FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file number 1-8519
CINCINNATI BELL INC.
An Ohio I.R.S. Employer
Corporation No. 31-1056105
201 East Fourth Street, Cincinnati, Ohio 45202
Telephone Number 513 397-9900
______________________________________
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- ---------------------
Common Shares (par value $1.00 per share) New York Stock Exchange
Cincinnati Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
__________________________________________________
At February 27, 1998, there were 136,420,671 common shares outstanding.
At February 27, 1998, the aggregate market value of the voting shares owned
by non-affiliates was $4,881,216,544.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
___________________________________________
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the registrant's annual report to security holders for the
fiscal year ended December 31, 1997 (Parts I, II and IV)
(2) Portions of the registrant's definitive proxy statement dated March 12,
1998 issued in connection with the annual meeting of shareholders (Part III)
TABLE OF CONTENTS
PART I
Item Page
---- ----
1. Business ............................................................. 1
2. Properties ........................................................... 17
3. Legal Proceedings .................................................... 17
4. Submission of Matters to a Vote of the Security Holders .............. 18
PART II
5. Market for the Registrant's Common Equity and Related Security
Holder Matters ....................................................... 20
6. Selected Financial Data .............................................. 20
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations ............................................ 20
8. Financial Statements and Supplementary Data .......................... 20
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure ............................................. 20
PART III
10. Directors and Executive Officers of Registrant ....................... 20
11. Executive Compensation ............................................... 20
12. Security Ownership of Certain Beneficial Owners and Management........ 20
13. Certain Relationships and Related Transactions ....................... 20
PART IV
14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K ...... 21
See page 18 for "Executive Officers of the Registrant".
PART I
ITEM I. BUSINESS
GENERAL
The Company is a diversified telecommunications company with principal
businesses in three industry segments. The information systems segment,
Cincinnati Bell Information Systems Inc. ("CBIS"), provides and manages
customer-care and billing solutions for the communications and cable TV
industries. The teleservices segment, MATRIXX Marketing Inc. ("MATRIXX"),
provides a full range of outsourced marketing solutions to large
corporations. The communications services segment, consisting of Cincinnati
Bell Telephone Company ("CBT"), Cincinnati Bell Long Distance Inc. ("CBLD"),
Cincinnati Bell Directory Inc. ("CBD"), Cincinnati Bell Supply Company
("CBS") and Cincinnati Bell Wireless Company ("CBW"), provides local
telephone exchange services and products in Greater Cincinnati, long distance
services, yellow pages and directory services, and telecommunications
equipment. CBW was formed during the fourth quarter of 1997 for the purpose
of providing customers in the Greater Cincinnati and Dayton markets advanced
digital personal communications services ("PCS"), voice, paging, e-mail
messaging, other features and associated products.
The Company is incorporated under the laws of Ohio and has its principal
executive offices at 201 East Fourth Street, Cincinnati, Ohio 45202
(telephone number (513) 397-9900).
STRATEGY
The three principal businesses and other interests of the Company are
the products of a focused strategy first initiated in 1983 to expand from a
local exchange telecommunications company into a broader, more diversified
company providing value-added customer-care services in high growth and
converging communications markets. By leveraging the combined knowledge,
capabilities and experience of its principal subsidiaries, the Company seeks
to take advantage of the opportunities arising from the growing
communications market and from the growing trend to outsource information
services and teleservices.
Each of CBIS, MATRIXX and CBT has growth strategies in its respective
markets. CBIS's strategy is to utilize the scale of its data processing
operations and its extensive industry knowledge and experience to be the
leading provider of customer-care and billing services and network
provisioning and management systems to the growing communications and
cable/broadband industries. MATRIXX's strategy is to develop long-term
strategic outsourcing relationships for customer management services in
support of large clients in the telecommunications, technology, financial
services, consumer products and direct response industries. CBT's strategy
is to be the leading full-service provider of communications services and
products in Greater Cincinnati by leveraging off its well-regarded brand
name, excellent service record and tradition of quality to market bundled
communications, information, data and entertainment services.
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INFORMATION SYSTEMS
Cincinnati Bell Information Systems Inc.
GENERAL
CBIS was formed in 1983 to leverage the Company's knowledge and
expertise in data processing and billing for the telecommunications industry.
CBIS provides data processing services and software systems that generate
billing information and manage customer information for communications
services businesses. CBIS's customers are primarily large corporations in the
U.S. communications industry. CBIS accounted for approximately 30% of the
Company's 1997 consolidated revenues and 34% of its total operating income
excluding special items.
CBIS is the leading provider of billing and customer-care services to
the wireless telecommunications market in North America, which includes
cellular and "PCS" businesses. Recently, subscriber growth in the domestic
wireless industry has averaged about 25% per year. CBIS's billing systems
serve many of the top wireless carriers. They generate bills for wireless
telephone customers in each of the top 50 U.S. metropolitan areas. CBIS's
service bureaus generated billing information for monthly customer statements
for approximately 30% of U.S. wireless subscribers in 1997. CBIS's revenue
from wireless clients increased from $144 million in 1993 to $366 million in
1997.
CBIS also provides billing and customer-care services to companies that
operate traditional wireline telecommunications networks, including CBT. It
develops network management systems for communications companies and
customer-care and billing systems for cable television systems operators in
the U.S. and Europe. CBIS's systems also support the provision of telephone
services by cable television system operators in the U.S. and in Europe. CBIS
offers service bureau billing services to the cable television industry.
During 1997, CBIS entered into a strategic relationship with Wiztec
Solutions Ltd. ("Wiztec") (which included acquiring a minority ownership
interest in, and the option to acquire a majority ownership interest in,
Wiztec), which added billing capabilities for CBIS in the global and direct
broadcast satellite marketplaces. In addition, CBIS entered into another
strategic relationship to add billing capabilities for consolidated Internet
services.
CBIS's headquarters are in Cincinnati, Ohio. It has major operations in
Ohio, Florida, Illinois, Georgia and Virginia. It also has operations in the
United Kingdom, Switzerland and The Netherlands.
BUSINESS
CBIS serves clients principally by processing data and creating bills
using proprietary software. CBIS provides and manages billing systems in
service bureaus where its experience results in significant cost and service
advantages for clients. These advantages include predictable costs,
information management expertise, access to advanced technology without
capital expense, and reliance on a provider focused on billing.
CBIS's data processing services are carried out in its data centers in
Cincinnati and Orlando. It uses information from communications service
providers to calculate and generate bills for the usage of communications
services, generally on a monthly cycle. CBIS strives to provide
state-of-the-art systems and facilities that provide reliability and
responsiveness. CBIS's systems select the correct plan for each customer from
the thousands of pricing plans provided by its clients. These systems
generate information for more than 16 million bills per month, including
approximately 700,000 bills generated for CBT. CBIS's computers process over
465 million transactions, including transactions for CBT, per month. CBIS's
revenue from this business is determined in large part by the number of bills
it produces and the number of accounts it manages.
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In the wireless industry, pricing plans are complex and change
frequently. Customers of CBIS's clients frequently change service plans and
service providers. Additionally, companies in the wireless industry are
growing rapidly. CBIS's ability to manage this change and growth successfully
is an important factor in its success.
CBIS also updates pricing plans and customer records for its clients and
makes customer information available to clients on-line, helping these
clients better manage their relationships with their telecommunications
customers. CBIS typically is compensated at an hourly rate for these and
other consulting services.
Most of CBIS's services are provided under contracts for terms of two to
ten years, certain of which may be terminated at specified times on prior
written notice. CBIS's three largest clients, other than CBT, are AT&T,
360(cents) Communications and Ameritech Corporation which collectively
accounted for approximately 62% of CBIS's 1997 revenues. Several multi-year
contracts cover essentially all of CBIS's relationships with AT&T businesses,
including its contract with AT&T Wireless and CMT Partners for the provision
of wireless customer-care and billing services through 2001. In 1997, CBIS
signed a contract extension with CBT to extend its contract until 2006.
Another client (whom the Company had earlier reported might terminate its
relationship with CBIS), representing approximately 7% of CBIS's 1997
revenues, committed to renew the relationship through August 2004. Other
CBIS customers include selected cable television systems owned by Time Warner
Inc. and Cox Communications, Inc., and the public telecommunications services
providers in Switzerland and The Netherlands. Some clients have purchased
CBIS software to operate in their own data centers. CBIS recently introduced
service bureau billing as an option for its cable television clients. CBIS
may renegotiate one or more major contracts in 1998 exchanging lower prices
for longer contract terms and a broader relationship. The negotiations could
negatively impact future results.
CBIS's systems development and support are dependent on its ability to
attract and retain its professional staff. There can be no assurance that
CBIS's labor costs will not increase in the future.
MARKETS
The wireless industry's subscriber base exceeded 53 million at the end
of 1997. At the end of 1997, CBIS's data centers generated billing
information for more than 16 million monthly customer statements for wireless
subscribers. Billing and customer-care for wireless and wireless-related
telecommunications services in North America accounted for more than 66% of
CBIS's 1997 total revenue.
