MONROE, La., Aug. 3, 2016 /PRNewswire/ -- CenturyLink, Inc. (NYSE: CTL) today reported results for second quarter 2016.

CenturyLink logo.

"CenturyLink delivered solid second quarter financial results with total operating revenues and core revenues in line with our guidance, and operating cash flow and adjusted diluted earnings per share that exceeded our previous guidance," said Glen F. Post III, chief executive officer and president. "Our new sales and marketing leadership team continues to refine our sales channels and associated go-to-market strategies for the Business market, and continues to pivot toward higher-value bundled solutions for the Consumer market. While second quarter Consumer subscriber metrics were softer than anticipated, we expect to see an improvement in unit trends in the second half of the year.

"We also are continuing to invest with a 'network first' focus on delivering higher broadband speeds and in the transformation and virtualization of our network infrastructure through the deployment of NFV4 and SDN5 technologies. We ended the quarter with more than 8.4 million addressable households and businesses with 40 Mbps or higher speeds, including 1.2 million GPON-enabled addressable units. We expect to reach 11 million 40 Mbps or higher, including 2 million GPON-enabled addressable households and businesses by year-end 2017," concluded Post.

 

Consolidated Financial Results

Operating revenues for second quarter 2016 were $4.40 billion compared to $4.42 billion in second quarter 2015. Declines in legacy1,6 and data integration revenues were partially offset by higher strategic revenues1,6, and increased high-cost support revenues related to Connect America Fund Phase 2 (CAF Phase 2) in second quarter 2016.

Operating expenses decreased to $3.75 billion from $3.87 billion in second quarter 2015. Excluding special items, operating expenses decreased to $3.73 billion from $3.84 billion in second quarter 2015. The year-over-year decrease in operating expenses was primarily driven by lower depreciation and amortization expenses and employee-related costs.

Operating income increased to $650 million from $549 million in second quarter 2015 due to lower operating expenses this quarter compared to the same year-ago period.

Operating cash flow (as defined in our attached supplemental schedules), excluding special items, increased to $1.65 billion from $1.62 billion in second quarter 2015. For second quarter 2016, CenturyLink achieved an operating cash flow margin, excluding special items, of 37.5% versus 36.8% in second quarter 2015.

Net income and diluted earnings per share (EPS) were $196 million and $0.36, respectively, for second quarter 2016, compared to $143 million and $0.26, respectively, for second quarter 2015. The increase in diluted EPS was due to higher net income and the impact of the lower number of shares outstanding due to share repurchases in 2015.

Adjusted net income and adjusted diluted EPS (as reflected in our attached supplemental schedule) 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 these items, CenturyLink's adjusted net income for second quarter 2016 was $342 million compared to adjusted net income of $308 million in second quarter 2015. Second quarter 2016 adjusted diluted EPS was $0.63 compared to $0.55 in the year-ago period due to higher adjusted net income and the impact of the lower number of shares outstanding due to share repurchases in 2015.

The accompanying financial schedules provide additional details regarding the company's special items and reconciliations of non-GAAP financial measures for the three months and six months ended June 30, 2016 and 2015.

 

Segment Financial Results7

Business segment revenues were $2.60 billion, a decrease of 2.3% from second quarter 2015, primarily due to a decline in legacy revenues, which was partially offset by 8% growth in high-bandwidth data revenues. Strategic revenues were $1.23 billion in the quarter, an increase of 5.0% from second quarter 2015, primarily due to the increased high-bandwidth data revenues being partially offset by lower hosting revenues.

Consumer segment revenues were $1.49 billion, a decrease of 0.6% from second quarter 2015, primarily due to a decline in legacy voice revenues, which was partially offset by growth in broadband and Prism® TV revenues. Strategic revenues were $800 million in the quarter, a 5.5% increase over second quarter 2015.

Guidance — Third Quarter 2016

CenturyLink expects an increase in data integration revenues and continued growth in strategic revenues to be offset by an anticipated decline in legacy revenues, resulting in lower third quarter 2016 operating revenues compared to second quarter 2016. The company expects third quarter 2016 operating cash flow to decline compared to second quarter 2016 primarily due to the anticipated decline in revenues and increased operating expenses related to the seasonality of outside plant maintenance and utility costs.

