<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------------------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT: NOVEMBER 19, 1998
CINCINNATI BELL INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Ohio 1-8519 31-1056105
(State or Other Jurisdiction (Commission File Number) (IRS Employer
of Incorporation) Identification No.)
201 East Fourth Street
Cincinnati, Ohio 45202
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (513) 397-9900
<PAGE> 2
Item 2. Acquisition or Disposition of Assets.
On November 19, 1998, Cincinnati Bell Inc. announced that it has set
the distribution ratio and record date for the previously announced distribution
of Convergys Corporation, its 90%-owned customer-care and billing business.
Cincinnati Bell shareholders of record at the close of business on December 1,
1998, will receive one share of Convergys Corporation for each share of
Cincinnati Bell Inc. owned on that date, or approximately 137 million shares in
the aggregate. The distribution will be effective on December 31, 1998. After
the distribution, Cincinnati Bell will not have any ownership interest in
Convergys Corporation. Additional information concerning the distribution is
contained in a letter that will be sent to all Cincinnati Bell shareholders, a
copy of which is being filed as Exhibit 20 to this Form 8-K.
Item 5. Other Items.
On November 19, 1998, Richard G. Ellenberger, President and Chief
Executive Officer of Cincinnati Bell Telephone Company and Chief Operating
Officer of Cincinnati Bell Inc., was appointed a director of Cincinnati Bell
Inc. In addition, on November 19, 1998, Mr. Ellenberger was named to succeed
John T. LaMacchia as President and Chief Executive Officer of Cincinnati Bell
when Mr. LaMacchia retires.
Item 7. Financial Statements and Exhibits.
(b) Pro forma financial information.
Pro forma financial information reflecting the distribution of
Convergys Corporation is set forth in Exhibit 99-1 attached hereto and
incorporated by reference herein.
(c) Exhibits.
20 Letter to Cincinnati Bell shareholders dated November
19, 1998.
99-1 Cincinnati Bell Consolidated Pro Forma Financial
Statements.
<PAGE> 3
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.
By: /s/ Kevin W. Mooney
------------------------------
Kevin W. Mooney
Chief Financial Officer
Date: November 24, 1998
<PAGE> 4
Index to Exhibits
Exhibit Description
20 Letter to Cincinnati Bell shareholders dated November 19, 1998.
99-1 Cincinnati Bell Consolidated Pro Forma Financial Statements.
<PAGE> 1
EXHIBIT 20
201 E. Fourth Street
P O Box 2301
Cincinnati, Ohio 45201
[CINCINNATI BELL LOGO]
November 19, 1998
Dear Cincinnati Bell Shareholder:
Last April 27, we advised you that we had decided to create a new company,
Convergys, made up of CBIS, MATRIXX Marketing and our share of a cellular
partnership with Ameritech. We also said we would have a public offering of a
small portion of Convergys shares, followed by a distribution of the balance of
Convergys shares to you, the Cincinnati Bell shareholders. We're pleased to tell
you that we expect to complete that effort, as a result of which you will own
shares in two companies with outstanding track records and very exciting
futures.
Convergys is a leading global provider of integrated customer management
and information management solutions, and also holds our cellular partnership
interest. Cincinnati Bell is now an innovative, growth-oriented communications
provider with new leadership, excellent service, and many exciting new voice,
wireless, data and Internet communications products.
While both businesses are strong, they are also quite different. Your Board
of Directors has determined that separating them will allow each to focus solely
on how best to create long-term value for its shareholders.
In August, Convergys sold nearly 15 million shares, or about 10 percent of
the company, in a public offering. Proceeds were used to pay down debt. We
intend to distribute the remaining Convergys shares to you at the end of this
year. FOR EACH CINCINNATI BELL SHARE YOU OWN ON DECEMBER 1, 1998, THE RECORD
DATE FOR THIS TRANSACTION, YOU WILL ALSO OWN ONE SHARE OF CONVERGYS, EFFECTIVE
DECEMBER 31.
You do not need to take any action to participate in this distribution.
Registered Cincinnati Bell shareholders will receive a stock certificate for
Convergys shares about six weeks from now. Holdings of Cincinnati Bell shares in
accounts with securities firms or other fiduciaries will be matched with
Convergys shares. After December 31, you can follow the value of your current
Cincinnati Bell investment by following the combined values of your Cincinnati
Bell shares and your Convergys shares.
In the coming weeks, we will send information you can use to determine the
cost basis of your Convergys and Cincinnati Bell shares. We also will tell
participants in certain employee benefit plans how the spin-off will affect
them.