A significant amount of CBIS' growth is directly related to increased
wireless subscribers in the United States. As the installed base of wireless
customers becomes larger, growth rates should decrease. Additionally,
certain international network management system development projects are
nearing completion causing a need for new sources of revenues to achieve
growth.
COMPETITION
Competition in the information services market is based primarily on
product quality, performance, price and the quality of client service. CBIS's
competitors include firms as large and larger than CBIS as well as potential
competitors from other markets similar to those served by CBIS. Major
competitors of CBIS include Alltel Corporation, American Management Systems
Inc., Andersen Consulting Group, Saville Systems, Inc., LHS, Inc. and ITDS,
Inc. Niche providers or new entrants could capture a segment of the
information services market by developing new systems or services that could
impact CBIS's market potential. CBIS's clients and potential clients are
generally large companies with substantial resources and the capability to
provide needed services for themselves rather than outsourcing such services.
Faced
3
with increasing competition, there can be no assurance that CBIS can grow at
the same rate as in the past.
CBIS believes that it provides superior service because of its knowledge
of the communications industry, its technology, its information systems
capabilities and resources, and its attention to client needs. As
communications customer care and billing becomes more complex, communications
providers are increasingly considering customer billing services as an
opportunity to differentiate themselves from competitive service providers.
CBIS believes that its ability to maintain a leadership position in the
technological development of billing systems will be critical to providing
its clients with competitively priced, high-quality services.
YEAR 2000
CBIS will incur a substantial amount of Year-2000 programming costs
because it is reliant on information systems software and equipment. These
costs will likely be in the range of $15 million to $20 million in 1998, and
are expected to be lower in 1999. The demand for programming resources to
address the Year 2000 issue worldwide could constrain CBIS's ability to hire
and retain the required resources and lead to increased labor costs for
programming talent. CBIS believes that its ability to maintain a leadership
position in the technological development of billing systems will be critical
to its future.
OPPORTUNITIES
Increased competition in the communications industry should increase
the opportunities for CBIS. One such opportunity, PCS, uses digital
technologies to increase the range of features, service quality and operating
efficiency of mobile communications services.
CBIS has contracts to provide customer-care and billing services to
three of the largest potential providers of PCS services in the United States
based on both issued and projected license awards. PrimeCo Personal
Communications L.P. ("PrimeCo"), a wireless partnership among AirTouch, Bell
Atlantic Corporation and U S West Media Group, has an agreement with CBIS for
CBIS to be its exclusive customer-care and billing solutions provider.
PrimeCo owns PCS licenses covering approximately 57 million net POPs
(potential customers adjusted for equity ownership) and is ranked as the
third largest owner of PCS A and B block licenses. CBIS has an exclusive
customer-care and billing contract with Sprint PCS, a wireless partnership
among Sprint Corporation, Tele-Communications, Inc., Comcast Cellular and Cox
Communications, Inc. Sprint PCS owns PCS licenses covering approximately 195
million net POPs and is the largest owner of PCS A and B block licenses.
Additionally, CBIS has an agreement with AT&T to provide customer-care and
billing services to AT&T for PCS services. AT&T Wireless owns PCS licenses
covering approximately 114 million net POPs and is the second largest owner
of PCS A and B block licenses.
TELESERVICES
MATRIXX Marketing Inc.
GENERAL
During the fourth quarter of 1997, MATRIXX announced agreements to
acquire AT&T's teleservices unit, AT&T Solutions Customer Care ("Transtech"),
and the teleservices assets of Maritz, Inc. With the consummation of these
acquisitions in the first quarter of 1998, MATRIXX became the teleservices
industry leader. MATRIXX provides a full range of customer service, sales
support, help desk and teleservices solutions to major companies in its
targeted industries. In 1997, MATRIXX accounted for
4
approximately 24% of the Company's consolidated revenue and 14% of total
operating income excluding special items.
MATRIXX principally focuses on developing long-term, strategic
outsourcing relationships with large clients in the communications,
technology, financial services, consumer products and direct response
industries. MATRIXX focuses on clients in these industries because of the
complexity of the services required, the anticipated growth of their
businesses and their continuing need for customer service support. Often, the
level of support these companies require and the close relationships they
build with MATRIXX lead to higher returns versus short-term campaign
programs. For example, MATRIXX has a team of sales account managers who are
the dedicated sales channel to a consumer products company's retail and
wholesale accounts. MATRIXX's team manages the company's day-to-day
relationships with those accounts. This extension of the company's sales
organization allows for more frequent customer contact at a lower cost. The
dedicated team also assists the company in its marketing efforts through
database management, product movement reports and market trends analysis.
Many MATRIXX employees who answer inbound customer service calls are
dedicated to serving a single client. Employees supporting DIRECTV-Registered
Trademark- satellite entertainment services, for example, answer calls to
initiate service or to provide information about programming options, billing
and technical aspects of the service, including installing customers' own
satellite dishes. For other clients, MATRIXX provides technical help-desk
support for computer products and services, and responds to customer
inquiries submitted via the Internet.
During the second half of 1997, the traditional market sector
experienced softness. As a result, to enhance services to its clients,
improve productivity, and better position itself for further growth, MATRIXX
announced a restructuring plan in the fourth quarter and recorded a
restructuring charge of $35 million. The changes from the restructuring plan
are expected to contribute $10 million in annual savings when fully
implemented.
During 1997 MATRIXX opened three new call centers and announced the plan
to restructure its operations to achieve increased productivity in customer
focus. With the acquisition of Transtech and Maritz, MATRIXX operates 32
North American and 2 international call centers with over 14,000 available
production workstations and approximately 25,000 customer-care
representatives, including full-time and part-time employees and contract
workers.
MATRIXX is headquartered in Cincinnati. It operates domestic call
centers in Ohio, Utah, Colorado, Arizona, Wisconsin, Nebraska, Oklahoma,
Missouri, Florida, California, Tennessee, North Carolina and Texas and
international call centers in Paris, France, Newcastle, England, and
Winnipeg, Canada.
RECENT DEVELOPMENTS
On January 8, 1998, MATRIXX acquired the teleservices assets of Maritz
Inc. which had revenues of approximately $50 million in 1997. The
acquisition is expected to increase MATRIXX's revenues in 1998 and have an
immaterial impact on earnings.
On March 3, 1998, MATRIXX acquired Transtech for approximately $625
million. The acquisition will initially be financed through short-term debt.
The acquired operations had revenues of approximately $400 million in 1997.
The acquisition and related financing is expected to have a dilutive effect
on 1998 earnings and will further increase MATRIXX's concentration of
revenues from its three largest clients. The acquisition will nearly double
the size of MATRIXX, making it the world's largest provider of outsourced
teleservices. A successful integration of Transtech's operations with those
of MATRIXX is important for the Company to achieve its business objectives.
5
BUSINESS
MATRIXX provides two categories of teleservices. Traditional services
offers shared capacities for large sales campaigns and major direct response
programs. Outsourced dedicated services require dedicated agents to handle a
specific company's more complex needs for customer service, technical
help-desk support and sales account management. Other outsourced services are
interactive voice response, Internet E-mail response, research and database
management. Based on 1997 revenues, approximately 75% of MATRIXX's business
involved responding to inbound calls. MATRIXX considers its industry focus
and differentiation of service offerings to be its competitive strengths.
Dedicated customer-care representative teams and call centers support
large teleservices programs for clients. Many of these centers are linked to
provide optimal call routing, capacity matching and redundancy in order to
best meet the needs of the client. MATRIXX has advanced information systems,
including proprietary software, and integrated telephone systems to
effectively meet client expectations. MATRIXX customer-care representatives
receive initial training and on-the-job support to develop calling skills and
knowledge of clients' products and services. MATRIXX's services are very
labor intensive. Service quality depends in part on its ability to minimize
personnel turnover. MATRIXX also competes for qualified personnel with other
employers in their geographic markets. There can be no assurance that MATRIXX
will be able to hire and retain a sufficient number of qualified personnel in
a cost-efficient manner to support continued growth and maintain
profitability.
MATRIXX's client base primarily includes large companies in the
telecommunications, technology, financial services, consumer products and
direct response industries. MATRIXX's largest customers in 1997 were
DIRECTV-Registered Trademark-, AT&T and American Express Company, which
collectively accounted for approximately 36% of 1997 revenues.
MARKET
Teleservices include consumer and business telephone-based customer
service and sales programs. Historically, companies maintained such
customer-care functions in-house because they believed that a direct
relationship with the customer was good business policy and because there
were few outsourcing alternatives. As the size and complexity of these
functions have grown, increasing numbers of companies have chosen to
outsource some or all of these activities in order to focus on their core
businesses, reduce costs and improve operational efficiency. Teleservices
companies such as MATRIXX often can provide these services with higher
quality and less cost, creating a competitive advantage for MATRIXX's
clients. In addition, teleservices companies often can provide a client with
current, detailed information about its customers and their purchasing
decisions.
The market for outsourced teleservices, including automated services, is
approximately $6 billion. In addition, industry sources estimate that a
considerably larger volume of teleservices was managed and operated
internally, through dedicated in-house call centers. MATRIXX believes that
corporations will outsource an increasingly larger percentage of such
teleservices, further fueling the growth of the outsourced market.
