Cincinnati Bell Reports Fourth Quarter and Full Year 2011 Results

In the fourth quarter of 2011, revenue was $365 million compared to $363 million in the same period of 2010, and operating income in the quarter amounted to $9 million, down from $65 million in the fourth quarter of 2010 due primarily to the goodwill impairment loss mentioned above. Adjusted EBITDA was $132 million, up 4 percent from the fourth quarter of 2010. Fourth quarter 2011 net income excluding special items was comparable to 2010 at $8 million, and diluted earnings per share excluding special items were also flat to 2010 at 3 cents.

?We finished off 2011 with great results that reflected solid execution across all our businesses and that once again enabled us to exceed all the financial targets we established at the beginning of the year,? said Jack Cassidy, president and chief executive officer. ?In terms of both revenue and Adjusted EBITDA, this has been the company?s best year since 2003, and we are particularly pleased with the growth momentum of our data center business and the strong and stable performance of our legacy communications business.?

Fourth Quarter and Full-Year Performance Highlights

* Plus or minus 2 percent.

Financial and Operations Review

?Our full year results continue to show that our strategy is the right one and is being well executed,? said Kurt Freyberger, chief financial officer. ?Our communications business generated strong EBITDA and cash flow, and the reinvestment of this cash flow into data center opportunities created significant growth in the data center colocation business.?

Data Center Colocation Segment

For the quarter, revenue of $49 million represents an increase of $9 million, or 21 percent, compared to the same period a year ago, and the segment?s operating income was $10 million, an increase of 12 percent compared to 2010. Adjusted EBITDA of $27 million reflects a 16 percent increase over the same period in 2010. During the quarter, the company added 27,000 square feet of new data center space, increasing capacity to 763,000 square feet, and sold 43,000 square feet, resulting in quarter-end utilization of 88 percent. The segment's Adjusted EBITDA margin in the quarter was 56 percent, down slightly from 2010 as the company continues to incur marketing and operating costs in line with its plans to be the preferred global data center colocation provider to the Fortune 1000.

For the full year, revenue of $185 million was 47 percent higher than 2010 due to the CyrusOne acquisition in mid-2010 and the new data center space sold in 2011. The segment completed construction on 124,000 square feet of additional data center space in 2011 and sold 110,000 square feet. Operating income totaled $46 million, an increase of 36 percent over 2010, while Adjusted EBITDA of $102 million was 45 percent higher than 2010. The Adjusted EBITDA margin for the full year was 55 percent, comparable to the 56 percent margin in 2010.

Wireline Segment

For the quarter, Wireline revenue was $180 million, down only one percent from the fourth quarter of 2010, and operating income of $48 million represents an 8 percent decrease from the same period in 2010. Adjusted EBITDA totaled $88 million, comparable to the fourth quarter of 2010 and one percent improved over the third quarter of 2011. The Adjusted EBITDA margin was 49 percent, a slight improvement from 48 percent in both the fourth quarter of 2010 and the prior quarter. The company continues to be successful in mitigating the negative impact on revenue and Adjusted EBITDA of ongoing access line losses through growth in entertainment, data and VoIP product lines and its cost reduction efforts.

The segment passed 19,000 additional homes and businesses during the quarter with its Fioptics product suite, bringing the total number of units passed to 134,000. The company expects to pass approximately 40,000 additional units in 2012. Wireline added 2,000 new Fioptics entertainment subscribers during the fourth quarter, or 12,000 for the year, bringing the total base to 40,000 customers. High-speed internet subscribers using Fioptics increased by 12,000 in 2011, more than offsetting the decline in DSL of 11,000. Total high-speed internet subscribers were 257,000 at the end of 2011.

For the year, Wireline revenue totaled $732 million, only a one percent decrease from 2010, while operating income and Adjusted EBITDA both decreased by 2 percent to $229 million and $355 million, respectively. Adjusted EBITDA margin for 2011 was 49 percent, comparable to 2010.

Wireless Segment

For the quarter, Wireless revenue of $68 million decreased by 2 percent from the same period in 2010 but remained flat compared to the third quarter of 2011. The Wireless segment continues to operate in a fiercely competitive environment and has seen total subscribers decrease by 10 percent during the full year of 2011. These conditions are expected to continue into the foreseeable future and, as a result, Wireless incurred a $50 million non-cash goodwill impairment loss during the fourth quarter, driving an operating loss of $40 million. Adjusted EBITDA in the quarter of $19 million, which excludes the impairment charge, reflects a 44 percent increase over the fourth quarter of 2010, and the Adjusted EBITDA margin improved to 28 percent from 19 percent in the same period of 2010.

