UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
 
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2018March 31, 2019
 
oTRANSITION 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)
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  x    No  o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted 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 and post such files).    Yes  x    No  o
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 filerx  Accelerated filero
     
Non-accelerated filero  Smaller reporting companyo
     
Emerging growth companyo
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. o

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

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and reports requiredSecurities Registered Pursuant to be filed by Section 12, 13 or 15(d)12(b) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.     Yes  o No  oAct:
APPLICABLE ONLY TO CORPORATE ISSUERS

Title of Each ClassTrading Symbol(s)Name of Each Exchange on Which Registered
Common Shares ($0.01 par value)CBBNew York Stock Exchange
Depositary Shares, each representing 1/20 interest in a Share of 6 ¾% Cumulative Convertible Preferred Stock, without par valueCBB.PBNew York Stock Exchange

At July 31, 2018,April 30, 2019, there were 50,157,16850,367,297 common shares outstanding.
 


Table of Contents
Form 10-Q Part I Cincinnati Bell Inc.

TABLE OF CONTENTS

PART I. Financial Information
Description Page
Item 1.Financial Statements 
 
   
 
   
 
   
 
   
 
   
Item 2.
   
Item 3.
   
Item 4.
   
  
   
Item 1.
   
Item 1A.
   
Item 2.
   
Item 3.

   
Item 4.

   
Item 5.

   
Item 6.
   
 


Table of Contents
Form 10-Q Part I Cincinnati Bell Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in millions, except per share amounts)
(Unaudited)
 
Three Months Ended Six Months EndedThree Months Ended
June 30, June 30,March 31,
2018 2017 2018 20172019 2018
          
Revenue$296.8
 $259.4
 $592.5
 $509.0
$379.6
 $295.7
          
Costs and expenses          
Cost of services and products, excluding items below152.3
 128.9
 301.7
 253.0
197.7
 149.4
Selling, general and administrative, excluding items below66.1
 53.8
 134.5
 109.1
86.1
 68.4
Depreciation and amortization50.9
 47.0
 102.1
 92.8
79.4
 51.2
Restructuring and severance related charges4.6
 3.6
 4.9
 29.2
3.3
 0.3
Transaction and integration costs2.7
 1.7
 4.9
 2.3
3.0
 2.2
Total operating costs and expenses276.6
 235.0
 548.1
 486.4
369.5
 271.5
Operating income20.2
 24.4
 44.4
 22.6
10.1
 24.2
Interest expense31.8
 18.1
 62.6
 36.1
35.1
 30.8
Loss on extinguishment of debt1.3
 
 1.3
 
Other components of pension and postretirement benefit plans expense3.2
 3.2
 6.5
 6.4
2.6
 3.3
Gain on sale of Investment in CyrusOne
 
 
 (117.7)
Other income, net(0.8) (0.6) (1.2) (1.0)(1.0) (0.4)
(Loss) income before income taxes(15.3) 3.7
 (24.8) 98.8
Income tax (benefit) expense(1.5) 1.4
 (2.7) 35.9
Net (loss) income(13.8) 2.3
 (22.1) 62.9
Loss before income taxes(26.6) (9.5)
Income tax expense (benefit)0.3
 (1.2)
Net loss(26.9) (8.3)
Preferred stock dividends2.6
 2.6
 5.2
 5.2
2.6
 2.6
Net (loss) income applicable to common shareowners$(16.4) $(0.3) $(27.3) $57.7
Net loss applicable to common shareowners$(29.5) $(10.9)
          
Basic net (loss) earnings per common share$(0.39) $(0.01) $(0.64) $1.37
Diluted net (loss) earnings per common share$(0.39) $(0.01) $(0.64) $1.36
Basic and diluted net loss per common share$(0.59) $(0.26)

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

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOMELOSS
(Dollars in millions)
(Unaudited)

 Three Months Ended Six Months Ended
 June 30, June 30,
 2018 2017 2018 2017
Net (loss) income$(13.8) $2.3
 $(22.1) $62.9
Other comprehensive (loss) income, net of tax:       
Unrealized gains on Investment in CyrusOne, net of tax of $4.4
 
 
 8.3
Reclassification adjustment for gain on sale of Investment in CyrusOne included in net income, net of tax of ($41.3)
 
 
 (76.4)
Foreign currency translation loss(2.5) 
 (4.3) 
Unrealized loss on cash flow hedge arising during the period, net of tax of ($0.4), ($0.4)(1.5) 
 (1.5) 
Defined benefit plans:       
   Amortization of prior service benefits included in net income, net of tax of ($0.2), ($0.4), ($0.4), ($0.8)(0.6) (0.7) (1.2) (1.4)
   Amortization of net actuarial loss included in net income, net of tax of $1.2, $2.0, $2.4, $4.04.1
 3.6
 8.2
 7.1
Total other comprehensive (loss) income(0.5) 2.9
 1.2
 (62.4)
Total comprehensive (loss) income$(14.3) $5.2
 $(20.9) $0.5
 Three Months Ended
 March 31,
 2019 2018
Net loss$(26.9) $(8.3)
Other comprehensive income (loss), net of tax:   
Foreign currency translation gain (loss)1.6
 (1.8)
Cash flow hedges:   
Unrealized loss on cash flow hedges arising during the period, net of tax of ($1.0)(3.1) 
Reclassification adjustment for net losses included in net income, net of tax of $0.10.2
 
Defined benefit plans:   
Amortization of prior service benefits included in net income, net of tax of ($0.1), ($0.2)(0.5) (0.6)
Amortization of net actuarial loss included in net income, net of tax of $0.8, $1.23.0
 4.1
Total other comprehensive income1.2
 1.7
Total comprehensive loss$(25.7) $(6.6)

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

CONDENSED CONSOLIDATED STATEMENTS OF SHAREOWNERS' DEFICIT
2(Dollars in millions)
(Unaudited)
 
6 3/4% Cumulative
Convertible
Preferred Shares
 Common Shares 
Additional
Paid-in Capital
 Accumulated Deficit Accumulated Other Comprehensive Loss  
 Shares Amount Shares Amount    Total
Balance at December 31, 20183.1
 $129.4
 50.2
 $0.5
 $2,680.0
 $(2,709.4) $(175.5) $(75.0)
Net loss
 
 
 
 
 (26.9) 
 (26.9)
Other comprehensive income
 
 
 
 
 
 1.2
 1.2
Shares issued under employee plans
 
 0.2
 
 
 
 
 
Shares purchased under employee plans and other
 
 
 
 (0.8) 
 
 (0.8)
Stock-based compensation
 
 
 
 1.8
 
 
 1.8
Dividends on preferred stock
 
 
 
 (2.6) 
 
 (2.6)
Balance at March 31, 20193.1
 $129.4
 50.4
 $0.5
 $2,678.4
 $(2,736.3) $(174.3) $(102.3)

 
6 3/4% Cumulative
Convertible
Preferred Shares
 Common Shares 
Additional
Paid-in Capital
 Accumulated Deficit Accumulated Other Comprehensive Loss  
 Shares Amount Shares Amount    Total
Balance at December 31, 20173.1
 $129.4
 42.2
 $0.4
 $2,565.6
 $(2,639.6) $(173.7) $(117.9)
Net loss
 
 
 
 
 (8.3) 
 (8.3)
Other comprehensive income
 
 
 
 
 
 1.7
 1.7
Shares issued under employee plans
 
 0.2
 
 
 
 
 
Shares purchased under employee plans and other
 
 
 
 (2.0) 
 
 (2.0)
Stock-based compensation
 
 
 
 1.2
 
 
 1.2
Dividends on preferred stock
 
 
 
 (2.6) 
 
 (2.6)
Balance at March 31, 20183.1
 $129.4
 42.4
 $0.4
 $2,562.2
 $(2,647.9) $(172.0) $(127.9)


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



3

Table of Contents
Form 10-Q Part I Cincinnati Bell Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions, except share amounts)
(Unaudited) 
June 30, December 31,March 31, December 31,
2018 20172019 2018
Assets      
Current assets      
Cash and cash equivalents$30.3
 $17.8
$3.9
 $15.4
Restricted Cash366.5
 378.7
Receivables, less allowances of $8.7 and $10.4241.3
 239.8
Receivables, less allowances of $13.1 and $13.0260.0
 342.8
Inventory, materials and supplies31.9
 44.3
38.9
 46.5
Prepaid expenses22.0
 22.2
31.7
 30.7
Other current assets7.3
 7.6
9.9
 10.5
Total current assets699.3
 710.4
344.4
 445.9
Property, plant and equipment, net1,125.8
 1,129.0
1,832.8
 1,844.0
Operating lease right-of-use assets37.2
 
Goodwill149.4
 151.0
158.6
 157.0
Intangible assets, net124.7
 132.3
165.2
 168.1
Deferred income tax assets

14.2
 12.2
47.4
 47.5
Other noncurrent assets52.7
 52.7
63.7
 67.7
Total assets$2,166.1
 $2,187.6
$2,649.3
 $2,730.2
Liabilities and Shareowners’ Deficit      
Current liabilities      
Current portion of long-term debt$16.8
 $18.4
$22.4
 $20.2
Accounts payable205.1
 185.6
259.3
 331.9
Unearned revenue and customer deposits40.3
 36.3
49.3
 55.9
Accrued taxes17.5
 21.2
18.2
 24.8
Accrued interest26.7
 29.9
24.8
 26.8
Accrued payroll and benefits30.6
 28.7
42.3
 42.9
Other current liabilities31.2
 37.2
44.5
 39.2
Total current liabilities368.2
 357.3
460.8
 541.7
Long-term debt, less current portion1,727.3
 1,729.3
1,909.9
 1,909.6
Operating lease liabilities34.5
 
Pension and postretirement benefit obligations168.6
 177.5
226.7
 230.6
Pole license agreement obligation38.8
 39.1
Deferred income tax liabilities11.4
 11.2
12.4
 11.4
Other noncurrent liabilities34.0
 30.2
68.5
 72.8
Total liabilities2,309.5
 2,305.5
2,751.6
 2,805.2
Shareowners’ deficit      
Preferred stock, 2,357,299 shares authorized, 155,250 shares (3,105,000 depositary shares) of 6 3/4% Cumulative Convertible Preferred Stock issued and outstanding at June 30, 2018 and December 31, 2017; liquidation preference $1,000 per share ($50 per depositary share)
129.4
 129.4
Common shares, $.01 par value; 96,000,000 shares authorized; 42,440,157 and 42,197,965 shares issued and outstanding at June 30, 2018 and December 31, 20170.4
 0.4
Preferred stock, 2,357,299 shares authorized, 155,250 shares (3,105,000 depositary shares) of 6 3/4% Cumulative Convertible Preferred Stock issued and outstanding at March 31, 2019 and December 31, 2018; liquidation preference $1,000 per share ($50 per depositary share)
129.4
 129.4
Common shares, $.01 par value; 96,000,000 shares authorized; 50,360,602 and 50,184,114 shares issued and outstanding at March 31, 2019 and December 31, 20180.5
 0.5
Additional paid-in capital2,561.0
 2,565.6
2,678.4
 2,680.0
Accumulated deficit(2,661.7) (2,639.6)(2,736.3) (2,709.4)
Accumulated other comprehensive loss(172.5) (173.7)(174.3) (175.5)
Total shareowners’ deficit(143.4) (117.9)(102.3) (75.0)
Total liabilities and shareowners’ deficit$2,166.1
 $2,187.6
$2,649.3
 $2,730.2

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

34

Table of Contents
Form 10-Q Part I Cincinnati Bell Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)(Unaudited) 
Six Months EndedThree Months Ended
June 30,March 31,
2018 20172019 2018
Cash flows from operating activities      
Net (loss) income$(22.1) $62.9
Adjustments to reconcile net (loss) income to net cash provided by operating activities:   
Net loss$(26.9) $(8.3)
Adjustments to reconcile net loss to net cash provided by operating activities:   
Depreciation and amortization102.1
 92.8
79.4
 51.2
Loss on extinguishment of debt1.3
 
Gain on sale of Investment in CyrusOne
 (117.7)
Provision for loss on receivables2.6
 3.5
2.9
 1.0
Noncash portion of interest expense2.1
 1.1
1.9
 0.8
Deferred income taxes(3.8) 35.4
0.5
 (1.2)
Pension and other postretirement payments less than expense0.3
 1.5
Pension and other postretirement payments (in excess of) less than expense(0.3) 0.4
Stock-based compensation2.6
 3.9
1.8
 1.2
Other, net(1.4) (3.0)(1.3) (2.0)
Changes in operating assets and liabilities, net of effects of acquisitions:      
(Increase) decrease in receivables(2.8) 25.4
Decrease in receivables82.3
 6.5
Decrease (increase) in inventory, materials, supplies, prepaid expenses and other current assets10.6
 (5.9)7.5
 (4.4)
Increase in accounts payable3.0
 9.9
(Decrease) increase in accounts payable(74.8) 3.6
(Decrease) increase in accrued and other current liabilities(6.3) 9.0
(17.9) 9.6
Decrease in other noncurrent assets1.8
 0.3
2.3
 0.5
(Decrease) increase in other noncurrent liabilities(0.1) 3.8
Decrease in other noncurrent liabilities(0.6) (0.4)
Net cash provided by operating activities89.9
 122.9
56.8
 58.5
Cash flows from investing activities      
Capital expenditures(71.0) (105.2)(56.5) (32.7)
Proceeds from sale of Investment in CyrusOne
 140.7
Acquisitions of businesses(2.8) (9.6)
 (2.8)
Other, net
 0.4
(0.1) (0.1)
Net cash (used in) provided by investing activities(73.8) 26.3
Net cash used in investing activities(56.6) (35.6)
Cash flows from financing activities      
Net decrease in corporate credit and receivables facilities with initial maturities less than 90 days
 (89.5)(3.8) 
Repayment of debt(5.9) (4.2)(4.5) (3.0)
Debt issuance costs(2.5) (0.7)(0.1) (0.4)
Dividends paid on preferred stock(5.2) (5.2)(2.6) (2.6)
Other, net(2.0) (1.1)(0.8) (2.0)
Net cash used in financing activities(15.6) (100.7)(11.8) (8.0)
Effect of exchange rate changes on cash, cash equivalents and restricted cash(0.2) 
0.1
 0.8
Net increase in cash, cash equivalents and restricted cash0.3
 48.5
Net (decrease) increase in cash, cash equivalents and restricted cash(11.5) 15.7
Cash, cash equivalents and restricted cash at beginning of period396.5
 9.7
15.4
 396.5
Cash, cash equivalents and restricted cash at end of period

$396.8
 $58.2
$3.9
 $412.2
      
Noncash investing and financing transactions:      
Acquisition of property by assuming debt and other noncurrent liabilities$6.1
 $6.9
$9.8
 $
Acquisition of property on account$28.3
 $24.8
$33.2
 $17.6

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

45

Table of Contents
Form 10-Q Part I Cincinnati Bell Inc.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 

1.Description of Business and Accounting Policies
Description of Business — Cincinnati Bell Inc. and its consolidated subsidiaries ("Cincinnati Bell", "we", "our", "us" or the "Company") provide diversified telecommunications and technology services. The Company generates a large portion of its revenue by serving customers in the Greater Cincinnati, andOhio, Dayton, Ohio areas.and the islands of Hawaii. An economic downturn or natural disaster occurring in this,these, or a portion of this,these, limited operating territoryterritories 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 hashad receivables with General Electric Company that makeone customer, Verizon Communications Inc., which made up 18% of the outstanding accounts receivable balance at December 31, 2018. At March 31, 2019, no individual customer exceeded 10% of the outstanding accounts receivable balance as of June 30, 2018 and December 31, 2017. The Company also has receivables with Verizon Communications Inc. that make up 12% of the outstanding accounts receivable balance as of June 30, 2018.balance. Revenue derived from foreign operations iswas approximately 5% and 6% of consolidated revenue for the three and six months ended June 30, 2018.March 31, 2019 and 2018, respectively.
Basis of Presentation — The Condensed Consolidated Financial Statements of the Company have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) and, in the opinion of management, include all adjustments necessary for a fair presentation of the results of operations, other comprehensive income, financial position and cash flows for each period presented.
The adjustments referred to above are of a normal and recurring nature. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to SEC rules and regulations for interim reporting.
Effective January 1, 2018, the Company adopted the requirements of Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers and ASU 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. All amounts and disclosures set forth in this Form 10-Q have been updated to comply with the new standards. Certain prior period amounts reported in our condensed consolidated financial statements and notes thereto have been reclassified to conform to current period presentation, as a result of adopting the new standards.

On January 1, 2018, the Company changed the composition of its operating segments to align more closely with the Company's broader strategy and how it manages business operations. With the exception of consumer long distance revenue, this strategy groups Competitive Local Exchange Carrier ("CLEC") revenue, which was previously included as part of the Entertainment and Communications segment, as part of the IT Services and Hardware segment in order to consolidate all company-wide VoIP sales. Accordingly, the Company recast the previously reported 2017 segment disclosures. See Note 11 for further disclosures.

The Condensed Consolidated Balance Sheet as of December 31, 20172018 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 20172018 Annual Report on Form 10-K. Operating results for the three and six months ended June 30, 2018March 31, 2019 are not necessarily indicative of the results expected for the full year or any other interim period.
Business Combinations — In accounting for business combinations, we apply the accounting requirements of ASC 805, “Business Combinations,” which requires the recording of net assets of acquired businesses at fair value. In developing estimates of fair value of 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. See Note 4 for disclosures related to mergers and acquisitions.

5

Table of Contents
Form 10-Q Part ICincinnati Bell Inc.

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.
Investment in CyrusOneBusiness CombinationsIn accounting for business combinations, we apply the first quarteraccounting requirements of 2017,Accounting Standards Codification ("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. The Company reports in its 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 4 for disclosures related to mergers and acquisitions.

