UNITED STATES

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2002

 

OR

 

o 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

 

BROADWING INC.

 

Incorporated under the laws of the State of Ohio

 

201 East Fourth Street, Cincinnati, Ohio 45202

 

I.R.S. Employer Identification Number 31-1056105

 

Telephone - Area Code 513 397-9900

 

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 ý   No o

 

At April 30, 2002, there were 218,826,599 common shares outstanding.

 

 



 

TABLE OF CONTENTS

 

PART I.  Financial Information

 

Description

 

 

 

Item 1.

Financial Statements

 

 

 

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited)
Three Months Ended March 31, 2002 and 2001

 

 

 

Condensed Consolidated Balance Sheets
March 31, 2002 (Unaudited) and December 31, 2001

 

 

 

Condensed Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended March 31, 2002 and 2001

 

 

 

Notes to Condensed Consolidated Financial Statements

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition And Results of Operations

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

 

PART II.  Other Information

 

 

Description

 

 

 

Item 1.

Legal Proceedings

 

 

Item 2.

Changes in Securities and Use of Proceeds

 

 

Item 3.

Defaults Upon Senior Securities

 

 

Item 4.

Submission of Matters to a Vote of Security Holders

 

 

Item 5.

Other Information

 

 

Item 6.

Exhibits and Reports on Form 8-K

 

 

 

Signature

 



 

Form 10-Q Part I

 

Broadwing Inc.

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

($ in Millions, Except Per Common Share Amounts)

(Unaudited)

 

 

 

Three Months
Ended March 31,

 

 

 

 

 

 

2002

 

2001

 

Revenue

 

 

 

 

 

Broadband

 

$

269.0

 

$

298.5

 

Local

 

209.7

 

205.0

 

Wireless

 

62.0

 

57.1

 

Other

 

19.5

 

18.0

 

Intersegment

 

(22.8

)

(19.8

)

Total revenue

 

537.4

 

558.8

 

Costs and Expenses

 

 

 

 

 

Cost of services and products (excluding depreciation of $94.2 and $89.0 included below)

 

264.6

 

272.4

 

Selling, general and administrative

 

125.8

 

142.2

 

Depreciation

 

115.3

 

99.2

 

Amortization

 

6.3

 

28.5

 

Restructuring

 

16.5

 

9.1

 

Total costs and expenses

 

528.5

 

551.4

 

Operating Income

 

8.9

 

7.4

 

Minority interest expense

 

14.2

 

12.7

 

Equity loss in unconsolidated entities

 

 

3.3

 

Interest expense

 

38.3

 

42.4

 

Gain on sale of investments

 

(0.6

)

(2.8

)

Other expense (income), net

 

(0.6

)

0.8

 

Loss from continuing operations before income taxes

 

(42.4

)

(49.0

)

Income tax benefit

 

(8.9

)

(8.6

)

Loss from continuing operations

 

(33.5

)

(40.4

)

Income from discontinued operations, net of taxes of $119.8 and $3.5, respectively

 

217.8

 

6.4

 

Net Income (Loss)

 

184.3

 

(34.0

)

Dividends and accretion applicable to preferred stock

 

2.6

 

2.6

 

Net Income (Loss) Applicable to Common Shareowners

 

$

181.7

 

$

(36.6

)

 

 

 

 

 

 

Net Income (Loss)

 

$

184.3

 

$

(34.0

)

Other comprehensive income (loss), net of tax:

 

 

 

 

 

Unrealized gain on interest rate swaps

 

2.8

 

 

Unrealized loss on investments

 

 

(86.5

)

Unrealized gain on cash flow hedges

 

 

17.0

 

Total other comprehensive income (loss)

 

2.8

 

(69.5

)

Comprehensive Income (Loss)

 

$

187.1

 

$

(103.5

)

 

 

 

 

 

 

Basic and Diluted Income (Loss) Per Common Share

 

 

 

 

 

Loss from continuing operations applicable to common shareowners

 

$

(0.17

)

$

(0.20

)

Income from discontinued operations, net of taxes

 

1.00

 

0.03

 

Net Income (Loss)

 

$

0.83

 

$

(0.17

)

 

 

 

 

 

 

Weighted Average Common Shares Outstanding (millions)

 

 

 

 

 

Basic and Diluted

 

218.2

 

216.4

 

 

The accompanying notes are an integral part of the financial statements.

 

1



 

CONDENSED CONSOLIDATED BALANCE SHEETS

($ in Millions, Except Per Share Amounts)

 

 

 

(Unaudited)
March 31,
2002

 


December 31,
2001

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

Current assets

 

 

 

 

 

Cash and cash equivalents

 

$

24.9

 

$

30.0

 

Short-term investments

 

 

22.7

 

Receivables, net of allowances of $37.0 and $36.4

 

314.5

 

310.9

 

Materials and supplies

 

40.4

 

39.7

 

Deferred income tax benefits

 

17.2

 

16.7

 

Prepaid expenses and other current assets

 

25.9

 

30.0

 

Assets of discontinued operations

 

 

21.4

 

Total current assets

 

422.9

 

471.4

 

 

 

 

 

 

 

Property, plant and equipment, net of accumulated depreciation of $2,179.7 and $2,080.4

 

2,993.8

 

3,059.3

 

Goodwill

 

2,052.7

 

2,048.6

 

Other intangibles, net

 

383.7

 

396.3

 

Investments in other entities

 

19.8

 

16.3

 

Deferred income tax benefits

 

122.4

 

227.9

 

Other noncurrent assets

 

100.4

 

92.2

 

Total assets

 

$

6,095.7

 

$

6,312.0

 

 

 

 

 

 

 

Liabilities and Shareowners’ Equity

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

Short-term debt

 

$

36.2

 

$

150.0

 

Accounts payable

 

138.5

 

189.9

 

Current portion of unearned revenue and customer deposits

 

178.0

 

178.3

 

Accrued taxes

 

110.8

 

110.9

 

Other current liabilities

 

244.8

 

281.2

 

Liabilities of discontinued operations

 

 

11.9

 

Total current liabilities

 

708.3

 

922.2

 

 

 

 

 

 

 

Long-term debt, less current portion

 

2,538.0

 

2,702.0

 

Unearned revenue, less current portion

 

391.9

 

415.9

 

Other noncurrent liabilities

 

153.6

 

157.8

 

 

 

 

 

 

 

Total liabilities

 

3,791.8

 

4,197.9

 

 

 

 

 

 

 

Minority interest

 

437.6

 

435.7

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

Shareowners’ Equity

 

 

 

 

 

 6¾% Cumulative Convertible Preferred Stock, $.01 par value, 5,000,000 shares authorized, 3,105,000 depository shares issued and outstanding at March 31, 2002 and December 31, 2001

 

129.4

 

129.4

 

 

 

 

 

 

 

Common shares, $.01 par value; 480,000,000 shares authorized; 225,994,397 and 225,873,352 shares issued; 218,188,597 and 218,067,552 outstanding at March 31, 2002 and December 31, 2001

 

2.3

 

2.3

 

Additional paid-in capital

 

2,366.5

 

2,365.8

 

Accumulated deficit

 

(478.9

)

(663.3

)

Accumulated other comprehensive loss

 

(7.9

)

(10.7

)

Common shares in treasury, at cost: 7,805,800 shares at March 31, 2002 and December 31, 2001

 

(145.1

)

(145.1

)

 

 

 

 

 

 

Total shareowners’ equity

 

1,866.3

 

1,678.4

 

 

 

 

 

 

 

Total liabilities and shareowners’ equity

 

$

6,095.7

 

$

6,312.0

 

 

The accompanying notes are an integral part of the financial statements.