If you have questions about your Cincinnati Bell shares, please call our
transfer agent, Fifth Third Bank, at (800) 837-2755 (579-5320 in Cincinnati).
Cincinnati Bell will provide up-to-date information on the spin-off and other
news of interest to investors on our web site, www.cinbellinc.com, and on our
Shareowner Information Line, (800) 345-6301.
On behalf of your Board of Directors, we thank you for your continuing
support of Cincinnati Bell, and hope you will continue to invest with us as
shareholders of both Cincinnati Bell and Convergys.
/s/ Charles S. Mechem, Jr. /s/ John T. LaMacchia
---------------------------- ----------------------------
Charles S. Mechem, Jr. John T. LaMacchia
Chairman of the Board President and Chief Executive Officer
<PAGE> 1
EXHIBIT 99-1
CINCINNATI BELL CONSOLIDATED PRO FORMA FINANCIAL
STATEMENTS
The following consolidated pro forma financial statements present pro
forma information for Cincinnati Bell, giving effect to the acquisition by
Convergys Customer Management Group, Inc., (formerly known as MATRIXX Marketing
Inc.) on February 28, 1998 of American Transtech Inc. and the assets of AT&T
Canada Enterprises, Inc., AT&T's Canadian customer care business, (collectively
"Transtech") from AT&T Corp. (the "Transtech Acquisition) and the distribution
by Cincinnati Bell of the approximately 90% of the outstanding shares of
Convergys Corporation to Cincinnati Bell shareholders (the "Convergys
Distribution"). These consolidated pro forma financial statements are based upon
the historical consolidated financial statements of Cincinnati Bell for each of
the periods presented and the historical financial statements of Transtech for
the year ended December 31, 1997, the nine months ended September 30, 1997 and
the two months ended February 28, 1998. The historical consolidated financial
statements of Cincinnati Bell as of and for the nine months ended September 30,
1997 and 1998 and the historical financial statements of Transtech for the nine
months ended September 30, 1997 and the two months ended February 28, 1998 are
unaudited.
The consolidated pro forma statements of operations for the year ended
December 31, 1997 and the nine months ended September 30, 1997 and 1998 have
been presented as if the Transtech Acquisition had occurred on January 1, 1997.
The consolidated pro forma statements of operations for the years ended December
31, 1995, 1996 and 1997 and the nine months ended September 30, 1997 and 1998
have been presented as if the Convergys Distribution had occurred on January 1,
1995. The consolidated pro forma statements of operations for the periods
indicated above reflect the Transtech Acquisition using the purchase method of
accounting and the resulting amortization of goodwill and other intangibles as
well as the financing of and interest expense related to the acquisition.
The consolidated pro forma balance sheet as of September 30, 1998 has
been presented as if the Convergys Distribution had occurred on September 30,
1998. (The Transtech Acquisition was completed on February 28, 1998 and is
reflected in the historical consolidated balance sheet of Cincinnati Bell as of
September 30, 1998.)
The consolidated pro forma financial statements are unaudited, are
presented for informational purposes only and do not necessarily indicate what
the actual results of operations would have been had the Transtech Acquisition
and the Convergys Distribution occurred on the dates assumed, or what the future
operating results or financial position of Cincinnati Bell may be. The
consolidated pro forma financial statements should be read along with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated historical financial statements and the notes
thereto of Cincinnati Bell included in the Cincinnati Bell reports previously
filed with the Securities and Exchange Commission.