6

Table of Contents
Form 10-Q Part ICincinnati Bell Inc.

Leases - The Company determines if an arrangement is a lease at inception based on the facts and circumstances present. In lease transactions where the Company sold its remaining 2.8 million sharesacts as the lessor, the lease component is accounted for in accordance with ASC 842, and the non-lease component is accounted for in accordance with ASC 606. Although separation of CyrusOne Inc. common stocklease and non-lease components is required, certain practical expedients are available that release the Company from this requirement. Adoption of the practical expedient allows the Company to account for net proceeds totaling $140.7 millioneach lease component and the related non-lease component together as a single component provided that resultedthe timing and patterns of revenue recognition for the components are the same and the combined, single unit of account would be classified as an operating lease. The Company's operating leases for certain services that include Customer Premise Equipment, including handsets and set-top boxes, have lease and non-lease components. In these arrangements, management has concluded that the non-lease components are the predominant characteristic and as a result the Company has elected to account for these arrangements as one single non-lease component recorded as "Revenue" on the Condensed Consolidated Statements of Operations in accordance with ASC 606.
Right-of-use assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Certain adjustments to the right-of-use asset may be required for items such as initial direct costs paid or incentives received.
The Company's lease terms include options to extend, terminate or buyout the lease when it is reasonably certain that we will exercise that option. Leases that have contract prices based on variable factors, such as power usage, are recognized as variable lease expense in the period in which the obligation for those payments are incurred. Lease expense for variable lease payments is recognized on a realized gain of $117.7 million. As of March 31, 2017, we no longer had an investment in CyrusOne Inc.straight-line basis over the lease term.
Income and Operating Taxes
Income taxes — TheIn 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 as well asincome/loss plus or minus the tax effects associated withof discrete items.
During 2017, the The Company re-classed $14.9 million of Alternative Minimum Tax ("AMT") refundableexpects its annual effective tax credits from "Deferred income taxes, net" to "Receivables" as these credits were expectedrate to be utilized during 2018. Acceleration of the AMT refundable tax credits was thelower than statutory rates as a result of the Company's decision to make an election on its 2017 federal income tax return to claim the credits in lieu of claiming bonus depreciation.permanent items and current items requiring a valuation allowance. The Company received the $14.9 million of payments during the second quarter of 2018. In addition, new tax legislation enacted in 2017 repealed AMT for corporate tax payers.  The balance of any remaining AMT credits will be refunded over the next 5 years beginning with the return filed in 2019. In the first quarter of 2018, the Company re-classed $0.7 million from "Deferred income taxes, net" to "Receivables" as it expects to receive this portion of the remaining AMT credits in 2019.
The Company filed our 2017 federal income tax return during the quarter ended June 30, 2018 and confirms that the accounting for the income tax effects of the Tax Cuts and Jobs Act signed into law on December 22,of 2017 limits the Company’s interest deduction to 30% of tax earnings before interest, tax, depreciation and amortization for years beginning before January 1, 2022. Thereafter, the interest deduction is now complete.limited to 30% of tax earnings before interest and taxes. Any disallowed interest in a year becomes a separate deferred tax asset with an indefinite carryforward period that can be utilized by the Company in a future tax year by an amount equal to its interest limitation in excess of its interest expense for that year. As the Company does not anticipate utilizing the current excess interest expense in the foreseeable future, the Company is establishing a valuation allowance for this excess interest in the estimated annual rate, which in turn lowers the effective tax rate.
Operating taxes — The Company elected to record certain operating taxes such as property, sales, use, and gross receipts taxes including telecommunications surcharges as expenses, primarily within cost of services and products. 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 the adoption of ASC 606, revenue associated with these charges is excluded from the transaction price. This approach is consistent with how these taxes were previously recorded under ASC Topic 605.
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 (Loss)"Loss". The Company does not hold or issue derivative financial instruments for trading or speculative purposes.
For derivative instruments that hedge the exposure to variability in expected future cash flows that are designated and qualify as cash flow hedges, the gain or loss on the derivative instrument is reported as a component of "Accumulated Other Comprehensive Income (Loss)"Loss" in stockholder's equity and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. To receive hedge accounting treatment, cash flow hedges must be highly effective in offsetting changes to expected future cash flows on hedged transactions. Derivatives that do not qualify as hedges are adjusted to fair value through earnings in the current period.

Recently Issued Accounting Standards
In June 2018, the Financial Accounting Standards Board (“FASB”) issued ASU 2018-07, Compensation - Stock Compensation (Topic 718), which improves financial reporting for non-employee share-based payments by making the guidance consistent with the accounting for employee share-based compensation. The ASU is effective for public entities for annual reporting periods beginning after December 15, 2018, and for interim periods with those fiscal years. Early adoption is permitted. The Company early adopted the guidance effective June 30, 2018. The adoption of this standard did not have a material impact on the Company's consolidated financial statements.

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Form 10-Q Part ICincinnati Bell Inc.

In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220) - Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which allows entities to elect to make a one-time reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017. The ASU is effective for public entities for annual reporting periods beginning after December 15, 2018, and for interim periods within those fiscal years. Early adoption is permitted. The Company early adopted this guidance effective December 31, 2017, resulting in a reclassification adjustment of $32.2 million to "Accumulated deficit" from "Other comprehensive loss" on the Condensed Consolidated Balance Sheets. The amount of the reclassification is calculated on the basis of the difference between the historical and newly enacted tax rates on deferred taxes related to our pension and postretirement benefit plans.
In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, which improves the hedge accounting model to facilitate financial reporting that more closely reflects a company’s risk management activities. The FASB’s new guidance will make more financial and nonfinancial hedging strategies eligible for hedge accounting. It also amends the presentation and disclosure requirements and changes how companies assess effectiveness. It is intended to more closely align hedge accounting with companies’ risk management strategies, simplify the application of hedge accounting, and increase transparency as to the scope and results of hedging programs. This update is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted in any interim period after issuance of the update. The Company early adopted the guidance effective April 1, 2018.

In May 2017, the FASB issued ASU 2017-09, Compensation - Stock Compensation, which amends the scope of modification accounting for share-based payment arrangements. The ASU is effective for public business entities for annual periods beginning after December 15, 2017. The Company prospectively adopted the standard effective January 1, 2018 and has applied the amended guidance to any awards modified on or after this date.

In March 2017, the FASB issued ASU 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which amends the requirements in ASC 715 related to the income statement presentation of the components of net periodic benefit cost for an entity’s sponsored defined benefit pension and other postretirement plans. The ASU requires entities to disaggregate the current service cost component from the other components of net benefit cost (the “other components”) and present it with other current compensation costs for related employees in the income statement. The other components shall be presented elsewhere in the income statement and outside of income from operations, if such a subtotal is presented, on a retrospective basis as of the date of adoption. In addition, only the service cost component of net benefit cost is eligible for capitalization on a prospective basis. The ASU is effective for public business entities for annual periods beginning after December 15, 2017. The Company retrospectively adopted the standard effective January 1, 2018. The Company re-classed $1.6 million of other components of net benefit cost from both "Cost of services and products" and "Selling, general and administrative," to a new line below Operating income, "Other components of pension and postretirement benefit plans expense," on the Condensed Consolidated Statements of Operations for the three months ended June 30, 2017. The Company re-classed $3.3 million and $3.1 million of other components of net benefit cost from "Cost of services and products" and "Selling, general and administrative," respectively, to a new line below Operating income, "Other components of pension and postretirement benefit plans expense," on the Condensed Consolidated Statements of Operations for the six months ended June 30, 2017.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flow - Classification of Certain Cash Receipts and Cash Payments, which amends ASC 230 to add or clarify guidance on the classification of certain cash receipts and payments in the statement of cash flows. The FASB issued the ASU with the intent of reducing diversity in practice. The ASU is effective for public entities for annual reporting periods beginning after December 15, 2017, including interim periods within those fiscal years. The Company adopted this standard effective January 1, 2018. The adoption of this standard did not have a material effect on the Company’s Consolidated Statement of Cash Flows.

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Form 10-Q Part I Cincinnati Bell Inc.

Recently Issued Accounting Standards
In August 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2018-15, Intangibles-Goodwill and Other-Internal-Use Software, which aligns the accounting for implementation costs incurred in a hosting arrangement that is a service contract with the requirements in ASC 350-40 for capitalizing implementation costs incurred to develop or obtain internal-use software. The amendments in this ASU also require the entity to present the expense related to the capitalized implementation costs in the same line item in the statement of income as the fees associated with the hosting element of the arrangement and classify payments for capitalized implementation costs in the statement of cash flows in the same manner as payments made for fees associated with the hosting element. The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The amendments should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. Early adoption is permitted in any interim period after issuance of the update. The Company early adopted this standard prospectively effective January 1, 2019. The adoption of this standard is not expected to have a material effect on the consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases, which represents a wholesale change to lease accounting. Since that date, the FASB has issued additional ASUs clarifying certain aspects of ASU 2016-02 but did not change the core principal. The standard introduces a lessee model that brings most leases ononto the balance sheet, as well as aligns certain underlying principles of the new lessor model with those in ASC 606. The ASU is effective for public entities for fiscal years beginning after December 15, 2018. As issued,The Company adopted the standard requires lessors and lessees to use aall subsequent amendments effective January 1, 2019, using the modified retrospective transition method, which did not require the Company to adjust comparative periods.
The Company elected the package of practical expedients permitted under the transition guidance, which allowed the Company to carryforward its historical assessments of: (1) whether contracts are or contain leases, (2) lease classification and (3) initial direct costs. In addition to the package of practical expedients, the Company elected the practical expedients of using hindsight in determining the lease term and in assessing impairment of the entity’s right-of-use assets as well as not to assess whether existing or expired land easements that were not previously accounted for existing leases.as leases under ASC 840 are or contain a lease under ASC 842.
Upon adoption of this standard, the Company recognized operating lease right-of-use assets of $38.3 million and operating lease liabilities of $46.2 million in the Condensed Consolidated Balance Sheets. The Company elected the practical expedient outlined in ASU 2018-11 allowing entities to initially apply the new lease standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The adoption of ASU 2016-02 was amended in January 2018 by the provisions of ASU 2018-01, “Land Easement Practical Expedient for Transitionhad no impact to Topic 842,” and in July 2018 by the provisions of ASU 2018-10, “Codification Improvements to Topic 842, Leases,” and ASU 2018-11, “Targeted Improvements.” We plan to adopt ASU 2016-02, as amended, effective January 1, 2019.retained earnings.
As of the second quarter of 2018 the Company has substantially completed procedures to identify the existing lease population to which the new standard is applicable. The Company is also in the process of implementing changes to accounting policies, processes, systems,implemented internal controls and internal controls. The Company procured a third-party lease accounting software solution to facilitate the ongoing accounting and financial reporting requirements of the ASU. The new standard will result in increases to the assets and liabilities on the Company’s consolidated balance sheets. The Company is currently evaluating the full impact of adopting the new standard.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This standard also includes expanded disclosure requirements that result in an entity providing users of financial statements with comprehensive information about the nature, amount, timing, and uncertainty of revenue and cash flows arising from the entity’s contracts with customers. The Company adopted the new standard and all subsequent amendments as of January 1, 2018. The Company utilized the full retrospective method; therefore, each prior reporting period presented was adjusted beginning with the issuance of the Company’s 2018 interim financial statements.
The most significant impact of adopting the new standard is the change to the treatment of hardware revenue in the Infrastructure Solutions category from recording hardware revenue as a principal (gross) to recording revenue as an agent (net). Based on our assessment of ASU 2016-08, Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net), issued by the FASB in March 2016, the Company acts as an agent and as such will record hardware sales net of the related cost of products. ASU 2016-08 clarifies the implementation guidance on principal versus agent considerations focusing on a control model rather than a risk and reward model. As a result of adopting ASU 2014-09, revenue and cost of products for the three and six months ended June 30, 2017, decreased by $34.6 million and $63.2 million, respectively. Changes in accounting policies related to variable consideration or rebates did not have a material effectimpact on our Condensed Consolidated Statement of Operations. The most significant impact was the Company's financial statements. Fulfillmentrecognition of right-of-use assets and acquisition costs that are now recorded as an asset and amortized on a monthly basis decreased expenselease liabilities for the three and six months ended June 30, 2017 by $0.3 million and $0.6 million, respectively, and increased basic earnings per shareoperating leases, while our accounting for the six months ended June 30, 2017 by $0.01. Adoption of ASU 2014-09 did not result in a change to basic earnings per share for three months ended June 30, 2017. An incremental asset related to fulfillment and acquisition costs of $32.3 million was recorded on the balance sheet as of December 31, 2017, with an offsetting reduction in "Accumulated deficit." As a result of the entry, total contract asset related to fulfillment and acquisition costs was $32.4 million as of December 31, 2017. The impact of these adjustments resulted in a decrease of $7.1 million to "Deferred income tax assets" as of December 31, 2017, with the offset to "Accumulated deficit."finance leases remained substantially unchanged. See Note 37 for additionalrequired disclosures as a result of adopting ASC Topic 606.842.
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.




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Form 10-Q Part I Cincinnati Bell Inc.

2.    Earnings Per Common Share
Basic earnings per common share (“EPS”) is based upon the weighted average number of common shares outstanding during the period. Diluted EPS reflects the potential dilution that would occur upon issuance of common shares for awards under stock-based compensation plans or conversion of preferred stock, but only to the extent that they are considered dilutive.
The following table shows the computation of basic and diluted EPS:
Three Months Ended Six Months EndedThree Months Ended
June 30, June 30,March 31,
(in millions, except per share amounts)2018 2017 2018 20172019 2018
Numerator:          
Net (loss) income$(13.8) $2.3
 $(22.1) $62.9
Net loss$(26.9) $(8.3)
Preferred stock dividends2.6
 2.6
 5.2
 5.2
2.6
 2.6
Net (loss) income applicable to common shareowners - basic and diluted$(16.4) $(0.3) $(27.3) $57.7
Net loss applicable to common shareowners - basic and diluted$(29.5) $(10.9)
Denominator:          
Weighted average common shares outstanding - basic42.4
 42.2
 42.4
 42.1
50.3
 42.3
Stock-based compensation arrangements
 
 
 0.2

 
Weighted average common shares outstanding - diluted42.4
 42.2
 42.4
 42.3
50.3
 42.3
Basic net (loss) earnings per common share$(0.39) $(0.01) $(0.64) $1.37
Diluted net (loss) earnings per common share$(0.39) $(0.01) $(0.64) $1.36
Basic and diluted net loss per common share$(0.59) $(0.26)

For the three and six months ended June 30,March 31, 2019 and 2018, the Company had a net loss available to common shareholders and, as a result, all common stock equivalents were excluded from the computation of diluted EPS as their inclusion would have been anti-dilutive. For the three months ended June 30, 2017, the Company had a net loss available to common shareholders and, as a result, all common stock equivalents were excluded from the computation of diluted EPS as their inclusion would have been anti-dilutive. For the six months ended June 30, 2017, awards under the Company's stock-based compensation plans for common shares of 0.3 million were excluded from the computation of diluted EPS as the inclusion would have been anti-dilutive. For all periods presented, preferred stock convertible into 0.9 million common shares was excluded as it was anti-dilutive.


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Form 10-Q Part I Cincinnati Bell Inc.

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

Consumer customers have implied month-to-month contracts, while enterprise customers, with the exception of contracts associated with the SEA-US, typically have contracts with a duration of one to five years and automatically renew on a month to monthmonth-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 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 accounts for revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers, which was adopted on January 1, 2018, using the full retrospective method. See below for further discussion of the adoption, including the impact on our 2017 financial statements.

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 180 days. In the instance that payment terms are greater than twelve months, the guidance in ASC 606-10-32-15 will be applied to determine the transaction price.
Method of Adoption
The Company adopted ASC Topic 606 on January 1, 2018, using the full retrospective method. The comparative periods for 2018 and 2017 are reported in accordance with ASC Topic 606. The adoption of ASC Topic 606 primarily affected product revenue and cost of products on our Consolidated Financial Statements. Based on the Company’s assessment of ASC Topic 606 as it relatesSubsequent to the saleacquisition of hardware within the Infrastructure Solutions category,Hawaiian Telcom Holdco., Inc. ("Hawaiian Telcom"), the Company considers itself an agent (net) versus asbegan recognizing a principal (gross). Based on our assessment of ASU 2016-08, Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net), issued by the FASB in March 2016, the Company acts as an agent and as such will record revenuefinancing component associated with the sale of hardware net of the related cost of products. This conclusion is based on the Company not obtaining control of the inventory since in most cases the Company does not take possession of the inventory, does not have the ability to direct the product to anyone besides the purchasing customer, and does not integrate the hardware with any of our own goods or services. In situations where the Company does take possession, the Company assesses if we act as the principal or the agent. While the Company does perform installationup-front payments for services in certain cases, those services involve installing the hardware into the customer’s existing technology. Installation is considered a separate performance obligation as it is capable of being distinct, and is distinct, within the context of the contract. The reduction to "Revenue" and "Cost of services and products" related to recording these contracts on a net basis is $34.6 million and $63.2 million for the three and six months ended June 30, 2017, respectively.

In addition to the changes discussed above as result of recognizing hardware revenue on a net basis, additional contract assets related to fulfillment costs and costs of acquisition of $32.3 million were recorded to "Other noncurrent assets" as of December 31, 2017, with an offsetting reduction in "Accumulated deficit." As a result of the entry, total contract assets related to fulfillment and acquisition costs were $32.4 million as of December 31, 2017. Under the new standard, the Company defers all incremental sales incentives and other costs incurred in order to obtain a contract with a customer. The Company amortizes the contract asset related to both fulfillment costs and cost of acquisition over the period of time the services under the contract are expected to be delivered under indefeasible right of use ("IRU") contracts for fiber circuit capacity. The IRU contracts are primarily associated with the SEA-US. The IRU contracts typically have a duration ranging from 15 to the customer.


