The accompanying notes are an integral part of the condensed consolidated financial statements.
The accompanying notes are an integral part of the condensed consolidated financial statements.
The accompanying notes are an integral part of the condensed consolidated financial statements.
The accompanying notes are an integral part of the condensed consolidated financial statements.
The accompanying notes are an integral part of the condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Description of Business and Accounting Policies
Organization — On March 13, 2020, the Company (as defined below), entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Red Fiber Parent LLC, a Delaware limited liability company (“Parent”), and RF Merger Sub Inc., an Ohio corporation and directly wholly owned subsidiary of Parent (“Merger Sub”). On September 7, 2021 (the “Closing Date” or “Merger Date”), upon the terms and subject to the conditions set forth in the Merger Agreement, and in accordance with the applicable provisions of the Ohio General Corporation Law (the “OGCL”), Merger Sub merged with and into the Company, with the Company continuing as the surviving corporation (the “Merger”). At the effective time of the Merger (the “Effective Time”), the separate corporate existence of Merger Sub ceased, and the Company survived the Merger as a wholly owned private subsidiary of Parent. As of the date of this filing, the Company has ceased to be a registrant, however due to contractual terms in certain indentures, the Company is required to voluntarily file with the U.S. Securities and Exchange Commission (“SEC”).
As a result of the Merger, for accounting purposes, Parent is the acquirer and Cincinnati Bell Inc. is the acquiree and accounting predecessor. The financial statement presentation includes the financial statements of historical Cincinnati Bell Inc. as “Predecessor” for periods prior to the Closing Date and of the Company as “Successor” for the periods after the Closing Date. In connection with the Merger and the related accounting determination, the Company has elected to apply push-down accounting and reflect in its financial statements the fair value of its assets and liabilities. The Condensed Consolidated Financial Statements and footnotes include a black line division between the columns titled "Predecessor" and "Successor" to signify that the amounts shown for the periods prior to and following the Merger are not comparable. The Company has elected to record all expenses that were contingent on the closing of the Merger in the Predecessor period. See Note 2 for additional information on the Merger.
Description of Business — Cincinnati Bell Inc. and its consolidated subsidiaries ("Cincinnati Bell," "we," "our," "us" or the "Company") provide diversified telecommunications and technology services. For ease of reference, the terms “Cincinnati Bell,” “we,” “our Company,” “the Company,” “us,” or “our” as used in this report refer to both the Predecessor and the Successor and their respective subsidiaries.
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 two customers, Verizon Communications Inc. (“Verizon”) and CVS Health Corporation (“CVS”), which make up 12% and 11%, respectively, of the outstanding accounts receivable balance at March 31, 2022. The Company has receivables with one customer, Verizon, which make up 26% of the outstanding accounts receivable balance at December 31, 2021. Revenue derived from foreign operations was approximately 7% and 6% of consolidated revenue for the three months ended March 31, 2022 and 2021, respectively.
Basis of Presentation — The Condensed Consolidated Financial Statements of the Company have been prepared pursuant to the rules and regulations of the SEC and, in the opinion of management, include all adjustments necessary for a fair statement 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 Company’s Condensed Consolidated Balance Sheet as of December 31, 2021 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 2021 Annual Report on Form 10-K.
Business Combinations — In accounting for business combinations, we apply the accounting requirements of Accounting Standards Codification 805 (“ASC 805”), “Business Combinations,” which requires the recording of net assets of acquired businesses at fair value. In developing fair value estimates for acquired assets and assumed liabilities, management analyzes a variety of factors including market data, estimated future cash flows of the acquired operations, industry growth rates, current replacement cost for fixed assets, and market rate assumptions for contractual obligations. Such a valuation requires management to make significant estimates and assumptions, particularly with respect to the intangible assets. In addition, any contingent consideration is presented at fair value at the date of acquisition, and transaction costs are expensed as incurred. The Company reports in its Condensed Consolidated Financial Statements provisional amounts for the items for which accounting is incomplete. Goodwill is adjusted for any changes to provisional amounts made within the measurement period. See Note 2 for disclosures related to mergers and acquisitions.
6
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, 2021. The Company’s accounting policies in the Successor Period are consistent with the accounting policies in the Predecessor Period.
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 related to a cost method investment. 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, 2022 |
|
|
December 31, 2021 |
|
|
Cash and cash equivalents |
$ |
4.8 |
|
|
$ |
5.6 |
|
|
Restricted cash included in Other noncurrent assets |
|
0.8 |
|
|
|
0.5 |
|
|
Cash, cash equivalents and restricted cash per Condensed Consolidated Statements of Cash Flows |
$ |
5.6 |
|
|
$ |
6.1 |
|
Goodwill — Goodwill represents the excess of the purchase price consideration over the fair value of net assets acquired and recorded in connection with business acquisitions. Goodwill is allocated at the business segment level. Goodwill is tested for impairment on an annual basis or when events or changes in circumstances indicate that such assets may be impaired. If the net book value of the reporting unit exceeds its fair value, an impairment loss is recognized. An impairment loss is measured as the excess of the carrying value of goodwill of a reporting unit over its fair value.
Indefinite-Lived Intangible Assets — Intangible assets represent purchased assets that lack physical substance but can be separately distinguished from goodwill because of contractual or legal rights, or because the asset is capable of being separately sold or exchanged. Federal Communications Commission ("FCC") licenses for wireless spectrum represent indefinite-lived intangible assets. The Company may renew the wireless licenses in a routine manner every ten years for a nominal fee, provided the Company continues to meet the service and geographic coverage provisions required by the FCC. Intangible assets not subject to amortization are tested for impairment annually, or when events or changes in circumstances indicate that the asset might be impaired.
Long-Lived Assets — Management reviews the carrying value of property, plant and equipment and other long-lived assets, including intangible assets with definite lives, when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. An impairment loss is recognized when the estimated future undiscounted cash flows expected to result from the use of an asset (or group of assets) and its eventual disposition is less than its carrying amount. An impairment loss is measured as the amount by which the asset’s carrying value exceeds its estimated fair value. Long-lived intangible assets are amortized based on the estimated economic value generated by the asset in future years.
Income and Operating Taxes
Income taxes — In accordance with 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 higher than the U.S. federal statutory rate due to state income taxes, offset in part by the effect of permanent items such as the GILTI inclusion and entertainment expenses that are not fully deductible for tax.
