Cautionary Statement Concerning Forward-Looking Statements
This Quarterly Report on Form 10-Q and the documents incorporated by reference
herein contain forward-looking statements regarding future events and results
that are subject to the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995. All statements, other than statements of
historical facts, are statements that could be deemed forward-looking
statements. These statements are based on current expectations, estimates,
forecasts, and projections about the industries in which we operate and the
beliefs and assumptions of our management. Words such as "expects,"
"anticipates," "predicts," "projects," "intends," "plans," "believes," "seeks,"
"estimates," "continues," "endeavors," "strives," "may," "will," "proposes,"
"potential," "could," "should," "outlook" or variations of such words and
similar expressions are intended to identify such forward-looking statements. In
addition, any statements that refer to projections of future financial
performance, anticipated growth and trends in businesses, and other
characterizations of future events or circumstances, including but not limited
to, the possible impacts of the current adverse economic conditions associated
with the COVID-19 global health pandemic, are forward-looking statements.
Readers are cautioned these forward-looking statements are based on current
expectations and assumptions that are subject to risks and uncertainties, which
could cause actual results to differ materially and adversely from those
reflected in the forward-looking statements. Factors that could cause or
contribute to such differences include, but are not limited to, those discussed
in this Quarterly Report on Form 10-Q and, in particular, the risks discussed
under the caption "Risk Factors" in Part II, Item 1A, and those discussed in
other documents the Company filed with the Securities and Exchange Commission
("SEC"). Actual results may differ materially and adversely from those expressed
in any forward-looking statements. The Company undertakes no obligation to
revise or update any forward-looking statements for any reason.
Introduction
This Management's Discussion and Analysis section provides an overview of
Cincinnati Bell Inc.'s financial condition as of June 30, 2021 and the results
of operations for the three and six months ended June 30, 2021 and 2020. This
discussion should be read in conjunction with the accompanying Condensed
Consolidated Financial Statements and accompanying notes as well as the
Company's Annual Report on Form 10-K for the year ended December 31, 2020.
Results for interim periods may not be indicative of results for the full year
or any other interim period.
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, the
Company paid an affiliate of Brookfield a termination fee of $24.8 million in
the first quarter of 2020 as required by the terms of the Brookfield Merger
Agreement.
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, as amended, (iii) the
receipt of any required consents or approvals from (a) the Committee on Foreign
Investment in the United States, (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. As of the date of this
filing, the Company has received all regulatory approvals required to consummate
the MIP Merger other than approval by the California Public Utilities
Commission.
The MIP Merger Agreement contains representations and warranties and covenants
of the parties customary for a transaction of this nature.
The MIP Merger is expected to close in the third quarter of 2021, although there
can be no assurance that the MIP Merger will occur by that date. Upon the
closing of the MIP Merger, the Company will cease to be a publicly traded
company.
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Executive Summary
Segment results described in the Executive Summary and Consolidated Results of
Operations sections are net of intercompany eliminations.
Cincinnati Bell Inc. and its consolidated subsidiaries ("Cincinnati Bell," "we,"
"our," "us" or the "Company") provide integrated communications and IT solutions
that keep consumer and enterprise customers connected with each other and with
the world. Through its Entertainment and Communications segment, the Company
provides Data, Video, and Voice solutions to consumer and enterprise customers
over an expanding fiber network and a legacy copper network. In addition,
enterprise customers across the United States, Canada and Europe rely on the IT
Services and Hardware segment for the sale and service of efficient, end-to-end
communications and IT systems and solutions.
Consolidated revenue totaling $414.2 million and $824.1 million for the three
months and six months ended June 30, 2021 increased $34.2 million and $64.1
million, respectively, as compared to the same periods in 2020 due to strategic
revenue growth in both segments offsetting declines in Legacy revenue.
For the three and six months ended June 30, 2021, Consumer/SMB Fiber revenue
increased $6.7 million and $12.0 million, respectively, as compared to the same
periods in the prior year as the Company continues to focus on high-speed
internet activations while Legacy revenue decreased $5.5 million and $11.8
million, respectively, as compared to the comparable periods in 2020. IT
Services and Hardware experienced revenue growth in all practices for the three
months and six months ended June 30, 2021, with the exception of the
Communications practice that decreased by $0.2 million in the three months ended
June 30, 2021 compared to the three months end June 30, 2020, due to significant
nonrecurring revenue recognized in the second quarter of 2020. The increase in
IT Services and Hardware revenue in both comparable periods is due most
significantly to the Consulting practice in which revenue increased 52% and 54%
for the three and six months ended June 30, 2021, respectively, as compared to
the same periods in the prior year.