 

2



 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

($ in Millions)

(Unaudited)

 

 

 

Three Months
Ended March 31,

 

 

 

 

 

 

2002

 

2001

 

Cash Flows from Operating Activities

 

 

 

 

 

Net income (loss)

 

$

184.3

 

$

(34.0

)

 

 

 

 

 

 

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

Gain from sale of discontinued operations

 

(328.3

)

 

Depreciation

 

115.3

 

99.2

 

Amortization

 

6.3

 

28.5

 

Provision for loss on receivables

 

14.9

 

32.2

 

Noncash interest expense

 

10.0

 

9.1

 

Minority interest expense

 

14.2

 

12.7

 

Equity loss in unconsolidated entities

 

 

3.3

 

Gain on sale of investments

 

(0.6

)

(2.8

)

Deferred income tax benefit

 

(1.9

)

(20.6

)

Tax benefits from employee stock option plans

 

0.7

 

15.7

 

Other, net

 

 

2.4

 

 

 

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

Increase in receivables

 

(18.8

)

(65.6

)

Decrease (increase) in prepaid expenses and other current assets

 

3.3

 

(1.0

)

(Decrease) increase in accounts payable

 

(51.4

)

0.6

 

Increase (decrease) in accrued and other current liabilities

 

74.0

 

(0.4

)

Decrease in unearned revenue

 

(30.4

)

(14.0

)

Decrease (increase) in other assets and liabilities, net

 

0.3

 

(10.4

)

Net cash provided by discontinued operations

 

(9.3

)

(9.9

)

Net cash provided by (used in) operating activities

 

(17.4

)

45.0

 

 

 

 

 

 

 

Cash Flows from Investing Activities

 

 

 

 

 

Capital expenditures

 

(52.7

)

(198.4

)

Proceeds from sale of investments

 

23.3

 

24.8

 

Proceeds from sale of discontinued operations

 

345.0

 

 

Purchases of investments

 

 

(0.3

)

Net cash provided by (used in) investing activities

 

315.6

 

(173.9

)

 

 

 

 

 

 

Cash Flows from Financing Activities

 

 

 

 

 

Issuance of long-term debt

 

52.0

 

91.0

 

Repayment of long-term debt

 

(336.2

)

(5.1

)

Short-term borrowings (repayments), net

 

(1.7

)

44.4

 

Debt issuance costs

 

(2.8

)

 

Issuance of common shares - exercise of stock options

 

0.4

 

9.9

 

Minority interest and preferred stock dividends paid

 

(15.0

)

(15.0

)

Net cash (used in) provided by financing activities

 

(303.3

)

125.2

 

Net decrease in cash and cash equivalents

 

(5.1

)

(3.7

)

Cash and cash equivalents at beginning of period

 

30.0

 

37.9

 

Cash and cash equivalents at end of period

 

$

24.9

 

$

34.2

 

 

The accompanying notes are an integral part of the financial statements.

 

3



 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

1.                                      Basis of Presentation and Accounting Policies

 

Basis of Presentation The Condensed Consolidated Financial Statements of Broadwing Inc. (the “Company”) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and, in the opinion of management, include all adjustments necessary for a fair presentation of the results of operations, financial position and cash flows for each period presented.

 

All adjustments are of a normal and recurring nature except for those outlined in Notes 2, 3 and 4 of the Notes to Condensed Consolidated Financial Statements.  Certain prior year amounts have been reclassified to conform to the current classifications with no effect on financial results.  Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to SEC rules and regulations.

 

The December 31, 2001 Condensed Consolidated Balance Sheet was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles.  It is suggested that these Condensed Consolidated Financial Statements be read in conjunction with the notes thereto included in the Company’s 2001 Annual Report on Form 10-K.

 

Use of Estimates — Preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported. Actual results could differ from those estimates.

 

Revenue Recognition — The Company modified its revenue recognition policies on January 1, 2000, to be in conformity with the SEC’s Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements” (“SAB 101”).  Accordingly, service activation revenue is deferred and recognized over the appropriate service life for the associated service.  Local, wireless and broadband transport service revenue is billed monthly, in advance, with revenue being recognized when earned.  Revenue from product sales is generally recognized upon performance of contractual obligations, such as shipment, delivery, installation or customer acceptance.

 

Indefeasible right-of-use agreements, or “IRUs”, represent the lease of network capacity or dark fiber and are recorded as unearned revenue at the earlier of the acceptance of the applicable portion of the network by the customer or the receipt of cash.  The buyer of IRU services typically pays cash upon execution of the contract, and the associated IRU revenue is then recognized over the life of the agreement as services are provided, beginning on the date of customer acceptance.  IRU and related maintenance revenue are included in the broadband transport category of the Broadband segment.

 

Construction revenue and estimated profits are recognized according to the percentage of completion method on a cost incurred to total costs estimated at completion basis.  The method is used as the Company can make reasonably dependable estimates of revenue and costs applicable to various stages of a contract.  As the financial reporting of these contracts depends on estimates that are continually assessed throughout the terms of the contracts, revenue recognized is subject to revision as the contract nears completion.  Revisions in estimates are reflected in the period in which the facts that give rise to the revision become known.  Construction projects are considered substantially complete upon customer acceptance.

 

4



 

Unbilled Receivables — Unbilled receivables arise from local, broadband and wireless services rendered but not yet billed in addition to network construction revenue that is recognized under the percentage-of-completion method.  Network construction receivables are billable upon achievement of contractual milestones or upon completion of contracts.  As of March 31, 2002 and December 31, 2001, unbilled receivables totaled $96 million and $95 million, respectively.  Unbilled receivables of $45 million at March 31, 2002 include both claims and signed change orders related to a construction contract expected to be collected within one year.  These unbilled amounts arose from customer requested specification and design changes in fiber routes as well as recoverable costs related to weather and permitting delays.  Management believes such amounts are valid and collectible receivables.

 

Fiber Exchange Agreements — In connection with the development of its optical network, the Company entered into various agreements to exchange fiber usage rights.  The Company accounts for agreements with other carriers to either exchange fiber asset service contracts for capacity or services by recognizing the fair value of the revenue earned and expense incurred.  Exchange agreements accounted for noncash revenue and expense, in equal amounts, of approximately $2.0 million and $3.6 million in the first quarter of 2002 and 2001, respectively.

 

Income Taxes — The income tax expense (or benefit) consists of an amount for taxes currently payable and an expense (or benefit) for tax consequences deferred to future periods.  To the extent the Company has recorded future tax benefits, in evaluating the amount of valuation allowance, the Company considers prior operating results, future taxable income projections, expiration of tax loss carryforwards and ongoing prudent and feasible tax planning strategies.

 

Pension and Postretirement Benefits Annually, the Company calculates net periodic pension and postretirement expenses and liabilities on an actuarial basis under the provisions of Statement of Financial Accounting Standards No. 87, “Employers’ Accounting for Pensions” and Statement of Financial Accounting Standards No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions”.  The key assumptions used in determining these calculations are disclosed in the Company’s 2001 Annual Report on Form 10-K.  The most significant of these numerous assumptions, which are reviewed annually, include the discount rate, expected long-term rate of return on plan assets and health care cost trend rates.  The discount rate is selected based on current market interest rates on high-quality, fixed-rate debt securities.  The expected long-term rate of return on plan assets is based on the participants benefit horizon, the mix of investments held directly by the plans and the current view of expected future returns, which is influenced by historical averages.  The health care cost trend rate is based on actual claims experience and future projections of medical cost trends.  A revision to these estimates would impact costs of services and products and selling, general and administrative expenses.