Third Quarter 2016 (excluding special items)

Operating Revenues

 

$4.35 to $4.40 billion

Core Revenues

 

$3.90 to $3.95 billion

Operating Cash Flow

 

$1.56 to $1.61 billion

Adjusted Diluted EPS

 

$0.52 to $0.57

 

All 2016 guidance figures and 2016 outlook statements included in this release (i) speak as of August 3, 2016 only, (ii) exclude the impact of any share repurchases made after June 30, 2016 and (iii) exclude the effects of special items, future impairment charges, future changes in regulation, future changes in tax laws, accounting rules or our accounting policies, unforeseen litigation or contingencies, integration expenses associated with major acquisitions, any changes in our expected pension fundings, any changes in operating or capital plans or other unforeseen events or circumstances that impact our financial performance, and any future mergers, acquisitions, divestitures, joint ventures 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, August 3, 2016. Interested parties can access the call by dialing 866-814-1933. The call will be accessible for replay through August 11, 2016, by dialing 888-266-2081 and entering the access code 1673713. 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 http://www.centurylink.com through August 25, 2016. 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, along with further descriptions of non-GAAP financial measures, will be available in the Investor Relations portion of the company's website at www.centurylink.com. Non-GAAP measures are not presented to be replacements or alternatives to the GAAP measures, and investors are urged to consider these non-GAAP measures in addition to, and not in substitution for, measures prepared in accordance with GAAP. CenturyLink may determine or calculate our non-GAAP measures differently from other companies.

About CenturyLink

CenturyLink (NYSE: CTL) is a global communications, hosting, cloud and IT services company enabling millions of customers to transform their businesses and their lives through innovative technology solutions. CenturyLink offers network and data systems management, Big Data analytics and IT consulting, and operates more than 55 data centers in North America, Europe and Asia. The company provides broadband, voice, video, data and managed services over a robust 250,000-route-mile U.S. fiber network and a 300,000-route-mile international transport network. Visit www.centurylink.com for more information.

 

Forward Looking Statements

Except for historical and factual information, the matters set forth in this release and other of our oral or written statements identified by words such as "estimates," "expects," "anticipates," "believes," "plans," "intends," and similar expressions are forward-looking statements as defined by the federal securities laws, and are subject to the "safe harbor" protections thereunder.

These forward-looking statements are not guarantees of future results and are based on current expectations only, are inherently speculative, 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 effects of competition from a wide variety of competitive providers, including lower demand for our legacy offerings; the effects of new, emerging or competing technologies, including those that could make our products less desirable or obsolete; the effects of ongoing changes in the regulation of the communications industry, including the outcome of regulatory or judicial proceedings relating to intercarrier compensation, interconnection obligations, 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 the composition of our markets and product mix; 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 maintain the quality and profitability of our existing product and service offerings and to introduce new offerings on a timely and cost-effective basis; the adverse impact on our business and network from possible equipment failures, service outages, security breaches or similar events impacting our network; our ability to generate cash flows sufficient to fund our financial commitments and objectives, including our capital expenditures, operating costs, debt repayments, dividends, periodic share repurchases, periodic pension contributions and other benefits payments; changes in our operating plans, corporate strategies, dividend payment plans or other capital allocation plans, whether based upon changes in our cash flows, cash requirements, financial performance, financial position, or otherwise; our ability to effectively retain and hire key personnel and to successfully negotiate collective bargaining agreements on reasonable terms without work stoppages; increases in the costs of our pension, health, post-employment or other benefits, including those caused by changes in markets, interest rates, mortality rates, demographics or regulations; adverse changes in our access to credit markets on favorable terms, whether caused by changes in our financial position, lower debt credit ratings, unstable markets or otherwise; our ability to maintain favorable relations with our key business partners, suppliers, vendors, landlords and financial institutions; our ability to effectively manage our expansion opportunities; our ability to collect our receivables from financially troubled customers; any adverse developments in legal or regulatory proceedings involving us; changes in tax, communications, pension, healthcare or other laws or regulations, in governmental support programs, or in general government funding levels; the effects of changes in accounting policies or practices, including potential future impairment charges; the effects of terrorism, adverse weather or other natural or man-made disasters; the effects of more general factors such as changes in interest rates, in operating costs, in general market, labor, economic or geo-political conditions (including uncertainty about the long-term prospects of the European Union, China and certain other economies), or in public policy; and other risks referenced from time to time in our filings with the U.S. Securities and Exchange Commission (the "SEC"). For all the reasons set forth above and in our SEC filings, you are cautioned not to place undue reliance upon any of our forward-looking statements, which speak only as of the date made. We undertake no obligation to publicly update or revise any of our forward-looking statements for any reason, whether as a result of new information, future events or developments, changed circumstances, or otherwise. Furthermore, any information about our intentions contained in any of our forward-looking statements reflects our intentions as of the date of such forward-looking statement, and is based upon, among other things, existing regulatory, technological, industry, competitive, economic and market conditions, and our assumptions as of such date. We may change our intentions, strategies or plans without notice at any time and 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.  Strategic revenues primarily include broadband, Multiprotocol Label Switching (MPLS), Ethernet, Optical Wavelength, colocation, hosting, cloud, video, VoIP and IT services.  Legacy revenues primarily include voice, private line (including special access), switched access and Integrated Services Digital Network ("ISDN") and other ancillary services.

