Cincinnati Bell 2004 Annual Report Download - page 102

contractual commitment with a vendor related to the November 2001 restructuring, $9.6 million recorded in
the third quarter of 2002 primarily for employee termination benefits related to the September 2002
restructuring plan, and $14.7 million recorded in the fourth quarter of 2002 related to the October 2002
restructuring plan. A detailed discussion of restructuring charges is provided in Note 5 of the Notes to
Consolidated Financial Statements.
In 2003, the Company recorded $8.8 million of asset impairments and other charges, which consisted of
$3.6 million in asset impairments related to a write-down of the value of its public payphone assets to fair
value and a $5.2 million charge in 2003 as a result of a settlement reached with a customer related to a
contract dispute. Based on certain indicators, including a potential asset sale, the Company performed an
impairment analysis of the assets of its Broadband segment in the fourth quarter of 2002. The Company’s
impairment analysis indicated the carrying value of the assets was not recoverable. Accordingly, the Company
wrote down the assets to estimated fair market value, resulting in a non-cash impairment charge of $2.2
billion. Refer to Note 1 of the Notes to Consolidated Financial Statements.
Also included in the Company’s operating income in 2003 was a $336.7 million gain related to the sale
of broadband assets. Refer to Note 2 of the Notes to Consolidated Financial Statements.
Operating income increased by $2,777.5 million to $684.0 million in 2003 compared to an operating loss
of $2,093.5 million in 2002. The increase was principally due to reduced expenses as a result of the sale of
the broadband assets and the related gain, in addition to the asset impairment charge in 2002 of $2,200.0
million related to the Broadband segment.
Minority interest expense of $42.2 million and $57.6 million in 2003 and 2002, respectively, includes the
accrual of dividends and accretion on the 12
1
⁄ 2 % Junior Exchangeable Preferred Stock of BRCOM (the
“12
1
⁄ 2 % Preferreds”) and the 19.9% minority interest of AT&T Wireless Services Inc. (“AWE”) in the net
income of CBW. Although the Company announced the deferral of the August 15, 2002, November 15, 2002,
February 15, 2003, May 15, 2003, and August 15, 2003 cash dividend payment on the 12
1
⁄ 2 % Preferreds, the
Company continued to accrue the dividends in accordance with the terms of the security. On September 8,
2003 the Company completed the exchange of all of the 12
1
⁄ 2 % Preferreds for approximately 14.1 million
shares of Cincinnati Bell Inc. common stock. As a result of this exchange, minority interest expense in 2003
decreased $13.8 million compared to 2002, to $32.0 million. Under the terms of the exchange, holders of the
12
1
⁄ 2 % Preferreds were not paid any accumulated or unpaid dividends. A detailed discussion of minority
interest is provided in Note 9 of the Notes to Consolidated Financial Statements.
Interest expense and other financing costs of $234.2 million in 2003 increased $70.0 million, or 43%,
compared to $164.2 million in 2002. The increase is the result of the issuance of the 16% notes, the increase
in the interest rate on the convertible subordinated notes in March 2003, the issuance of the 7
1
⁄ 4 % Senior
notes due 2013 in July 2003, the $16.4 million write-off of deferred financing costs related to the prepayment
and amendments of the Company’s credit facilities, and an increase in the interest rate on the Company’s
credit facilities. These increases were partially offset by a decline in interest expense on the Company’s credit
facilities resulting from the significant reduction in outstanding borrowings under these facilities. A detailed
discussion of indebtedness is presented in Note 7 of the Notes to Consolidated Financial Statements.
On September 8, 2003, the Company retired the remaining $46.0 million of BRCOM 9% notes (“9%
notes”) and satisfied $1.6 million in accrued interest in exchange for approximately 11.1 million shares of
common stock of the Company, which had a fair value of $65.0 million at the exchange date. As a result, the
Company recorded a loss on extinguishment of debt, in other non-operating expense, of $17.4 million during
the third quarter of 2003.
On November 19, 2003, the Company purchased all of the outstanding Convertible Subordinated Notes
due 2009, which bore interest at a rate of 9%, at a discounted price equal to 97% of their accreted value. As a
result, the Company recorded other non-operating income of $16.2 million from the extinguishment of debt.
In the fourth quarter of 2003, the Company recorded a gain of $10.0 million in other non-operating
income from the modification of a capital lease at the Company’s headquarters. This modification required the
lease to be reclassified from a capital lease to an operating lease. The gain primarily represents the difference
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