Achieved operating revenues of $4.44 billion, including core revenues[1] of $4.05 billion in fourth quarter; Full-year 2014 operating revenues of $18.0 billion, a 0.4% decline from full-year 2013

Generated operating cash flow[2] of $1.71 billion, excluding special items, in fourth quarter; Full-year 2014 operating cash flow, excluding special items, of $7.1 billion

Generated free cash flow[2], excluding special items and integration-related capital expenditures, of $373 million in fourth quarter and $2.7 billion in full-year 2014

Achieved Adjusted Net Income[2] of $340 million and Adjusted Diluted EPS[2] of $0.60, excluding special items, in fourth quarter

Added approximately 18,600 high-speed Internet customers and nearly 12,900 Prism™ TV customers during fourth quarter

MONROE, La., Feb. 11, 2015 -- CenturyLink, Inc. (NYSE: CTL) today reported results for fourth quarter and full-year 2014.

CenturyLink logo.

"CenturyLink's fourth quarter revenues came in slightly lower than anticipated, however our full-year 2014 results were in-line with our guidance and reflect our success in improving core revenue trends and generating strategic revenue growth," said Glen F. Post III, chief executive officer and president.  "Fourth quarter Business revenues from high-bandwidth data services grew approximately 13% year-over-year.  And in our Consumer segment, strategic revenues grew to $727 million for the quarter.

"As we look to 2015, we anticipate stronger revenue generation in the second half of the year and expect to reach revenue stability for the full year. We believe revenue growth will benefit from strategic product expansion and our recently implemented organizational realignment. This realignment has strengthened our focus on sales and revenue generation as we have combined and expanded our network and managed hosting/cloud sales forces, while enhancing our product portfolio to support strategic revenue growth in the months ahead," Post concluded.

Fourth Quarter 2014 Highlights

  • Achieved core revenues of $4.05 billion in fourth quarter 2014, a 1.5% year-over-year decline; revenue from high-bandwidth data services provided to business customers, including MPLS[3], Ethernet and Wavelength, grew approximately 13% year-over-year.
  • Generated free cash flow of $373 million, excluding special items and integration-related capital expenditures.
  • Added approximately 18,600 high-speed Internet customers during fourth quarter 2014, ending the period with more than 6.08 million customers in service.
  • Ended the quarter with more than 240,000 CenturyLink® Prism TV customers, an increase of nearly 12,900 during fourth quarter 2014.
  • Purchased and retired an additional 2.3 million shares of CenturyLink common stock for nearly $91 million during fourth quarter 2014.

Consolidated Financial Results

Operating revenues for fourth quarter 2014 were $4.44 billion compared to $4.54 billion in fourth quarter 2013. The decline in legacy revenues, primarily driven by access line losses and lower access revenues, as well as lower data integration revenues, were partially offset by increased strategic revenues. The growth of strategic revenues was primarily due to increased business customer demand for high-bandwidth data services, along with year-over-year growth in high-speed Internet and CenturyLink® Prism TV customers.

Operating expenses, excluding special items, decreased to $3.86 billion from $3.87 billion in fourth quarter 2013. The year-over-year decrease was primarily driven by lower employee costs, depreciation and amortization expenses and customer premise equipment (CPE) costs, which were partially offset by an unfavorable accounting adjustment for employee healthcare costs recorded in fourth quarter 2014.

Operating cash flow (as defined in our attached supplemental schedules), excluding special items, decreased to $1.71 billion from $1.84 billion in fourth quarter 2013. For fourth quarter 2014, CenturyLink achieved an operating cash flow margin, excluding special items, of 38.5% versus 40.4% in fourth quarter 2013. These decreases were primarily driven by the decline in higher-margin legacy revenues described above.

Adjusted Net Income and Adjusted Diluted Earnings Per Share (Adjusted Diluted EPS)

Adjusted Net Income and Adjusted Diluted EPS exclude the after-tax impact of special items, the non-cash after-tax impact of the amortization of certain intangible assets related to major acquisitions since mid-2009, and the non-cash after-tax impact to interest expense relating to the assignment of fair value to the outstanding debt assumed in connection with those acquisitions.

Excluding the items outlined above, CenturyLink's Adjusted Net Income for fourth quarter 2014 was $340 million compared to Adjusted Net Income of $396 million in fourth quarter 2013. Fourth quarter 2014 Adjusted Diluted EPS was $0.60 compared to $0.68 in the year-ago period due to lower operating cash flow, partially offset by favorable state income tax adjustments and the lower number of shares outstanding due to share repurchases during 2014. See the attached schedules for additional information.

Full-Year 2014 Results

For the full-year 2014, operating revenues decreased to $18.0 billion from $18.1 billion in 2013. Operating cash flow, excluding special items, was $7.1 billion in 2014 compared to $7.4 billion in 2013. The decline in operating revenues was driven by the impact of access line losses and lower access revenues, resulting in a decline in legacy revenues, and a decline in strategic private line services. These revenue declines were partially offset by increases in strategic revenues resulting primarily from increased business customer demand for high-bandwidth data services and hosting solutions, along with growth in high-speed Internet and CenturyLink® Prism TV customers. The operating cash flow decline was driven by the reduction in higher-margin legacy and private line revenues, which was partially offset by growth in other strategic revenues. Adjusted Net Income, excluding special items, was $1.49 billion in 2014 compared to $1.66 billion in 2013. Adjusted Diluted EPS, excluding special items, was $2.61 in 2014 compared to $2.76 in 2013.

