Cincinnati Bell Inc. Reports Fourth Quarter and Full Year 2010 Results

Cincinnati Bell Inc. today announced financial results for the full year and fourth quarter of 2010. For the year, revenue was $1.4 billion, an increase of 3 percent from 2009 and a favorable result compared to guidance of $1.3 billion. Operating income for 2010 was $299 million, and net income of $28 million resulted in diluted revenues per share of 9 cents. Diluted revenues per share excluding special items1 was 31 cents, down 11 cents compared to 2009 due to increased depreciation, amortization and interest expense associated with the acquisition of CyrusOne. Annual Adjusted EBITDA2 was $502 million, a 7 percent increase from 2009 and the first time annual Adjusted EBITDA has exceeded $500 million since 2003. Free cash flow3 for 2010 of $149 million exceeded guidance of $120 million by 24 percent.

The fourth quarter of 2010

Revenue for the fourth quarter of 2010 was $363 million, a 5 percent increase from the fourth quarter of 2009 and a 3 percent increase sequentially. Operating income for the fourth quarter of 2010 was $65 million, and Adjusted EBITDA of $123 million was up 3 percent from 2009 due to the acquisition of CyrusOne, offset by a decrease in Wireless Adjusted EBITDA of $6 million from lower service earnings. A net loss of $19 million for the quarter resulted from a $36 million loss on the extinguishment of debt, as the company extended $775 million of debt maturities to 2020. Fourth quarter 2010 net income excluding special items4 was $8 million compared to $24 million in 2009, and diluted revenues per share excluding special items was 3 cents, down 7 cents from 2009 due to additional depreciation, amortization and interest expense associated with the acquisition of CyrusOne.

Starting in the fourth quarter of 2010, the Research Solutions segment was split into the Data Center Colocation segment and the IT Services and Hardware segment. As well, the elements of Wireline revenue were revised to reclassify Fioptics products revenue from Wireline "Other" to more descriptive Wireline revenue captions. All financial information presented in this release has been reclassified for the segment and Wireline revenue classification change.

Fourth quarter 2010 revenue totaled $183 million, a decrease of $7 million, or 3 percent, compared to the fourth quarter of 2009. Adjusted EBITDA of $84 million decreased 5 percent compared to the fourth quarter 2009 due to access line losses. Operating income of $53 million for the quarter increased $1 million as the effect of access line losses was more than offset by lower restructuring costs. For the full year, Wireline revenue was $743 million, down $21 million or 3 percent from 2009 due primarily to access line losses. Annual Adjusted EBITDA was $346 million, down 5 percent from 2009, while after all producing strong Adjusted EBITDA margins of 47 percent as a result of the cost initiatives implemented while the year.

The company constructed its Fioptics network past 30,000 homes in 2010, bringing total homes passed to 79,000. The company ended the year with 28,000 Fioptics entertainment subscribers, nearly double the Fioptics subscribers from 2009. For the year, Wireline added 8,500 high-speed internet clients, a 3 percent increase over 2009, which includes the company's Fioptics and DSL products. Year-over-year total access line loss in the fourth quarter of 2010 was 6.8 percent, an improvement compared to the 7.2 percent loss in 2009.

Quarterly revenue from the Wireless segment of $70 million decreased $7 million, or 9 percent, compared to the prior year. Operating income of $4 million decreased by $5 million, and Adjusted EBITDA of $13 million decreased by $6 million from the fourth quarter of 2009. These decreases are due to lower service revenue and aggressive marketing strategies in the fourth quarter of 2010, which included increased handset subsidy support and holiday advertising. These efforts increased net postpaid subscribers by 2,400 and net prepaid subscribers by 5,500 in the fourth quarter.

For the year, revenue totaled $289 million, down 6 percent from 2009. Operating income for the full year 2010 was $56 million, an increase of $23 million from 2009, and Adjusted EBITDA of $91 million was up $14 million. These increases resulted from sustainable cost reduction initiatives while the year which included the renegotiation of roaming rates, lower contract service costs and improved bad debts expense. The cost reduction initiatives were partially offset by increased costs associated with the fourth quarter marketing strategies. Operating income for 2010 as well increased due to lower depreciation expense and the loss in 2009 on the sale of spectrum.

The fourth quarter

Postpaid subscriber average revenue per user in the fourth quarter was $48.87 which is consistent with the rates in the fourth quarter of 2009. Fourth quarter postpaid data ARPU increased by 13 percent compared to 2009. The growth in data ARPU continues to reflect the positive momentum in acquiring smartphone subscribers and offsets the decline in voice revenue due to lower postpaid minutes of use per subscriber. The company added 12,000 postpaid and prepaid smartphone subscribers in the fourth quarter of 2010, which brings the year-end total of smartphone users to 105,000, up in broad outline 24 percent compared to the subscribers at the end of 2009.

Data Center Colocation fourth quarter revenue of $41 million is up 118 percent from the fourth quarter of 2009 primarily as a result of revenue generated by CyrusOne, which was acquired in June 2010. Operating income for the quarter was $9 million compared to $6 million in the fourth quarter of 2009. Adjusted EBITDA increased by $14 million from the fourth quarter of 2009 to $24 million.

