• Achieved operating revenues of approximately $4.4 billion, including core revenues1 of approximately $3.9 billion
  • Generated operating income of $595 million
  • Generated operating cash flow2 of $1.60 billion and free cash flow2,3 of $186 million, both excluding special items
  • Achieved net income of $152 million and diluted EPS of $0.28; adjusted net income2 of $305 million and adjusted diluted EPS2 of $0.56, excluding special items
  • Increased the number of addressable units capable of receiving 100Mbps and 1Gig speeds by 160,000 and 60,000, respectively, in the quarter

MONROE, La., Oct. 31, 2016 /PRNewswire/ -- CenturyLink, Inc. (NYSE: CTL) today reported results for third quarter 2016.

Consolidated Financial Results

Operating revenues for third quarter 2016 were $4.38 billion compared to $4.55 billion in third quarter 2015. A decline in high-cost support revenues related to the acceptance of Connect America Fund Phase 2 (CAF Phase 2) support payments during third quarter 2015, a substantial portion of which related to a one-time true-up for the first half of the year, along with a decline in legacy1,4 revenues, was partially offset by higher strategic revenues1,4 in third quarter 2016.

Operating expenses decreased to $3.79 billion from $3.90 billion in third quarter 2015 primarily driven by a decline in severance expenses and lower depreciation and amortization expenses, which were partially offset by higher data integration (CPE) costs. Excluding special items (primarily severance costs), operating expenses decreased to $3.78 billion from $3.82 billion in third quarter 2015.

Operating income decreased to $595 million from $656 million in third quarter 2015 primarily due to lower legacy and CAF Phase 2 revenues, which were partially offset by 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, decreased to $1.60 billion from$1.78 billion in third quarter 2015.

Net income and diluted earnings per share (EPS) were $152 million and $0.28, respectively, for third quarter 2016, compared to $205 million and $0.37, respectively, for third quarter 2015. Net income was lower due to the decline in operating income along with a loss reported in other income associated with the early retirement of debt. The decrease in diluted EPS was due to lower net income partially offset by 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 third quarter 2016 was $305 millioncompared to adjusted net income of $390 million in third quarter 2015. Third quarter 2016 adjusted diluted EPS was $0.56 compared to $0.70 in the year-ago period due to lower adjusted net income partially offset by 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 nine months ended September 30, 2016 and 2015.

Segment Financial Results

Business segment revenues were $2.61 billion, a decrease of 1.1% from third quarter 2015, primarily due to a decline in legacy revenues, which was partially offset by a 6% growth in high-bandwidth data revenues. Strategic revenues were $1.23 billion in the quarter, an increase of 5.1% from third quarter 2015.

Consumer segment revenues were $1.47 billion, a decrease of 2.5% from third 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 $789 million in the quarter, a 3.4% increase over third quarter 2015.

Guidance — Fourth Quarter 2016

CenturyLink expects continued growth in strategic revenues to be offset by anticipated declines in legacy revenues and data integration revenues, resulting in lower fourth quarter 2016 operating revenues compared to third quarter 2016. The company expects fourth quarter 2016 operating cash flow to be relatively flat compared to third quarter 2016 primarily due to the anticipated decline in revenues being offset by lower operating expenses primarily related to the seasonality of outside plant maintenance and utility costs, along with anticipated lower personnel and CPE costs.                                                                                                                                                                       

Fourth Quarter 2016 (excluding special items)

Operating Revenues

 

$4.28 to $4.34 billion

Core Revenues

 

$3.86 to $3.92 billion

Operating Cash Flow

 

$1.58 to $1.64 billion

Adjusted Diluted EPS

 

$0.53 to $0.59

                                                                                                                                                                       

All 2016 guidance figures and 2016 outlook statements included in this release (i) speak as of October 31, 2016 only, (ii) exclude the impact of any share repurchases made after September 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

CenturyLink also announced today an agreement to acquire Level 3 Communications. Accordingly, CenturyLink will no longer host its earnings call as previously scheduled on November 2, 2016, and will instead discuss its third quarter results on today's transaction conference call at 8:00 AM ET.

