0001564590-21-020361.txt : 20210423 0001564590-21-020361.hdr.sgml : 20210423 20210423163203 ACCESSION NUMBER: 0001564590-21-020361 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 77 CONFORMED PERIOD OF REPORT: 20210331 FILED AS OF DATE: 20210423 DATE AS OF CHANGE: 20210423 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CINCINNATI BELL INC CENTRAL INDEX KEY: 0000716133 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE COMMUNICATIONS (NO RADIO TELEPHONE) [4813] IRS NUMBER: 311056105 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08519 FILM NUMBER: 21850242 BUSINESS ADDRESS: STREET 1: 221 E FOURTH ST CITY: CINCINNATI STATE: OH ZIP: 45202 BUSINESS PHONE: 513-397-9900 MAIL ADDRESS: STREET 1: P O BOX 2301 CITY: CINCINNATI STATE: OH ZIP: 45201 FORMER COMPANY: FORMER CONFORMED NAME: BROADWING INC DATE OF NAME CHANGE: 20000512 FORMER COMPANY: FORMER CONFORMED NAME: CINCINNATI BELL INC /OH/ DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: CBI INC DATE OF NAME CHANGE: 19830814 10-Q 1 cbb-10q_20210331.htm 10-Q cbb-10q_20210331.htm
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2021

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from              to             

Commission File Number 1-8519

CINCINNATI BELL INC.

 

Ohio

 

31-1056105

(State of Incorporation)

 

(I.R.S. Employer Identification No.)

 

221 East Fourth Street, Cincinnati, Ohio 45202

(Address of principal executive offices) (Zip Code)

(513) 397-9900

(Registrant’s telephone number, including area code)

Title of Each Class

 

Trading Symbol(s)

 

Name of Each Exchange on

Which Registered

Common Shares ($0.01 par value)

 

CBB

 

New York Stock Exchange

Depositary Shares, each representing 1/20

interest in a Share of 6 ¾% Cumulative
Convertible Preferred Stock
, without par value

 

CBB.PB

 

New York Stock Exchange

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes       No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T ( § 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes       No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer

 

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes     No  

Securities Registered Pursuant to Section 12(b) of the Act:

 

At March 31, 2021, there were 50,920,546 common shares outstanding.

 

 


 

TABLE OF CONTENTS

 

PART I. Financial Information

 

 

 

 

 

 

 

 

 

Description

 

 

 

Page

Item 1.

 

Financial Statements

 

 

 

 

Condensed Consolidated Statements of Operations (Unaudited) Three Months Ended March 31, 2021 and 2020

 

1

 

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) Three Months Ended March 31, 2021 and 2020

 

2

 

 

 

 

 

 

 

Condensed Consolidated Statements of Shareowners' Deficit (Unaudited) Three Months Ended March 31, 2021 and 2020

 

3

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets (Unaudited) March 31, 2021 and December 31, 2020

 

4

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows (Unaudited) Three Months Ended March 31, 2021 and 2020

 

5

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

6

 

 

 

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

21

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures about Market Risk

 

33

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

33

 

 

 

 

 

 

 

PART II. Other Information

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

34

 

 

 

 

 

Item 1A.

 

Risk Factors

 

34

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

34

 

 

 

 

 

Item 3.

 

Default upon Senior Securities

 

34

 

 

 

 

 

Item 4.

 

Mine Safety Disclosure

 

34

 

 

 

 

 

Item 5.

 

Other Information

 

34

 

 

 

 

 

Item 6.

 

Exhibits

 

35

 

 

 

 

 

 

 

Signatures

 

36

 

 

 


 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in millions, except per share amounts)

(Unaudited)

 

 

 

Three Months Ended

March 31,

 

 

 

2021

 

 

2020

 

Revenue

 

$

409.9

 

 

$

380.0

 

 

 

 

 

 

 

 

 

 

Costs and expenses

 

 

 

 

 

 

 

 

Cost of services and products, excluding items below

 

 

220.1

 

 

 

193.7

 

Selling, general and administrative, excluding items below

 

 

83.8

 

 

 

88.0

 

Depreciation and amortization

 

 

71.0

 

 

 

74.2

 

Restructuring and severance related charges

 

 

0.5

 

 

 

15.2

 

Transaction and integration costs

 

 

1.9

 

 

 

29.1

 

Total operating costs and expenses

 

 

377.3

 

 

 

400.2

 

Operating income (loss)

 

