<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: December 31, 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
FORM 8-K CINCINNATI BELL INC.
ITEM. 2. ACQUISITION OR DISPOSITION OF ASSETS
On December 31, 1998, Cincinnati Bell Inc. ("Cincinnati Bell")
completed its spin-off of Convergys Corporation ("Convergys") by distributing
one share of Convergys for each share of Cincinnati Bell owned by Cincinnati
Bell shareholders of record on December 1, 1998.
ITEM 5. OTHER EVENTS:
In conjunction with the Convergys spin-off completion, James D. Kiggen
was elected Chairman of the Board of Cincinnati Bell, replacing Charles H.
Mechem, Jr., who, as planned, resigned from the Cincinnati Bell Board of
Directors along with six other Cincinnati Bell Directors. In addition to Mr.
Kiggen, the continuing members of the Cincinnati Bell Board of Directors are
Phillip R. Cox, Richard G. Ellenberger, William Friedlander, Dr. Robert P.
Hummel, John T. LaMacchia, Mary D. Nelson and David B. Sharrock. In addition to
Mr. Mechem, the resigning directors are John F. Barrett, Judith G Boynton, Roger
L. Howe, Steven G. Mason, James F. Orr and Brian H. Rowe. The resigning Board
members now constitute the Board of Directors of Convergys, with Mr. Mechem
serving as chairman.
<PAGE> 3
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(b) Pro forma financial information.
The required pro forma information in connection with the
Convergys Corporation spin-off is contained in Exhibit 99-1 of
the Cincinnati Bell Inc. Form 8-K, date of report November 19,
1998, which is incorporated by reference herein.
(c) Exhibits.
Exhibit 2A Pro forma financial information contained in
Exhibit 99-1 of the Cincinnati Bell Inc.
Form 8-K, date of report November 19, 1998.
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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: January 14, 1999
<PAGE> 1
Exhibit 2A
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>
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<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.