 

5



 

Recently Issued Accounting Standards In June 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 143, “Accounting for Asset Retirement Obligations” (“SFAS 143”).  This statement deals with the costs of closing facilities and removing assets.  SFAS 143 requires entities to record the fair value of a legal liability for an asset retirement obligation in the period it is incurred.  This cost is initially capitalized and amortized over the remaining life of the underlying asset.  Once the obligation is ultimately settled, any difference between the final cost and the recorded liability is recognized as a gain or loss on disposition.  SFAS 143 is effective for fiscal years beginning after June 15, 2002.  The Company is currently evaluating the impact, if any, that SFAS 143 will have on its future consolidated financial statements.

 

In May 2002, the FASB issued Statement of Financial Accounting Standards No. 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections” (“SFAS 145”).  SFAS 145 rescinds the automatic treatment of gains or losses from extinguishment of debt as extraordinary unless they meet the criteria for extraordinary items as outlined in APB Opinion No. 30, “Reporting the Results of Operations, Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions.”  In addition, SFAS 145 requires sale-leaseback accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions and makes various technical corrections to existing pronouncements.  SFAS 145 is effective for fiscal years beginning after May 15, 2002.  The Company is currently evaluating the impact, if any, that SFAS 145 will have on its future consolidated financial statements.

 

2.                                      Discontinued Operations

 

On March 8, 2002, the Company sold substantially all of the assets of its Cincinnati Bell Directory (“CBD”) subsidiary to a group of investors for $345 million in cash and a 2.5% equity stake in the newly formed entity.  CBD published Yellow Pages directories and sold directory advertising and informational services in Cincinnati Bell Telephone’s local service area.  The Company recorded a gain on the sale of $211.8 million, net of taxes, in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) under the caption “Income from discontinued operations, net of taxes.”

 

The Condensed Consolidated Financial Statements and the Company’s Other segment have been restated to reflect the disposition of CBD as a discontinued operation under Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”).  Accordingly, revenue, costs, expenses, assets, liabilities and cash flows of CBD have been reported as “Income from discontinued operations, net of tax,” “Assets of discontinued operations,” “Liabilities of discontinued operations,” “Net cash provided by discontinued operations,” or "Proceeds from sale of discontinued operations" for all periods presented.

 

6



 

Selected financial information for the discontinued operations is as follows:

 

 

 

Three Months
Ended March 31,

 

 

 

 

($ in millions)

 

2002

 

2001

 

 

 

 

 

 

 

Revenue

 

$

15.4

 

$

19.4

 

 

 

 

 

 

 

Income from discontinued operations

 

9.3

 

9.9

 

Gain on disposition of discontinued operations

 

328.3

 

 

Income tax expense (including $116.5 expense on disposition of discontinued operations)

 

119.8

 

3.5

 

Income from discontinued operations, net of tax

 

$

217.8

 

$

6.4

 

 

The effective tax rates of discontinued operations were 35.5% in all periods presented.

 

3.                                      Goodwill and Intangible Assets

 

On June 29, 2001 the FASB issued Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”).  SFAS 142 requires cessation of the amortization of goodwill and indefinite lived intangible assets and annual impairment testing of those assets.  Intangible assets that have finite useful lives will continue to be amortized.  The Company adopted SFAS 142 on January 1, 2002, as required.  In addition, the Company is required to test its goodwill for impairment as of January 1, 2002.  The goodwill test for impairment consists of a two-step process that begins with an estimation of the fair value of a reporting unit.  The first step is a screen for impairment and the second step measures the amount of impairment, if any.   SFAS 142 requires an entity to complete the first step of the transitional goodwill impairment test within six months of adopting the statement.  As of March 31, 2002, the Company had completed the first step of the goodwill impairment test, which indicated that goodwill was impaired as of January 1, 2002.  The Company is in the process of completing the second step and expects to record an impairment charge of between $1.2 billion and $1.8 billion in the second quarter of 2002.

 

7



 

The following table reconciles the Company’s fiscal 2001 first quarter net income, adjusted to exclude amortization of goodwill and indefinite lived intangible assets pursuant to SFAS 142, from amounts previously reported:

 

 

 

Three Months
Ended March 31,

 

 

 

 

($ in millions, except per common share amounts)

 

2002

 

2001

 

 

 

 

 

 

 

Reported net loss from continuing operations

 

$

(33.5

)

$

(40.4

)

Add back: Goodwill amortization, net of tax

 

 

18.2

 

Add back: Assembled workforce amortization, net of tax

 

 

1.3

 

Add back: FCC License amortization, net of tax

 

 

0.1

 

Adjusted net loss from continuing operations

 

$

(33.5

)

$

(20.8

)

 

 

 

 

 

 

Reported net income (loss)

 

$

184.3

 

$

(34.0

)

Add back: Goodwill amortization, net of tax

 

 

18.2

 

Add back: Assembled workforce amortization, net of tax

 

 

1.3

 

Add back: FCC License amortization, net of tax

 

 

0.1

 

Adjusted net income (loss)

 

$

184.3

 

$

(14.4

)

 

 

 

 

 

 

Basic and diluted income (loss) per common share from continuing operations

 

 

 

 

 

Reported net loss from continuing operations

 

$

(0.17

)

$

(0.20

)

Add back: Goodwill amortization

 

 

0.08

 

Add back: Assembled workforce amortization

 

 

0.01

 

Add back: FCC License amortization

 

 

 

Adjusted net loss from continuing operations

 

$

(0.17

)

$

(0.11

)

 

 

 

 

 

 

Basic and diluted income (loss) per common share

 

 

 

 

 

Reported net income (loss)

 

$

0.83

 

$

(0.17

)

Add back: Goodwill amortization

 

 

0.08

 

Add back: Assembled workforce amortization

 

 

0.01

 

Add back: FCC License amortization

 

 

 

Adjusted net income (loss)

 

$

0.83

 

$

(0.08

)

 

8



 

The following table shows the components of the carrying amount of intangible assets.  Indefinite-lived intangible assets relate primarily to FCC licenses.  Intangible assets subject to amortization expense relate primarily to customer relationships acquired in connection with the merger with IXC Communications in November 1999:

 

 

 

March 31,
2002

 

December 31,
2001

 

($ in millions)

 

 

 

 

 

 

 

 

 

Indefinite-lived intangible assets, excluding goodwill

 

$

36.7

 

$

36.4

 

 

 

 

 

 

 

Intangible assets subject to amortization

 

 

 

 

 

Gross carrying amount

 

416.9

 

440.6

 

Accumulated amortization

 

(69.9

)

(80.7

)

Net carrying amount

 

$

347.0

 

$

359.9

 

 

 

 

 

 

 

Total other intangible assets

 

$

383.7

 

$

396.3

 

 

 

 

 

Three Months
Ended March 31,

 

 

 

 

 

 

2002

 

2001

 

 

 

 

 

 

 

Amortization expense of finite-lived other intangible assets

 

$

6.3

 

$

9.8

 

 

The estimated intangible asset amortization expense for each of the fiscal years 2002 through 2006 is $25 million.