 

32.6

 

 

 

(20.2

)

Interest expense

 

 

32.4

 

 

 

33.7

 

Other components of pension and postretirement benefit plans expense

 

 

2.6

 

 

 

2.6

 

Other expense (income), net

 

 

0.2

 

 

 

(0.8

)

Loss before income taxes

 

 

(2.6

)

 

 

(55.7

)

Income tax expense (benefit)

 

 

0.4

 

 

 

(21.7

)

Net loss

 

 

(3.0

)

 

 

(34.0

)

Preferred stock dividends

 

 

2.6

 

 

 

2.6

 

Net loss applicable to common shareowners

 

$

(5.6

)

 

$

(36.6

)

 

 

 

 

 

 

 

 

 

Basic and diluted net loss per common share

 

$

(0.11

)

 

$

(0.72

)

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

1


 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Dollars in millions)

(Unaudited)

 

 

 

Three Months Ended

March 31,

 

 

 

2021

 

 

2020

 

Net loss

 

$

(3.0

)

 

$

(34.0

)

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

Foreign currency translation gain (loss)

 

 

1.0

 

 

 

(6.9

)

Cash flow hedges:

 

 

 

 

 

 

 

 

Unrealized gain (loss) on cash flow hedges arising during the period, net of tax of $0.2, ($3.0)

 

 

0.6

 

 

 

(10.1

)

Reclassification adjustment for net losses included in net income, net of tax of $0.5, $0.3

 

 

1.8

 

 

 

1.1

 

Defined benefit plans:

 

 

 

 

 

 

 

 

Amortization of prior service benefits included in net income, net of tax of ($0.1), ($0.1)

 

 

(0.5

)

 

 

(0.5

)

Amortization of net actuarial loss included in net income, net of tax of $1.4, $1.0

 

 

4.9

 

 

 

3.7

 

Total other comprehensive income (loss)

 

 

7.8

 

 

 

(12.7

)

Total comprehensive income (loss)

 

$

4.8

 

 

$

(46.7

)

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

2


 

CONDENSED CONSOLIDATED STATEMENTS OF SHAREOWNERS' DEFICIT

(Dollars in millions)

(Unaudited)

 

 

 

6 3/4 % Cumulative

Convertible

Preferred Shares

 

 

Common Shares

 

 

Additional

Paid-in

 

 

Accumulated

 

 

Accumulated

Other

Comprehensive

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Loss

 

 

Total

 

Balance at December 31, 2020

 

 

3.1

 

 

$

129.4

 

 

 

50.7

 

 

$

0.5

 

 

$

2,670.3

 

 

$

(2,831.6

)

 

$

(159.7

)

 

$

(191.1

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3.0

)

 

 

 

 

 

(3.0

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7.8

 

 

 

7.8

 

Shares issued under employee plans

 

 

 

 

 

 

 

 

0.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares purchased under employee plans and other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2.0

)

 

 

 

 

 

 

 

 

(2.0

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1.3

 

 

 

 

 

 

 

 

 

1.3

 

Dividends on preferred stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2.6

)

 

 

 

 

 

 

 

 

(2.6

)

Balance at March 31, 2021

 

 

3.1

 

 

$

129.4

 

 

 

50.9

 

 

$

0.5

 

 

$

2,667.0

 

 

$

(2,834.6

)

 

$

(151.9

)

 

$

(189.6

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2019

 

 

3.1

 

 

$

129.4

 

 

 

50.4

 

 

$

0.5

 

 

$

2,676.2

 

 

$

(2,776.0

)

 

$

(170.1

)

 

$

(140.0

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(34.0

)

 

 

 

 

 

(34.0

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(12.7

)

 

 

(12.7

)

Shares issued under employee plans

 

 

 

 

 

 

 

 

0.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares purchased under employee plans and other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1.1

)

 

 

 

 

 

 

 

 

(1.1

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1.7

 

 

 

 

 

 

 

 

 

1.7

 

Dividends on preferred stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2.6

)

 

 

 

 

 

 

 

 

(2.6

)

Balance at March 31, 2020

 

 

3.1

 

 

$

129.4

 

 

 

50.6

 

 

$

0.5

 

 

$

2,674.2

 

 

$

(2,810.0

)

 

$

(182.8

)

 

$

(188.7

)

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

3


 

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in millions, except share amounts)

(Unaudited)  

 

 

 

March 31,

 

 

December 31,

 

 

 

2021

 