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.
Recently Issued Accounting Standards
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
7
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 will adopt the standard when LIBOR is discontinued and does not expect the standard to have a material effect on our 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.
2. Mergers and Acquisitions
Acquisition by Red Fiber Parent LLC
On September 7, 2021, pursuant to the Merger Agreement and in accordance with the applicable provisions of the OGCL, Parent completed the acquisition of Cincinnati Bell in an all cash transaction valued at approximately $3.1 billion, including assumption of debt of $1,357.1 million. Upon the Effective Time, the separate existence of Merger Sub ceased and the Company survived the Merger as a wholly owned subsidiary of Parent.
Pursuant to the Merger Agreement, each of Cincinnati Bell’s issued and outstanding Common Shares was converted into the right to receive $15.50 per share in cash, without interest. Trading of the Company’s Common Shares was suspended on the New York Stock Exchange (“NYSE”) and the Common Shares were subsequently delisted from the NYSE. Additionally, the Company redeemed Depositary Shares simultaneously with the redemption of the 6 3/4% Preferred Shares, at a redemption price of $50 per Depositary Share (equivalent to $1,000 per 6 3/4% Preferred Stock), and the Depositary Shares were subsequently delisted from the NYSE.
The Company accounted for this transaction as a business combination in accordance with the acquisition method of accounting, which requires, among other things, that assets acquired and liabilities assumed be recognized at their estimated fair values, using primarily Level 3 inputs, as described in Note 7, as of the Merger Date. Transaction costs of the acquirer are not included as a component of consideration transferred but are accounted for as expenses in the period in which such costs are incurred, or, if related to the issuance of debt, capitalized as debt issuance costs. Acquisition-related transaction costs incurred as part of the Merger, primarily included advisory, legal and accounting fees. Transaction costs were expensed as incurred and recorded to “Transaction and integration costs” on the Condensed Consolidated Statements of Operations.
The valuation of the assets acquired and liabilities assumed was based on estimated fair values at the Merger Date. The preliminary allocation of consideration to the net tangible and intangible assets acquired and liabilities assumed reflect various preliminary fair value estimates and analyses, including preliminary work performed by third-party valuation specialists, which are subject to change within the measurement period as valuations are finalized. The determination of the final purchase price allocation to specific assets acquired and liabilities assumed is incomplete at March 31, 2022. The primary areas of the preliminary purchase price allocations that are not yet finalized relate to the fair values of property, plant and equipment, the valuation of intangible assets acquired, income and non-income based taxes and goodwill. The Company expects to continue to obtain information to assist in determining the fair value of the net assets acquired as of the Merger Date during the measurement period.
Measurement period adjustments will be applied retrospectively to the Merger Date. We have not finalized the allocation of the purchase price as it requires extensive use of accounting estimates and valuation methodologies in the determination of such fair values. Any subsequent changes in the estimated fair values assumed upon the finalization of more detailed analysis within the measurement period will change the allocation of the purchase price and will be adjusted during the period in which the amounts are determined. The allocation of goodwill to our Network reporting unit and IT Services and Hardware reporting unit is preliminary as of the date of this filing.
The purchase price for Cincinnati Bell Inc. consisted of the following:
|
(dollars in millions) |
|
|
|
|
Cash consideration for Cincinnati Bell Inc. common stock |
$ |
807.3 |
|
|
Cash consideration for preferred stock |
|
155.2 |
|
|
Cash consideration for debt repayment |
|
658.2 |
|
|
Total purchase price |
$ |
1,620.7 |
|
8
Based on fair value estimates, the purchase price has been allocated on a preliminary basis to individual assets acquired and liabilities assumed as follows:
|
(dollars in millions) |
|
Cincinnati Bell Inc. |
|
|
Assets acquired |
|
|
|
|
|
Cash |
|
$ |
11.2 |
|
|
Receivables |
|
|
318.5 |
|
|
Inventory, materials and supplies |
|
|
56.4 |
|
|
Prepaid expenses |
|
|
5.6 |
|
|
Other current assets |
|
|
40.5 |
|
|
Property, plant and equipment |
|
|
1,950.7 |
|
|
Operating lease right-of-use assets |
|
|
42.3 |
|
|
Goodwill |
|
|
646.3 |
|
|
Intangible assets |
|
|
969.6 |
|
|
Deferred tax assets |
|
|
6.9 |
|
|
Other noncurrent assets |
|
|
20.2 |
|
|
Total assets acquired |
|
|
4,068.2 |
|
|
Liabilities assumed |
|
|
|
|
|
Current portion of long-term debt |
|
|
11.8 |
|
|
Accounts payable |
|
|
381.1 |
|
|
Unearned revenue and customer deposits |
|
|
51.2 |
|
|
Accrued taxes |
|
|
24.6 |
|
|
Accrued interest |
|
|
19.4 |
|
|
Accrued payroll and benefits |
|
|
49.3 |
|
|
Other current liabilities |
|
|
75.0 |
|
|
Long-term debt, less current portion |
|
|
1,378.0 |
|
|
Operating lease liabilities |
|
|
38.6 |
|
|
Pension and postretirement benefit obligations |
|
|
151.6 |
|
|
Pole license agreement obligation |
|
|
46.7 |
|
|
Deferred income tax liability |
|
|
148.8 |
|
|
Other noncurrent liabilities |
|
|
71.4 |
|
|
Total liabilities assumed |
|
|
2,447.5 |
|
|
Net assets acquired |
|
$ |
1,620.7 |
|
Given the size and complexity of the transaction, the entire purchase price allocation disclosed herein continues to be considered provisional at this time and subject to adjustment to reflect new information obtained about factors and circumstances that existed as of the Closing Date that if known would have affected the measurement of the amounts recognized as of that date, while the measurement period remains open. No measurement period adjustments were recorded in the first quarter of 2022.
In connection with this acquisition, the Company recorded goodwill attributable to increased access to a diversified customer base, acquired workforce in the United States, Canada, United Kingdom and India with industry expertise and expected synergies. The goodwill related to this acquisition is not deductible for tax purposes.