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Form 10-Q Part ICincinnati Bell Inc.

25 years.
Performance Obligations

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, or a series of distinct goods or services, and is the unit of account defined in ASC Topic 606. A contract'sThe 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 contract's 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 forecasted volumeestimated projection of sales.sales volume. Estimates are reassessed quarterly.

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


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As of March 31, 2019, 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 $39.3 million. Approximately 80% of this revenue is related to IRU contracts associated with the SEA-US. Certain IRU contracts extend for periods of up to 30 years and are invoiced at the beginning of the contract term.  The revenue from such contracts is recognized over time as services are provided over the contract term.  The expected revenue to be recognized for existing IRU contracts is as follows:
(dollars in millions)  
Nine months ended December 31, 2019 $2.0
2020 2.6
2021 2.5
2022 2.6
2023 2.5
Thereafter 27.1

Entertainment and Communications

The Company has identified four distinct performance obligations in the Entertainment and Communications 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 Entertainment and Communications segment can be categorized into three main categories that include Fioptics,Consumer/SMB, 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 digital signal.IRU revenue. Voice services include traditional and Fiopticsfiber voice lines, switched access, digital trunking and consumer long distance calling. Video services are offered through our fiber network to consumer and enterprise customers based on various standard plans with the opportunity to add premium channels. To receive video services, customers are required to use Cincinnati Bellthe 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.
Services and products not included in Data, Voice or Video are included in Other revenue and are comprised of wire care, wire time and materials 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 Entertainment and Communications segment. For Fioptics Data, Video and Voice products in Consumer/SMB, market rate is the primary method used to determine stand-alone selling prices. For Data performance obligations under the Enterprise Fiber Datacategory, and Legacy 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 includesinclude 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 and installation projects.solutions. Infrastructure Solutions includes the sale of hardware and maintenance contracts.

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Form 10-Q Part ICincinnati Bell Inc.

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 manufacturer 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.

Stand-alone
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Form 10-Q Part ICincinnati Bell Inc.

Within the IT Services and Hardware segment, stand-alone selling prices for the four performance obligations within the IT Services and Hardware segment wereare determined based on either a margin percentage range, minimum margin percentage or standard price list.

Revenue recognized at a point in time includesFor hardware sales, revenue is recognized net of the cost of product forproduct. For hardware sales within Infrastructure Solutions, as well as for certain projects within Communications and Consulting. Revenue generated from these contractsrevenue is recognized when the hardware is shipped to the customer, in the case of Infrastructure Solutions when we act as the agent, orshipped. For certain projects within Communications and Consulting, revenue is recognized when the customer communicates acceptance of the services performed, in the case of Communications and Consulting.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.
Contract Balances 
The Company recognizes an asset for incremental fulfillment costs that includeas an asset when installation costs associated withexpenses are incurred as part of performing the agreement for Voice, Video and Data product offerings in the Entertainment and Communications segment forin 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 that include installation and provisioning costs for certain Communications services in the IT Services and Hardware segment.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 areis 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 AssetsFulfillment Costs Cost of Acquisition Total Contract Assets
(dollars in millions)Entertainment and Communications IT Services and Hardware Total Company Entertainment and Communications IT Services and Hardware Total Company Entertainment and Communications IT Services and Hardware Total CompanyEntertainment and Communications IT Services and Hardware Total Company Entertainment and Communications IT Services and Hardware Total Company Entertainment and Communications IT Services and Hardware Total Company
Balance as of December 31, 2017$17.5
 $2.0
 $19.5
 $11.6
 $1.3
 $12.9
 $29.1
 $3.3
 $32.4
Balance as of December 31, 2018$14.5
 $2.5
 $17.0
 $13.0
 $2.0
 $15.0
 $27.5
 $4.5
 $32.0
Additions3.1
 0.4
 3.5
 1.6
 0.4
 2.0
 4.7
 0.8
 5.5
0.9
 0.7
 1.6
 2.5
 0.4
 2.9
 3.4
 1.1
 4.5
Amortization(3.3) (0.3) (3.6) (1.7) (0.2) (1.9) (5.0) (0.5) (5.5)(2.9) (0.4) (3.3) (2.1) (0.3) (2.4) (5.0) (0.7) (5.7)
Balance as of March 31, 201817.3
 2.1
 19.4
 11.5
 1.5
 13.0
 28.8
 3.6
 32.4
Additions3.0
 0.4
 3.4
 1.8
 0.3
 2.1
 4.8
 0.7
 5.5
Amortization(3.3) (0.3) (3.6) (1.6) (0.2) (1.8) (4.9) (0.5) (5.4)
Balance as of June 30, 2018$17.0
 $2.2
 $19.2
 $11.7
 1.6
 $13.3
 $28.7
 $3.8
 $32.5
Balance as of March 31, 2019$12.5
 $2.8
 $15.3
 $13.4
 $2.1
 $15.5
 $25.9
 $4.9
 $30.8
The Company recognizes a liability for cash received upfront for IRU contracts. At March 31, 2019 and December 31, 2018, $1.5 million and $1.4 million, respectively, of contract liabilities were included in "Other current liabilities." At March 31, 2019 and December 31, 2018, $27.8 million and $28.0 million, respectively, of contract liabilities were included in "Other noncurrent liabilities."





12

Table of Contents
Form 10-Q Part I Cincinnati Bell Inc.

Disaggregated Revenue
The following table presents revenues disaggregated by product and service lines.
Three Months Ended Six Months EndedThree Months Ended
June 30, June 30,March 31,
(dollars in millions)2018 2017 2018 20172019 2018
Data$84.4
 $90.1
 $169.3
 $174.5
$117.5
 $84.9
Video39.7
 36.9
 78.9
 72.8
51.7
 39.2
Voice46.0
 50.5
 93.0
 102.2
73.4
 47.0
Other3.8
 3.5
 6.9
 6.6
7.7
 3.1
Total Entertainment and Communications173.9
 181.0
 348.1
 356.1
250.3
 174.2
Consulting39.8
 16.5
 77.9
 33.2
38.9
 31.3
Cloud23.0
 19.2
 45.6
 40.1
24.4
 22.6
Communications41.5
 40.3
 82.1
 76.8
47.4
 40.6
Infrastructure Solutions24.0
 8.8
 50.3
 15.7
25.6
 33.1
Total IT Services and Hardware128.3
 84.8
 255.9
 165.8
136.3
 127.6
Intersegment revenue(5.4) (6.4) (11.5) (12.9)(7.0) (6.1)
Total revenue$296.8
 $259.4
 $592.5
 $509.0
$379.6
 $295.7
In the first quarter of 2019, the Company determined that certain revenue in the IT Services and Hardware segment associated with nonrecurring projects is better aligned with Infrastructure Solutions, rather than Consulting, where it was previously reported. As a result, the Company reclassed revenue of $6.8 million from Consulting to Infrastructure Solutions for the three months ended March 31, 2018. This reclassification of revenue had no impact on the Condensed Consolidated Statements of Operations.
The following table presents revenues disaggregated by contract type.
 Three Months Ended June 30,
(dollars in millions)Entertainment and Communications IT Services and Hardware Intersegment revenue elimination  Total
 2018 2017 2018 2017 2018 2017 2018 2017
Products and Services transferred at a point in time$5.6
 $5.1
 $32.1
 $13.6
 $
 $
 $37.7
 $18.7
Products and Services transferred over time163.6
 170.6
 95.5
 70.1
 
 
 259.1
 240.7
Intersegment revenue4.7
 5.3
 0.7
 1.1
 (5.4) (6.4) 
 
Total revenue$173.9
 $181.0
 $128.3
 $84.8
 $(5.4) $(6.4) $296.8
 $259.4
Six Months Ended June 30,Three Months Ended March 31,
(dollars in millions)Entertainment and Communications IT Services and Hardware Intersegment revenue elimination  TotalEntertainment and Communications IT Services and Hardware Intersegment revenue elimination  Total
2018 2017 2018 2017 2018 2017 2018 20172019 2018 2019 2018 2019 2018 2019 2018
Products and Services transferred at a point in time$10.4
 $10.2
 $67.4
 $24.3
 $
 $
 $77.8
 $34.5
$8.1
 $4.8
 $27.5
 $35.3
 $
 $
 $35.6
 $40.1
Products and Services transferred over time327.8
 335.2
 186.9
 139.3
 
 
 514.7
 474.5
236.2
 164.2
 107.8
 91.4
 
 
 344.0
 255.6
Intersegment revenue9.9
 10.7
 1.6
 2.2
 (11.5) (12.9) 
 
6.0
 5.2
 1.0
 0.9
 (7.0) (6.1) 
 
Total revenue$348.1
 $356.1
 $255.9
 $165.8
 $(11.5) $(12.9) $592.5
 $509.0
$250.3
 $174.2
 $136.3
 $127.6
 $(7.0) $(6.1) $379.6
 $295.7




13

Table of Contents
Form 10-Q Part I Cincinnati Bell Inc.

4.    Mergers and Acquisitions
Acquisition of OnX Holdings LLCHawaiian Telcom Holdco, Inc.
On OctoberJuly 2, 2017,2018, the Company acquired 100%Hawaiian Telcom Holdco, Inc. for cash consideration of OnX Holdings LLC ("OnX"), a privately held company that provides technology$218.3 million, stock consideration of $121.2 million and debt repayments, including accrued interest, of $318.2 million. Hawaiian Telcom is the ILEC for the State of Hawaii and the largest full service provider of communication services and solutions to enterprise customersproducts in the United States, Canada andstate. With the United Kingdom.acquisition, the Company gains access to both Honolulu, a well-developed, fiber-rich city, as well as the growing neighbor islands. The acquisition extends the IT Services and Hardware segment's geographic footprint and accelerates its initiatives in IT cloud migration.companies' combined fiber networks are approximately 16,700 fiber route miles.

The purchase price for OnXHawaiian Telcom consisted of the following:
(dollars in millions)  
Cash consideration$241.2
Cash consideration plus debt assumed$536.5
Cincinnati Bell Inc. stock issued121.2
Debt repayment(77.6)(318.2)
Working capital adjustment2.8
Total purchase price$166.4
$339.5
The cash portionIn order to fund the acquisition, the Company utilized proceeds of $350.0 million from the 8% Senior Notes due 2025 ("8% Notes"), $16.5 million of the purchase pricecash that was funded through borrowings underpreviously restricted to fund interest payments on the Credit Agreement8% Notes, drew $35.0 million on the revolving credit facility and $154.0 million on the accounts receivable securitization facility (see Note 6). The cash consideration includes $77.6 million related to existing debt that was repaid inIn conjunction with the closeacquisition, the Company issued 7.7 million Common Shares at a price of the acquisition. In addition, a working capital adjustment of $2.8 million was paid in the first quarter of 2018.$15.70 per share as stock consideration. The Company spent $8.6recorded a total of $27.7 million in acquisition expenses related to the OnX acquisition of Hawaiian Telcom, of which no expense was recorded in three months ended June 30, 2018 and $0.5 million was recorded in the six months ended June 30, 2018. No expensesand $1.6 million were recorded in the prior year comparable periods related to the OnX acquisition.three months ended March 31, 2019 and 2018, respectively. These expenses are recorded in "Transaction and integration costs" on the Condensed Consolidated Statements of Operations.
Purchase Price Allocation and Other Items
Based on fair value estimates,The determination of the final purchase price for OnX has been allocatedallocation to individualspecific assets acquired and liabilities assumed is incomplete for the Hawaiian Telcom transaction. The purchase price allocations, based on fair value estimates, may change in future periods as follows:
(dollars in millions) 
Assets acquired 
     Cash$6.5
     Receivables69.9
     Prepaid expenses and other current assets11.8
     Property, plant and equipment11.6
     Goodwill133.1
     Intangible assets134.0
     Other noncurrent assets3.2
Total assets acquired370.1
Liabilities assumed 
     Accounts payable63.6
Current portion of long-term debt1.3
     Accrued expenses and other current liabilities18.3
     Deferred income tax liabilities42.3
Long-term debt, less current portion76.7
     Other noncurrent liabilities1.5
Total liabilities assumed203.7
Net assets acquired$166.4
customary post-closing reviews are concluded during the measurement period, and the fair value estimates of assets and liabilities and certain tax aspects of the transaction are finalized.

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Form 10-Q Part I Cincinnati Bell Inc.

The purchase price for Hawaiian Telcom has been currently allocated to individual assets acquired and liabilities assumed as follows:
(dollars in millions)Hawaiian Telcom
Assets acquired 
     Cash$4.3
     Receivables25.5
     Inventory, materials and supplies6.9
     Prepaid expenses and other current assets5.9
     Property, plant and equipment701.5
     Goodwill9.6
     Intangible assets52.0
     Deferred income tax asset43.8
     Other noncurrent assets2.1
Total assets acquired851.6
Liabilities assumed 
     Accounts payable59.2
Current portion of long-term debt10.2
Unearned revenue and customer deposits13.5
     Accrued expenses and other current liabilities21.8
Long-term debt, less current portion304.5
Pension and postretirement benefit obligations68.9
     Other noncurrent liabilities34.0
Total liabilities assumed512.1
Net assets acquired$339.5
During the first quarter of 2018,2019, the Company recorded a purchase price allocation adjustment of $0.2 million to "Goodwill" related to the payment of the working capital adjustment. Also in the first quarter of 2018, the Company recorded purchase price allocationimmaterial measurement period adjustments of $0.1 million to "Deferred income tax liabilities" and $0.4 million to "Other noncurrent liabilities" related to the finalization of certain tax aspects of the acquisition.for Hawaiian Telcom. The offset of these adjustments were recorded as an increaseincreases to "Goodwill."
The estimated fair value of identifiable intangible assets and their estimated useful lives are as follows:
Hawaiian Telcom
(dollars in millions)Fair Value Useful LivesFair Value Useful Lives
Customer relationships$108.0
 15 years$26.0
 15 years
Trade name16.0
 10 years26.0
 15 years
Technology10.0
 10 years
Total identifiable intangible assets$134.0
 $52.0
 
Identifiable intangible assets are amortized over their useful lives based on a number of assumptions including the estimated period of economic benefit and utilization. The weighted-average amortization period for identifiable intangible assets acquired in the OnX acquisition is 14 years.
The goodwill for OnX is attributable to increased access to a diversified customer base and acquired workforce in the United States, Canada and the United Kingdom. The amount of goodwill related to OnX that is expected to be deductible for income tax purposes is $2.3 million.
Pro Forma Information (Unaudited)
The following table provides the unaudited pro forma results of operations for the three and six months ended June 30, 2017March 31, 2018 as if OnXthe acquisition of Hawaiian Telcom had been acquiredtaken place as of the beginning of fiscal year 2016. Revenue has been retrospectively adjusted for the adoption of ASC 606 to reflect hardware revenue in the Infrastructure Solutions category net of related cost of products.2017. These proforma results include adjustments related to the financing of the acquisition, an increase to increase depreciation and amortization associated with the higher values of property, plant and equipment and intangible assets, an increase to increase interest expense for the additional debt incurred to complete the acquisition, and to reflect theother various related income tax effect and change in tax status. effects.



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Form 10-Q Part ICincinnati Bell Inc.

The pro forma information does not necessarily reflect the actual results of operations had the acquisition been consummated at the beginning of the annual reporting period indicated, nor is it necessarily indicative of future operating results. The pro forma information does not include any (i) potential revenue enhancements, cost synergies or other operating efficiencies that could result from the acquisition or (ii) transaction or integration costs relating to the acquisition.
Three Months EndedSix Months EndedThree Months Ended
June 30,March 31,
(dollars in millions, except per share amounts)20172018
Revenue$313.1
$611.6
$384.9
Net (loss) income applicable to common shareholders(5.5)48.6
Net loss applicable to common shareholders(14.3)
Earnings per share:  
Basic and diluted earnings (loss) per common share(0.13)1.15
Basic and diluted loss per common share$(0.29)
Other Acquisition Activity
On February 28, 2017, the Company acquired 100% of SunTel Services ("SunTel"), a private company that provides network security, data connectivity, and unified communications solutions to commercial and enterprise customers across multiple sectors throughout Michigan for cash consideration of $10.0 million. Based on final fair value assessment and the finalization of the working capital adjustment, the acquired assets and liabilities assumed consisted primarily of property, plant and equipment of $0.4 million, customer relationship intangible assets of $1.2 million, working capital of $4.1 million and goodwill of $4.6 million. These assets and liabilities are included in the IT Services and Hardware segment.

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Form 10-Q Part I Cincinnati Bell Inc.

5.    Goodwill and Intangible Assets
Goodwill
The changes in the Company's goodwill consisted of the following:
  IT Services and Hardware Entertainment and Communications Total Company
(dollars in millions)      
Goodwill, balance as of December 31, 2017 $148.8
 $2.2
 $151.0
Activity during the year      
Adjustments to prior year acquisitions 0.7
 
 0.7
Currency translations (2.3) 
 (2.3)
Goodwill, balance as of June 30, 2018 $147.2
 $2.2
 $149.4
On January 1, 2018, the Company changed the composition of its operating segments to align more closely with the Company's broader strategy and how it manages business operations. This strategy groups CLEC revenue, which was previously included as part of the Entertainment and Communications segment, as part of the IT Services and Hardware segment in order to consolidate all company-wide VoIP sales. As a result of the change, $9.7 million of goodwill related to CBTS Technology Solutions LLC ("CBTS TS") was reclassified from the Entertainment and Communications segment to the IT Services and Hardware segment for the period ending December 31, 2017. For further information related to these business segments see Note 11.