The transaction conference call can be accessed by dialing (866) 610-1072 within the U.S. and (973) 935-2840 for all other locations. The confirmation code is 10841687. Participants should dial in 10 minutes prior to the scheduled start time.

A live webcast of the transaction conference call and associated presentation materials will be available on the investor relations section of the Company's website at www.centurylink.com.

A replay of the transaction conference call will be available approximately two hours after completion of the conference call throughNovember 14, 2016 and can be accessed by dialing (800) 585-8367 from the U.S. or (404) 537-3406 from outside the U.S. The replay confirmation code is 10841687. The webcast will be archived through November 22, 2016 on the investor relations section of the Company's website.

Financial, statistical and other information related to the third quarter 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 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 atwww.centurylink.com and in the current report on form 8-K that we intend to file later today. 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 its 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)

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.

(5)

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

 

FOR MORE INFORMATION CONTACT:

Kristina Waugh 318.340.5627

kristina.r.waugh@centurylink.com

 

CenturyLink, Inc.

CONSOLIDATED STATEMENTS OF INCOME

THREE MONTHS ENDED SEPTEMBER 30, 2016 AND 2015

(UNAUDITED)

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

                                 
   

Three months ended September 30, 2016

 

Three months ended September 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

$

2,015

   

   

2,015

   

1,929

   

   

1,929

   

4.5

%

 

4.5

%

 

Legacy

1,900

   

   

1,900

   

2,062

   

   

2,062

   

(7.9)%

   

(7.9)%

 
 

Data integration

163

   

   

163

   

154

   

   

154

   

5.8

%

 

5.8

%

 

Other

304

   

   

304

   

409

   

   

409

   

(25.7)%

   

(25.7)%

 
 

Total operating revenues

4,382

   

   

4,382

   

4,554

   

   

4,554

   

(3.8)%

   

(3.8)%

 
                                 

OPERATING EXPENSES

                             
 

Cost of services and products

1,996

   

1

 

(1)

1,995

   

1,993

   

5

 

(4)

1,988

   

0.2

%

 

0.4

%

 

Selling, general and administrative

796

   

7

 

(1)

789

   

857

   

73

 

(4)

784

   

(7.1)%

   

0.6

%

 

Depreciation and amortization

995

   

   

995

   

1,048

   

   

1,048

   

(5.1)%

   

(5.1)%

 
 

Total operating expenses

3,787

   

8

   

3,779

   

3,898

   

78

   

3,820

   

(2.8)%

   

(1.1)%

 
                                 

OPERATING INCOME

595

   

(8)

   

603

   

656

   

(78)

   

734

   

(9.3)%

   

(17.8)%

 
                               

OTHER (EXPENSE) INCOME

                             
 

Interest expense

(327)

   

   

(327)

   

(329)

   

   

(329)

   

(0.6)%

   

(0.6)%

 
 

Other (expense) income, net

(19)

   

(27)

 

(2)

8

   

2

   

   

2

   

(1,050.0)%

   

300.0

%

 

Income tax expense

(97)

   

13

 

(3)

(110)

   

(124)

   

33

 

(5)

(157)

   

(21.8)%

   

(29.9)%

 

NET INCOME

$

152

   

(22)

   

174

   

205

   

(45)

   

250

   

(25.9)%

   

(30.4)%

 

BASIC EARNINGS PER SHARE

$

0.28

   

(0.04)

   

0.32

   

0.37

   

(0.08)

   

0.45

   

(24.3)%

   

(28.9)%

 

DILUTED EARNINGS PER SHARE

$

0.28

   

(0.04)

   

0.32

   

0.37

   

(0.08)

   

0.45

   

(24.3)%

   

(28.9)%

 
                                 

AVERAGE SHARES OUTSTANDING

                           
 

Basic

539,806

     

539,806

 