 

2020

 

Assets

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

6.7

 

 

$

12.2

 

Receivables, less allowances of $18.7 and $23.0

 

 

308.1

 

 

 

369.6

 

Inventory, materials and supplies

 

 

38.6

 

 

 

35.5

 

Prepaid expenses

 

 

37.7

 

 

 

33.5

 

Other current assets

 

 

7.8

 

 

 

8.3

 

Total current assets

 

 

398.9

 

 

 

459.1

 

Property, plant and equipment, net

 

 

1,731.6

 

 

 

1,729.1

 

Operating lease right-of-use assets

 

 

36.6

 

 

 

37.4

 

Goodwill

 

 

162.0

 

 

 

161.5

 

Intangible assets, net

 

 

145.0

 

 

 

148.1

 

Deferred income tax assets

 

 

80.8

 

 

 

82.5

 

Other noncurrent assets

 

 

48.3

 

 

 

50.9

 

Total assets

 

$

2,603.2

 

 

$

2,668.6

 

Liabilities and Shareowners’ Deficit

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Current portion of long-term debt

 

$

23.1

 

 

$

21.8

 

Accounts payable

 

 

269.2

 

 

 

299.2

 

Unearned revenue and customer deposits

 

 

52.5

 

 

 

68.9

 

Accrued taxes

 

 

26.3

 

 

 

28.1

 

Accrued interest

 

 

24.5

 

 

 

26.7

 

Accrued payroll and benefits

 

 

43.0

 

 

 

50.5

 

Other current liabilities

 

 

47.5

 

 

 

50.9

 

Total current liabilities

 

 

486.1

 

 

 

546.1

 

Long-term debt, less current portion

 

 

1,952.5

 

 

 

1,949.9

 

Operating lease liabilities

 

 

33.1

 

 

 

33.6

 

Pension and postretirement benefit obligations

 

 

194.2

 

 

 

200.2

 

Pole license agreement obligation

 

 

36.4

 

 

 

36.7

 

Deferred income tax liabilities

 

 

10.6

 

 

 

10.9

 

Other noncurrent liabilities

 

 

79.9

 

 

 

82.3

 

Total liabilities

 

 

2,792.8

 

 

 

2,859.7

 

Shareowners’ deficit

 

 

 

 

 

 

 

 

Preferred stock, 2,357,299 shares authorized; 155,250 shares (3,105,000 depositary shares) of 6 3/4% Cumulative Convertible Preferred Stock issued and outstanding at March 31, 2021 and December 31, 2020; liquidation preference $1,000 per share ($50 per depositary share)

 

 

129.4

 

 

 

129.4

 

Common shares, $.01 par value; 96,000,000 shares authorized; 50,920,546 and 50,680,605 shares issued and outstanding at March 31, 2021 and December 31, 2020

 

 

0.5

 

 

 

0.5

 

Additional paid-in capital

 

 

2,667.0

 

 

 

2,670.3

 

Accumulated deficit

 

 

(2,834.6

)

 

 

(2,831.6

)

Accumulated other comprehensive loss

 

 

(151.9

)

 

 

(159.7

)

Total shareowners’ deficit

 

 

(189.6

)

 

 

(191.1

)

Total liabilities and shareowners’ deficit

 

$

2,603.2

 

 

$

2,668.6

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

4


 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in millions)

(Unaudited)

 

 

 

Three Months Ended

March 31,

 

 

 

2021

 

 

2020

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(3.0

)

 

$

(34.0

)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

71.0

 

 

 

74.2

 

Provision for loss on receivables

 

 

 

 

 

4.5

 

Noncash portion of interest expense

 

 

1.4

 

 

 

1.4

 

Deferred income taxes

 

 

(0.9

)

 

 

(20.3

)

Pension and other postretirement payments in excess of expense

 

 

(0.3

)

 

 

(0.2

)

Stock-based compensation

 

 

1.3

 

 

 

1.7

 

Other, net

 

 

(0.3

)

 

 

0.4

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Decrease in receivables

 

 

61.5

 

 

 

29.0

 

Increase in inventory, materials, supplies, prepaid expenses and other current assets

 

 

(9.0

)

 

 

(0.5

)

Decrease in accounts payable

 

 

(33.9

)

 

 

(5.3

)

Decrease in accrued and other current liabilities

 

 

(30.8

)

 

 

(25.1

)

Decrease in other noncurrent assets

 

 

3.3

 

 

 