For the full year, Wireless revenue was $278 million, a 4 percent decrease from 2010, and operating income was $3 million, down $53 million primarily due to the goodwill impairment loss discussed above. Adjusted EBITDA totaled $88 million for the year compared to $91 million in 2010, while Adjusted EBITDA margin for 2011 improved to 32 percent from 31 percent in 2010.

Total wireless subscribers decreased to 459,000 at the end of the fourth quarter, from 509,000 at the end of 2010 and 472,000 at the end of the third quarter of 2011. The segment added 3,000 postpaid smartphone subscribers during the quarter, bringing the total to 106,000 at the end of the fourth quarter. Postpaid smartphone subscribers now represent 34 percent of the total postpaid subscribers, up from 27 percent at the end of 2010.

Postpaid average revenue per user (ARPU) in the fourth quarter was $50.32, comparable to the third quarter of 2011 but up from $48.87 in the fourth quarter of 2010. The growing penetration of smartphone subscribers has fueled data ARPU which increased 28 percent over the fourth quarter of 2010, fully offsetting the 5 percent decline in voice ARPU. Postpaid churn for the year increased slightly to 2.2 percent from 2.1 percent in 2010, while prepaid churn was 6.5 percent compared to 6.2 percent in 2010.

Prepaid smartphone subscribers also increased to 19,000 at the end of the fourth quarter, up from 9,000 at the end of 2010 and 17,000 at the end of the third quarter of 2011. Prepaid ARPU in the fourth quarter of $28.58 is comparable to $28.48 in the third quarter of 2011, but is down from $29.38 in the fourth quarter of 2010.

IT Services and Hardware Segment

For the quarter, revenue was $76 million compared to $78 million in the fourth quarter of 2010, while Adjusted EBITDA of $5 million reflects a $2 million decrease from the fourth quarter of 2010. Adjusted EBITDA margin was 6 percent, down from 9 percent in the fourth quarter of 2010.

For the full year, IT Services and Hardware revenue of $301 million was the highest generated by the segment in the last five years and represents an 18 percent increase over 2010. The segment?s Adjusted EBITDA was $20 million, an increase of 40 percent over 2010, while the Adjusted EBITDA margin of 7 percent for the year was an improvement from 6 percent in 2010.

2012 Outlook

Cincinnati Bell is providing the following guidance for 2012:

Category

2012 Guidance

*Plus or minus 2 percent

Conference Call/Webcast

Cincinnati Bell will host a conference call today at 5:00 p.m. (ET) to discuss its results for the full year and fourth quarter of 2011. A live webcast of the call will be available via the Investor Relations section of www.cincinnatibell.com. The conference call dial-in number is (866) 780-1078. Callers located outside of the U.S. and Canada may dial (816) 581-1570. A taped replay of the conference call will be available one hour after the conclusion of the call until 5:00 p.m. on Thursday February 23, 2012. For U.S. callers, the replay will be available at (888) 203-1112. For callers outside of the U.S. and Canada, the replay will be available at (719) 457-0820. The replay reference number is 4412546. An archived version of the webcast will also be available in the Investor Relations section of www.cincinnatibell.com.

Safe Harbor Note

This release and the documents incorporated by reference herein contain forward-looking statements regarding future events and our future results that are subject to the ?safe harbor? provisions of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, are statements that could be deemed forward-looking statements. These statements are based on current expectations, estimates, forecasts, and projections about the industries in which we operate and the beliefs and assumptions of our management. Words such as ?expects,? ?anticipates,? ?predicts,? ?projects,? ?intends,? ?plans,? ?believes,? ?seeks,? ?estimates,? ?continues,? ?endeavors,? ?strives,? ?may,? variations of such words and similar expressions are intended to identify such forward-looking statements. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses, and other characterizations of future events or circumstances are forward-looking statements. Readers are cautioned these forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties, which could cause our actual results to differ materially and adversely from those reflected in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this release and those discussed in other documents we file with the Securities and Exchange Commission (SEC). More information on potential risks and uncertainties is available in our recent filings with the SEC, including Cincinnati Bell's Form 10-K report, Form 10-Q reports and Form 8-K reports. Actual results may differ materially and adversely from those expressed in any forward-looking statements. We undertake no obligation to revise or update any forward-looking statements for any reason.

Use of Non-GAAP Financial Measures

This press release contains information about adjusted earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA), Adjusted EBITDA margin, free cash flow, net income excluding special items, utilization, and net debt. These are non-GAAP financial measures used by Cincinnati Bell management when evaluating results of operations and cash flow. Management believes these measures also provide users of the financial statements with additional and useful comparisons of current results of operations and cash flows with past and future periods. Non-GAAP financial measures should not be construed as being more important than comparable GAAP measures. Detailed reconciliations of these non-GAAP financial measures to comparable GAAP financial measures have been included in the tables distributed with this release and are available in the Investor Relations section of www.cincinnatibell.com.

