Form 8-K CINCINNATI BELL INC For: Nov 05
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E-mailUNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
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CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report: November 5, 2014
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CINCINNATI BELL INC.
(Exact Name of Registrant as Specified in its Charter)
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Ohio | � | 001-8519 | � | 31-1056105 |
(State or other jurisdiction of incorporation) | � | (Commission File Number) | � | (IRS Employer Identification No.) |
221 East Fourth Street
Cincinnati, OH 45202
(Address of Principal Executive Office)
Registrant's telephone number, including area code: (513)�397-9900
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Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
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o | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
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o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
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o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
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o | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Section 2 - Financial Information
Item 2.02�����Results of Operations and Financial Condition
On November�5, 2014, Cincinnati Bell Inc. reported its financial results for the third quarter 2014. The earnings release is attached as Exhibit 99.1.
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Section 7 - Regulation FD
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Item 7.01 ����Regulation FD Disclosure
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On November�5, 2014, Theodore H. Torbeck, the Company's president and chief executive officer, and Leigh R. Fox, the Company's chief financial officer, will present third quarter 2014 results. The presentation will be webcast both live and on-demand. To listen, go to the Investor Relations section of www.cincinnatibell.com, click on the Webcasts/Presentations tab and follow the instructions for accessing the webcast.
A copy of the presentation to be made during the meeting is attached to this Current Report as Exhibit 99.2.
The information in Items 2.02 and 7.01 and the exhibits attached to this Current Report as Exhibit 99.1 and 99.2 are being furnished and shall not be deemed "filed" for purposes of Section 18 of the Securities Act of 1934 or otherwise subject to the liabilities of that Section nor shall they be deemed incorporated by reference into any filing under the Securities Act of 1933 or the Securities Act of 1934, except as shall be expressly stated by specific reference in such filing.
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Item 9.01����Financial Statements and Exhibits.
(c) | Exhibit No. | Description | ||||
Exhibit 99.1 | Press release dated November 5, 2014 | |||||
Exhibit 99.2 | Presentation made during the Cincinnati Bell third quarter 2014 earnings conference call on November 5, 2014 | |||||
Cautionary Statement Concerning Forward-Looking Statements
This report and the documents incorporated by reference herein contain forward-looking statements regarding future events and results that are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, are statements that could be deemed forward-looking statements. These statements are based on current expectations, estimates, forecasts, and projections about the industries in which we operate and the beliefs and assumptions of our management. Words such as expects, anticipates, predicts, projects, intends, plans, believes, seeks, estimates, continues, endeavors, strives, may, or variations of such words and similar expressions are intended to identify such forward-looking statements. In addition, any statements that refer to projections of future financial performance, anticipated growth and trends in businesses, and other characterizations of future events or circumstances are forward-looking statements. Readers are cautioned these forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties, which could cause actual results to differ materially and adversely from those reflected in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this release and those discussed in other documents the company filed with the Securities and Exchange Commission (SEC). More information on potential risks and uncertainties is available in our recent filings with the SEC, including Cincinnati Bell's Form 10-K report, Form 10-Q reports and Form 8-K reports. Actual results may differ materially and adversely from those expressed in any forward-looking statements. The company undertakes no obligation to revise or update any forward-looking statements for any reason. The forward-looking statements included in this report represent company estimates as of November�5, 2014. Cincinnati Bell anticipates that subsequent events and developments will cause its estimates to change.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
CINCINNATI BELL INC. | ||||
Date: | November�5, 2014 | By: | /s/ Christopher J. Wilson | |
Christopher J. Wilson | ||||
Vice President, General Counsel and Secretary | ||||
EXHIBIT INDEX
Exhibit No. | Description | ||||
99.1 | Press release dated November 5, 2014 | ||||
99.2 | Presentation made during the Cincinnati Bell third quarter 2014 earnings conference call on November 5, 2014 | ||||
Cincinnati Bell Reports Third Quarter 2014 Results
HIGHLIGHTS
" | Revenue from strategic products was $111 million, up 19 percent over the prior year |
" | Fioptics revenue totaled $37 million, up 39 percent year-over-year |
" | Strong third quarter Adjusted EBITDA of $96 million |
" | Completed the wireless spectrum sale with cash proceeds totaling $194 million |
CINCINNATI - November 5, 2014 - Cincinnati Bell Inc. (NYSE: CBB) today announced financial results for the third quarter of 2014, highlighted by the completion of the Wireless spectrum sale and continued revenue growth generated by its strategic investments. Revenue from strategic products totaled $111 million for the quarter, up 19 percent over the prior year.
Wireline revenue totaled $184 million in the third quarter, up $3 million compared to a year ago, as demand for Fioptics remains high. In the third quarter, the company added 8,400 high-speed internet subscribers and 5,300 new video subscribers. During the quarter we passed 15,900 homes with Fioptics and the product is now available to 40 percent of Greater Cincinnati. The company has also expanded the number of households capable of receiving at least 10 megabits of speed to 468,700, more than 55 percent of our market. The number of our internet customers subscribing to these speeds has grown 37 percent year-over-year and now accounts for 45 percent of our internet subscriber base.
"The completion of the Wireless spectrum sale and the initial monetization of our CyrusOne investment has created an opportunity to accelerate our fiber investments and capitalize on the growing demand for our strategic products," said Ted Torbeck, president and chief executive officer. "Our fiber investments have significantly changed the perception of Cincinnati Bell and are essential to creating a fiber based entertainment, communications, and IT solutions company with growing revenue, growing profits, and significant cash flows," added Torbeck.
CONSOLIDATED RESULTS1�
Consolidated revenue for the third quarter of 2014 was $328 million, up $17 million from the prior year. Operating income for the quarter totaled $16 million and Adjusted EBITDA2 was $96 million, both down compared to third quarter of 2013, primarily due to declining Wireless results combined with increased Wireline costs associated with accelerating fiber investments and projects aimed at streamlining operations and shared service functions.
The 2014 third quarter net loss of $27 million included the following special items directly related to Wireless: restructuring charges of $9 million, asset impairments of $8 million and transaction costs of $3 million. During the quarter we also recorded a $19 million loss on extinguishment of debt related to the redemption of $325 million 8 3/4 percent Senior Subordinated Notes due 2018.
Year-to-date consolidated revenue totaled $970 million, up $21 million from a year ago. Operating income totaled $109 million and Adjusted EBITDA was $301 million. Net income for the first nine months of 2014 totaled $94 million due primarily to the gain resulting from the initial monetization of our CyrusOne investment, partially offset by initiating the wind-down of wireless operations and the loss on extinguishment of debt.
Wireline Segment
" | Wireline revenue for the quarter totaled $184 million, up $3 million compared to the prior year. |
� | Fioptics revenue for the quarter was $37 million, up 39 percent from the prior year. |
� | Strategic revenue for business customers totaled $42 million (including $2 million of Fioptics revenue) for the quarter, up 10 percent compared to the prior year. |
" | Operating income was $44 million in the quarter and Adjusted EBITDA totaled $76 million. |
" | Adjusted EBITDA margin3 for the third quarter was 41 percent. |
� | Decrease from prior year resulted from additional costs to support our fiber acceleration and projects aimed at streamlining operations and shared service functions. |
" | Fioptics video subscribers totaled 87,800 at the end of the third quarter, up 26 percent compared to the same period in 2013. |
" | Fioptics internet subscribers totaled 106,700, adding 8,400 new Fioptics high-speed internet subscribers in the quarter. |
IT Services and Hardware Segment
" | Revenue of $120 million for the quarter was up 37 percent over the prior year. |
� | Strategic managed and professional services revenue was $35 million in the quarter, up 15 percent compared to the prior year. |
� | Hardware revenue was $83 million for the quarter, up 48 percent year-over-year. |
" | Operating income totaled $8 million for the quarter, up 84 percent compared to the prior year. |
" | Adjusted EBITDA was $12 million for the quarter, up 70 percent compared to the third quarter of 2013. |
Wireless Segment
" | Revenue was $30 million for the quarter, down 39 percent from the prior year. |
" | Operating loss totaled $33 million in the quarter, compared to income of $7 million a year ago. |
" | Adjusted EBITDA of $10 million in the quarter was down $4 million compared to the same period a year ago. |
" | During the quarter we lost 99,900 subscribers, ending the quarter with 101,300 postpaid subscribers and 75,500 prepaid subscribers. |
Investment in CyrusOne
" | Cincinnati Bell now effectively owns 44 percent of CyrusOne as an equity method investment, valued at $685 million as of September 30, 2014. |
" | CyrusOne reported strong third quarter 2014 revenue of $85 million and Adjusted EBITDA of $42 million. |
2014 Outlook
On September 30, 2014 the Company completed the sale of its wireless spectrum and has suspended guidance related to this segment. As such, excluding Wireless, the company is affirming the 2014 Adjusted EBITDA guidance and increasing its revenue guidance as follows:
Category | 2014 Guidance (excluding Wireless) | Revised 2014 Guidance (excluding Wireless) |
Revenue | $1.0 billion | $1.1 billion |
Adjusted EBITDA | $333 million* | $333 million* |
*Plus or minus 2 percent
Conference Call/Webcast
Cincinnati Bell will host a conference call on November 5 at 8:00 a.m. (ET) to discuss its results for the third quarter of 2014. A live webcast of the call will be available via the Investor Relations section of www.cincinnatibell.com. The conference call dial-in number is (888) 468-2440. Callers located outside of the U.S. and Canada may dial (719) 325-2435. A taped replay of the conference call will be available one hour after the conclusion of the call until 8:00 a.m. on Wednesday November 19, 2014. For U.S. callers, the replay will be available at (888) 203-1112. For callers outside of the U.S. and Canada, the replay will be available at (719) 457-0820. The replay reference number is 1882669. An archived version of the webcast will also be available in the Investor Relations section of www.cincinnatibell.com.
Safe Harbor Note
This release and the documents incorporated by reference herein contain forward-looking statements regarding future events and our future results that are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, are statements that could be deemed forward-looking statements. These statements are based on current expectations, estimates, forecasts, and projections about the industries in which we operate and the beliefs and assumptions of our management. Words such as expects, anticipates, predicts, projects, intends, plans, believes, seeks, estimates, continues, endeavors, strives, may, variations of such words and similar expressions are intended to identify such forward-looking statements. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses, and other characterizations of future events or circumstances are forward-looking statements. Readers are cautioned these forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties, which could cause our actual results to differ materially and adversely from those reflected in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this release and those discussed in other documents we file with the Securities and Exchange Commission (SEC). More information on potential risks and uncertainties is available in our recent filings with the SEC, including Cincinnati Bell's Form 10-K report, Form 10-Q reports and Form 8-K reports. Actual results may differ materially and adversely from those expressed in any forward-looking statements. We undertake no obligation to revise or update any forward-looking statements for any reason.
Use of Non-GAAP Financial Measures
This press release contains information about adjusted earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA), Adjusted EBITDA margin, net debt, net income excluding special items, and free cash flow. These are non-GAAP financial measures used by Cincinnati Bell management when evaluating results of operations and cash flow. Management believes these measures also provide users of the financial statements with additional and useful comparisons of current results of operations and cash flows with past and future periods. Non-GAAP financial measures should not be construed as being more important than comparable GAAP measures. Detailed reconciliations of these non-GAAP financial measures to comparable GAAP financial measures have been included in the tables distributed with this release and are available in the Investor Relations section of www.cincinnatibell.com.