(2)

See attachments for non-GAAP reconciliations.

(3)

Beginning first quarter 2016, CenturyLink revised its Free Cash Flow calculation. See attachments for non-GAAP reconciliations.

(4)

Network functions virtualization.

(5)

Software-defined network.

(6)

Beginning second quarter 2016, private line (including special access) revenues were reclassified from strategic services to legacy services. All historical periods have been restated to reflect this change.

(7)

All references to segment data herein reflect certain adjustments described in the attached schedules.

 

 

 

CenturyLink, Inc.

CONSOLIDATED STATEMENTS OF INCOME

THREE MONTHS ENDED JUNE 30, 2016 AND 2015

(UNAUDITED)

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

                                 
   

Three months ended June 30, 2016

 

Three months ended June 30, 2015

       
           

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

$

2,030

   

   

2,030

   

1,929

   

   

1,929

   

5.2

%

 

5.2

%

 

Legacy

1,938

   

   

1,938

   

2,089

   

   

2,089

   

(7.2)

%

 

(7.2)

%

 

Data integration

123

   

   

123

   

143

   

   

143

   

(14.0)

%

 

(14.0)

%

 

Other

307

   

   

307

   

258

   

   

258

   

19.0

%

 

19.0

%

 

  Total operating revenues

4,398

   

   

4,398

   

4,419

   

   

4,419

   

(0.5)

%

 

(0.5)

%

                                 

OPERATING EXPENSES

                             
 

Cost of services and products

1,949

   

2

 

(1)

1,947

   

1,959

   

3

 

(3)

1,956

   

(0.5)

%

 

(0.5)

%

 

Selling, general and administrative

812

   

12

 

(1)

800

   

863

   

24

 

(3)

839

   

(5.9)

%

 

(4.6)

%

 

Depreciation and amortization

987

   

   

987

   

1,048

   

   

1,048

   

(5.8)

%

 

(5.8)

%

 

   Total operating expenses

3,748

   

14

   

3,734

   

3,870

   

27

   

3,843

   

(3.2)

%

 

(2.8)

%

                                 

OPERATING INCOME

650

   

(14)

   

664

   

549

   

(27)

   

576

   

18.4

%

 

15.3

%

                               

OTHER INCOME (EXPENSE)

                             
 

Interest expense

(340)

   

   

(340)

   

(327)

   

   

(327)

   

4.0

%

 

4.0

%

 

Other income, net

7

   

   

7

   

12

   

   

12

   

(41.7)

%

 

(41.7)

%

 

Income tax expense

(121)

   

5

 

(2)

(126)

   

(91)

   

10

 

(4)

(101)

   

33.0

%

 

24.8

%

NET INCOME

$

196

   

(9)

   

205

   

143

   

(17)

   

160

   

37.1

%

 

28.1

%

BASIC EARNINGS PER SHARE

$

0.36

   

(0.02)

   

0.38

   

0.26

   

(0.03)

   

0.29

   

38.5

%

 

31.0

%

DILUTED EARNINGS PER SHARE

$

0.36

   

(0.02)

   

0.38

   

0.26

   

(0.03)

   

0.29

   

38.5

%

 

31.0

%

                                 

AVERAGE SHARES OUTSTANDING

                           
 

Basic

539,627

     

539,627

 

558,640

     

558,640

 

(3.4)

%

 

(3.4)

%

 

Diluted

540,375

     

540,375

 

559,220

     

559,220

 

(3.4)

%

 

(3.4)

%

                                 

DIVIDENDS PER COMMON SHARE

$

0.54

       

0.54

   

0.54

       

0.54

   

%

 

%

                               

SPECIAL ITEMS

                             

(1) -

Includes severance costs associated with recent headcount reductions ($7 million), integration costs associated with our acquisition of Qwest ($3 million) and costs associated with a large billing system integration project ($4 million).

(2) -

Income tax benefit of Item (1).

(3) -

Includes severance costs associated with reduction in force initiatives ($19 million) and integration costs associated with our acquisition of Qwest ($8 million).

(4) -

Income tax benefit of Item (3).

*

During the second quarter of 2016, we determined that because of declines due to customer migration to other strategic products and services certain of our business low-bandwidth data services, specifically our private line (including special access) services in our business segment, are now more closely aligned with our legacy services than with our strategic services. As a result, we now reflect these operating revenues as legacy services, and we have reclassified certain prior period amounts to conform to this change. The revision resulted in a reduction of revenue from strategic services and a corresponding increase in revenue from legacy services of $401 million for the three months ended June 30, 2015.


 

 

CenturyLink, Inc.