 

The following table presents a rollforward of the activity related to goodwill by segment:

 

 

 

March 31, 2002

 

December 31, 2001

 

($ in millions)

 

Broadband

 

Wireless

 

Other

 

Total

 

Broadband

 

Wireless

 

Other

 

Total

 

Goodwill balance

 

$

2,007.7

 

$

40.1

 

$

0.8

 

$

2,048.6

 

$

2,007.7

 

$

40.1

 

$

0.8

 

$

2,048.6

 

Reclassification of Assembled Workforce

 

4.1

 

 

 

4.1

 

 

 

 

 

Total

 

$

2,011.8

 

$

40.1

 

$

0.8

 

$

2,052.7

 

$

2,007.7

 

$

40.1

 

$

0.8

 

$

2,048.6

 

 

9



 

4.                                      Restructuring and Other Charges

 

November 2001 Restructuring Plan

 

In November 2001, the Company’s management approved restructuring plans which included initiatives to consolidate data centers, reduce the Company’s expense structure, exit the network construction business, eliminate other nonstrategic operations and merge the digital subscriber line (“DSL”) and certain dial-up Internet operations into the Company’s other operations.  Total restructuring and impairment costs of $232.3 million were recorded in 2001 related to these initiatives.  The $232.3 million consisted of restructuring liabilities in the amount of $84.2 million and related noncash asset impairments in the amount of $148.1 million.  The restructuring charge was comprised of $21.4 million related to involuntary employee separation benefits, $62.5 million related to lease and other contractual terminations and $0.3 million relating to other restructuring charges.

 

During the first quarter of 2002, the Company recorded additional restructuring charges of $16.5 million resulting from employee separation benefits and costs to terminate contractual obligations, which were actions contemplated in the original plan for which an amount could not be reasonably estimated at that time.  In total, the Company expects this restructuring plan to result in cash outlays of $95.7 million and noncash items of $153.1 million.  The Company expects to complete the plan by December 31, 2002, except for lease obligations, which are expected to continue through December 31, 2004.

 

The restructuring costs include the cost of involuntary employee separation benefits, including severance, medical and other benefits, related to 895 employees across all areas of the Company.  As of March 31, 2002, 794 employee separations had been completed which utilized reserves of $19.8 million, $15.9 million of which was cash.  Total cash expenditures in the first quarter of 2002 amounted to $36.5 million.

 

The following table illustrates the activity in this reserve since December 31, 2001:

 

 

 

Balance
December 31,
2001

 

Utilizations

 

Adjustments

 

Balance
March 31,
2002

 

 

 

 

 

 

 

Type of costs ($ in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee separations

 

$

13.6

 

$

(12.0

)

$

1.0

 

$

2.6

 

Terminate contractual obligations

 

60.1

 

(25.4

)

15.4

 

50.1

 

Other exit costs

 

0.3

 

(0.1

)

0.1

 

0.3

 

Total

 

$

74.0

 

$

(37.5

)

$

16.5

 

$

53.0

 

 

10



 

February 2001 Restructuring Plan

 

In February 2001, the Company initiated a reorganization of the activities of several of its Cincinnati-based subsidiaries, including Cincinnati Bell Telephone (“CBT”), Cincinnati Bell Any Distance (“CBAD”), Cincinnati Bell Wireless LLC (“CBW”), and Cincinnati Bell Public Communications (“Public”) in order to create one centralized “Cincinnati Bell” presence for its customers.  Total restructuring costs of $9.4 million were recorded in the first quarter and consisted of $2.5 million related to lease terminations and $6.9 million related to involuntary employee separation benefits (including severance, medical insurance and other benefits) for 114 employees.  Of the total charge, $0.4 million in contractual terminations were related to CBD, which is presented as a discontinued operation.  The severance payments are expected to be substantially complete by June 30, 2002.  The lease terminations are expected to be complete by December 31, 2004.  In total, the Company expects this restructuring plan to result in cash outlays of $8.5 million and non-cash items of $0.9 million.  Total cash expenditures in the first quarter of 2002 amounted to $0.1 million.

 

The following table illustrates the activity in this reserve since December 31, 2001:

 

 

 

Balance
December 31,
2001

 

Utilizations

 

Adjustments

 

Balance
March 31,
2002

 

 

 

 

 

 

 

Type of costs ($ in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee separations

 

$

0.7

 

$

(0.1

)

$

 

$

0.6

 

Terminate contractual obligations

 

2.2

 

 

 

2.2

 

Total

 

$

2.9

 

$

(0.1

)

$

 

$

2.8

 

 

1999 Restructuring Plan

 

In December 1999, the Company’s management approved restructuring plans, which included initiatives to integrate operations of the Company and Broadwing Communications, improve service delivery, and reduce the Company’s expense structure.  Total restructuring costs and impairments of $18.6 million were recorded in 1999 related to these initiatives.  The $18.6 million consisted of $7.7 million relating to Broadwing Communications (recorded as a component of the purchase price allocation) and $10.9 million relating to the Company (recorded as a cost of operations).  The $10.9 million relating to the Company consisted of restructuring and other liabilities in the amount of $9.5 million and related asset impairments in the amount of $1.4 million.

 

The restructuring costs accrued in 1999 included the costs of involuntary employee separation benefits related to 347 employees (263 Broadwing Communications employees and 84 employees from other subsidiaries of the Company).  As of March 31, 2001, all employee separations had been completed for a total cash expenditure of $9.1 million.  Employee separation benefits include severance, medical and other benefits, and primarily affect customer support, infrastructure, and the Company’s long-distance operations.  The restructuring plans also included costs associated with the closure of a variety of technical and customer support facilities, the decommissioning of certain switching equipment, and the termination of contracts with vendors.

 

11



 

The following table illustrates activity in this reserve since December 31, 2001:

 

 

 

Balance
December 31,
2001

 

Utilizations

 

Adjustments

 

Balance
March 31,
2002

 

 

 

 

 

 

 

Type of costs ($ in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Facility closure costs

 

$

1.3

 

$

(0.3

)

$

 

$

1.0

 

 

Total cash expenditures during the first quarter of 2002 amounted to $0.3 million.  Management believes that the remaining balance of $1.0 million at March 31, 2002 is adequate to complete the 1999 restructuring plan and that substantially all of the related actions will be completed by June 30, 2002.

 

5.             Debt

 

The Company’s debt consists of the following:

 

($ in millions)

 

March 31, 2002

 

December 31, 2001

 

 

 

 

 

 

 

Short-term debt:

 

 

 

 

 

Capital lease obligations

 

$

11.3

 

$

11.2

 

Bank notes, current portion

 

4.9

 

118.8

 

Current maturities of long-term debt

 

20.0

 

20.0

 

Total short-term debt

 

$

36.2

 

$

150.0

 

 

 

 

 

 

 

Long-term debt:

 

 

 

 

 

Bank notes, less current portion

 

$

1,657.9

 

$

1,828.2

 

9.0% Senior subordinated notes

 

46.0

 

46.0

 

6¾% Convertible subordinated debentures

 

478.4

 

470.5

 

Various Cincinnati Bell Telephone notes, less current portion

 

269.5

 

269.5

 

7¼% Senior secured notes

 

49.5

 

49.5

 

Capital lease obligations, less current portion

 

35.9

 

37.5

 

Other

 

0.8

 

0.8

 

 

 

 

 

 

 

Total long-term debt

 

$

2,538.0

 

$

2,702.0

 

 

Bank Notes

 

In November 1999, the Company obtained a $1.8 billion credit facility from a group of lending institutions.  This credit facility was increased to $2.1 billion in January 2000 and subsequently increased to $2.3 billion in June 2001.  Total availability under this credit facility decreased to $1.93 billion in the first quarter of 2002 following a $335 million prepayment of the outstanding term debt facilities (resulting from the sale of substantially all of the assets of CBD) and $35 million in scheduled amortization of the credit facility.  This credit facility now consists of $866 million in revolving credit, maturing in various amounts between 2002 and 2004, and $571 million in term loans from banking institutions and $493 million from non-banking institutions, maturing in various amounts between 2002 and 2007.