2.7

 

(Decrease) increase in other noncurrent liabilities

 

 

(0.5

)

 

 

0.6

 

Net cash provided by operating activities

 

 

59.8

 

 

 

29.1

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(60.7

)

 

 

(50.9

)

Other, net

 

 

0.1

 

 

 

 

Net cash used in investing activities

 

 

(60.6

)

 

 

(50.9

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

Net increase in corporate credit and receivables facilities with initial maturities less than 90 days

 

 

5.8

 

 

 

31.1

 

Repayment of debt

 

 

(5.8

)

 

 

(6.2

)

Dividends paid on preferred stock

 

 

(2.6

)

 

 

(2.6

)

Other, net

 

 

(2.0

)

 

 

(1.1

)

Net cash (used in) provided by financing activities

 

 

(4.6

)

 

 

21.2

 

Effect of exchange rate changes on cash, cash equivalents and restricted cash

 

 

(0.1

)

 

 

(0.4

)

Net decrease in cash, cash equivalents and restricted cash

 

 

(5.5

)

 

 

(1.0

)

Cash, cash equivalents and restricted cash at beginning of period

 

 

17.2

 

 

 

11.6

 

Cash, cash equivalents and restricted cash at end of period

 

$

11.7

 

 

$

10.6

 

Noncash investing and financing transactions:

 

 

 

 

 

 

 

 

Acquisition of property by assuming debt and other noncurrent liabilities

 

$

3.5

 

 

$

0.3

 

Acquisition of property on account

 

$

29.2

 

 

$

25.6

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

5


 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)  

 

1.    Description of Business and Accounting Policies

Description of Business — Cincinnati Bell Inc. and its consolidated subsidiaries ("Cincinnati Bell," "we," "our," "us" or the "Company") provide diversified telecommunications and technology services. The Company generates a large portion of its revenue by serving customers in Cincinnati, Ohio, Dayton, Ohio and the islands of Hawaii. An economic downturn or natural disaster occurring in these, or a portion of these, limited operating territories could have a disproportionate effect on our business, financial condition, results of operations and cash flows compared to similar companies of a national scope and similar companies operating in different geographic areas.

The Company has receivables with one customer, Verizon Communications Inc., which make up 16% and 20% of the outstanding accounts receivable balance at March 31, 2021 and December 31, 2020, respectively. Revenue derived from foreign operations was approximately 6% and 5% of consolidated revenue for the three months ended March 31, 2021 and 2020, respectively.

Basis of Presentation — The Condensed Consolidated Financial Statements of the Company have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) and, in the opinion of management, include all adjustments necessary for a fair presentation of the results of operations, other comprehensive income, financial position and cash flows for each period presented.

The adjustments referred to above are of a normal and recurring nature. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to SEC rules and regulations for interim reporting.

The Condensed Consolidated Balance Sheet as of December 31, 2020 was derived from audited financial statements but does not include all disclosures required by U.S. GAAP. These Condensed Consolidated Financial Statements should be read in conjunction with the Company’s 2020 Annual Report on Form 10-K. Operating results for the three months ended March 31, 2021 are not necessarily indicative of the results expected for the full year or any other interim period.

Use of Estimates — Preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported. Actual results could differ from those estimates. In the normal course of business, the Company is subject to various regulatory and tax proceedings, lawsuits, claims and other matters. The Company believes adequate provision has been made for all such asserted and unasserted claims in accordance with U.S. GAAP. Such matters are subject to many uncertainties and outcomes that are not predictable with assurance.

Accounting Policies The complete summary of significant accounting policies is included in the notes to the consolidated financial statements as presented in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

Cash, Cash Equivalents and Restricted Cash — Cash consists of funds held in bank accounts. Cash equivalents consist of short-term, highly liquid investments with original maturities of three months or less. Restricted cash consists of funds held in an escrow account associated with the pending transaction to acquire substantially all of the operating assets of Paniolo Cable Company, LLC (“Paniolo”). See Note 3 for further information related to this transaction. Restricted cash is included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the Condensed Consolidated Statements of Cash Flows. A reconciliation of cash, cash equivalents and restricted cash to the Condensed Consolidated Balance Sheets follows:

(dollars in millions)

March 31, 2021

 

 

December 31, 2020

 

Cash and cash equivalents

$

6.7

 

 

$

12.2

 

Restricted cash included in Other noncurrent assets

 

5.0

 

 

 

5.0

 

Cash, cash equivalents and restricted cash per Condensed Consolidated Statements of Cash Flows

$

11.7

 

 

$

17.2

 

 

Restructuring Liability — As of March 31, 2021, restructuring liabilities have been established for employee separations. As of March 31, 2021 and December 31, 2020, $2.5 million and $4.5 million, respectively, of the restructuring liabilities was included in “Other current liabilities” in the Condensed Consolidated Balance Sheets.