CONSOLIDATED STATEMENTS OF INCOME

SIX MONTHS ENDED JUNE 30, 2016 AND 2015

(UNAUDITED)

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

                                 
   

Six months ended June 30, 2016

 

Six months ended June 30, 2015

       
           

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

$

4,019

   

   

4,019

   

3,832

   

   

3,832

   

4.9

%

 

4.9

%

 

Legacy

3,926

   

   

3,926

   

4,240

   

   

4,240

   

(7.4)%

   

(7.4)%

 
 

Data integration

239

   

   

239

   

283

   

   

283

   

(15.5)%

   

(15.5)%

 
 

Other

615

   

   

615

   

515

   

   

515

   

19.4

%

 

19.4

%

 

Total operating revenues

8,799

   

   

8,799

   

8,870

   

   

8,870

   

(0.8)%

   

(0.8)%

 
                                 

OPERATING EXPENSES

                             
 

Cost of services and products

3,849

   

4

 

(1)

3,845

   

3,870

   

6

 

(3)

3,864

   

(0.5)

%

 

(0.5)

%

 

Selling, general and administrative

1,643

   

30

 

(1)

1,613

   

1,714

   

67

 

(3)

1,647

   

(4.1)

%

 

(2.1)

%

 

Depreciation and amortization

1,963

   

   

1,963

   

2,088

   

   

2,088

   

(6.0)

%

 

(6.0)

%

 

Total operating expenses

7,455

   

34

   

7,421

   

7,672

   

73

   

7,599

   

(2.8)

%

 

(2.3)

%

                                 

OPERATING INCOME

1,344

   

(34)

   

1,378

   

1,198

   

(73)

   

1,271

   

12.2

%

 

8.4

%

                               

OTHER INCOME (EXPENSE)

                             
 

Interest expense

(671)

   

   

(671)

   

(655)

   

   

(655)

   

2.4

%

 

2.4

%

 

Other (expense) income

24

   

   

24

   

14

   

   

14

   

71.4

%

 

71.4

%

 

Income tax expense

(265)

   

13

 

(2)

(278)

   

(222)

   

22

 

(4)

(244)

   

19.4

%

 

13.9

%

NET INCOME

$

432

   

(21)

   

453

   

335

   

(51)

   

386

   

29.0

%

 

17.4

%

BASIC EARNINGS PER SHARE

$

0.80

   

(0.04)

   

0.84

   

0.60

   

(0.09)

   

0.69

   

33.3

%

 

21.7

%

DILUTED EARNINGS PER SHARE

$

0.80

   

(0.04)

   

0.84

   

0.60

   

(0.09)

   

0.69

   

33.3

%

 

21.7

%

                                 

AVERAGE SHARES OUTSTANDING

                           
 

Basic

539,213

     

539,213

 

560,304

     

560,304

 

(3.8)

%

 

(3.8)

%

 

Diluted

540,281

     

540,281

 

561,362

     

561,362

 

(3.8)

%

 

(3.8)

%

                                 

DIVIDENDS PER COMMON SHARE

$

1.08

       

1.08

   

1.08

       

1.08

   

%

 

%

                               

SPECIAL ITEMS

                             

(1) -

Includes severance costs associated with recent headcount reductions ($21 million), integration costs associated with our acquisition of Qwest ($7 million) and costs associated with a large billing system integration project ($6 million).

(2) -

Income tax benefit of Item (1).

(3) -

Includes severance costs associated with reduction in force initiatives ($32 million), integration costs associated with our acquisition of Qwest ($18 million), the impairment of office buildings ($8 million) and regulatory fines associated with a 911 system outage ($15 million).

(4) -

Income tax benefit of Item (3).

*

During the second quarter of 2016, we determined that because of declines due to customer migration to other strategic products and services certain of our business low-bandwidth data services, specifically our private line (including special access) services in our business segment, are now more closely aligned with our legacy services than with our strategic services. As a result, we now reflect these operating revenues as legacy services, and we have reclassified certain prior period amounts to conform to this change. The revision resulted in a reduction of revenue from strategic services and a corresponding increase in revenue from legacy services of $818 million for the six months ended June 30, 2015.


 

CenturyLink, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

JUNE 30, 2016 AND DECEMBER 31, 2015

(UNAUDITED)

(Dollars in millions)

 

June 30,

 

December 31,

 

2016

 

2015

ASSETS

     

CURRENT ASSETS

     

Cash and cash equivalents

$

191

   

126

 

Other current assets

2,600

   

2,524

 

   Total current assets

2,791

   

2,650

 
       

NET PROPERTY, PLANT AND EQUIPMENT

     

Property, plant and equipment

39,763

   

38,785

 

Accumulated depreciation

(21,869)

   

(20,716)

 

   Net property, plant and equipment

17,894

   

18,069

 
       

GOODWILL AND OTHER ASSETS

     

Goodwill

20,766

   

20,742

 

Other, net

5,667

   

