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CenturyLink reports second quarter 2017 results
[August 02, 2017]

CenturyLink reports second quarter 2017 results


MONROE, La., Aug. 2, 2017 /PRNewswire/ -- CenturyLink, Inc. (NYSE: CTL) today reported results for second quarter 2017.

CenturyLink logo. (PRNewsFoto/CenturyLink, Inc.) (PRNewsFoto/CenturyLink, Inc.) (PRNewsFoto/CenturyLink, Inc.)

"We are confident our continued investment in high-quality, high-bandwidth broadband network infrastructure positions CenturyLink well for long-term growth," said Glen F. Post, III, CenturyLink chief executive officer and president. "Enterprise demand for high-bandwidth data services remains strong and, while consumer broadband units were weaker than expected, we are encouraged by the higher-value customers our improved offerings are attracting. We accelerated our capital investment in high-bandwidth services and broadband infrastructure during the second quarter, which we believe better positions us to increase revenues in the second half of 2017 and beyond. We anticipate second half and full year 2017 capital expenditures of approximately $1 billion and $2.6 billion, respectively.

"We achieved our expected adjusted EBITDA for the quarter as our employees did a great job managing costs, while core revenues were below our expectations primarily due to the decline in legacy revenues and the decline in broadband units being higher than anticipated. We continue to make good progress in obtaining the necessary approvals for the pending Level 3 acquisition, having received clearance in 23 of 25 required states and territories. Integration planning is progressing well and we continue to anticipate completing the acquisition by the end of September 2017. We remain excited about the value we believe this transaction will create for our customers, our shareholders and our employees," concluded Post.

Second Quarter 2017 Consolidated Financial Results

Under the terms of the Colocation Sale on May 1, 2017, CenturyLink agreed to lease back from the purchaser certain colocation space to provide data hosting services to its customers and also retained a small minority stake in the divested business. Given these terms, under accounting standards as described in ASC 840-40, Leases - Sale-Leaseback Transactions, certain real estate assets sold must continue to be reflected on CenturyLink's consolidated balance sheet and an associated portion of the cash proceeds must be treated as though it were a balance sheet financing obligation. The net incremental impact of this required accounting treatment on second quarter results was an approximately $155 million non-cash reduction in operating income and an approximately $100 million non-cash reduction in net income. Upon the January 1, 2019 implementation date of the new accounting standard for leases (ASU 2016-02, Leases), which was adopted by the Financial Accounting Standards Board in early 2016, this particular accounting treatment will no longer be applicable for this transaction.

Operating revenues1 for second quarter 2017 were $4.09 billion compared to $4.40 billion in second quarter 2016 driven by the decline in legacy3,4 revenues, as well as the revenue reduction due to the Colocation Sale effective May 1, 2017. Core revenues3 for second quarter 2017 were $3.66 billion compared to $3.97 billion in second quarter 2016.

Enterprise segment5 revenues were $2.22 billion, a decrease of 9.0% from second quarter 2016, primarily due to the revenue reduction associated with the Colocation Sale, as well as the decline in legacy revenues. Excluding the impacts of the Colocation Sale, contracted price reductions for a wholesale customer and a favorable settlement in the year-ago period, Enterprise strategic revenues grew 4% and high-bandwidth data services revenues increased 5% year-over-year.

Consumer segment5 revenues were $1.40 billion, a decrease of 6.2% from second quarter 2016, primarily due to a decline in legacy voice revenues, as well as lower broadband and video revenues driven by increased cable competition and the impact of the restructuring of a satellite video contract in first quarter. The company is seeing strong customer demand in those markets where higher speeds and its "Price for Life" simplified offering have been deployed.

Operating expenses1,6 decreased to $3.72 billion from $3.75 billion in second quarter 2016, driven by a reduction in depreciation expense and lower salaries and wages expense related to the headcount reduction in fourth quarter 2016, partially offset by one-time charges related to the Colocation Sale. Excluding special items, operating expenses were $3.55 billion compared to $3.74 billion in second quarter 2016.