GAAP Results - Fourth Quarter and Full-Year

Under generally accepted accounting principles (GAAP), net income for fourth quarter 2014 was $188 million compared to a net income of $239 million for fourth quarter 2013, and diluted earnings per share for fourth quarter 2014 was $0.33 compared to diluted earnings per share of $0.41 for fourth quarter 2013.

Net income under GAAP for full-year 2014 was $772 million compared to a net loss of $239 million for full-year 2013, and diluted earnings per share for full-year 2014 was $1.36 compared to net loss per share of $0.40 for full-year 2013. Full-year 2013 GAAP operating results include the impact of a goodwill impairment charge for a former operating segment.

Additional details regarding the company's special items for the three and twelve months ended December 31, 2014 and 2013 are provided in the accompanying financial schedules.

Segment Financial Results[4]

As previewed last quarter, CenturyLink has completed the realignment of its organizational structure. Beginning in the fourth quarter 2014, CenturyLink realigned its operating groups into the following two reporting segments:

  • Business. Consists primarily of providing network, IT services, colocation, managed hosting and cloud services to enterprise, wholesale and governmental customers across the U.S. and select international locations.
  • Consumer. Consists primarily of providing products and services to residential consumers across the company's 37-state footprint.

The organizational realignment combines marketing, sales and sales support under one leader. As part of the realignment, the company also has tasked a leader with responsibilities for the operational excellence of our products and services through the end-to-end engineering, delivery and management of network facilities and data centers. Additionally, one leader now has responsibility for product development and technology across all assets. Overall, these changes are designed to drive increased revenue generation and the rapid deployment of new technologies and solutions.

Business

The Business segment experienced continued strong demand for high-bandwidth data products in the fourth quarter of 2014.

  • Strategic revenues were $1.58 billion in the quarter, a 0.4% increase over fourth quarter 2013, driven by strength in high-bandwidth offerings such as MPLS, Ethernet and Wavelength services, partially offset by declines in low-speed data services revenue.
  • Total revenues were $2.70 billion, a decrease of 3.6% from fourth quarter 2013, as lower legacy, private line and data integration revenues were partially offset by growth in high-bandwidth offerings.
  • High-bandwidth data services grew nearly 13% over fourth quarter 2013 driven by continued strength in sales.
  • Managed hosting revenues were $145 million, representing a 1.4% increase from fourth quarter 2013, and colocation revenues were $160 million, a 1.9% increase over the same period a year ago.

Consumer

The Consumer segment achieved strong year-over-year strategic revenue growth driven primarily by increased high-speed Internet and CenturyLink® Prism TV customers.

  • Strategic revenues were $727 million in the quarter, a 6.4% increase over fourth quarter 2013.
  • Total revenues generated were $1.49 billion.
  • Added approximately 12,900 CenturyLink® Prism TV customers during fourth quarter 2014, increasing penetration of the approximately 2.4 million addressable homes to 10.2%.

Guidance — Full-Year and First Quarter 2015

CenturyLink anticipates stable operating revenues and core revenues in full-year 2015 compared to full-year 2014 due to expected increases in the level of strategic revenue growth offsetting anticipated legacy revenue declines. Operating cash flow and free cash flow are expected to slightly decline from full-year 2014 primarily driven by the continued decline in higher-margin legacy revenues, the impact of higher expenses associated with the increased growth in strategic revenues and an increase in pension expense due to changes in actuarial assumptions. The company also anticipates lower depreciation and amortization expense for full-year 2015 compared to full-year 2014 driven primarily by the impact of declining amortization of acquisition-related intangible assets and the annual review and update of depreciation rates, which are expected to more than offset increases in depreciation expense associated with continued capital investment. The company expects to incur capital expenditures of approximately $3.0 billion in 2015.

As of the date of this release, the company has not yet decided whether to accept or reject the specific build-out opportunities and related support payments available under Phase 2 of the FCC's Connect America Fund program. The company plans to provide an update later in 2015 when it determines the extent to which implementation of the CAF 2 program will impact its future revenues and cash flows.

Full-Year 2015 (excluding special items)

     

Operating Revenues

 

$17.9 to $18.1 billion

Core Revenues

 

$16.25 to $16.45 billion

Operating Cash Flow

 

$6.8 to $7.0 billion

Adjusted Diluted EPS

 

$2.50 to $2.70

Free Cash Flow

 

$2.5 to $2.7 billion

The company expects first quarter 2015 revenues to increase compared to fourth quarter 2014 primarily due to projected growth in strategic revenue offsetting the anticipated decline in legacy revenue, resulting in higher core revenue, along with higher data integration revenues in first quarter 2015. The company expects first quarter 2015 operating cash flow to decrease compared to fourth quarter 2014 primarily due to higher employee benefits and operating taxes, along with the impact of the continued decline in higher-margin legacy revenues. The company also anticipates a decline in depreciation and amortization expense, as previously described, in first quarter 2015.  The anticipated lower level of depreciation and amortization expense is expected to mostly offset the decrease in operating cash flow and the impact of the favorable income tax adjustments in the fourth quarter 2014, resulting in an anticipated slight decrease in Adjusted Diluted EPS in first quarter 2015 when compared to fourth quarter 2014.