  IT Services and Hardware Entertainment and Communications Total Company
(dollars in millions)      
Goodwill, balance as of December 31, 2018 $146.0
 $11.0
 $157.0
Activity during the year:      
Adjustments to prior year acquisitions 
 0.8
 0.8
Currency translations 0.8
 
 0.8
Goodwill, balance as of March 31, 2019 $146.8
 $11.8
 $158.6
No impairment losses were recognized in goodwill for the three and six months ended June 30, 2018March 31, 2019 and 2017.2018.
Intangible Assets
The Company’s intangible assets consisted of the following:
 June 30, 2018 December 31, 2017 March 31, 2019 December 31, 2018
 Gross Carrying Accumulated Net Gross Carrying Accumulated Net Gross Carrying Accumulated Net Gross Carrying Accumulated Net
(dollars in millions) 
Amount (a)
 Amortization Amount 
Amount (a)
 Amortization Amount 
Amount (a)
 Amortization Amount 
Amount (a)
 Amortization Amount
Customer relationships $114.3
 $(12.6) $101.7
 $116.0
 $(8.9) $107.1
 $140.0
 $(20.5) $119.5
 $139.4
 $(17.8) $121.6
Trade names 15.0
 (1.1) 13.9
 15.9
 (0.4) 15.5
 40.9
 (3.5) 37.4
 40.7
 (2.8) 37.9
Technology 9.8
 (0.7) 9.1
 9.9
 (0.2) 9.7
 9.8
 (1.5) 8.3
 9.9
 (1.3) 8.6
Total $139.1
 $(14.4) $124.7
 $141.8
 $(9.5)
$132.3
 $190.7
 $(25.5) $165.2
 $190.0
 $(21.9)
$168.1
(a) Change in gross carrying amounts is due to foreign currency translation.translation on certain intangible assets.

Amortization expense for intangible assets subject to amortization was $2.3$3.6 million and $4.9$2.6 million for the three and six months ended June 30,March 31, 2019 and 2018, respectively. Amortization expense for the three and six months ended June 30, 2017 was insignificant. No impairment losses were recognized for the three and six months ended June 30, 2018March 31, 2019 and 2017.2018.

The estimated useful lives for each intangible asset class are as follows:
Customer relationships 8to15years
Trade names 10to15years
Technology   10years
The annual estimated amortization expense for future years is as follows:
(dollars in millions)  
Nine months ended December 31, 2019 $11.0
2020 14.4
2021 14.1
2022 13.9
2023 13.5
Thereafter 98.3
Total $165.2


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Form 10-Q Part I Cincinnati Bell Inc.

6.    Debt and Other Financing Arrangements
The Company’s debt consists of the following:
June 30, December 31,March 31, December 31,
(dollars in millions)2018 20172019 2018
Current portion of long-term debt:      
Credit Agreement - Tranche B Term Loan due 2024$4.5
 $6.0
$6.0
 $6.0
Capital lease obligations and other debt12.3
 12.4
Other financing arrangements1.1
 0.8
Capital lease obligations15.3
 13.4
Current portion of long-term debt16.8
 18.4
22.4
 20.2
Long-term debt, less current portion:      
Receivables Facility175.8
 176.6
Credit Agreement - Revolving Credit Facility15.0
 18.0
Credit Agreement - Tranche B Term Loan due 2024595.5
 594.0
591.0
 592.5
7 1/4% Senior Notes due 2023
22.3
 22.3
22.3
 22.3
7% Senior Notes due 2024

625.0
 625.0
625.0
 625.0
8% Senior Notes due 2025350.0
 350.0
350.0
 350.0
Cincinnati Bell Telephone Notes87.9
 87.9
Capital lease obligations and other debt65.6
 70.5
Various Cincinnati Bell Telephone notes87.9
 87.9
Other financing arrangements2.0
 2.3
Capital lease obligations65.4
 60.5
1,746.3
 1,749.7
1,934.4
 1,935.1
Net unamortized premium1.8
 1.9
1.6
 1.7
Unamortized note issuance costs(20.8) (22.3)(26.1) (27.2)
Long-term debt, less current portion1,727.3
 1,729.3
1,909.9
 1,909.6
Total debt$1,744.1
 $1,747.7
$1,932.3
 $1,929.8

Credit Agreement

There were noThe Company had $15.0 million of outstanding borrowings on the Credit Agreement's revolving credit facility, leaving $200.0$185.0 million available for borrowings as of June 30, 2018.March 31, 2019. This revolving credit facility expires in October 2022.

In April 2018, the Company amended its Credit Agreement dated as of October 2, 2017 to reduce the applicable margin on the Tranche B Term Loan due 2024 and revolving credit facility with respect to LIBOR borrowings from the previous 3.75% per annum to 3.25% per annum and, with respect to adjusted base rate borrowings, from the previous 2.75% per annum to 2.25% per annum. The letter of credit fees were reduced from the previous 3.75% per annum to 3.25% per annum. As a result of amending the Credit Agreement, a loss on extinguishment of debt is recorded in the second quarter of $1.3 million.

Accounts Receivable Securitization Facility

AsUnder the terms of June 30, 2018, the Company had no borrowings and $6.7 million of letters of credit outstanding under the accounts receivable securitization facility ("Receivables Facility"), leaving $154.2the maximum borrowing limit for loans and letters of credit is $225.0 million remaining availabilityin 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. As of March 31, 2019, the available borrowing capacity was $187.1 million. Of the total borrowing capacity of $160.9 million. In$187.1 million at March 31, 2019, there were $175.8 million of outstanding borrowings and $9.9 million of outstanding letters of credit, leaving $1.4 million remaining availability from the second quarter of 2018, the Company executed an amendment of itstotal borrowing capacity. The Receivables Facility which replaced, amended and added certain provisions and definitions to increase the credit availability and renew the facility, which is subject to renewal every 364 days until May 2019. The amended Receivables Facility extends theand has a termination date to May 2021 and includes an option2021. The Company expects to sell certain receivables on a non-recourse basis. As of June 30, 2018,complete the Company has not exercised its option to sell such accounts receivable. In the event the Receivables Facility is not renewed, the Company has the ability to refinance any outstanding borrowings with borrowings under the Corporate Credit Agreement. next renewal period in May 2019.

Under the terms of the Receivables Facility, the Company could obtain up to $250.0 million depending on the quantity and quality of accounts receivable. Under this agreement, 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 to sell certain receivables on a non-recourse basis. As of March 31, 2019, the Company sold approximately $16.3 million of certain accounts receivables.





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Form 10-Q Part I Cincinnati Bell Inc.

Other Installment Financing Arrangements
The Company has other installment financing arrangements that are recorded in "Other current liabilities" and "Other noncurrent liabilities" in the Condensed Consolidated Balance Sheets.

The IT Services and Hardware segment entered into a lease in June 2018 for a building to use in its data center operations. Structural improvements were made to thesethe leased facilitiesfacility in excess of normal tenant improvements and, as such, we are deemed the accounting owner of these facilities.this facility. As of June 30,March 31, 2019 and December 31, 2018, the liability related to thesethis financing arrangementsarrangement was $5.2$4.5 million, which was recognized within "Other noncurrent liabilities" in the Condensed Consolidated Balance Sheets.

Prior to the acquisition of Hawaiian Telcom in July 2018, Hawaiian Telcom had an open dispute related to jointly-owned utility poles. In October 2018, the Company entered into the Pole License Agreement that provided for the transfer of the Company's ownership responsibility of the utility poles to Hawaiian Electric Company (HEC) and for the Company to pay a fixed annual fee to HEC for continued use of the poles. Due to the continuing involvement by the Company, this transaction did not meet the requirements to be accounted for as a sale-leaseback, and therefore it has been treated as a financing obligation. As of March 31, 2019, the Company has a liability recorded of $39.8 million, of which $1.0 million is recognized within "Other current liabilities" and $38.8 million is recognized within "Other noncurrent liabilities" in the Condensed Consolidated Balance Sheets. As of December 31, 2018, the Company has a liability recorded of $40.1 million, of which $1.0 million is recognized within "Other current liabilities" and $39.1 million is recognized within "Other noncurrent liabilities" in the Condensed Consolidated Balance Sheets.


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Form 10-Q Part I Cincinnati Bell Inc.

7.    RestructuringLeases
Lessee Disclosures
The Company primarily leases real estate for offices, retail stores and Severancecentral offices, as well as equipment, cell towers and fleet vehicles. The Company leases its real estate for terms between 1 and 55 years, its equipment for terms between 1 and 6 years, its cell towers for terms between 4 and 21 years and its vehicles for terms of 5 years. Our leases have various expiration dates through 2066, some of which include options to extend the leases for up to 15 years, and some of which include options to terminate the leases within one year.
Liabilities have been established for employee separationsUpon adoption, the Company elected not to recognize leases with terms of one-year or less on the balance sheet. The Company's leases generally do not provide an implicit rate, and therefore the Company uses its incremental borrowing rate as the discount rate when measuring operating lease abandonment. A summaryliabilities. The incremental borrowing rate represents an estimate of activity in the restructuring and severance liability is shown below:interest rate the Company would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of the lease.
Supplemental unaudited balance sheet information relate to the Company's leases were as follows:
(dollars in millions)
Employee
Separation
 
Lease
Abandonment
 Total
Balance as of December 31, 2017$14.4
 $0.1
 $14.5
Charges0.3
 
 0.3
Utilizations(7.3) 
 (7.3)
Balance as of March 31, 20187.4
 0.1
 7.5
Charges3.8
 0.8
 4.6
Utilizations(0.9) 
 (0.9)
Balance as of June 30, 2018$10.3
 $0.9
 $11.2
(dollars in millions)Balance Sheet LocationMarch 31, 2019
Operating lease assets, net of amortizationOperating lease right-of-use assets$37.2
Finance lease assets, net of amortizationProperty, plant and equipment, net28.1
Operating lease liabilities:  
    Current operating lease liabilitiesOther current liabilities9.8
    Noncurrent operating lease liabilitiesOperating lease liabilities34.5
Total operating lease liabilities 44.3
   
Finance lease liabilities:  
    Current finance lease liabilitiesCurrent portion of long-term debt15.3
    Noncurrent finance lease liabilitiesLong-term debt, less current portion65.4
Total finance lease liabilities $80.7

HeadcountThe components of lease expense was as follows:
 Three Months Ended
(dollars in millions)March 31, 2019
Operating lease cost$3.1
Short-term lease cost0.1
Variable lease cost0.5
Finance lease cost: 
Depreciation on leased assets1.9
       Interest on lease liabilities1.2
Total lease cost$6.8

Under ASC 840 the Company recorded lease expense of $3.3 million for the three months ended March 31, 2018.



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Form 10-Q Part ICincinnati Bell Inc.

Other information related restructuring and severance chargesto leases were as follows:
 Three Months Ended
(dollars in millions)March 31, 2019
Supplemental Cash Flows Information 
Cash paid for amounts included in the measurement of lease liabilities: 
       Operating cash flows from finance leases$1.2
       Operating cash flows from operating leases3.2
       Financing cash flows from finance leases3.0
Right-of-use assets obtained in exchange for lease obligations: 
       New operating leases1.3
       New finance leases9.8
Weighted Average Remaining Lease Term 
       Operating leases8.21 years
       Finance leases7.59 years
Weighted Average Discount Rate 
       Operating leases7.08%
       Finance leases6.86%

Future minimum lease payments under non-cancellable leases as of $3.8 million recordedMarch 31, 2019 are as follows:
(dollars in millions)Operating LeasesFinance Leases
Nine months ended December 31, 2019$12.7
$19.5
202010.3
17.3
20216.3
13.2
20224.7
8.1
20234.2
7.4
Thereafter23.0
40.9
       Total future minimum lease payments61.2
106.4
Less imputed interest(15.6)(25.7)
       Total$45.6
$80.7

As of March 31, 2019, we have additional operating leases for buildings that have not yet commenced for $1.3 million. These operating leases will commence in the second quarter of 2018 are2019 with lease terms of up to 5 years.

Lessor Disclosures

The Company has operating leases related to costs incurred in orderits dark fiber arrangements for terms between 3 and 29 years. Our leases have various expiration dates through 2046, some of which include options to recognize future synergies asextend the Company continues to identify efficiencies with the integration of OnX. In addition, a restructuring charge associated with lease abandonment of $0.8 million was recorded in the second quarter of 2018 related to an office space that will no longer be utilized.lease. During the three and six months ended June 30, 2018,March 31, 2019, the Company made severance paymentsrecorded $0.8 million in lease income related to employee separationsoperating lease payments.

The Company owns the underlying assets associated with initiatives to reduce costs within our legacy copper networkits operating leases and headcount reductionsrecords them in our IT Services"Property, plant and Hardware segment.equipment, net" on the Condensed Consolidated Balance Sheets.
Lease abandonment costs represent future

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Future minimum lease obligations, netpayments to be received under non-cancellable leases as of expected sublease income, for abandoned facilities. Lease payments on abandoned facilities will continue through 2020.
A summary of restructuring activity by business segment is presented below:March 31, 2019 are as follows:
(dollars in millions)Entertainment and Communications IT Services and Hardware Corporate Total
Balance as of December 31, 2017$12.3
 $2.2
 $
 $14.5
Charges
 0.3
 
 0.3
Utilizations(5.7) (1.6) 
 (7.3)
Balance as of March 31, 20186.6
 0.9
 
 7.5
Charges
 4.6
 
 4.6
Utilizations(0.3) (0.6) 
 (0.9)
Balance as of June 30, 2018$6.3
 $4.9
 $
 $11.2
(dollars in millions)Operating Leases
Nine months ended December 31, 2019$2.4
20203.1
20212.4
20221.7
20231.7
Thereafter18.6
       Total future minimum lease payments29.9
Less imputed interest(11.0)
       Total$18.9
At June 30, 2018 and December 31, 2017, $8.8 million and $12.0 million, respectively, of the restructuring liabilities were included in “Other current liabilities.” At June 30, 2018 and December 31, 2017, $2.4 million and $2.5 million, respectively, were included in "Other noncurrent liabilities."

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8.    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.

Interest Rate Swaps
The Company uses interest rate swap agreements to minimize its exposure to interest rate fluctuations on variable rate debt borrowings. Interest rate swaps involve the exchange of fixed and variable rate interest payments and do not represent an actual exchange of the underlying notional amounts between parties. The

In the second quarter of 2018, the Company hasentered into one forward starting non-amortizing interest rate swap with a total notional amount of $300.0 million to convert variable rate debt to fixed rate debt. The interest rate swap became effective in June 2018 and expires in June 2023. The interest rate swap results in interest payments based on an average fixed rate of 2.938% plus the applicable margin per the requirements in the Credit Agreement (see Note 6).

In the three months ended March 31, 2019, the Company entered into three forward starting non-amortizing interest rate swaps, with a notional amount of $89.0 million each, to convert variable rate debt to fixed rate debt. The interest rate swaps became effective in March 2019 and expire in March 2024. The interest rate swaps result in interest payments based on an average fixed rate per swap of 2.275%, 2.244% and 2.328% plus the applicable margin per the requirements in the Credit Agreement (see Note 6).

During the next twelve months, the Company estimates that $1.6$1.4 million will be reclassified as an increase to interest expense.

The fair value of the Company's interest rate swaps are impacted by the the credit risk of both the Company and its counter-parties. The Company has agreements with its derivative financial instrument counter-parties that contain provisions whereproviding that if the Company defaults on the indebtedness associated with its derivative financial instruments, then the Company could also be declared in default on its derivative financial instrumentinstruments obligations. TheIn addition, the Company minimizes thisnonperformance risk on its derivative instruments by evaluating the creditworthiness of ourits counter-parties, which are limited to major banks and financial institutions.

Upon inception, the interest rate swaps were designated as a cash flow hedgehedges under ASC 815, with gains and losses, net of tax, measured on an ongoing basis recorded in accumulated other comprehensive income (loss). As of June 30, 2018, the fair value of the interest rate swap was $1.9 million and is recorded in "Other current liabilities" on the Condensed Consolidated Balance Sheet.loss. The fair value of the interest rate swap isswaps are categorized as Level 2 in the fair value hierarchy as it isthey are based on well recognizedwell-recognized financial principles and available market data.
 June 30, 2018
(dollars in millions)June 30, 2018 Quoted Prices in active markets Level 1 Significant observable inputs Level 2 Significant unobservable inputs Level 3
Liabilities:       
Interest Rate Swap$1.9
 $
 $1.9
 $







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As of March 31, 2019, the fair value of the interest rate swaps was $8.8 million and is recorded in the Condensed Consolidated Balance Sheets as of March 31, 2019 as follows:
(dollars in millions)Balance Sheet Location March 31, 2019 Quoted Prices in active markets Level 1 Significant observable inputs Level 2 Significant unobservable inputs Level 3
Assets:         
Interest Rate SwapOther current assets $0.3
 $
 $0.3
 $
Liabilities:         
Interest Rate SwapOther current liabilities $1.7
 $
 $1.7
 $
Interest Rate SwapOther noncurrent liabilities $7.4
 $
 $7.4
 $
As of December 31, 2018, the fair value of the interest rate swap liability was $5.0 million and is recorded in the Condensed Consolidated Balance Sheets as of December 31, 2018 as follows:
(dollars in millions)Balance Sheet Location December 31, 2018 Quoted Prices in active markets Level 1 Significant observable inputs Level 2 Significant unobservable inputs Level 3
Liabilities:         
Interest Rate SwapOther current liabilities $1.2
 $
 $1.2
 $
Interest Rate SwapOther noncurrent liabilities $3.8
 $
 $3.8
 $
The amount of losses recognized in Accumulated Other Comprehensive Income ("AOCI") net of reclassifications into earnings is as follows:
 Three Months Ended
 March 31,
(dollars in millions)2019
Interest Rate Swap$3.8
The amount of losses reclassified from AOCI into earnings is as follows:
  Three Months Ended
  March 31,
(dollars in millions)Statement of Operations Location2019
Interest Rate SwapInterest expense$(0.3)
Disclosure on Financial Instruments
The carrying values of the Company's financial instruments approximate the estimated fair values as of June 30, 2018March 31, 2019 and December 31, 20172018, except for the Company's long-term debt certainand other installment financing arrangements and interest rate swap.arrangements. The carrying and fair values of these items are as follows: 
 June 30, 2018 December 31, 2017
(dollars in millions)Carrying Value Fair Value Carrying Value Fair Value
Long-term debt, including current portion*$1,687.0
 $1,607.7
 $1,687.1
 $1,687.5
Other financing arrangements5.2
 5.3
 
 
Interest Rate Swap1.9
 1.9
 
 
   *Excludes capital leases and note issuance costs.       
 March 31, 2019 December 31, 2018
(dollars in millions)Carrying Value Fair Value Carrying Value Fair Value
Long-term debt, including current portion*$1,874.6
 $1,772.7
 $1,880.0
 $1,673.6
Other installment financing arrangements44.3
 46.8
 44.6
 43.6
   *Excludes capital leases, other financing arrangements and note issuance costs.