 

12



 

At March 31, 2002, the Company had drawn approximately $1.663 billion from the remaining credit facility capacity of $1.93 billion, and had outstanding letters of credit totaling $4 million, leaving $263 million in additional borrowing capacity under this facility.  These borrowings have been used by the Company to refinance its existing debt and debt assumed as part of the merger with IXC Communications Inc. (“IXC”) in November 1999 and to fund its capital expenditure program and other working capital needs.  The amount refinanced included approximately $404 million borrowed in order to redeem the outstanding 9% Senior Subordinated Notes assumed during the merger as part of a tender offer.  This tender offer was required under the terms of the bond indenture due to the change in control provision.

 

The facility’s financial covenants require that the Company maintain certain debt to EBITDA, senior secured debt to EBITDA, debt to capitalization, and interest coverage ratios.  The facility also contains covenants, which, among other things, restrict the Company’s ability to incur additional debt or liens; pay dividends; repurchase Company common stock; sell, lease, transfer or dispose of assets; make investments; and merge with another company.  In December 2001, the Company obtained an amendment to its credit facility to exclude substantially all of the charges associated with the November 2001 Restructuring Plan (described in Note 4) from the covenant calculations.  In March 2002, the Company obtained an additional amendment to allow for the sale of substantially all of the assets of CBD, exclude charges related to SFAS 142, increase its ability to incur additional indebtedness and amend certain defined terms.

 

The interest rates that could be charged on borrowings from this credit facility as of March 31, 2002 ranged from 100 to 275 basis points above the London Interbank Offering Rate (“LIBOR”) and were at 225 to 275 basis points above LIBOR, or 5.58% to 6.08%, respectively based on the Company’s credit rating.  The Company will incur commitment fees in association with this credit facility ranging from 37.5 basis points to 75 basis points, applied to the unused amount of borrowings of the facility.

 

9% Senior Subordinated Notes

 

In 1998, the former IXC (now Broadwing Communications) issued $450 million of 9% senior subordinated notes due 2008 (“the 9% notes”).  The 9% notes are general unsecured obligations and are subordinate in right of payment to all existing and future senior indebtedness of the Company’s subsidiaries.  The 9% notes indenture includes a limitation on the amount of indebtedness that Broadwing Communications can incur based upon the maintenance of either debt to operating cash flow or debt to capital ratios.  The 9% indenture also provides that if Broadwing Communications incurs any additional indebtedness secured by liens on its property or assets that are subordinate to or equal in right of payment with the 9% notes, then Broadwing Communications must secure the outstanding 9% notes equally and ratably with such indebtedness.  As of March 31, 2002, Broadwing Communications had the ability to incur additional debt.

 

In January 2000, $404 million of these 9% notes were redeemed through a tender offer as a result of the change of control provision of the related indenture.  Accordingly, $46 million of the 9% notes remain outstanding at March 31, 2002.

 

13



 

6¾% Convertible Notes

 

In July 1999, the Company issued $400 million of 10-year, convertible subordinated debentures to Oak Hill Capital Partners, L.P.  These notes are convertible into common stock of the Company at a price of $29.89 per common share at the option of the holder.  For as long as this debt is outstanding, these notes bear a coupon rate of 6¾% per annum, with the associated interest expense being added to the debt principal amount through June 2004.  Interest payments for the remaining five years will then be paid in cash. Through March 31, 2002 and since inception, the Company has recorded $78.4 million in cumulative, noncash interest expense and has adjusted the carrying amount of the debt accordingly.  The Company incurred $7.9 million of noncash interest expense related to these notes in the first quarter of 2002.

 

Cincinnati Bell Telephone Notes

 

CBT has $290 million in corporate bonds outstanding that are guaranteed by its parent company, Broadwing Inc.  Of this amount, $269.5 million ($270 million face amount, net of unamortized discount of $0.5 million) was considered long-term indebtedness.  These bonds, which are not guaranteed by other subsidiaries of Broadwing Inc., have original maturities of 30 to 40 years mature at various intervals between 2002 and 2028.  The bonds were issued at various dates between 1962 and 1998.  Interest rates on this indebtedness range from 4.375% to 7.27%.  These bonds also contain a covenant that provides that if CBT incurs certain liens on its property or assets, CBT must secure the outstanding bonds equally and ratably with the indebtedness or obligations secured by such liens.

 

7¼% Senior Secured Notes

 

In 1993, the Company issued $50 million of 7¼% senior secured notes due 2023 (the “7¼% notes”).  The indenture related to these 7¼% notes does not subject the Company to restrictive financial covenants.  However, the 7¼% notes do contain a covenant that provides that if the Company incurs certain liens on its property or assets, the Company must secure the outstanding bonds equally and ratably with the indebtedness or obligations secured by such liens.  As of March 31, 2002, $49.5 million ($50 million face amount, net of unamortized discount of $0.5 million) of the 7¼% notes remain outstanding.

 

Capital Lease Obligations

 

The Company leases facilities and equipment used in its operations, some of which are required to be capitalized in accordance with Statement of Financial Accounting Standard No. 13, “Accounting for Leases” (“SFAS 13”).  SFAS 13 requires the capitalization of leases meeting certain criteria, with the related asset being recorded in property, plant and equipment and an offsetting amount recorded as a liability.  The Company had $47.2 million in total indebtedness relating to capitalized leases as of March 31, 2002, $35.9 million of which was considered long-term.

 

Other

 

As of March 31, 2002, Broadwing Communications had outstanding $0.8 million of 12½% senior notes maturing in 2005 with an original indebtedness of $285.0 million.  These notes were largely eliminated through a tender offer in 1998.

 

14



 

6.             Financial Instruments

 

The Company adopted SFAS 133 on January 1, 2001.  SFAS 133 requires that all derivative instruments be recognized on the balance sheet at fair value.  Fair values are determined based on quoted market prices of comparable instruments, if available, or on pricing models using current assumptions.  On the date the financial instrument is entered into, the Company designates it as either a fair value or cash flow hedge.

 

Upon adoption of SFAS 133 on January 1, 2001, offsetting transition adjustments related to the PSINet forward sale and the underlying six million shares of PSINet were reclassified from other comprehensive income to net income.  Accordingly, there was no net cumulative effect adjustment to either net income or other comprehensive income related to these items.

 

As of March 31, 2002, the Company’s derivative contracts have been determined to be highly effective cash flow hedges.  In accordance with SFAS 133, unrealized gains and losses of highly effective cash flow hedges are recorded in other comprehensive income until the underlying transaction is executed.

 

Interest Rate Contracts

 

From time to time the Company enters into interest rate swap agreements with the intent of managing its exposure to interest rate risk.  Interest rate swap agreements are contractual agreements between two parties for the exchange of interest payment streams on a notional principal amount and an agreed upon fixed or floating rate, for a defined time period.  These agreements are hedges against debt obligations related to the Company’s credit facility.  Realized gains and losses from the interest rate swaps are recognized as an adjustment to interest expense each period.  The interest rate swap agreements currently in place expire during 2002 and 2003.  At March 31, 2002, the interest rate swaps on notional amounts of $490 million were a liability with a fair value of $7.1 million, resulting in inception-to-date, after-tax net losses in other comprehensive (loss) income ("OCI") of $4.6 million.  During the first quarter of 2002, the fair value of the interest rate swaps increased to a liability of $7.1 million from a liability of $11.5 million, resulting in a year-to-date, after-tax net gain in OCI of $2.8 million.