Income and Operating Taxes

Income taxes — In accordance with Accounting Standards Codification (“ASC”) 740-270, the Company’s income tax provision for interim periods is determined through the use of an estimated annual effective tax rate applied to year-to-date ordinary income/loss plus or minus the tax effects of discrete items. The Company’s estimated annual effective tax rate benefit is lower than statutory rates primarily due to the effect of a valuation allowance applied against the deferred tax assets related to disallowed interest expense, as well as permanent items such as portions of officers’ compensation and meals and entertainment expenses that are not fully deductible for tax.

6


 

Operating taxes — Certain operating taxes such as property, sales, use, and gross receipts taxes are reported as expenses in operating income primarily within cost of services. These taxes are not included in income tax expense because the amounts to be paid are not dependent on our level of income. Liabilities for audit exposures are established based on management's assessment of the probability of payment. The provision for such liabilities is recognized as either property, plant and equipment, operating tax expense, or depreciation expense depending on the nature of the audit exposure. Upon resolution of an audit, any remaining liability not paid is released against the account in which it was originally recorded. Certain telecommunication taxes and surcharges that are collected from customers are also recorded as revenue; however, in accordance with ASC 606, revenue associated with these charges is excluded from the transaction price.

Derivative Financial Instruments — The Company accounts for derivative financial instruments by recognizing derivative instruments as either assets or liabilities in the Condensed Consolidated Balance Sheets at fair value and recognizing the resulting gains or losses as adjustments to the Condensed Consolidated Statements of Operations or "Accumulated Other Comprehensive Loss." The Company does not hold or issue derivative financial instruments for trading or speculative purposes.

For derivative instruments that hedge the exposure to variability in expected future cash flows that are designated and qualify as cash flow hedges, the gain or loss on the derivative instrument is reported as a component of "Accumulated Other Comprehensive Loss" in stockholder's equity and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. To receive hedge accounting treatment, cash flow hedges must be highly effective in offsetting changes to expected future cash flows on hedged transactions. Derivatives that do not qualify as hedges are adjusted to fair value through earnings in the current period.

Recently Issued Accounting Standards

In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity. The ASU reduces the number of accounting models for convertible debt instruments by eliminating the cash conversion and beneficial conversion models. As compared with current U.S. GAAP, more convertible debt instruments will be reported as a single liability instrument and the interest rate of more convertible debt instruments will be closer to the coupon interest rate. In addition, the ASU increases information related to disclosures for convertible instruments and aligns the consistency of diluted Earnings Per Share ("EPS") calculations for convertible instruments by requiring that (1) an entity use the if-converted method and (2) share settlement be included in the diluted EPS calculation for both convertible instruments and equity contracts when those contracts include an option of cash settlement or share settlement. The ASU is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company is currently evaluating the impact this guidance may have on its condensed consolidated financial statements and related disclosures and plans to adopt for the fiscal year beginning January 1, 2022.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The ASU is intended to provide temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates. These amendments are effective as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020 and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. The Company is currently evaluating our contracts and the optional expedients provided by the new standard.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes, eliminates certain exceptions within Income Taxes (740), and clarifies certain aspects of the current guidance to promote consistency among reporting entities, and is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2020. Most amendments within ASU 2019-12 are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. The Company adopted the standard effective January 1, 2021. The Company has evaluated the amendments that must be applied on a retrospective or modified retrospective basis and concluded that no adjustments are necessary. The Company has applied all other amendments on a prospective basis, and the changes did not have a material effect on its condensed consolidated financial statements.

Other accounting standards that have been issued or proposed by the FASB or other standard-setting bodies that do not require adoption until a future date are not expected to have a material impact on the Company’s condensed consolidated financial statements upon adoption.

7


 

2.    Earnings Per Common Share

Basic EPS is based upon the weighted average number of common shares outstanding during the period. Diluted EPS reflects the potential dilution that would occur upon issuance of common shares for awards under stock-based compensation plans or conversion of preferred stock, but only to the extent that they are considered dilutive.