9
The Company recorded definite-lived intangible assets related to the customer relationships, trade names and technology and an indefinite-lived intangible asset related to FCC licenses. The preliminary fair value of the most significant identified intangible assets, customer relationships and trade names, were valued using the multi-period excess earnings method and relief from royalty method, under the income approach. The Company applied judgment which involved the use of significant assumptions with respect to revenue growth rates, customer attrition rate, discount rate and terminal growth rate in relation to the customer relationships and royalty rates and discount rate in relation to the trade names. The preliminary fair values of the identifiable intangible assets acquired on the Merger Date were as follows:
|
(dollars in millions) |
|
Fair Value |
|
|
Useful Lives |
|
Customer relationships |
|
$ |
850.0 |
|
|
15 years |
|
Trade names |
|
|
108.0 |
|
|
3 to 10 years |
|
Technology |
|
|
5.0 |
|
|
7 years |
|
FCC licenses and spectrum usage rights |
|
|
6.6 |
|
|
Indefinite |
|
Total identifiable intangible assets |
|
$ |
969.6 |
|
|
|
Acquisition of Paniolo Fiber Assets
On August 31, 2021, the Company acquired substantially all of the operating assets of Paniolo Cable Company, LLC (the “Paniolo Acquisition”), previously held by the bankruptcy estate of Paniolo, which include inter-island submarine and middle-mile terrestrial fiber infrastructure assets in Hawaii as well as central offices and landing stations for the submarine fiber. The Company accounted for the Paniolo Acquisition as an asset acquisition under ASC 805-10-55 “Business Combinations” because the assets acquired from Paniolo do not include an assembled workforce, and the gross value of the assets 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 augments the Company’s existing backbone network and increases the Company’s total submarine and terrestrial fiber footprint by more than 400 miles.
The aggregate purchase price paid upon closing of the Paniolo Acquisition after transactional costs was $52.3 million, consisting of $29.3 million in cash and $23.0 million in committed purchase money financing. The assets are recorded as network equipment and buildings in “Property, plant and equipment, net” on the Condensed Consolidated Balance Sheets. As of March 31, 2022, $0.5 million and $22.2 million of the committed purchase money financing was recorded in “Current portion of long-term debt” and “Long-term debt, less current portion,” respectively, on the Condensed Consolidated Balance Sheets. As of December 31, 2021, $0.5 million and $22.3 million of the committed purchase money financing was recorded in “Current portion of long-term debt” and “Long-term debt, less current portion,” respectively, on the Condensed Consolidated Balance Sheets.
10
3. Revenue
The Network segment provides products and services to both residential and commercial customers that can be categorized as Fioptics, previously referred to as “Consumer/SMB Fiber” in Hawaii and collectively with Fioptics in Cincinnati, Enterprise Fiber or Legacy. The products and services within these three categories can be further categorized as either Data, Voice, Video or Other. Fioptics 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 typically have a duration ranging from 15 to 25 years.
11
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 estimated projection of sales volume. 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.
As of March 31, 2022, 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 $186.6 million. 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 customer contracts is as follows:
|
(dollars in millions) |
|
|
|
|
|
Nine months ended December 31, 2022 |
|
$ |
10.2 |
|
|
2023 |
|
|
15.2 |
|
|
2024 |
|
|
16.9 |
|
|
2025 |
|
|
16.9 |
|
|
2026 |
|
|
17.0 |
|
|
Thereafter |
|
|
110.4 |
|
Network
The Company has identified four distinct performance obligations in the Network segment, namely Data, Voice, Video and Other. For each of the Data, Voice and Video services, service is delivered to the customer continuously and in a substantially similar manner for each period of the agreement, the customer takes full control over the services as the service is delivered, and as such, Data, Voice and Video are identified to be a series of distinct services. Services provided by the Network segment can be categorized into three main categories that include Fioptics, Enterprise Fiber and Legacy, each of which may include one or more of the aforementioned performance obligations. Data services include high-speed internet access, digital subscriber lines, ethernet, routed network services, SONET (Synchronous Optical Network), dedicated internet access, wavelength, digital signal and IRU revenue. Voice services include traditional and fiber voice lines, switched access, digital trunking and consumer long distance calling. Video services are offered through our fiber network to residential and commercial customers based on various standard plans with the opportunity to add premium channels. To receive video services, customers are required to use the Company's set top boxes that are billed as part of the monthly recurring service. Set top boxes are not considered a separate performance obligation from video because the equipment is necessary for the service to operate and the customer has no alternative use for the equipment.
12
Services and products not included in Data, Voice or Video are included in Other revenue and are comprised of wire care, time and materials projects, subsidized fiber build projects and advertising. Transfer of control of these services and products is evaluated on an individual project basis and can occur over time or at a point in time.
The Company uses multiple methods to determine stand-alone selling prices in the Network segment. For Data, Video and Voice products in Fioptics, market rate is the primary method used to determine stand-alone selling prices. For Data performance obligations under the Enterprise Fiber category, and Voice, Data and Other performance obligations under the Legacy category, stand-alone selling prices are determined based on a list price, discount off of list price, a tariff rate, a margin percentage range, or a minimum margin percentage.
IT Services and Hardware
The Company has identified four distinct performance obligations in the IT Services and Hardware segment. These performance obligations are Communications, Cloud, Consulting and Infrastructure Solutions. Communications services are monthly services that include data and VoIP services, tailored solutions that include converged IP communications of data, voice, video and mobility applications, enterprise long distance, MPLS (Multi-Protocol Label Switching) and conferencing services. Cloud services include storage, backup, disaster recovery, SLA-based monitoring and management, cloud computing and cloud consulting. Consulting services provide customers with IT staffing, consulting and emerging technology solutions. Infrastructure Solutions includes the sale of hardware and maintenance contracts as well as installation projects.
For the sale of hardware, the Company evaluated whether it is the principal or the agent. The Company has concluded it acts as an agent because it does not control the inventory before it is transferred to customers, it does not have the ability to direct the product to anyone besides the purchasing customer, and it does not integrate the hardware with any of its own goods or services. Based on this assessment, the performance obligation is to arrange a sale of hardware between the vendor and the customer. In the instance where there is an issue with the hardware, the Company coordinates with the manufacturer to facilitate a return in accordance with the standard manufacturer warranty. Hardware returns are not significant to the Company.
Within the IT Services and Hardware segment, stand-alone selling prices for the four performance obligations are determined based on either a margin percentage range, minimum margin percentage or discount from standard price list if it is determined to be representative of stand-alone selling price.
