| Description of Business and Accounting Policies | 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") provides 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. As of June 30, 2024, we operate our business through one segment, Network. All revenue reported in the Network segment is generated from U.S. operations. 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 June 30, 2024 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 2023 Annual Report on Form 10-K. The pending sale of the CBTS and OnX businesses (the "Disposal Group") represents a strategic shift in our business. Therefore, assets, liabilities and results of operations from the Disposal Group will be reported as discontinued operations in our financial statements. Accordingly, the Company has recast its prior period financial position and results of operations to be comparable with the current discontinued operations presentation with the exception of the Condensed Consolidated Statements of Cash Flows. See Note 2 for all required disclosures. 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 3 for disclosures related to mergers and acquisitions. 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, 2023. Variable Interest Entity — The Company holds an interest in a limited liability company, Digital Access Ohio LLC (“DAO”), that is considered a variable interest entity ("VIE") in accordance with the guidance of ASC 810 “Consolidation.” DAO is considered a VIE as it has insufficient equity capital to finance its activities without additional financial support. The Company is the primary beneficiary of DAO as it has the power over the activities that most significantly impact the economic performance of DAO and has the obligation to absorb expected losses and the right to receive expected benefits that could be significant to DAO. As a result, the Company consolidated DAO, and all significant intercompany accounts have been eliminated. For the three and six months ended June 30, 2024 and 2023, results of operations of DAO were nominal. Funding of DAO is provided in the form of cash contributions, debt issuance and grants that include a free standing warrant that allows the holder of the warrant at its option to convert the warrant into a class A-2 share of DAO at any time during the period commencing on the 2 nd anniversary of the funding agreement and ending on the 10th anniversary of the funding agreement date. The Company has recorded the fair value associated with the warrant to "Other noncurrent liabilities" on the Condensed Consolidated Balance Sheets. The Company will continue to assess whether it has a controlling financial interest and whether it is the primary beneficiary at each reportin g 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 as of June 30, 2024 and December 31, 2023 consists of funds held by DAO. 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) June 30, 2024 December 31, 2023
Cash and cash equivalents $ 4.7 $ 7.8
Cash and cash equivalents included in Current assets held for sale from discontinued operations 5.4 1.3
Restricted cash included in Other noncurrent assets 7.3 3.4
Cash, cash equivalents and restricted cash per Condensed Consolidated Statements of Cash Flows $ 17.4 $ 12.5 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 and other perpetual licenses 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. Accounting for Impacts of Involuntary Events and Contingencies — Assets destroyed or damaged as a result of involuntary events are written off or reduced in carrying value to their salvage value. When recovery of all or a portion of the amount of property damage loss or other covered expenses through insurance proceeds is demonstrated to be probable, a receivable is recorded and offsets the loss or expense up to the amount of the total loss or expense. Proceeds ultimately received from insurance claims for business interruption, direct expenditures and amounts for capital assets in excess of net book value will be recorded to results of operations when collected. No gain is recorded until all contingencies related to the insurance claim have been resolved. In August 2023, wildfires ignited on Maui and Hawaii islands and spread rapidly due to extreme wind conditions caused in part by Hurricane Dora which traveled 800 miles offshore west of Maui. The fires caused widespread damage to Lahaina town on the island of Maui and the surrounding area, including physical loss and damage to certain of the Company’s fiber and copper assets and Company owned equipment located on customer premises. The Company experienced the loss of business income immediately following the fires and is expected to continue to experience loss of business income for an unknown amount of time. The Company has filed insurance claims for the physical loss and damages experienced in Lahaina and for business income losses resulting from t he matter. In the first quarter of 2024, the Company received insurance reimbursements of $ 3.0 million related to the physical loss and damage claims and recorded the amount to "Other income, net" on the Condensed Consolidated Statements of Operations. The Company’s Hawaiian Telcom subsidiary, along with many other parties, including governmental entities, landowners, utilities and other telecommunication providers, has been named as a defendant in multiple civil lawsuits brought by individual plaintiffs, a putative class, and subrogation plaintiffs in state and federal court in Hawaii arising out of the August 2023 windstorm and wildfires on the island of Maui. Among other things, the lawsuits allege that the defendants were responsible for, and/or were negligent in failing to prevent, the wildfires that led to severe destruction of property and loss of life. Hawaiian Telcom has denied any responsibility for the damages caused by the wildfires. The parties to the litigations, including Hawaiian Telcom, have engaged in confidential mediation and discussions regarding a global settlement of the litigations. On August 2, 2024, the defendants, individual plaintiffs, and class plaintiffs entered into a term sheet that contemplates a global resolution of all claims arising out of the August 2023 windstorm and wildfires on Maui that does not include any admission of liability in which the defendants would collectively pay an aggregate of $ 4.037 billion. The settlement also would resolve all claims among the defendants. Hawaiian Telcom’s contribution is a total of $ 100 million and includes the $ 2.5 million previously contributed for the One ‘Ohana Fund. Settlement payments are expected to be made no earlier than mid to late 2025 