554,897

     

554,897

 

(2.7)%

   

(2.7)%

 
 

Diluted

540,917

     

540,917

 

555,156

     

555,156

 

(2.6)%

   

(2.6)%

 
                                 

DIVIDENDS PER COMMON SHARE

$

0.54

       

0.54

   

0.54

       

0.54

   

%

 

%

                               

SPECIAL ITEMS

                             

(1) -

Includes severance costs associated with recent headcount reductions ($4 million), integration costs associated with our acquisition of Qwest ($1 million) and costs associated with a large billing system integration project ($7 million), less an offsetting gain on the sale of a building $4 million.

(2) -

Net loss associated with early retirement of debt ($27 million).

(3) -

Income tax benefit of Items (1) and (2).

(4) -

Includes severance costs associated with reduction in force initiatives ($58 million), integration costs associated with our acquisition of Qwest ($8 million) and litigation and other adjustments associated with pre-acquisition activities of Qwest and Embarq ($12 million).

(5) -

Income tax benefit of Item (4).

      *

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 more closely aligned with our legacy services than with our strategic services. As a result, we 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 $389 million for the three months ended September 30, 2015.

 

CenturyLink, Inc.

CONSOLIDATED STATEMENTS OF INCOME

NINE MONTHS ENDED SEPTEMBER 30, 2016 AND 2015

(UNAUDITED)

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

                                 
   

Nine months ended September 30, 2016

 

Nine months ended September 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

$

6,034

   

   

6,034

   

5,761

   

   

5,761

   

4.7

%

 

4.7

%

 

Legacy

5,826

   

   

5,826

   

6,302

   

   

6,302

   

(7.6)%

   

(7.6)%

 
 

Data integration

402

   

   

402

   

437

   

   

437

   

(8.0)%

   

(8.0)%

 
 

Other

919

   

   

919

   

924

   

   

924

   

(0.5)%

   

(0.5)%

 
 

Total operating revenues

13,181

   

   

13,181

   

13,424

   

   

13,424

   

(1.8)%

   

(1.8)%

 
                                 

OPERATING EXPENSES

                             
 

Cost of services and products

5,845

   

5

 

(1)

5,840

   

5,863

   

11

 

(4)

5,852

   

(0.3)%

   

(0.2)%

 
 

Selling, general and administrative

2,439

   

37

 

(1)

2,402

   

2,571

   

140

 

(4)

2,431

   

(5.1)%

   

(1.2)%

 
 

Depreciation and amortization

2,958

   

   

2,958

   

3,136

   

   

3,136

   

(5.7)%

   

(5.7)%

 
 

Total operating expenses

11,242

   

42

   

11,200

   

11,570

   

151

   

11,419

   

(2.8)%

   

(1.9)%

 
                                 

OPERATING INCOME

1,939

   

(42)

   

1,981

   

1,854

   

(151)

   

2,005

   

4.6

%

 

(1.2)%

 
                               

OTHER (EXPENSE) INCOME

                             
 

Interest expense

(998)

   

   

(998)

   

(984)

   

   

(984)

   

1.4

%

 

1.4

%

 

Other income (expense), net

5

   

(27)

 

(2)

32

   

16

   

   

16

   

(68.8)%

   

100.0

%

 

Income tax expense

(362)

   

26

 

(3)

(388)

   

(346)

   

55

 

(5)

(401)

   

4.6

%

 

(3.2)%

 

NET INCOME

$

584

   

(43)

   

627

   

540

   

(96)

   

636

   

8.1

%

 

(1.4)%

 

BASIC EARNINGS PER SHARE

$

1.08

   

(0.08)

   

1.16

   

0.97

   

(0.17)

   

1.14

   

11.3

%

 

1.8

%

DILUTED EARNINGS PER SHARE

$

1.08

   

(0.08)

   

1.16

   

0.97

   

(0.17)

   

1.14

   

11.3

%

 

1.8

%

                                 