First Quarter 2015 (excluding special items)

     

Operating Revenues

 

$4.45 to $4.50 billion

Core Revenues

 

$4.04 to $4.09 billion

Operating Cash Flow

 

$1.64 to $1.69 billion

Adjusted Diluted EPS

 

$0.56 to $0.61

All 2015 guidance figures and 2015 outlook statements included in this release (i) speak as of February 11, 2015 only, (ii) exclude the impact of any share repurchases made after December 31, 2014 and (iii) exclude the effects of special items, future impairment charges, future changes in regulation, implementation of the FCC's CAF 2 program (as described above), tax laws or accounting rules, integration expenses associated with major acquisitions, any changes in operating or capital plans or other unforeseen events or circumstances that impact our financial performance, and any future mergers, acquisitions, divestitures or other similar business transactions. See "Forward Looking Statements" below. For additional information on how we define certain of the terms used above, see the attached schedules.

Investor Call

As previously announced, CenturyLink's management will host a conference call at 4:00 p.m. Central Time today, February 11, 2015. Interested parties can access the call by dialing 866-244-4630. The call will be accessible for replay through February 19, 2015, by dialing 888-266-2081 and entering the access code 1649946. Investors can also listen to CenturyLink's earnings conference call and webcast replay by accessing the Investor Relations portion of the Company's website at www.centurylink.com through March 5, 2015. Financial, statistical and other information related to the call will also be posted to our website.

Reconciliation to GAAP

This release includes certain non-GAAP financial measures, including but not limited to operating cash flow, free cash flow, core revenues, Adjusted Net Income, Adjusted Diluted EPS and adjustments to GAAP measures to exclude the effect of special items. In addition to providing key metrics for management to evaluate the Company's performance, we believe these measurements assist investors in their understanding of period-to-period operating performance and in identifying historical and prospective trends. Reconciliations of non-GAAP financial measures to the most comparable GAAP measures are included in the attached financial schedules. Reconciliation of additional non-GAAP financial measures that may be discussed during the earnings call described above will be available in the Investor Relations portion of the Company's website at www.centurylink.com. Investors are urged to consider these non-GAAP measures in addition to, and not in substitution for, measures prepared in accordance with GAAP.

About CenturyLink

CenturyLink is the third largest telecommunications company in the United States and is recognized as a leader in the network services market by technology industry analyst firms. The Company is a global leader in cloud infrastructure and hosted IT solutions for enterprise customers. CenturyLink provides data, voice and managed services in local, national and select international markets through its high-quality advanced fiber optic network and multiple data centers for businesses and consumers. The company also offers advanced entertainment services under the CenturyLink® Prism TV and DIRECTV brands. Headquartered in Monroe, La., CenturyLink is an S&P 500 company and is included among the Fortune 500 list of America's largest corporations. For more information, visit www.centurylink.com.

Forward Looking Statements

Certain non-historical statements made in this release and future oral or written statements or press releases by us or our management are intended to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current expectations only, and are subject to a number of assumptions, risks and uncertainties, many of which are beyond our control. Actual events and results may differ materially from those anticipated, estimated, projected or implied by us if one or more of these risks or uncertainties materialize, or if our underlying assumptions prove incorrect. Factors that could affect actual results include but are not limited to: the timing, success and overall effects of competition from a wide variety of competitive providers; the risks inherent in rapid technological change, including product displacement; the effects of ongoing changes in the regulation of the communications industry, including the outcome of regulatory or judicial proceedings relating to intercarrier compensation, access charges, universal service, broadband deployment, data protection and net neutrality; our ability to effectively adjust to changes in the communications industry, and changes in our markets, product mix and network caused by our recent acquisitions; our ability to successfully integrate recently-acquired operations into our incumbent operations, including the possibility that the anticipated benefits from our recent acquisitions cannot be fully realized in a timely manner or at all; our ability to effectively manage our expansion opportunities, including retaining and hiring key personnel; possible changes in the demand for, or pricing of, our products and services, including our ability to effectively respond to increased demand for high-speed broadband service; our ability to successfully introduce new product or service offerings on a timely and cost-effective basis; the adverse impact on our business and network from possible equipment failures, security breaches or similar attacks on our network; our ability to successfully negotiate collective bargaining agreements on reasonable terms without work stoppages; our ability to use net operating loss carryovers of Qwest in projected amounts; our continued access to credit markets on favorable terms; our ability to collect our receivables from financially troubled companies; our ability to maintain favorable relations with our key business partners, suppliers, vendors, landlords and financial institutions; any adverse developments in legal or regulatory proceedings involving us; changes in our operating plans, corporate strategies, dividend payment plans or other capital allocation plans, including those caused by changes in our cash requirements, capital expenditure needs, debt obligations, pension funding requirements, cash flows, or financial position, or other similar changes; the effects of adverse weather; other risks referenced from time to time in our filings with the SEC; and the effects of more general factors such as changes in interest rates, in tax laws, in accounting policies or practices, in operating, medical, pension or administrative costs, in general market, labor or economic conditions, or in legislation, regulation or public policy. These and other uncertainties related to our business and our recent acquisitions are described in greater detail in Item 1A of our Form 10-Q for the quarter ended September 30, 2014, as updated and supplemented by our subsequent SEC reports. You should be aware that new factors may emerge from time to time and it is not possible for us to identify all such factors nor can we predict the impact of each such factor on the business or the extent to which any one or more factors may cause actual results to differ from those reflected in any forward-looking statements. You are further cautioned not to place undue reliance on these forward-looking statements, which are inherently speculative and speak only as of the date made. We undertake no obligation to update any of our forward-looking statements for any reason.