The principal drivers of MATRIXX's overall market growth are expected to
be the increasing use of targeted marketing strategies by companies, the
effectiveness of programs that involve frequent one-on-one contact as a means
of enhancing customer loyalty and the lower cost of sales and marketing over
the phone compared to other customer service methods. Additionally, as
companies seek to achieve greater strategic focus and operating efficiency, a
greater percentage are expected to seek to outsource telephone-based
customer-care services and sales coverage programs. The Company believes that
MATRIXX is well-positioned to capture significant amounts of this business
because its marketing expertise and technological resources enable it to deal
with increasingly complex customer interactions.
6
COMPETITION
The teleservices industry in which MATRIXX competes is extremely
competitive and highly fragmented. MATRIXX competes with the in-house
teleservices operations of its current and potential clients, other large
teleservices companies such as APAC Teleservices, Inc., ITI Marketing
Services Inc., Precision Response Corporation, SITEL Corporation, TeleTech
Holdings, Inc., West Teleservices Corporation and numerous smaller companies.
MATRIXX also competes with alternative marketing media such as television,
radio and direct mail advertising. MATRIXX differentiates itself from
competitors based on its size and scale, selective industry and client focus,
financial and technical resources and business reputation.
MATRIXX believes that the principal competitive factors in the
teleservices industry are service quality, sales and marketing skills, price,
technological expertise and customized solutions. The competitive marketplace
could begin to place pressure on MATRIXX's ability to achieve its goals.
There can be no assurance that MATRIXX will be able to achieve the growth and
financial results that it has had in the past several years.
REGULATION
Various federal and state legislative initiatives have been enacted to
regulate outbound teleservices, especially calls to consumers. Since MATRIXX
concentrates on inbound service and outbound business-to-business
teleservices, MATRIXX does not believe that such legislation adversely
affects its business presently. However, there can be no assurance that
future legislation will not restrict MATRIXX's ability to conduct its
business.
YEAR 2000
MATRIXX has begun to incur costs in response to the Year 2000 issue.
These costs are expected to be in a range of $12 to $18 million in 1998,
including approximately $8 to $10 million for Transtech. MATRIXX's Year 2000
costs are expected to be lower in 1999.
OPPORTUNITIES
MATRIXX believes that the growth of teleservices as a communications
medium and the trend to outsource customer service, technical help-desk and
sales coverage programs offer significant opportunities to grow its business.
Companies now realize that they can improve customer service and increase
sales while reducing costs. In addition, MATRIXX has developed services for
other subsidiaries of the Company that it can market to other clients. For
example, MATRIXX and CBT worked together to develop MATRIXX's help desk
support service for CBT's FUSE-Registered Trademark- Internet access service,
a support service MATRIXX is offering to other third-party clients. CBIS is
also collaborating with MATRIXX to provide data processing services and
enhanced customer management software as well as jointly offering end-to-end
value-added solutions to communications providers.
MATRIXX believes that its expertise in the telecommunications,
technology, financial service, consumer products and direct response
industries are a competitive advantage for developing relationships with
large corporations in those industries. In addition, MATRIXX believes its
scale and expertise in inbound calling provide it with an advantage in
winning new business from companies currently relying on in-house telephone
marketing service operations.
MATRIXX will actively seek out opportunities to expand its product
offerings and client base through internal development and strategic
acquisitions.
7
COMMUNICATIONS SERVICES
Cincinnati Bell Telephone Company
GENERAL
CBT was founded as The City and Suburban Telegraph Association in 1873,
three years before the invention of the telephone. In 1878, CBT became the
first telephonic exchange in Ohio and the tenth in the nation.
CBT provides telecommunications services and products, mainly local
service, network access and toll telephone services, to business and
residential customers in most of the Cincinnati metropolitan area, including
principally four counties of southwestern Ohio, principally six counties in
northern Kentucky and parts of two counties in southeastern Indiana.
Approximately 82% of intrastate revenues are derived from Ohio sources, 18%
from Kentucky and minor amounts from Indiana. The Cincinnati Bell Telephone
brand name is well-known among CBT's customers. CBT bundles a broad and
increasing range of communications-related products and services under that
name. In 1997, CBT provided 37% of the Company's revenue and 39% of its
operating income excluding special items.
CBT's service record is among the best in the industry. Based on
reports to the Federal Communications Commission ("FCC"), CBT receives fewer
customer reports of service trouble per line than do nearly all other large
U.S. telecommunications companies. In 1997 CBT averaged only 1.18 trouble
reports per 100 customer lines per month. In 1996 (latest information
available) comparable RBOC rates ranged from 1.22 to 2.74, and the rate for
selected independent telephone companies ranged from 1.91 to 3.19. In the
face of increased access line growth, CBT has an exceptional record for
keeping installation appointments and for completing new service orders
within five days.
Since the beginning of 1990, CBT has invested more than $885 million to
upgrade its plant and equipment with modern technology. Of its network access
lines, 97% are served by digital switches, 100% have ISDN capability and 100%
have Signaling System 7 capability, which supports enhanced features such as
Caller ID, Call Trace and Call Return.
RECENT DEVELOPMENTS
On February 2, 1998, the Company announced that it had reached a
multi-year renewal of agreements between CBT and AT&T under which the
companies provide services to each other. Revenues from the new agreements
are expected to be less than 5% of the segment's annual revenues.
On March 19, 1998, CBT reached a settlement of its Ohio alternative
regulation case. The Public Utilities Commission of Ohio (the "PUCO") must
approve the settlement before it is effective. For details regarding the
settlement, see "Cincinnati Bell Telephone Company - Regulation - Ohio."
BUSINESS
On December 31, 1997, CBT had approximately 1,005,000 network access
lines in service, an increase of 4.9% or 47,000 lines from December 31, 1996.
Approximately 68% of CBT's network access lines serve residential customers
and 32% serve business customers. The growth in additional access lines to
residential customers has been particularly strong at CBT over the last
several years. These customers are adding lines for Internet access, home
offices and increased voice communications use. In 1997, additional lines
accounted for more than 56% of residential lines added during the year. As of
December 31, 1997, approximately 11% of CBT's residential customers had
additional access lines. CBT expects strong growth in additional lines to
continue.
8
Approximately 97% of CBT's network access lines are served by digital
switches that facilitate the transmission of voice, video and data content
across CBT's network. CBT has approximately 1,500 miles of fiber optic cable
throughout the network. This fiber cable provides SONET self-healing optical
rings to eight business districts and 17 customer-specific applications,
connections between switching offices, and local loop facilities.
CBT provides voice, data and video transmission, custom calling
services, public telephone services and billing services. CBT is bundling
various of its services to provide customers with a packaged solution to
their communication needs. In addition, CBT is a sales agent for certain
products and services of AT&T, Lucent Technologies and other companies as a
full-service provider of communications products and services to business
customers. CBT sells and installs direct broadcast satellite ("DBS")
services and equipment under an agreement with DIRECTV-Registered Trademark-,
United States Satellite Broadcasting Co. and certain DBS equipment vendors,
and was one of the first local exchange telephone companies in the nation to
introduce an Internet access service for its residential and small business
customers. During 1997 CBT significantly grew its FUSE Internet access
service to become the largest Internet access provider in the Cincinnati
market. CBT has introduced high-capacity local area network interconnection
services and ISDN services. CBT is also expanding its presence in the data
network solutions arena, offering project management, installation,
maintenance, monitoring and Internet/intranet solutions to its customers.
CBT is presently performing market trials on digital subscriber line
technology, which holds the promise of high-speed data communications. These
new services demonstrate CBT's ability to innovate and adapt to emerging
trends in telecommunications.
Local services generated approximately 58% of CBT's revenues in 1997.
The increasingly competitive network access and toll services generated 29%
of CBT's 1997 revenues, a smaller percentage than most of the nation's
largest local exchange telephone companies receive. The remainder of CBT's
revenues come from other communications services, including commissioned
sales, maintenance and repair services as well as billing services.
MARKET
CBT serves a 2,400 square-mile market encompassing most of the Greater
Cincinnati area, which had a total population of approximately 1.5 million in
1990, including 656,000 households. Its regional economy is strong and
diverse, including six locally headquartered Fortune 500 companies.
Several companies compete or are planning to compete with CBT through
the provision of local exchange, intraLATA long-distance, enhanced calling
such as voice messaging, customer premises maintenance and repair, wireless
communications, special access, public telephone and business communications
equipment sales and maintenance services. See "Competition."
REGULATION
CBT's local exchange, network access and toll telephone operations are
regulated by the PUCO, the Public Service Commission of Kentucky ("PSCK") and
the FCC with respect to rates, services and other matters.
Recently enacted and future legislative and regulatory initiatives will
have an impact on CBT and other incumbent local exchange carriers ("LECs"),
including the Regional Bell Operating Companies ("RBOCs") and other independent
telephone companies. The extent of that impact will not be known until the
initiatives are fully implemented. The basic thrust of these initiatives is to
encourage and accelerate the development of competition in the
telecommunications industry by removing legal barriers to competition across
major segments of that industry. Under the initiatives, companies that were
limited to one or more of those segments, including local exchange, long
distance, wireless, cable television and information services, can enter the
other segments to compete with the incumbent providers and other new entrants.