AVERAGE SHARES OUTSTANDING

                           
 

Basic

539,411

     

539,411

 

558,502

     

558,502

 

(3.4)%

   

(3.4)%

 
 

Diluted

540,493

     

540,493

 

559,293

     

559,293

 

(3.4)%

   

(3.4)%

 
                                 

DIVIDENDS PER COMMON SHARE

$

1.62

       

1.62

   

1.62

       

1.62

   

%

 

%

                               

SPECIAL ITEMS

                             

(1) -

Includes severance costs associated with recent headcount reductions ($25 million), integration costs associated with our acquisition of Qwest ($8 million) and costs associated with a large billing system integration project ($13 million), less an offsetting gain on the sale of a building $4 million.

(2) -

Net loss associated with early retirement of debt ($27 million).

(3) -

Income tax benefit of Items (1) and (2).

(4) -

Includes severance costs associated with reduction in force initiatives ($90 million), integration costs associated with our acquisition of Qwest ($26 million), the impairment of office buildings ($8 million), regulatory fines associated with a 911 system outage ($15 million) and litigation and other adjustments associated with pre-acquisition activities of Qwest and Embarq ($12 million).

(5) -

Income tax benefit of Item (4).

     *

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 more closely aligned with our legacy services than with our strategic services. As a result, we 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 $1.207 billion for the nine months ended September 30, 2015.

 

CenturyLink, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

SEPTEMBER 30, 2016 AND DECEMBER 31, 2015

(UNAUDITED)

(Dollars in millions)

 

September 30,

 

December 31,

 

2016

 

2015

ASSETS

     

CURRENT ASSETS

     

Cash and cash equivalents

$

140

   

126

 

Other current assets

2,588

   

2,524

 

   Total current assets

2,728

   

2,650

 
       

NET PROPERTY, PLANT AND EQUIPMENT

     

Property, plant and equipment

40,304

   

38,785

 

Accumulated depreciation

(22,464)

   

(20,716)

 

   Net property, plant and equipment

17,840

   

18,069

 
       

GOODWILL AND OTHER ASSETS

     

Goodwill

20,766

   

20,742

 

Other, net

5,462

   

6,143

 

    Total goodwill and other assets

26,228

   

26,885

 
       

TOTAL ASSETS

$

46,796

   

47,604

 
       

LIABILITIES AND STOCKHOLDERS' EQUITY

     

CURRENT LIABILITIES

     

Current maturities of long-term debt

$

1,534

   

1,503

 

Other current liabilities

3,199

   

3,101

 

    Total current liabilities

4,733

   

4,604

 
       

LONG-TERM DEBT

18,184

   

18,722

 

DEFERRED CREDITS AND OTHER LIABILITIES

9,987

   

10,218

 

STOCKHOLDERS' EQUITY

13,892

   

14,060

 
       

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

46,796

   

47,604

 
       

 

CenturyLink, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

NINE MONTHS ENDED SEPTEMBER 30, 2016 AND 2015

(UNAUDITED)

(Dollars in millions)

       
 

Nine months ended

 

Nine months ended

 

September 30, 2016

 

September 30, 2015

OPERATING ACTIVITIES

     

Net income

$

584

   

540

 

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

     

Depreciation and amortization

2,958

   

3,136

 

Impairment of assets

1

   

9

 

Deferred income taxes

32

   

93

 

Provision for uncollectible accounts

144

   

128

 

Net loss on early retirement of debt

27

   

 

Share-based compensation

60

   

57

 

Changes in current assets and liabilities, net

(129)

   

198

 

Retirement benefits

(143)

   

(134)

 

Changes in other noncurrent assets and liabilities, net

(41)

   

(54)

 

Other, net

19

   

(17)

 

Net cash provided by operating activities

3,512

   

3,956

 

INVESTING ACTIVITIES

     

Payments for property, plant and equipment and capitalized software

(2,010)

   

(2,039)

 

Cash paid for acquisitions

(24)

   

(4)

 