<PAGE> 2
<TABLE>
<CAPTION>
Cincinnati Bell Consolidated Pro Forma Statement Of Operations
(in millions, except per share information)
For The Nine Months Ended September 30, 1998
----------------------------------------------------------------------------------------------
Pro Forma
Historical Before
Historical Transtech Convergys Convergys
Cincinnati (1/1/98 - Acquisition Distribution Distribution
Bell 2/28/98) Adjustments Adjustments Adjustments Pro Forma
------------- ------------- ----------------- --------------- ------------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Revenues.................... $ 1,653.7 $ 62.4 -- $ 1,716.1 $(1,057.5) (4) $ 658.6
Costs and expenses.......... 1,431.9 61.1 $ 3.9 (1) 1,496.9 (966.1) (5) 530.8
------------ --------- --------- ------------ --------- ---------
Operating income............ 221.8 1.3 (3.9) 219.2 (91.4) 127.8
Other income
(expense), net............ (3.4) -- -- (3.4) (14.4) (6) (17.8)
Interest expense............ 44.5 -- 6.1 (2) 50.6 (32.8) (7) 17.8
------------ --------- --------- ------------ --------- ---------
Income before
income taxes............ 173.9 1.3 (10.0) 165.2 (73.0) 92.2
Income taxes................ 60.2 0.5 (3.8) (3) 56.9 (24.3) (8) 32.6
------------ --------- --------- ------------ --------- ---------
Income from
continuing operations..... $ 113.7 $ 0.8 $ (6.2) $ 108.3 $ (48.7) $ 59.6
========= ======== ========= ============ =========== =========
Earnings per
common share
Basic.................... $ .84 $ .80 $ .44
Diluted.................. $ .82 $ .78 $ .43
Weighted average
common shares
outstanding
including equivalents
Basic.................... 135.9 135.9 135.9
Diluted.................. 138.3 138.3 138.3
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
Cincinnati Bell Consolidated Pro Forma Statement Of Operations
(in millions, except per share information)
For The Nine Months Ended September 30, 1997
----------------------------------------------------------------------------------------------
Pro Forma
Before
Historical Convergys Convergys
Cincinnati Historical Acquisition Distribution Distribution
Bell Transtech Adjustments Adjustments Adjustments Pro Forma
------------- ------------- ----------------- --------------- ------------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Revenues................. $ 1,295.8 $ 300.0 -- $ 1,595.8 $(977.8) (4) $ 618.0
Costs and expenses....... 1,032.9 272.3 $ 17.6 (1) 1,322.8 (852.3) (5) 470.5
--------- ---------- -------- --------- -------- --------
Operating income......... 262.9 27.7 (17.6) 273.0 (125.5) 147.5
Other income
(expense), net......... 14.3 -- -- 14.3 (16.6) (6) (2.3)
Interest expense......... 26.8 -- 27.6 (2) 54.4 (31.3) (7) 23.1
--------- ---------- -------- --------- -------- --------
Income before
income taxes........... 250.4 27.7 (45.2) 232.9 (110.8) 122.1
Income taxes............. 87.2 10.2 (17.1) (3) 80.3 (38.0) (8) 42.3
--------- ---------- -------- --------- -------- --------
Income from
continuing operations. $ 163.2 $ 17.5 $ (28.1) $ 152.6 $ (72.8) $ 79.8
========= =========== ======== ========= ============ =========
Earnings per
common share
Basic................. $ 1.21 $ 1.13 $ .59
Diluted............... $ 1.19 $ 1.11 $ .58
Weighted average
common shares
outstanding
including equivalents
Basic................. 135.2 135.2 135.2
Diluted............... 137.7 137.7 137.7
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
Cincinnati Bell Consolidated Pro Forma Statement Of Operations
(in millions, except per share information)
For The Year Ended December 31, 1997
----------------------------------------------------------------------------------------------
Pro Forma
Before
Historical Convergys Convergys
Cincinnati Historical Acquisition Distribution Distribution
Bell Transtech Adjustments Adjustments Adjustments Pro Forma
------------- ------------- ----------------- -------------- ------------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Revenues................... $ 1,756.8 $ 402.4 -- $ 2,159.2 $(1,324.7) (4) $ 834.5
Costs and expenses......... 1,443.7 364.0 $ 23.5 (1) 1,831.2 (1,188.1) (5) 643.1
--------- ---------- -------- --------- --------- ---------
Operating income........... 313.1 38.4 (23.5) 328.0 (136.6) 191.4
Other income
(expense), net........... 19.3 1.1 -- 20.4 (23.1) (6) (2.7)
Interest expense........... 35.5 0.2 36.3 (2) 72.0 (41.9) (7) 30.1
-------- ---------- -------- --------- --------- ---------
Income before
income taxes............ 296.9 39.3 (59.8) 276.4 (117.8) 158.6
Income taxes............... 103.3 15.2 (22.6) (3) 95.9 (39.6) (8) 56.3
--------- ---------- -------- --------- --------- ---------
Income from
continuing operations. $ 193.6 $ 24.1 $ (37.2) $ 180.5 $ (78.2) $ 102.3