 

15



 

7.             Earnings (Loss) Per Common Share from Continuing Operations

 

Basic earnings (loss) per common share from continuing operations (“EPS”) is based upon the weighted average number of common shares outstanding during the period. Diluted EPS reflects the potential dilution that would occur if common stock equivalents were exercised, but only to the extent that they are considered dilutive to the Company’s earnings. The following table is a reconciliation of the numerators and denominators of the basic and diluted EPS computations for earnings (loss) from continuing operations for the following periods:

 

($ and shares in millions, except per common share amounts)

 

Year Ended March 31

 

 

2002

 

2001

 

 

 

 

 

 

 

Numerator:

 

 

 

 

 

Loss from continuing operations

 

$

(33.5

)

$

(40.4

)

Preferred stock dividends and accretion

 

2.6

 

2.6

 

Numerator for EPS and EPS assuming dilution — loss applicable to common shareowners

 

$

(36.1

)

$

(43.0

)

 

 

 

 

 

 

Denominator:

 

 

 

 

 

Denominator for basic EPS — weighted average common shares outstanding

 

218.2

 

216.4

 

Potential dilution:

 

 

 

 

 

Stock options

 

 

 

Stock-based compensation arrangements

 

 

 

Denominator for diluted EPS per common share

 

218.2

 

216.4

 

 

 

 

 

 

 

Basic and Diluted EPS from continuing operations

 

$

(0.17

)

$

(0.20

)

 

Because the effect of their inclusion in the EPS calculation would be anti-dilutive, approximately 0.9 million additional shares related to vested “in-the-money” stock options and restricted stock are not included in the denominator of the EPS calculation.  The total number of potential additional shares outstanding related to stock options, restricted stock and the assumed conversion of the Company’s 6¾% convertible preferred stock and 6¾% convertible subordinated debentures was approximately 55 million and 50 million at March 31, 2002 and 2001, respectively, if all stock options currently outstanding were exercised, restrictions on restricted stock were to lapse and all convertible securities were to convert.

 

16



 

8.             Minority Interest

 

 

 

March 31,
2002

 

December 31,
2001

 

($ in millions)

 

 

 

 

 

 

 

 

 

Minority interest consists of:

 

 

 

 

 

 

 

 

 

 

 

12½% Exchangeable Preferred Stock

 

$

417.1

 

$

417.8

 

Minority Interest in Cincinnati Bell Wireless held by AT&T Wireless Services Inc. (“AWS”)

 

18.2

 

15.5

 

Other

 

2.3

 

2.4

 

Total

 

$

437.6

 

$

435.7

 

 

As of March 31, 2002, Broadwing Communications had approximately 395,000 shares of 12½% Junior Exchangeable Preferred Stock (“12½% Preferreds”) that were carried on the Company’s balance sheet at $417.1 million.  The 12½% Preferreds are mandatorily redeemable on August 15, 2009 at a price equal to their liquidation preference of $1,000 a share, plus accrued and unpaid dividends.  Through November 15, 1999, dividends on the 12½% Preferreds were being effected through additional shares of the 12½% Preferreds.  On November 16, 1999, the Company converted to a cash pay option for these dividends.  Dividends on the 12½% Preferreds are classified as “Minority interest expense” in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).  The 12½% Preferreds are being accreted from their fair market value to the redemption value.  As such, the accretion of the difference between the new carrying value and the mandatory redemption value is treated as an offsetting reduction to minority interest expense over the remaining life of the preferred stock.

 

AWS maintains a 19.9% ownership in the Company’s Cincinnati Bell Wireless LLC (“CBW”) subsidiary.  The balance is adjusted as a function of AWS’s 19.9% share of the operating income (or loss) of CBW, with an offsetting amount being reflected in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) under the caption “Minority interest expense.”

 

9.             Business Segment Information

 

The Company is organized on the basis of products and services. The Company’s segments are strategic business units that offer distinct products and services and are aligned with specific subsidiaries of the Company.  The Company operates in the four business segments.

 

The Company completed the realignment of its business segments during the first quarter of 2002, as described in the Company’s 2001 Annual Report on Form 10-K.  The Company’s web hosting operations provided by the Company's ZoomTown.com ("ZoomTown") subsidiary, previously reported in the Other segment, were merged into the Company's Broadwing Communications Inc. subsidiary and are now reported in the Broadband segment.  ZoomTown’s DSL and dial-up Internet operations, also previously reported in the Other segment, were merged into CBT and are now reported in the Local segment.  In addition, during the first quarter of 2002, the Company sold substantially all of the assets of CBD, which was previously reported in the Other segment.  Accordingly, the historical results of operations of the Broadband, Local, and Other segments have been recast to reflect the transfer and disposition of these operations.

 

The Broadband segment provides data and voice communication services nationwide. These services are provided over approximately 18,700 route miles of fiber-optic transmission facilities.  Broadband segment revenue is generated by broadband transport through private line and indefeasible right of use

 

17



 

(“IRU”) agreements, Internet services utilizing technology based on Internet protocol (“IP”), and switched voice services provided to both wholesale and retail customers.  The Broadband segment also offers data collocation, web hosting, information technology consulting (“IT consulting”), network construction and other services.  These services are offered nationally through Broadwing Communications.  As further discussed in Note 4, the Company announced its intention to exit the network construction business as part of the November 2001 restructuring.  As of January 1, 2002 the web hosting operations of ZoomTown, formerly reported in the Other segment, were merged with the operations of Broadwing Communications and are now reflected in the Broadband segment the current and prior periods.

 

The Local segment provides local telephone service, network access, DSL and dial-up Internet access, data transport services and switched long-distance, as well as other ancillary products and services to customers in southwestern Ohio, northern Kentucky and southeastern Indiana.  This market consists of approximately 2,400 square miles located within an approximately 25-mile radius of Cincinnati, Ohio.  Services are provided through the Company’s Cincinnati Bell Telephone (“CBT”) subsidiary.  As of January 1, 2002, the DSL and dial-up Internet operations of ZoomTown, formerly reported in the Other segment, were merged with the operations of CBT and are reflected in the Local segment in current and prior periods.

 

The Wireless segment includes the operations of the CBW subsidiary; a venture in which the Company owns 80.1% and AWS owns the remaining 19.9%.  This segment provides advanced digital personal communications and sales of related communications equipment to customers in the Greater Cincinnati and Dayton, Ohio operating areas.

 

The Other segment combines the operations of Cincinnati Bell Any Distance (“CBAD”) and Cincinnati Bell Public Communications Inc. (“Public”).  CBAD resells voice long-distance service and Public provides public payphone services.  During the first quarter of 2002, the Company sold substantially all of the assets of CBD, which was previously reported in the Other segment.  Accordingly, the results of operations are no longer reflected in this segment for the current and prior periods.

 

The Company evaluates performance of its business segments based on EBITDA.  EBITDA represents net income (loss) from continuing operations before interest, income tax expense (benefit), depreciation, amortization, restructuring and other charges (credits), minority interest expense (income), equity loss in unconsolidated entities, loss (gain) on investments, other expense (income), extraordinary items and the effect of changes in accounting principles.  EBITDA does not represent cash flow for the periods presented and should not be considered as an alternative to net income (loss) as an indicator of the Company’s operating performance or as an alternative to cash flows as a source of liquidity, and may not be comparable with EBITDA as defined by other companies.  The Company has presented certain information regarding EBITDA because the Company believes that EBITDA is generally accepted as providing useful information regarding a company’s ability to service and incur debt.