Operating income1 decreased to $367 million from $647 million in second quarter 2016 primarily due to one-time charges related to the Colocation Sale and the decline in legacy revenues, partially offset by lower operating expenses.

Adjusted EBITDA1 (as defined in our attached supplemental schedules), excluding special items, decreased to $1.44 billion from $1.65 billion in second quarter 2016 due to the decline in operating revenues outlined above, partially offset by lower operating expenses.

Net income1 and diluted earnings per share (EPS)1 were $17 million and $0.03, respectively, for second quarter 2017, compared to $196 million and $0.36, respectively, for second quarter 2016. The decrease in net income and diluted EPS was due primarily to the decline in operating income, with approximately $115 million of the decline in net income and $0.21 of the decline in EPS due to one-time charges related to the Colocation Sale.

Adjusted net income1 and adjusted diluted EPS1 (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 closed 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 2017 was $251 million compared to adjusted net income of $342 million in second quarter 2016. Second quarter 2017 adjusted diluted EPS was $0.46 compared to $0.63 in the year-ago period due to lower adjusted net income.

The accompanying financial schedules provide additional details regarding the company's special items and reconciliations of non-GAAP financial measures for the three and six months ended June 30, 2017 and 2016.

Guidance

CenturyLink anticipates growth in strategic revenues to offset expected declines in legacy revenues in third quarter 2017 compared to second quarter 2017 (excluding approximately $50 million of colocation revenue reported in second quarter 2017). The company expects a slight increase in third quarter 2017 adjusted EBITDA compared to second quarter 2017 results. The company also expects a significant increase in third quarter 2017 adjusted free cash flow compared to second quarter 2017 results due to the timing of cash interest and cash tax payments, along with an anticipated decline in the level of capital expenditures in the third quarter of 2017 compared to second quarter 2017.

Third Quarter 2017 (excluding special items)



Operating Revenues


$4.06 to $4.12 billion

Core Revenues


$3.59 to $3.65 billion

Adjusted EBITDA


$1.43 to $1.49 billion

Adjusted Diluted EPS


$0.44 to $0.50

Based on first half 2017 results and current expectations for the remainder of the year, CenturyLink anticipates coming in slightly below its full-year 2017 revenue and adjusted diluted EPS guidance, primarily driven by higher legacy revenue declines and lower consumer broadband revenue growth than anticipated. The company continues to expect adjusted EBITDA and adjusted free cash flow to be near the lower end of prior guidance.  CenturyLink is not providing updated guidance ranges for full-year 2017 due to the pending acquisition of Level 3, currently anticipated to be completed by the end of third quarter of 2017, and the expected consolidation of results for the combined companies in fourth quarter 2017.

All 2017 guidance figures and 2017 outlook statements included in this release (i) speak as of August 2, 2017 only, (ii) include the financial impact of the sale of the data centers and colocation business effective May 1, 2017, (iii) exclude the financial impact of acquiring Level 3 and (iv) 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. We are not able, without unreasonable efforts, to reconcile our non-GAAP guidance figures appearing above under "Guidance" to their most directly comparable GAAP guidance financial measures, principally due to the time and expense associated with predicting with a reasonable degree of certainty information on special items, future impairment charges, integration expenses or the impact of pending acquisitions or dispositions.  Although we cannot at this time assess the magnitude of these adjustments, they could be material. See "Forward Looking Statements" below. For additional information on how we define certain of the terms used above, see "Reconciliation to GAAP" below and the attached schedules.