9
FEDERAL - CBT's operations are greatly impacted by the Telecommunications Act
of 1996 (the "Act") and rules and regulations thereunder. The Act requires
incumbent LECs, such as CBT, to interconnect with the networks of other
service providers, unbundle certain network elements and make retail
telecommunications services available to competing providers at wholesale
rates. Beginning in 1996, the FCC adopted orders implementing the Act's
provisions to open local exchange service markets to competition.
On August 8, 1996, the FCC issued its order on interconnection, the
first of three significant rulings that will determine the ground rules for
local exchange competition. CBT and several other incumbent LECs sought
review of this order by the United States Court of Appeals on the grounds
that the order is inconsistent with the requirements of the Act. On July 18,
1997, the Court of Appeals issued its decision on this matter stating that
the FCC rules exceeded the FCC's authority under the Act in several areas.
Among other things, the Court rejected the FCC pricing guidelines and the
"pick and choose" rule which would have allowed new entrants to select the
most favorable provisions of interconnection arrangements. The Court did
affirm the obligation of incumbent LECs to let rival companies use their
electronic ordering systems and various elements of their network. On
October 14, 1997, the Court issued an order that vacated the portion of the
FCC's interconnection rules that required incumbent LECs to combine unbundled
network elements for interconnectors. With the Court of Appeals decision,
which has been appealed by the FCC to the U. S. Supreme Court which has
granted certiorari, these issues on interconnection and pricing presently
fall into the state jurisdiction, the effects of which on CBT cannot yet be
determined.
On May 7, 1997, the FCC adopted orders on access charge reform and a new
universal service program. The access charge reform order generally removed
from minute-of-use access rates, costs that are not incurred on a
per-minute-of-use basis. The order also adopted changes to the interstate
rate structure for transport services which are designed to move the charges
for these services to more cost-based levels. The universal service order
reformed the existing system of universal service in a manner that will
permit local telephone markets to move to a competitive arena. The order
provides continued support to low-income consumers and will help to connect
eligible schools, libraries and rural health care providers to the global
telecommunications network. Several parties have filed cases with the Court
on various issues within these two orders. Given the ongoing regulatory and
judicial developments in these areas, it is not yet possible to determine the
impact of the Act and related FCC regulations on CBT operations.
Effective July 1, 1997, CBT's price cap tariff filing was approved by
the FCC without suspension. This means CBT's interstate access and toll
prices will be regulated, rather than its earnings. Prices will be capped or
indexed annually based on the difference of inflation, as measured by the
GDP-PI, a 6.5% productivity offset and exogenous cost adjustments. The FCC
retained provisions that allow carriers earning less than a 10.25% rate of
return to adjust their indices to reflect the 10.25% level. The election of
price caps will better enable CBT to meet the challenges being faced in the
new competitive environment. CBT and Citizens Utilities have filed petitions
for reconsideration with the FCC to revisit the establishment of the 6.5%
productivity offset. In addition, several appeals have been filed with the
U.S. Court of Appeals regarding the order establishing the 6.5% productivity
offset. At this time, the impact of the petition for reconsideration and the
appeals cannot be determined.
OHIO - Beginning in 1997, CBT has begun to see competition under the PUCO's
local service guidelines. The ultimate impact of the increased competition
will depend upon court rulings and the results of CBT's alternative
regulation proceeding. A number of entities have requested interconnection
arrangements with CBT to date. CBT has negotiated interconnection
arrangements with five wireless carriers (Airtouch, Ameritech Cellular, GTE
Wireless, AT&T Wireless, and Nextel Wireless). On August 7, 1997, CBT filed
a two year interconnection agreement with Time Warner Communications with the
PUCO. Two additional negotiated agreements (with Intermedia Communications
and TCG of Ohio) were completed and filed with the PUCO in the fourth quarter
of 1997. The agreements set terms by which these companies will
10
connect to CBT's network, including how calls will be exchanged and how each
company will be compensated.
In August 1997, the PUCO issued decisions in arbitration cases involving
CBT and MCI and IntelCom Group (ICG). These rulings set terms, prices and
conditions for connection with CBT's network. Revised interconnection
agreements between CBT and these companies have been filed, and both
companies are proceeding with plans to offer local service in Ohio. MCI's
agreement includes terms for MCI to resell CBT's communications services, as
well as for MCI to be a facilities-based competitor.
On February 5, 1997, CBT filed an application with the PUCO seeking
approval of a new alternative regulation plan called "Commitment 2000" to
supersede an existing plan which expired in May 1997. On March 19, 1998, CBT
reached a settlement of this case. The settlement was finalized in
negotiations with the PUCO staff, the Office of Consumers Counsel and parties
involved in CBT's Commitment 2000 proceedings. The settlement must be
approved by the PUCO before it is effective.
Under the terms of the settlement, CBT will: (i) maintain basic
residential service rates until July 2001; (ii) set business rates based on
market conditions; (iii) continue to provide telecommunications services for
resale to competitive local service providers in Ohio; (iv) reduce
residential rates for qualified, low-income customers by approximately 30%;
(v) provide a larger toll-free calling area; and (vi) include Touch-Tone as
part of all customers' basic telephone service.
Under the settlement, rates that business customers pay will decline by
$4 million. The exact amount of the decrease will depend on the number of
additional features that each business has activated with rates for customers
with basic line and trunk access to CBT's network decreasing an average of
3.5% for business customers.
Access charges, the amount paid by long distance companies to use CBT's
network, also would decrease under terms of the settlement by $8 million
during the next nine months. Approximately $4.2 million of the rate
reduction will occur upon implementation of the plan with the remainder
occurring on January 1, 1999. Under terms of the agreement, AT&T and MCI
would be required to pass through their portion of the access charge savings
in the form of lower long distance rates.
The settlement also transitions CBT to a more flexible form of
regulation. In particular, the settlement means that CBT would no longer be
constrained by rate-of-return or earnings-monitored regulation. It does not
include productivity offsets and provides for reasonable service-quality
requirements. The resale of CBT's services in Ohio would continue at current
Ohio discount rates of 11.92% or 12.62%, depending on whether the reseller
provides its own directory and operator services.
KENTUCKY - On May 9, 1997, CBT filed a petition with PSCK for suspension and
modification of certain requirements of local competition mandated by the
FCC. The PSCK opened a proceeding to address CBT's request and set the matter
for hearing in October 1997. On September 30, 1997, CBT filed to withdraw
its petition due to a delay by the PUCO to a similar request on the Company's
Commitment 2000 Plan. CBT may refile its request with the PSCK after a
decision is rendered in Ohio.
CBT has received a notice from the PSCK that a management audit will be
conducted beginning in the first quarter of 1998. The PSCK is required to
periodically conduct management audits of the largest regulated entities
under its jurisdiction.
COMPETITION
Evolving technology, the preferences of consumers and policy makers, and
the convergence of other industries with the telecommunications industry are
causes for increasing competition throughout 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. That
11
increase expands the means by which CBT's network may be bypassed.
Furthermore, recently enacted legislative and regulatory initiatives and
additional regulatory developments that are expected in the near future are
likely to encourage and accelerate the development of competition in all
segments of the telecommunications industry by removing legal barriers to
competition across segments of that industry. These initiatives and
developments could make it more difficult for CBT to maintain current revenue
and profit levels.
Local exchange telecommunications competitors will include other major
local exchange telecommunications companies, wireless services providers,
interexchange carriers, competitive local exchange carriers and others.
As a result of the changes in CBT's competitive and regulatory
environment, the Company discontinued the application of Statement of
Financial Accounting Standards No. 71, "Accounting for the Effects of Certain
Types of Regulation," at CBT. The result of this discontinuance was the
recognition of a $210.0 million after-tax charge.
REGULATED MANDATED COSTS AND YEAR 2000
CBT will continue to incur significant expenses in 1998 in preparation
for regulator mandated interconnection and local number portability. In
1998, total mandated costs could be in a range of $15 to $25 million with the
majority of these costs expected to be incurred in the first half of the
year. Additionally, CBT's Year-2000 programming costs are expected to be in
the range of $10 to $15 million in 1998 but should be less in 1999.
OPPORTUNITIES
CBT plans to develop new products and services and market them in ways
that leverage its well-regarded brand name, large installed customer base,
reputation for service quality, communications industry knowledge and
experience and extensive knowledge of its customers' preferences. CBT also
will pursue co-branding opportunities and alliances with other service
providers where appropriate. CBT will seek to increase its penetration of
additional residential lines within its service area. In addition, CBT is
actively working to increase the market penetration rate of higher margin
enhanced services such as Caller ID, Call Return, Call Block and 3-Way
Calling.
Under the Company's strategy for pursuing opportunities for growth by
leveraging the strengths of all of its businesses, and under CBT's own
strategy to be a full-service provider of communications services, the
Company has unique strengths that could be effective in marketing a broad
array of communications services outside of CBT's existing service territory.
The Company is exploring such opportunities, both on its own or in
partnership with other communications services companies.
OTHER COMMUNICATIONS SERVICES BUSINESSES
Cincinnati Bell Long Distance Inc.