following necessary judicial review and approvals. However, until final settlement documents are signed by all the parties to the term sheet, there can be no assurances that a settlement will be completed, or that Hawaiian Telcom will be able to settle the lawsuits against it on the terms set forth in the term sheet . If the settlement is not completed, Hawaiian Telcom intends to vigorously defend the lawsuits in which it is named as defendant. As a result, the Company concluded that, with the agreement to the term sheet related to the August 2023 wildfires on Maui, the global settlement was probable, and the related loss was reasonably estimable. Accordingly, the Company recognized an incremental liability of $ 93.5 million recorded to “Other Noncurrent liabilities” in the Condensed Consolidated Balance Sheets as of June 30, 2024. This charge is offset by an insurance receivable included in “Other noncurrent assets” as of June 30, 2024. The Company had recorded a general claims liability of $ 4.0 million related to the matter as of December 31, 2023. As of June 30, 2024, the Company has a general liability of $ 97.5 million related to this matter recorded in "Other noncurrent liabilities" in the Condensed Consolidated Balance Sheets. As of December 31, 2023, the Company had a general liability recorded related to this matter of $ 4.0 million, of which $ 2.0 million was recorded in "Other current liabilities" and $ 2.0 million was recorded in "Other noncurrent liabilities" in the Condensed Consolidated Balance Sheets. As of June 30, 2024 an offsetting receivable of $ 1.5 million and $ 96.6 million associated with amounts expected to be reimbursed by insurance has been recorded in "Receivables" and "Other noncurrent assets," respectively, in the Condensed Consolidated Balance Sheets. As of December 31, 2023, the Company had recorded $ 2.0 million to "Other noncurrent assets" on the Condensed Consolidated Balance Sheets. Legal expenses of $ 3.4 million related to this matter have been recorded in the six months ended June 30, 2024. 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 income tax provision for the three months ended June 30, 2024 for continuing operations was a benefit of $ 2.6 million. The tax benefit reported is lower than the $ 8.4 million benefit expected at the statutory rate due most notably to additional federal and state valuation allowances recorded against net operating loss deferred tax assets. The tax benefit reported in the three months ended June 30, 2024 for continuing operations is higher than the tax benefit in the comparable period of 2023 for continuing operations due to a higher loss before tax, with valuation allowances recorded against net operating loss deferred tax assets recorded in both periods. The income tax provision recorded for the six months ended June 30, 2024 for continuing operations was an expense of $ 31.2 million, despite a loss before tax of $ 53.9 million, due most notably to amounts recorded related to the accounting for the planned divestiture of the Disposal Group. A discrete tax expense item of $ 17.1 million has been recorded in the six months ended June 30, 2024 for continuing operations to record a deferred tax liability for the tax effect of the difference between book basis and tax basis of the Disposal Group. In addition, $ 27.1 million of tax expense, of which $ 18.0 million was discrete, was recorded in the six-month reporting period to increase valuation allowances on deferred tax assets related to federal and state net operating loss carryforwards. In the comparable period of 2023, the tax effect of the difference between book basis and tax basis of the Disposal Group was not yet reported. 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 income.” 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 income" 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. All cash flows associated with the Company’s derivative instruments are classified as operating activities in the Condensed Consolidated Statements of Cash Flows. Segments — The Company provides products and services that can be categorized as Data, Video, Voice or Other that represent 100% of the Company’s consolidated sales from continuing operations. Since the February 2, 2024 definitive purchase agreement with TowerBrook (Note 2), the Company aggregates its products and services delivered across all geographical markets into one reportable segment due to the products and services having similar economic characteristics with similar long-term financial performance. In addition, the Company’s geographical markets offer customers similar products, have similar distribution methods, operate in similar regulatory environments, purchase the majority of capital required to build the network to deliver the services from similar (and in many cases identical) vendors, and serve similar types of customers. Operating divisions are organized primarily on a legal entity basis so that the operating division management team can be responsive to local needs and can execute company strategic plans and initiatives throughout the locations in their operating division. The legal entity basis of organization reflects how the business is managed and how the Company’s Chief Executive Officer, who acts as the Company’s chief operating decision maker, assesses performance internally. All of the Company’s continuing operations are domestic. Recently Issued Accounting Standards In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The ASU is effective for public business entities for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. The amendments within ASU 2023-07 are required to be applied on a retrospective basis. The Company will adopt and apply the guidance as prescribed by this ASU to segment reporting that occurs after the effective date. We do not anticipate this ASU will materially affect our consolidated financial statements. In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires reporting entities to disclose disaggregated information about the entity's effective tax rate reconciliation as well as information on income taxes paid. The ASU is effective for public business entities for annual periods beginning after December 15, 2024, although early adoption is permitted. The amendments in this ASU will be applied on a prospective basis with the option to apply the standard retrospectively. The Company is currently evaluating the effects of this standard on its consolidated financial statements and related disclosures. Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the Company’s consolidated financial statements upon adoption. |