The following table shows the computation of basic and diluted EPS:

 

 

 

Three Months Ended

March 31,

 

(in millions, except per share amounts)

 

2021

 

 

2020

 

Numerator:

 

 

 

 

 

 

 

 

Net loss

 

$

(3.0

)

 

$

(34.0

)

Preferred stock dividends

 

 

2.6

 

 

 

2.6

 

Net loss applicable to common shareowners - basic and diluted

 

$

(5.6

)

 

$

(36.6

)

Denominator:

 

 

 

 

 

 

 

 

Weighted average common shares outstanding - basic

 

 

50.8

 

 

 

50.5

 

Stock-based compensation arrangements

 

 

 

 

 

 

Weighted average common shares outstanding - diluted

 

 

50.8

 

 

 

50.5

 

Basic and diluted net loss per common share

 

$

(0.11

)

 

$

(0.72

)

 

For the three months ended March 31, 2021 and 2020, the Company had a net loss available to common shareholders and, as a result, all common stock equivalents were excluded from the computation of diluted EPS as their inclusion would have been anti-dilutive. For all periods presented, preferred stock convertible into 0.9 million common shares was excluded as it was anti-dilutive.

 

3. Mergers and Acquisitions

 

Pending Acquisition by MIP

 

On December 21, 2019, the Company entered into an Agreement and Plan of Merger (as amended from time to time, the “Brookfield Merger Agreement”) with affiliates of the Brookfield Infrastructure Group (“Brookfield”), the infrastructure investment division of Brookfield Asset Management, which was subsequently amended. Pursuant to the amended Brookfield Merger Agreement, the Company would be acquired by an affiliate of Brookfield for $14.50 per Common Share.

On March 13, 2020, the Company terminated the Brookfield Merger Agreement and entered into an Agreement and Plan of Merger (the “MIP Merger Agreement”) pursuant to which the Company will be acquired by an affiliate of Macquarie Infrastructure Partners V (“MIP”), a fund managed by Macquarie Infrastructure and Real Assets (the “MIP Merger”). At the effective time of the MIP Merger (the “Effective Time”), each of our issued and outstanding Common Shares will be converted into the right to receive $15.50 in cash per Common Share, without interest, and the 6 3/4% Cumulative Convertible Preferred Shares will remain issued and outstanding as 6 3/4% Cumulative Convertible Preferred Shares of the Company, without par value, following the Effective Time.  

In connection with the termination of the Brookfield Merger Agreement in the first quarter of 2020, the Company paid to an affiliate of Brookfield a termination fee of $24.8 million as required by the terms of the Brookfield Merger Agreement. The termination fee is recorded in “Transaction and integration costs” on the Condensed Consolidated Statements of Operations.

The consummation of the MIP Merger is subject to customary closing conditions, including (i) the adoption of the MIP Merger Agreement by the affirmative vote of the holders of at least two-thirds of all outstanding Common Shares and 6 3/4% Cumulative Convertible Preferred Shares, voting as a single class; (ii) the expiration or early termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (“HSR Act”), as amended, (iii) the receipt of any required consents or approvals from (a) the Committee on Foreign Investment in the United States (“CFIUS”), (b) the Federal Communications Commission, (c) state public service and state public utility commissions and (d) local regulators in connection with the provision of telecommunications and media services; and (iv) the absence of any legal restraint preventing the consummation of the MIP Merger. On May 7, 2020, the shareholders of the Company adopted the MIP Merger Agreement at a virtual special meeting of shareholders. In the first quarter of 2021, the waiting period under the HSR Act expired and the consummation of the MIP Merger was approved by CFIUS.

The MIP Merger Agreement contains representations and warranties and covenants of the parties customary for a transaction of this nature.

8


 

The MIP Merger is expected to close in the second quarter of 2021, although there can be no assurance that the MIP Merger will occur by that date. At the Effective Time, the Company will cease to be a publicly traded company as a result of the completion of the MIP Merger.

Consent Solicitation for 7.000% Senior Notes due 2024 and 8.000% Senior Notes due 2025

On June 15, 2020, the Company announced that it had commenced consent solicitations (the “Consent Solicitations”) with respect to certain proposed amendments to the change of control provisions contained in the (i) indenture, dated as of September 22, 2016 (as supplemented and amended, the “2024 Notes Indenture”) governing its 7.000% Senior Notes due 2024 (the “2024 Notes”) and (ii) indenture, dated as of October 6, 2017 (as supplemented and amended, the “2025 Notes Indenture,” and together with the 2024 Notes Indenture, the “Indentures”) governing its 8.000% Senior Notes due 2025 (the “2025 Notes,” and together with the 2024 Notes, the “Notes”).