1Consolidated Results for the nine month period ended September 30, 2013 includes CyrusOne's results of operations from January 1, 2013 through January 23, 2013. On January 24, 2013, the Company successfully completed the initial public offering ("IPO") of CyrusOne and no longer consolidates its results, but accounts for CyrusOne as an equity method investment. Results referenced within the Consolidated Results section for the nine month period ended September 30, 2013 exclude the operations of CyrusOne for the period January 1, 2013 through January 23, 2013, to effectively provide comparative results to 2014. Excluding CyrusOne results for this period is not consistent with GAAP and should not be considered as an alternative to comparable GAAP measures of revenue, operating income, or profitability.
2Adjusted EBITDA provides a useful measure of operational performance. The company defines Adjusted EBITDA as GAAP operating income plus depreciation, amortization, transaction-related compensation, restructuring charges, (gain) loss on sale or disposal of assets, transaction costs, curtailment gain, asset impairments, components of pension and other retirement plan costs (including interest costs, asset returns, and amortization of actuarial gains and losses), and other special items. Adjusted EBITDA should not be considered as an alternative to comparable GAAP measures of profitability and may not be comparable with the measure as defined by other companies.
CyrusOne defines Adjusted EBITDA as net income (loss) as defined by U.S. GAAP before noncontrolling interests plus interest expense, income tax (benefit) expense, depreciation and amortization, non-cash compensation, transaction costs and transaction-related compensation, including acquisition pursuit costs, restructuring costs, loss on extinguishment of debt, asset impairments, (gain) loss on sale of real estate improvements, and other special items. Other companies may not calculate Adjusted EBITDA in the same manner as CyrusOne. Accordingly, CyrusOne's Adjusted EBITDA as presented may not be comparable to others. Detailed reconciliations of CyrusOne's Adjusted EBITDA to the comparable GAAP financial measure are available in the Investor Relations section of www.cyrusone.com.
3Adjusted EBITDA margin provides a useful measure of operational performance. The company defines Adjusted EBITDA margin as Adjusted EBITDA divided by revenue. Adjusted EBITDA margin should not be considered as an alternative to comparable GAAP measures of profitability and may not be comparable with the measure as defined by other companies.
Net income excluding special items in total and per share provides a useful measure of operating performance. Net income excluding special items should not be considered as an alternative to comparable GAAP measures of profitability and may not be comparable with net income excluding special items as defined by other companies.
Free cash flow provides a useful measure of operational performance, liquidity and financial health. The company defines free cash flow as cash provided by (used in) operating, financing and investing activities, adjusted for the issuance and repayment of debt, debt issuance costs, the repurchase of common stock, and the proceeds from the sale or the use of funds from the purchase of business operations, including transaction costs. Free cash flow should not be considered as an alternative to net income (loss), operating income (loss), cash flow from operating activities, or the change in cash on the balance sheet and may not be comparable with free cash flow as defined by other companies. Although the company feels that there is no comparable GAAP measure for free cash flow, the attached financial information reconciles free cash flow to the net increase (decrease) in cash and cash equivalents.
Net debt provides a useful measure of liquidity and financial health. The company defines net debt as the sum of the face amount of short-term and long-term debt and unamortized premium and/or discount, offset by cash and cash equivalents. Net debt should not be considered as an alternative to comparable GAAP measures of liquidity and may not be comparable with the measure as defined by other companies.
About Cincinnati Bell Inc.
With headquarters in Cincinnati, Ohio, Cincinnati Bell (NYSE: CBB) provides integrated communications solutions - including local and long distance voice, data, high-speed internet, video and wireless services - that keep residential and business customers in Greater Cincinnati and Dayton connected with each other and with the world. In addition, enterprise customers across the United States rely on CBTS, a wholly-owned subsidiary, for efficient, scalable office communications systems and end-to-end IT solutions. Cincinnati Bell owns approximately 44% of CyrusOne (NASDAQ: CONE), which specializes in highly reliable enterprise-class, carrier-neutral data center properties. CyrusOne provides mission-critical data center facilities that protect and ensure the continued operation of IT infrastructure for more than 655 customers, including 9 of the Fortune 20 and 141 of the Fortune 1000 companies. For more information, please visit www.cincinnatibell.com.
Cincinnati Bell Inc. | � | � | |||||||||||||||||||||||||||||
Consolidated Statements of Operations | |||||||||||||||||||||||||||||||
(Unaudited) | |||||||||||||||||||||||||||||||
(Dollars in millions, except per share amounts) | |||||||||||||||||||||||||||||||
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Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||||||
September 30, | Change | September 30, | Change | ||||||||||||||||||||||||||||
2014 | 2013 | $ | % | 2014 | 2013 | $ | % | ||||||||||||||||||||||||
Revenue | $ | 327.5 | $ | 310.8 | $ | 16.7 | 5% | $ | 969.9 | $ | 948.5 | $ | 21.4 | 2% | |||||||||||||||||
Costs and expenses | |||||||||||||||||||||||||||||||
Cost of services and products | 179.5 | 159.9 | 19.6 | 12% | 515.4 | 480.5 | 34.9 | 7% | |||||||||||||||||||||||
Selling, general and administrative | 57.5 | 53.6 | 3.9 | 7% | 167.4 | 161.4 | 6.0 | 4% | |||||||||||||||||||||||
Depreciation and amortization | 61.4 | 39.8 | 21.6 | 54% | 168.6 | 127.6 | 41.0 | 32% | |||||||||||||||||||||||
Transaction-related compensation | n/m | 42.6 | (42.6 | ) | n/m | ||||||||||||||||||||||||||
Restructuring charges | 9.0 | 9.0 | n/m | 15.4 | 10.8 | 4.6 | 43% | ||||||||||||||||||||||||
Asset impairment | 7.5 | 7.5 | n/m | 7.5 | 7.5 | n/m | |||||||||||||||||||||||||
Curtailment gain | n/m | (0.6 | ) | 0.6 | n/m | ||||||||||||||||||||||||||
(Gain) loss on sale or disposal of assets, net | (0.2 | ) | 0.2 | n/m | (0.1 | ) | 2.6 | (2.7 | ) | n/m | |||||||||||||||||||||
Amortization of deferred gain | (6.4 | ) | (0.5 | ) | (5.9 | ) | n/m | (16.5 | ) | (1.7 | ) | (14.8 | ) | n/m | |||||||||||||||||
Transaction costs | 3.0 | 0.5 | 2.5 | n/m | 3.7 | 1.6 | 2.1 | n/m | |||||||||||||||||||||||
Operating income | 16.0 | 57.7 | (41.7 | ) | (72)% | 108.5 | 123.7 | (15.2 | ) | (12)% | |||||||||||||||||||||
Interest expense | 35.8 | 46.7 | (10.9 | ) | (23)% | 116.8 | 140.0 | (23.2 | ) | (17)% | |||||||||||||||||||||
Loss on extinguishment of debt | 19.4 | 19.4 | n/m | 19.4 | 19.4 | n/m | |||||||||||||||||||||||||
Loss from CyrusOne equity method investment | 1.5 | (1.5 | ) | n/m | 1.9 | 8.1 | (6.2 | ) | (77)% | ||||||||||||||||||||||
Gain on sale of CyrusOne equity method investment | n/m | (192.8 | ) | (192.8 | ) | n/m | |||||||||||||||||||||||||
Other (income) expense, net | (0.2 | ) | (1.2 | ) | 1.0 | 83% | 0.5 | (1.4 | ) | 1.9 | n/m | ||||||||||||||||||||
(Loss) income before income taxes | (39.0 | ) | 10.7 | (49.7 | ) | n/m | 162.7 | (23.0 | ) | 185.7 | n/m | ||||||||||||||||||||
Income tax (benefit) expense | (11.7 | ) | 1.4 | (13.1 | ) | n/m | 68.8 | 3.6 | 65.2 | n/m | |||||||||||||||||||||
Net (loss) income | (27.3 | ) | 9.3 | (36.6 | ) | n/m | 93.9 | (26.6 | ) | 120.5 | n/m | ||||||||||||||||||||
Preferred stock dividends | 2.6 | 2.6 | 0% | 7.8 | 7.8 | 0% | |||||||||||||||||||||||||
Net (loss) income applicable to common shareowners | $ | (29.9 | ) | $ | 6.7 | $ | (36.6 | ) | n/m | $ | 86.1 | $ | (34.4 | ) | $ | 120.5 | n/m | ||||||||||||||
Basic and diluted (loss) earnings per common share | $ | (0.14 | ) | $ | 0.03 | $ | 0.41 | $ | (0.17 | ) | |||||||||||||||||||||
Weighted average common shares outstanding | |||||||||||||||||||||||||||||||
(in millions) | |||||||||||||||||||||||||||||||
�- Basic | 208.7 | 207.0 | 208.4 | 205.6 | |||||||||||||||||||||||||||
�- Diluted | 208.7 | 208.5 | 209.4 | 205.6 | |||||||||||||||||||||||||||
Cincinnati Bell Inc. | ||||||||||||||||||||||||||||||
Income Statements by Segment | ||||||||||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||
September 30, | Change | September 30, | Change | |||||||||||||||||||||||||||
2014 | 2013 | $ | % | 2014 | 2013 | $ | % | |||||||||||||||||||||||
Wireline | ||||||||||||||||||||||||||||||
Revenue | ||||||||||||||||||||||||||||||
Data | $ | 84.1 | $ | 79.6 | $ | 4.5 | 6% | $ | 251.3 | $ | 236.9 | $ | 14.4 | 6% | ||||||||||||||||
Voice - local service | 49.6 | 56.6 | (7.0 | ) | (12)% | 154.6 | 174.4 | (19.8 | ) | (11)% | ||||||||||||||||||||
Long distance and VoIP | 26.9 | 26.8 | 0.1 | 0% | 80.6 | 80.5 | 0.1 | 0% | ||||||||||||||||||||||