Proceeds from sale of property

22

   

29

 

Other, net

   

(8)

 

Net cash used in investing activities

(2,012)

   

(2,022)

 

FINANCING ACTIVITIES

     

Net proceeds from issuance of long-term debt

2,161

   

990

 

Payments of long-term debt

(2,436)

   

(535)

 

Net payments on credit facility and revolving line of credit

(325)

   

(725)

 

Dividends paid

(876)

   

(905)

 

Proceeds from issuance of common stock

5

   

11

 

Repurchase of common stock and shares withheld to satisfy tax withholdings

(15)

   

(541)

 

Other, net

   

(2)

 

Net cash used in financing activities

(1,486)

   

(1,707)

 

Net increase in cash and cash equivalents

14

   

227

 

Cash and cash equivalents at beginning of period

126

   

128

 

Cash and cash equivalents at end of period

$

140

   

355

 

 

CenturyLink, Inc.

SELECTED SEGMENT FINANCIAL INFORMATION

THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2016 AND 2015

(UNAUDITED)

(Dollars in millions)

                 
   

Three months ended

 September 30,

 

Nine months ended

September 30,

   

2016

 

2015 *

 

2016

 

2015 *

Total segment revenues

$

4,078

   

4,145

   

12,262

   

12,500

 

Total segment expenses

2,200

   

2,165

   

6,392

   

6,376

 

Total segment income

$

1,878

   

1,980

   

5,870

   

6,124

 

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

46.1

%

 

47.8

%

 

47.9

%

 

49.0

%

                 

Business

             

Revenues *

             
 

Strategic services

$

1,226

   

1,166

   

3,671

   

3,502

 
 

Legacy services

1,217

   

1,317

   

3,735

   

4,054

 
 

Data integration

163

   

153

   

401

   

435

 
 

Total revenues

2,606

   

2,636

   

7,807

   

7,991

 

Expenses **

             
 

Total expenses

1,544

   

1,528

   

4,458

   

4,495

 
                 

Segment income

$

1,062

   

1,108

   

3,349

   

3,496

 

Segment income margin

40.8

%

 

42.0

%

 

42.9

%

 

43.7

%

                 

Consumer

             

Revenues

             
 

Strategic services

$

789

   

763

   

2,363

   

2,259

 
 

Legacy services

683

   

745

   

2,091

   

2,248

 
 

Data integration

   

1

   

1

   

2

 
 

Total revenues

1,472

   

1,509

   

4,455

   

4,509

 

Expenses **

             
 

Total expenses

656

   

637

   

1,934

   

1,881

 
                 

Segment income

$

816

   

872

   

2,521

   

2,628

 

Segment income margin

55.4

%

 

57.8

%

 

56.6

%

 

58.3

%

                 

*

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 more closely aligned with our legacy services than with our strategic services. As a result, we 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 $389 million and $1.207 billion (net of $2 million and $6 million of deferred revenue included in other business legacy services) for the three and nine months ended September 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 nine months ended September 30, 2015, to conform to the current presentation. For the three months ended September 30, 2015, the segment expense recast resulted in an increase in consumer expenses of $15 million and a decrease in business expenses of $13 million. For the nine months ended September 30, 2015, the segment expense recast resulted in an increase in consumer expenses of $53 million and a decrease in business expenses of $55 million.

 

CenturyLink, Inc.

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

(UNAUDITED)

(Dollars in millions)

                         
   

Three months ended September 30, 2016

 

Three months ended September 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

$

595

   

(8)

 

(1)

603

   

656

   

(78)

 

(2)

734

 
 

Add: Depreciation and amortization

995

   

   

995

   

1,048

   

   

1,048

 
 

Operating cash flow

$

1,590

   

(8)

   

1,598

   

1,704

   

(78)

   

1,782

 
                         
 

Revenues

$

4,382

   

   

4,382

   

4,554

   

   

4,554

 
                         
 

Operating income margin (operating income divided by revenues)