Investor Call

As previously announced, CenturyLink's management will host a conference call at 3:30 p.m. Central Time today, August 2, 2017. Interested parties can access the call by dialing 866-531-7958 and entering the Conference ID 42986550. The call will be accessible for replay through August 9, 2017, by dialing 855-859-2056. Investors can also listen to CenturyLink's earnings conference call and webcast replay by accessing the Investor Relations portion of the company's website at www.centurylink.com through August 24, 2017. 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 historical and forward-looking financial measures, including but not limited to adjusted EBITDA, adjusted 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 historical 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 at www.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 and IT services company focused on connecting its customers to the power of the digital world. CenturyLink offers network and data systems management, big data analytics, managed security services, hosting, cloud, and IT consulting services. The company provides broadband, voice, video, advanced data and managed network services over a robust 265,000-route-mile U.S. fiber network and a 360,000-route-mile international transport network. Visit CenturyLink 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 decreased demand for our legacy offerings and increased pricing pressures; 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 successfully fund and complete our pending acquisition of Level 3, including the timely receipt of all regulatory approvals free of any detrimental conditions, and to timely realize the anticipated benefits of the transaction, including our ability to attain anticipated cost savings, to use Level 3's net operating losses in the amounts projected, to retain key personnel and to avoid unanticipated integration disruptions; 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 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, to provision them efficiently to our customers, 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, periodic share repurchases, dividends, pension contributions and other benefits payments, and debt repayments; 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, market conditions 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, customers, suppliers, vendors, landlords and financial institutions; our ability to effectively manage our network buildout project and our other 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, 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)

Second quarter 2017 results include the following non-cash impacts related to the colocation sale/leaseback entries required under the GAAP accounting standards discussed further above: $12M operating revenues, -$3M cost of services, $117M SG&A expense (booked as one-time loss on sale), $54M depreciation and amortization ($44M booked as one-time catch-up entry), $8M interest expense and -$63M income tax expense.

(2)

See attachments for reconciliations of non-GAAP figures to comparable GAAP figures.

(3)

Core revenues is a non-GAAP measure 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, colocation, hosting, cloud, video, VoIP and IT services.  Legacy revenues primarily include voice, private line (including special access), switched access and other ancillary services.

(4)

Beginning second quarter 2017, certain legacy services, specifically dark fiber network leasing, were reclassified from legacy services to strategic services. 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.

(6)

In first quarter 2017, CenturyLink elected to adopt the accounting rules (ASU 2017-07) which modified the presentation of net periodic pension and postretirement benefit costs. All historical periods have been restated to reflect this change.



 

 

CenturyLink, Inc.

CONSOLIDATED STATEMENTS OF INCOME

THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2017 AND 2016

(UNAUDITED)

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
















Three months ended June 30,


Increase /
(decrease)


Six months ended June 30,


Increase /
(decrease)



2017


2016



2017


2016


OPERATING REVENUES *













Strategic

$

1,915


2,042


(6)

%


3,928


4,043


(3)

%


Legacy

1,740


1,926


(10)

%


3,530


3,902


(10)

%


Data integration

133


123


8

%


251


239


5

%


Other

302


307


(2)

%


590


615


(4)

%


Total operating revenues

4,090


4,398


(7)

%


8,299


8,799


(6)

%














OPERATING EXPENSES













Cost of services and products

1,890


1,949


(3)

%


3,778


3,849


(2)

%


Selling, general and administrative **

884


815


8

%


1,694


1,652


3

%


Depreciation and amortization

949


987


(4)

%


1,829


1,963


(7)

%


Total operating expenses

3,723


3,751


(1)

%


7,301


7,464


(2)

%














OPERATING INCOME

367


647


(43)

%


998


1,335


(25)

%













OTHER (EXPENSE) INCOME













Interest expense

(320)


(340)


(6)

%


(638)


(671)


(5)

%


Other (expense) income, net **

(7)


10


(170)

%


(13)


33


(139)

%


Income tax expense

(23)


(121)


(81)

%


(167)


(265)


(37)

%

NET INCOME

$

17


196


(91)

%


180


432


(58)

%

BASIC EARNINGS PER SHARE

$

0.03


0.36


(92)

%


0.33


0.80


(59)

%

DILUTED EARNINGS PER SHARE

$

0.03


0.36


(92)

%


0.33


0.80


(59)

%














AVERAGE SHARES OUTSTANDING






Basic

541,361


539,627


%


540,909


539,213


%


Diluted

542,151


540,375


%


541,836


540,281


%














DIVIDENDS PER COMMON SHARE

$

0.54


0.54


%


1.08


1.08


%

























*

During the second quarter of 2017, we determined that certain of our legacy services, specifically our dark fiber network leasing, are more closely aligned with our strategic services than with our legacy services. As a result, we now reflect these operating revenues as strategic services, and we have reclassified certain prior period amounts to conform to this change. The revision resulted in an increase of revenue from strategic services and a corresponding decrease in revenue from legacy services of $12 million and $24 million for the three and six months ended June 30, 2016, respectively.