Entertainment | 19.5 | 14.4 | 5.1 | 35% | 54.9 | 39.4 | 15.5 | 39% | ||||||||||||||||||||||
Other | 3.9 | 4.0 | (0.1 | ) | (3)% | 10.9 | 11.5 | (0.6 | ) | (5)% | ||||||||||||||||||||
Total revenue | 184.0 | 181.4 | 2.6 | 1% | 552.3 | 542.7 | 9.6 | 2% | ||||||||||||||||||||||
Operating costs and expenses | ||||||||||||||||||||||||||||||
Cost of services and products | 76.9 | 72.4 | 4.5 | 6% | 221.9 | 213.4 | 8.5 | 4% | ||||||||||||||||||||||
Selling, general and administrative | 35.2 | 31.7 | 3.5 | 11% | 98.2 | 94.4 | 3.8 | 4% | ||||||||||||||||||||||
Depreciation and amortization | 29.3 | 29.7 | (0.4 | ) | (1)% | 85.6 | 83.8 | 1.8 | 2% | |||||||||||||||||||||
Other* | (1.3 | ) | (0.2 | ) | (1.1 | ) | n/m | (0.4 | ) | 4.3 | (4.7 | ) | n/m | |||||||||||||||||
Total operating costs and expenses | 140.1 | 133.6 | 6.5 | 5% | 405.3 | 395.9 | 9.4 | 2% | ||||||||||||||||||||||
Operating income | $ | 43.9 | $ | 47.8 | $ | (3.9 | ) | (8)% | $ | 147.0 | $ | 146.8 | $ | 0.2 | 0% | |||||||||||||||
IT Services and Hardware | ||||||||||||||||||||||||||||||
Revenue | ||||||||||||||||||||||||||||||
Telecom and IT equipment distribution | $ | 83.2 | $ | 56.2 | $ | 27.0 | 48% | $ | 217.0 | $ | 169.2 | $ | 47.8 | 28% | ||||||||||||||||
Managed and professional services | 36.8 | 31.3 | 5.5 | 18% | 106.5 | 88.8 | 17.7 | 20% | ||||||||||||||||||||||
Total revenue | 120.0 | 87.5 | 32.5 | 37% | 323.5 | 258.0 | 65.5 | 25% | ||||||||||||||||||||||
Operating costs and expenses | ||||||||||||||||||||||||||||||
Cost of services and products | 94.4 | 69.4 | 25.0 | 36% | 259.7 | 209.5 | 50.2 | 24% | ||||||||||||||||||||||
Selling, general and administrative | 14.5 | 11.2 | 3.3 | 29% | 38.9 | 33.7 | 5.2 | 15% | ||||||||||||||||||||||
Depreciation and amortization | 3.0 | 2.5 | 0.5 | 20% | 8.6 | 7.5 | 1.1 | 15% | ||||||||||||||||||||||
Other* | n/m | 0.7 | (0.7 | ) | n/m | |||||||||||||||||||||||||
Total operating costs and expenses | 111.9 | 83.1 | 28.8 | 35% | 307.2 | 251.4 | 55.8 | 22% | ||||||||||||||||||||||
Operating income | $ | 8.1 | $ | 4.4 | $ | 3.7 | 84% | $ | 16.3 | $ | 6.6 | $ | 9.7 | n/m | ||||||||||||||||
Wireless | ||||||||||||||||||||||||||||||
Revenue | ||||||||||||||||||||||||||||||
Service | $ | 29.6 | $ | 45.0 | $ | (15.4 | ) | (34)% | $ | 109.6 | $ | 141.8 | $ | (32.2 | ) | (23)% | ||||||||||||||
Equipment | 0.5 | 4.1 | (3.6 | ) | (88)% | 6.4 | 12.3 | (5.9 | ) | (48)% | ||||||||||||||||||||
Total revenue | 30.1 | 49.1 | (19.0 | ) | (39)% | 116.0 | 154.1 | (38.1 | ) | (25)% | ||||||||||||||||||||
Operating costs and expenses | ||||||||||||||||||||||||||||||
Cost of services and products | 13.5 | 24.7 | (11.2 | ) | (45)% | 52.6 | 73.2 | (20.6 | ) | (28)% | ||||||||||||||||||||
Selling, general and administrative | 6.3 | 10.5 | (4.2 | ) | (40)% | 20.7 | 29.3 | (8.6 | ) | (29)% | ||||||||||||||||||||
Depreciation and amortization | 29.1 | 7.4 | 21.7 | n/m | 74.2 | 30.7 | 43.5 | n/m | ||||||||||||||||||||||
Other* | 14.2 | (0.5 | ) | 14.7 | n/m | 9.3 | 1.8 | 7.5 | n/m | |||||||||||||||||||||
Total operating costs and expenses | 63.1 | 42.1 | 21.0 | 50% | 156.8 | 135.0 | 21.8 | 16% | ||||||||||||||||||||||
Operating (loss) income | $ | (33.0 | ) | $ | 7.0 | $ | (40.0 | ) | n/m | $ | (40.8 | ) | $ | 19.1 | $ | (59.9 | ) | n/m | ||||||||||||
Data Center Colocation** | ||||||||||||||||||||||||||||||
Revenue | $ | $ | $ | n/m | $ | $ | 15.6 | $ | (15.6 | ) | n/m | |||||||||||||||||||
Operating costs and expenses | ||||||||||||||||||||||||||||||
Cost of services | n/m | 4.8 | (4.8 | ) | n/m | |||||||||||||||||||||||||
Selling, general and administrative | n/m | 2.4 | (2.4 | ) | n/m | |||||||||||||||||||||||||
Depreciation and amortization | n/m | 5.2 | (5.2 | ) | n/m | |||||||||||||||||||||||||
Total operating costs and expenses | n/m | 12.4 | (12.4 | ) | n/m | |||||||||||||||||||||||||
Operating income | $ | $ | $ | n/m | $ | $ | 3.2 | $ | (3.2 | ) | n/m | |||||||||||||||||||
*Other includes restructuring charges, asset impairment, curtailment gain, (gain) loss on sale or disposal of assets, amortization of deferred gain and transaction costs. | ||||||||||||||||||||||||||||||
**Results for 2013 only include CyrusOne's results through January 23, 2013. Effective January 24, 2013, the completion date of CyrusOne's IPO, the company accounts for CyrusOne as an equity method investment, and therefore does not consolidate the CyrusOne results of operations in the total company or segment results. | ||||||||||||||||||||||||||||||
Cincinnati Bell Inc. | ||||||||||||||||||||||||||||||
Segment Information | ||||||||||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||
September 30, | Change | September 30, | Change | |||||||||||||||||||||||||||
2014 | 2013 | $ | % | 2014 | 2013 | $ | % | |||||||||||||||||||||||
Revenue | ||||||||||||||||||||||||||||||
Wireline | $ | 184.0 | $ | 181.4 | $ | 2.6 | 1% | $ | 552.3 | $ | 542.7 | $ | 9.6 | 2% | ||||||||||||||||
IT Services and Hardware | 120.0 | 87.5 | 32.5 | 37% | 323.5 | 258.0 | 65.5 | 25% | ||||||||||||||||||||||
Wireless | 30.1 | 49.1 | (19.0 | ) | (39)% | 116.0 | 154.1 | (38.1 | ) | (25)% | ||||||||||||||||||||
Data Center Colocation** | n/m | 15.6 | (15.6 | ) | n/m | |||||||||||||||||||||||||
Eliminations | (6.6 | ) | (7.2 | ) | 0.6 | 8% | (21.9 | ) | (21.9 | ) | 0% | |||||||||||||||||||
Total revenue | $ | 327.5 | $ | 310.8 | $ | 16.7 | 5% | $ | 969.9 | $ | 948.5 | $ | 21.4 | 2% | ||||||||||||||||
Cost of Services and Products | ||||||||||||||||||||||||||||||
Wireline | $ | 76.9 | $ | 72.4 | $ | 4.5 | 6% | $ | 221.9 | $ | 213.4 | $ | 8.5 | 4% | ||||||||||||||||
IT Services and Hardware | 94.4 | 69.4 | 25.0 | 36% | 259.7 | 209.5 | 50.2 | 24% | ||||||||||||||||||||||
Wireless | 13.5 | 24.7 | (11.2 | ) | (45)% | 52.6 | 73.2 | (20.6 | ) | (28)% | ||||||||||||||||||||
Data Center Colocation** | n/m | 4.8 | (4.8 | ) | n/m | |||||||||||||||||||||||||
Eliminations | (5.3 | ) | (6.6 | ) | 1.3 | 20% | (18.8 | ) | (20.4 | ) | 1.6 | 8% | ||||||||||||||||||
Total cost of services and products | $ | 179.5 | $ | 159.9 | $ | 19.6 | 12% | $ | 515.4 | $ | 480.5 | $ | 34.9 | 7% | ||||||||||||||||
Selling, General and Administrative | ||||||||||||||||||||||||||||||
Wireline | $ | 35.2 | $ | 31.7 | $ | 3.5 | 11% | $ | 98.2 | $ | 94.4 | $ | 3.8 | 4% | ||||||||||||||||
IT Services and Hardware | 14.5 | 11.2 | 3.3 | 29% | 38.9 | 33.7 | 5.2 | 15% | ||||||||||||||||||||||
Wireless | 6.3 | 10.5 | (4.2 | ) | (40)% | 20.7 | 29.3 | (8.6 | ) | (29)% | ||||||||||||||||||||
Data Center Colocation** | n/m | 2.4 | (2.4 | ) | n/m | |||||||||||||||||||||||||
Corporate and eliminations | 1.5 | 0.2 | 1.3 | n/m | 9.6 | 1.6 | 8.0 | n/m | ||||||||||||||||||||||
Total selling, general and administrative | $ | 57.5 | $ | 53.6 | $ | 3.9 | 7% | $ | 167.4 | $ | 161.4 | $ | 6.0 | 4% | ||||||||||||||||
Depreciation and Amortization | ||||||||||||||||||||||||||||||
Wireline | $ | 29.3 | $ | 29.7 | $ | (0.4 | ) | (1)% | $ | 85.6 | $ | 83.8 | $ | 1.8 | 2% | |||||||||||||||
IT Services and Hardware | 3.0 | 2.5 | 0.5 | 20% | 8.6 | 7.5 | 1.1 | 15% | ||||||||||||||||||||||
Wireless | 29.1 | 7.4 | 21.7 | n/m | 74.2 | 30.7 | 43.5 | n/m | ||||||||||||||||||||||
Data Center Colocation** | n/m | 5.2 | (5.2 | ) | n/m | |||||||||||||||||||||||||
Corporate | 0.2 | (0.2 | ) | n/m | 0.2 | 0.4 | (0.2 | ) | (50)% | |||||||||||||||||||||
Total depreciation and amortization | $ | 61.4 | $ | 39.8 | $ | 21.6 | 54% | $ | 168.6 | $ | 127.6 | $ | 41.0 | 32% | ||||||||||||||||
Other* | ||||||||||||||||||||||||||||||
Wireline | $ | (1.3 | ) | $ | (0.2 | ) | $ | (1.1 | ) | n/m | $ | (0.4 | ) | $ | 4.3 | $ | (4.7 | ) | n/m | |||||||||||
IT Services and Hardware | n/m | 0.7 | (0.7 | ) | n/m | |||||||||||||||||||||||||
Wireless | 14.2 | (0.5 | ) | 14.7 | n/m | 9.3 | 1.8 | 7.5 | n/m | |||||||||||||||||||||
Data Center Colocation** | n/m | n/m | ||||||||||||||||||||||||||||
Corporate | 0.2 | 0.5 | (0.3 | ) | n/m | 1.1 | 48.5 | (47.4 | ) | (98)% | ||||||||||||||||||||
Total other | $ | 13.1 | $ | (0.2 | ) | $ | 13.3 | n/m | $ | 10.0 | $ | 55.3 | $ | (45.3 | ) | (82)% | ||||||||||||||
Operating Income (Loss) | ||||||||||||||||||||||||||||||
Wireline | $ | 43.9 | $ | 47.8 | $ | (3.9 | ) | (8)% | $ | 147.0 | $ | 146.8 | $ | 0.2 | 0% | |||||||||||||||
IT Services and Hardware | 8.1 | 4.4 | 3.7 | 84% | 16.3 | 6.6 | 9.7 | n/m | ||||||||||||||||||||||
Wireless | (33.0 | ) | 7.0 | (40.0 | ) | n/m | (40.8 | ) | 19.1 | (59.9 | ) | n/m | ||||||||||||||||||
Data Center Colocation** | n/m | 3.2 | (3.2 | ) | n/m | |||||||||||||||||||||||||
Corporate | (3.0 | ) | (1.5 | ) | (1.5 | ) | n/m | (14.0 | ) | (52.0 | ) | 38.0 | (73)% | |||||||||||||||||
Total operating income | $ | 16.0 | $ | 57.7 | $ | (41.7 | ) | (72)% | $ | 108.5 | $ | 123.7 | $ | (15.2 | ) | (12)% | ||||||||||||||
*Other includes transaction-related compensation, restructuring charges, asset impairment, curtailment gain, (gain) loss on sale or disposal of assets, amortization of deferred gain, and transaction costs. | ||||||||||||||||||||||||||||||
**Results for 2013 only include CyrusOne's results through January 23, 2013. Effective January 24, 2013, the completion date of CyrusOne's IPO, the company accounts for CyrusOne as an equity method investment, and therefore does not consolidate the CyrusOne results of operations in the total company or segment results. | ||||||||||||||||||||||||||||||
Cincinnati Bell Inc. | ||||||||||||||||
