Cincinnati Bell 2001 Annual Report Download - page 23

growth, with the Broadband and Wireless segments producing
63% and 23%, respectively, of the revenue growth for the year.
Broadband segment revenue of $1,190 million during 2001
was $191 million, or 19%, greater than 2000. Nearly 40% of the
revenue growth in the Broadband segment came from IT con-
sulting while an additional 38% was generated by the broadband
transport line of business. These increases more than offset a
decline in switched voice services. Despite 19% revenue growth
over 2000, results during the last two quarters of 2001 indicated
a slowing of momentum, as revenue declined sequentially in both
the third and fourth quarters.
The Local segment produced revenue totaling $833 million, a
5%, or $39 million, increase over 2000. High-speed data and
internet services, value-added services such as custom calling
features, equipment sales and related installation and mainte-
nance and the resale of broadband products contributed nearly
all of the revenue growth. The Wireless segment produced rev-
enue of $248 million, representing growth of $68 million, or
38%. These increases resulted primarily from a larger subscriber
base. Other segment revenue grew $24 million during 2001,
which was primarily the result of continued success of Cincinnati
Bell Any Distance’s (“CBAD”) “Any Distance” offering.
COSTS AND EX P E N S E S Cost of services and prod-
ucts of $1,159 million in 2001 represented an increase of
$191 million, or 20%, over 2000. The Broadband segment
incurred $157 million of the increase, resulting from higher
access charges and transmission leases as the customer base
grew, information technology hardware and consulting expenses
and network construction. The Local segment also incurred
$18 million in cost increases over 2000, primarily due to cost of
materials for equipment sales, resale of national broadband
products and customer care expenses related to high-speed
internet access service, all of which were driven by the increase
in revenue in the segment. The remainder of the increase over
2000 was incurred by the Wireless and Other segments, each of
which experienced higher costs associated with increased sub-
scribership at the Company’s Cincinnati Bell Wireless (“CBW”)
and CBAD subsidiaries.
Selling, general and administrative (“SG&A”) expenses of
$566 million decreased $18 million, or 3%, in comparison to
2000. The decrease was primarily due to a decline in amounts
spent by the Broadband, Local and Other segments for advertis-
ing in 2000 not repeated in 2001.
Depreciation expense increased by 28%, or $95 million, dur-
ing 2001. The increase was primarily driven by the Broadband
segment and reflects the build out of its national optical network.
The remainder of the increase was incurred by the Local and
Wireless segments as they continued to maintain and enhance
their networks. Amortization expense of $114 million in 2001
relates to purchased goodwill and other intangible assets and
was virtually unchanged in comparison to 2000. Upon adoption
of SFAS 142 as required on January 1, 2002, the Company will
stop amortizing goodwill and reevaluate the lives of its intangible
assets. Once adopted, the Company expects amortization
expense to decrease to approximately $45 million annually.
In November 2001, the Company’s management approved
restructuring plans which included initiatives to consolidate data
centers, reduce the expense structure, exit the network construc-
tion business, eliminate other nonstrategic operations and merge
internet and DSL operations into other operations. Total restruc-
turing and other costs of $232 million were recorded in 2001
related to these initiatives. The $232 million consisted of restruc-
turing liabilities in the amount of $84 million and related noncash
asset impairments in the amount of $148 million. The restructuring-
related liabilities of $84 million were comprised of $21 million
related to involuntary employee separation benefits (including
severance, medical insurance and other benefits) for
902 employees and $63 million related to lease and other
contractual terminations. In total, the Company expects this
restructuring plan to result in cash outlays of $79 million and
noncash items of $153 million. Through December 31, 2001,
the Company has utilized $10 million of the $84 million reserve,
of which approximately $7 million was cash expended. The
Company expects to realize approximately $88 million in annual
capital expenditure and expense savings from this restructuring
plan relative to expenses incurred in 2001. The Company
excepts to complete the plan by December 31, 2002. Please
see Note 3 of the Notes to Consolidated Financial Statements
for a detailed discussion of restructuring and other charges.
In February 2001, the Company initiated a reorganization of
the activities of several of its Cincinnati-based subsidiaries,
including Cincinnati Bell Telephone (“CBT”), CBAD, CBW,
Cincinnati Bell Public Communications (“Public”) and CBD in
order to create one centralized “Cincinnati Bell” presence for its
customers. Total restructuring costs of $9 million were recorded
in the first quarter pertaining to the February 2001 restructuring
plan and consisted of $2 million related to lease terminations
and $7 million related to involuntary employee separation bene-
fits (including severance, medical insurance and other benefits)
for 114 employees. The severance payments are expected to be
substantially complete by March 31, 2002. This includes a net of
$0.1 million for severance benefits recorded in the second and
fourth quarters of 2001 that were in excess of the initial estimate.
In total the Company expects this restructuring plan to result in
cash outlays of $8 million and noncash items of $1 million.
Through December 31, 2001, approximately $7 million of the
expenses had been incurred, of which approximately $6 million
was cash expended. The lease terminations are expected to be
complete by December 31, 2004. The Company expects to real-
ize approximately $7 million in annual savings from this
restructuring plan relative to expenses incurred in 2000.
Primarily as a result of the November 2001 restructuring
charge and higher depreciation in the Broadband segment, oper-
ating income declined by $210 million during the year. The
decrease was partially offset by improvements in the Local and
Wireless segments and in the Company’s CBAD subsidiary.
Minority interest expense includes dividends and accretion on
the 121⁄2% preferred stock of Broadwing Communications and
the 19.9% minority interest of AT&T Wireless Services Inc.
(“AWS”) in the net income of the Company’s Cincinnati Bell
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