**

In the first quarter of 2017, we adopted ASU 2017-07, "Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost" ("ASU 2017-07"). ASU 2017-07 modified the presentation of net periodic pension and postretirement benefit costs and requires the service cost component to be reported separately from the other components in order to provide more useful information. Under ASU 2017-07, the service cost component of net periodic pension and postretirement benefit costs is required to be presented in the same expense category as the related salary and wages for the employee. The other components of the net periodic pension and postretirement benefit costs are required to be recognized in other (expense) income, net in our consolidated statements of operations. This change was applied on a retrospective basis to all previous periods to match the current period presentation. This retrospective application resulted in a $3 million and $9 million reduction in operating income and a corresponding decrease in other (expense) income, net for the three and six months ended June 30, 2016, respectively.

 

CenturyLink, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF JUNE 30, 2017 AND DECEMBER 31, 2016

(UNAUDITED)

(Dollars in millions)


As of

 June 30, 2017


As of

 December 31, 2016

ASSETS




CURRENT ASSETS




Cash and cash equivalents

$

342


222

Other current assets

2,566


4,940

   Total current assets

2,908


5,162





NET PROPERTY, PLANT AND EQUIPMENT




Property, plant and equipment

40,744


39,194

Accumulated depreciation

(23,161)


(22,155)

   Net property, plant and equipment

17,583


17,039





GOODWILL AND OTHER ASSETS




Goodwill

19,639


19,650

Restricted cash

6,015


2

Other, net

4,780


5,164

    Total goodwill and other assets

30,434


24,816





TOTAL ASSETS

$

50,925


47,017





LIABILITIES AND STOCKHOLDERS' EQUITY




CURRENT LIABILITIES




Current maturities of long-term debt

$

196


1,503

Other current liabilities

3,047


3,846

    Total current liabilities

3,243


5,349





LONG-TERM DEBT

24,881


18,185

DEFERRED CREDITS AND OTHER LIABILITIES

9,715


10,084

STOCKHOLDERS' EQUITY

13,086


13,399





TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

50,925


47,017





 


CenturyLink, Inc.


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


SIX MONTHS ENDED JUNE 30, 2017 AND 2016


(UNAUDITED)


(Dollars in millions)








Six months ended



June 30, 2017 *


June 30, 2016 *


OPERATING ACTIVITIES





Net income

$

180


432


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





Depreciation and amortization

1,829


1,963


Deferred income taxes

(126)


21


Loss on the sale of data centers and colocation business

119



Impairment of assets held for sale

11


1


Provision for uncollectible accounts

78


96


Net loss on early retirement of debt

5



Share-based compensation

43


40


Changes in current assets and liabilities, net

(318)


93


Retirement benefits

(56)


(28)


Changes in other noncurrent assets and liabilities, net

(92)


(35)


Other, net

69


18


Net cash provided by operating activities

1,742


2,601


INVESTING ACTIVITIES





Payments for property, plant and equipment and capitalized software

(1,610)


(1,264)


Cash paid for acquisitions

(5)


(24)


Net proceeds from the sale of data centers and colocation business, net of cash sold

1,473



Proceeds from sale of property

48


11


Other, net


(2)


Net cash used in investing activities

(94)


(1,279)


FINANCING ACTIVITIES





Net proceeds from issuance of long-term debt

6,608


1,215


Proceeds from financing obligation

378



Payments of financing obligations

(4)