13.6

%

     

13.8

%

 

14.4

%

     

16.1

%

                         
 

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

36.3

%

     

36.5

%

 

37.4

%

     

39.1

%

                         

Free cash flow

                     
 

Operating cash flow

       

$

1,598

           

1,782

 
 

Less: Capital expenditures (3)

       

(740)

           

(764)

 
 

Less: Cash paid for interest, net of amounts capitalized

       

(262)

           

(260)

 
 

Less: Pension and post-retirement impacts (4)

       

(115)

           

(115)

 
 

Less: Cash paid for income taxes, net of refunds

       

(323)

           

(13)

 
 

Add: Share-based compensation

       

20

           

19

 
 

Add:  Other income

       

8

           

2

 
 

Free cash flow (5)

       

$

186

           

651

 
                         

SPECIAL ITEMS

                     

(1) -

Includes severance costs associated with recent headcount reductions ($4 million), integration costs associated with our acquisition of Qwest ($1 million) and costs associated with a large billing system integration project ($7 million), less an offsetting gain on the sale of a building $4 million.

(2) -

Includes severance costs associated with reduction in force initiatives ($58 million), integration costs associated with our acquisition of Qwest ($8 million) and litigation and other adjustments associated with pre-acquisition activities of Qwest and Embarq ($12 million).

   

FREE CASH FLOW

(3) -

Excludes $6 million in second quarter 2016 and $3 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 $36 million, contributions to our qualified pension plan trust of ($100 million) and ($2 million) of benefits paid to participants of our non-qualified pension plans.  Post-retirement contributions included benefits paid by company ($47 million) offset by participant contributions $14 million and direct subsidy receipts $2 million.

-

2015 includes net periodic pension benefit income of ($21 million), net periodic post-retirement benefit expense of $41 million, contributions to our qualified pension plan trust of ($100 million) and ($2 million) of benefits paid to participants of our non-qualified pension plans.  Post-retirement contributions included benefits paid by company ($49 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)

                         
   

Nine months ended September 30, 2016

 

Nine months ended September 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

$

1,939

   

(42)

 

(1)

1,981

   

1,854

   

(151)

 

(2)

2,005

 
 

Add: Depreciation and amortization

2,958

   

   

2,958

   

3,136

   

   

3,136

 
 

Operating cash flow

$

4,897

   

(42)

   

4,939

   

4,990

   

(151)

   

5,141

 
                         
 

Revenues

$

13,181

   

   

13,181

   

13,424

   

   

13,424

 
                         
 

Operating income margin (operating income divided by revenues)

14.7

%

     

15.0

%

 

13.8

%

     

14.9

%

                         
 

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

37.2

%

     

37.5

%

 

37.2

%

     

38.3

%

                         

Free cash flow

                     
 

Operating cash flow

       

$

4,939

           

5,141

 
 

Less: Capital expenditures (3)

       

(1,995)

           

(2,031)

 
 

Less: Cash paid for interest, net of amounts capitalized

       

(922)

           

(914)

 
 

Less: Pension and post-retirement impacts (4)

       

(143)

           

(135)

 
 

Less: Cash paid for income taxes, net of refunds

       

(344)

           

(54)

 
 

Add: Share-based compensation

       

60

           

57

 
 

Add:  Other income

       

32

           

16

 
 

Free cash flow (5)

       

$

1,627

           

2,080

 
                         

SPECIAL ITEMS

                     

(1) -

Includes severance costs associated with recent headcount reductions ($25 million), integration costs associated with our acquisition of Qwest ($8 million) and costs associated with a large billing system integration project ($13 million), less an offsetting gain on the sale of a building $4 million.

(2) -

Includes severance costs associated with reduction in force initiatives ($90 million), integration costs associated with our acquisition of Qwest ($26 million), the impairment of office buildings ($8 million), regulatory fines associated with a 911 system outage ($15 million) and litigation and other adjustments associated with pre-acquisition activities of Qwest and Embarq ($12 million).

