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[ www.kiesling.com ]

2012 Telergee Conference For CFO’s and Controllers October 17 and 18, 2012

Management Reporting ImprovementsMatt Macdonald, Partner

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Agenda

• Future – Impact on Financial Reporting

• Wholesale & Retail Centers

• Payroll and Cost Allocations

• Example

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Future – Impact on Reporting

• ARRA• Access Lines Declining• Regulated Revenues and Operating

Margins Declining• USF/ICC Uncertainty

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Retail Profit Segments

• Voice• Data• Video • LD• Other

Customer Revenues- Direct Expenses

Contribution Margin

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Measuring Results

Recurring Monthly

Expenses Nonrecurring Expenses

Depreciation Expense

Customer Revenues

Operating Margin

Cash FlowMargin

Contribution Margin

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Wholesale Segments

Network

General Support

Corporate

Customer

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Wholesale Income

Expenses

Revenues

• Switched Access/USF

• Special Access

• Network Leases

• Depreciation 22-2400’s

• Plant Specific 62-6400’s

• Plant Nonspecific 6530’s

• General Taxes 7240’s

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Operating Income

• This is the report card

• How do we plan to have operating income

• How do we break operating income into operating decisions?

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Tools• ARPU – Average Revenue per user• ACPU – Average Cost per user• Service Users = Subscribers• Network Users = Households• Variable Costs• CM = Contribution Margin• Budget = One Year Locked Down Forecast

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Do you prepare a Budget?

1 2 3 4

25% 25%25%25%1. Capital Expenditure Only

2. Capital Expenditures and Income Statement Only

3. Full Budget for Income Statement, Balance Sheet, and Cash Flows

4. We do not prepare a Budget

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How Often Do You Compare the Budget to Actual?

1 2 3 4

0% 0%0%0%

1. Monthly

2. Quarterly

3. Annually

4. Never

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Customer Revenues

Historical

RevenuesSubscribers

ARPU

Direct CostsFixed

Variable

CountACPU

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Payroll

•Labor Distribution by Employee Account

•Separate Labor from other account activity

•Pay rates

•Employees

•Distribution

•Overheads

•Clearing

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Cost Allocations

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Wholesale Cost Centers

• Network per Household

• General Support per Household

• Corporate per Household

• Customer per Household

• Net Cost per Household $30 $50

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Retail Profit Centers

Today

Voice CM per Sub $15 100% $15

Data CM per Sub $35 60% $21

Video CM per Sub $0 40% $0

Other CM per Sub $? ?% $?

$36

Tomorrow

$15 100% $15

$35 90% $31

$4 50% $2

$10 50% $5

$53

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Sum of Amount Column LabelsPS PS Total CS CS Total Grand Total

Row Labels Voice Data Video LD Other Network General Support Customer Corporate IntercompanyRevenue

Internet services 1,300,000.00$ 1,300,000.00$ 1,300,000.00$ Local network services 1,040,000.00$ 1,040,000.00$ 600,000.00$ 600,000.00$ 1,640,000.00$ Long distance services 100,000.00$ 100,000.00$ 100,000.00$ Miscellaneous services 150,000.00$ 150,000.00$ 75,000.00$ 20,000.00$ 95,000.00$ 245,000.00$ Network access services 350,000.00$ 350,000.00$ 1,600,000.00$ 1,600,000.00$ 1,950,000.00$ Video services 1,000,000.00$ 1,000,000.00$ 1,000,000.00$

Revenue Total 1,390,000.00$ 1,300,000.00$ 1,000,000.00$ 100,000.00$ 150,000.00$ 3,940,000.00$ 1,600,000.00$ 75,000.00$ 620,000.00$ 2,295,000.00$ 6,235,000.00$ Expense

Corporate operations (660,000.00)$ (660,000.00)$ (660,000.00)$ Cost of internet services (300,000.00)$ (300,000.00)$ (20,000.00)$ (20,000.00)$ (400,000.00)$ (440,000.00)$ (740,000.00)$ Cost of long distance services (60,000.00)$ (60,000.00)$ (60,000.00)$ Cost of video service (960,000.00)$ (960,000.00)$ (20,000.00)$ (20,000.00)$ (20,000.00)$ (200,000.00)$ (260,000.00)$ (1,220,000.00)$ Customer operations (400,000.00)$ (20,000.00)$ (420,000.00)$ (420,000.00)$ Depreciation (25,000.00)$ (150,000.00)$ (175,000.00)$ (850,000.00)$ (150,000.00)$ (1,000,000.00)$ (1,175,000.00)$ General taxes (175,000.00)$ (175,000.00)$ (175,000.00)$ Plant nonspecific operations (300,000.00)$ (300,000.00)$ (300,000.00)$ Plant specific operations (700,000.00)$ (125,000.00)$ (825,000.00)$ (825,000.00)$

Expense Total (325,000.00)$ (1,110,000.00)$ (60,000.00)$ (1,495,000.00)$ (2,025,000.00)$ (295,000.00)$ (440,000.00)$ (700,000.00)$ (620,000.00)$ (4,080,000.00)$ (5,575,000.00)$ Grand Total 1,390,000.00$ 975,000.00$ (110,000.00)$ 40,000.00$ 150,000.00$ 2,445,000.00$ (425,000.00)$ (295,000.00)$ (365,000.00)$ (700,000.00)$ -$ (1,785,000.00)$ 660,000.00$

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Questions?

Matt Macdonald, Partnermmacdonald@kiesling.com

608.664.9110Madison, WI 53593

Thank you!