6,143

 

    Total goodwill and other assets

26,433

   

26,885

 
       

TOTAL ASSETS

$

47,118

   

47,604

 
       

LIABILITIES AND STOCKHOLDERS' EQUITY

     

CURRENT LIABILITIES

     

Current maturities of long-term debt

$

1,451

   

1,503

 

Other current liabilities

3,391

   

3,101

 

    Total current liabilities

4,842

   

4,604

 
       

LONG-TERM DEBT

18,165

   

18,722

 

DEFERRED CREDITS AND OTHER LIABILITIES

10,126

   

10,218

 

STOCKHOLDERS' EQUITY

13,985

   

14,060

 
       

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

47,118

   

47,604

 
       

 

 

CenturyLink, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

SIX MONTHS ENDED JUNE 30, 2016 AND 2015

(UNAUDITED)

(Dollars in millions)

       
 

Six months ended

 

Six months ended

 

June 30, 2016

 

June 30, 2015

OPERATING ACTIVITIES

     

Net income

$

432

   

335

 

Adjustments to reconcile net income to net cash provided by operating activities:

     

Depreciation and amortization

1,963

   

2,088

 

Impairment of assets

1

   

8

 

Deferred income taxes

21

   

53

 

Provision for uncollectible accounts

96

   

84

 

Share-based compensation

40

   

38

 

Changes in current assets and liabilities, net

93

   

(93)

 

Retirement benefits

(28)

   

(19)

 

Changes in other noncurrent assets and liabilities, net

(35)

   

(11)

 

Other, net

18

   

(2)

 

Net cash provided by operating activities

2,601

   

2,481

 

INVESTING ACTIVITIES

     

Payments for property, plant and equipment and capitalized software

(1,264)

   

(1,272)

 

Cash paid for acquisitions

(24)

   

(4)

 

Proceeds from sale of property

11

   

26

 

Other, net

(2)

   

(8)

 

Net cash used in investing activities

(1,279)

   

(1,258)

 

FINANCING ACTIVITIES

     

Net proceeds from issuance of long-term debt

1,215

   

594

 

Payments of long-term debt

(1,464)

   

(506)

 

Net payments on credit facility and revolving line of credit

(410)

   

(405)

 

Dividends paid

(586)

   

(609)

 

Net proceeds from issuance of common stock

3

   

9

 

Repurchase of common stock and shares withheld to satisfy tax withholdings

(15)

   

(277)

 

Other, net

   

(2)

 

Net cash used in financing activities

(1,257)

   

(1,196)

 

Net increase in cash and cash equivalents

65

   

27

 

Cash and cash equivalents at beginning of period

126

   

128

 

Cash and cash equivalents at end of period

$

191

   

155

 

 

 

 

CenturyLink, Inc.

SELECTED SEGMENT FINANCIAL INFORMATION

THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2016 AND 2015

(UNAUDITED)

(Dollars in millions)

                 
   

Three months ended June 30,

 

Six months ended June 30,

   

2016

 

2015 *

 

2016

 

2015 *

Total segment revenues

$

4,091

   

4,161

   

8,184

   

8,355

 

Total segment expenses

2,141

   

2,140

   

4,192

   

4,211

 

Total segment income

$

1,950

   

2,021

   

3,992

   

4,144

 

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

47.7

%

 

48.6

%

 

48.8

%

 

49.6

%

                 

Business

             

Revenues *

             
 

Strategic services

$

1,230

   

1,171

   

2,445

   

2,336

 
 

Legacy services

1,244

   

1,344

   

2,518

   

2,737

 
 

Data integration

123

   

143

   

238

   

282

 
 

Total revenues

2,597

   

2,658

   

5,201

   

5,355

 

Expenses **

             
 

Total expenses

1,487

   

1,504

   

2,914

   

2,967

 
                 

Segment income

$

1,110

   

1,154

   

2,287

   

2,388

 

Segment income margin

42.7

%

 

43.4

%

 

44.0

%

 

44.6

%

                 

Consumer

             

Revenues

             
 

Strategic services

$

800

   

758

   

1,574

   

1,496

 
 

Legacy services

694

   

745

   

1,408

   

1,503

 
 

Data integration

   

   

1

   

1

 
 

Total revenues

1,494

   

1,503

   

2,983

   

3,000

 

Expenses **

             
 

Total expenses

654

   

636

   

1,278

   

1,244

 
                 

Segment income

$

840

   

867

   

1,705

   

1,756

 

Segment income margin

56.2

%

 

57.7

%

 

57.2

%

 

58.5

%

                 

*

During the second quarter of 2016, we determined that because of declines due to customer migration to other strategic products and services certain of our business low-bandwidth data services, specifically our private line (including special access) services in our business segment, are now more closely aligned with our legacy services than with our strategic services. As a result, we now reflect these operating revenues as legacy services, and we have reclassified certain prior period amounts to conform to this change. The revision resulted in a reduction of revenue from strategic services and a corresponding increase in revenue from legacy services of $401 million and $818 million (net of $2 million and $4 million of deferred revenue included in other business legacy services) for the three and six months ended June 30, 2015, respectively.