   

FREE CASH FLOW

(3) -

Excludes $15 million in 2016 and $8 million in 2015 of capital expenditures related to the integration of Qwest and Savvis.

(4) -

2016 includes net periodic pension benefit income of ($56 million), net periodic post-retirement benefit expense of $107 million, contributions to our pension plan trust of ($100 million) and ($5 million) of benefits paid to participants of our non-qualified pension plans.  Post-retirement contributions included benefits paid by company ($136 million) offset by participant contributions $43 million and direct subsidy receipts $4 million.

-

2015 includes net periodic pension benefit income of ($62 million), net periodic post-retirement benefit expense of $123 million, contributions to our pension plan trust of ($100 million) and ($5 million) of benefits paid to participants of our non-qualified pension plans.  Post-retirement contributions included benefits paid by company ($139 million) offset by participant contributions $43 million and direct subsidy receipts $5 million.

(5) -

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

 

CenturyLink, Inc.

REVENUES

(UNAUDITED)

(Dollars in millions)

                 
   

Three months ended

 

Nine months ended

   

September 30,

 2016

 

September 30,

 2015

 

September 30,

 2016

 

September 30,

 2015

Strategic services *

             
 

Business high-bandwidth data services (1)

$

744

   

699

   

2,235

   

2,083

 
 

Business hosting services (2)

303

   

324

   

915

   

961

 
 

Other business strategic services (3)

179

   

143

   

521

   

458

 
 

Consumer broadband services (4)

674

   

658

   

2,023

   

1,945

 
 

Other consumer strategic services (5)

115

   

105

   

340

   

314

 
 

Total strategic services revenues

2,015

   

1,929

   

6,034

   

5,761

 
               

Legacy services *

             
 

Business voice services (6)

601

   

638

   

1,834

   

1,956

 
 

Business low-bandwidth data services (7)

339

   

391

   

1,057

   

1,213

 
 

Other business legacy services (8)

277

   

288

   

844

   

885

 
 

Consumer voice services (6)

605

   

664

   

1,854

   

2,027

 
 

Other consumer legacy services (9)

78

   

81

   

237

   

221

 
 

Total legacy services revenues

1,900

   

2,062

   

5,826

   

6,302

 
                 

Data integration

             
 

  Business data integration

163

   

153

   

401

   

435

 
 

  Consumer data integration

   

1

   

1

   

2

 
 

Total data integration revenues

163

   

154

   

402

   

437

 
               

Other revenues

             
 

  High-cost support revenue (10)

171

   

284

   

518

   

550

 
 

  Other revenue (11)

133

   

125

   

401

   

374

 
 

Total other revenues

304

   

409

   

919

   

924

 
               

Total revenues

$

4,382

   

4,554

   

13,181

   

13,424

 
                 
                 

(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 more closely aligned with our legacy services than with our strategic services. As a result, we 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 $389 million and $1.207 billion (net of $2 million and $6 million of deferred revenue included in other business legacy services) for the three and nine months ended September 30, 2015, respectively. In addition, our business broadband services remain a strategic service and are included in our other business strategic services.

 

CenturyLink, Inc.

HOSTING REVENUES AND OPERATING METRICS

(UNAUDITED)

                 
   

Three months ended

 

Nine months ended

   

September 30,

 2016

 

September 30,

 2015

 

September 30,

 2016

 

September 30,

 2015

Hosting Revenue Detail

(In millions)

Colocation

$

157

   

151

   

468

   

463

 

Managed Hosting / Cloud

126

   

152

   

384

   

434

 

Hosting Area Network

20

   

21

   

63

   

64

 

Total Hosting Revenue

$

303

   

324

   

915

   

961

 
                 
                 
       

As of

 

As of

 

As of

       

September 30, 2016

 

June 30,
 2016

 

September 30, 2015

Hosting Data Center Metrics

             

Number of data centers (1)

   

58

   

58

   

59

 

Sellable square feet, million sq ft

   