The fair value of our long-term debt was based on closing or estimated market prices of the Company’s debt at June 30, 2018March 31, 2019 and December 31, 2017,2018, which is considered Level 2 of the fair value hierarchy. The fair value of the other installment

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financing arrangements was calculated using a discounted cash flow model that incorporates current borrowing rates for obligations of similar duration, which is considered levelLevel 3 of the fair value hierarchy. As of June 30, 2018,March 31, 2019, the current borrowing rate was estimated by applying Cincinnati Bell'sthe Company's credit spread to the risk-free rate for a similar duration borrowing.

9.    Pension and Postretirement Plans
As of March 31, 2019, 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, 2019 and 2018.
For the three months ended March 31, 2019 and 2018, pension and postretirement benefit costs (benefits) were as follows:
 Three Months Ended March 31,
 2019 2018 2019 2018
(dollars in millions)Pension Benefits 
Postretirement and
Other Benefits
Service cost$
 $
 $0.2
 $0.1
Other components of pension and postretirement benefit plans expense:       
Interest cost on projected benefit obligation6.0
 4.2
 1.2
 0.8
Expected return on plan assets(7.8) (6.2) 
 
Amortization of:       
Prior service benefit
 
 (0.6) (0.8)
Actuarial loss3.4
 4.3
 0.4
 1.0
       Total amortization3.4
 4.3
 (0.2) 0.2
Pension / postretirement costs$1.6
 $2.3
 $1.2
 $1.1
Amortizations of prior service benefit and actuarial loss represent reclassifications from accumulated other comprehensive income.
Based on current assumptions, contributions are expected to be approximately $3 million to both the qualified and non-qualified pension plans in 2019. Management expects to make cash payments of approximately $11 million related to its postretirement health plans in 2019.

For the three months ended March 31, 2019, contributions to the pension plans were $1.1 million and contributions to the postretirement plans were $1.9 million. For the three months ended March 31, 2018, contributions to the pension plans were $1.3 million and contributions to the postretirement plan were $1.6 million.



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9.    Pension10.    Restructuring and Postretirement PlansSeverance
The Company sponsors three noncontributory defined benefit plansLiabilities have been established for employee separations and a postretirement healthlease abandonment. A summary of activity in the restructuring and life insurance plan. For the three and six months ended June 30, 2017, approximately 14% and 13% of the costs, respectively, were capitalized as a component of property, plant and equipment related to construction of our copper and fiber networks. In accordance with ASU 2017-07, retrospectively adopted effective January 1, 2018, only the service cost component of net benefit costseverance liability is eligible for capitalization on a prospective basis, which was immaterial for the three and six months ended June 30, 2018.
For the three and six months ended June 30, 2018 and 2017, pension and postretirement benefit costs (benefits) were as follows:shown below:
 Three Months Ended June 30, 2018
 2018 2017 2018 2017
(dollars in millions)Pension Benefits 
Postretirement and
Other Benefits
Service cost$
 $
 $
 $
Other components of pension and postretirement benefit plans expense:       
Interest cost on projected benefit obligation4.1
 4.9
 0.8
 0.8
Expected return on plan assets(6.2) (6.5) 
 
Amortization of:       
Prior service benefit
 
 (0.8) (1.1)
Actuarial loss4.2
 4.4
 1.1
 1.2
       Total amortization4.2
 4.4
 0.3
 0.1
Pension / postretirement costs$2.1
 $2.8
 $1.1
 $0.9
(dollars in millions)
Employee
Separation
 
Lease
Abandonment
 Total
Balance as of December 31, 2018$9.5
 $0.7
 $10.2
Hawaiian Telcom opening balance sheet adjustment0.1
 
 0.1
Charges3.3
 
 3.3
Utilizations(6.7) (0.1) (6.8)
Balance as of March 31, 2019$6.2
 $0.6
 $6.8
Restructuring and severance charges recorded in the first quarter of 2019 are related to a voluntary severance program ("VSP") for certain management employees in the Entertainment and Communications segment as the Company continues its efforts to realize synergies that can be achieved due to the acquisition of Hawaiian Telcom.
Lease abandonment costs represent future minimum lease obligations, net of expected sublease income, for abandoned facilities. Lease payments on abandoned facilities will continue through 2020.
A summary of restructuring activity by business segment is presented below:
 Six Months Ended June 30, 2018
 2018 2017 2018 2017
(dollars in millions)Pension Benefits 
Postretirement and
Other Benefits
Service cost$
 $
 $0.1
 $0.1
Other components of pension and postretirement benefit plans expense:       
Interest cost on projected benefit obligation8.3
 9.7
 1.6
 1.6
Expected return on plan assets(12.4) (13.0) 
 
Amortization of:       
Prior service benefit
 
 (1.6) (2.2)
Actuarial loss8.5
 8.8
 2.1
 2.3
       Total amortization8.5
 8.8
 0.5
 0.1
Pension / postretirement costs$4.4
 $5.5
 $2.2
 $1.8
(dollars in millions)Entertainment and Communications IT Services and Hardware Corporate Total
Balance as of December 31, 2018$8.6
 $1.3
 $0.3
 $10.2
Hawaiian Telcom opening balance sheet adjustment0.1
 
 
 0.1
Charges3.3
 
 
 3.3
Utilizations(6.3) (0.5) 
 (6.8)
Balance as of March 31, 2019$5.7
 $0.8
 $0.3
 $6.8
At March 31, 2019 and December 31, 2018, $6.4 million and $9.6 million, respectively, of the restructuring liabilities were included in “Other current liabilities.” At March 31, 2019 and December 31, 2018, $0.4 million and $0.6 million, respectively, were included in "Other noncurrent liabilities."

Amortizations of prior service benefit and actuarial loss represent reclassifications from accumulated other comprehensive income.
Based on current assumptions, contributions to qualified and non-qualified pension plans in 2018 are expected to be approximately $4 million and $3 million, respectively. Management expects to make cash payments of approximately $9 million related to its postretirement health plans in 2018.

For the six months ended June 30, 2018, contributions to the pension plans were $2.8 million and contributions to the postretirement plan were $3.5 million.


10.11.    Shareowners' Deficit
Accumulated Other Comprehensive Loss
For the sixthree months ended June 30, 2018,March 31, 2019, the changes in accumulated other comprehensive loss by component were as follows:
(dollars in millions)Unrecognized Net Periodic Pension and Postretirement Benefit Cost Unrealized Loss on Cash Flow Hedge Foreign Currency Translation Loss Total
Balance as of December 31, 2017$(173.1) $
 $(0.6) $(173.7)
Reclassifications, net7.0
(a)
 
 7.0
Unrealized loss on cash flow hedge arising during the period, net
 (1.5)(b)
 (1.5)
Foreign currency loss
 
 (4.3) (4.3)
Balance as of June 30, 2018$(166.1) $(1.5) $(4.9) $(172.5)
(dollars in millions)Unrecognized Net Periodic Pension and Postretirement Benefit Cost Unrealized Loss on Cash Flow Hedges, Net Foreign Currency Translation Loss Total
Balance as of December 31, 2018$(164.5) $(3.9) $(7.1) $(175.5)
Reclassifications, net2.5
(a)0.2
(b)
 2.7
Unrealized loss on cash flow hedges arising during the period, net
 (3.1)(c)
 (3.1)
Foreign currency gain
 
 1.6
 1.6
Balance as of March 31, 2019$(162.0) $(6.8) $(5.5) $(174.3)
(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 (see Note 9 for additional details).tax. The other components of net periodic pension and postretirement benefit plans expense are recorded in "Other components of pension and postretirement benefit plans expense" on the Condensed Consolidated Statements of Operations. See Note 9 for further disclosures.
(b)In June 2018,These reclassifications are reported within "Interest expense" on the Company entered into an interest rate swap agreement to minimize its exposure to interest rate fluctuations on variable rate debt. The interest rate swap is considered a derivative instrument and qualifies for cash flow hedge accounting in accordance with ASC 815. Condensed Consolidated Statements of Operations when the hedged transactions impact earnings.
(c)The unrealized loss, net on cash flow hedgehedges represents the change in the fair value of the derivative instrumentinstruments that occurred during the period, net of tax. This unrealized gain or loss is recorded in "Other current assets," "Other current liabilities" and "Other noncurrent liabilities" on the Condensed Consolidated Balance Sheets. See Note 8 for further disclosures.

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11.12.    Business Segment Information
On January 1, 2018, the Company changed the composition of its operating segments to align more closely with the Company's broader strategy and how it manages business operations. This strategy groups CLEC revenue, which was previously included as part of the Entertainment and Communications segment, as part of the IT Services and Hardware segment in order to consolidate all company-wide VoIP sales. Accordingly, the Company recast the previously reported 2017 segment disclosures to conform to the new segmentation.

Effective January 1, 2018, we adopted the requirements of ASU 2014-09, Revenue from Contracts with Customers, and ASU 2017-07, Improving the Presentation of Net Period Pension Cost and Net Periodic Postretirement Benefit Cost. As a result of adopting these standards, certain prior period amounts reported below have been restated to conform to current period presentation.

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 Entertainment and Communications and IT Services and Hardware.

The Entertainment and Communications 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 digital signal. These products are used to transport large amounts of data over private networks.IRU. Video services provide our Fioptics customers access to over 400 entertainment channels, over 140 high-definition channels, parental controls, HD DVR, Video On-Demand and access to a Fioptics live TV streaming application. Voice represents traditional voice lines as well as Fiopticsfiber voice lines, consumer long distance, switched access and digital trunking. Other services consists of revenue generated from wiring projects for enterprise customers, advertising, directory assistance, maintenance and information services.

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.


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Selected financial data for the Company’s business segment information is as follows:

Three Months Ended Six Months EndedThree Months Ended
June 30, June 30,March 31,
(dollars in millions)2018
2017 2018 20172019
2018
Revenue          
Entertainment and Communications$173.9
 $181.0
 $348.1

$356.1
$250.3
 $174.2
IT Services and Hardware128.3
 84.8
 255.9
 165.8
136.3
 127.6
Intersegment(5.4) (6.4) (11.5) (12.9)(7.0) (6.1)
Total revenue$296.8
 $259.4
 $592.5
 $509.0
$379.6
 $295.7
Intersegment revenue          
Entertainment and Communications$4.7
 $5.3
 $9.9
 $10.7
$6.0
 $5.2
IT Services and Hardware0.7
 1.1
 1.6
 2.2
1.0
 0.9
Total intersegment revenue$5.4
 $6.4
 $11.5
 $12.9
$7.0
 $6.1
Operating income (loss)          
Entertainment and Communications$25.5
 $31.4
 $54.1
 $34.5
$24.5
 $28.6
IT Services and Hardware(0.2) (1.5) 1.2
 (0.6)(6.8) 1.4
Corporate(5.1) (5.5) (10.9) (11.3)(7.6) (5.8)
Total operating income (loss)$20.2
 $24.4
 $44.4
 $22.6
Total operating income$10.1
 $24.2
Expenditures for long-lived assets*          
Entertainment and Communications$31.8
 $45.5
 $59.4
 $92.3
$51.1
 $27.6
IT Services and Hardware6.5
 5.0
 14.4
 22.5
5.4
 7.9
Total expenditures for long-lived assets$38.3
 $50.5
 $73.8
 $114.8
$56.5
 $35.5
Depreciation and amortization          
Entertainment and Communications$41.0
 $40.4
 $81.9
 $79.8
$62.7
 $40.9
IT Services and Hardware9.9
 6.5
 20.1
 12.9
16.7
 10.2
Corporate
 0.1
 0.1
 0.1

 0.1
Total depreciation and amortization$50.9
 $47.0
 $102.1
 $92.8
$79.4
 $51.2
* Includes cost of acquisitions

          
June 30, December 31,    March 31, December 31,
(dollars in millions)2018 2017    2019 2018
Assets          
Entertainment and Communications$1,103.8
 $1,111.4
    $1,907.4
 $1,898.8
IT Services and Hardware395.9
 482.7
    460.7
 468.1
Corporate and eliminations666.4
 593.5
    281.2
 363.3
Total assets$2,166.1
 $2,187.6
    $2,649.3
 $2,730.2


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12.    Subsequent Events
On July 2, 2018, the Company completed its previously announced merger of Hawaiian Telcom Holdco, Inc. ("Hawaiian Telcom") for total consideration totaling $657.7 million consisting of $536.5 million in cash, and $121.2 million in stock consideration. In order to fund the acquisition on July 2, 2018, the Company utilized its proceeds from the 8% Senior Notes due 2025 and drew $35.0 million and $154.0 million on the revolving credit facility and the accounts receivable securitization facility, respectively. With the merger, the Company gains access to both Honolulu, a well-developed, fiber-rich city, as well as the growing neighbor islands. The companies' combined fiber networks will exceed 14,000 fiber route miles. In addition, Hawaiian Telcom provides the Company with direct access to the 2.6TB of Trans-Pacific fiber cable capacity linking Asia and the U.S., which expands the Company's route diversity and gives the combined company exposure to demographics on both sides of the Pacific.

The initial accounting for the business combination was not complete at the time the financial statements were issued due to the timing of the acquisition and the filing of this Quarterly Report on Form 10-Q. As a result, disclosures required under ASC 805-10-50, Business Combinations, are not possible at this time.



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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
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,” 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 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, 2018March 31, 2019, and the results of operations for the three and six months ended June 30, 2018March 31, 2019 and 2017.2018. 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, 20172018. Results for interim periods may not be indicative of results for the full year or any other interim period.


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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") providesprovide 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.
On July 2, 2018, the Company acquired Hawaiian Telcom Holdco, Inc. ("Hawaiian Telcom"). The Unified Communications as a Service ("UCaaS"), hardware, and enterprise long distance products and services provided by the Hawaiian Telcom business are included within the IT Services and Hardware Segment. The Entertainment and Communications segment includes products delivered by Hawaiian Telcom such as high-speed internet access, digital subscriber lines, ethernet, dedicated internet access, indefeasible right of use ("IRU") contracts, video, voice lines, consumer long distance and digital trunking.
Consolidated revenue totaling $296.8 million and $592.5$379.6 million for the three and six months ended June 30, 2018, respectively,March 31, 2019, increased $37.4 million and $83.5$83.9 million compared to the same periodsperiod in 20172018 primarily due to demand for both our fiber offerings, as well as IT services, which includes results from acquisitions completed in 2017.the acquisition of Hawaiian Telcom. The acquisition of OnX Holdings LLC ("OnX")Hawaiian Telcom contributed $45.3 million and $90.6$86.6 million of revenue in the three and six months ended June 30, 2018.March 31, 2019. Revenue growth from the acquisition was partially offset due to declines in Legacy revenue exceeding the growth in revenue from our fiber offerings. Fioptics revenue in Cincinnati increased $8.3 million and $17.6 million for the three and six months ended June 30, 2018, respectively, compared to the same periods in 2017.
Operating income was $20.2$4.1 million for the three months ended June 30, 2018,March 31, 2019, compared to the same period in 2018. Legacy revenue in Cincinnati decreased $7.9 million for the three months ended March 31, 2019 compared to the same period in 2018.
Operating income was $10.1 million for the three months ended March 31, 2019, down $4.2$14.1 million compared to the prior year. The contribution from incremental OnXHawaiian Telcom revenue was offset by increased depreciation, amortization, and Selling, General and Administrative ("SG&A") expense, also related to the acquisition of OnX. OperatingHawaiian Telcom.
Loss before income was $44.4taxes totaled $26.6 million for the six months ended June 30, 2018, up $21.8 million compared to the same period in 2017 primarily due to the acquisition of OnX as well as a decrease in restructuring and severance related charges. Restructuring and severance related charges were incurred for the three months ended March 31, 20172019, resulting in orderan increase in the loss as compared to reduce field and network costs associated with our legacy copper network.
Lossthe comparable period in 2018. In addition to the items impacting operating income, the increased loss before income taxes totaled $15.3 million and $24.8 million for the three and six months ended June 30, 2018, respectively, down compared to the same periods in 2017. Decrease in both comparable periods is primarily due to increased interest expense duerelated to additional debt acquired in the third quarter of 2017 to fund the acquisition of OnX in October 2017 and the merger with Hawaiian Telcom Holdco, Inc. ("Hawaiian Telcom") that closed on July 2, 2018. In addition, a gain on the sale of our investment in CyrusOne of $117.7 million was recorded in the first quarter of 2017, contributing to the $123.6 million decrease for the six months ended June 30, 2018 as compared to the same period in 2017.Telcom.