Segment Metric Information | ||||||||||||||||
(Unaudited) | ||||||||||||||||
(In thousands) | ||||||||||||||||
September 30, | June 30, | March 31, | December 31, | September 30, | ||||||||||||
2014 | 2014 | 2014 | 2013 | 2013 | ||||||||||||
Local access lines | ||||||||||||||||
Residential | 246.8 | 255.7 | 263.5 | 271.4 | 278.1 | |||||||||||
Business | 246.0 | 250.1 | 255.3 | 259.3 | 263.1 | |||||||||||
492.8 | 505.8 | 518.8 | 530.7 | 541.2 | ||||||||||||
Long distance lines | 371.4 | 378.6 | 386.9 | 394.1 | 400.8 | |||||||||||
Internet subscribers | ||||||||||||||||
DSL | 163.8 | 172.0 | 178.4 | 188.5 | 191.3 | |||||||||||
Fioptics | 106.7 | 98.3 | 91.6 | 79.9 | 74.3 | |||||||||||
270.5 | 270.3 | 270.0 | 268.4 | 265.6 | ||||||||||||
Fioptics video subscribers | 87.8 | 82.5 | 77.5 | 74.2 | 69.7 | |||||||||||
Fioptics units passed | 323.0 | 307.1 | 288.0 | 276.0 | 258.0 | |||||||||||
Wireless | ||||||||||||||||
Postpaid wireless subscribers | 101.3 | 163.4 | 183.6 | 197.4 | 209.4 | |||||||||||
Prepaid wireless subscribers | 75.5 | 113.3 | 136.2 | 142.3 | 145.8 | |||||||||||
176.8 | 276.7 | 319.8 | 339.7 | 355.2 | ||||||||||||
Cincinnati Bell Inc. | ||||||||||
Net Debt and Common Shares Outstanding | ||||||||||
(Unaudited) | ||||||||||
(Dollars and shares in millions) | ||||||||||
September 30, | December 31, | |||||||||
2014 | 2013 | |||||||||
Corporate Credit Agreement | $ | $ | 40.0 | |||||||
Receivables Facility | 112.4 | 106.2 | ||||||||
8 3/4% Senior Subordinated Notes due 2018* | 300.0 | 625.0 | ||||||||
Corporate Credit Agreement - Tranche B Term Loan | 534.6 | 538.6 | ||||||||
8 3/8% Senior Notes due 2020 | 683.9 | 683.9 | ||||||||
7�1/4% Senior Notes due 2023 | 40.0 | 40.0 | ||||||||
Various Cincinnati Bell Telephone notes | 134.5 | 134.5 | ||||||||
Capital lease obligations and other debt | 96.9 | 103.3 | ||||||||
Net unamortized discount | (3.4 | ) | (6.3 | ) | ||||||
Total debt | 1,898.9 | 2,265.2 | ||||||||
Less: Cash and cash equivalents** | (181.5 | ) | (4.6 | ) | ||||||
Net debt (as defined by the company) | $ | 1,717.4 | $ | 2,260.6 | ||||||
Corporate Credit Agreement availability: | $ | 150.0 | $ | 160.0 | ||||||
Common shares outstanding | 209.2 | 208.2 | ||||||||
* On August 8, 2014, the company redeemed $325.0 million outstanding on its 8 3/4% Senior Subordinated Notes due 2018 at a redemption price of 104.375% | ||||||||||
** On September 30, 2014, the company completed the sale of its wireless spectrum licenses for cash consideration of $194.4 million. | ||||||||||
Cincinnati Bell Inc. | |||||||||||||||||||||||||||||||
Reconciliation of Net (Loss) Income (GAAP) to Adjusted EBITDA (Non-GAAP) | |||||||||||||||||||||||||||||||
(Unaudited) | |||||||||||||||||||||||||||||||
(Dollars in millions) | |||||||||||||||||||||||||||||||
Three Months Ended September 30, 2014 | |||||||||||||||||||||||||||||||
Wireline | IT Services & Hardware | Wireless | Corporate | Total Company | Less: Wireless | Total company (excluding Wireless) * | |||||||||||||||||||||||||
Net Loss (GAAP) | $ | (27.3 | ) | ||||||||||||||||||||||||||||
Add: | |||||||||||||||||||||||||||||||
Income tax benefit | (11.7 | ) | |||||||||||||||||||||||||||||
Interest expense | 35.8 | ||||||||||||||||||||||||||||||
Loss on extinguishment of debt | 19.4 | ||||||||||||||||||||||||||||||
Other income, net | (0.2 | ) | |||||||||||||||||||||||||||||
Operating Income (loss) (GAAP) | $ | 43.9 | $ | 8.1 | $ | (33.0 | ) | $ | (3.0 | ) | $ | 16.0 | $ | (33.0 | ) | $ | 49.0 | ||||||||||||||
Add: | |||||||||||||||||||||||||||||||
Depreciation and amortization | 29.3 | 3.0 | 29.1 | 61.4 | 29.1 | 32.3 | |||||||||||||||||||||||||
Restructuring (reversals) charges | (1.3 | ) | 10.3 | 9.0 | 10.3 | (1.3 | ) | ||||||||||||||||||||||||
Transaction costs | 2.8 | 0.2 | 3.0 | 2.8 | 5.0 | 0.2 | |||||||||||||||||||||||||
Amortization of deferred gain | (6.4 | ) | (6.4 | ) | (6.4 | ) | |||||||||||||||||||||||||
Employee contract termination costs | 0.6 | 0.6 | 0.6 | ||||||||||||||||||||||||||||
Asset Impairment | 7.5 | 7.5 | 7.5 | ||||||||||||||||||||||||||||
Pension and other retirement plan expenses | 4.0 | 0.6 | 4.6 | 4.6 | |||||||||||||||||||||||||||
Adjusted EBITDA (Non-GAAP) | $ | 75.9 | $ | 11.7 | $ | 10.3 | $ | (2.2 | ) | $ | 95.7 | $ | 10.3 | $ | 85.4 | ||||||||||||||||
Adjusted EBITDA Margin | 41 | �% | 10 | % | 34 | �% | 29 | �% | |||||||||||||||||||||||
Three Months Ended September 30, 2013 | |||||||||||||||||||||||||||||||
Wireline | IT Services & Hardware | Wireless | Corporate | Total Company | Less: Wireless | Total company (excluding Wireless) * | |||||||||||||||||||||||||
Net Income (GAAP) | $ | 9.3 | |||||||||||||||||||||||||||||
Add: | |||||||||||||||||||||||||||||||
Income tax expense | 1.4 | ||||||||||||||||||||||||||||||
Interest expense | 46.7 | ||||||||||||||||||||||||||||||
Loss from CyrusOne equity method investment | 1.5 | ||||||||||||||||||||||||||||||
Other income, net | (1.2 | ) | |||||||||||||||||||||||||||||
Operating Income (GAAP) | $ | 47.8 | $ | 4.4 | $ | 7.0 | $ | (1.5 | ) | $ | 57.7 | $ | 7.0 | $ | 50.7 | ||||||||||||||||
Add: | |||||||||||||||||||||||||||||||
Depreciation and amortization | 29.7 | 2.5 | 7.4 | 0.2 | 39.8 | 7.4 | 32.4 | ||||||||||||||||||||||||
Gain on sale or disposal of assets | (0.2 | ) | (0.2 | ) | (0.2 | ) | |||||||||||||||||||||||||
Transaction costs | 0.5 | 0.5 | 0.5 | ||||||||||||||||||||||||||||
Pension and other retirement plan expenses | 5.2 | 0.3 | 5.5 | 5.5 | |||||||||||||||||||||||||||
Adjusted EBITDA (Non-GAAP) | $ | 82.5 | $ | 6.9 | $ | 14.4 | $ | (0.5 | ) | $ | 103.3 | $ | 14.4 | $ | 88.9 | ||||||||||||||||
Adjusted EBITDA Margin | 45 | �% | 8 | % | 29 | �% | 33 | �% | |||||||||||||||||||||||
Year-over-year dollar change in Adjusted EBITDA | $ | (6.6 | ) | $ | 4.8 | $ | (4.1 | ) | $ | (1.7 | ) | $ | (7.6 | ) | $ | (3.5 | ) | ||||||||||||||
Year-over-year percentage change in Adjusted EBITDA | (8 | )% | 70 | % | (28 | )% | n/m | (7 | )% | (4 | )% | ||||||||||||||||||||
* Total company (excluding Wireless) does not include any pro-forma adjustments as described by Regulation S-X: Rule 11-02(b)-2 or consideration of any potential negative synergies. | |||||||||||||||||||||||||||||||
Cincinnati Bell Inc. | |||||||||||||||||||||||||||||||||||
Reconciliation of Net Income (Loss) (GAAP) to Adjusted EBITDA (Non-GAAP) | |||||||||||||||||||||||||||||||||||
(Unaudited) | |||||||||||||||||||||||||||||||||||
(Dollars in millions) | |||||||||||||||||||||||||||||||||||
Nine Months Ended September 30, 2014 | |||||||||||||||||||||||||||||||||||
Wireline | IT Services & Hardware | Wireless | Data Center Colocation | Corporate | Total Company | Less: Wireless | Total company (excluding Wireless) ** | ||||||||||||||||||||||||||||
Net Income (GAAP) | $ | 93.9 | |||||||||||||||||||||||||||||||||
Add: | |||||||||||||||||||||||||||||||||||
Income tax expense | 68.8 | ||||||||||||||||||||||||||||||||||
Interest expense | 116.8 | ||||||||||||||||||||||||||||||||||
Loss from CyrusOne equity method investment | 1.9 | ||||||||||||||||||||||||||||||||||
Gain on sale of CyrusOne equity method investment | (192.8 | ) | |||||||||||||||||||||||||||||||||
Loss on extinguishment of debt | 19.4 | ||||||||||||||||||||||||||||||||||
Other expense, net | 0.5 | ||||||||||||||||||||||||||||||||||
Operating Income (loss) (GAAP) | $ | 147.0 | $ | 16.3 | $ | (40.8 | ) | $ | $ | (14.0 | ) | $ | 108.5 | $ | (40.8 | ) | $ | 149.3 | |||||||||||||||||
Add: | |||||||||||||||||||||||||||||||||||
Depreciation and amortization | 85.6 | 8.6 | 74.2 | 0.2 | 168.6 | 74.2 | 94.4 | ||||||||||||||||||||||||||||
Restructuring charges | (0.2 | ) | 15.5 | 0.1 | 15.4 | 15.5 | (0.1 | ) | |||||||||||||||||||||||||||
(Gain) loss on sale or disposal of assets | (0.2 | ) | 0.1 | (0.1 | ) | (0.1 | ) | ||||||||||||||||||||||||||||
Transaction costs | 2.8 | 0.9 | 3.7 | 2.8 | 0.9 | ||||||||||||||||||||||||||||||
Amortization of deferred gain | (16.5 | ) | (16.5 | ) | (16.5 | ) | |||||||||||||||||||||||||||||
Employee contract termination costs | 0.6 | 0.6 | 0.6 | ||||||||||||||||||||||||||||||||
Asset Impairment | 7.5 | 7.5 | 7.5 | ||||||||||||||||||||||||||||||||
Pension and other retirement plan expenses | 12.1 | 1.4 | 13.5 | 13.5 | |||||||||||||||||||||||||||||||
Adjusted EBITDA (Non-GAAP) | $ | 244.3 | $ | 25.5 | $ | 42.7 | $ | $ | (11.3 | ) | $ | 301.2 | $ | 42.7 | $ | 258.5 | |||||||||||||||||||
Adjusted EBITDA Margin | 44 | �% | 8 | % | 37 | �% | 31 | �% | |||||||||||||||||||||||||||
Nine Months Ended September 30, 2013 | |||||||||||||||||||||||||||||||||||
Wireline | IT Services & Hardware | Wireless | Data Center Colocation* | Corporate | Total Company | Less: Wireless | Total company (excluding Wireless) ** | ||||||||||||||||||||||||||||
Net Loss (GAAP) | $ | (26.6 | ) | ||||||||||||||||||||||||||||||||
Add: | |||||||||||||||||||||||||||||||||||
Income tax expense | 3.6 | ||||||||||||||||||||||||||||||||||
Interest expense | 140.0 | ||||||||||||||||||||||||||||||||||
Loss from CyrusOne equity method investment | 8.1 | ||||||||||||||||||||||||||||||||||
Other income, net | (1.4 | ) | |||||||||||||||||||||||||||||||||
Operating Income (GAAP) | $ | 146.8 | $ | 6.6 | $ | 19.1 | $ | 3.2 | $ | (52.0 | ) | $ | 123.7 | $ | 19.1 | $ | 104.6 | ||||||||||||||||||