For hardware sales, revenue is recognized net of the cost of product and is recognized when the hardware is either shipped or delivered in accordance with the terms of the contract. For certain projects within Communications and Consulting, revenue is recognized when the customer communicates acceptance of the services performed. For contracts with freight on board shipping terms, management has elected to account for shipping and handling as activities to fulfill the promise to transfer the good, and, therefore, has not evaluated whether shipping and handling activities are promised services to its customers.
13
Contract Balances
The Company recognizes incremental fulfillment costs as an asset when installation expenses are incurred as part of performing the agreement for Voice, Video and Data product offerings in the Network segment in which the contract life is longer than one year. These fulfillment costs are amortized ratably over the expected life of the customer, which is representative of the expected period of benefit of the asset capitalized. The expected life of the customer is determined utilizing the average churn rate for each product. The Company calculates average churn based on the historical average customer life. We also recognize an asset for incremental fulfillment costs for certain Communications services in the IT Services and Hardware segment that require us to incur installation and provisioning expenses. The asset recognized for Communication services is amortized over the average contract life. Churn rates and average contract life are reviewed on an annual basis. Fulfillment costs are capitalized to “Other noncurrent assets.” The related amortization expense is recorded to “Cost of services and products.”
The Company recognizes an asset for the incremental costs of acquiring a contract with a customer if we expect the benefit of those costs to be longer than one year. We have determined that certain sales incentive programs related to Voice, Video, Data and certain Communications and Cloud services meet the requirements to be capitalized. The contract asset established for the costs of acquiring a contract is recorded to “Other noncurrent assets.” Sales incentives are amortized ratably over the period that services are delivered using either an average churn rate or average contract term, both representative of the expected period of benefit of the asset capitalized. Customer churn rates and average contract term assumptions are reviewed on an annual basis. The related amortization expense is recorded to “Selling, general and administrative.”
Management has elected to use the practical expedient detailed in ASC 340-40-25-4 to expense any costs to fulfill a contract and costs to obtain a contract as they are incurred when the amortization period would have been one year or less. This practical expedient has been applied to fulfillment costs that include installation costs associated with wiring projects and certain Cloud services. In addition, this practical expedient has been applied to acquisition costs associated with revenue from certain Communications projects.
The following table presents the activity for the Company’s contract assets:
|
|
|
Fulfillment Costs |
|
|
Cost of Acquisition |
|
|
Total Contract Assets |
|
|
(dollars in millions) |
|
Network |
|
|
IT Services
and
Hardware |
|
|
Total
Company |
|
|
Network |
|
|
IT Services
and
Hardware |
|
|
Total
Company |
|
|
Network |
|
|
IT Services
and
Hardware |
|
|
Total
Company |
|
|
Balance as of December 31, 2021 |
|
$ |
0.7 |
|
|
$ |
0.7 |
|
|
$ |
1.4 |
|
|
$ |
3.3 |
|
|
$ |
0.3 |
|
|
$ |
3.6 |
|
|
$ |
4.0 |
|
|
$ |
1.0 |
|
|
$ |
5.0 |
|
|
Additions |
|
|
0.5 |
|
|
|
0.5 |
|
|
|
1.0 |
|
|
|
2.6 |
|
|
|
0.7 |
|
|
|
3.3 |
|
|
|
3.1 |
|
|
|
1.2 |
|
|
|
4.3 |
|
|
Amortization |
|
|
(0.1 |
) |
|
|
(0.1 |
) |
|
|
(0.2 |
) |
|
|
(0.4 |
) |
|
|
(0.1 |
) |
|
|
(0.5 |
) |
|
|
(0.5 |
) |
|
|
(0.2 |
) |
|
|
(0.7 |
) |
|
Balance as of March 31, 2022 |
|
$ |
1.1 |
|
|
$ |
1.1 |
|
|
$ |
2.2 |
|
|
$ |
5.5 |
|
|
$ |
0.9 |
|
|
$ |
6.4 |
|
|
$ |
6.6 |
|
|
$ |
2.0 |
|
|
$ |
8.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company recognizes a liability for cash received up-front for IRU contracts. At March 31, 2022 and December 31, 2021, $2.4 million and $2.2 million, respectively, of contract liabilities were included in "Other current liabilities." At March 31, 2022 and December 31, 2021, $56.5 million and $57.2 million, respectively, of contract liabilities were included in "Other noncurrent liabilities."
14
Disaggregated Revenue
The following table presents revenues disaggregated by product and service lines:
|
|
|
Successor |
|
|
|
Predecessor |
|
|
(dollars in millions) |
|
Three Months Ended March 31, 2022 |
|
|
|
Three Months Ended March 31, 2021 |