Upon the terms and subject to the conditions described in the consent solicitation statement, dated June 15, 2020 (as supplemented and amended, the “Consent Solicitation Statement”), the Company solicited consents in order to (i) amend the definition of “Change of Control” in the Indentures so that the MIP Merger would not constitute a Change of Control and (ii) add a definition of, and designate certain persons, including MIP and its affiliates and Ares Management Corporation and its affiliates as, “Permitted Holders” (collectively, the “Proposed Amendments”).  

On July 2, 2020 (the “Effective Date”), following receipt of the requisite consents from holders of each series of Notes with respect to the Proposed Amendments pursuant to the Consent Solicitations, the Company, certain of the Company’s subsidiaries, as guarantors, and Regions Bank, as trustee, entered into a sixth supplemental indenture, dated as of July 2, 2020 (the “Sixth Supplemental Indenture”) to the 2024 Notes Indenture and a second supplemental indenture, dated as of July 2, 2020 to the 2025 Notes Indenture (the “Second Supplemental Indenture”, and together with the Sixth Supplemental Indenture, the “Supplemental Indentures”).

Subject to the terms and conditions in the Consent Solicitation Statement (including the consummation of the MIP Merger), holders who validly delivered (and did not validly revoke) their consents on or prior to the Effective Date are eligible to receive (i) with respect to the 2024 Notes, an aggregate cash payment of $2,812,500, on a pro rata basis (based on aggregate principal amount of 2024 Notes for which consents have been validly delivered and not revoked), and (ii) with respect to the 2025 Notes, an aggregate cash payment of $1,050,000, on a pro rata basis (based on aggregate principal amount of 2025 Notes for which consents have been validly delivered and not revoked). The Company expects to make this cash payment substantially concurrently with the consummation of the MIP Merger.

The Supplemental Indentures became effective upon execution thereof, but the Proposed Amendments will only become operative upon the occurrence of certain conditions described in the Supplemental Indentures, including payment of the consent fees pursuant to the Consent Solicitations. If the conditions described in the Supplemental Indentures are not satisfied, the Indentures will revert to the form in effect immediately prior to the Effective Date. In addition, subject to the terms and conditions described in the Consent Solicitation Statement and upon satisfaction or waiver of such conditions, including the consummation of the MIP Merger, the Company will secure the Notes and the related guarantees on a pari passu basis (subject to certain exceptions) with the new senior secured credit facilities expected to be entered into in connection with the MIP Merger (the “Collateral”). Any Collateral granted by the Company (but not its subsidiaries) to secure the Notes will also secure the 7.25% Senior Notes due 2023 and any Collateral granted by the Company’s subsidiary Cincinnati Bell Telephone Company LLC (“CBT”) to secure the Notes will also secure CBT’s 6.30% Senior Notes due 2028, in each case on an equal and ratable basis.

Pending Acquisition of Paniolo Fiber Assets

On November 30, 2020, the Company entered into a definitive purchase agreement to acquire substantially all of the operating assets of Paniolo Cable Company, LLC, currently held by the bankruptcy estate of Paniolo, which include inter-island submarine and middle-mile terrestrial fiber infrastructure assets in Hawaii. The Company plans to account for the Paniolo acquisition as an asset acquisition under ASC 805-10-55 “Business Combinations” because the assets to be acquired from Paniolo do not include an assembled workforce, and the gross value of the assets to be acquired meets the screen test in ASC 805-10-55-5A related to substantially all of the fair value being concentrated in a single asset or group of assets (i.e., the fiber infrastructure assets) and, thus, the assets are not considered a business. The acquisition of Paniolo’s assets will augment the Company’s existing backbone network and increase the Company’s total submarine and terrestrial fiber footprint by more than 400 miles.  

The aggregate purchase price to be paid upon closing of the Paniolo acquisition will be $50.0 million, consisting of $25.0 million in cash and $25.0 million in committed purchase money financing. As of December 31, 2020, the Company has funded $5.0 million to an escrow account to fund a portion of the purchase price and has entered into an agreement with Paniolo to maintain the Paniolo network prior to the close of the acquisition. This escrow amount is classified as restricted cash and recorded in “Other noncurrent assets” on the Condensed Consolidated Balance Sheets. The transaction which is subject to customary closing conditions, including approval of the bankruptcy court and federal regulatory authorities, is expected to close in the second half of 2021.  