Add: | |||||||||||||||||||||||||||||||||||
Depreciation and amortization | 83.8 | 7.5 | 30.7 | 5.2 | 0.4 | 127.6 | 30.7 | 96.9 | |||||||||||||||||||||||||||
Transaction-related compensation | 42.6 | 42.6 | 42.6 | ||||||||||||||||||||||||||||||||
Restructuring charges | 5.8 | 0.7 | 4.3 | 10.8 | 10.8 | ||||||||||||||||||||||||||||||
(Gain) loss on sale or disposal of assets | (0.9 | ) | 3.5 | 2.6 | 3.5 | (0.9 | ) | ||||||||||||||||||||||||||||
Transaction costs | 1.6 | 1.6 | 1.6 | ||||||||||||||||||||||||||||||||
Curtailment gain | (0.6 | ) | (0.6 | ) | (0.6 | ) | |||||||||||||||||||||||||||||
Pension and other retirement plan expenses | 16.3 | 1.0 | 17.3 | 17.3 | |||||||||||||||||||||||||||||||
Adjusted EBITDA (Non-GAAP) | $ | 251.2 | $ | 14.8 | $ | 53.3 | $ | 8.4 | $ | (2.1 | ) | $ | 325.6 | $ | 53.3 | $ | 272.3 | ||||||||||||||||||
Adjusted EBITDA Margin | 46 | �% | 6 | % | 35 | �% | 54 | % | 34 | �% | |||||||||||||||||||||||||
Year-over-year dollar change in Adjusted EBITDA | $ | (6.9 | ) | $ | 10.7 | $ | (10.6 | ) | $ | (8.4 | ) | $ | (9.2 | ) | $ | (24.4 | ) | $ | (13.8 | ) | |||||||||||||||
Year-over-year percentage change in Adjusted EBITDA | (3 | )% | 72 | % | (20 | )% | n/m | n/m | (7 | )% | (5 | )% | |||||||||||||||||||||||
* Results for 2013 only include CyrusOne's results through January 23, 2013. Effective January 24, 2013, the completion date of CyrusOne's IPO, the company accounts for CyrusOne as an equity method investment, and therefore does not consolidate the CyrusOne results of operations in the total company or segment results. | |||||||||||||||||||||||||||||||||||
** Total company (excluding Wireless) does not include any pro-forma adjustments as described by Regulation S-X: Rule 11-02(b)-2 or consideration of any potential negative synergies. | |||||||||||||||||||||||||||||||||||
Cincinnati Bell Inc. | |||||||||||||||||
Consolidated Statements of Cash Flows | |||||||||||||||||
(Unaudited) | |||||||||||||||||
(Dollars in millions) | |||||||||||||||||
Three Months Ended | Nine Months Ended | ||||||||||||||||
September 30, | September 30, | ||||||||||||||||
2014 | 2013 | 2014 | 2013** | ||||||||||||||
Cash provided by operating activities | $ | 27.0 | $ | 30.4 | $ | 120.8 | $ | 59.8 | |||||||||
Capital expenditures | (45.6 | ) | (46.1 | ) | (121.1 | ) | (142.0 | ) | |||||||||
Proceeds from sale of CyrusOne equity method investment | 355.9 | ||||||||||||||||
Dividends received from CyrusOne | 6.0 | 7.2 | 22.4 | 14.2 | |||||||||||||
Proceeds from sale of Wireless spectrum licenses | 194.4 | 194.4 | |||||||||||||||
Proceeds from sale of assets | 0.2 | 2.0 | 1.8 | ||||||||||||||
Release of restricted cash | 0.4 | ||||||||||||||||
Cash divested from deconsolidation of CyrusOne | (12.2 | ) | |||||||||||||||
Other, net | (5.7 | ) | |||||||||||||||
Cash provided by (used in) investing activities | 154.8 | (38.7 | ) | 447.9 | (137.8 | ) | |||||||||||
Proceeds from issuance of long-term debt | 536.0 | 536.0 | |||||||||||||||
Decrease in corporate credit and receivables facilities, net | (2.4 | ) | (108.8 | ) | (33.8 | ) | (52.0 | ) | |||||||||
Repayment of debt | (342.3 | ) | (1.9 | ) | (350.6 | ) | (6.7 | ) | |||||||||
Debt issuance costs | (6.4 | ) | (6.4 | ) | |||||||||||||
Dividends paid on preferred stock | (2.6 | ) | (2.6 | ) | (7.8 | ) | (7.8 | ) | |||||||||
Proceeds from exercise of options and warrants | 0.2 | 1.2 | 6.8 | ||||||||||||||
Other, net | (0.2 | ) | (0.8 | ) | (1.8 | ) | |||||||||||
Cash (used in) provided by financing activities | (347.5 | ) | 416.5 | (391.8 | ) | 468.1 | |||||||||||
Net (decrease) increase in cash and cash equivalents | (165.7 | ) | 408.2 | 176.9 | 390.1 | ||||||||||||
Cash and cash equivalents at beginning of period | 347.2 | 5.5 | 4.6 | 23.6 | |||||||||||||
Cash and cash equivalents at end of period | $ | 181.5 | $ | 413.7 | $ | 181.5 | $ | 413.7 | |||||||||
Reconciliation of GAAP Cash Flow to | |||||||||||||||||
Free Cash Flow (as defined by the company) | |||||||||||||||||
Net (decrease) increase in cash and cash equivalents | $ | (165.7 | ) | $ | 408.2 | $ | 176.9 | $ | 390.1 | ||||||||
Less adjustments: | |||||||||||||||||
Proceeds from issuance of long-term debt | (536.0 | ) | (536.0 | ) | |||||||||||||
Decrease in corporate credit and receivables facilities, net | 2.4 | 108.8 | 33.8 | 52.0 | |||||||||||||
Cash divested from deconsolidation of CyrusOne | 12.2 | ||||||||||||||||
Repayment of debt | 342.3 | 1.9 | 350.6 | 6.7 | |||||||||||||
Debt issuance costs | 6.4 | 6.4 | |||||||||||||||
Transaction-related compensation | 42.6 | ||||||||||||||||
Transaction costs | 0.5 | 0.5 | 1.2 | 1.6 | |||||||||||||
Proceeds from sale of CyrusOne equity method investment | (355.9 | ) | |||||||||||||||
Proceeds from sale of Wireless spectrum licenses | (194.4 | ) | (194.4 | ) | |||||||||||||
���Free cash flow | (14.9 | ) | (10.2 | ) | 12.2 | (24.4 | ) | ||||||||||
���Less: CyrusOne's free cash flows* | (3.3 | ) | |||||||||||||||
���Free cash flow excluding CyrusOne | $ | (14.9 | ) | $ | (10.2 | ) | $ | 12.2 | $ | (21.1 | ) | ||||||
Income tax payments | $ | 4.6 | $ | 0.0 | $ | 4.9 | $ | 2.8 | |||||||||
*CyrusOne's free cash flows for 2013 were comprised of cash generated from operating activities of $4.0 million and cash used in investing activities of $7.3 million. | |||||||||||||||||
**Results for 2013 only include CyrusOne's results through January 23, 2013. Effective January 24, 2013, the completion date of CyrusOne's IPO, the company accounts for CyrusOne as an equity method investment, and therefore does not consolidate the CyrusOne results of operations in the total company or segment results. | |||||||||||||||||
Cincinnati Bell Inc. | ||||
Free Cash Flow (as defined by the company) | ||||
(Unaudited) | ||||
(Dollars in millions) | ||||
Free Cash Flow for the three months ended September 30, 2013 | $ | (10.2 | ) | |
Decrease in Adjusted EBITDA | (7.6 | ) | ||
Decrease in capital expenditures | 0.5 | |||
Increase in interest payments | (2.2 | ) | ||
Decrease in pension and postretirement payments and contributions | 24.6 | |||
Change in working capital and other | (20.0 | ) | ||
Free Cash Flow for the three months ended September 30, 2014 | $ | (14.9 | ) | |
Free Cash Flow for the nine months ended September 30, 2013 | $ | (24.4 | ) | |
Less: CyrusOne's free cash flows for the period ended January 23, 2013 | (3.3 | ) | ||
Free Cash Flow excluding CyrusOne for the nine months ended September 30, 2013 | $ | (21.1 | ) | |
Decrease in Adjusted EBITDA (excluding CyrusOne)* | (16.0 | ) | ||
Decrease in capital expenditures (excluding CyrusOne)* | 13.2 | |||
Decrease in interest payments | 7.3 | |||
Decrease in pension and postretirement payments and contributions | 25.8 | |||
Change in working capital and other | 3.0 | |||
Free Cash Flow for the nine months ended September 30, 2014 | $ | 12.2 | ||
*CyrusOne's Adjusted EBITDA and capital expenditures totaled $8.4 million and $7.7 million, respectively for the period January 1, 2013 through January 23, 2013. Effective January 24, 2013, the completion date of CyrusOne's IPO, the company accounts for CyrusOne as an equity method investment, and therefore does not consolidate the CyrusOne results of operations in the total company or segment results. | ||||
Cincinnati Bell Inc. | ||||||||||||||||||||
Capital Expenditures | ||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||
Three Months Ended | ||||||||||||||||||||
Sep. 30, 2014 | Jun. 30, 2014 | Mar. 31, 2014 | Dec. 31, 2013 | Sep. 30, 2013 | ||||||||||||||||
Wireline | $ | 41.8 | $ | 38.1 | $ | 26.2 | $ | 48.3 | $ | 41.2 | ||||||||||
IT Services and Hardware | 3.5 | 2.5 | 2.5 | 3.0 | 2.7 | |||||||||||||||
Wireless | 0.3 | 0.6 | 5.6 | 3.6 | 2.2 | |||||||||||||||
Total capital expenditures | $ | 45.6 | $ | 41.2 | $ | 34.3 | $ | 54.9 | $ | 46.1 | ||||||||||
Cincinnati Bell Inc. | ||||||||||||||
Normalized Statements of Operations (Non-GAAP) - Reconciliation to Reported Results | ||||||||||||||
(Unaudited) | ||||||||||||||
(Dollars in millions, except per share amounts) | ||||||||||||||
Three | ||||||||||||||
Three | Months Ended | |||||||||||||
Months Ended | September�30, 2014 | |||||||||||||
September�30, 2014 | Before Special Items | |||||||||||||
(GAAP) | Special Items | (Non-GAAP) | ||||||||||||
Revenue | $ | 327.5 | $ | $ | 327.5 | |||||||||
Costs and expenses | ||||||||||||||
Cost of services and products | 179.5 | 179.5 | ||||||||||||
Selling, general and administrative | 57.5 | (0.6 | ) | [A] | 56.9 | |||||||||
Depreciation and amortization | 61.4 | 61.4 | ||||||||||||
Restructuring charges | 9.0 | (9.0 | ) | [B] | ||||||||||
Asset impairment | 7.5 | (7.5 | ) | [C] | ||||||||||
Amortization of deferred gain | (6.4 | ) | (6.4 | ) | ||||||||||
Transaction costs | 3.0 | (3.0 | ) | [D] | ||||||||||
Operating income | 16.0 | 20.1 | 36.1 | |||||||||||
Interest expense | 35.8 | 35.8 | ||||||||||||
Loss on extinguishment of debt | 19.4 | (19.4 | ) | [E] | ||||||||||
Other income, net | (0.2 | ) | (0.2 | ) | ||||||||||
(Loss) income before income taxes | (39.0 | ) | 39.5 | 0.5 | ||||||||||
Income tax (benefit) expense | (11.7 | ) | 15.8 | 4.1 | ||||||||||
Net loss | (27.3 | ) | 23.7 | (3.6 | ) | |||||||||
Preferred stock dividends | 2.6 | 2.6 | ||||||||||||