 

18



 

Certain corporate administrative expenses have been allocated to segments based upon the nature of the expense and the relative size of the segment.  The Company’s business segment information is as follows:

 

 

 

(Unaudited)

 

 

 

Three Months Ended March 31,

 

($ in millions)

 

2002

 

2001

 

 

 

 

 

 

 

Revenue

 

 

 

 

 

Broadband

 

$

269.0

 

$

298.5

 

Local

 

209.7

 

205.0

 

Wireless

 

62.0

 

57.1

 

Other

 

19.5

 

18.0

 

Intersegment

 

(22.8

)

(19.8

)

Total Revenue

 

$

537.4

 

$

558.8

 

 

 

 

 

 

 

Intersegment Revenue

 

 

 

 

 

Broadband

 

$

15.7

 

$

11.8

 

Local

 

7.0

 

7.6

 

Wireless

 

0.1

 

0.3

 

Other

 

 

0.1

 

Total Intersegment Revenue

 

$

22.8

 

$

19.8

 

 

 

 

 

 

 

EBITDA

 

 

 

 

 

Broadband

 

$

19.5

 

$

31.2

 

Local

 

106.2

 

103.5

 

Wireless

 

23.2

 

14.7

 

Other

 

(0.1

)

(0.1

)

Corporate

 

(1.8

)

(5.1

)

Total EBITDA

 

$

147.0

 

$

144.2

 

 

 

 

 

 

 

Assets (at March 31, 2002 and December 31, 2001)

 

 

 

 

 

Broadband

 

$

4,918.2

 

$

4,977.8

 

Local

 

783.4

 

790.8

 

Wireless

 

375.6

 

382.8

 

Other

 

18.7

 

16.1

 

Corporate and Eliminations

 

(0.2

)

144.5

 

Total Assets

 

$

6,095.7

 

$

6,312.0

 

 

 

 

 

 

 

Capital Additions

 

 

 

 

 

Broadband

 

$

26.8

 

$

155.6

 

Local

 

17.9

 

32.4

 

Wireless

 

7.7

 

9.7

 

Other

 

0.2

 

0.5

 

Corporate and Eliminations

 

0.1

 

0.2

 

Total Capital Additions

 

$

52.7

 

$

198.4

 

 

 

 

 

 

 

Depreciation and Amortization

 

 

 

 

 

Broadband

 

$

77.8

 

$

87.8

 

Local

 

35.8

 

33.5

 

Wireless

 

7.5

 

5.9

 

Other

 

0.4

 

0.4

 

Corporate and Eliminations

 

0.1

 

0.1

 

Total Depreciation and Amortization

 

$

121.6

 

$

127.7

 

 

 

19



 

10.          Supplemental Guarantor Information

 

CBT, a wholly owned subsidiary of the Parent Company, has registered debt outstanding that is guaranteed by the Parent Company but not by other subsidiaries of the Parent Company.  Substantially all of the Parent Company’s income and cash flow is generated by its subsidiaries.  Generally, funds necessary to meet the Parent Company’s debt service obligations are provided by distributions or advances from its subsidiaries.

 

The following information sets forth the condensed consolidating balance sheets of the Company as of March 31, 2002 and December 31, 2001 and the condensed consolidating statements of operations (loss) and cash flows for the periods ended March 31, 2002 and 2001.

 

Condensed Consolidating Statements of Operations (Loss)

($ in millions)

 

 

 

For the quarter ended March 31, 2002

 

 

 

Parent
(Guarantor)

 

CBT

 

Other
(Non-guarantors)

 

Discontinued
Operations and
Eliminations

 

Total

 

Revenue

 

$

 

$

209.7

 

$

350.5

 

$

(22.8

)

$

537.4

 

Operating costs and expenses

 

2.2

 

139.7

 

409.6

 

(23.0

)

528.5

 

Operating income

 

(2.2

)

70.0

 

(59.1

)

0.2

 

8.9

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity in earnings (loss) of subsidiaries and discontinued operations

 

208.7

 

 

 

(208.7

)

 

Interest expense

 

32.9

 

5.8

 

17.4

 

(17.8

)

38.3

 

Other expense (income), net

 

(5.6

)

(0.6

)

1.4

 

17.8

 

13.0

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations before income taxes

 

179.2

 

64.8

 

(77.9

)

(208.5

)

(42.4

)

Income tax provision (benefit)

 

(5.1

)

23.0

 

(26.8

)

 

(8.9

)

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations

 

184.3

 

41.8

 

(51.1

)

(208.5

)

(33.5

)

Income from discontinued operations, net

 

 

 

 

217.8

 

217.8

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

184.3

 

$

41.8

 

$

(51.1

)

$

9.3

 

$

184.3

 

 

 

 

For the quarter ended March 31, 2001

 

 

 

Parent
(Guarantor)

 

CBT

 

Other
(Non-guarantors)

 

Discontinued
Operations and
Eliminations

 

Total

 

Revenue

 

$

 

$

205.0

 

$

373.6

 

$

(19.8

)

$

558.8

 

Operating costs and expenses

 

7.8

 

141.7

 

422.3

 

(20.4

)

551.4

 

Operating income

 

(7.8

)

63.3

 

(48.7

)

0.6

 

7.4

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity in earnings (loss) of subsidiaries and discontinued operations

 

(11.0

)

 

 

11.0

 

 

Interest expense

 

44.3

 

5.9

 

24.3

 

(32.1

)

42.4

 

Other expense (income), net

 

(19.8

)

0.5

 

1.2

 

32.1

 

14.0

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations before income taxes

 

(43.3

)

56.9

 

(74.2

)

11.6

 

(49.0

)

Income tax provision (benefit)

 

(9.3

)

20.3

 

(19.6

)

 

(8.6

)

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations

 

(34.0

)

36.6

 

(54.6

)

11.6

 

(40.4

)

Income from discontinued operations, net

 

 

 

 

6.4

 

6.4

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(34.0

)

$

36.6

 

$

(54.6

)

$

18.0

 

$

(34.0

)

 

20



 

Condensed Consolidating Balance Sheets

($ in millions)

 

 

 

March 31, 2002

 

 

 

Parent
(Guarantor)

 

CBT

 

Other
(Non-guarantors)

 

Discontinued
Operations and
Eliminations

 

Total

 

Cash and cash equivalents

 

$

14.3

 

$

 

$

10.6

 

$

 

$

24.9

 

Receivables, net

 

0.4

 

90.6

 

223.5

 

 

314.5

 

Other current assets

 

8.2

 

48.5

 

24.5

 

2.3

 

83.5

 

Intercompany receivables — current

 

 

26.3

 

 

(26.3

)

 

Assets of discontinued operations

 

 

 

 

 

 

 

Total current assets

 

22.9

 

165.4

 

258.6

 

(24.0

)

422.9

 

Property, plant and equipment, net

 

2.0

 

603.9

 

2,387.9

 

 

2,993.8

 

Goodwill and other intangibles, net

 

1.0

 

 

2,435.4

 

 

2,436.4

 

Investments in subsidiaries and other entities

 

2,217.2

 

 

18.8

 

(2,216.2

)

19.8

 

Other noncurrent assets

 

118.1

 

14.1

 

243.8

 

(153.2

)

222.8

 

Intercompany receivables — noncurrent

 