Operating income was $30.4 million for the three months ended June 30, 2021, up
$2.7 million compared to the same period in the prior year. The increase in
operating income is due to revenue growth in addition to lower depreciation and
amortization expense and transaction and integration charges for the three
months ended June 30, 2021 compared to the comparable period in 2020. These
increases to operating income were partially offset by increased SG&A expense in
the three months ended June 30, 2021 resulting from higher payroll related costs
and savings realized in the three months ended June 30, 2020 due to cost
containment strategies to reduce the negative impact of the COVID-19 pandemic on
the business that were no longer in place in the second quarter of 2021.
Operating income was $63.0 million for the six months ended June 30, 2021, up
$55.5 million compared to the same period in the prior year. In addition to
revenue growth in both segments, the increase in operating income was primarily
due to lower transaction and integration charges, restructuring and severance
related charges, and depreciation and amortization expense. Transaction and
integration charges recorded in the six months ended June 30, 2020 include a
termination fee of $24.8 million paid to an affiliate of Brookfield in the first
quarter of 2020. Lower restructuring and severance related charges are due to
the voluntary severance program ("VSP") finalized in the three months ended
March 31, 2020.
Loss before income taxes totaled $4.6 million for the three months ended June
30, 2021, resulting in a decrease in the loss as compared to the comparable
period in 2020 primarily due to the increase in operating income in addition to
lower pension and postretirement benefit plans expense. Loss before income taxes
totaled $7.2 million for the six months ended June 30, 2021, lower than the
prior year primarily due to the factors impacting operating income as well as
lower interest expense and pension and postretirement benefit plans expense.
Impact of COVID-19 on Our Business
The COVID-19 pandemic has resulted, and is likely to continue to result, in
significant economic disruption. As of the date of this filing, significant
uncertainty continues to exist concerning the magnitude of the impact and
duration of the COVID-19 pandemic. While most of the country has started to
reopen and normal activities begin to resume, the current rise in cases due to a
variant of the virus may result in restrictions being reinstated. On March 13,
2020, in response to the COVID-19 pandemic, the Federal Communications
Commission ("FCC") called on broadband and telephone service providers to keep
Americans connected as the country reacts to the serious disruptions caused by
the coronavirus outbreak. Cincinnati Bell, on behalf of all of its affiliates,
including Hawaiian Telecom, signed on to the Keep Americans Connected Pledge
(the "Pledge") and committed to waive late fees for, and not terminate service
to, any of our consumer or small business customers who did not pay their bills
timely due to an inability to pay caused by the COVID-19 crisis. The impacts to
revenue as a result of these commitments during the three months ended June 30,
2020 included a decline in revenue related to late payment fees and certain
other one-time fees. The impacts to revenue as a result of these commitments
were limited in the six months ended June 30, 2021 and the three months ended
March 31, 2020. The Pledge expired on June 30, 2020, and customer accounts in
the Cincinnati market that were not cured were disconnected during the third and
fourth quarters of 2020. Balances associated with accounts that have been
disconnected were fully reserved as of December 31, 2020 and were written off
during the first quarter of 2021. In accordance with regulatory orders in
Hawaii, the Pledge continues to be honored for certain regulated services.
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We expect the ultimate significance of the impact on our financial condition,
results of operations, or cash flows will be dictated by the length of time that
such circumstances continue, which will depend on the currently unknowable
extent and duration of the COVID-19 pandemic, effectiveness of the vaccine and
timeliness that individuals receive the vaccine. COVID-19 also makes it more
challenging for management to estimate future performance of our businesses,
particularly over the near term. We will continue to actively monitor the
situation and may take further actions that alter our business operations as may
be required by federal, state or local authorities or that we determine are in
the best interests of our employees, customers, suppliers and shareholders.
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CINCINNATI BELL INC. 