CBLD resells long distance telecommunications services and products as
well as voice mail and paging services to residential and business customers
mainly in Ohio and several adjoining states. Its principal market focus is
small- and medium-sized businesses, particularly businesses with two to
twenty business access lines in service. CBLD augments its high-quality
long-distance services with calling plans, network features and enhanced
calling services to create customized packages of communications services for
its clients. CBLD's resale activities are conducted pursuant to the
regulatory requirements of state utility commissions. Although no material
regulatory developments are pending, any such developments could have an
effect on CBLD's resale activities. CBLD has filed with the PUCO an
application to provide competitive local exchange services within the State
of Ohio.
12
Cincinnati Bell Directory Inc.
CBD provides Yellow Pages and other directory products and services as
well as related information and advertising services. Its principal products
are a White Pages directory and nine Yellow Pages directories. CBD
continually evaluates new product offerings in both the print and emerging
electronic categories of distribution.
Cincinnati Bell Supply Company
CBS markets computer and telecommunications equipment. Its principal
market is the secondary market for used and surplus telecommunications
systems, including AT&T-brand systems.
Cincinnati Bell Wireless Company
On February 3, 1998, the Company announced a venture (through its
subsidiary CBW) with AT&T to provide PCS in the Greater Cincinnati and Dayton
markets. The venture agreement provides that CBW will acquire an 80%
interest in the venture for more than $100 million. The closure of this
transaction, which the Company believes will occur sometime in 1998, is
dependent upon, among other things, FCC approval of a PCS license transfer
from AT&T to the venture. CBW is committed to funding certain start-up
operating losses of the venture beginning in February 1998. Accordingly, the
Company will reflect CBW's share of the losses in its consolidated financial
reporting as incurred. Company management expects these losses to be
approximately $.15 per share in 1998. This expectation is based upon several
assumptions including the actual closing of the transaction and market
acceptance of the PCS offering and, therefore, actual losses could vary
significantly from the Company's expectation.
Other
The Company also owns a 45% limited partnership interest in a cellular
telephone service business that covers much of central and southwestern Ohio,
northern Kentucky and small portions of southeastern Indiana. The Company's
proportionate share of this cellular market represents approximately 2.3
million POPs. See Item 3. "Legal Proceedings".
The Company was the successful bidder for a 10MHz license to offer PCS
service in the Greater Cincinnati area in an FCC-sponsored auction. The
Company has not yet begun to build out this license. Ameritech, as general
partner of a limited partnership offering cellular service in much of central
and southeastern Ohio, including Greater Cincinnati, and in which the Company
is a 45% limited partner, filed suit in Delaware Chancery Court seeking a
declaratory judgment that the Company had withdrawn from the partnership.
The Delaware Chancery Court has dismissed the suit, and the plaintiff has
appealed to the Supreme Court of Delaware. The carrying value of the
Company's investment at December 31, 1997 was $56.5 million. The rights to
future earnings of the partnership, the ability of the Company to realize the
market value of its investment and the Company's ability to provide
competitive PCS services would be uncertain if the suit were reinstated and
decided in favor of the plaintiff general partner.
The Company's other communications services businesses face intense
competition in their markets, principally from larger companies. They
primarily seek to differentiate themselves by providing existing customers
with superior service and by focusing on niche markets and opportunities to
develop and market customized packages of services. CBLD's competitors
include interexchange carriers and selected local telecommunications services
companies. CBD's competitors are directory services companies, newspapers and
other media advertising services providers in its region. CBD now competes
with its former sales representative for Yellow Page Services; such
competition may affect CBD's ability to grow profits and revenues. Supply's
competitors include vendors of new and used communications and computer
equipment, operating regionally and across the nation.
13
CAPITAL ADDITIONS
The Company has been making large expenditures for construction of
telephone plant and investments in its existing subsidiaries and new
businesses. As a result of these expenditures, the Company expects to be able
to introduce new products and services, respond to competitive challenges and
increase its operating efficiency and productivity.
The following is a summary of capital additions for the years 1993
through 1997:
Dollars in Millions
----------------------------------------------------------
Investments in
Telephone Plant Existing Subsidiaries Total Capital
Construction and New Businesses Additions
------------ ------------------ ---------
1997 $ 141.1 $ 95.0 $236.1
1996 $ 101.4 $ 119.4 $220.8
1995 $ 90.3 $ 76.5 $166.8
1994 $ 112.8 $ 43.4 $156.2
1993 $ 111.6 $ 123.8 $235.4
The total investment in telephone plant increased from approximately
$1,409 million at December 31, 1992, to approximately $1,634 million at
December 31, 1997, after giving effect to retirements but before deducting
accumulated depreciation at either date.
Capital additions for 1998, excluding acquisitions, are estimated to be
up to $260 million. The acquisitions of Transtech and the teleservice assets
of Maritz Inc., along with the investment in a PCS venture, could add in
excess of $750 million to this amount bringing total 1998 capital
expenditures to more than $1 billion. These acquisitions will initially be
financed through short-term debt. The Company may issue equity in the future
to maintain its desired credit ratings. The estimated amount of capital
additions does not include any additional acquisitions that may occur in
1998.
EMPLOYEES
At December 31, 1997, the Company and its subsidiaries had approximately
20,800 employees. CBT and CBIS had approximately 2,400 employees covered
under collective bargaining agreements with the Communications Workers of
America, which is affiliated with the AFL-CIO. The collective bargaining
agreements expire in May 1999 as to CBT and September 1999 as to CBIS.
BUSINESS SEGMENT INFORMATION
The amounts of revenues, operating income, assets, capital additions,
depreciation and amortization attributable to each of the business segments
of the Company for the year ended December 31, 1997, are set forth in the
table relating to business segment information in Note 17 of the Notes to
Financial Statements in the Company's annual report to security holders, and
such table is incorporated herein by reference.
CAUTIONARY STATEMENTS
The Company wishes to take advantage of the "safe harbor" provisions
included in the Private Securities Litigation Reform Act of 1995. To that end,
except for certain historical information, the Business sections (Item 1) and
Management's Discussion and Analysis of Financial Condition and Results of
Operations (Item 7) contain forward-looking statements, including statements
concerning regulatory and competitive factors, the development and introduction
of new products and services and the development
14
of customer strategies to improve the Company's financial position and
results of operations. These statements involve a number of risks and
uncertainties. The Company cautions readers that any forward-looking
statements made by the Company herein and in future reports and statements
are not guarantees of future performance and that actual results may differ
materially from those in forward-looking statements as a result of various
factors including, but not limited to, the following factors set forth below.
REGULATORY AND COMPETITIVE TRENDS REGARDING TELEPHONE OPERATIONS
For a discussion of this factor, see "Business-Communications Services
- - Cincinnati Bell Telephone Company - Regulation."
CUSTOMER CONCENTRATION
MATRIXX, CBIS and CBT rely on several significant customers for a large
percentage of their respective revenues. Their relationships with customers
are typically based on written contracts with a set term; however, such
contracts may contain provisions that allow a customer at any time to
terminate the relationship prior to the end of the contract term. In the case
of MATRIXX, three customers represented 36% of its 1997 revenues. In the case
of CBIS, its three largest customers, other than CBT, collectively
represented approximately 62% of its 1997 revenues. Each of the Company's
major subsidiaries derives significant revenues from AT&T and its affiliates
by providing network services, billing and customer care systems and
telephone marketing services. During 1997, revenues from AT&T accounted for
23% of the Company's consolidated revenues under various independent
contracts with one or more of its subsidiaries; this percentage will probably
increase in 1998 as a result of the Transtech acquisition. Thus, the loss of
one or more significant customers could have a material adverse effect on the
Company's operating results.
CUSTOMER AND INDUSTRY SUCCESS
The revenues generated by MATRIXX and CBIS are dependent on the success
of their customers. If their customers are not successful, the amount of
business that such customers outsource will be diminished. Several of
MATRIXX's and CBIS's current customers participate in emerging industries.
The extent to which products marketed by such customers (e.g., PCS) will be
successful is not yet known. Thus, although CBIS and MATRIXX have signed
contracts to provide services to such customers, there can be no assurance
that the level of revenues to be received from such contracts will meet
expectations.
Each of the business segments in which the Company's subsidiaries
conduct their business has grown significantly in the last several years. To
the extent that growth in these industry segments declines, such decline
could adversely affect the growth rate of each subsidiary's business. In
addition, the possibility of continued growth in these segments could be
affected by the development of new products that provide alternatives to the
product offerings of the Company, and by a change in the trend of businesses
generally to outsource functions unrelated to their core capabilities.
RAPIDLY CHANGING TECHNOLOGY
The telecommunications industry is subject to rapid and significant
changes in technology. The Company's businesses are highly dependent on its
computer, telecommunications and software systems. The Company's failure to
maintain the superiority of its technological capabilities or to respond
effectively to technological changes could have an adverse effect on its
business, results of operations or financial condition. The Company's future
success also will be highly dependent upon its ability to enhance existing
services and introduce new services or products to respond to changing
technological developments. There can be no assurance that the Company can
successfully develop and bring to market any new services or products in a
timely manner, that such services or products will be commercially successful
or that competitors' technologies or services will not render the Company's
products or services noncompetitive or obsolete.