Net loss applicable to common shareowners | $ | (29.9 | ) | $ | 23.7 | $ | (6.2 | ) | ||||||
Weighted average diluted common shares | 208.7 | 208.7 | 208.7 | |||||||||||
Diluted loss per common share | $ | (0.14 | ) | $ | 0.11 | $ | (0.03 | ) | ||||||
Normalized results have been adjusted for the following (pretax adjustments are tax effected at 40%): | ||||||||||||||
A | Employee contract termination costs associated with integrating IT services and Hardware segment with Wireline business markets. | |||||||||||||
B | Restructuring charges consist of employee severance and contract terminations as we prepare to shut-down wireless operations. | |||||||||||||
C | Asset impairment relates to wireless network upgrades abandoned in conjunction with the close of the agreement to sell wireless spectrum licenses. | |||||||||||||
D | Transaction costs relate to expenses incurred to sell wireless spectrum licenses and certain other assets. | |||||||||||||
E | Loss on extinguishment of debt related to the redemption of $325.0 million 8 3/4% Senior Subordinated Notes due 2018 on August 8, 2014 at a redemption rate of 104.375%. | |||||||||||||
Cincinnati Bell Inc. | ||||||||||||||
Normalized Statements of Operations (Non-GAAP) - Reconciliation to Reported Results | ||||||||||||||
(Unaudited) | ||||||||||||||
(Dollars in millions, except per share amounts) | ||||||||||||||
Three | ||||||||||||||
Three | Months Ended | |||||||||||||
Months Ended | September�30, 2013 | |||||||||||||
September�30, 2013 | Before Special Items | |||||||||||||
(GAAP) | Special Items | (Non-GAAP) | ||||||||||||
Revenue | $ | 310.8 | $ | $ | 310.8 | |||||||||
Costs and expenses | ||||||||||||||
Cost of services and products | 159.9 | 159.9 | ||||||||||||
Selling, general and administrative | 53.6 | 53.6 | ||||||||||||
Depreciation and amortization | 39.8 | 39.8 | ||||||||||||
Gain on sale or disposal of assets, net | (0.2 | ) | 0.2 | [A] | ||||||||||
Amortization of deferred gain | (0.5 | ) | (0.5 | ) | ||||||||||
Transaction costs | 0.5 | (0.5 | ) | [B] | ||||||||||
Operating income | 57.7 | 0.3 | 58.0 | |||||||||||
Interest expense | 46.7 | 0.3 | [C] | 47.0 | ||||||||||
Loss from CyrusOne equity method investment | 1.5 | 1.5 | ||||||||||||
Other income, net | (1.2 | ) | 1.1 | [C] | (0.1 | ) | ||||||||
Income before income taxes | 10.7 | (1.1 | ) | 9.6 | ||||||||||
Income tax expense | 1.4 | (0.4 | ) | 1.0 | ||||||||||
Net income | 9.3 | (0.7 | ) | 8.6 | ||||||||||
Preferred stock dividends | 2.6 | 2.6 | ||||||||||||
Net income applicable to common shareowners | $ | 6.7 | $ | (0.7 | ) | $ | 6.0 | |||||||
Weighted average diluted common shares | 208.5 | 208.5 | 208.5 | |||||||||||
Diluted earnings per common share | $ | 0.03 | $ | 0.00 | $ | 0.03 | ||||||||
Normalized results have been adjusted for the following (pretax adjustments are tax effected at 40%): | ||||||||||||||
A | Gain on sale or disposal of wireline network equipment. | |||||||||||||
B | Transaction costs relate to expenses incurred for exploring strategic alternatives for our Wireless business and legal and consulting costs associated with CyrusOne. | |||||||||||||
C | Use tax refund from assets previously disposed. | |||||||||||||
Cincinnati Bell Inc. | ||||||||||||||
Normalized Statements of Operations (Non-GAAP) - Reconciliation to Reported Results | ||||||||||||||
(Unaudited) | ||||||||||||||
(Dollars in millions, except per share amounts) | ||||||||||||||
Nine | ||||||||||||||
Nine | Months Ended | |||||||||||||
Months Ended | September�30, 2014 | |||||||||||||
September�30, 2014 | Before Special Items | |||||||||||||
(GAAP) | Special Items | (Non-GAAP) | ||||||||||||
Revenue | $ | 969.9 | $ | $ | 969.9 | |||||||||
Costs and expenses | ||||||||||||||
Cost of services and products | 515.4 | 515.4 | ||||||||||||
Selling, general and administrative | 167.4 | (0.6 | ) | [A] | 166.8 | |||||||||
Depreciation and amortization | 168.6 | 168.6 | ||||||||||||
Restructuring charges | 15.4 | (15.4 | ) | [B] | ||||||||||
Asset impairment | 7.5 | (7.5 | ) | [C] | ||||||||||
Gain on sale or disposal of assets, net | (0.1 | ) | 0.1 | [D] | ||||||||||
Amortization of deferred gain | (16.5 | ) | (16.5 | ) | ||||||||||
Transaction costs | 3.7 | (3.7 | ) | [E] | ||||||||||
Operating income | 108.5 | 27.1 | 135.6 | |||||||||||
Interest expense | 116.8 | 116.8 | ||||||||||||
Loss from CyrusOne equity method investment | 1.9 | 1.9 | ||||||||||||
Gain on sale of CyrusOne equity method investment | (192.8 | ) | 192.8 | [F] | ||||||||||
Loss on extinguishment of debt | 19.4 | (19.4 | ) | [G] | ||||||||||
Other expense, net | 0.5 | 0.5 | ||||||||||||
Income before income taxes | 162.7 | (146.3 | ) | 16.4 | ||||||||||
Income tax expense | 68.8 | (58.5 | ) | 10.3 | ||||||||||
Net income | 93.9 | (87.8 | ) | 6.1 | ||||||||||
Preferred stock dividends | 7.8 | 7.8 | ||||||||||||
Net income (loss) applicable to common shareowners | $ | 86.1 | $ | (87.8 | ) | $ | (1.7 | ) | ||||||
Weighted average diluted common shares | 209.4 | 208.4 | [H] | 208.4 | ||||||||||
Diluted earnings per common share | $ | 0.41 | $ | (0.42 | ) | $ | (0.01 | ) | ||||||
Normalized results have been adjusted for the following (pretax adjustments are tax effected at 40%): | ||||||||||||||
A | Employee contract termination costs associated with integrating IT services and Hardware segment with Wireline business markets. | |||||||||||||
B | Restructuring charges consist of employee severance and contract terminations as we prepare to shut-down wireless operations. Employee severance also includes costs associated with outsourcing portions of our IT department. | |||||||||||||
C | Asset impairment relates to wireless network upgrades abandoned in conjunction with the close of the agreement to sell wireless spectrum licenses. | |||||||||||||
D | Gain on sale of wireline copper cabling. | |||||||||||||
E | Transaction costs relate to expenses incurred to sell wireless spectrum licenses and certain other assets. | |||||||||||||
F | Gain on sale of CyrusOne equity method investment. | |||||||||||||
G | Loss on extinguishment of debt related to the redemption of $325.0 million 8 3/4% Senior Subordinated Notes due 2018 on August 8, 2014 at a redemption rate of 104.375%. | |||||||||||||
H | Dilutive effect of common stock equivalents based on net income (loss) excluding special items. | |||||||||||||
Cincinnati Bell Inc. | ||||||||||||||
Normalized Statements of Operations (Non-GAAP) - Reconciliation to Reported Results | ||||||||||||||
(Unaudited) | ||||||||||||||
(Dollars in millions, except per share amounts) | ||||||||||||||
Nine | ||||||||||||||
Nine | Months Ended | |||||||||||||
Months Ended | September�30, 2013 | |||||||||||||
September�30, 2013 | Before Special Items | |||||||||||||
(GAAP) | Special Items | (Non-GAAP) | ||||||||||||
Revenue | $ | 948.5 | $ | $ | 948.5 | |||||||||
Costs and expenses | ||||||||||||||
Cost of services and products | 480.5 | 480.5 | ||||||||||||
Selling, general and administrative | 161.4 | 161.4 | ||||||||||||
Depreciation and amortization | 127.6 | (8.5 | ) | [A] | 119.1 | |||||||||
Transaction-related compensation | 42.6 | (42.6 | ) | [B] | ||||||||||
Restructuring charges | 10.8 | (10.8 | ) | [C] | ||||||||||
Curtailment gain | (0.6 | ) | 0.6 | [D] | ||||||||||
Loss on sale or disposal of assets, net | 2.6 | (2.6 | ) | [E] | ||||||||||
Amortization of deferred gain | (1.7 | ) | (1.7 | ) | ||||||||||
Transaction costs | 1.6 | (1.6 | ) | [F] | ||||||||||
Operating income | 123.7 | 65.5 | 189.2 | |||||||||||
Interest expense | 140.0 | 0.3 | [G] | 140.3 | ||||||||||
Loss from CyrusOne equity method investment | 8.1 | 8.1 | ||||||||||||
Other income, net | (1.4 | ) | 1.1 | [G] | (0.3 | ) | ||||||||
(Loss) income before income taxes | (23.0 | ) | 64.1 | 41.1 | ||||||||||
Income tax expense | 3.6 | 14.9 | [H] | 18.5 | ||||||||||
Net (loss) income | (26.6 | ) | 49.2 | 22.6 | ||||||||||
Preferred stock dividends | 7.8 | 7.8 | ||||||||||||
Net (loss) income applicable to common shareowners | $ | (34.4 | ) | $ | 49.2 | $ | 14.8 | |||||||
Weighted average diluted common shares | 205.6 | 208.3 | [I] | 208.3 | ||||||||||
Diluted (loss) earnings per common share | $ | (0.17 | ) | $ | 0.24 | $ | 0.07 | |||||||
Normalized results have been adjusted for the following (pretax adjustments are tax effected at 40%): | ||||||||||||||
A | Increased depreciation due to one-time charge associated with a change in estimated useful lives assigned to wireless network software. | |||||||||||||
B | Transaction-related compensation represents incentives related to the completion of CyrusOne's initial public offering. | |||||||||||||
C | Restructuring charges consist of lease abandonments and severance. | |||||||||||||
D | Curtailment gain resulted from elimination of future pension service credits in the management pension plan. | |||||||||||||
E | Loss on sale or disposal of wireline and wireless network equipment. | |||||||||||||
F | Transaction costs relate to expenses incurred for exploring strategic alternatives for our Wireless business and legal and consulting costs associated with CyrusOne. | |||||||||||||
G | Use tax refund from assets previously disposed. | |||||||||||||
H | Tax effect of above adjustments at 40%, partially offset by a gross valuation allowance provision of $10.7 million for Texas margin tax credits. | |||||||||||||
