Cincinnati Bell 2004 Annual Report Download - page 112

Operating Income
As a result of the items discussed above, the Hardware and Managed Services segment’s operating
income increased $26.9 million to $17.5 million in 2003 compared to an operating loss of $9.4 million in
2002. Additionally, operating margin increased 15 points to 11% in 2003 compared to 2002.
Other
The Other segment combines the operations of Cincinnati Bell Any Distance (“CBAD”), Cincinnati Bell
Complete Protection (“CBCP”) and Cincinnati Bell Public Communications Inc. (“Public”). CBAD resells
long distance voice services and audio-conferencing, CBCP provides security hardware and monitoring for
consumers and businesses, and Public provides public payphone services. In the fourth quarter of 2004, the
Company sold its payphone assets located at correctional institutions and those outside of the Company’s
operating area for $1.4 million.
(dollars in millions) 2004 2003
$ Change
2004 vs.
2003
% Change
2004 vs.
2003 2002
$ Change
2003 vs.
2002
% Change
2003 vs.
2002
Revenue ...................................... $78.6 $81.1 $ (2.5) (3)% $82.8 $(1.7) (2)%
Operating costs and expenses:
Cost of services and products .............. 44.5 54.1 (9.6) (18)% 63.4 (9.3) (15)%
Selling, general and administrative ......... 14.3 14.8 (0.5) (3)% 15.8 (1.0) (6)%
Depreciation ................................ 1.7 2.0 (0.3) (15)% 1.8 0.2 11%
Amortization ............................... — 0.1 (0.1) (100)% 0.1 — —
Asset impairments and other charges ....... 0.1 3.6 (3.5) (97)% — 3.6 n/m
Total operating costs and expenses ......... 60.6 74.6 (14.0) (19)% 81.1 (6.5) (8)%
Operating income ............................. $18.0 $ 6.5 $ 11.5 n/m $ 1.7 $ 4.8 n/m
Operating margin ............................. 22.9% 8.0% +15 pts 2.1% +6 pts
2004 Compared to 2003
Other segment revenue of $78.6 million in 2004 decreased $2.5 million, or 3%, compared to 2003.
Decreases of $2.2 million and $1.7 million in Public and retail long distance revenue more than offset
$1.3 million and $0.2 million increases in wholesale long distance and CBCP revenue. Revenue from both
decreased as a result of a decline in usage. Despite an increase of 23,000 lines, to approximately 562,000
subscribed access lines as of December 31, 2004, or 4%, compared to December 31, 2003, decreases in
long distance usage per line more than offset the positive revenue impact related to line growth. CBAD’s
Cincinnati market share for which a long distance carrier is selected was 76% in the consumer market and
48% in the business market up from 71% and 45%, respectively, compared to December 31, 2003.
Costs and Expenses
Cost of services and products totaled $44.5 million in 2004, representing a decrease of 18% compared to
the prior year. This was due primarily to decreased access charges at CBAD cost of services of $10.2 million
during 2004 due to a 35% lower cost per long distance minute associated with the Company’s installation
of long distance switching equipment in June 2004 and the negotiation of lower wholesale long distance
minute costs.
SG&A expenses decreased $0.5 million, or 3%, to $14.3 million in 2004 compared to the prior year. The
decrease was primarily due to decreased bad debt expense.
Operating Income
As a result of the items discussed above, the Other segment reported operating income of $18.0 million,
an increase of $11.5 million in 2004 compared to 2003. Operating margin showed similar improvements,
increasing fifteen points from a margin of 8% in 2003 to 23% in 2004.
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