15
POTENTIAL VOLATILITY OF STOCK PRICE
The trading price of the Company's common shares is subject to
fluctuations in response to the Company's operating profits, announcements of
new contract awards or new products by the Company and its subsidiaries or
their competitors, general conditions in the market, changes in earnings
estimates by analysts, failure to meet the revenues or earnings estimates of
analysts or other events or factors. The public stock markets have
experienced price and trading volume volatility in recent months. This
volatility has significantly affected the market prices of securities of many
companies for reasons frequently unrelated to the operating performance of
the specific companies. The market price for the common shares has been
highly volatile. Future announcements concerning the Company, its
subsidiaries or their competition, including the results of technological
innovations, new products, government regulations, litigation or public
concern with respect to the Company or its subsidiaries and other factors
including those described above, may have a significant impact on the market
price of the common shares.
Salomon Inc. has sold 4,000,000 of its 6 1/4% Exchangeable Notes Due
February 1, 2001 (the "DECS"). At maturity, the DECS will be mandatorily
exchanged by Salomon Inc. into common shares of the Company (or, at Salomon
Inc.'s option, cash with equal value) at the rate specified in the prospectus
for the offering of the DECS.
It is not possible to predict accurately how or whether any market that
develops for the DECS will influence the market for the Company's common
shares. For example, the price of the common shares could become more
volatile and could be depressed by investors' anticipation of the potential
distribution into the market, upon the maturity of the DECS, of the 4,000,000
common shares which may be delivered by Waslic Company II upon the maturity
of the DECS (currently constituting approximately 5.9% of the outstanding
common shares). The price of the common shares could also be affected by
possible sales of common shares by investors who view the DECS as a more
attractive means of equity participation in the Company and by hedging or
arbitrage trading activity that may develop involving the DECS and the common
shares.
The Company has paid consecutive cash dividends on its common shares
since 1879. The payment of future dividends will depend upon future earnings,
the financial condition of the Company and other factors.
YEAR-2000 PROGRAMMING
The Company incurred $14.1 million in expenses in 1997 in order to
prepare its software and systems for the Year 2000. The estimate for
Year-2000 programming costs in 1998 could be in a range up to approximately
$50 million, including approximately $8 to $10 million for Transtech, but
these costs are expected to be lower in 1999. Some major CBIS applications
are expected to be Year-2000 compliant in 1998. If the Company were to be
unsuccessful in readying its software and systems for the Year 2000, the
effect that this would have on client relationships, particularly in the
Information Systems segment, would have a material adverse impact on the
Company. The failure of one of the Company's significant clients or
suppliers to successfully modify their systems for the Year 2000 could also
have an adverse impact on the Company.
BUSINESS DEVELOPMENT
The Company continues to review opportunities for acquisitions and
divestitures for all of its business.
16
ITEM 2. PROPERTIES
The property of the Company is principally telephone plant which does
not lend itself to description by character and location of principal units.
Other property of the Company is principally computer equipment, computer
software, furniture and fixtures.
The gross investment in telephone plant and other property, in millions
of dollars, at December 31, 1997 was as follows:
Telephone Plant
Land, buildings and leasehold improvement $196.7
Central office equipment 648.8
Connecting lines (not on customer premises) 660.3
Station equipment 26.8
Furniture, fixtures, vehicles and other 83.8
Telephone plant under construction 17.3
--------
Total telephone plant 1,633.7
--------
Other Property
Information systems 211.5
Teleservices 129.5
Other 37.1
--------
Total other property 378.1
--------
Total $2,011.8
--------
--------
Substantially all of the installations of central office equipment and
garages are located in buildings owned by CBT situated on land which it owns.
Some CBT business and administrative offices are in rented quarters, some of
which are included in capitalized leases.
CBIS, MATRIXX and other Company subsidiaries lease office space in
various cities on commercially reasonable terms. Upon the expiration or
termination of any such leases, these companies could obtain comparable
office space. CBIS also leases some of the computer hardware, computer
software and office equipment necessary to conduct its business pursuant to
short term leases, some of which are capitalized leases.
ITEM 3. LEGAL PROCEEDINGS
None, except as described below.
In November 1996, the Company's partner in a cellular partnership sued
the Company seeking a declaratory judgment that the Company be denied the
opportunity to provide PCS services and be required to withdraw from the
partnership. After the Company was the successful bidder for a PCS license,
the partnership's general partner amended its lawsuit to seek a declaratory
judgment that the Company had withdrawn from the partnership. The Company
believes that none of its actions conflict with its partnership interest and
that it continues to be a limited partner in good standing in the
partnership. The Delaware Chancery Court has dismissed the suit, and the
plaintiff has appealed to the Supreme Court of Delaware. CINCINNATI SMSA
LIMITED PARTNERSHIP V. CINCINNATI BELL CELLULAR SYSTEMS COMPANY, Supreme
Court of State of Delaware, Case No. 429, 1997. The carrying value of the
Company's investment at December 31, 1997 was $56.5 million. The rights to
future earnings of the partnership, the ability of the Company to realize the
market value of its investment and the Company's ability to provide
17
competitive PCS services would be uncertain if the suit were reinstated and
decided in favor of the plaintiff general partner.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF THE SECURITY HOLDERS
No matter was submitted to a vote of security holders in the fourth quarter
of the fiscal year covered by this report.
EXECUTIVE OFFICERS OF THE REGISTRANT (DURING 1997).
The names, ages and positions of the executive officers of the Company are
as follows:
Name Age Title
---- --- -----
(as of 3/31/98)
Charles S. Mechem, Jr. (a,b) 67 Chairman of the Board
John T. LaMacchia (a,b) 56 President and Chief
Executive Officer
James F. Orr (a,b) 52 Chief Operating Officer
William D. Baskett III (c) 58 General Counsel and Secretary
Brian C. Henry 41 Executive Vice President and Chief
Financial Officer
Richard G. Ellenberger (d) 45 President and Chief Executive Officer of
CBT
Robert J. Marino 50 President and Chief Executive Officer of
CBIS
David F. Dougherty 41 President and Chief Executive Officer of
MATRIXX
William H. Zimmer III (e) 44 Treasurer
- -------------------
(a) Member of the Board of Directors
(b) Member of the Executive Committee
(c) Secretary since November 1997
(d) President and Chief Executive Officer of CBT since June 1997
(e) Secretary until October 31, 1997 and Treasurer until December 23, 1997.
Officers are elected annually but are removable at the discretion of the Board
of Directors.
18
CHARLES S. MECHEM, JR., Chairman of the Board of the Company since 1996;
Commissioner Emeritus, Ladies Professional Golf Association ("LPGA");
Commissioner of the LPGA, 1991-1995; Chairman of The United States Shoe
Corporation, 1993-1995; Director of AGCO, Mead Corporation, Ohio National
Life Insurance Company, J.M. Smucker Company, Star Bank Corp. and its
subsidiary, Star Bank, N.A.
JOHN T. LAMACCHIA, President and Chief Executive Officer of the Company since
1993; President of the Company since 1988; Chairman of CBT since 1993; Chief
Operating Officer of the Company, 1988-1993; Chairman of CBIS, 1988-1996.
Director of The Kroger Company and Burlington Resources Inc.
JAMES F. ORR, Chief Operating Officer of the Company and Chairman of CBIS
since 1996; Chairman of MATRIXX since 1997; Executive Vice President of the
Company and President and Chief Executive Officer of CBIS, 1995-1996; Chief
Operating Officer of CBIS, 1994; President and Chief Executive Officer of
MATRIXX 1993-1994.
WILLIAM D. BASKETT III, General Counsel and Chief Legal Officer of the
Company since July 1993; Secretary of the Company since November 1997;
Partner of Frost & Jacobs 1970-1997.
BRIAN C. HENRY, Executive Vice President and Chief Financial Officer of the
Company since 1993; Chief Operating Officer of CBIS since March 1, 1998.
Vice President and Chief Financial Officer of Mentor Graphics, 1986-1992.
RICHARD G. ELLENBERGER, President and Chief Executive Officer of CBT since
June, 1997; Chief Executive Officer of Xl/Connect, 1996-1997; President,
Business Services of MCI Telecommunications, 1995-1996; Senior Vice
President, Worldwide Sales of MCI Telecommunications, 1994-1995; Senior Vice
President, Branch Operations of MCI Telecommunications, 1993-1994; Vice
President, Southeast Region of MCI Telecommunications, 1992-1993; Chief
Operating Officer of Entrade Corporation, 1990-1992.
ROBERT J. MARINO, President and Chief Executive Officer of CBIS since
September 17, 1996; Chief Operating Officer of CBIS, October 2, 1995 -
September 17, 1996; President - Northeast Region of Nextel, November 1993 -
September 1995; President of Houston Cellular Telephone Company, November
1990 - October 1993.
DAVID F. DOUGHERTY, President and Chief Executive Officer of MATRIXX since
January 1, 1995; Senior Vice President and Chief Operating Officer U.S.
Operations, 1993-1994; President of the Consumer Division, 1991-1992.