Payments of long-term debt

(1,526)


(1,464)


Net payments on credit facility and revolving line of credit

(370)


(410)


Dividends paid

(590)


(586)


Proceeds from issuance of common stock

4


3


Shares withheld to satisfy tax withholdings

(15)


(15)


Net cash provided by (used in) financing activities

4,485


(1,257)


Net increase in cash, cash equivalents and restricted cash

6,133


65

*

Cash, cash equivalents and restricted cash at beginning of period

224


128

*

Cash, cash equivalents and restricted cash at end of period

$

6,357


193






*

In the second quarter of 2017, we adopted Accounting Standards Update ("ASU") 2016-18, "Restricted Cash (a consensus of the FASB Emerging Issues Task Force)" ("ASU 2016-18"), which requires that a statement of cash flows explain the change in the total of cash, cash equivalents and amounts generally described as restricted cash and restricted cash equivalents as compared to the current presentation, which explains only the change in cash and cash equivalents. ASU 2016-18 is effective January 1, 2018, but early adoption is permitted and requires retrospective application of the requirements to all previous periods presented.  This change was applied on a retrospective basis to all previous periods to match the current period presentation with immaterial impact.

 

 

CenturyLink, Inc.

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

(UNAUDITED)

(Dollars in millions)
















Three months ended June 30, 2017


Three months ended June 30, 2016







As adjusted






As adjusted





Less


excluding




Less


excluding



As


special


special


As


special


special



reported


items


items


reported


items


items

Adjusted EBITDA and adjusted EBITDA margin













Operating income *

$

367



(170)


(1)

537



647



(14)


(3)

661



Add: Depreciation and amortization

949



44


(2)

905



987





987



Adjusted EBITDA

$

1,316



(126)



1,442



1,634



(14)



1,648
















Revenues

$

4,090





4,090



4,398





4,398
















Operating income margin (operating income divided by revenues)

9.0

%




13.1

%


14.7

%




15.0

%















Adjusted EBITDA margin (adjusted EBITDA divided by revenues)

32.2

%




35.3

%


37.2

%




37.5

%














Adjusted free cash flow













Adjusted EBITDA





1,442







1,648



Less: Capital expenditures (4)





(829)







(648)



Less: Cash paid for interest, net of amounts capitalized





(369)







(398)



Less: Pension and postretirement impacts (5)





(31)







(7)



Less: Cash paid for income taxes, net





(265)







(10)



Less: Ongoing EBITDA impacts of ASC 840-40 on sale of data centers





(15)









Add: Share-based compensation





22







22



Add:  Other (expense) income, net *





(7)







10



Adjusted free cash flow (6)





$

(52)







617
















SPECIAL ITEMS












(1) -

Costs related to our pending acquisition of Level 3 ($18 million), a loss associated with the sale of our data centers and colocation business ($108 million) and additional depreciation expense adjustment recorded on real estate assets we were required to be reflected on our balance sheet as a result of not meeting the requirement of sale leaseback accounting ($44 million).

(2) -

Additional depreciation expense adjustment recorded on real estate assets we were required to be reflected on our balance sheet as a result of not meeting the requirement of sale leaseback accounting $44 million.

(3) -

Includes severance costs associated with reduction in force initiatives ($7 million), integration costs associated with our acquisition of Qwest ($3 million) and costs associated with a large billing system integration project ($4 million).



ADJUSTED FREE CASH FLOW

(4) -

Excludes $1 million in second quarter 2017 and $5 million in second quarter 2016 of capital expenditures related to the integration of Qwest and Savvis.

(5) -

2017 includes net periodic pension benefit expense of $2 million, net periodic postretirement benefit expense of $34 million and ($1 million) of benefits paid to participants of our non-qualified pension plans.  Postretirement contributions included benefits paid by company ($82 million) offset by participant contributions $14 million and direct subsidy receipts $2 million.

