro forma combined condensed financial data do not give
effect to any restructuring costs or to any potential cost savings or
other synergies that could result from the merger. Cincinnati Bell is in
the process of developing a plan to integrate the operations of IXC with
the operations of Cincinnati Bell, which may involve certain
restructuring activities. As a result of this plan, a liability, which
may be material but which cannot be quantified as of the date of these
pro forma financial statements, is expected to be recognized in the
period in which Cincinnati Bell's plan is completed.
In addition, Cincinnati Bell is developing a plan to provide the
combined entity with access to credit facilities that will be sufficient
to fund its working capital requirements and for its other general
corporate purposes. To the extent that establishing such credit
facilities results in refinancing existing indebtedness of Cincinnati
Bell or IXC, an extraordinary loss of up to approximately $20 million
may be incurred to write off certain debt issuance costs.
The unaudited pro forma combined condensed financial data is based on a
preliminary allocation of the total merger consideration. Cincinnati
Bell has not yet completed a formal valuation of IXC's individual assets
and liabilities. When Cincinnati Bell completes a formal valuation of
IXC's individual assets and liabilities, which will be based on
third-party appraisals, Cincinnati Bell will make a final allocation of
the total merger consideration to the IXC assets acquired and
liabilities assumed, tangible and intangible, with any change in the
fair value of the net assets acquired increasing or decreasing goodwill.
Refer to Note (d). The effect of these changes cannot be assessed at
this time and any such changes could materially affect the goodwill and
related amortization.
(c) These columns represent historical results of operations and financial
position.
(d) The adjustment reflects the initial estimate made by Cincinnati Bell's
management of the excess of total merger consideration over the net
assets of IXC to be acquired, and the liabilities to be assumed, in the
merger. The following is a calculation (for purposes of this note only,
in thousands except per share data):
Consideration:
Shares of IXC common stock outstanding at July 20, 1999 32,323
Cincinnati Bell exchange ratio per IXC share 2.0976
----------
Shares of Cincinnati Bell common stock to be issued in the merger 67,801
Cincinnati Bell price per share based on the average closing price 3 days
before and after July 21, 1999, the date of the announcement of the merger 22.8646
----------
Value of Cincinnati Bell common stock to be issued in the merger 1,550,243
IXC stock options converted upon merger -- 6951 shares 213,674
Exchange of stock warrants as a result of the merger -- 75 shares 575
Estimated Cincinnati Bell transaction costs 47,000
IXC common stock acquired by Cincinnati Bell from General Electric -- 4,999
shares at $50 per share 250,000
Issuance of Cincinnati Bell 6 3/4% preferred stock 129,437
----------
Total merger consideration $2,190,929
----------
Historical IXC net deficit exchanged in the merger at September 30, 1999 adjusted
for the elimination of existing goodwill of $146,700 370,255
Estimated IXC expenses 11,000
Fair value adjustments relating to:
Exchange of 7 1/4% preferred stock 68,492
Surviving corporation 12 1/2% preferred stock 26,852
Minority-owned investments (45,247)
Subordinated debt (7,875)
Forward contracts (15,528)
Deferred tax impact of fair value adjustments 17,420
----------
Preliminary goodwill and other intangibles $2,616,298
==========
The total merger consideration will be allocated to the assets and
liabilities of IXC based on their estimated fair value. The impact of
this fair value adjustment has been reflected in pro forma deferred tax
balances. The excess of the total merger consideration over the
historical book value of IXC's net assets has been allocated to goodwill
and other intangible assets. The final allocation of the merger
consideration to the IXC assets acquired and liabilities assumed depends
upon certain valuations and studies that have not progressed to a stage
where there is sufficient information to make a final allocation in the
accompanying pro forma combined condensed financial information. We
anticipate that a portion of the purchase price up to $500 million will
be allocated to intangible assets including customer contracts. The
amortization period for these assets could range between 2 and 20 years.
(e) Reflects the recognition of interest and financing expense incurred or
assumed in connection with the merger. Interest expense associated with
the additional $400 million of indebtedness incurred in connection with
the merger relating to the issuance of subordinated convertible notes by
Cincinnati Bell pursuant to an indenture as of July 21, 1999, was
calculated based on an assumed average interest rate of 6.86% per year
from the beginning of each period presented. The Cincinnati Bell board
of directors has also authorized the use of $200 million of the proceeds
of such indebtedness to repurchase Cincinnati Bell common stock in
connection with an open market share repurchase program. As of September
30, 1999, Cincinnati Bell has repurchased 7.3 million shares at an
aggregate purchase price of $134.3 million. Since September 30, 1999,
Cincinnati Bell has repurchased an additional 0.6 million shares of its
common stock in the open market for an aggregate purchase price of $10.8
million. The repurchase of these
shares of Cincinnati Bell common stock subsequent to September 30, 1999
has not been reflected in the unaudited pro forma combined condensed
financial statements.