WILLIAM H. ZIMMER III, Secretary until October 31, 1997 and Treasurer of the
Company, 1991-1997; Secretary and Assistant Treasurer of the Company,
1988-1991.
19
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SECURITY HOLDER
MATTERS.
Cincinnati Bell Inc. (symbol: CSN) common shares are listed on the New York
Stock Exchange and on the Cincinnati Stock Exchange. As of February 27, 1998,
there were approximately 18,529 holders of record of the 136,420,671 outstanding
common shares of the Company. The high and low sales prices and dividends
declared per common share each quarter for the last two fiscal years are listed
below:
Quarter 1st 2nd 3rd 4th
- -----------------------------------------------------------------------------
1997 High $ 33 3/4 $ 33 1/4 $ 32 1/4 $ 31 1/8
Low $ 28 1/4 $ 26 1/16 $ 23 1/16 $ 25 3/8
Dividend Declared $ .10 $ .10 $ .10 $ .10
1996 High $ 26 1/2 $ 28 7/8 $ 26 7/8 $ 30 13/16
Low $ 15 7/8 $ 23 7/16 $ 22 11/16 $ 23 1/8
Dividend Declared $ .10 $ .10 $ .10 $ .10
ITEMS 6 THROUGH 8.
The Selected Financial Data, Management's Discussion and Analysis of
Financial Condition and Results of Operations, and Financial Statements and
Supplementary Data required by these items are included in the registrant's
annual report to security holders for the fiscal year ended December 31,
1997, included in Exhibit 13 and are incorporated herein by reference
pursuant to General Instruction G(2).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
No disagreements with accountants on any accounting or financial
disclosure or auditing scope or procedure occurred during the period covered
by this report.
PART III
ITEMS 10 THROUGH 13.
Information regarding executive officers required by Item 401 of
Regulation S-K is furnished in a separate disclosure in Part I of this report
under the caption "Executive Officers of the Registrant" since the registrant
did not furnish such information in its definitive proxy statement prepared
in accordance with Schedule 14A.
The other information required by these items is included in the
registrant's definitive proxy statement dated March 12, 1998, in the first
paragraph on page 2, the accompanying notes on page 2 and the Section 16 (a)
paragraph on page 2, the information under "Election of Directors" on pages 6
and 7, the information under "Share Ownership of Directors and Officers" on
page 5, the information under "Executive Compensation" on page 12 through 17.
The foregoing is incorporated herein by reference pursuant to General
Instruction G(3).
20
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) Documents filed as part of this report:
Page
----
(1) Consolidated Financial Statements:
Report of Management *
Report of Independent Accountants *
Consolidated Statements of Income *
Consolidated Statements of Common Shareowners' Equity *
Consolidated Balance Sheets *
Consolidated Statements of Cash Flows *
Notes to Financial Statements *
(2) Financial Statement Schedules:
Report of Independent Accountants 28
II - Valuation and Qualifying Accounts 29
Financial statements and financial statement schedules other than that
listed above have been omitted because the required information is
contained in the financial statements and notes thereto, or because
such schedules are not required or applicable.
* Incorporated herein by reference to the appropriate portions of the
registrant's annual report to security holders for the fiscal year ended
December 31, 1997. (See Part II)
21
(3) Exhibits
Exhibits identified in parenthesis below, on file with the Securities and
Exchange Commission ("SEC"), are incorporated herein by reference as exhibits
hereto.
Exhibit
Number
- -------
(3)(a) Amended Articles of Incorporation effective November 9,
1989. (Exhibit (3)(a) to Form 10-K for 1989, File No.
1-8519).
(3)(b) Amended Regulations of the registrant. (Exhibit 3.2 to
Registration Statement No. 2-96054).
(4)(a) Provisions of the Amended Articles of Incorporation and the
Amended Regulations of the registrant which define the
rights of holders of Common Shares and the Preferred Shares
are incorporated by reference to such Amended Articles filed
as Exhibit (3)(a) hereto and such Amended Regulations filed
as Exhibit (3)(b) hereto.
(4)(c)(i) Indenture dated December 15, 1992, between Cincinnati Bell
Inc., Issuer, and The Bank of New York, Trustee, in
connection with $100,000,000 of Cincinnati Bell Inc. 6.70%
Notes Due December 15, 1997. A copy of this Indenture is
not being filed because it is similar in all material
respects to the Indenture filed as Exhibit (4)(c)(ii) to
Form 10-K for 1992, File No. 1-8519.
Indenture dated July 1, 1993, between Cincinnati Bell Inc.,
Issuer, and The Bank of New York, Trustee, in connection
with $50,000,000 of Cincinnati Bell, Inc. 71/4% Notes Due
June 15, 2023. Exhibit 4-A to Form 8-K, date of report July
12, 1993, File No. 1-8519.
(4)(c)(ii) Indenture dated August 1, 1962, between Cincinnati Bell
Telephone Company and Bank of New York, Trustee (formerly,
The Central Trust Company was trustee), in connection with
$20,000,000 of Cincinnati Bell Telephone Company Forty Year
4 3/8% Debentures, Due August 1, 2002. (Exhibit 4(c)(iii)
to Form 10-K for 1992, File No. 1-8519).
Indenture dated August 1, 1971, between Cincinnati Bell
Telephone Company and Bank of New York, Trustee (formerly
The Fifth Third Bank was trustee), in connection with
$50,000,000 of Cincinnati Bell Telephone Company Forty Year
7 3/8% Debentures, Due August 1, 2011. A copy of this
Indenture is not being filed because it is similar in all
material respects to the Indenture filed as Exhibit (4)(c)
(ii) above.
(4)(c)(iii) Indenture dated as of October 27, 1993, among Cincinnati
Bell Telephone Company, as Issuer, Cincinnati Bell Inc., as
Guarantor, and The Bank of New York, as Trustee. (Exhibit
4-A to Form 8-K, date of report October 27, 1993, File No.
1-8519).
(4)(c)(iv) No other instrument which defines the rights of holders of
long term debt of the registrant is filed herewith pursuant
to Regulation S-K, Item 601(b)(4)(iii)(A). Pursuant to this
regulation, the registrant hereby agrees to furnish a copy
of any such instrument to the SEC upon request.
22
(10)(ii)(B) Agreement Establishing Cincinnati SMSA Limited Partnership
between Advanced Mobile Phone Service, Inc. and Cincinnati
Bell Inc. executed on December 9, 1982. (Exhibit (10)(k)
to Registration Statement No. 2-82253).
(10)(iii)(A)(1)* Short Term Incentive Plan of Cincinnati Bell Inc., as
amended January 1, 1995. (Exhibit (10)(iii)(A)(1)(i) to
Form 10-K for 1995, File No. 1-8519).
(10)(iii)(A)(2)(i)* Cincinnati Bell Inc. Deferred Compensation Plan for
Non-Employee Directors, as amended July 1, 1983. (Exhibit
(10)(iii)(A)(3) to Form 10-K for 1986, File No. 1-8519).
(10)(iii)(A)(2)(ii)* Cincinnati Bell Inc. Deferred Compensation Plan for
Outside Directors, as adopted effective December 31,
1996. (Exhibit (10)(iii)(A)(L)(i) to Form 10-K for 1996,
File No. 1-8519).
(10)(iii)(A)(3)(i)* Cincinnati Bell Inc. Pension Program, as amended effective
November 4, 1991. (Exhibit (10)(iii)(A)(4)(ii) to Form
10-K for 1994, File No. 1-8519).
(10)(iii)(A)(3)(ii)* Cincinnati Bell Pension Program, as amended and restated
effective March 3, 1997.
(10)(iii)(A)(4)* Cincinnati Bell Inc. 1988 Incentive Award Deferral Plan, as
amended effective November 11, 1988. (Exhibit (10)(iii)
(A)(5) to Form 10-K for 1988, File No. 1-8519).
(10)(iii)(A)(5)(i)* Cincinnati Bell Inc. Senior Management Incentive Award
Deferral Plan, as amended January 1, 1984. (Exhibit (10)
(iii)(A)(6) to Form 10-K for 1986, File No. 1-8519).
(10)(iii)(A)(5)(ii)* Amendment to Cincinnati Bell Senior Management Incentive
Award Deferral Plan (effective December 5, 1988). (Exhibit
(10)(iii)(A)(6)(ii) to Form 10-K for 1988, File No.
1-8519).
(10)(iii)(A)(6)* Executive Employment Agreement dated December 1, 1987,
between the Company and John T. LaMacchia. (Exhibit (10)
(iii)(A)(10) to Form 10-K for 1987, File No. 1-8519).
(10)(iii)(A)(7)* Employment Agreement dated October 1, 1995, between
Cincinnati Bell Information Systems Inc. and Robert J.
Marino. (Exhibit (10)(iii)(A)(7) to Form 10-K for 1996,
File No. 1-8519).
(10)(iii)(A)(8)(i)* Employment Agreement dated as of January 1, 1995, between
the Company and David F. Dougherty. (Exhibit (10)(iii)(A)
(11) to Form 10-K for 1995, File No. 1-8519).
(10)(iii)(A)(8)(ii)* Amendment to Employment Agreement dated as of January 1,
1995, between the Company and David F. Dougherty. (Exhibit
(10)(iii)(A)(12) to Form 10-K for 1995, File No. 1-8519).