|
|
Data |
|
$ |
126.1 |
|
|
|
$ |
121.3 |
|
|
Video |
|
|
48.6 |
|
|
|
|
48.6 |
|
|
Voice |
|
|
59.3 |
|
|
|
|
65.9 |
|
|
Other |
|
|
9.5 |
|
|
|
|
7.0 |
|
|
Total Network |
|
|
243.5 |
|
|
|
|
242.8 |
|
|
Consulting |
|
|
83.4 |
|
|
|
|
65.5 |
|
|
Cloud |
|
|
24.6 |
|
|
|
|
23.4 |
|
|
Communications |
|
|
54.9 |
|
|
|
|
54.0 |
|
|
Infrastructure Solutions |
|
|
35.9 |
|
|
|
|
30.9 |
|
|
Total IT Services and Hardware |
|
|
198.8 |
|
|
|
|
173.8 |
|
|
Intersegment revenue |
|
|
(6.5 |
) |
|
|
|
(6.7 |
) |
|
Total revenue |
|
$ |
435.8 |
|
|
|
$ |
409.9 |
|
The following table presents revenues disaggregated by contract type:
|
|
|
Successor |
|
|
|
|
Three Months Ended March 31, 2022 |
|
|
(dollars in millions) |
|
Network |
|
|
IT Services and Hardware |
|
|
Intersegment revenue
elimination |
|
|
Total |
|
|
Products and Services transferred at a point in time |
|
$ |
7.4 |
|
|
$ |
38.5 |
|
|
$ |
— |
|
|
$ |
45.9 |
|
|
Products and Services transferred over time |
|
|
231.2 |
|
|
|
158.7 |
|
|
|
— |
|
|
|
389.9 |
|
|
Intersegment revenue |
|
|
4.9 |
|
|
|
1.6 |
|
|
|
(6.5 |
) |
|
|
— |
|
|
Total revenue |
|
$ |
243.5 |
|
|
$ |
198.8 |
|
|
$ |
(6.5 |
) |
|
$ |
435.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor |
|
|
|
|
Three Months Ended March 31, 2021 |
|
|
(dollars in millions) |
|
Network |
|
|
IT Services and Hardware |
|
|
Intersegment revenue
elimination |
|
|
Total |
|
|
Products and Services transferred at a point in time |
|
$ |
5.9 |
|
|
$ |
33.4 |
|
|
$ |
— |
|
|
$ |
39.3 |
|
|
Products and Services transferred over time |
|
|
232.1 |
|
|
|
138.5 |
|
|
|
— |
|
|
|
370.6 |
|
|
Intersegment revenue |
|
|
4.8 |
|
|
|
1.9 |
|
|
|
(6.7 |
) |
|
|
— |
|
|
Total revenue |
|
$ |
242.8 |
|
|
$ |
173.8 |
|
|
$ |
(6.7 |
) |
|
$ |
409.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
4. Goodwill and Intangible Assets
Goodwill
The changes in the Company's goodwill consisted of the following:
|
(dollars in millions) |
|
IT Services and
Hardware |
|
|
Network |
|
|
Total Company |
|
|
Goodwill, balance as of December 31, 2021 |
|
$ |
157.4 |
|
|
$ |
488.9 |
|
|
$ |
646.3 |
|
|
Activity during the year: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translations |
|
|
0.6 |
|
|
|
— |
|
|
|
0.6 |
|
|
Goodwill, balance as of March 31, 2022 |
|
$ |
158.0 |
|
|
$ |
488.9 |
|
|
$ |
646.9 |
|
As mentioned in Note 2, in connection with the Merger, the Company’s assets and liabilities were measured at fair value as of the date of the Merger. The allocation of goodwill to our Network reporting unit and IT Services and Hardware reporting unit continues to be preliminary as of the date of this filing.
No impairment losses were recognized in goodwill for the three months ended March 31, 2022 and 2021.
16
Intangible Assets
The Company’s intangible assets consisted of the following:
|
|
|
March 31, 2022 |
|
|
December 31, 2021 |
|
|
|
|
Gross Carrying |
|
|
Accumulated |
|
|
Net |
|
|
Gross Carrying |
|
|
Accumulated |
|
|
Net |
|
|
(dollars in millions) |
|
Amount |
|
|
Amortization |
|
|
Amount |
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
|
Intangible assets subject to amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships |
|
$ |
851.1 |
|
|
$ |
(62.2 |
) |
|
$ |
788.9 |
|
|
$ |
850.0 |
|
|
$ |
(36.2 |
) |
|
$ |
813.8 |
|
|
Trade names |
|
|
108.3 |
|
|
|
(8.9 |
) |
|
|
99.4 |
|
|
|
108.0 |
|
|
|
(5.0 |
) |
|
|
103.0 |
|
|
Technology |
|
|
5.0 |
|
|
|
(0.4 |
) |
|
|
4.6 |
|
|
|
5.0 |
|
|
|
(0.2 |
) |
|
|
4.8 |
|
|
Total |
|
|
964.4 |
|
|
|
(71.5 |
) |
|
|
892.9 |
|
|
|
963.0 |
|
|
|
(41.4 |
) |
|
|
921.6 |
|
|
Intangible assets not subject to amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FCC licenses and spectrum usage rights |
|
|
6.7 |
|
|
|
— |
|
|
|
6.7 |
|
|
|
6.7 |
|
|
|
— |
|
|
|
6.7 |
|
|
Total intangible assets |
|
$ |
971.1 |
|
|
$ |
(71.5 |
) |
|
$ |
899.6 |
|
|
$ |
969.7 |
|
|
$ |
(41.4 |
) |
|
$ |
928.3 |
|
In connection with the Merger, the company recorded $963.0 million of finite-lived intangible assets and $6.6 million of indefinite-lived intangible assets representing the fair values at the Merger Date. See Note 2 for additional information regarding the Merger. The change in gross carrying amounts for finite-lived intangible assets is due to foreign currency translation on finite-lived intangible assets denominated in foreign currency. The finite-lived intangible assets are amortized over their useful lives based on a number of assumptions including the estimated period of economic benefit and utilization.
Amortization expense for finite-lived intangible assets was $30.1 million and $3.6 million for the three months ended March 31, 2022 and 2021, respectively. No impairment losses were recognized on intangible assets for the three months ended March 31, 2022 and 2021.