-

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

(6) -

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

*

In the first quarter of 2017, we adopted ASU 2017-07, "Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost" ("ASU 2017-07"). ASU 2017-07 modified the presentation of net periodic pension and postretirement benefit costs and requires the service cost component to be reported separately from the other components in order to provide more useful information. Under ASU 2017-07, the service cost component of net periodic pension and postretirement benefit costs is required to be presented in the same expense category as the related salary and wages for the employee. The other components of the net periodic pension and postretirement benefit costs are required to be recognized below operating income in other (expense) income, net in our consolidated statements of operations. This change was applied on a retrospective basis to all previous periods to match the current period presentation. This retrospective application resulted in a $3 million reduction in operating income and a corresponding decrease in total other expense, net for the three months ended June 30, 2016.






















 

 

CenturyLink, Inc.

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

(UNAUDITED)

(Dollars in millions)
















Six months ended June 30, 2017


Six months ended June 30, 2016







As adjusted






As adjusted





Less


excluding




Less


excluding



As


special


special


As


special


special



reported


items


items


reported


items


items

Adjusted EBITDA and adjusted EBITDA margin













Operating income *

$

998



(141)


(1)

1,139



1,335



(34)


(3)

1,369



Add: Depreciation and amortization

1,829



(6)


(2)

1,835



1,963





1,963



Adjusted EBITDA

$

2,827



(147)



2,974



3,298



(34)



3,332
















Revenues

$

8,299





8,299



8,799





8,799
















Operating income margin (operating income divided by revenues)

12.0

%




13.7

%


15.2

%




15.6

%















Adjusted EBITDA margin (adjusted EBITDA divided by revenues)

34.1

%




35.8

%


37.5

%




37.9

%














Adjusted free cash flow













Adjusted EBITDA





2,974







3,332



Less: Capital expenditures (4)





(1,609)







(1,255)



Less: Cash paid for interest, net of amounts capitalized





(624)







(660)



Less: Pension and postretirement impacts (5)





(56)







(28)



Less: Cash paid for income taxes, net





(260)







(21)



Less: Ongoing EBITDA impacts of ASC 840-40 on sale of data centers





(15)









Add: Share-based compensation





43







40



Add:  Other (expense) income, net *





(13)







33



Adjusted free cash flow (6)





$

440







1,441















SPECIAL ITEMS












(1) -

Costs related to our pending acquisition of Level 3 ($28 million), a loss associated with the sale of our data centers and colocation business ($119 million), partially offset by the termination of depreciation and amortization expense related to our sale of the data centers and colocation business $50 which were substantially offset by additional depreciation expense adjustment recorded on real estate assets we were required to be reflected on our balance sheet as a result of not meeting the requirement of sale leaseback accounting ($44 million).

(2) -

Termination of depreciation and amortization expense related to our sale of the data centers and colocation business ($50 million), which were substantially offset by additional depreciation expense adjustment recorded of $44 million on real estate assets we were required to be reflected on our balance sheet as a result of not meeting the requirement of sale leaseback accounting.

(3) -

Includes severance costs associated with reduction in force initiatives ($21 million), integration costs associated with our acquisition of Qwest ($7 million) and costs associated with a large billing system integration project ($6 million).



ADJUSTED FREE CASH FLOW

(4) -

Excludes $1 million in 2017 and $9 million in 2016 of capital expenditures related to the integration of Qwest and Savvis.

(5) -

2017 includes net periodic pension benefit expense of $3 million, net periodic postretirement benefit expense of $68 million and ($3 million) of benefits paid to participants of our non-qualified pension plans.  Postretirement contributions included benefits paid by company ($157 million) offset by participant contributions $28 million and direct subsidy receipts $5 million.

-

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

(6) -

Excludes special items identified in items (1), (2) and (3).