**

During the first half of 2016, we implemented several changes with respect to the assignment of certain expenses to our reportable segments. We have recast our previously-reported segment results for the three and six months ended June 30, 2015, to conform to the current presentation. For the three months ended June 30, 2015, the segment expense recast resulted in an increase in consumer expenses of $19 million and a decrease in business expenses of $21 million. For the six months ended June 30, 2015, the segment expense recast resulted in an increase in consumer expenses of $38 million and a decrease in business expenses of $42 million.

 

 

 

CenturyLink, Inc.

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

(UNAUDITED)

(Dollars in millions)

                         
   

Three months ended June 30, 2016

 

Three months ended June 30, 2015

           

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

$

650

   

(14)

 

(1)

664

   

549

   

(27)

 

(2)

576

 
 

Add: Depreciation and amortization

987

   

   

987

   

1,048

   

   

1,048

 
 

Operating cash flow

$

1,637

   

(14)

   

1,651

   

1,597

   

(27)

   

1,624

 
                         
 

Revenues

$

4,398

   

   

4,398

   

4,419

   

   

4,419

 
                         
 

Operating income margin (operating income divided by revenues)

14.8

%

     

15.1

%

 

12.4

%

     

13.0

%

                         
 

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

37.2

%

     

37.5

%

 

36.1

%

     

36.8

%

                         

Free cash flow

                     
 

Operating cash flow

       

$

1,651

           

1,624

 
 

Less: Capital expenditures (3)

       

(648)

           

(654)

 
 

Less: Cash paid for interest, net of amounts capitalized

       

(398)

           

(384)

 
 

Less: Pension and post-retirement impacts (4)

       

(7)

           

(10)

 
 

Less: Cash paid for income taxes, net of refunds

       

(10)

           

(36)

 
 

Add: Share-based compensation

       

22

           

20

 
 

Add:  Other income

       

7

           

12

 
 

Free cash flow (5)

       

$

617

           

572

 
                         

SPECIAL ITEMS

(1) -

Includes severance costs associated with recent headcount reductions ($7 million), integration costs associated with our acquisition of Qwest ($3 million) and costs associated with a large billing system integration project ($4 million).

(2) -

Includes severance costs associated with reduction in force initiatives ($19 million) and integration costs associated with our acquisition of Qwest ($8 million).

   

FREE CASH FLOW

(3) -

Excludes $5 million in second quarter 2016 and $2 million in second quarter 2015 of capital expenditures related to the integration of Qwest and Savvis.

(4) -

2016 includes net periodic pension benefit income of ($18 million), net periodic post-retirement benefit expense of $35 million and ($1 million) of benefits paid to participants of our non-qualified pension plans.  Post-retirement contributions included benefits paid by company ($38 million) offset by participant contributions $14 million and direct subsidy receipts $1 million.

-

2015 includes net periodic pension benefit income of ($17 million), net periodic post-retirement benefit expense of $41 million and ($2 million) of benefits paid to participants of our non-qualified pension plans.  Post-retirement contributions included benefits paid by company ($48 million) offset by participant contributions $14 million and direct subsidy receipts $2 million.

(5) -

Excludes special items identified in items (1) and (2).


 

 

CenturyLink, Inc.

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

(UNAUDITED)

(Dollars in millions)

                         
   

Six months ended June 30, 2016

 

Six months ended June 30, 2015

           

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

$

1,344

   

(34)

 

(1)

1,378

   

1,198

   

(73)

 

(2)

1,271

 
 

Add: Depreciation and amortization

1,963

   

   

1,963

   

2,088

   

   

2,088

 
 

Operating cash flow

$

3,307

   

(34)

   

3,341

   

3,286

   

(73)

   

3,359

 
                         
 

Revenues

$

8,799

   

   

8,799

   

8,870

   

   

8,870

 
                         
 

Operating income margin (operating income divided by revenues)

15.3

%

     

15.7

%

 

13.5

%

     

14.3

%

                         
 

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

37.6

%

     

38.0

%

 

37.0

%

     

37.9

%

                         

Free cash flow

                     
 

Operating cash flow

       

$

3,341

           

3,359

 
 

Less: Capital expenditures (3)

       

(1,255)

           

(1,267)

 
 

Less: Cash paid for interest, net of amounts capitalized

       

(660)

           

(654)

 
 

Less: Pension and post-retirement impacts (4)

       

(28)

           

(20)

 
 

Less: Cash paid for income taxes, net of refunds

       

(21)

           

(41)

 
 

Add: Share-based compensation

       

40

           

38

 
 

Add:  Other income

       

24

           

14

 
 

Free cash flow (5)

       

$

1,441

           

1,429

 
                         

SPECIAL ITEMS

                     

(1) -

Includes severance costs associated with recent headcount reductions ($21 million), integration costs associated with our acquisition of Qwest ($7 million) and costs associated with a large billing system integration project ($6 million).