1.54

   

1.55

   

1.59

 

Billed square feet, million sq ft

   

1.03

   

1.02

   

1.01

 

Utilization

   

67

%

 

66

%

 

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

       

September 30, 2016

 

June 30,
 2016

 

September 30, 2015

Operating Metrics

   

(In thousands)

Broadband subscribers

   

5,950

   

5,990

   

6,071

 

Access lines

   

11,231

   

11,413

   

11,915

 

Prism TV subscribers

   

318

   

311

   

269

 
                 
                 
 

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 SEPTEMBER 30, 2016 AND 2015 AND NINE MONTHS ENDED SEPTEMBER 30, 2016 AND 2015

 
 

(UNAUDITED)

 
 

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

 
                     
     

Three months ended

 

Nine months ended

 
     

September 30, 2016

 

September 30, 2015

 

September 30, 2016

 

September 30, 2015

 
                     

Net Income

$

152

     

205

   

584

   

540

   
                     

Less Special Items:

               
 

Special items (excluding tax items)

(35)

 

(1)

 

(78)

 

(3)

 

(69)

 

(5)

 

(151)

 

(7)

 
 

Special income tax items and income tax

 effect of other special items

13

 

(2)

 

33

 

(4)

 

26

 

(6)

 

55

 

(8)

 

Total impact of special items

(22)

   

(45)

   

(43)

   

(96)

   
                   

Net income, excluding special items

174

   

250

   

627

   

636

   
                   

Add back certain items arising from purchase accounting:

             

Amortization of customer base intangibles:

               
 

Qwest

183

   

197

   

561

   

604

   
 

Embarq

15

   

20

   

55

   

69

   
 

Savvis

15

   

15

   

46

   

46

   
                   

Amortization of trademark intangibles

   

   

   

1

   
                   

Amortization of fair value adjustment of long-term debt:

           
 

Embarq

   

1

   

3

   

4

   
 

Qwest

(3)

   

(5)

   

(12)

   

(17)

   
                   

Subtotal

210

   

228

   

653

   

707

   

Tax effect of items arising from purchasing

 accounting

(79)

   

(88)

   

(247)

   

(270)

   

Net adjustment, after taxes

131

   

140

   

406

   

437

   
                   

Net income, as adjusted for above items

$

305

   

390

   

1,033

   

1,073

   
                   

Weighted average diluted shares outstanding

540.9

 

555.2

 

540.5

 

559.3

 
                   

Diluted EPS
(excluding special items)

$

0.32

   

0.45

   

1.16

   

1.14

   
                   

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

$

0.56

   

0.70

   

1.91

   

1.92

   
   

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 ($4 million), integration costs associated with our acquisition of Qwest ($1 million), costs associated with a large billing system integration project ($7 million) and net loss associated with early retirement of debt ($27 million), less an offsetting gain on the sale of a building $4 million.

 

(2)

 

Income tax benefit of Items (1).

 

(3)

 

Includes severance costs associated with reduction in force initiatives ($58 million), integration costs associated with our acquisition of Qwest ($8 million) and litigation and other adjustments associated with pre-acquisition activities of Qwest and Embarq ($12 million).

 

(4)

 

Income tax benefit of Item (4).

 

(5)

 

Includes severance costs associated with recent headcount reductions ($25 million), integration costs associated with our acquisition of Qwest ($8 million), costs associated with a large billing system integration project ($13 million) and net loss associated with early retirement of debt ($27 million), less an offsetting gain on the sale of a building $4 million.

 

(6)

 

Income tax benefit of Item (5).

 

(7)

 

Includes severance costs associated with reduction in force initiatives ($90 million), integration costs associated with our acquisition of Qwest ($26 million), the impairment of office buildings ($8 million), regulatory fines associated with a 911 system outage ($15 million) and litigation and other adjustments associated with pre-acquisition activities of Qwest and Embarq ($12 million).

 

(8)

 

Income tax benefit of Item (7).