I | Dilutive effect of common stock equivalents based on net income excluding special items. | |||||||||||||
Cincinnati Bell Inc. | ||||||||||||||||||
Operating Income excluding CyrusOne | ||||||||||||||||||
(Unaudited) | ||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||
For the nine months ended September 30, 2013 | ||||||||||||||||||
Cincinnati Bell | Data Center | Cincinnati Bell | ||||||||||||||||
including CyrusOne | Colocation | Other | excluding CyrusOne | |||||||||||||||
Revenue | $ | 948.5 | $ | (15.6 | ) | $ | 0.4 | [A] | $ | 933.3 | ||||||||
Costs and expenses | ||||||||||||||||||
Cost of services and products | 480.5 | (4.8 | ) | 0.4 | [A] | 476.1 | ||||||||||||
Selling, general and administrative | 161.4 | (2.4 | ) | 159.0 | ||||||||||||||
Depreciation and amortization | 127.6 | (5.2 | ) | 122.4 | ||||||||||||||
Transaction-related compensation | 42.6 | (20.0 | ) | [B] | 22.6 | |||||||||||||
Restructuring charges | 10.8 | 10.8 | ||||||||||||||||
Curtailment gain | (0.6 | ) | (0.6 | ) | ||||||||||||||
Loss on sale or disposal of assets, net | 2.6 | 2.6 | ||||||||||||||||
Amortization of deferred gain | (1.7 | ) | (1.7 | ) | ||||||||||||||
Transaction costs | 1.6 | (0.4 | ) | [C] | 1.2 | |||||||||||||
Operating income | $ | 123.7 | $ | (3.2 | ) | $ | 20.4 | $ | 140.9 | |||||||||
A | Represents intersegment transactions. | |||||||||||||||||
B | Transaction-related compensation paid to CyrusOne related to CyrusOne employees. | |||||||||||||||||
C | Transaction costs related to the CyrusOne IPO. | |||||||||||||||||
Cincinnati Bell Inc. | |||||||||
Reconciliation of Operating Income (GAAP) Guidance to Adjusted EBITDA (Non-GAAP) Guidance | |||||||||
(Unaudited) | |||||||||
(Dollars in millions) | |||||||||
On April 6, 2014, the company announced it had entered into agreements to sell its wireless spectrum licenses and certain other assets. At that time, we began planning to discontinue our wireless operations until the later of April 6, 2015 and 90 days after the transfer of licenses. | |||||||||
On September 30, 2014, the agreement to sell the wireless spectrum licenses closed and therefore we are suspending any further guidance related to the Wireless segment. We are reaffirming the 2014 Adjusted EBITDA guidance excluding our Wireless segment as follows: | |||||||||
��2014 Operating Income (GAAP) Guidance | $ | 180 | |||||||
Add: | |||||||||
���Depreciation and amortization | 130 | ||||||||
���Restructuring and other | 5 | ||||||||
���Pension and other retirement plan expenses | 18 | ||||||||
2014 Adjusted EBITDA (Non-GAAP) Guidance | 333 | * | |||||||
* Plus or minus 2 percent. | |||||||||
CONTACT:
����
Cincinnati Bell Inc.
Investor contact:
Josh Duckworth, 513-397-2292
Media contact:
Jane Weiler, 513-397-9941
Cincinnati Bell Third Quarter 2014 Results November 5, 2014
�
Todays Agenda Strategic Initiatives Ted Torbeck, President & Chief Executive Officer Financial Overview & Segment Results Leigh Fox, Chief Financial Officer Question & Answer 2
�
Safe Harbor This presentation and the documents incorporated by reference herein contain forward-looking statements regarding future events and our future results that are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, are statements that could be deemed forward-looking statements. These statements are based on current expectations, estimates, forecasts, and projections about the industries in which we operate and the beliefs and assumptions of our management. Words such as expects, anticipates, predicts, projects, intends, plans, believes, seeks, estimates, continues, endeavors, strives, may, variations of such words and similar expressions are intended to identify such forward-looking statements. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses, and other characterizations of future events or circumstances are forward-looking statements. Readers are cautioned these forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties, which could cause our actual results to differ materially and adversely from those reflected in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this release and those discussed in other documents we file with the Securities and Exchange Commission (SEC). More information on potential risks and uncertainties is available in our recent filings with the SEC, including Cincinnati Bells Form 10-K report, Form 10-Q reports and Form 8-K reports. Actual results may differ materially and adversely from those expressed in any forward-looking statements. We undertake no obligation to revise or update any forward-looking statements for any reason. 3
�
Non GAAP Financial Measures This presentation contains information about adjusted earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA), Adjusted EBITDA margin, net debt and free cash flow. These are non-GAAP financial measures used by Cincinnati Bell management when evaluating results of operations and cash flow. Management believes these measures also provide users of the financial statements with additional and useful comparisons of current results of operations and cash flows with past and future periods. Non- GAAP financial measures should not be construed as being more important than comparable GAAP measures. Detailed reconciliations of Adjusted EBITDA, net debt and free cash flow (including the Companys definition of these terms) to comparable GAAP financial measures can be found in the earnings release on our website at www.cincinnatibell.com within the Investor Relations section. 4
�
Ted Torbeck President & Chief Executive Officer 5
�
2014 Key Objectives " Continue to invest in high demand strategic products " Evaluate opportunities to monetize CyrusOne investment " Manage wireless operations for profitability and cash flows as we consider strategic options for this business Fioptics Metro-Ethernet VoIP Managed & Professional Services 6
�
Quarterly Strategic Revenue Growth ($ in millions) * Revenue results are presented net of intercompany 7 $93 $97 $101 $107 $111 Strategic revenue growth is changing our FINANCIAL OUTLOOK and perception of our BRAND
�
CyrusOne Monetization 8 " Sold 16 million CyrusOne Partnership units with proceeds totaling $356 million Proceeds used to repay a portion of our 8.75% Senior Subordinated Notes due 2018, reducing interest payments $28 million annually Remaining 44% ownership currently valued at approximately $750 million Tax gains from future monetization sheltered by $750 million of tax NOLs " Our strategy has not changed Patient investor focused on a well-timed and thoughtfully developed monetization strategy to maximize shareholder value CyrusOne reported outstanding third quarter results: o Revenue $85 million, up 26% year-over-year o Adjusted EBITDA $42 million, up 16% year-over-year
�
Wireless Sale Impact " Spectrum sale closed on September 30, 2014 Cash proceeds of $194 million " Transfer of lease liabilities and other assets valued at approximately $16 million will occur once we no longer provide wireless service (later of 90 days after close of spectrum sale and April 6, 2015) " Broadens our relationship with Verizon Expect increased foot traffic in Fioptics retail stores Opportunity to provide additional carrier services 9
�
Leigh Fox Chief Financial Officer 10
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Third Quarter Financial Summary Revenue Adjusted EBITDA � Total revenue of $328 million for Q3 2014, up 5% from prior year � Operating income totaled $16 million and net loss of $27 million - Wireless operating loss totaled $33 million due to winding down operations - Loss on extinguishment of debt totaled $19 million � Adjusted EBITDA of $96 million for Q3 2014, down $8 million from prior year - Winding down wireless operations - Increased costs to accelerate fiber build and streamline operations and shared service functions Wireline Wireless Corporate Eliminations $311 $328 $103 $96 IT Services & Hardware 11
�
$66 $113 $3 $83 Revenue EBITDA $79 $102 $3 $76 Revenue EBITDA � Strategic revenue growth in Q3 2014 offset decline from legacy products Revenue from Fioptics for Q3 2014 totaled $37 million, up 39% from Q3 2013 Strategic revenue from business customers totaled $42 million (including $2 million of Fioptics revenue) in Q3 2014, up 10% from prior year � Adjusted EBITDA totaled $76 million in Q3 2014 with Adjusted EBITDA margins of 41% Adjusted EBITDA decrease due to additional costs associated with accelerating fiber investments and projects aimed at streamlining operations and shared service functions � Access line loss was 9% year-over-year Increased wireless subscriber churn and move season activity ($ in millions) Wireline Revenue and Adjusted EBITDA Integration Revenue Strategic Legacy 12 Q3 2013 $184 Q3 2014 $181
�
� 323K addresses passed with Fioptics - approximately 40% of Greater Cincinnati 16K new addresses passed in the quarter � Fioptics Penetration: Video 27% Internet 33% Voice 18% � Fioptics monthly ARPU was up approximately 6% from Q3 2013. 2014 ARPUs are as follows: Video $76 Internet $39 Voice $33 � Total video churn was 3.4% for the quarter Single-family churn was 2.6% for Q3 2014 Apartment churn was 7.1% for Q3 2014 Fioptics Highlights (in thousands) � Fioptics subscribers increased by 30% compared to 2013 88K video subs; 5,300 net activations in the quarter 107K internet subs; 8,400 subs added in the quarter 13