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Form 10-Q Part I Cincinnati Bell Inc.

Consolidated Results of Operations
On January 1, 2018, the Company changed the composition of its operating segments to align more closely with the Company's broader strategy and how it manages business operations. This strategy groups Competitive Local Exchange Carrier ("CLEC") revenue, which was previously included as part of the Entertainment and Communications segment, as part of the IT Services and Hardware segment in order to consolidate all company-wide VoIP sales. Accordingly, the Company recast the previously reported 2017 segment disclosures. See Note 11 to the Condensed Consolidated Financials for all required disclosures.

Effective January 1, 2018, the Company adopted the requirements of Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers, and ASU 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. As a result of adopting these standards, certain prior period amounts reported below have been restated to conform to current period presentation. Refer to the Notes of the Condensed Consolidated Financial Statements for further explanation of these amounts.
Revenue
Three Months Ended June 30, Six Months Ended June 30,Three Months Ended March 31,
(dollars in millions)2018 2017 $ Change % Change 2018 2017 $ Change % Change2019 2018 $ Change % Change
Revenue                      
Entertainment and Communications$169.2
 $175.7
 $(6.5) (4)% $338.2
 $345.4 $(7.2) (2)%$244.3
 $169.0
 $75.3
 45%
IT Services and Hardware127.6
 83.7
 43.9
 52 % 254.3
 163.6
 90.7
 55 %135.3
 126.7
 8.6
 7%
Total revenue$296.8
 $259.4
 $37.4
 14 % $592.5
 $509.0
 $83.5
 16 %$379.6
 $295.7
 $83.9
 28%
Entertainment and Communications revenue decreasedincreased for the three months ended March 31, 2019, primarily due to a one time projectthe acquisition of Hawaiian Telcom. Hawaiian Telcom revenue of $77.8 million, along with growth in Enterprise Fiber completedFioptics in Cincinnati, offset the second quarter of 2017 for $5.4 million. Additionally, declines experienced in Legacy revenue exceeded increases in Fioptics in both comparable periods.Cincinnati. IT Services and Hardware revenue increased primarily due to the acquisition of OnX that closedHawaiian Telcom, which contributed $8.8 million primarily in the fourth quarter of 2017.Communications and the Cloud practices. Consulting revenue also increased in the three months ended March 31, 2019, but this growth was more than offset by declines in Infrastructure Solutions.
Operating Costs
Three Months Ended June 30, Six Months Ended June 30,Three Months Ended March 31,
(dollars in millions)2018 2017 $ Change % Change 2018 2017 $ Change % Change2019 2018 $ Change % Change
Cost of services and products                      
Entertainment and Communications$77.8
 $77.0
 $0.8
 1% $154.2
 $151.4
 $2.8
 2%$113.8
 $76.5
 $37.3
 49%
IT Services and Hardware74.5
 51.9
 22.6
 44% 147.5
 101.6
 45.9
 45%83.9
 72.9
 11.0
 15%
Total cost of services and products$152.3
 $128.9
 $23.4
 18% $301.7
 $253.0
 $48.7
 19%$197.7
 $149.4
 $48.3
 32%
Entertainment and Communications costs were relatively flatincreased compared to the same periodsperiod in the prior year. Increasesyear as a result of the acquisition of Hawaiian Telcom. In addition, increases in video content costs due to our growing Fioptics video subscriber base, in addition to higher rates charged by our content providers waswere offset by lower payroll related costs and benefits costs. In addition, there was a reduction in costs duelower operating taxes related to the one-time project that was recorded in the second quarter of the prior year.Cincinnati-based operations. Lower payroll and benefitsrelated costs are related to headcount reductions made during restructuring initiatives that were executed in 2017.2017 and 2018. IT Services and Hardware costs increased due to higher headcount as a resultpayroll related and contractor costs associated with resources utilized to support the revenue growth of $7.6 million in the acquisition of OnX, which contributed revenue of $45.3 million and $90.6 millionConsulting practice for the three and six months ended June 30, 2018, respectively.March 31, 2019, as compared to the prior year. In addition, Hawaiian Telcom contributed $4.9 million to cost of services and products for the three months ended March 31, 2019.
 Three Months Ended March 31,
(dollars in millions)2019 2018 $ Change % Change
Selling, general and administrative       
Entertainment and Communications$44.5
 $27.1
 $17.4
 64 %
IT Services and Hardware37.0
 37.7
 (0.7) (2)%
Corporate4.6
 3.6
 1.0
 28 %
Total selling, general and administrative$86.1
 $68.4
 $17.7
 26 %

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Form 10-Q Part I Cincinnati Bell Inc.

 Three Months Ended June 30, Six Months Ended June 30,
(dollars in millions)2018 2017 $ Change % Change 2018 2017 $ Change % Change
Selling, general and administrative               
Entertainment and Communications$29.0

$29.8
 $(0.8) (3)% $56.1
 $61.1
 $(5.0) (8)%
IT Services and Hardware34.8
 20.4
 14.4
 71 % 72.5
 39.2
 33.3
 85 %
Corporate2.3
 3.6
 (1.3) (36)% 5.9
 8.8
 (2.9) (33)%
Total selling, general and administrative$66.1
 $53.8
 $12.3
 23 % $134.5
 $109.1
 $25.4
 23 %
Entertainment and Communications SG&A costs were downincreased in the three and six months ended June 30, 2018March 31, 2019, compared to the same periodsperiod in the prior year, primarily due to lower payroll coststhe acquisition of Hawaiian Telcom. Hawaiian Telcom contributed SG&A expense of $16.0 million. The remaining increase is due to an increase in the bad debt reserve for certain receivables with a carrier customer that are a resultfiled for bankruptcy in the first quarter of headcount reductions from restructuring initiatives that were executed in 2017 and 2016.2019 whose collectibility is uncertain. IT Services and Hardware SG&A costs were up primarilydecreased in the three months ended March 31, 2019 compared to the prior year due to OnX contributinga decrease in payroll costs resulting from headcount reductions carried out in 2018. The decline in payroll costs more than offset additional headcount, as well as other costs such as rent and professional fees.
SG&A of $2.5 million contributed by Hawaiian Telcom.
Three Months Ended June 30, Six Months Ended June 30,Three Months Ended March 31,
(dollars in millions)2018 2017 $ Change % Change 2018 2017 $ Change % Change2019 2018 $ Change % Change
Depreciation and amortization expense                      
Entertainment and Communications$41.0
 $40.4
 $0.6
 1% $81.9
 $79.8
 $2.1
 3%$62.7
 $40.9
 $21.8
 53%
IT Services and Hardware9.9
 6.5
 3.4
 52% 20.1
0.0
12.9
 7.2
 56%16.7
 10.2
 6.5
 64%
Corporate
 0.1
 (0.1) n/m
 0.1
 0.1
 0.0
 n/m

 0.1
 (0.1) n/m
Total depreciation and amortization expense$50.9
 $47.0
 $3.9
 8% $102.1
 $92.8
 $9.3
 10%$79.4
 $51.2
 $28.2
 55%
Entertainment and Communications depreciation and amortization expense increased due to increased property, plant, and equipment and intangible assets obtained in both comparable periods as a resultthe acquisition of expanding our fiber-based network.Hawaiian Telcom. The increase in IT Services and Hardware depreciation and amortization expense in both comparable periods is primarily related to the amortization of intangibleaccelerated depreciation for certain network assets acquired as part of the SunTel and OnX acquisitions, as well as depreciation expense relatedthat were determined to the property, plant and equipment obtainedhave a shorter useful life due to a change in these acquisitions.customer requirements.
Three Months Ended June 30, Six Months Ended June 30,Three Months Ended March 31,
(dollars in millions)2018 2017 $ Change % Change 2018 2017 $ Change % Change2019 2018 $ Change % Change
Other operating costs                      
Restructuring and severance related charges$4.6
 $3.6
 $1.0
 28% $4.9
 $29.2
 $(24.3) (83)%$3.3
 $0.3
 $3.0
 n/m
Transaction and integration costs2.7
 1.7
 1.0
 59% 4.9
 2.3
 2.6
 n/m
3.0
 2.2
 0.8
 36%
Total other operating costs$7.3
 $5.3
 $2.0
 38% $9.8
 $31.5
 $(21.7) (69)%$6.3
 $2.5
 $3.8
 n/m
Headcount-related restructuring and severance charges of $3.8$3.3 million recorded in the second quarter of 2018three months ended March 31, 2019 are related to costs incurred in order to recognize future synergies as the Company continues to identify efficiencies with the integration of OnX. In addition, a restructuring charge associated with lease abandonment of $0.8 million was recordedHawaiian Telcom.
Transaction and integration costs incurred in the secondfirst quarter of 2019, recorded as a Corporate expense, are primarily due to the continued integration of Hawaiian Telcom. Transaction and integration costs incurred in the first quarter of 2018, related to an office space that will no longer be utilized. Restructuring and severance-related charges incurred by both segments in the second quarter of 2017 relate to company initiated reorganizations of the business in order to more appropriately align the Company for future growth. Additionally, restructuring and severance-related charges incurred by the Entertainment and Communications segment during the six months ended June 30, 2017 were related torecorded as a voluntary severance program for certain bargained employees to reduce field and network costs associated with our legacy copper network.
Transaction costs recorded in the Corporate segment in 2018expense, are due to the acquisition of OnX that closed in the fourth quarter of 2017, as well as the merger with Hawaiian Telcom that closed on July 2, 2018. Transaction and integration costs recorded in 2017 are primarily dueincurred leading up to costs associated with the acquisition of SunTel ServicesHawaiian Telcom.
Non-operating Costs
 Three Months Ended March 31,
(dollars in millions)2019 2018 $ Change % Change
Non-operating costs       
Interest expense$35.1
 $30.8
 $4.3
 14 %
Other components of pension and postretirement benefit plans expense2.6
 3.3
 (0.7) (21)%
Other income, net(1.0) (0.4) (0.6) n/m
Income tax expense (benefit)0.3
 (1.2) 1.5
 n/m
Interest expense increased for the three months ended March 31, 2019 compared to the same period in the first quarterprior year due to interest incurred on the amounts outstanding on the Receivables Facility and the Revolving Credit Facility used to partially fund the cash portion of 2017, as well as the merger agreements withacquisition of Hawaiian Telcom and OnX committed to in July 2017.Telcom. At March 31, 2018, there was no balance outstanding on the Receivables Facility or the Revolving Credit Facility.

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Form 10-Q Part I Cincinnati Bell Inc.

Non-operating Costs
 Three Months Ended June 30, Six Months Ended June 30,
(dollars in millions)2018 2017 $ Change % Change 2018 2017 $ Change % Change
Non-operating costs               
Interest expense$31.8
 $18.1
 $13.7
 76% $62.6
 $36.1
 $26.5
 73%
Loss on extinguishment of debt1.3
 
 1.3
 n/m
 1.3
 
 1.3
 n/m
Other components of pension and postretirement benefit plans expense3.2
 3.2
 
 
 6.5
 6.4
 0.1
 2%
Gain on sale of Investment in CyrusOne
 
 
 n/m
 
 (117.7) 117.7
 n/m
Other income, net(0.8) (0.6) (0.2) 33% (1.2) (1.0) (0.2) 20%
Income tax (benefit) expense(1.5) 1.4
 (2.9) n/m
 (2.7) 35.9
 (38.6) n/m
Interest expense increased for the three and six months ended June 30, 2018 compared to the same periods in the prior year due to the Company entering into the $600.0 million Tranche B Term Loan due 2024, as well as issuing $350.0 million 8% Senior Notes in the fourth quarter of 2017. The Company repaid the remaining $315.8 million Tranche B Term Loan due 2020 outstanding under its old Corporate Credit Agreement with the proceeds from the $600.0 million Tranche B Term Loan due 2024.
The Company recognized a realized gain of $117.7 million on the sale of 2.8 million CyrusOne common shares in the first quarter of 2017.
Income tax expense decreasedincreased year over year primarily due to lower incomean increase in the valuation allowance against nondeductible interest expense that the Company does not anticipate the ability to utilize in future years. This increase is partially offset by an increase in the loss before tax, as well as the lower federal statutory tax rate due to tax reform.tax. The Company expects to use federal and state net operating loss carryforwards to substantially defray payment of federal and state tax liabilities in 2018.2019.

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Form 10-Q Part I Cincinnati Bell Inc.

Entertainment and Communications
The Entertainment and Communications segment provides products and services that can be categorized as either Fioptics in Cincinnati or Consumer/SMB Fiber in Hawaii (collectively, "Consumer/SMB Fiber"), Enterprise Fiber or Legacy. Cincinnati Bell Telephone Company LLC ("CBT"), a subsidiary of the Company, is the incumbent local exchange carrier ("ILEC") for a geography that covers a radius of approximately 25 miles around Cincinnati, Ohio, and includes parts of northern Kentucky and southeastern Indiana. CBT has operated in this territory for over 145 years. Voice and data services in the Enterprise Fiber and Legacy categories that are delivered beyond the Company's ILEC territory, particularly in Dayton and Mason, Ohio, are provided through the operations of Cincinnati Bell Extended Territories LLC ("CBET"), a subsidiary of CBT. On July 2, 2018, the Company acquired Hawaiian Telcom. Hawaiian Telcom is the ILEC for the State of Hawaii and the largest full service provider of communications services and products in the state. Originally incorporated in Hawaii in 1883 as Mutual Telephone Company, Hawaiian Telcom has a strong heritage of over 135 years as Hawaii’s communications carrier. Its services are offered on all of Hawaii’s major islands, except its video service, which currently is only available on the island of Oahu.

FiopticsConsumer/SMB Fiber products are delivered to both consumer and enterprise customers and include high-speed internet access, voice lines and video. The Company is able to deliver speeds of up to 30 megabits or more to approximately 72%76% of Greater Cincinnati.Cincinnati and to approximately 35% of Hawaii's total addressable market.
Enterprise Fiber products include metro-ethernet, dedicated internet access, wavelength, IRU contracts, and small cell. As enterprise customers migrate from legacy products and copper-based technology, our metro-ethernet product becomes the preferred method of transport due to its ability to support multiple applications on a single physical connection.
Legacy products include traditional voice lines, consumer long distance, switched access, digital trunking, DSL, DS0, DS1, DS3 and other value-added services such as caller identification, voicemail, call waiting and call return.
Three Months Ended June 30, Six Months Ended June 30,Three Months Ended March 31,
(dollars in millions)2018 2017 Change % Change 2018 2017 Change % Change2019 2018 Change % Change
Revenue:                      
Data$84.4
 $90.1
 $(5.7) (6)% $169.3
 $174.5
 $(5.2) (3)%$117.5
 $84.9
 $32.6
 38 %
Video39.7
 36.9
 2.8
 8 % 78.9
 72.8
 6.1
 8 %51.7
 39.2
 12.5
 32 %
Voice46.0
 50.5
 (4.5) (9)% 93.0
 102.2
 (9.2) (9)%73.4
 47.0
 26.4
 56 %
Other3.8
 3.5
 0.3
 9 % 6.9
 6.6
 0.3
 5 %7.7
 3.1
 4.6
 n/m
Total Revenue173.9
 181.0
 (7.1) (4)% 348.1
 356.1
 (8.0) (2)%250.3
 174.2
 76.1
 44 %
Operating costs and expenses:      

              

Cost of services and products78.4
 78.3
 0.1
 
 156.0
 154.0
 2.0
 1 %115.3
 77.6
 37.7
 49 %
Selling, general and administrative29.0
 29.8
 (0.8) (3)% 56.1
 61.1
 (5.0) (8)%44.5
 27.1
 17.4
 64 %
Depreciation and amortization41.0
 40.4
 0.6
 1 % 81.9
 79.8
 2.1
 3 %62.7
 40.9
 21.8
 53 %
Restructuring and severance charges
 1.1
 (1.1) n/m
 
 26.7
 (26.7) n/m
3.3
 
 3.3
 n/m
Total operating costs and expenses148.4
 149.6
 (1.2) (1)% $294.0
 321.6
 (27.6) (9)%225.8
 145.6
 80.2
 55 %
Operating income$25.5
 $31.4
 $(5.9) (19)% $54.1
 $34.5
 $19.6
 57 %$24.5
 $28.6
 $(4.1) (14)%
Operating margin14.7% 17.3%   (2.6) pts
 15.5% 9.7%   6.0 pts
9.8% 16.4%   (6.6) pts
Capital expenditures$31.8
 $45.5
 $(13.7) (30)% $59.4
 $92.3
 $(32.9) (36)%$51.1
 $27.6
 $23.5
 85 %

3234

Table of Contents
Form 10-Q Part I Cincinnati Bell Inc.

