Cincinnati Bell Inc
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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 September 30, 2020 ☐ 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) Name of Each Exchange on Title of Each Class Trading Symbol(s) 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 October 31, 2020, there were 50,680,605 common shares outstanding. TABLE OF CONTENTS PART I. Financial Information Description Page Item 1. Financial Statements Condensed Consolidated Statements of Operations (Unaudited) Three and Nine Months Ended September 30, 2020 and 2019 1 Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) Three and Nine Months Ended September 30, 2020 and 2019 2 Condensed Consolidated Statements of Shareowners' Deficit (Unaudited) Three and Nine Months Ended September 30, 2020 and 2019 3 Condensed Consolidated Balance Sheets (Unaudited) September 30, 2020 and December 31, 2019 4 Condensed Consolidated Statements of Cash Flows (Unaudited) Nine Months Ended September 30, 2020 and 2019 5 Notes to Condensed Consolidated Financial Statements (Unaudited) 6 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 23 Item 3. Quantitative and Qualitative Disclosures about Market Risk 40 Item 4. Controls and Procedures 40 PART II. Other Information Item 1. Legal Proceedings 41 Item 1A. Risk Factors 41 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 48 Item 3. Default upon Senior Securities 48 Item 4. Mine Safety Disclosure 48 Item 5. Other Information 48 Item 6. Exhibits 49 Signatures 50 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in millions, except per share amounts) (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, 2020 2019 2020 2019 Revenue $ 389.5 $ 382.5 $ 1,149.5 $ 1,146.3 Costs and expenses Cost of services and products, excluding items below 203.9 194.7 591.0 587.9 Selling, general and administrative, excluding items below 86.0 88.0 255.3 261.3 Depreciation and amortization 71.9 75.5 220.8 229.1 Restructuring and severance related charges 0.8 1.3 16.4 6.4 Transaction and integration costs 2.2 0.2 33.8 3.8 Total operating costs and expenses 364.8 359.7 1,117.3 1,088.5 Operating income 24.7 22.8 32.2 57.8 Interest expense 33.4 35.0 100.6 105.0 Other components of pension and postretirement benefit plans expense 2.6 2.8 9.0 8.4 Other (income) expense, net (0.2) 0.5 (1.2) (0.4) Loss before income taxes (11.1) (15.5) (76.2) (55.2) Income tax benefit (2.9) (1.9) (26.2) (9.2) Net loss (8.2) (13.6) (50.0) (46.0) Preferred stock dividends 2.6 2.6 7.8 7.8 Net loss applicable to common shareowners $ (10.8) $ (16.2) $ (57.8) $ (53.8) Basic and diluted net loss per common share $ (0.21) $ (0.32) $ (1.14) $ (1.07) 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 Nine Months Ended September 30, September 30, 2020 2019 2020 2019 Net loss $ (8.2) $ (13.6) $ (50.0) $ (46.0) Other comprehensive income (loss), net of tax: Foreign currency translation gain (loss) 2.0 (1.0) (2.1) 2.1 Cash flow hedges: Unrealized loss on cash flow hedges arising during the period, net of tax of ($0.1), $(0.9), ($3.3), ($4.2) (0.5) (3.0) (11.3) (13.9) Reclassification adjustment for net losses included in net income, net of tax of $0.5, $0.2, $1.4, $0.3 1.8 0.4 4.6 0.8 Defined benefit plans: Net gain (loss) arising from remeasurement during the period, net of tax of $1.0, ($3.4), $0.0 3.2 — (11.5) 0.1 