 

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4.    Revenue

The Entertainment and Communications segment provides products and services to both residential and commercial customers that can be categorized as either Fioptics in Cincinnati or Consumer/SMB in Hawaii (collectively, "Consumer/SMB"), Enterprise Fiber or Legacy. The products and services within these three categories can be further categorized as either Data, Voice, Video or Other. Consumer/SMB and Legacy revenue include both residential and commercial customers. Enterprise Fiber revenue includes ethernet and dedicated internet access services that are provided to enterprise customers, as well as revenue associated with the Southeast Asia to United States (“SEA-US”) trans-Pacific submarine cable system.

Residential customers have implied month-to-month contracts. Commercial customers, with the exception of contracts associated with the SEA-US cable system, typically have contracts with a duration of one to five years and automatically renew on a month-to-month basis. Customers are invoiced on a monthly basis for services rendered. Contracts for projects that are included within the Other revenue stream are typically short in duration and less than one year. Contracts associated with the SEA-US cable system typically range from 15 to 25 years and payment is prepaid.

The IT Services and Hardware segment provides a full range of Information Technology ("IT") solutions, including Communications, Cloud and Consulting services. IT Services and Hardware customers enter into contracts that have a typical duration of one to five years, with varied renewal options at the end of the term. Customers are invoiced on a monthly basis for services rendered. The IT Services and Hardware segment also provides enterprise customers with Infrastructure Solutions, which includes the sale of hardware and maintenance contracts. These contracts are typically satisfied in less than twelve months and revenue is recognized at a point in time.

The Company has elected the practical expedient described in ASC 606-10-32-18 that allows an entity to not adjust the promised amount of consideration for the effects of a significant financing component if the entity expects that the period of time between the transfer of a promised good or service to the customer and when the customer pays for such good or service will be one year or less. Customers are typically billed immediately upon the rendering of services or the delivery of products. Payment terms for customers are between 30 and 120 days. Subsequent to the acquisition of Hawaiian Telcom Holdco., Inc. ("Hawaiian Telcom"), the Company began recognizing a financing component associated with the up-front payments for services to be delivered under indefeasible right of use ("IRU") contracts for fiber circuit capacity. The IRU contracts are primarily associated with the SEA-US cable system. The IRU contracts typically have a duration ranging from 15 to 25 years.

Performance Obligations

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, or a series of distinct goods or services, and is the unit of account defined in ASC Topic 606. The transaction price identified in the contract is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Contract modifications for changes to services provided are routine throughout the term of our contracts. In most instances, contract modifications are for the addition or reduction of services that are distinct, and price changes are based on the stand-alone selling price of the service and, as such, are accounted for on a prospective basis as a new contract.

Goods and services are sold individually, or a contract may include multiple goods or services. For contracts with multiple goods and services, the transaction price identified in the contract is allocated to each performance obligation using the stand-alone selling price of each distinct good or service in the contract.

 

Certain customers of the Company may receive cash-based rebates based on volume of sales, which are accounted for as variable consideration. Potential rebates are considered at contract inception in our estimate of transaction price based on the projected volume of sales. Estimates are reassessed quarterly.

Performance obligations are satisfied either over time as services are performed or at a point in time. Substantially all of our service revenue is recognized over time. For services transferred over time, the Company has elected the practical expedient to recognize revenue based on amounts invoiced to the customer as the Company has concluded that the invoice amount directly corresponds with the value of services provided to the customer. Management considers this a faithful depiction of the transfer of control as services are provided evenly over the month and are substantially the same over the life of the contract. As the Company has elected the practical expedients detailed at ASC 606-10-50-13, revenue for these unsatisfied performance obligations that will be billed in future periods has not been disclosed.

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As of March 31, 2021, our estimated revenue, including a financing component, expected to be recognized in the future related to performance obligations associated with customer contracts that are unsatisfied (or partially unsatisfied) is $34.2 million. Approximately 80% of this revenue is related to IRU contracts associated with the SEA-US cable system. Certain IRU contracts extend for periods of up to 30 years and are invoiced at the beginning of the contract term. The revenue from such contracts is recognized over time as services are provided over the contract term. The expected revenue to be recognized for existing IRU contracts is as follows:

 

(dollars in millions)