Full year revenue of $125 million was higher by $54 million compared to 2009. Operating income was $34 million compared to $17 million in 2009, and Adjusted EBITDA increased by $38 million to $70 million in 2010. Operating income and Adjusted EBITDA both increased by more than 100 percent from the prior year based on the acquisition and strong results of CyrusOne.

Fourth quarter 2010 revenue increased by $8 million to $78 million. Fourth quarter revenue was stronger than the previous three quarters in 2010 as a result of high demand for year-end purchases of hardware. Operating income of $4 million was consistent with the fourth quarter of 2009, and Adjusted EBITDA of $7 million was up slightly from $6 million in the fourth quarter of 2009.

IT Services and Hardware full year revenue increased by 10 percent to $255 million, up from $231 million in 2009, primarily on increased demand for hardware in 2010 as compared to 2009. Operating income of $4 million for 2010 decreased by $6 million compared to 2009, and Adjusted EBITDA of $14 million for 2010 decreased by $3 million. These decreases were due primarily to increased workforce costs. Operating income was as well affected by restructuring costs of $3 million in 2010.

Cincinnati Bell intends to change its definition of Adjusted EBITDA in 2011 to exclude certain elements of pension and other retirement plan expenses related to interest costs, asset returns, and amortization of actuarial gains and losses. These items will be excluded from Adjusted EBITDA because the company believes these costs are related to the performance of the plan assets and general economic conditions, not the operations of the business, and to conform to the presentation of Adjusted EBITDA followed by many other companies in the telecommunications and other industries. Pension and other retirement plan expenses associated with service costs and amortization of prior service costs will continue to be reported in Adjusted EBITDA.

The statements

Certain of the statements and predictions contained in this presentation constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act. In particular, statements, projections or estimates that include or reference the words "believes," "anticipates," "plans," "intends," "expects," "will," or any similar expression fall within the safe harbor for forward-looking statements contained in the Reform Act. Actual results or outcomes may differ materially from those indicated or recommended by any such forward-looking statement for a variety of reasons, including, now not limited to: changing market conditions and growth rates within the telecommunications industry or usually within the overall economy; changes in competition in markets in which the company operates; pressures on the pricing of company products and services; advances in telecommunications innovation; the ability to generate sufficient cash flow to fund the company's business plan, repay the company's debt and interest obligations, and maintain its networks; the ability to refinance indebtedness if need be on commercially reasonable terms; changes in the telecommunications regulatory environment; changes in the demand for the company's services and products; the demand for particular products and services within the overall mix of products sold, as the company's products and services have varying profit margins; the company's ability to introduce new service and product offerings on a timely and cost effective basis; work stoppages caused by labor disputes; restrictions imposed in accordance with various credit facilities and debt instruments; the company's ability to attract and retain highly qualified employees; the company's ability to access capital markets and the successful execution of restructuring initiatives; changes in the funded status of the company's retiree pension and healthcare plans; disruption in operations caused by a health pandemic, just as the H1N1 influenza virus; changes in the company's relationships with current large clients, a small number of whom account for a significant portion of company revenue; disruption in the company's back-office information innovation systems, including its billing system; the company's ability to integrate successfully the business of Cyrus Networks, LLC with the company's existing operations and to achieve the anticipated benefits of the acquisition of Cyrus Networks, LLC; and failure of or disruption in the operation of the company's data centers. More information on potential risks and uncertainties is available in recent filings with the Securities and Exchange Commission, including Cincinnati Bell's Form 10-K report, Form 10-Q reports and Form 8-K reports. The forward-looking statements included in this presentation represent company estimates as of February 15, 2011. Cincinnati Bell anticipates that subsequent events and developments will cause its estimates to change.

3Free cash flow provides a useful measure of operational performance, liquidity and financial health. The company defines free cash flow as cash provided by operating, financing and investing activities, adjusted for the issuance and repayment of debt, debt issuance costs, the repurchase of common stock, and the proceeds from the sale or the use of funds from the purchase of business operations, including transaction costs. Free cash flow should not be considered as an alternative to net income, operating income, cash flow from operating activities, or the change in cash on the balance sheet and may not be comparable with free cash flow as defined by other companies. Even though the company feels that there is no comparable GAAP measure for free cash flow, the attached financial information reconciles free cash flow to the net increase in cash and cash equivalents.

With headquarters in Cincinnati, Ohio, Cincinnati Bell provides integrated communications solutions-including local, long distance, data, Internet, entertainment and wireless services-that keep residential and business clients in Greater Cincinnati and Dayton connected with each other and with the world. Just in case, businesses nationwide ranging in size from start-up companies to large enterprises turn to Cincinnati Bell for efficient, scalable office communications systems as so then as complex information research solutions including data center colocation and managed services. For more information, visit www.cincinnatibell.com.

The more descriptive Wireline revenue captions

* Elements of Wireline revenue were revised primarily to reclassify Fioptics product revenue from Wireline other to the more descriptive Wireline revenue captions.

** 2009 amounts have been revised to present the split of the Innovation Solutions segment into the Data Center Colocation segment and the IT Services and Hardware Segment.

* 2009 amounts have been revised to present the split of the Research Solutions segment into the Data Center Colocation segment and the IT Services and Hardware Segment

*  2009 amounts have been revised to split the Innovation Solutions segment into the Data Center Colocation and IT Services and Hardware segments

*  Amounts have been revised to split the Research Solutions segment into the Data Center Colocation and IT Services and Hardware