1,825.7

 

 

 

(1,825.7

)

 

Total assets

 

$

4,186.9

 

$

783.4

 

$

5,344.5

 

$

(4,219.1

)

$

6,095.7

 

 

 

 

 

 

 

 

 

 

 

 

 

Short-term debt

 

$

4.9

 

$

28.1

 

$

3.2

 

$

 

$

36.2

 

Accounts payable

 

1.9

 

48.7

 

87.9

 

 

138.5

 

Other current liabilities

 

134.3

 

86.6

 

397.5

 

(84.8

)

533.6

 

Intercompany payables — current

 

 

 

 

 

 

Liabilities of discontinued operations

 

 

 

 

 

 

Total current liabilities

 

141.1

 

163.4

 

488.6

 

(84.8

)

708.3

 

Long-term debt, less current portion

 

2,091.9

 

303.1

 

143.0

 

 

2,538.0

 

Other noncurrent liabilities

 

87.6

 

60.2

 

462.2

 

(64.5

)

545.5

 

Intercompany payables — noncurrent

 

 

 

1,853.8

 

(1,853.8

)

 

Total liabilities

 

2,320.6

 

526.7

 

2,947.6

 

(2,003.1

)

3,791.8

 

Minority interest

 

 

 

20.5

 

417.1

 

437.6

 

Mezzanine financing

 

 

 

417.1

 

(417.1

)

 

Shareowners’ equity

 

1,866.3

 

256.7

 

1,959.3

 

(2,216.0

)

1,866.3

 

Total liabilities and shareowners’ equity

 

$

4,186.9

 

$

783.4

 

$

5,344.5

 

$

(4,219.1

)

$

6,095.7

 

 

 

 

December 31, 2001

 

 

 

Parent
(Guarantor)

 

CBT

 

Other
(Non-guarantors)

 

Discontinued
Operations and
Eliminations

 

Total

 

Cash and cash equivalents

 

$

17.3

 

$

 

$

12.7

 

$

 

$

30.0

 

Receivables, net

 

 

100.2

 

210.7

 

 

310.9

 

Other current assets

 

6.3

 

45.4

 

54.9

 

2.5

 

109.1

 

Intercompany receivables — current

 

 

15.3

 

 

(15.3

)

 

Assets of discontinued operations

 

 

 

 

21.4

 

21.4

 

Total current assets

 

23.6

 

160.9

 

278.3

 

8.6

 

471.4

 

Property, plant and equipment, net

 

2.1

 

622.2

 

2,435.0

 

 

3,059.3

 

Goodwill and other intangibles, net

 

0.7

 

 

2,444.2

 

 

2,444.9

 

Investments in subsidiaries and other entities

 

2,305.1

 

 

15.2

 

(2,304.0

)

16.3

 

Other noncurrent assets

 

116.8

 

7.7

 

250.2

 

(54.6

)

320.1

 

Intercompany receivables — noncurrent

 

1,783.0

 

 

 

(1,783.0

)

 

Total assets

 

$

4,231.3

 

$

790.8

 

$

5,422.9

 

$

(4,133.0

)

$

6,312.0

 

 

 

 

 

 

 

 

 

 

 

 

 

Short-term debt

 

$

118.8

 

$

28.0

 

$

3.2

 

$

 

$

150.0

 

Accounts payable

 

1.9

 

49.2

 

138.8

 

 

189.9

 

Other current liabilities

 

36.5

 

92.9

 

431.8

 

9.2

 

570.4

 

Intercompany payables — current

 

 

 

 

 

 

Liabilities of discontinued operations

 

 

 

 

11.9

 

11.9

 

Total current liabilities

 

157.2

 

170.1

 

573.8

 

21.1

 

922.2

 

Long-term debt, less current portion

 

2,306.3

 

304.2

 

91.5

 

 

2,702.0

 

Other noncurrent liabilities

 

89.4

 

62.1

 

484.2

 

(62.0

)

573.7

 

Intercompany payables — noncurrent

 

 

 

1,798.4

 

(1,798.4

)

 

Total liabilities

 

2,552.9

 

536.4

 

2,947.9

 

(1,839.3

)

4,197.9

 

Minority interest

 

 

 

17.8

 

417.9

 

435.7

 

Mezzanine financing

 

 

 

417.9

 

(417.9

)

 

Shareowners’ equity

 

1,678.4

 

254.4

 

2,039.3

 

(2,293.7

)

1,678.4

 

Total liabilities and shareowners’ equity

 

$

4,231.3

 

$

790.8

 

$

5,422.9

 

$

(4,133.0

)

$

6,312.0

 

 

21



 

Condensed Consolidating Statements of Cash Flows

($ in millions)

 

 

 

For the quarter ended March 31, 2002

 

 

 

Parent
(Guarantor)

 

CBT

 

Other
(Non-guarantors)

 

Discontinued
Operations and
Eliminations

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash Flows from operating activities

 

$

94.4

 

$

69.6

 

$

(63.7

)

$

(117.7

)

$

(17.4

)

Capital expenditures

 

(0.1

)

(17.9

)

(34.7

)

 

(52.7

)

Proceeds from sale of discontinued operation

 

 

 

 

345.0

 

345.0

 

Other investing activities

 

 

 

23.3

 

 

23.3

 

Cash Flows from investing activities

 

(0.1

)

(17.9

)

(11.4

)

345.0

 

315.6

 

Issuance of long-term debt/(capital contributions)

 

244.0

 

(50.6

)

85.9

 

(227.3

)

52.0

 

Repayment of long-term debt

 

(336.2

)

 

 

 

(336.2

)

Short-term borrowings (repayments), net

 

 

(1.1

)

(0.6

)

 

(1.7

)

Issuance of common shares — exercise of stock options

 

0.4

 

 

 

 

0.4

 

Other financing activities

 

(5.5

)

 

(12.3

)

 

(17.8

)

Cash Flows from financing activities

 

(97.3

)

(51.7

)

73.0

 

(227.3

)

(303.3

)

Increase (decrease) in cash and cash equivalents

 

(3.0

)

 

(2.1

)

 

(5.1

)

Beginning cash and cash equivalents

 

17.3

 

 

12.7

 

 

30.0

 

Ending cash and cash equivalents

 

$

14.3

 

$

 

$

10.6

 

$

 

$

24.9

 

 

 

 

For the quarter ended March 31, 2001

 

 

 

Parent
(Guarantor)

 

CBT

 

Other
(Non-guarantors)

 

Discontinued
Operations and
Eliminations

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash Flows from operating activities

 

$

(14.6

)

$

87.5

 

$

(40.7

)

$

12.8

 

$

45.0

 

Capital expenditures

 

(0.2

)

(32.4

)

(165.8

)

 

(198.4

)

Proceeds from sale of discontinued operation

 

 

 

 

 

 

Other investing activities

 

 

(4.4

)

28.9

 

 

24.5

 

Cash Flows from investing activities

 

(0.2

)

(36.8

)

(136.9

)

 

(173.9

)

Issuance of long-term debt/(capital contributions)

 

21.9

 

(51.9

)

133.8

 

(12.8

)

91.0

 

Repayment of long-term debt

 

 

 

(5.1

)

 

(5.1

)

Short-term borrowings (repayments), net

 

 

1.2

 

43.2

 

 

44.4

 

Issuance of common shares — exercise of stock options

 

9.9

 

 

 

 

9.9

 

Other financing activities

 

(2.6

)

 

(12.4

)

 

(15.0

)

Cash Flows from financing activities

&nb