The estimated useful lives for each finite-lived intangible asset class are as follows:
|
Customer relationships |
|
15 years |
|
Trade names |
|
3 to 10 years |
|
Technology |
|
7 years |
The annual estimated amortization expense for future years is as follows:
|
(dollars in millions) |
|
|
|
|
|
Nine months ended December 31, 2022 |
|
$ |
90.1 |
|
|
2023 |
|
|
113.1 |
|
|
2024 |
|
|
103.9 |
|
|
2025 |
|
|
92.2 |
|
|
2026 |
|
|
85.1 |
|
|
Thereafter |
|
|
408.5 |
|
|
Total |
|
$ |
892.9 |
|
17
5. Debt and Other Financing Arrangements
The Company’s debt consists of the following:
|
(dollars in millions) |
|
March 31, 2022 |
|
|
December 31, 2021 |
|
|
Current portion of long-term debt: |
|
|
|
|
|
|
|
|
|
Credit Agreement - Term B-1 Loans |
|
$ |
5.0 |
|
|
$ |
5.0 |
|
|
Credit Agreement - Term B-2 Loans |
|
|
6.5 |
|
|
|
6.5 |
|
|
Paniolo Fiber Assets Financing Arrangement |
|
|
0.5 |
|
|
|
0.5 |
|
|
Other financing arrangements |
|
|
0.4 |
|
|
|
0.5 |
|
|
Finance lease liabilities |
|
|
7.3 |
|
|
|
7.2 |
|
|
Current portion of long-term debt |
|
|
19.7 |
|
|
|
19.7 |
|
|
Long-term debt, less current portion: |
|
|
|
|
|
|
|
|
|
Receivables Facility |
|
|
155.7 |
|
|
|
153.6 |
|
|
Credit Agreement - Term B-1 Loans |
|
|
493.8 |
|
|
|
495.0 |
|
|
Credit Agreement - Term B-2 Loans |
|
|
641.9 |
|
|
|
643.5 |
|
|
7 1/4% Senior Notes due 2023 (1) |
|
|
23.7 |
|
|
|
24.0 |
|
|
Various Cincinnati Bell Telephone notes (1) |
|
|
97.2 |
|
|
|
97.5 |
|
|
Paniolo Fiber Assets Financing Arrangement |
|
|
22.2 |
|
|
|
22.3 |
|
|
Other financing arrangements |
|
|
— |
|
|
|
0.4 |
|
|
Finance lease liabilities |
|
|
40.3 |
|
|
|
42.3 |
|
|
|
|
|
1,474.8 |
|
|
|
1,478.6 |
|
|
Net unamortized discount |
|
|
(4.8 |
) |
|
|
(4.9 |
) |
|
Unamortized note issuance costs |
|
|
(43.3 |
) |
|
|
(44.8 |
) |
|
Long-term debt, less current portion |
|
|
1,426.7 |
|
|
|
1,428.9 |
|
|
Total debt |
|
$ |
1,446.4 |
|
|
$ |
1,448.6 |
|
|
|
(1) |
As of March 31, 2022, the net carrying amounts of the 7 ¼% Senior Notes due 2023 and Various Cincinnati Bell Telephone notes included unamortized fair value adjustments related to the Merger of $1.4 million and $9.3 million, respectively. As of December 31, 2021, the net carrying amounts of the 7 ¼% Senior Notes due 2023 and Various Cincinnati Bell Telephone notes included unamortized fair value adjustments related to the Merger of $1.7 million and $9.6 million, respectively. Each adjustment is being amortized over the life of the respective notes and is recorded as a reduction of interest expense. |
Credit Agreement
There were no outstanding borrowings on the Credit Agreement’s revolving credit facility, leaving $400.0 million available for borrowings as of March 31, 2022. The revolving credit facility matures in September 2026, and the Term B-1 Loans and Term B-2 loans under the Credit Agreement mature in November 2028.
Accounts Receivable Securitization Facility
As of March 31, 2022, the Company had $155.7 million in borrowings and $18.8 million of letters of credit outstanding under the accounts receivable securitization facility ("Receivables Facility”), leaving $40.5 million remaining availability on the total borrowing capacity of $215.0 million. The maximum borrowing limit for loans and letters of credit under the Receivables Facility is $215.0 million in the aggregate. The available borrowing capacity is calculated monthly based on the quantity and quality of outstanding accounts receivable, and thus may be lower than the maximum borrowing limit. The Receivables Facility is subject to renewal in June 2023 and has a termination date in June 2024.
Under the Receivables Facility, certain U.S. and Canadian subsidiaries, as originators, sell their respective trade receivables on a continuous basis to Cincinnati Bell Funding LLC (“CBF”) or Cincinnati Bell Funding Canada Ltd. ("CBFC"), wholly-owned consolidated subsidiaries of the Company. Although CBF and CBFC are wholly-owned consolidated subsidiaries of the Company, CBF and CBFC are legally separate from the Company and each of the Company’s other subsidiaries. Upon and after the sale or contribution of the accounts receivable to CBF or CBFC, such accounts receivable are legally assets of CBF and CBFC and, as such, are not available to creditors of other subsidiaries or the parent company. The Receivables Facility includes an option for CBF to sell, rather than borrow against, certain receivables on a non-recourse basis. As of March 31, 2022, there was no outstanding balance for accounts receivable sold.
18
6. Leases
Lessee Disclosures
The Company primarily leases real estate for offices, retail stores and central offices, as well as equipment, cell towers and fleet vehicles. Upon adoption of ASC 842, the Company elected not to recognize leases with terms of one-year or less on the balance sheet.
Supplemental balance sheet information related to the Company's leases is as follows:
|
(dollars in millions) |
|
Balance Sheet Location |
|
March 31, 2022 |
|
|
December 31, 2021 |
|
|
Operating lease assets, net of amortization |
|
Operating lease right-of-use assets |
|
$ |
43.7 |
|
|
$ |
44.3 |
|
|
Finance lease assets, net of amortization |
|
Property, plant and equipment, net |
|
|
9.1 |
|
|
|
10.7 |
|
|
Operating lease liabilities: |
|
|
|
|
|
|
|
|
|
|
|
Current operating lease liabilities |
|
Other current liabilities |
|
|
9.6 |
|
|
|
9.6 |
|
|
Noncurrent operating lease liabilities |
|
Operating lease liabilities |
|
|
39.6 |
|
|
|
40.2 |
|
|
Total operating lease liabilities |
|
|
|
|
49.2 |
|
|
|
49.8 |
|
|
Finance lease liabilities: |
|
|
|
|
|
|
|
|
|
|
|
Current finance lease liabilities |
|
Current portion of long-term debt |
|
|
7.3 |
|
|
|
7.2 |
|
|
Noncurrent finance lease liabilities |
|
Long-term debt, less current portion |
|
|
40.3 |
|
|
|
42.3 |
|
|
Total finance lease liabilities |
|
|
|
$ |
47.6 |
|
|
$ |
49.5 |
|
.
Supplemental cash flow information related to leases is as follows:
|
|
|
Successor |
|
|
|
Predecessor |
|
|
(dollars in millions) |
|
Three Months Ended March 31, 2022 |
|
|
|
Three Months Ended March 31, 2021 |
|
|
Supplemental Cash Flows Information |
|
|
|
|
|
|
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
|
|
|
|
|
Operating cash flows from finance leases |
|
$ |
0.8 |
|
|
|
$ |
0.5 |
|
|
Operating cash flows from operating leases |
|
$ |
2.5 |
|
|
|
$ |
2.5 |
|
|
Financing cash flows from finance leases |
|
$ |
2.8 |
|
|
|
$ |
4.2 |
|
|
Right-of-use assets obtained in exchange for lease obligations: |
|
|
|
|
|
|
|
|
|
|
New operating leases |
|
$ |
1.9 |
|
|
|
$ |
1.7 |
|
|
New finance leases |
|
$ |
0.8 |
|
|
|
$ |
3.5 |
|
7. Financial Instruments and Fair Value Measurements
Fair Value Measurements
The Company defines fair value as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. To increase consistency and comparability in fair value measurements, the Company uses a three-level hierarchy that prioritizes the use of observable inputs. The three levels are:
Level 1 — Quoted market prices for identical instruments in an active market;
Level 2 — Quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs); and
Level 3 — Unobservable inputs that reflect management's determination of assumptions that market participants would use in pricing the asset or liability. These inputs are developed based on the best information available, including our own data.