*

In the first quarter of 2017, we adopted ASU 2017-07, "Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost" ("ASU 2017-07"). ASU 2017-07 modified the presentation of net periodic pension and postretirement benefit costs and requires the service cost component to be reported separately from the other components in order to provide more useful information. Under ASU 2017-07, the service cost component of net periodic pension and postretirement benefit costs is required to be presented in the same expense category as the related salary and wages for the employee. The other components of the net periodic pension and postretirement benefit costs are required to be recognized below operating income in other (expense) income, net in our consolidated statements of operations. This change was applied on a retrospective basis to all previous periods to match the current period presentation. This retrospective application resulted in a $9 million reduction in operating income and a corresponding decrease in total other expense, net for the six months ended June 30, 2016.






















 

CenturyLink, Inc.


SUPPLEMENTAL NON-GAAP INFORMATION - ADJUSTED DILUTED EPS


THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2017 AND 2016


(UNAUDITED)


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














Three months ended


Six months ended




June 30, 2017


June 30, 2016


June 30, 2017


June 30, 2016












Net Income

$

17


196


180


432












Less Special Items:










Special items (excluding tax items)

(170)

(1)


(14)

(3)


(141)

(5)


(34)

(7)



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

56

(2)


5

(4)


26

(6)


13

(8)


Total impact of special items

(114)


(9)


(115)


(21)












Net income, excluding special items

131


205


295


453












Add back certain items arising from purchase accounting:









Amortization of customer base intangibles:










Qwest

171


187


346


378



Embarq

15


20


30


40



Savvis

8


16


15


31












Amortization of fair value adjustment of long-term debt:










Embarq

1


1


1


3



Qwest

(2)


(4)


(5)


(9)












Subtotal

193


220


387


443


Tax effect of items arising from purchasing accounting

(73)


(83)


(147)


(168)


Net adjustment, after taxes

120


137


240


275












Net income, as adjusted for above items

$

251


342


535


728












Weighted average diluted shares outstanding

542.2


540.4


541.8


540.3












Diluted EPS

(excluding special items)

$

0.24


0.38


0.54


0.84












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

$

0.46


0.63


0.99


1.35





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)

Costs related to our pending acquisition of Level 3 ($18 million), a loss associated with the sale of our data centers and colocation business ($108 million) and additional depreciation expense adjustment recorded on real estate assets we were required to be reflected on our balance sheet as a result of not meeting the requirement of sale leaseback accounting ($44 million).

(2)

Income tax benefit of Items (1) $79 million, net of a tax benefit related to the sale of our data centers and colocation business ($23 million).

(3)

Includes severance costs associated with reduction in force initiatives ($7 million), integration costs associated with our acquisition of Qwest ($3 million) and costs associated with a large billing system integration project ($4 million).

(4)

Income tax benefit of Item (3).

(5)

Costs related to our pending acquisition of Level 3 ($28 million), a loss associated with the sale of our data centers and colocation business ($119 million), partially offset by the termination of depreciation and amortization expense related to our sale of the data centers and colocation business $50 which were substantially offset by additional depreciation expense adjustment recorded on real estate assets we were required to be reflected on our balance sheet as a result of not meeting the requirement of sale leaseback accounting ($44 million).

(6)

Income tax benefit of Item (5) $64 million, net of a tax benefit related to the sale of our data centers and colocation business ($38 million).

(7)

Includes severance costs associated with reduction in force initiatives ($21 million), integration costs associated with our acquisition of Qwest ($7 million) and costs associated with a large billing system integration project ($6 million).

(8)

Income tax benefit of Item (7).

 

 

CenturyLink, Inc.

SELECTED SEGMENT FINANCIAL INFORMATION

THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2017 AND 2016

(UNAUDITED)

(Dollars in millions)