[1] Core revenues defined as strategic revenues plus legacy revenues (excludes data integration and other revenues), as described further in the attached schedules

[2] See attachments for non-GAAP reconciliations

[3] Multi-Protocol Label Switching

[4] All references to segment data herein reflect certain adjustments described in the attached schedules

 

 

CenturyLink, Inc.

CONSOLIDATED STATEMENTS OF INCOME

THREE MONTHS ENDED DECEMBER 31, 2014 AND 2013

(UNAUDITED)

(Dollars in millions, except per share amounts; shares in thousands)

                                                 
   

Three months ended December 31, 2014

 

Three months ended December 31, 2013

           
               

As adjusted

             

As adjusted

       

Increase

               

excluding

             

excluding

       

(decrease)

         

Less

 

special

       

Less

 

special

 

Increase

 

excluding

   

As

 

special

 

items

 

As

 

special

 

items

 

(decrease)

 

special

   

reported

 

items

 

(Non-GAAP)

 

reported

 

items

 

(Non-GAAP)

 

as reported

 

items

OPERATING REVENUES

                                             
 

Strategic

$

2,311

   

   

2,311

   

2,261

   

   

2,261

   

2.2%

   

2.2%

 
 

Legacy

1,737

   

   

1,737

   

1,849

   

   

1,849

   

(6.1)%

   

(6.1)%

 
 

Data integration

144

   

   

144

   

186

   

   

186

   

(22.6)%

   

(22.6)%

 
 

Other

246

   

   

246

   

246

   

   

246

   

—%

   

—%

 
   

4,438

   

   

4,438

   

4,542

   

   

4,542

   

(2.3)%

   

(2.3)%

 
                                                 

OPERATING EXPENSES

                                             
 

Cost of services and products

1,974

   

38

 

(1)

1,936

   

1,920

   

6

 

(3)

1,914

   

2.8%

   

1.1%

 
 

Selling, general and administrative

850

   

57

 

(1)

793

   

823

   

31

 

(3)

792

   

3.3%

   

0.1%

 
 

Depreciation and amortization

1,131

   

   

1,131

   

1,166

   

   

1,166

   

(3.0)%

   

(3.0)%

 
 

Impairment of goodwill

   

   

   

(8)

   

(8)

 

(4)

   

(100.0)%

   

—%

 
   

3,955

   

95

   

3,860

   

3,901

   

29

   

3,872

   

1.4%

   

(0.3)%

 
                                                 

OPERATING INCOME

483

   

(95)

   

578

   

641

   

(29)

   

670

   

(24.6)%

   

(13.7)%

 
                                               

OTHER INCOME (EXPENSE)

                                             
 

Interest expense

(330)

   

   

(330)

   

(328)

   

   

(328)

   

0.6%

   

0.6%

 
 

Other income, net

4

   

   

4

   

17

   

10

 

(5)

7

   

(76.5)%

   

(42.9)%

 
 

Income tax benefit (expense)

31

   

96

 

(2)

(65)

   

(91)

   

33

 

(6)

(124)

   

(134.1)%

   

(47.6)%

 

NET INCOME

$

188

   

1

   

187

   

239

   

14

   

225

   

(21.3)%

   

(16.9)%

 

BASIC EARNINGS PER SHARE

$

0.33

   

   

0.33

   

0.41

   

0.02

   

0.38

   

(19.5)%

   

(13.2)%

 

DILUTED EARNINGS PER SHARE

$

0.33

   

   

0.33

   

0.41

   

0.02

   

0.38

   

(19.5)%

   

(13.2)%

 
                                                 

AVERAGE SHARES OUTSTANDING

                                         
 

Basic

565,327

         

565,327

   

585,259

         

585,259

   

(3.4)%

   

(3.4)%

 
 

Diluted

567,035

         

567,035

   

586,382

         

586,382

   

(3.3)%

   

(3.3)%

 
                                                 

DIVIDENDS PER COMMON SHARE

$

0.54

         

0.54

   

0.54

         

0.54

   

—%

   

—%

 

SPECIAL ITEMS

                                         

(1) -

Includes severance costs associated with recent headcount reductions ($22 million), integration costs associated with our acquisition of Qwest ($10 million) and a pension settlement charge ($63 million).

(2) -

Income tax benefit of Item (1) and a favorable income tax adjustment of $60 million.

(3) -

Includes the Communications Workers of America contract ratification bonus ($6 million), severance costs associated with reduction in force initiatives ($13 million), integration, severance, and retention costs associated with our acquisition of Qwest ($20 million) and integration and severance costs associated with our acquisition of Savvis $2 million.

(4) -

Non-cash, non-tax deductible goodwill impairment adjustment.

(5) -

Gain on early retirement of debt.

(6) -

Income tax benefit of Items (3) and (5) and release of tax reserve ($22 million).

 

    

 

CenturyLink, Inc.