(10)(iii)(A)(9)* Executive Employment Agreement dated as of March 29,
1993, between the Company and Brian C. Henry. (Exhibit
(10)(iii)(A)(14) to Form 10-K for 1993, File No. 1-8519).
23
(10)(iii)(A)(10)(i)* Employment Agreement dated as of August 19, 1994, between
the Company and James F. Orr. (Exhibit (10)(iii)(A)
(17)(i) to Form 10-K for 1994, File No. 1-8519).
(10)(iii)(A)(10)(ii)* Amendment to Employment Agreement dated as of October 31,
1994, between the Company and James F. Orr. (Exhibit (10)
(iii)(A)(17)(ii) to Form 10-K for 1994, File No. 1-8519).
(10)(iii)(A)(11)* Employment Agreement, dated June 9, 1997, between the
Company and Richard G. Ellenberger.
(10)(iii)(A)(12)* Employment Agreement, dated January 1, 1998, between the
Company and William D. Baskett III.
(10)(iii)(A)(13)(i)* Cincinnati Bell Inc. Executive Deferred Compensation
Plan. (Exhibit (10)(iii)(A)(17) to Form 10-K for 1993,
File No. 1-8519).
(10)(iii)(A)(13)(ii)* Amendment to Cincinnati Bell Inc. Executive Deferred
Compensation Plan effective January 1, 1994. (Exhibit
(10)(iii)(A)(20)(ii) to Form 10-K for 1994, File No.
1-8519).
(10)(iii)(A)(13)(iii)* Amendment to Cincinnati Bell Inc. Executive Deferred
Compensation Plan effective January 1, 1996.
(10)(iii)(A)(13)(iv)* Cincinnati Bell Inc. Executive Deferred Compensation
Plan, as amended and restated effective January 1, 1998.
(10)(iii)(A)(14)(i)* Cincinnati Bell Inc. 1988 Long Term Incentive Plan.
(Exhibit (10)(iii)(A)(12)(i) to Form 10-K for 1988,
File No. 1-8519).
(10)(iii)(A)(14)(ii)* Amendment to Cincinnati Bell Inc. 1988 Long Term
Incentive Plan effective December 5, 1988. (Exhibit
(10)(iii)(A)(12)(ii) to Form 10-K for 1988, File No.
1-8519).
(10)(iii)(A)(14)(iii)* Cincinnati Bell Inc. 1997 Long Term Incentive Plan.
(10)(iii)(A)(15)(i)* Cincinnati Bell Inc. 1988 Stock Option Plan for Non-
Employee Directors. (Exhibit (10) (iii)(A)(13) to Form
10-K for 1988, File No. 1-8519).
(10)(iii)(A)(15)(ii)* Cincinnati Bell Inc. 1997 Stock Option Plan for Non-
Employee Directors.
(10)(iii)(A)(16)* Cincinnati Bell Inc. 1989 Stock Option Plan. (Exhibit
(10)(iii)(A)(14) to Form 10-K for 1989, File No. 1-8519).
(10)(iii)(A)(17)* Cincinnati Bell Inc. Retirement Plan for Outside
Directors. (Exhibit (10)(iii)(A)(21) to Form 10-K for
1993, File No. 1-8519).
(10)(iii)(A)(18)(i)* MATRIXX Marketing Inc. Executive Deferred Compensation
Plan. (Exhibit (10)(iii)(A)(21) to Form 10-K for 1996,
File No. 1-8519).
(10(iii)(A)(18)(ii)* Amendment to MATRIXX Marketing Inc. Executive Deferred
Compensation Plan (effective May 1, 1994). (Exhibit
(10)(iii)(A)(21)(i) to Form 10-K for 1996, File No.
1-8519).
24
(10)(iii)(A)(18)(iii)* Amendment to MATRIXX Marketing Inc. Executive Deferred
Compensation Plan (effective May 4, 1996). (Exhibit
(10)(iii)(A)(21)(ii) to Form 10-K for 1996, File No.
1-8519).
(12) Computation of Ratio of Earnings to Combined Fixed
Charges and Preferred Dividends.
(13) Portions of the Cincinnati Bell Inc. annual report to
security holders for the fiscal year ended December 31,
1997, as incorporated by reference including the Selected
Financial Data, Report of Management, Report of
Independent Accountants, Management's Discussion and
Analysis and Consolidated Financial Statements.
(21) Subsidiaries of the Registrant.
(23) Consent of Independent Accountants.
(24) Powers of Attorney.
(27.1, 27.2, 27.3) Financial Data Schedules.
(99)(a) Annual Report on Form 11-K for the Cincinnati Bell Inc.
Retirement Savings Plan for the year 1997 will be filed
by amendment on or before June 30, 1998.
(99)(b) Annual Report on Form 11-K for the Cincinnati Bell Inc.
Savings and Security Plan for the year 1997 will be
filed by amendment on or before June 30, 1998.
(99)(c) Annual Report on Form 11-K for the MATRIXX Marketing
Inc. Profit Sharing/401(k) Plan for the year 1997 will
be filed by amendment on or before June 30, 1998.
(99)(d) Annual Report on Form 11-K for the CBIS Retirement and
Savings Plan for the year 1997 will be filed by
amendment on or before June 30, 1998.
____________
* Management contract or compensatory plan required to be filed as an exhibit
pursuant to Item 14(c) of Form 10-K.
The Company will furnish, without charge, to a security holder upon
request, a copy of the documents, portions of which are incorporated by
reference (Annual Report to security holders and proxy statement), and will
furnish any other exhibit at cost.
(b) Reports on Form 8-K.
Form 8-K, date of report December 23, 1997, reporting that Cincinnati
Bell Inc. and AT&T had entered into a definitive agreement for MATRIXX
Marketing Inc., the teleservices unit of Cincinnati Bell Inc., to
acquire AT&T's Solution Customer Care, formerly AT&T American
Transtech.
25
Signatures
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
CINCINNATI BELL INC.
March 27, 1998 By: /s/ Brian C. Henry
-------------------------------
Brian C. Henry
Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
Signature Title Date
- --------- ----- ----
Principal Executive Officer;
President, Chief Executive
JOHN T. LAMACCHIA* Officer and Director
- ------------------------------
John T. LaMacchia
Principal Accounting and
Financial Officer; Executive
Vice President and
BRIAN C. HENRY* Chief Financial Officer
- ------------------------------
Brian C. Henry
JOHN F. BARRETT* Director
- ------------------------------
John F. Barrett
JUDITH G. BOYNTON* Director
- ------------------------------
Judith G. Boynton
PHILLIP R. COX* Director
- ------------------------------
Phillip R. Cox
WILLIAM A. FRIEDLANDER* Director
- ------------------------------
William A. Friedlander
ROGER L. HOWE* Director
- ------------------------------
Roger L. Howe
ROBERT P. HUMMEL, M.D.* Director
- ------------------------------
Robert P. Hummel, M.D.
JAMES D. KIGGEN* Director
- ------------------------------
James D. Kiggen
STEVEN C. MASON* Director
- ------------------------------
Steven C. Mason
26
CHARLES S. MECHEM, JR.* Chairman of the Board and Director
- ------------------------------
Charles S. Mechem, Jr.
MARY D. NELSON* Director
- ------------------------------
Mary D. Nelson
JAMES F. ORR* Director
- ------------------------------
James F. Orr
BRIAN H. ROWE* Director
- ------------------------------
Brian H. Rowe
DAVID B. SHARROCK* Director
- ------------------------------
David B. Sharrock
*By: /s/ Brian C. Henry March 27, 1998
------------------------
Brian C. Henry
as attorney-in-fact and on his behalf
as Executive Vice President and
Chief Financial Officer
27
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareowners of
Cincinnati Bell Inc.
Our report on the consolidated financial statements of Cincinnati
Bell Inc. has been incorporated by reference in this Form 10-K from
page 29 of the 1997 annual report of Cincinnati Bell Inc. In
connection with our audits of such consolidated financial
statements, we have also audited the related financial statement
schedule on page 29 of this Form 10-K.
In our opinion, the financial statement schedule referred to above,
when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material
respects, the information required to be included therein.
/s/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
Cincinnati, Ohio
February 16, 1998
28
Schedule II
CINCINNATI BELL INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
ALLOWANCE FOR DOUBTFUL ACCOUNTS
(Millions of Dollars)
- ---------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- ---------------------------------------------------------------------------------
Additions Deductions
---------------------- ----------
(1) (2)
Balance at Charged Balance
Beginning Charged to to Other At End
Description of Period Expenses Accounts of Period
- ---------------------------------------------------------------------------------
Year 1997......... $ 11.7 $16.8 $ 5.4 (a) $ 19.9 (b) $ 14.0
Year 1996......... $14.7 $9.0 $4.7(a) $16.7(b) $11.7
Year 1995......... $14.1 $8.5 $5.3(a) $13.2(b) $14.7
- -----------------
(a) Primarily includes amounts previously written off which were credited
directly to this account when recovered and an allocation of the purchase
price for receivables purchased from Interexchange Carriers.
(b) Primarily includes amounts written off as uncollectible.
29