(2) -

Includes severance costs associated with reduction in force initiatives ($32 million), integration costs associated with our acquisition of Qwest ($18 million), the impairment of office buildings ($8 million) and regulatory fines associated with a 911 system outage ($15 million).

   

FREE CASH FLOW

(3) -

Excludes $9 million in 2016 and $5 million in 2015 of capital expenditures related to the integration of Qwest and Savvis.

(4) -

2016 includes net periodic pension benefit income of ($38 million), net periodic post-retirement benefit expense of $71 million and ($3 million) of benefits paid to participants of our non-qualified pension plans.  Post-retirement contributions included benefits paid by company ($89 million) offset by participant contributions $29 million and direct subsidy receipts $2 million.

-

2015 includes net periodic pension benefit income of ($41 million), net periodic post-retirement benefit expense of $82 million and ($3 million) of benefits paid to participants of our non-qualified pension plans.  Post-retirement contributions included benefits paid by company ($90 million) offset by participant contributions $29 million and direct subsidy receipts $3 million.

(5) -

Excludes special items identified in items (1) and (2).

                         

 

 

CenturyLink, Inc.

REVENUES

(UNAUDITED)

(Dollars in millions)

                 
   

Three months ended

 

Six months ended

   

June 30, 2016

 

June 30, 2015

 

June 30, 2016

 

June 30, 2015

Strategic services *

             
 

Business high-bandwidth data services (1)

$

753

   

697

   

1,491

   

1,384

 
 

Business hosting services (2)

305

   

319

   

612

   

637

 
 

Other business strategic services (3)

172

   

155

   

342

   

315

 
 

Consumer broadband services (4)

682

   

652

   

1,349

   

1,287

 
 

Other consumer strategic services (5)

118

   

106

   

225

   

209

 
 

Total strategic services revenues

2,030

   

1,929

   

4,019

   

3,832

 
               

Legacy services *

             
 

Business voice services (6)

611

   

648

   

1,233

   

1,318

 
 

Business low-bandwidth data services (7)

352

   

403

   

718

   

822

 
 

Other business legacy services (8)

281

   

293

   

567

   

597

 
 

Consumer voice services (6)

615

   

675

   

1,249

   

1,363

 
 

Other consumer legacy services (9)

79

   

70

   

159

   

140

 
 

Total legacy services revenues

1,938

   

2,089

   

3,926

   

4,240

 
                 

Data integration

             
 

  Business data integration

123

   

143

   

238

   

282

 
 

  Consumer data integration

   

   

1

   

1

 
 

Total data integration revenues

123

   

143

   

239

   

283

 
               

Other revenues

             
 

  High-cost support revenue (10)

173

   

132

   

347

   

266

 
 

  Other revenue (11)

134

   

126

   

268

   

249

 
 

Total other revenues

307

   

258

   

615

   

515

 
               

Total revenues

$

4,398

   

4,419

   

8,799

   

8,870

 
                 

(1)

 

Includes MPLS and Ethernet revenue

(2)

 

Includes colocation, hosting (including cloud hosting and managed hosting) and hosting area network revenue

(3)

 

Includes primarily broadband, VoIP, video and IT services revenue

(4)

 

Includes broadband and related services revenue

(5)

 

Includes video and other revenue

(6)

 

Includes local and long-distance voice revenue

(7)

 

Includes private line (including special access) revenue

(8)

 

Includes UNEs, public access, switched access and other ancillary revenue

(9)

 

Includes other ancillary revenue

(10)

 

Includes CAF Phase 1, CAF Phase 2 and federal and state USF support revenue

(11)

 

Includes USF surcharges

*

During the second quarter of 2016, we determined that because of declines due to customer migration to other strategic products and services certain of our business low-bandwidth data services, specifically our private line (including special access) services in our business segment, are now more closely aligned with our legacy services than with our strategic services. As a result, we now reflect these operating revenues as legacy services, and we have reclassified certain prior period amounts to conform to this change. The revision resulted in a reduction of revenue from strategic services and a corresponding increase in revenue from legacy services of $401 million and $818 million (net of $2 million and $4 million of deferred revenue included in other business legacy services) for the three and six months ended June 30, 2015, respectively. In addition, our business broadband services remain a strategic service and are now included in our other business strategic services.


 


 

CenturyLink, Inc.