1Net income excluding special items in total and per share provides a useful measure of operating performance. Net income excluding special items should not be considered as an alternative to comparable GAAP measures of profitability and may not be comparable with net income excluding special items as defined by other companies.

2Adjusted EBITDA provides a useful measure of operational performance. The Company defines Adjusted EBITDA as GAAP operating income plus depreciation, amortization, restructuring charges, asset impairments, components of pension and other retirement plan costs related to interest costs, asset returns, and amortization of actuarial gains and losses, and other special items.

3Utilization provides a useful measure of asset performance. It is calculated by dividing data center square footage that is committed contractually to customers, if built, by total data center square footage. Some data center square footage that is committed contractually may not yet be billing to the customer.

4Adjusted EBITDA margin provides a useful measure of operational performance. The Company defines Adjusted EBITDA margin as Adjusted EBITDA divided by revenue. Adjusted EBITDA margin should not be considered as an alternative to comparable GAAP measures of profitability and may not be comparable with the measure as defined by other companies.

5Free cash flow provides a useful measure of operational performance, liquidity and financial health. The Company defines free cash flow as cash provided by (used in) 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 (loss), operating income (loss), 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. Although 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 (decrease) in cash and cash equivalents.

Net debt provides a useful measure of liquidity and financial health. The Company defines net debt as the sum of the face amount of short-term and long-term debt and unamortized premium and/or discount, offset by cash and cash equivalents.

About Cincinnati Bell Inc.

With headquarters in Cincinnati, Ohio, Cincinnati Bell (NYSE: CBB) provides integrated communications solutions-including local, long distance, data, Internet, entertainment and wireless services - that keep residential and business customers in Greater Cincinnati and Dayton connected with each other and with the world. In addition, Cincinnati Bell provides best-in-class data center colocation services to its enterprise customers through its facilities with fully redundant power and cooling solutions that are currently located in the Midwest, Texas, London and Singapore. Complementing the colocation products, Cincinnati Bell also offers complex information technology solutions like managed services and technology staffing. For more information, visit www.cincinnatibell.com.

Impairment of goodwill and other assets

8.1

116

Basic earnings (loss) per common share

Diluted earnings (loss) per common share

Weighted average common shares outstanding

(in millions)

Impairment of goodwill and other assets

30.5

Basic earnings (loss) per common share

Diluted earnings (loss) per common share

(in millions)

*Other includes restructuring charges, curtailment loss, gain on sale of assets, impairment of goodwill, asset impairments, and acquisition costs

)%

)%

n/m

Operating Income (Loss)

(26

)%

*Other includes restructuring charges, gain on sale of assets, impairment of goodwill, asset impairments, and acquisition costs

Data center utilization is calculated by dividing data center square footage that is committed contractually to customers, if built, by total data center square footage. Some data center square footage that is committed contractually may not yet be billing to the customer.

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

Local Access Lines

Reconciliation of Net Income (Loss) (GAAP) to Adjusted EBITDA (Non-GAAP)

Data CenterColocation

IT Services &Hardware

TotalCompany

Net Loss (GAAP)

Income tax benefit

Other expense, net

Impairment of goodwill and other assets

Data CenterColocation

IT Services &Hardware

TotalCompany

Data CenterColocation

IT Services &Hardware

TotalCompany

Net Loss (GAAP)

Income tax benefit

Data CenterColocation

IT Services &Hardware

TotalCompany

Impairment of goodwill and other assets

Data CenterColocation

IT Services &Hardware

Corporate

TotalCompany

(88.5

(255.5

(87.2

(244.7

Financing obligations and other, net

(15.7

(16.1

(21.2

(48.8

(40.0

Increase in interest payments

1.5

(105.8

(0.7

41.3

88.5

Impairment of goodwill and other assets

Other expense, net

Diluted earnings (loss) per common share*

Costs associated with investigation and resolution of special legal matters.

Restructuring charges incurred for employee separations, lease abandonments and contract terminations.

Impairment of Wireless goodwill and impairment recorded to reduce carrying value of property to reflect its estimated fair value.

* 

The sum of the GAAP and Special Items per share results will not necessarily equal the Non-GAAP per share result.

Diluted earnings (loss) per common share*

* 

Impairment of goodwill and other assets

Other expense, net

Costs associated with investigation and resolution of special legal matters.

Impairment of Wireless goodwill and impairment recorded to reduce carrying value of property to reflect its estimated fair value.

* 

Future lease costs of abandoned office space and employee separations.

Loss on extinguishment of the 8 3/8% Senior Subordinated Notes due 2014 and Tranche B Term Loan.

Includes a $3.9 million charge for a change in federal tax law related to retiree Medicare drug subsidies, and income tax expense impact from other special items.

2012 Operating Income (GAAP) Guidance

2012 Adjusted EBITDA (Non-GAAP) Guidance

  *