CONSOLIDATED STATEMENTS OF INCOME (LOSS)

TWELVE MONTHS ENDED DECEMBER 31, 2014 AND 2013

(UNAUDITED)

(Dollars in millions, except per share amounts; shares in thousands)

                                                 
   

Twelve months ended December 31, 2014

 

Twelve months ended December 31, 2013

           
               

As adjusted

             

As adjusted

       

Increase

               

excluding

             

excluding

       

(decrease)

         

Less

 

special

       

Less

 

special

 

Increase

 

excluding

   

As

 

special

 

items

 

As

 

special

 

items

 

(decrease)

 

special

   

reported

 

items

 

(Non-GAAP)

 

reported

 

items

 

(Non-GAAP)

 

as reported

 

items

OPERATING REVENUES

                                             
 

Strategic

$

9,200

   

   

9,200

   

8,823

   

   

8,823

   

4.3%

   

4.3%

 
 

Legacy

7,138

   

   

7,138

   

7,616

   

   

7,616

   

(6.3)%

   

(6.3)%

 
 

Data integration

690

   

   

690

   

656

   

   

656

   

5.2%

   

5.2%

 
 

Other

1,003

   

   

1,003

   

1,000

   

   

1,000

   

0.3%

   

0.3%

 
   

18,031

   

   

18,031

   

18,095

   

   

18,095

   

(0.4)%

   

(0.4)%

 
                                                 

OPERATING EXPENSES

                                             
 

Cost of services and products

7,846

   

50

 

(1)

7,796

   

7,507

   

15

 

(4)

7,492

   

4.5%

   

4.1%

 
 

Selling, general and administrative

3,347

   

168

 

(1)

3,179

   

3,502

   

331

 

(4)

3,171

   

(4.4)%

   

0.3%

 
 

Depreciation and amortization

4,428

   

   

4,428

   

4,541

   

   

4,541

   

(2.5)%

   

(2.5)%

 
 

Impairment of goodwill

   

   

   

1,092

   

1,092

 

(5)

   

(100.0)%

   

—%

 
   

15,621

   

218

   

15,403

   

16,642

   

1,438

   

15,204

   

(6.1)%

   

1.3%

 
                                                 

OPERATING INCOME

2,410

   

(218)

   

2,628

   

1,453

   

(1,438)

   

2,891

   

65.9%

   

(9.1)%

 
                                               

OTHER INCOME (EXPENSE)

                                             
 

Interest expense

(1,311)

   

   

(1,311)

   

(1,298)

   

   

(1,298)

   

1.0%

   

1.0%

 
 

Other income, net

11

   

(14)

 

(2)

25

   

69

   

47

 

(6)

22

   

(84.1)%

   

13.6%

 
 

Income tax expense

(338)

   

143

 

(3)

(481)

   

(463)

   

164

 

(7)

(627)

   

(27.0)%

   

(23.3)%

 

NET INCOME (LOSS)

$

772

   

(89)

   

861

   

(239)

   

(1,227)

   

988

   

(423.0)%

   

(12.9)%

 

BASIC EARNINGS (LOSS) PER SHARE

$

1.36

   

(0.16)

   

1.51

   

(0.40)

   

(2.04)

   

1.64

   

(440.0)%

   

(7.9)%

 

DILUTED EARNINGS (LOSS) PER SHARE

$

1.36

   

(0.16)

   

1.51

   

(0.40)

   

(2.04)

   

1.64

   

(440.0)%

   

(7.9)%

 
                                                 

AVERAGE SHARES OUTSTANDING

                                         
 

Basic

568,435

         

568,435

   

600,892

         

600,892

   

(5.4)%

   

(5.4)%

 
 

Diluted

569,739

         

569,739

   

600,892

         

602,201

   

(5.2)%

   

(5.4)%

 
                                                 

DIVIDENDS PER COMMON SHARE

$

2.16

         

2.16

   

2.16

         

2.16

   

—%

   

—%

 

  

 

SPECIAL ITEMS

                     

(1) -

Includes severance costs associated with recent headcount reductions ($88 million), integration and retention costs associated with our acquisition of Qwest ($51 million), the impairment of two office buildings ($18 million) and a pension settlement charge ($63 million), less the offsetting impact of a litigation settlement in the amount of $2 million.

(2) -

Impairment of a non-operating investment ($14 million).

(3) -

Income tax benefit of Item (1) and a favorable income tax adjustment of $60 million.

(4) -

Includes a litigation reserve ($233 million), the Communications Workers of America contract ratification bonus ($6 million), severance costs associated with reduction in force initiatives ($27 million), integration, severance and retention costs associated with our acquisition of Qwest ($47 million), integration, severance, and retention costs associated with our acquisition of Savvis ($6 million), an accounting adjustment ($18 million) and an impairment of an office building ($9 million).

(5) -

Non-cash, non-tax deductible goodwill impairment charge.

(6) -

Gain on the sale of a non-operating investment ($32 million), gain on early retirement of debt ($10 million) and settlements of other non-operating issues ($5 million).

(7) -

Income tax benefit of Items (4) and (6), a favorable federal income tax settlement ($33 million) and release of a tax reserve ($22 million).

 

       

CenturyLink, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2014 AND DECEMBER 31, 2013

(UNAUDITED)

(Dollars in millions)

 
 

December 31,

 

December 31,

 

2014

 

2013

ASSETS

         

CURRENT ASSETS

         

Cash and cash equivalents

$

128

   

168

 

Other current assets

3,448

   

3,739

 

   Total current assets

3,576

   

3,907

 
           

NET PROPERTY, PLANT AND EQUIPMENT

         

Property, plant and equipment

36,718

   

34,307

 

Accumulated depreciation

(18,285)

   

(15,661)

 

   Net property, plant and equipment

18,433

   

18,646

 
           

GOODWILL AND OTHER ASSETS

         

Goodwill

20,755

   

20,674

 

Other, net

7,383

   

8,560

 

    Total goodwill and other assets

28,138

   