========= ========== ======== ========= ========= ==========
Earnings per
common share
Basic................... $ 1.43 $ 1.34 $ .76
Diluted................. $ 1.41 $ 1.31 $ .74
Weighted average
common shares
outstanding
including equivalents
Basic................... 135.2 135.2 135.2
Diluted................. 137.7 137.7 137.7
</TABLE>
<PAGE> 5
<TABLE>
<CAPTION>
Cincinnati Bell Consolidated Pro Forma Statement Of Operations
(in millions, except per share information)
For The Year Ended December 31, 1996
-------------------------------------
Convergys
Historical Distribution
Cincinnati Bell Adjustments Pro Forma
------------------- ---------------------- -------------------
<S> <C> <C> <C>
Revenues........................ $ 1,573.7 $(793.9) (4) $ 779.8
Costs and expenses.............. 1,267.2 (668.0) (5) 599.2
--------- ------- ---------
Operating income................ 306.5 (125.9) 180.6
Other income
(expense), net................ 12.1 (11.6) (6) 0.5
Interest expense................ 33.9 (6.0) (7) 27.9
--------- ------- ---------
Income before income taxes...... 284.7 (131.5) 153.2
Income taxes.................... 99.7 (46.0) (8) 53.7
--------- ------- ---------
Income from
continuing operations......... $ 185.0 $ (85.5) $ 99.5
========= ======= =========
Earnings per common share
Basic...................... $ 1.38 $ .74
Diluted.................... $ 1.35 $ .73
Weighted average
common shares
outstanding
including equivalents
Basic...................... 133.9 133.9
Diluted.................... 137.2 137.2
</TABLE>
<PAGE> 6
<TABLE>
<CAPTION>
Cincinnati Bell Consolidated Pro Forma Statement Of Operations
(in millions, except per share information)
For The Year Ended December 31, 1995
------------------------------------
Convergys
Historical Distribution
Cincinnati Bell Adjustments Pro Forma
------------------- ---------------------- -------------------
<S> <C> <C> <C>
Revenues.......................... $ 1,336.1 $(600.1) (4) $ 736.0
Costs and expenses................ 1,289.4 (562.8) (5) 726.6
--------- ------- ---------
Operating income.................. 46.7 (37.3) 9.4
Other income
(expense), net.................. (13.5) 4.4 (6) (9.1)
Interest expense.................. 52.8 (7.4) (7) 45.4
--------- ------- ---------
Loss before income taxes.......... (19.6) (25.5) (45.1)
Income taxes...................... 5.7 (21.7) (8) (16.0)
--------- ------- ---------
Loss from
continuing operations........... $ (25.3) $ (3.8) $ (29.1)
========= ======= =========
Loss per common share
Basic........................ $ (.19) $ (.22)
Diluted...................... $ (.19) $ (.22)
Weighted average
common shares
outstanding
including equivalents
Basic........................ 132.0 132.0
Diluted...................... 132.0 132.0
</TABLE>
[FN]
NOTES TO CINCINNATI BELL CONSOLIDATED PRO FORMA STATEMENTS OF OPERATIONS
(1) Adjustment gives effect to the amortization of intangible assets
acquired and depreciation of property and equipment acquired.
Cincinnati Bell's allocation of the Transtech purchase price is as
follows: acquired contracts - $68.2 million; in-process research and
development - $42.6 million; assembled workforce - $11.4 million;
internally-developed software - $4.4 million; fair value of other
tangible assets acquired - $91.0 million; and goodwill - $414.4
million. Assigned lives for the acquired intangible assets are as
follows: acquired contracts - 8 years; assembled workforce - 15 years;
and goodwill - 30 years. Assigned lives for property and equipment are
as follows: software and personal computers - 3 years; equipment - 5
years; and buildings - 30 years.
(2) The Transtech Acquisition and associated costs were financed entirely
through short-term variable rate commercial paper issued by Cincinnati
Bell. Interest expense has been recorded at the rate (5.75%) for the
commercial paper that was issued to finance the acquisition.
(3) Adjustment reflects the income tax effect of the acquisition
adjustments at Convergys' statutory tax rate for the respective period.
(4) Adjustment eliminates Convergys' revenues or pro forma revenues after
giving effect to the Transtech Acquisition.
<PAGE> 7
(5) Adjustment eliminates Convergys' expenses or pro forma expenses after
giving effect to the Transtech Acquisition. For purposes of this
adjustment, general overhead expenses incurred by Cincinnati Bell,
which had been charged to Convergys as a management fee, remain a part
of the expenses of Cincinnati Bell and have not been eliminated by the
Convergys Distribution adjustments.
(6) Adjustment eliminates other income (expense), net related to Convergys.
Adjustment includes the elimination of equity earnings from Cincinnati
SMSA Limited Partnership which operates a cellular telecommunications
business in southwestern Ohio and northern Kentucky.