The determination of where an asset or liability falls in the hierarchy requires significant judgment.
19
Disclosure on Financial Instruments
The carrying values of the Company's financial instruments approximate the estimated fair values as of March 31, 2022 and December 31, 2021, except for the Company's long-term debt and other financing arrangements. The carrying and fair values of these items are as follows:
|
|
|
March 31, 2022 |
|
|
December 31, 2021 |
|
|
(dollars in millions) |
|
Carrying Value |
|
|
Fair Value |
|
|
Carrying Value |
|
|
Fair Value |
|
|
Long-term debt, including current portion* |
|
$ |
1,441.7 |
|
|
$ |
1,413.4 |
|
|
$ |
1,443.0 |
|
|
$ |
1,443.0 |
|
|
Other financing arrangements |
|
|
52.4 |
|
|
|
48.5 |
|
|
|
53.1 |
|
|
|
51.7 |
|
*Excludes finance leases, other financing arrangements and note issuance costs.
In connection with the Merger, the carrying values of the Company’s long-term debt and other financing arrangements include fair value adjustments as of the Merger Date. The fair value of our long-term debt was based on closing or estimated market prices of the Company’s debt at March 31, 2022 and December 31, 2021, which is considered Level 2 of the fair value hierarchy. The fair value of the other financing arrangements was calculated using a discounted cash flow model that incorporates current borrowing rates for obligations of similar duration, which is considered Level 3 of the fair value hierarchy. As of March 31, 2022, the current borrowing rate was estimated by applying the Company's credit spread to the risk-free rate for a similar duration borrowing.
8. Pension and Postretirement Plans
As of March 31, 2022, the Company sponsors three noncontributory defined benefit plans and a postretirement health and life insurance plan in Cincinnati (collectively the "Cincinnati Plans"), and one noncontributory defined benefit plan for union employees, one cash balance pension plan for nonunion employees, and two postretirement health and life insurance plans for Hawaiian Telcom employees (collectively the "Hawaii Plans").
In accordance with ASC 715, only the service cost component of net benefit cost is eligible for capitalization, which was immaterial for the three months ended March 31, 2022 and 2021.
Pension and postretirement (benefits) costs are as follows:
|
|
|
Pension Benefits |
|
|
|
Postretirement and
Other Benefits |
|
|
|
|
Successor |
|
|
|
Predecessor |
|
|
|
Successor |
|
|
|
Predecessor |
|
|
(dollars in millions) |
|
Three Months Ended March 31, 2022 |
|
|
|
Three Months Ended March 31, 2021 |
|
|
|
Three Months Ended March 31, 2022 |
|
|
|
Three Months Ended March 31, 2021 |
|
|
Service cost |
|
$ |
— |
|
|
|
$ |
— |
|
|
|
$ |
0.1 |
|
|
|
$ |
0.1 |
|
|
Other components of pension and postretirement benefit plans expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest cost on projected benefit obligation |
|
|
3.9 |
|
|
|
|
3.8 |
|
|
|
|
0.7 |
|
|
|
|
0.6 |
|
|
Expected return on plan assets |
|
|
(7.2 |
) |
|
|
|
(7.5 |
) |
|
|
|
— |
|
|
|
|
— |
|
|
Amortization of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service benefit |
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
(0.6 |
) |
|
Actuarial loss |
|
|
— |
|
|
|
|
6.3 |
|
|
|
|
— |
|
|
|
|
— |
|
|
Pension / postretirement (benefit) cost |
|
$ |
(3.3 |
) |
|
|
$ |
2.6 |
|
|
|
$ |
0.8 |
|
|
|
$ |
0.1 |
|
Amortizations of prior service benefit and actuarial loss in the three months ended March 31, 2021 represent reclassifications from accumulated other comprehensive income.
For the three months ended March 31, 2022, there were no contributions to the qualified pension plans, and contributions to the non-qualified pension plans were $0.6 million. For the three months ended March 31, 2021, contributions to both qualified and non-qualified pension plans were $0.7 million. Based on current assumptions, no contributions are expected to be made to the qualified pension plans in 2022. Contributions to the non-qualified pension plans in 2022 are expected to be approximately $2 million.
For the three months ended March 31, 2022 and 2021, contributions to our postretirement plans were $1.5 million and $1.7 million, respectively. Management expects to make total cash payments of approximately $7 million related to its postretirement health plans in 2022.
20
9. Shareowners' Equity (Deficit)
Pursuant to the Merger Agreement, Parent acquired all of the equity interests in the Company. In connection with the consummation of the Merger Agreement, each of our issued and outstanding Common Shares was converted to $15.50 in cash per Common Share and paid to the shareholders.
Additionally, the Company redeemed each of our issued and outstanding Depositary Shares simultaneously with the redemption of the 6 ¾% Preferred Shares at a redemption price of $50 per Depositary Share (equivalent to $1,000 per 6 ¾% Preferred Share).
Effective October 18, 2021, Parent amended and restated the Articles of Incorporation of Cincinnati Bell to reduce the number of authorized shares from 96,000,000 Common Shares to 100 Common Shares, each with $0.01 par value. As of both March 31, 2022 and December 31, 2021, Parent is the sole shareholder of the Company’s 100 Common Shares.