Amortization of prior service benefits included in net income, net of tax of ($0.1), ($0.2), ($0.4), ($0.5) (0.5) (0.4) (1.5) (1.4) Amortization of net actuarial loss included in net income, net of tax of $1.1, $1.0, $3.3, $2.7 3.7 2.9 11.1 8.9 Reclassification adjustment for pension settlement charges included in net income, net of tax of $0.2 — — 0.9 — Total other comprehensive income (loss) 9.7 (1.1) (9.8) (3.4) Total comprehensive income (loss) $ 1.5 $ (14.7) $ (59.8) $ (49.4) 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 Accumulated Convertible Additional Other Preferred Shares Common Shares Paid-in Accumulated Comprehensive Shares Amount Shares Amount Capital Deficit Loss Total Balance at June 30, 2020 3.1 $ 129.4 50.7 $ 0.5 $ 2,672.9 $ (2,817.8) $ (189.6) $ (204.6) Net loss — — — — — (8.2) — (8.2) Other comprehensive income — — — — — — 9.7 9.7 Stock-based compensation — — — — 1.2 — — 1.2 Dividends on preferred stock — — — — (2.6) — — (2.6) Balance at September 30, 2020 3.1 $ 129.4 50.7 $ 0.5 $ 2,671.5 $ (2,826.0) $ (179.9) $ (204.5) Balance at June 30, 2019 3.1 $ 129.4 50.4 $ 0.5 $ 2,677.4 $ (2,741.8) $ (177.8) $ (112.3) Net loss — — — — — (13.6) — (13.6) Other comprehensive loss — — — — — — (1.1) (1.1) Stock-based compensation — — — — 2.0 — — 2.0 Dividends on preferred stock — — — — (2.6) — — (2.6) Balance at September 30, 2019 3.1 $ 129.4 50.4 $ 0.5 $ 2,676.8 $ (2,755.4) $ (178.9) $ (127.6) 6 3/4 % Cumulative Accumulated Convertible Additional Other Preferred Shares Common Shares Paid-in Accumulated Comprehensive Shares Amount Shares Amount Capital Deficit Loss Total 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 — — — — — (50.0) — (50.0) Other comprehensive loss — — — — — — (9.8) (9.8) Shares issued under employee plans — — 0.3 — — — — — Shares purchased under employee plans and other — — — — (1.1) — — (1.1) Stock-based compensation — — — — 4.2 — — 4.2 Dividends on preferred stock — — — — (7.8) — — (7.8) Balance at September 30, 2020 3.1 $ 129.4 50.7 $ 0.5 $ 2,671.5 $ (2,826.0) $ (179.9) $ (204.5) Balance at December 31, 2018 3.1 $ 129.4 50.2 $ 0.5 $ 2,680.0 $ (2,709.4) $ (175.5) $ (75.0) Net loss — — — — — (46.0) — (46.0) Other comprehensive loss — — — — — — (3.4) (3.4) Shares issued under employee plans — — 0.2 — — — — — Shares purchased under employee plans and other — — — — (0.8) — — (0.8) Stock-based compensation — — — — 5.4 — — 5.4 Dividends on preferred stock — — — — (7.8) — — (7.8) Balance at September 30, 2019 3.1 $ 129.4 50.4 $ 0.5 $ 2,676.8 $ (2,755.4) $ (178.9) $ (127.6) 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) September 30, December 31, 2020 2019 Assets Current assets Cash and cash equivalents $ 8.8 $ 11.6 Receivables, less allowances of $20.2 and $14.3 280.1 307.7 Inventory, materials and supplies 28.7 44.6 Prepaid expenses 30.8 28.3 Other current assets 13.2 11.6 Total current assets 361.6 403.8 Property, plant and equipment, net 1,732.5 1,780.8 Operating lease right-of-use assets 34.1 35.8 Goodwill 159.3 160.5 Intangible assets, net 143.4 155.4 Deferred income tax assets 86.2 59.3 Other noncurrent assets 46.7 58.2 Total assets $ 2,563.8 $ 2,653.8 Liabilities and Shareowners’ Deficit Current liabilities Current portion of long-term debt $ 21.6 $ 22.3 Accounts payable 223.6 284.6 Unearned revenue and customer deposits 50.3 59.1 Accrued taxes 20.4 29.1 Accrued interest 24.5