29,234

 
           

TOTAL ASSETS

$

50,147

   

51,787

 
           

LIABILITIES AND STOCKHOLDERS' EQUITY

         

CURRENT LIABILITIES

         

Current maturities of long-term debt

$

550

   

785

 

Other current liabilities

3,368

   

3,624

 

    Total current liabilities

3,918

   

4,409

 
           

LONG-TERM DEBT

20,121

   

20,181

 

DEFERRED CREDITS AND OTHER LIABILITIES

11,085

   

10,006

 

STOCKHOLDERS' EQUITY

15,023

   

17,191

 
           

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

50,147

   

51,787

 

       

CenturyLink, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

TWELVE MONTHS ENDED DECEMBER 31, 2014 AND 2013

(UNAUDITED)

(Dollars in millions)

           
 

Twelve months ended

 

Twelve months ended

 

December 31, 2014

 

December 31, 2013

OPERATING ACTIVITIES

         

Net income (loss)

$

772

   

(239)

 

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

         

  Depreciation and amortization

4,428

   

4,541

 

  Impairment of goodwill

   

1,092

 

  Impairment of assets

32

   

 

  Deferred income taxes

291

   

391

 

  Provision for uncollectible accounts

159

   

152

 

  Gain on sale of intangible assets

   

(32)

 

  Net gain on early retirement of debt

   

(10)

 

  Share based compensation

79

   

71

 

  Changes in current assets and current liabilities, net

(447)

   

3

 

  Retirement benefits

(184)

   

(342)

 

  Changes in other noncurrent assets and liabilities, net

99

   

19

 

  Other, net

(41)

   

(87)

 

   Net cash provided by operating activities

5,188

   

5,559

 

INVESTING ACTIVITIES

         

  Payments for property, plant and equipment and capitalized software

(3,047)

   

(3,048)

 

  Cash paid for acquisitions, net

(93)

   

(160)

 

  Proceeds from sale of property and intangible assets

63

   

80

 

  Other, net

   

(20)

 

   Net cash used in investing activities

(3,077)

   

(3,148)

 

FINANCING ACTIVITIES

         

  Net proceeds from issuance of long-term debt

483

   

2,481

 

  Payments of long-term debt

(800)

   

(2,010)

 

  Net (payments) borrowings on credit facility

(4)

   

(95)

 

  Early retirement of debt costs

   

(31)

 

  Dividends paid

(1,228)

   

(1,301)

 

  Net proceeds from issuance of common stock

50

   

73

 

  Repurchase of common stock

(650)

   

(1,586)

 

  Other, net

(2)

   

15

 

   Net cash used in financing activities

(2,151)

   

(2,454)

 

Net decrease in cash and cash equivalents

(40)

   

(43)

 

Cash and cash equivalents at beginning of period

168

   

211

 

Cash and cash equivalents at end of period

$

128

   

168

 

         

 

CenturyLink, Inc.

SELECTED SEGMENT FINANCIAL INFORMATION

THREE MONTHS AND TWELVE MONTHS ENDED DECEMBER 31, 2014 AND 2013

(UNAUDITED)

(Dollars in millions)

                         
   

Three months ended December 31,*

 

Twelve months ended December 31,*

   

2014

 

2013

 

2014

 

2013

Total segment revenues

$

4,192

   

4,296

   

17,028

   

17,095

 

Total segment expenses

2,135

   

2,123

   

8,509

   

8,167

 

Total segment income

$

2,057

   

2,173

   

8,519

   

8,928

 

Total segment income margin (segment income divided by segment revenues)

49.1

%

 

50.6

%

 

50.0

%

 

52.2

%

                         

Business

                     

Revenues

                     
 

Strategic services

$

1,584

   

1,578

   

6,350

   

6,173

 
 

Legacy services

971

   

1,037

   

3,998

   

4,267

 
 

Data integration

143

   

185

   

686

   

651

 
   

$

2,698

   

2,800

   

11,034

   

11,091

 

Expenses

                     
 

Total Expenses

$

1,521

   

1,513

   

6,089

   

5,808

 
                         

Segment income

$

1,177

   

1,287

   

4,945

   

5,283

 

Segment income margin

43.6

%

 

46.0

%

 

44.8

%

 

47.6

%

                         

Consumer

                     

Revenues

                     
 

Strategic services

$

727

   

683

   

2,850

   

2,650

 
 

Legacy services

766

   

812

   

3,140

   

3,349

 
 

Data integration

1

   

1

   

4

   

5

 
   

$

1,494

   

1,496

   

5,994

   

6,004

 

Expenses

                     
 

Total Expenses

$

614

   

610

   

2,420

   

2,359

 
                         

Segment income

$

880

   

886

   

3,574

   

3,645

 

Segment income margin

58.9

%

 

59.2

%

 

59.6

%

 

60.7

%

                         

*

Effective November 1, 2014, we implemented a new organizational structure designed to strengthen our ability to attain our operational, strategic and financial goals. Prior to this reorganization, we recognized four segments: consumer, business, wholesale and hosting. As a result of this reorganization, we now report two segments: business and consumer, in our consolidated financial statements. We have restated prior periods to reflect the reorganization.

         

 

 

CenturyLink, Inc.