(7) Adjustment eliminates Convergys' pro forma interest expense after
giving effect to the Transtech Acquisition. Interest expense for
Convergys is determined based upon the weighted average interest rate
for Cincinnati Bell's short-term and long-term interest rates for the
respective period for Cincinnati Bell debt allocated to Convergys and
the interest rate associated with any direct indebtedness of Convergys.
(8) Adjustment reflects the provision for income taxes for the pre-tax
adjustments at Convergys' statutory tax rate for the respective period.
<PAGE> 8
<TABLE>
<CAPTION>
Cincinnati Bell Consolidated Pro Forma Balance Sheet
(in millions)
As of September 30, 1998
----------------------------------------------------
Convergys
Historical Distribution
Cincinnati Bell Adjustments (1) Pro Forma
------------------ -------------------- ------------
<S> <C> <C> <C>
Cash and cash equivalents .................................... $ 1.5 $ (1.4) $ 0.1
Receivables .................................................. 461.3 (307.9) 153.4
Materials and supplies........................................ 14.7 -- 14.7
Deferred income taxes......................................... 25.2 (7.0) 18.2
Prepaid expenses and other current assets .................... 52.3 (29.3) 23.0
---------- ---------- --------
Total current assets..................................... 555.0 (345.6) 209.4
---------- ---------- --------
Property, plant and equipment................................. 838.9 (229.4) 609.5
Goodwill and other intangibles, net........................... 698.2 (681.1) 17.1
Investments in unconsolidated entities........................ 90.1 (85.3) 4.8
Deferred charges and other current assets .................... 110.2 (80.8) 29.4
---------- ---------- --------
Total assets............................................. $ 2,292.4 $ (1,422.2) $ 870.2
========== ========== ========
Debt maturing within one year................................. 619.3 (478.5) (2) 140.8
Accounts payable and other current liabilities ............... 412.4 (191.3) 221.1
---------- ---------- --------
Total current liabilities ............................... 1,031.7 (669.8) 361.9
Long-term debt................................................ 267.8 (0.3) (2) 267.5
Other long-term liabilities................................... 345.7 (238.0) 107.7
---------- ---------- --------
Total liabilities........................................ 1,645.2 (908.1) 737.1
---------- ---------- --------
Shareowners' equity........................................... 647.2 (514.1) (3) 133.1
---------- ---------- --------
Total Liabilities and Shareowners' Equity ............... $ 2,292.4 $ (1,422.2) $ 870.2
========== ========== ========
</TABLE>
NOTES TO CINCINNATI BELL CONSOLIDATED PRO FORMA BALANCE SHEET
(1) Adjustments in this column reflect the elimination of assets and
liabilities that will be transferred from Cincinnati Bell to Convergys
based on the September 30, 1998 consolidated balance sheet of
Cincinnati Bell.
(2) Adjustments to debt maturing within one year and long-term debt
represent the amount of direct outstanding indebtedness of Convergys
and its subsidiaries and approximately $478 million in intercompany
debt that Convergys owes to Cincinnati Bell at September 30, 1998.
Pursuant to the terms of the Distribution Agreement, Convergys will
repay this intercompany indebtedness at or before the date of the
Convergys Distribution date. The actual amount of the intercompany
indebtedness repayment will be determined based on Convergys' cash flow
activity from October 1, 1998 to the date of the repayment and the
resultant intercompany balances. The proceeds from the intercompany
indebtedness repayment from Convergys will be used by Cincinnati Bell
to repay outstanding short-term variable rate debt.
(3) Pro forma shareowners' equity reflects the elimination of Convergys'
shareowners' equity from Cincinnati Bell's historical amounts and the
incurrence of approximately $10 million in nonrecurring costs, net of
tax benefit, related to the Convergys Distribution. Included in the
elimination of Convergys' shareowners' equity is an estimated amount of
approximately $33 million, net of deferred tax benefit, resulting from
the allocation of Cincinnati Bell pension trust
<PAGE> 9
assets and obligations to Convergys. The actual amount of shareowners'
equity transferred to Convergys as a result of the allocation of the
Cincinnati Bell pension trust assets will be determined by calculations
performed as of the date of the Convergys Distribution, using a
methodology that has been agreed to by the management of Cincinnati
Bell and Convergys, and may differ from the amount reflected. The final
allocation may differ due to the discount rates and other assumptions
used in the final calculation at the time of the Convergys
Distribution. In addition, the final pension asset allocation will be
subject to regulatory approval.