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IT Services & Hardware Revenue and Adjusted EBITDA ($ in millions) � Revenue of $120 million for Q3 2014, up 37% from Q3 2013 Telecom & IT Equipment revenue of $83 million for Q3 2014, up 48% from Q3 2013 Strategic Managed and Professional Services revenue totaled $35 million for Q3 2014, up 15% from prior year � Adjusted EBITDA margin was 10%, up from 8% a year ago Integration Revenue Strategic Revenue 14 $31 $57 $7 Revenue EBITDA $35 $85 $12 Revenue EBITDA Q3 2013 Q3 2014 $120 $88
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Wireless Revenue & Adjusted EBITDA ($ in millions) � Revenue decreased $19 million due to 100k subscriber loss during the quarter Total subscribers expected to be less than 100k at year-end � Adjusted EBITDA totaled $10 million for Q3 2014, down $4 million from prior year � Restructuring charges totaled $10 million to account for costs associated with winding down operations � Cost leakage to be absorbed by the remaining core business once wireless operations shut down is expected to range between $25 $30 million Revenue EBITDA Revenue EBITDA Q3 2013 Q3 2014 15
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Free Cash Flow ($ in millions) Q3 2014 YTD 2014 Adjusted EBITDA 96$ 301$ Interest Payments (33) (111) Capital Expenditures (46) (121) Pension and OPEB Payments (11) (27) Dividends from CyrusOne 6 22 Working Capital and Other (27) (52) Free Cash Flow (15)$ 12$ Free cash flow results are in-line with managements expectation and components are consistent with previous communication. 16
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Q3 2014 YTD 2014 % of YTD Spend Low High Construction 14$ 31$ 26% 40$ 45$ Installation 9 17 13% 25 27 Value added 3 8 7% 15 18 Strategic Fioptics 26$ 56$ 46% 80$ 90$ Strategic Other 9 27 22% 40 40 Total Strategic Investment 35$ 83$ 69% 120$ 130$ Maintenance 11 32 26% 50 50 Wireless - 6 5% 10 10 Total 46$ 121$ 100% 180$ 190$ Full Year 2014 Q3 2014 Capital Expenditures and Full Year 2014 ($ in millions) 17
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*Plus or minus 2 percent 2014 Financial Guidance (excluding Wireless) 18 On September 30, 2014 the Company completed the sale of its wireless spectrum and has suspended guidance related to this segment. As such, excluding Wireless, the company is affirming the 2014 Adjusted EBITDA guidance and increasing its revenue guidance as follows: Category 2014 Guidance (excluding Wireless) Revised 2014 Guidance (excluding Wireless) Revenue $1.0 billion $1.1 billion Adjusted EBITDA $333 million* $333 million*
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Appendix 19
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CBB Consolidated Results ($ in millions, except per share amounts) 2014 2013 $ % 2014 2013 $ % Revenue 327.5$ 310.8$ 16.7$ 5% 969.9$ 948.5$ 21.4$ 2% Costs and expenses Cost of services and products 179.5 159.9 19.6 12% 515.4 480.5 34.9 7% Selling, general and administrative 57.5 53.6 3.9 7% 167.4 161.4 6.0 4% Depreciation and amortization 61.4 39.8 21.6 54% 168.6 127.6 41.0 32% Transaction-related compensation - - - n/m - 42.6 (42.6) n/m Restructuring charges 9.0 - 9.0 n/m 15.4 10.8 4.6 43% Asset impairment 7.5 - 7.5 n/m 7.5 - 7.5 n/m Curtailment gain - - - n/m - (0.6) 0.6 n/m (Gain) loss on sale or disposal of assets, net - (0.2) 0.2 n/m (0.1) 2.6 (2.7) n/m Amortization of deferred gain (6.4) (0.5) (5.9) n/m (16.5) (1.7) (14.8) n/m Transaction costs 3.0 0.5 2.5 n/m 3.7 1.6 2.1 n/m Operating income 16.0 57.7 (41.7) (72)% 108.5 123.7 (15.2) (12)% Interest expense 35.8 46.7 (10.9) (23)% 116.8 140.0 (23.2) (17)% Loss on extinguishment of debt 19.4 - 19.4 n/m 19.4 - 19.4 n/m Loss from CyrusOne equity method investment - 1.5 (1.5) n/m 1.9 8.1 (6.2) (77)% Gain on sale of CyrusOne equity method investment - - - n/m (192.8) - (192.8) n/m Other (income) expense, net (0.2) (1.2) 1.0 83% 0.5 (1.4) 1.9 n/m (Loss) income before income taxes (39.0) 10.7 (49.7) n/m 162.7 (23.0) 185.7 n/m Income tax (benefit) expense (11.7) 1.4 (13.1) n/m 68.8 3.6 65.2 n/m Net (loss) income (27.3) 9.3 (36.6) n/m 93.9 (26.6) 120.5 n/m Preferred stock dividends 2.6 2.6 - 0% 7.8 7.8 - 0% Net (loss) income applicable to common shareowners (29.9)$ 6.7$ (36.6)$ n/m 86.1$ (34.4)$ 120.5$ n/m Basic and diluted (loss) earnings per common share (0.14)$ 0.03$ 0.41$ (0.17)$ Change Three Months Ended September 30, Change Nine Months Ended September 30, 20
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Revenue Classifications Voice STRATEGIC LEGACY INTEGRATION Fioptics Voice Switched Access Digital Trunking Data Fioptics Internet DWDM DSL (> 10 meg) Metro-Ethernet Dedicated Internet DSL (< 10 meg) Dial up Internet TDM DSO, DS1, DS3 Long Distance/ VoIP VoIP Private Line MPLS Audio Conferencing Managed/ Professional Services Managed Services - Monitoring/Management - Data Storage - Data Security - Virtual Data Center Professional Services - Staff Augmentation - IT Consulting Telecom & IT Equipment Hardware Installation Maintenance Maintenance Information Services Long Distance Entertainment Fioptics Video 21
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Revenue MD&A Q3 2014 Strategic, Legacy and Integration ($ in millions) Wireline IT S&H Wireless Total Eliminations Total Strategic Voice - local service 5.3$ -$ -$ Entertainment 19.3 - - Data 38.8 - - Long distance and VoIP 14.8 - - Other 1.1 - - Managed & Professional Services - 35.0 - Hardware - - - Total Strategic 79.3 35.0 - 114.3 (3.3) 111.0 Legacy Voice - local service 42.6$ -$ -$ Entertainment - - - Data 45.3 - - Long distance and VoIP 11.6 - - Other 2.6 - - Managed & Professional Services - - - Hardware - - - Total Legacy 102.1 - - 102.1 (1.9) 100.2 Integration Voice - local service 1.7$ -$ -$ Entertainment 0.2 - - Data - - - Long distance and VoIP 0.5 - - Other 0.2 - - Managed & Professional Services - 1.8 - Hardware - 83.2 - Total Integration 2.6 85.0 - 87.6 (1.0) 86.6 Wireless - - 30.1 30.1 (0.4) 29.7 Total Revenue 184.0$ 120.0$ 30.1$ 334.1$ (6.6)$ 327.5$ Eliminations 3.9 2.3 0.4 6.6 180.1$ 117.7$ 29.7$ 327.5$ Q3 2014 22
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Revenue MD&A Q3 2013 Strategic, Legacy and Integration ($ in millions) 23 Wireline IT S&H Wireless Total Eliminations Total Strategic Voice - local service 4.6$ -$ -$ Entertainment 14.4 - - Data 31.7 - - Long distance and VoIP 12.9 - - Other 2.0 - - Managed & Professional Services - 30.4 - Hardware - - - Total Strategic 65.6 30.4 - 96.0 (3.0) 93.0 Legacy Voice - local service 50.3$ -$ -$ Entertainment - - - Data 47.9 - - Long distance and VoIP 12.9 - - Other 1.6 - - Managed & Professional Services - - - Hardware - - - Total Legacy 112.7 - - 112.7 (2.9) 109.8 Integration Voice - local service 1.7$ -$ -$ Entertainment - - - Data - - - Long distance and VoIP 1.0 - - Other 0.4 - - Managed & Professional Services - 0.9 - Hardware - 56.2 - Total Integration 3.1 57.1 - 60.2 (0.8) 59.4 Wireless - - 49.1 49.1 (0.5) 48.6 Total Revenue 181.4$ 87.5$ 49.1$ 318.0$ (7.2)$ 310.8$ Eliminations 4.2 2.5 0.5 7.2 177.2$ 85.0$ 48.6$ 310.8$ Q3 2013
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Revenue MD&A YTD 2014 Strategic, Legacy and Integration ($ in millions) 24 Wireline IT S&H Wireless Total Eliminations Total Strategic Voice - local service 15.5$ -$ -$ Entertainment 54.5 - - Data 111.4 - - Long distance and VoIP 43.0 - - Other 3.6 - - Managed & Professional Services - 101.7 - Hardware - - - Total Strategic 228.0 101.7 - 329.7 (10.4) 319.3 Legacy Voice - local service 134.0$ -$ -$ Entertainment - - - Data 139.9 - - Long distance and VoIP 35.9 - - Other 6.7 - - Managed & Professional Services - - - Hardware - - - Total Legacy 316.5 - - 316.5 (6.5) 310.0 Integration Voice - local service 5.1$ -$ -$ Entertainment 0.4 - - Data - - - Long distance and VoIP 1.7 - - Other 0.6 - - Managed & Professional Services - 4.8 - Hardware - 217.0 - Total Integration 7.8 221.8 - 229.6 (3.5) 226.1 Wireless - - 116.0 116.0 (1.5) 114.5 Total Revenue 552.3$ 323.5$ 116.0$ 991.8$ (21.9)$ 969.9$ Eliminations 12.0 8.4 1.5 21.9 540.3$ 315.1$ 114.5$ 969.9$ YTD Q3 2014
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Revenue MD&A YTD 2013 Strategic, Legacy and Integration ($ in millions) 25 Wireline IT S&H Wireless Total Eliminations Total Strategic Voice - local service 13.1$ -$ -$ Entertainment 39.0 - - Data 88.4 - - Long distance and VoIP 37.8 - - Other 5.1 - - Managed & Professional Services - 86.6 - Hardware - - - Total Strategic 183.4 86.6 - 270.0 (8.7) 261.3 Legacy Voice - local service 155.9$ -$ -$ Entertainment - - - Data 148.5 - - Long distance and VoIP 39.4 - - Other 5.6 - - Managed & Professional Services - - - Hardware - - - Total Legacy 349.4 - - 349.4 (9.0) 340.4 Integration Voice - local service 5.4$ -$ -$ Entertainment 0.4 - - Data - - - Long distance and VoIP 3.3 - - Other 0.8 - - Managed & Professional Services - 2.2 - Hardware - 169.2 - Total Integration 9.9 171.4 - 181.3 (2.1) 179.2 Wireless - - 154.1 154.1 (1.7) 152.4 Total Revenue 542.7$ 258.0$ 154.1$ 954.8$ (21.5)$ 933.3$ Eliminations 12.8 7.0 1.7 21.5 529.9$ 251.0$ 152.4$ 933.3$ YTD Q3 2013
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