Tuesday, April 30, 2002
Owners, workers blast Broadwing
Executives' raises questioned amid company stock slump
By Mike Boyer, email@example.com
The Cincinnati Enquirer
Shareholders and employees of Broadwing Inc., who have seen the company's stock plummet more than 70 percent in the past year, vented their displeasure with the company's management at Monday's annual meeting.
Particularly at issue were base pay increases granted Rick Ellenberger, Broadwing's chairman-elect and CEO, and other senior managers.
James Kiggen Broadwing's first chairman, who is retiring after 19 years as a director at Cincinnati Bell and Broadwing said the board annually sets objectives for senior managers at the start of each year and and evaluates their performance at year-end.
The bonuses for the top officers reflected excessively excellent achievement against the rest of the industry, Mr. Kiggen said.
Mr. Ellenberger's base salary increased 15 percent last year to $802,885 while his bonus rose 11 percent to $675,000.
Broadwing, formed by the 1999 acquisition of IXC Communications by Cincinnati Bell, boosted revenues 15 percent last year to $2.35 billion and increased earnings before interest, taxes, depreciation and amortization (known as EBITDA) by 26 percent while reporting a narrower net loss of $286 million, or $1.36 a share.
Two shareholders asked the board to consider stock price appreciation and net income in determining management performance bonuses in the future.
Mr. Ellenberger said no one could have foreseen the dramatic changes that have reshaped the telecommunications industry over the last year. About 35 telecommunications companies have filed for bankruptcy, 500,000 jobs have been eliminated and more than $1 trillion in market value has been lost. But the fundamentals of your company remain strong and leverageable, Mr. Ellenberger told shareholders.
Mr. Ellenberger said company officials weren't happy with the decline in Broadwing's stock price, but noted that the company wasn't alone. Competitors such as Verizon and SBC Communications are seeing stock prices also at four-year lows. He said the market's current disfavor with telecommunications stocks will turn around.
Broadwing's investment in wireless and high-speed Internet service is starting to generate profits for the parent company, and Broadwing Communications, its network business, has generated $75 million in business for Cincinnati Bell.
The company's mix of local and long-distance service; residential and business customers; and technology-leading, all-optical, fiber-optic network position it to be a survivor, he said.
The labor contract for about 2,400 members of the Communications Workers of America at Cincinnati Bell expires at midnight May 11. Members of the union demonstrated outside the meeting at the Northern Kentucky Convention Center and questioned company officials after the meeting.
Mr. Ellenberger said the company doesn't want to see a strike. Hopefully, both sides will find a way to bring it home without a work stoppage, he said.
Seth Rosen, a CWA official, said Bell was trying to shift a portion of health-care costs onto employees.
A Bell spokeswoman said the rising cost of health care has forced the company to ask employees to share a portion of the burden. Under the union's contract, CWA members now make no monthly contribution to their insurance and pay a portion of office visits and for prescription costs, she said.
Under new corporate accounting rules for the amortization of goodwill taking effect this year, Broadwing will take a noncash charge estimated at more than $1 billion in the current quarter to reflect the decline in value of assets acquired in the IXC acquisitions.
Mr. Rosen said Broadwing's write-off represents about 16 percent of the value of its network assets while goodwill write-offs by some of its larger competitors amount to only 1 percent of their network assets.
A company spokeswoman said she couldn't verify the comparison.
In response to other questions, officials said the company isn't in danger of violating loan covenants with its lenders and still expects to refinance or pay down a portion of its $2.5 billion in debt coming due in the next few years.
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