Three months ended June 30,


Six months ended June 30,




2017


2016


2017


2016

Total reportable segment revenues


$

3,617



3,929



7,385



7,860


Total reportable segment expenses


1,877



2,011



3,807



3,941


Total reportable segment income


$

1,740



1,918



3,578



3,919


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


48.1

%


48.8

%


48.4

%


49.9

%











Enterprise









Revenues










Strategic services *


$

985



1,081



2,082



2,146



Legacy services *


1,107



1,232



2,249



2,494



Data integration


123



122



240



237



Total revenues


2,215



2,435



4,571



4,877


Expenses










Total expenses


1,285



1,372



2,615



2,691












Segment income


$

930



1,063



1,956



2,186


Segment income margin


42.0

%


43.7

%


42.8

%


44.8

%











Consumer









Revenues










Strategic services


$

768



800



1,532



1,574



Legacy services


633



694



1,281



1,408



Data integration


1





1



1



Total revenues


1,402



1,494



2,814



2,983


Expenses










Total expenses


592



639



1,192



1,250












Segment income


$

810



855



1,622



1,733


Segment income margin


57.8

%


57.2

%


57.6

%


58.1

%













*

During the second quarter of 2017, we determined that certain of our legacy services, specifically our dark fiber network leasing, are more closely aligned with our strategic services than with our legacy services. As a result, we now reflect these operating revenues as strategic services, and we have reclassified certain prior period amounts to conform to this change. The revision resulted in an increase of revenue from strategic services and a corresponding decrease in revenue from legacy services of $12 million and $24 million for the three and six months ended June 30, 2016, respectively.












In January 2017, we implemented a new organizational structure designed to further strengthen our ability to attain our operational, strategic and financial goals. Prior to this reorganization, we operated and reported as two segments, business and consumer. As a result of this reorganization, we reassigned our information technology, managed hosting, cloud hosting and hosting area network services from our former business segment to a new non-reportable operating segment. In addition, we changed the name of the predecessor business segment to enterprise segment. We now have the following two reportable segments: enterprise and consumer.

 

 

CenturyLink, Inc.

REVENUES

(UNAUDITED)

(Dollars in millions)














Three months ended


Six months ended




June 30, 2017


June 30, 2016


June 30, 2017


June 30, 2016

Strategic services *










Enterprise high-bandwidth data services (1)


$

760


753


1,529


1,491


Other enterprise strategic services (2)


225


328


553


655


IT and managed services (3)


162


161


314


323


Consumer broadband services (4)


661


682


1,322


1,349


Other consumer strategic services (5)


107


118


210


225


Total strategic services revenues


1,915


2,042


3,928


4,043










Legacy services *










Enterprise voice services (6)


558


611


1,131


1,233


Enterprise low-bandwidth data services (7)


302


352


616


717


Other enterprise legacy services (8)


247


269


502


544


Consumer voice services (6)


562


615


1,137


1,249


Other consumer legacy services (9)


71


79


144


159


Total legacy services revenues


1,740


1,926


3,530


3,902











Data integration










  Enterprise data integration


123


122


240


237


  IT and managed services data integration


9


1


10


1


  Consumer data integration


1



1


1


Total data integration revenues


133


123


251


239










Other revenues










  High-cost support revenue (10)


168


173


336


347


  Other revenue (11)


134


134


254


268


Total other revenues


302


307


590


615










Total revenues


$

4,090


4,398


8,299


8,799





















(1)

Includes MPLS and Ethernet revenue

(2)

Includes primarily colocation, broadband, VOIP, video and fiber lease revenue

(3)

Includes primarily IT services, managed hosting, cloud hosting and hosting area network 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 2017, we determined that certain of our legacy services, specifically our dark fiber network leasing, are more closely aligned with our strategic services than with our legacy services. As a result, we now reflect these operating revenues as strategic services, and we have reclassified certain prior period amounts to conform to this change. The revision resulted in an increase of revenue from strategic services and a corresponding decrease in revenue from legacy services of $12 million and $24 million for the three and six months ended June 30, 2016, respectively.

 

CenturyLink, Inc.

OPERATING METRICS

(UNAUDITED)




















As of


As of


As of




June 30, 2017


March 31, 2017


June 30, 2016












(In thousands)

Operating Metrics







Broadband subscribers


5,868


5,945


5,990

Access lines


10,733


10,945


11,413




















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

 

 

View original content with multimedia:http://www.prnewswire.com/news-releases/centurylink-reports-second-quarter-2017-results-300498643.html

SOURCE CenturyLink, Inc.


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