HOSTING REVENUES AND OPERATING METRICS

(UNAUDITED)

                 
   

Three months ended

 

Six months ended

   

June 30, 2016

 

June 30, 2015

 

June 30, 2016

 

June 30, 2015

Hosting Revenue Detail

(In millions)

Colocation

$

156

   

156

   

311

   

312

 

Managed Hosting / Cloud

127

   

141

   

258

   

282

 

Hosting Area Network

22

   

22

   

43

   

43

 

Total Hosting Revenue

$

305

   

319

   

612

   

637

 
                 
                 
       

As of

 

As of

 

As of

       

June 30, 2016

 

March 31, 2016

 

June 30, 2015

Hosting Data Center Metrics

             

Number of data centers (1)

   

58

   

59

   

59

 

Sellable square feet, million sq ft

   

1.55

   

1.57

   

1.57

 

Billed square feet, million sq ft

   

1.02

   

1.01

   

1.01

 

Utilization

   

66

%

 

65

%

 

64

%

                 
                 
 

(1)

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

                 
       

As of

 

As of

 

As of

       

June 30, 2016

 

March 31, 2016

 

June 30, 2015

Operating Metrics

   

(In thousands)

Broadband subscribers

   

5,990

   

6,056

   

6,108

 

Access lines

   

11,413

   

11,611

   

12,109

 

Prism TV subscribers

   

311

   

302

   

258

 
                 
                 
 

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

                             

 

 

 

CenturyLink, Inc.

 

SUPPLEMENTAL NON-GAAP INFORMATION - ADJUSTED DILUTED EPS

 

THREE MONTHS ENDED JUNE 30, 2016 AND 2015 AND SIX MONTHS ENDED JUNE 30, 2016 AND 2015

 

(UNAUDITED)

 

(Dollars and shares in millions, except per share amounts)

 
                   
   

Three months ended

 

Six months ended

 
   

June 30, 2016

 

June 30, 2015

 

June 30, 2016

 

June 30, 2015

 
                   

Net Income

$

196

   

143

   

432

   

335

   
                   

Less Special Items:

               
 

Special items (excluding tax items)

(14)

 

(1)

 

(27)

 

(3)

 

(34)

 

(5)

 

(73)

 

(7)

 
 

Special income tax items and income tax effect of other special items

5

 

(2)

 

10

 

(4)

 

13

 

(6)

 

22

 

(8)

 

Total impact of special items

(9)

   

(17)

   

(21)

   

(51)

   
                   

Net income, excluding special items

205

   

160

   

453

   

386

   
                   

Add back certain items arising from purchase accounting:

             

Amortization of customer base intangibles:

               
 

Qwest

187

   

202

   

378

   

407

   
 

Embarq

20

   

24

   

40

   

49

   
 

Savvis

16

   

16

   

31

   

31

   
                   

Amortization of trademark intangibles

   

   

   

1

   
                   

Amortization of fair value adjustment of long-term debt:

               
 

Embarq

1

   

2

   

3

   

3

   
 

Qwest

(4)

   

(6)

   

(9)

   

(12)

   
                   

Subtotal

220

   

238

   

443

   

479

   

Tax effect of items arising from purchasing accounting

(83)

   

(90)

   

(168)

   

(182)

   

Net adjustment, after taxes

137

   

148

   

275

   

297

   
                   

Net income, as adjusted for above items

$

342

   

308

   

728

   

683

   
                   

Weighted average diluted shares outstanding

540.4

 

559.2

 

540.3

 

561.4

 
                   

Diluted EPS
(excluding special items)

$

0.38

   

0.29

   

0.84

   

0.69

   
                   

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

$

0.63

   

0.55

   

1.35

   

1.22

   
   

The above non-GAAP 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.

 

(1)

 

Includes severance costs associated with recent headcount reductions ($7 million), integration costs associated with our acquisition of Qwest ($3 million) and costs associated with a large billing system integration project ($4 million).

 

(2)

 

Income tax benefit of Item (1).

 

(3)

 

Includes severance costs associated with reduction in force initiatives ($19 million) and integration costs associated with our acquisition of Qwest ($8 million).

 

(4)

 

Income tax benefit of Item (3).

 

(5)

 

Includes severance costs associated with recent headcount reductions ($21 million), integration costs associated with our acquisition of Qwest ($7 million) and costs associated with a large billing system integration project ($6 million).

 

(6)

 

Income tax benefit of Item (5).

 

(7)

 

Includes severance costs associated with reduction in force initiatives ($32 million), integration costs associated with our acquisition of Qwest ($18 million), the impairment of office buildings ($8 million) and regulatory fines associated with a 911 system outage ($15 million).

 

(8)

 

Income tax benefit of Item (7).

 

 

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SOURCE CenturyLink, Inc.