Entertainment and Communications, continued
 Three Months Ended June 30, 
Metrics information (in thousands):2018 2017 Change % Change 
Fioptics        
Data    

 

 
Internet FTTP192.7
 168.1
 24.6
 15 % 
Internet FTTN42.6
 46.0
 (3.4) (7)% 
Total Fioptics Internet235.3
 214.1
 21.2
 10 % 
Video        
Video FTTP118.1
 112.8
 5.3
 5 % 
Video FTTN27.0
 30.0
 (3.0) (10)% 
Total Fioptics Video145.1
 142.8
 2.3
 2 % 
Voice        
Consumer Voice Lines89.1
 87.0
 2.1
 2 % 
Enterprise Voice Lines18.5
 15.2
 3.3
 22 % 
Total Fioptics Voice Lines107.6
 102.2
 5.4
 5 % 
Fioptics Units Passed    

 

 
Units passed FTTP449.3
 415.4
 33.9
 8 % 
Units passed FTTN139.9
 141.3
 (1.4) (1)% 
Total Fioptics units passed589.2
 556.7
 32.5
 6 % 
         
Enterprise Fiber        
Data        
Ethernet Bandwidth (Gb)4,133
 3,638
 495
 14 % 
         
Legacy        
Data        
DSL75.2
 93.0
 (17.8) (19)% 
Voice        
Consumer Voice Lines85.9
 104.9
 (19.0) (18)% 
Enterprise Voice Lines154.7
 177.3
 (22.6) (13)% 
Total Legacy Voice Lines240.6
 282.2
 (41.6) (15)% 
         
*Fiber to the Premise (FTTP), Fiber to the Node (FTTN)     



 March 31,
Metrics information (in thousands):2019 2018 Change % Change
Cincinnati       
Fioptics       
Data    
 
Internet FTTP*207.6
 187.8
 19.8
 11 %
Internet FTTN*35.7
 45.0
 (9.3) (21)%
Total Fioptics Internet243.3
 232.8
 10.5
 5 %
Video       
Video FTTP115.2
 118.1
 (2.9) (2)%
Video FTTN24.0
 28.2
 (4.2) (15)%
Total Fioptics Video139.2
 146.3
 (7.1) (5)%
Voice       
Fioptics Voice Lines109.0
 106.9
 2.1
 2 %
Fioptics Units Passed    

 

Units passed FTTP477.6
 440.5
 37.1
 8 %
Units passed FTTN138.5
 140.3
 (1.8) (1)%
Total Fioptics units passed616.1
 580.8
 35.3
 6 %
        
Enterprise Fiber       
Data       
Ethernet Bandwidth (Gb)4,540
 4,046
 494
 12 %
        
Legacy       
Data       
DSL69.6
 78.1
 (8.5) (11)%
Voice       
Legacy Voice Lines218.0
 251.4
 (33.4) (13)%
        
*Fiber to the Premise (FTTP), Fiber to the Node (FTTN)    

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Form 10-Q Part ICincinnati Bell Inc.

Entertainment and Communications, continued
March 31,
Metrics information (in thousands):2019
Hawaii
Consumer / SMB Fiber
Data
Internet FTTP*52.7
Internet FTTN*13.9
Total Consumer / SMB Fiber Internet66.6
Video
Video FTTP33.5
Video FTTN14.3
Total Consumer / SMB Fiber Video47.8
Voice
Consumer / SMB Fiber Voice Lines30.3
Consumer / SMB Fiber Units Passed **
Units passed FTTP168.1
Units passed FTTN73.4
Total Consumer / SMB Fiber units passed241.5
Enterprise Fiber
Data
Ethernet Bandwidth (Gb)2,413
Legacy
Data
DSL47.2
Voice
Legacy Voice Lines192.8
*Fiber to the Premise (FTTP), Fiber to the Node (FTTN)
** Includes units passed for both consumer and business on Oahu and neighboring islands.

36

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Form 10-Q Part I Cincinnati Bell Inc.

Entertainment and Communications, continued
Revenue
     Three Months Ended June 30, Six Months Ended June 30,
(dollars in millions) 2018 2017 2018 2017
Revenue:        
 Fioptics        
   Data $35.6
 $31.3
 $70.0
 $60.9
   Video 39.7
 36.9
 78.9
 72.8
   Voice 9.5
 8.3
 18.6
 16.2
   Other 0.3
 0.3
 0.6
 0.6
     85.1
 76.8
 168.1
 150.5
 Enterprise Fiber        
   Data 21.0
 25.3
 41.8

45.0
 Legacy        
   Data 27.8
 33.5
 57.5
 68.6
   Voice 36.5
 42.2
 74.4
 86.0
   Other 3.5
 3.2
 6.3
 6.0
     67.8
 78.9
 138.2
 160.6
Total Entertainment and Communications revenue $173.9
 $181.0
 $348.1
 $356.1
   Three Months Ended March 31,
   2019   2018
   Cincinnati Hawaii Total   Cincinnati Hawaii Total
 Revenue             
  Consumer / SMB Fiber *             
  Data$37.4
 $7.9
 $45.3
   $34.4
 $
 $34.4
  Video40.2
 11.5
 51.7
   39.2
 
 39.2
  Voice9.2
 2.8
 12.0
   9.1
 
 9.1
  Other0.3
 0.2
 0.5
   0.3
 
 0.3
   87.1

22.4

109.5
   83.0



83.0
  Enterprise Fiber             
  Data21.1
 9.2
 30.3
   20.8
 
 20.8
  Legacy             
  Data26.0
 15.9
 41.9
   29.7
 
 29.7
  Voice33.0
 28.4
 61.4
   37.9
 
 37.9
  Other3.5
 3.7
 7.2
   2.8
 
 2.8
   62.5

48.0

110.5
   70.4
 
 70.4
 Total Entertainment and Communications revenue$170.7
 $79.6
 $250.3
   $174.2
 $
 $174.2
                
* Represents Fioptics in Cincinnati
Cincinnati Fioptics and Hawaii Consumer/SMB Fiber (collectively, "Consumer/SMB Fiber")
FiopticsConsumer/SMB Fiber revenue has increased by $8.3$26.5 million for the three months ended June 30, 2018,March 31, 2019 compared to the same period a year ago primarily due to revenue contributed by Hawaiian Telcom of $22.4 million. Hawaiian Telcom adds 47,800 video subscribers, 66,600 internet subscribers and 30,300 voice subscribers to the existing base of subscribers. The remaining revenue increase is due to increases in the subscriber base offor internet and voice, as well as rate favorability for internet and video andin Cincinnati. The internet of 5%, 2% and 10%, respectively. Ansubscriber base in Cincinnati continues to increase in rate has also contributed to increased revenue as we focus our attention on growing the internet FTTP subscriber base. The Average Revenue Per User ("ARPU") hason a year to date basis increased for voice,internet and video by 3% and internet by 7%, 5% and 3%8%, respectively, compared to the prior year. ARPU increases are related to price increases for voice,internet and video, and internet, as well as the change in the mix of subscribers for video. Fioptics
Enterprise Fiber
Enterprise Fiber revenue has increased $17.6 million for the sixthree months ended June 30, 2018,March 31, 2019 compared to the same period in the prior year as a result of the same trends impacting the quarter.
Enterprise Fiber
Enterprise Fiber revenue decreased year over year primarily due to a one-time project that was completed in the second quarter of 2017. Excluding prior yearincremental revenue of $5.4$9.2 million attributable to this project, Enterprise Fiberfrom Hawaiian Telcom, which includes revenue from the SEA-US cable, metro-ethernet and dedicated internet access. In addition, revenue increased slightly year over year. Increases in revenue relateddue to enterprise customers migrating from legacy product offerings to higher bandwidth fiber solutions, are offset with declines as carriers continueevidenced by the 12% increase in Ethernet Bandwidth in Cincinnati compared to groom their networks.the comparable period in the prior year.
Legacy
Legacy revenue has decreased $11.1 millionincreased for the three months ended June 30, 2018,March 31, 2019 compared to the same period a year ago due to incremental revenue from Hawaiian Telcom of $48.0 million. Hawaiian Telcom adds 47,200 DSL subscribers and 192,800 voice subscribers to the existing base of subscribers. Increased revenue generated by Hawaiian Telcom was partially offset by declines in revenue from both voice lines and DSL subscribers.subscribers in Cincinnati. Voice lines havein Cincinnati declined 15% compared to the three months ended June 30, 2017,13% as the traditional voice lines become less relevant. DSL subscribers for the three months ended June 30, 2018 havein Cincinnati decreased by 19%11% as subscribers demand the the higher speeds that can be provided by fiber, as evidenced by the 10% growth in our Fioptics internet subscribers. Legacy revenue decreased $22.4 million for the six months ended June 30, 2018 due to the same trends impacting the quarter.fiber. In addition, declines in DS0, DS1, DS3 and digital trunking have contributed to the revenue decline for these products in both comparable periods2019 compared to the same period in the prior year as customers migrate away from these solutions to fiber-based solutions. Switched access also continues to decline in part due to the Federal Communications Commission mandated reductions in rates for terminating switched access.

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Form 10-Q Part I Cincinnati Bell Inc.

Entertainment and Communications, continued
Operating Costs and Expenses
Cost of services and products was relatively flatincreased in the three months ended June 30,March 31, 2019 compared to same period in 2018 primarily due to the acquisition of Hawaiian Telcom. Hawaiian Telcom contributed $38.8 million to cost of services and increased 1% forproducts in the sixthree months ended June 30, 2018 compared toMarch 31, 2019. Excluding the prior comparable periods. In the first quarter of 2017, costsincrease associated with a large one-time project were recognized, causing the year over year decline. In addition, lower payroll related costs were offsetacquisition of Hawaiian Telcom, cost of services and products decreased by higher video content costs. Video content costs increased $8.8 million for$1.1 million. This decrease in the sixthree months ended June 30, 2018 and payroll related costs decreased $4.3 millionMarch 31, 2019 compared to the same period in the prior year. Higher video content2018 is primarily due to lower payroll costs are the result of the increase in video subscribers, as well as higher rates charged by content providers. Payroll related costs are down due to reduced headcount asand lower overtime driven by efficiencies in the installation process. The reduced headcount is a result of the restructuring that took place in the first quarterprior two years. Payroll related decreases are partially offset by higher programming costs. Higher programming costs are the result of 2017.higher rates charged by content providers.
SG&A expenses decreasedincreased by $0.8 million and $5.0$17.4 million in the three and six months ended June 30, 2018March 31, 2019 compared to the same periodsperiod in the prior year primarily due to decreased payroll related coststhe acquisition of Hawaiian Telcom. Hawaiian Telcom contributed $16.0 million of SG&A expense in 2019. In addition to the increase contributed by Hawaiian Telcom, there were also increases in bad debt expense and advertising expense. The increase in bad debt expense is due to a reserve for certain receivables with a carrier customer that filed for bankruptcy in the first quarter of 2019. The increase in advertising expense is due to timing. These increases were partially offset by savings in contract services for synergies realized on certain contracts as a result of the restructuring that took placeacquisition of Hawaiian Telcom.
Depreciation and amortization expenses were up in the three months ended March 31, 2019 compared to the same period in the prior year due to the acquisition of Hawaiian Telcom. Hawaiian Telcom contributed $22.3 million of depreciation and amortization expense in the first quarter of 2017.
Depreciation and amortization expenses for the three and six months ended June 30, 2018 increased compared to the prior year primarily due to assets placed in service in connection with the expansion of our fiber network.2019.
Restructuring and severance charges recorded in the first quarter of 2017three months ended March 31, 2019 are related to a voluntary severance program for certain bargained employeescosts incurred in order to reduce field and network costs associatedrecognize future synergies as the Company continues to identify efficiencies with our legacy copper network.the integration of Hawaiian Telcom.
Capital Expenditures
 Three Months Ended June 30, Six Months Ended June 30,Three Months Ended March 31,
(dollars in millions) 2018 2017 2018 2017
Fioptics capital expenditures        
2019 2018
Cincinnati Hawaii Total Cincinnati Hawaii Total
Consumer / SMB Fiber capital expenditures *           
Construction $9.3
 $16.2
 $15.4
 $31.4
$9.2
 $2.2
 $11.4
 $6.1
 $
 $6.1
Installation 10.0
 13.1
 17.5
 28.4
11.5
 4.1
 15.6
 7.5
 
 7.5
Other 1.6
 1.3
 5.2
 6.5
1.8
 0.7
 2.5
 3.6
 
 3.6
Total Fioptics 20.9
 30.6
 38.1
 66.3
Total Consumer / SMB Fiber22.5
 7.0
 29.5
 17.2
 
 17.2
                   
Enterprise Fiber 3.2

4.8
 7.7
 8.7
2.2
 1.7
 3.9
 4.5
 
 4.5
Other 7.7
 10.1
 13.6
 17.3
6.1
 11.6
 17.7
 5.9
 
 5.9
Total capital expenditures $31.8
 $45.5
 $59.4
 $92.3
Total Entertainment and Communications capital expenditures$30.8
 $20.3
 $51.1
 $27.6
 $
 $27.6
* Represents Fioptics in Cincinnati

           
Capital expenditures in Cincinnati are incurred to expand our Fioptics product suite, upgrade and increase capacity for our networks, and to extend the life of our fiber and copper networks. In the secondfirst quarter of 2018,2019, we passed an additional 8,8005,300 FTTP addresses.addresses in Cincinnati. As of June 30, 2018,March 31, 2019, the Company is able to provide its Fioptics services to 589,200616,100 consumer and enterprise addresses, or 72%76% of our operating territory. Constructionterritory in Cincinnati. Cincinnati construction capital expenditures decreased $6.9 million and $16.0increased $3.1 million in the three and six months ended June 30, 2018, respectively,March 31, 2019, compared to the same periodsperiod in 2017 primarily2018 due to passing fewer addresses with Fioptics. Installationthe timing of capital expenditures, decreased $3.1 million and $10.9which does not necessarily coincide with the timing of when the door becomes available. Cincinnati installation capital expenditures increased $4.0 million in the three and six months ended June 30, 2018, respectively,March 31, 2019 compared to the same periodsperiod in 20172018 due to fewer activations in 2018 as a resultthe timing of the reduced build out.expenditures for customer premise equipment utilized for installations.

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Entertainment and Communications, continued
Enterprise Fiber capital expenditures in Cincinnati are related to success-based fiber builds, including associated equipment, for enterprise and carrier projects to provide ethernet services. Other capital expenditures are related to IT projects, cable and equipment maintenance and capacity additions, real estate upgrades and maintenance, plus other minor capital purchases.
Capital expenditures in Hawaii for the three months ended March 31, 2019 were $20.3 million. Hawaii construction capital expenditures of $2.2 million relate to building out 1,000 new doors. Hawaii installation capital expenditures of $4.1 million primarily relate to new video and internet installations. Enterprise fiber capital in Hawaii is primarily driven by new ethernet customers. Hawaii capital expenditures classified as other include IT projects, real estate projects, road jobs or plant damage projects, and network upgrades or optimization projects.



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Table of Contents
Form 10-Q Part I Cincinnati Bell Inc.

IT Services and Hardware
The IT Services and Hardware segment provides end-to-end IT solutions, ranging from consulting to implementation to ongoing optimization.optimization of existing technology. These solutions include Cloud, Communications and Consulting services along with the sale and maintenance of major branded Telecom and IT hardware reported as Infrastructure Solutions. These services and products are provided through the Company's subsidiaries in various geographic areas throughout the United States, Canada and Europe. By offering a full range of equipment and strategic services in conjunction with the Company’s fiber and copper networks, the IT Services and Hardware segment provides our customers personalized solutions designed to meet their business objectives.

Cloud services include the design, implementation and on-going management of the customer’s infrastructure. This includes on-premise, public cloud and private cloud solutions. The Company assists customers with the risk assessment phase through an in-depth understanding of the customer’s business, as well as building and designing a solution using either the customer's existing infrastructure or new cloud based options that transform the way the customer does business.

Communications solutions help to transform the way our customers do business by connecting employees, customers, and business partners. By upgrading legacy technologies through customized build projects and reducing customer costs, the Company helps to transform the customer’s business. These services include Unified Communications as a Service ("UCaaS"), Software-Defined WAN ("SD-WAN"), Network as a Service ("NaaS"), Contact Center and Collaboration.

Using our experience and expertise, Infrastructure Solutions are tailored to our customers’ organizational goals. We offer a complete portfolio of services that provide customers with efficient and optimized IT solutions that are agile and responsive to their business and are integrated, simplified and manageable. Through consulting with customers, the Company will build a solution using standard manufacturer equipment to meet our customers’ specific requirements. Prior to the adoption of Accounting Standards Codification Topic ("ASC") 606, the Company recorded hardware revenue on a gross basis. Effective January 1, 2018 with the adoption of ASC 606, the Company now considers ourselves an agent in the sale of hardware and records hardware revenue on a net basis. Prior periods have been restated for comparability.

Consulting services help customers assess their business and technology needs and provide the talent needed to ensure success. The Company is thea premier provider of application services and IT staffing.

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Form 10-Q Part I Cincinnati Bell Inc.