Accumulated Other Comprehensive Income (Loss)
The changes in accumulated other comprehensive income (loss) by component were as follows:
|
(dollars in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
Unrecognized
Net Periodic
Pension and
Postretirement
Benefit (Cost) |
|
|
|
Unrealized Loss on Cash Flow
Hedges, Net |
|
|
|
Foreign
Currency
Translation Gain (Loss) |
|
|
Total |
|
|
Balance as of December 31, 2021 |
|
$ |
2.6 |
|
|
|
$ |
— |
|
|
|
$ |
(1.4 |
) |
|
$ |
1.2 |
|
|
Foreign currency gain |
|
|
— |
|
|
|
|
— |
|
|
|
|
1.8 |
|
|
|
1.8 |
|
|
Balance as of March 31, 2022 |
|
$ |
2.6 |
|
|
|
$ |
— |
|
|
|
$ |
0.4 |
|
|
$ |
3.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2020 |
|
$ |
(138.8 |
) |
|
|
$ |
(19.7 |
) |
|
|
$ |
(1.2 |
) |
|
$ |
(159.7 |
) |
|
Reclassifications, net |
|
|
4.4 |
|
(a) |
|
|
1.8 |
|
(b) |
|
|
— |
|
|
|
6.2 |
|
|
Unrealized gain on cash flow hedges arising during the period, net |
|
|
— |
|
|
|
|
0.6 |
|
(c) |
|
|
— |
|
|
|
0.6 |
|
|
Foreign currency gain |
|
|
— |
|
|
|
|
— |
|
|
|
|
1.0 |
|
|
|
1.0 |
|
|
Balance as of March 31, 2021 |
|
$ |
(134.4 |
) |
|
|
$ |
(17.3 |
) |
|
|
$ |
(0.2 |
) |
|
$ |
(151.9 |
) |
|
|
(a) |
These reclassifications are included in the other components of net periodic pension and postretirement benefit plans expense and represent amortization of prior service benefit and actuarial loss, net of tax. The other components of net periodic pension and postretirement benefit plans expense are recorded in "Other components of pension and postretirement benefit plans (benefit) expense" on the Condensed Consolidated Statements of Operations. See Note 8 for further disclosures. |
|
|
(b) |
These reclassifications are reported within "Interest expense" on the Condensed Consolidated Statements of Operations when the hedged transactions impact earnings. |
|
|
(c) |
The unrealized gain, net on cash flow hedges represents the change in the fair value of the derivative instruments that occurred during the period, net of tax. |
21
10. Business Segment Information
The Company’s segments are strategic business units that offer distinct products and services and are aligned with the Company's internal management structure and reporting. The Company operates two business segments identified as Network and IT Services and Hardware.
The Network segment provides products and services that can be categorized as Data, Video, Voice or Other. Data products include high-speed internet access, digital subscriber lines, ethernet, SONET, dedicated internet access, wavelength, digital signal and IRU. Video services provide our customers access to over 400 entertainment channels, over 150 high-definition channels, parental controls, HD DVR, Video On-Demand and access to a live TV streaming application. Voice represents traditional voice lines as well as fiber voice lines, consumer long distance, switched access and digital trunking. Other services consist of revenue generated from wiring projects for enterprise customers, advertising, directory assistance, maintenance, information services and subsidized fiber build project revenue related to extending the Company’s fiber network in the Greater Cincinnati territory subsidized through our UniCity program.
The IT Services and Hardware segment provides end-to-end solutions from consulting to implementation to ongoing optimization. These solutions include Cloud, Communications and Consulting services along with the sale, installation and maintenance of major branded Telecom and IT hardware reported as Infrastructure Solutions.
Certain corporate administrative expenses have been allocated to the segments based upon the nature of the expense and the relative size of the segment. Intercompany transactions between segments have been eliminated.
Selected financial data for the Company’s business segment information is as follows:
|
|
|
Successor |
|
|
|
Predecessor |
|
|
(dollars in millions) |
|
Three Months Ended March 31, 2022 |
|
|
|
Three Months Ended March 31, 2021 |
|
|
Revenue |
|
|
|
|
|
|
|
|
|
|
Network |
|
$ |
243.5 |
|
|
|
$ |
242.8 |
|
|
IT Services and Hardware |
|
|
198.8 |
|
|
|
|
173.8 |
|
|
Intersegment |
|
|
(6.5 |
) |
|
|
|
(6.7 |
) |
|
Total revenue |
|
$ |
435.8 |
|
|
|
$ |
409.9 |
|
|
Intersegment revenue |
|
|
|
|
|
|
|
|
|
|
Network |
|
$ |
4.9 |
|
|
|
$ |
4.8 |
|
|
IT Services and Hardware |
|
|
1.6 |
|
|
|
|
1.9 |
|
|
Total intersegment revenue |
|
$ |
6.5 |
|
|
|
$ |
6.7 |
|
|
Operating (loss) income |
|
|
|
|
|
|
|
|
|
|
Network |
|
$ |
(3.1 |
) |
|
|
$ |
31.3 |
|
|
IT Services and Hardware |
|
|
(4.9 |
) |
|
|
|
8.6 |
|
|
Corporate |
|
|
(7.0 |
) |
|
|
|
(7.3 |
) |
|
Total operating (loss) income |
|
$ |
(15.0 |
) |
|
|
$ |
32.6 |
|
|
Expenditures for long-lived assets |
|
|
|
|
|
|
|
|
|
|
Network |
|
$ |
81.5 |
|
|
|
$ |
55.0 |
|
|
IT Services and Hardware |
|
|
6.3 |
|
|
|
|
5.7 |
|
|
Total expenditures for long-lived assets |
|
$ |
87.8 |
|
|
|
$ |
60.7 |
|
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
Network |
|
$ |
93.4 |
|
|
|
$ |
60.8 |
|
|
IT Services and Hardware |
|
|
26.0 |
|
|
|
|
10.1 |
|
|
Corporate |
|
|
0.1 |
|
|
|
|
0.1 |
|
|
Total depreciation and amortization |
|
$ |
119.5 |
|
|
|
$ |
71.0 |
|
|
|
|
|
|
|
|
|
|
|
|
22
|
(dollars in millions) |
|
March 31,
2022 |
|
|
December 31,
2021 |
|
|
Assets |
|
|
|
|
|
|
|
|
|
Network |
|
$ |
2,943.9 |
|
|
$ |
2,949.2 |
|
|
IT Services and Hardware |
|
|
819.8 |
|
|
|
842.0 |
|
|
Corporate and eliminations |
|
|
334.9 |
|
|
|
407.6 |
|
|
Total assets |
|
$ |
4,098.6 |
|
|
$ |
4,198.8 |
|
11. Subsequent Events
On May 2, 2022, the Company acquired Agile Networks LLC, based in Canton, Ohio, for approximately $65 million. Agile Networks LLC provides internet, co-location and data transport services primarily to customers in Ohio and Pennsylvania. We are currently in the process of assessing the accounting for this transaction and will disclose our preliminary allocation of the purchase consideration to the assets acquired and liabilities assumed in the second quarter ended June 30, 2022.
23