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

(UNAUDITED)

(Dollars in millions)

                                     
   

Three months ended December 31, 2014

 

Three months ended December 31, 2013

               

As adjusted

             

As adjusted

         

Less

 

excluding

       

Less

 

excluding

   

As

 

special

 

special

 

As

 

special

 

special

   

reported

 

items

 

items

 

reported

 

items

 

items

Operating cash flow and cash flow margin

                                 
 

Operating income

$

483

   

(95)

 

(1)

578

   

641

   

(29)

 

(2)

670

 
 

Add: Depreciation and amortization

1,131

   

   

1,131

   

1,166

   

   

1,166

 
 

Add: Impairment of goodwill

   

   

   

(8)

   

(8)

 

(3)

 
 

Operating cash flow

$

1,614

   

(95)

   

1,709

   

1,799

   

(37)

   

1,836

 
                                     
 

Revenues

$

4,438

   

   

4,438

   

4,542

   

   

4,542

 
                                     
 

Operating income margin (operating income divided by revenues)

10.9

%

       

13.0

%

 

14.1

%

       

14.8

%

                                     
 

Operating cash flow margin (operating cash flow divided by revenues)

36.4

%

       

38.5

%

 

39.6

%

       

40.4

%

                                     

Free cash flow

                                 
 

Operating cash flow

           

$

1,709

               

1,836

 
 

Less: Cash paid for income taxes, net of refunds

           

(6)

               

(3)

 
 

Less: Cash paid for interest, net of amounts capitalized

           

(404)

               

(419)

 
 

Less: Capital expenditures (4)

           

(930)

               

(820)

 
 

Add: Other income

           

4

               

7

 
 

Free cash flow (5)

           

$

373

               

601

 
                                     

SPECIAL ITEMS

                               

(1) -

Includes severance costs associated with recent headcount reductions ($22 million), integration costs associated with our acquisition of Qwest ($10 million) and a pension settlement charge ($63 million).

(2) -

Includes a non-cash, non-tax deductible goodwill impairment charge of $8 million, the Communications Workers of America contract ratification bonus ($6 million), severance costs associated with reduction in force initiatives ($13 million), integration, severance, and retention costs associated with our acquisition of Qwest ($20 million) and integration and severance costs associated with our acquisition of Savvis $2 million.

(3) -

Non-cash, non-tax deductible goodwill impairment charge.

(4) -

Excludes $4 million in fourth quarter 2014 and $17 million in fourth quarter 2013 of capital expenditures related to the integration of Qwest and Savvis.

(5) -

Excludes special items identified in items (1) to (3).

       

 

CenturyLink, Inc.

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

(UNAUDITED)

(Dollars in millions)

                                     
   

Twelve months ended December 31, 2014

 

Twelve months ended December 31, 2013

               

As adjusted

             

As adjusted

         

Less

 

excluding

       

Less

 

excluding

   

As

 

special

 

special

 

As

 

special

 

special

   

reported

 

items

 

items

 

reported

 

items

 

items

Operating cash flow and cash flow margin

                                 
 

Operating income

$

2,410

   

(218)

 

(1)

2,628

   

1,453

   

(1,438)

 

(2)

2,891

 
 

Add: Depreciation and amortization

4,428

   

   

4,428

   

4,541

   

   

4,541

 
 

Add: Impairment of goodwill

   

   

   

1,092

   

1,092

 

(3)

 
 

Operating cash flow

$

6,838

   

(218)

   

7,056

   

7,086

   

(346)

   

7,432

 
                                     
 

Revenues

$

18,031

   

   

18,031

   

18,095

   

   

18,095

 
                                     
 

Operating income margin (operating income divided by revenues)

13.4

%

       

14.6

%

 

8.0

%

       

16.0

%

                                     
 

Operating cash flow margin (operating cash flow divided by revenues)

37.9

%

       

39.1

%

 

39.2

%

       

41.1

%

                                     

Free cash flow

                                 
 

Operating cash flow

           

$

7,056

               

7,432

 
 

Less: Cash paid for income taxes, net of refunds

           

(27)

               

(48)

 
 

Less: Cash paid for interest, net of amounts capitalized

           

(1,338)

               

(1,334)

 
 

Less: Capital expenditures (4)

           

(3,026)

               

(3,001)

 
 

Add:  Other income

           

25

               

22

 
 

Free cash flow (5)

           

$

2,690

               

3,071

 
                                     

SPECIAL ITEMS

                     

(1) -

Includes severance costs associated with recent headcount reductions ($88 million), integration and retention costs associated with our acquisition of Qwest ($51 million), the impairment of two office buildings ($18 million) and a pension settlement charge ($63 million), less the offsetting impact of a litigation settlement in the amount of $2 million.

(2) -

Includes a non-cash, non-tax deductible goodwill impairment charge of ($1.092 billion), a litigation reserve ($233 million), the Communications Workers of America contract ratification bonus ($6 million), severance costs associated with reduction in force initiatives ($27 million), integration, severance and retention costs associated with our acquisition of Qwest ($47 million), integration, severance, and retention costs associated with our acquisition of Savvis ($6 million), an accounting adjustment ($18 million) and an impairment of an office building ($9 million).

(3) -

Non-cash, non-tax deductible goodwill impairment charge.

(4) -

Excludes $21 million in 2014 and $47 million in 2013 of capital expenditures related to the integration of Qwest and Savvis.

(5) -

Excludes special items identified in items (1) to (3).

       

CenturyLink, Inc.