IT Services and Hardware, continued
Three Months Ended June 30, Six Months Ended June 30,Three Months Ended March 31,
(dollars in millions)2018 2017 Change % Change 2018 2017 Change % Change2019 2018 Change % Change
Revenue:                      
Consulting$39.8
 $16.5
 $23.3
 n/m
 $77.9
 $33.2
 $44.7
 n/m
$38.9
 $31.3
 $7.6
 24 %
Cloud23.0
 19.2
 3.8
 20 % 45.6
 40.1
 5.5
 14 %24.4
 22.6
 1.8
 8 %
Communications41.5
 40.3
 1.2
 3 % 82.1
 76.8
 5.3
 7 %47.4
 40.6
 6.8
 17 %
Infrastructure Solutions24.0
 8.8
 15.2
 n/m
 50.3
 15.7
 34.6
 n/m
25.6
 33.1
 (7.5) (23)%
Total revenue128.3
 84.8
 43.5
 51 % 255.9
 165.8
 90.1
 54 %136.3
 127.6
 8.7
 7 %
Operating costs and expenses:      

              

Cost of services and products79.0
 56.7
 22.3
 39 % 156.7
 111.4
 45.3
 41 %89.2
 77.7
 11.5
 15 %
Selling, general and administrative35.0
 20.6
 14.4
 70 % 73.0
 39.6
 33.4
 84 %37.2
 38.0
 (0.8) (2)%
Depreciation and amortization9.9
 6.5
 3.4
 52 % 20.1
 12.9
 7.2
 56 %16.7
 10.2
 6.5
 64 %
Restructuring and severance related charges4.6
 2.5
 2.1
 84 % 4.9
 2.5
 2.4
 96 %
 0.3
 (0.3) n/m
Total operating costs and expenses128.5

86.3
 42.2
 49 % 254.7
 166.4
 88.3
 53 %143.1

126.2
 16.9
 13 %
Operating (loss) income$(0.2) $(1.5) $1.3
 (87)% $1.2
 $(0.6) $1.8
 n/m
Operating income$(6.8) $1.4
 $(8.2) n/m
Operating margin(0.2)% (1.8)%


 1.6 pts
 0.5% (0.4)%   0.9 pts
(5.0)% 1.1%


 (6.1) pts
Capital expenditures$6.5
 $4.6
 $1.9
 41 % $11.6
 $12.9
 $(1.3) (10)%$5.4
 $5.1
 $0.3
 6 %
  
Metrics information: (as of June 30, 2018)Consulting Communications Communications Communications
 Billable Heads NaaS Locations SD - WAN Locations Hosted UCaaS Profiles
 926 782 310 192,715
  
Metrics information: (as of March 31, 2019)Communications Communications Communications Consulting
 Hosted UCaaS Profiles* NaaS Locations SD - WAN Locations Billable Resources
 244,482 2,550 1,002 1,039
* Includes Hawaii Hosted UCaaS Profiles       
Revenue
IT Services and Hardware segment revenue increased $43.5 million and $90.1 million for the three and six months ended June 30, 2018, respectively, as compared to the comparable periods in 2017. Consulting and Infrastructure Solutions are the primary contributors to this revenue increase, primarily due the acquisition of OnX. OnX contributed $25.6 million in Consulting revenue and $13.3 million in Infrastructure Solutions revenue for the three months ended June 30, 2018 and contributed $49.6 million in Consulting revenue and $28.0 million in Infrastructure Solutions revenue for the six months ended June 30, 2018.
Operating Costs and Expenses
Cost of services and products is predominantly impacted by fluctuations in the headcount and contractors required to deliver the services within Consulting, Cloud and Communications. The increase of $22.3 and $45.3 million in Cost of services and products for the three and six months ended June 30, 2018 as compared to the prior year is related to the acquisition of OnX and consists primarily of payroll and contract services costs.
SG&A increased $14.4 million and $33.4 million for the three and six months ended June 30, 2018, respectively, as compared to the prior year. The acquisition of OnX contributed an increase of $16.7$8.7 million for the three months ended June 30, 2018March 31, 2019, as compared to the same period in the prior year. Consulting and $37.0Communications are the main contributors to this revenue increase in 2019. Consulting revenue increased compared to the prior year due to obtaining significant new customers and projects throughout 2018. Communications revenue increased primarily due to the acquisition of Hawaiian Telcom, which contributed $5.9 million of revenue in the quarter. These increases are partially offset by lower Infrastructure Solutions revenue due to variability associated with the hardware reseller business.
Operating Costs and Expenses
IT Services and Hardware cost of services and products increased $11.5 million for the sixthree months ended June 30,March 31, 2019, as compared to the same period in the prior year. In the three months ended March 31, 2019, Hawaiian Telcom contributed $6.8 million of additional expense to cost of services and products. The remaining increase in cost of services and products is primarily due to payroll and contractor costs associated with the incremental consulting revenue of $7.6 million.
SG&A decreased $0.8 million for the three months ended March 31, 2019, as compared to the same period in the prior year. Payroll costs decreased $3.6 million compared to the prior year due to restructuring initiatives that were carried out in 2018. This decrease was partially offset by expenses of $2.5 million contributed by Hawaiian Telcom.

Depreciation and amortization expenses increased $6.5 million for the three months ended March 31, 2019, as compared to the same period in the prior year due to accelerated depreciation expense for certain network assets designated for use by a specific customer. The network assets for which accelerated depreciation expense was incurred were determined to have a shorter useful life due to a change in the customer's requirements in the first quarter of 2019.


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Form 10-Q Part I Cincinnati Bell Inc.

RestructuringIT Services and severance charges of $3.8 million recorded in the second quarter of 2018 are related to costs incurred in order to recognize future synergies as the Company continues to identify efficiencies with the integration of OnX. In addition, a restructuring charge of $0.8 million was recorded in the second quarter of 2018 associated with a lease abandonment related to an office space that will no longer be utilized.Hardware, continued
Capital Expenditures
Capital expenditures are dependent on the timing of success-based projects. The increase in the second quarter of 2018 compared to the same period in the prior year, and decreaseCapital expenditures in the first halfquarter of 2018 compared2019 were primarily related to projects supporting the same period in the prior year, is due to the change in the volume of these types ofCloud and Communications practices as well as $0.9 million for implementation work associated with internal software projects.


38
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Form 10-Q Part I Cincinnati Bell Inc.

Financial Condition, Liquidity, and Capital Resources

As of June 30, 2018,March 31, 2019, the Company had $1,744.1$1,932.3 million of outstanding indebtedness and an accumulated deficit of $2,661.7$2,736.3 million. A significant amount of the Company's accumulated deficit resulted from the purchase and operation of a national broadband business, which was sold in 2003.

The Company’s primary source of cash is generated by operations. The Company generated $89.9$56.8 million and $122.9$58.5 million of cash flows from operations during the sixthree months ended June 30,March 31, 2019 and 2018, and 2017, respectively. As of June 30, 2018,March 31, 2019, the Company had $384.5$190.3 million of short-term liquidity, comprised of $30.3$3.9 million of cash and cash equivalents, $200.0$185.0 million of undrawn capacity on our CorporateRevolving Credit Agreement,Facility, and $154.2$1.4 million available under the Receivables Facility. On July 2, 2018, the Company utilized a portion of this liquidity to fund part of the cash consideration for the Hawaiian Telcom merger.

The Receivables Facility permits maximum borrowings of up to $250.0$225.0 million and is subject to annual renewal. As of June 30, 2018,March 31, 2019, the Company had no borrowings of $175.8 million and $6.7$9.9 million of letters of credit outstanding under the Receivables Facility on a borrowing capacity of $160.9$187.1 million. While we expect to continue to renew this facility, we would be required to use cash, our Revolving Credit Facility, or other sources to repay any outstanding balance on the Receivables Facility if it was not renewed.

The Company’s primary uses of cash are for capital expenditures and debt service and, to a lesser extent, to fund pension and retiree medical obligations and preferred stock dividends. In 2017,2018, cash was also utilized to fund merger and acquisition activity. The Company believes that its cash on hand, cash generated from operations, and available funding under its credit facilities will be adequate to meet its cash requirements for the next twelve months. In addition, management expects that the Company will continue to have access to the capital markets to refinance debt and other obligations should such a need arise in the near future.
Cash Flows

Cash provided by operating activities during the sixthree months ended June 30, 2018March 31, 2019 totaled $89.9$56.8 million, a decrease of $33.0$1.7 million compared to the same period in 2017. The decrease is due primarily to2018. Hawaiian Telcom contributed operating cash flow of approximately $18 million, which was offset with higher interest payments of $37.3 million.

associated with the incremental debt obtained to fund the acquisition, as well as lower working capital compared to the same period in the prior year.
Cash flows used byin investing activities during the sixthree months ended June 30, 2018March 31, 2019 totaled $73.8$56.6 million, an increase of $21.0 million compared to $26.3 million of cash flows provided by investing activitiesthe same period in the prior year.2018. The decreaseincrease in cash flows provided byused in investing activities was largelyprimarily driven by the $140.7 million of cash proceeds received in the first quarter of 2017 from the sale of the Company's investment in CyrusOne. The decline in cash flows associated with CyrusOne were partially offset with a decrease in capital expenditures of $34.2 million duerelated to declines in construction and installation capital for Fioptics.

Hawaiian Telcom.
Cash flows used in financing activities during the sixthree months ended June 30, 2018March 31, 2019 totaled $15.6$11.8 million as compared to $100.7$8.0 million of cash flows used in the prior year. In the first quarter of 2017,2019, the Company repaid $89.5$3.0 million on the Revolving Credit Facility and $0.8 million on the Receivables Facility as compared to no borrowingspayments on either the Revolving Credit Facility or paymentsthe Receivables Facility in the first quarter of 2018.
Indentures

The Company’s Senior Notes are governed by indentures which contain covenants that, among other things, limit the Company’s ability to incur additional debt or liens, pay dividends or make other restricted payments, sell, transfer, lease or dispose of assets and make investments or merge with another company. The Company is in compliance with all of its debt indentures as of June 30, 2018.

March 31, 2019.
Share Repurchase Plan

In 2010, the Board of Directors approved a plan for the repurchase of the Company's outstanding common stock in an amount up to $150.0 million. In prior years, the Company repurchased and retired a total of 1.7 million shares at a total cost of $25.6 million dollars. As of June 30, 2018,March 31, 2019, the Company has the authority to repurchase its common stock with a value of up to $124.4 million under the plan approved by its Board of Directors, subject to satisfaction of the requirements under its bond indentures.

Regulatory Matters

Refer to the Company’s Annual Report on Form 10-K for the year ended 20172018 for a complete description of regulatory matters.


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Form 10-Q Part ICincinnati Bell Inc.

Contingencies
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 accounting principles generally accepted in the United States. Such matters are subject to many uncertainties and outcomes that are not predictable with assurance.

Future Operating Trends
Refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 20172018 for a complete description of future operating trends for our business.
Critical Accounting Policies
The Company’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America. Application of these principles requires management to make estimates or judgments that affect the amounts reported in the accompanying Condensed Consolidated Financial Statements and information available as of the date of the financial statements. As this information changes, the financial statements could reflect different estimates or judgments.
Revenue Recognition — Effective January 1, 2018, the Company adheres to revenue recognition principles described in Financial Accounting Standards Board (“FASB”) ASC 606, “Revenue Recognition.” Under ASC 606, revenue is recognized when the Company transfers promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services.
For the sale of hardware within the Infrastructure Solutions category, we evaluate whether we are the principal and report revenues on a gross basis, or an agent and report revenues on a net basis. In this assessment, we consider if we obtain control of the specified goods or services before they are transferred to the customer as well as other indicators such as the party primarily responsible for fulfillment, inventory risk and discretion in establishing price. Based on these criteria, the Company acts as an agent and, as such, will record revenue associated with the sale of hardware net of the related cost of products.
Please see Note 1 of this Quarterly Report on Form 10-Q for the summary of significant accounting policies.

The Company’s most critical accounting policies and estimates are described in its Annual Report on Form 10-K for the year ended December 31, 20172018. With the exception of the change in revenue recognition as discussed above, there have been no other material changes to our critical accounting policies and estimates since our Annual Report on Form 10-K for the year ended December 31, 2017.
Recently Issued Accounting Standards
Refer to Note 1 of the Condensed Consolidated Financial Statements for further information on recently issued accounting standards and the impact to the Condensed Consolidated Financial Statements as a result of adopting ASU 2014-09 and ASU 2017-072016-02 effective January 1, 2018.2019.

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Form 10-Q Part ICincinnati Bell Inc.

Item 3.Quantitative and Qualitative Disclosures About Market Risk
Refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 20172018 for a description of the Company's market risks.

Item 4.Controls and Procedures
(a)Evaluation of disclosure controls and procedures.
Cincinnati Bell Inc.’s management, with the participation of the Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in SEC Rule 13a-15(e)) as of the end of the period covered by this report. Based on this evaluation, Cincinnati Bell Inc.’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, such controls and procedures were effective.
(b)Changes in internal control over financial reporting.
Cincinnati Bell Inc.’s management, with the participation of the Chief Executive Officer and Chief Financial Officer, have evaluated any changes in the Company’s internal control over financial reporting that occurred during the secondfirst quarter of 20182019 and have concluded that there were no changes to Cincinnati Bell Inc.’s internal control over financial reporting during the secondfirst quarter of 20182019 that materially affect, or are reasonably likely to materially affect, Cincinnati Bell Inc.’s internal control over financial reporting.


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Table of Contents
Form 10-Q Part II Cincinnati Bell Inc.

PART II. OTHER INFORMATION

Item 1.Legal Proceedings
Cincinnati Bell and its subsidiaries are involved in a number of legal proceedings. Liabilities are established for legal claims when losses associated with the claims are judged to be probable and the loss can be reasonably estimated. In many lawsuits and arbitrations, including most class action lawsuits, it is not possible to determine whether a liability has been incurred or to estimate the amount of the liability until the case is close to resolution, in which case a liability will not be recognized until that time. Based on information currently available, consultation with counsel, available insurance coverage and recognized liabilities, the Company believes that the eventual outcome of all claims will not, individually or in the aggregate, have a material effect on the Company’s financial position or results of operations.

Item 1A. Risk Factors
Refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 20172018 for a comprehensive listing of the Company’s risk factors. There are no material changes for the three months ending June 30, 2018.March 31, 2019.

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds
During the sixthree month period ended June 30, 2018March 31, 2019, the Company had no unregistered sales of equity securities. The Company also had no purchases of its common stock for the sixthree months ended June 30, 2018.March 31, 2019.


Item 3.        Defaults upon Senior Securities
None.

Item 4.        Mine Safety Disclosure
None.

Item 5.        Other Information
No reportable items.


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Form 10-Q Part II Cincinnati Bell Inc.

Item 6.        Exhibits
Exhibits identified in parentheses below, on file with the SEC, are incorporated herein by reference as exhibits hereto.

Exhibit 
NumberDescription
Amended and Restated Articles of Incorporation of Cincinnati Bell Inc. (Exhibit 3.1 to Current Report on Form 8-K, Date of Report April 25, 2008, File No. 1-8519).
Amendment to the Amended and Restated Articles of Incorporation of Cincinnati Inc. (Exhibit 3.1 to Current Report on Form 8-K, Date of Report October 4, 2016, File No. 1-8519).
Amended and Restated Regulations of Cincinnati Bell Inc.
Amendment No. 1 (Exhibit 3.3 to Credit Agreement dated as of April 5, 2018, by and among Cincinnati Bell Inc., the subsidiary guarantors thereto, Morgan Stanley Senior Funding, Inc. and the tranche B term lenders party thereto (Exhibit 10.1 to CurrentQuarterly Report on Form 8-K,10-Q, Date of Report April 5,August 8, 2018, File No. 1-8519).
Amendment No. 2 to Credit Agreement dated as of April 5, 2018, by and among Cincinnati Bell Inc., the subsidiary guarantors thereto, Morgan Stanley Senior Funding, Inc. and the revolving lenders party thereto (Exhibit 10.1 to Current Report on Form 8-K, Date of Report April 5, 2018, File No. 1-8519).
Cincinnati Bell Inc. Form of 2018-2023 Business ValueRestricted Stock Unit Award Agreement (Exhibit 10.1 to Current Report on Form 8-K, Date of Report May 7, 2018, File No. 1-8519).(2017 Long Term Incentive Plan) - 2019 version.
Second Amended and Restated Purchase and Sale Agreement dated as of May 10, 2018, among Cincinnati Bell Inc., as Servicer, Cincinnati Bell Funding LLC and the Originators identified therein (Exhibit 99.1 to Current Report on Form 8-K, Date of Report May 10, 2018, File No. 1-8519).
Canadian Purchase and Sale Agreement dated as of May 10, 2018, among Cincinnati Bell Funding Canada Ltd., a Purchase, OnX Enterprise Solutions Ltd., as Servicer, and the Originators identified therein (Exhibit 99.2 to Current Report on Form 8-K, Date of Report May 10, 2018, File No. 1-8519).
Receivables Financing Agreement dated as of May 10, 2018, among Cincinnati Bell Funding LLC and Cincinnati Bell Funding Canada Ltd., as Borrowers, Cincinnati Bell Inc. and OnX Enterprise Solutions Ltd., as Servicers, the Lenders, LetterForm of Credit Participants and Group Agents from time to time party thereto, PNC Bank, National Association, as Administrator and Letter of Credit Bank, and PNC Capital Markets LLC, as Structuring Agent (Exhibit 99.3 to Current Report on Form 8-K, Date of Report May 10, 2018, File No. 1-8519).
Receivables Purchase2019-2021 Share-Based Performance Unit Award Agreement dated as of May 10, 2018, among Cincinnati Bell Funding LLC, as Seller, Cincinnati Bell Inc., as Servicer, PNC Bank, National Association, as Buyer, and PNC Capital Markets LLC, as Structuring Agent (Exhibit 99.4 to Current Report on Form 8-K, Date of Report May 10, 2018, File No. 1-8519)(2017 Long Term Incentive Plan).
Subsidiaries of the Registrant.

Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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Table of Contents
Form 10-Q Part IICincinnati Bell Inc.

(101.INS)**XBRL Instance Document.
(101.SCH)**XBRL Taxonomy Extension Schema Document.
(101.CAL)**XBRL Taxonomy Extension Calculation Linkbase Document.
(101.DEF)**XBRL Taxonomy Extension Definition Linkbase Document.
(101.LAB)**XBRL Taxonomy Extension Label Linkbase Document.
(101.PRE)**XBRL Taxonomy Extension Presentation Linkbase Document.
    
+ Filed herewith.
** Submitted electronically with this report.

The Company's reports on Form 10-K, 10-Q, and 8-K are available free of charge in the Investor Relations section of the Company's website: http://www.cincinnatibell.com. The Company will furnish any other exhibit at cost.




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Table of Contents
Form 10-Q Part II Cincinnati Bell Inc.

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


   Cincinnati Bell Inc. 
     
Date:AugustMay 8, 20182019 
/s/ Andrew R. Kaiser

 
   
Andrew R. Kaiser

 
   Chief Financial Officer 
     
Date:AugustMay 8, 20182019 /s/ Shannon M. Mullen 
   Shannon M. Mullen 
   Chief Accounting Officer 

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