(f) Reflects the elimination of IXC's stockholders' equity accounts
including the elimination of IXC's existing unrealized gains on
investments.
(g) Reflects the issuance of approximately 67.8 million shares of Cincinnati
Bell common stock in connection with the merger pursuant to which each
issued and outstanding share of IXC common stock will be converted into
the right to receive 2.0976 shares of Cincinnati Bell common stock. As
of July 21, 1999, the date of the announcement of the merger, 32.2
million shares of IXC common stock were outstanding.
(h) Represents the excess fair value of vested and unvested stock options
granted and warrants issued by Cincinnati Bell in exchange for
outstanding vested and unvested stock options originally granted and
warrants originally issued, as applicable, by IXC.
(i) Reflects the adjustment to amortization for the effect of goodwill. For
purposes of the unaudited pro forma condensed combined financial
statements, goodwill has been amortized over an estimated useful life of
40 years. While the amounts allocated to goodwill are expected to be
amortized over 40 years, other intangible assets may be amortized over
shorter periods which will have the effect of reducing the amount of net
income presented in these financial statements. We have not made a final
determination of the amounts or lives attributable to the intangible
assets other than goodwill. See Notes (a) and (d). This entry also
reflects the elimination of net goodwill of IXC of $146.7 million and
the related goodwill amortization of IXC recorded historically of $18.9
million for the period presented.
(j) Reflects the reclassification of the IXC 12 1/2% preferred stock, which
will remain outstanding after the merger as 12 1/2% preferred stock of
the surviving corporation in the merger, and which will be treated as
minority interest of the combined company. Accordingly, the dividends
payable and accretion on the 12 1/2% preferred stock have also been
reclassified as a minority interest, net in the pro forma combined
condensed income statement.
(k) Represents the tax effect of the pro forma adjustments. The acquisition
adjustments include nondeductible goodwill amortization. See Note (i).
Pro forma net deferred tax assets are reduced by a valuation allowance
of $213.6 million at September 30, 1999 because of limitations on future
utilization under the Internal Revenue Code.
(l) Under the terms of the merger agreement, each issued and outstanding
share of IXC 7 1/4% preferred stock and IXC 6 3/4% preferred stock will
be converted into the right to receive one share of Cincinnati Bell 7
1/4% preferred stock and one share of Cincinnati Bell 6 3/4% preferred
stock, respectively, on substantially identical terms. This adjustment
reflects the accretion and dividend adjustment for the 7 1/4% preferred
stock and the 6 3/4% preferred stock.
(m) Pro forma per share data is based on the number of shares of Cincinnati
Bell common stock and common equivalent shares that would have been
outstanding had the merger occurred on the earliest date presented.
(n) Reflects estimated merger-related fees and expenses of Cincinnati Bell
and IXC. The impact of these fees and expenses have been reflected in
the unaudited pro forma combined condensed balance sheet and statement
of income as an increase in the merger consideration and have been
allocated to the assets acquired and liabilities assumed, based upon
their estimated fair values. As of September 30, 1999, Cincinnati Bell
and IXC had incurred $10.5 million and $1.1 million, respectively, of
fees and expenses related to the merger which are reflected in their
respective financial statements as of and for the nine months ended
September 30, 1999. For purposes of these pro forma combined condensed
financial statements, these amounts have been eliminated and included in
the allocation of purchase price. See Note (d).
(o) Reflects the elimination of Cincinnati Bell's investment in 5 million
shares of IXC common stock purchased from General Electric. This amount
has been properly reflected in the total merger consideration for pro
forma purposes. See Note (d). The Company has recorded this investment
at cost and will subsequently restate its third quarter 1999 earnings to
include its pro-rata share (13%) of IXC's third quarter 1999 net loss.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, the registrant has duly caused this report to be signed on
its behalf by the undersigned hereunto duly authorized.
CINCINNATI BELL INC.
by: /s/ Thomas E. Taylor
--------------------------------
Name: Thomas E. Taylor
Title: General Counsel and Secretary
Date: December 29, 1999