Business Revenues and Operating Metrics

(UNAUDITED)

                           
     

Three months ended

 

Twelve months ended

     

December 31, 2014

 

December 31, 2013

 

December 31, 2014

 

December 31, 2013

   

Business Segment Revenue Detail

                     
     

(In millions)

   

Revenues

                     
   

High-bandwidth data services (1)

$

694

   

616

   

2,651

   

2,291

 
   

Hosting services (2)

327

   

324

   

1,316

   

1,258

 
   

Other strategic services (3)

22

   

15

   

75

   

60

 
   

Low-bandwidth data services (4)

541

   

623

   

2,308

   

2,564

 
   

Legacy voice services

677

   

710

   

2,780

   

2,918

 
   

Other legacy services

294

   

327

   

1,218

   

1,349

 
   

Data integration

143

   

185

   

686

   

651

 
   

  Total revenues

$

2,698

   

2,800

   

11,034

   

11,091

 
                           

(1)

 

Includes MPLS, Ethernet and Wavelength revenue

(2)

 

Includes colocation, managed hosting and Hosted-Area Network (HAN) revenue. Excludes Wide-Area Network (WAN) revenue previously reported in total Hosting revenue

(3)

 

Includes primarily VoIP, video, IT services and deferred revenue recognition

(4)

 

Includes private line and high-speed Internet revenue

     
     

Three months ended

 

Twelve months ended

     

December 31, 2014

 

December 31, 2013

 

December 31, 2014

 

December 31, 2013

   

Hosting Services Detail (5)

                     
     

(In millions)

   

Colocation

$

160

   

157

   

644

   

623

 
   

Managed Hosting/Cloud

145

   

143

   

580

   

540

 
   

Hosting Area Network

22

   

24

   

92

   

95

 
   

  Total Hosting Services

$

327

   

324

   

1,316

   

1,258

 
                           

(5)

 

Excludes Wide-Area Network (WAN) revenue previously reported in total Hosting revenue

                           
     

As of

 

As of

 

As of

     
     

December 31, 2014

 

September 30, 2014

 

December 31, 2013

     
   

Hosting Data Center Metrics

                     
                           
   

Number of data centers(6)

58

   

58

   

55

       
   

Sellable square feet, million sq ft

1.46

   

1.45

   

1.39

       
   

Billed square feet, million sq ft

0.92

   

0.94

   

0.96

       
   

Utilization

63

%

 

64

%

 

69

%

     
                           

(6)

We define a "data center" as any facility where we market, sell and deliver either colocation services or multi-tenant managed services (including cloud), or both.

                           
     

As of

 

As of

 

As of

     
     

December 31, 2014

 

September 30, 2014

 

December 31, 2013

     
   

Operating Metrics

                     
     

(In thousands)

     
   

Broadband subscribers

6,082

   

6,063

   

5,991

       
   

Access lines

12,394

   

12,537

   

13,002

       
   

Prism subscribers

242

   

229

   

175

       
                           
   

Our methodology for counting broadband subscribers, access lines and Prism subscribers may not be comparable to those of other companies.

       

 

CenturyLink, Inc.

SUPPLEMENTAL NON-GAAP INFORMATION - ADJUSTED DILUTED EPS

THREE MONTHS ENDED DECEMBER 31, 2014 AND 2013 AND TWELVE MONTHS ENDED DECEMBER 31, 2014 AND 2013

(UNAUDITED)

(Dollars in millions, except per share amounts)

                           
     

Three months ended

 

Twelve months ended

     

December 31, 2014 (excluding special items)

 

December 31, 2013 (excluding special items)

 

December 31, 2014 (excluding special items)

 

December 31, 2013 (excluding special items)

                           

Net income *

 

$

187

   

225

   

861

   

988

 
                           

Add back:

                       

Amortization of customer base intangibles:

                       
 

Qwest

 

209

   

223

   

856

   

913

 
 

Embarq

 

25

   

30

   

108

   

127

 
 

Savvis

 

16

   

16

   

62

   

61

 
                           

Amortization of trademark intangibles:

                       
 

Qwest

 

2

   

7

   

17

   

39

 
 

Savvis

 

   

15

   

5

   

21

 
                           

Amortization of fair value adjustment of long-term debt:

                       
 

Embarq

 

1

   

1

   

5

   

4

 
 

Qwest

 

(6)

   

(14)

   

(42)

   

(62)

 
                           

Subtotal

 

247

   

278

   

1,011

   

1,103

 

Tax effect of above items

 

(94)

   

(107)

   

(384)

   

(428)

 

Net adjustment, after taxes

 

153

   

171

   

627

   

675

 
                           

Net income, as adjusted for above items

 

$

340

   

396

   

1,488

   

1,663

 
                           

Weighted average diluted shares outstanding

 

567.0

   

586.4

   

569.7

   

602.2

 
                           

Diluted EPS

(excluding special items)

 

$

0.33

   

0.38

   

1.51

   

1.64

 
                           

Adjusted diluted EPS as adjusted for the above-listed purchase accounting intangible and interest amortizations (excluding special items)

 

$

0.60

   

0.68

   

2.61

   

2.76

 
 

The above schedule presents adjusted net income and adjusted diluted earnings per share (both excluding special items) by adding back to net income and diluted earnings per share certain non-cash expense items that arise as a result of the application of business combination accounting rules to our major acquisitions since mid-2009. Such presentation is not in accordance with generally accepted accounting principles but management believes the presentation is useful to analysts and investors to understand the impacts of growing our business through acquisitions.

*See preceding schedules for a summary description of special items.

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SOURCE CenturyLink, Inc.