0000018926-17-000066.txt : 20171108 0000018926-17-000066.hdr.sgml : 20171108 20171108162942 ACCESSION NUMBER: 0000018926-17-000066 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20171108 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20171108 DATE AS OF CHANGE: 20171108 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CENTURYLINK, INC CENTRAL INDEX KEY: 0000018926 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE COMMUNICATIONS (NO RADIO TELEPHONE) [4813] IRS NUMBER: 720651161 STATE OF INCORPORATION: LA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-07784 FILM NUMBER: 171186973 BUSINESS ADDRESS: STREET 1: P O BOX 4065 STREET 2: 100 CENTURYLINK DR CITY: MONROE STATE: LA ZIP: 71203 BUSINESS PHONE: 3183889000 MAIL ADDRESS: STREET 1: 100 CENTURYLINK DR STREET 2: P O BOX 4065 CITY: MONROE STATE: LA ZIP: 71203 FORMER COMPANY: FORMER CONFORMED NAME: CENTURYTEL INC DATE OF NAME CHANGE: 19990602 FORMER COMPANY: FORMER CONFORMED NAME: CENTURY TELEPHONE ENTERPRISES INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: CENTRAL TELEPHONE & ELECTRONICS CORP DATE OF NAME CHANGE: 19720512 8-K 1 ctl20178-kearningsrelease3q.htm 8-K Document
CTL 8-K November 8, 2017
Section 1: 8-K (8-K)

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 8-K
 
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported):
November 8, 2017
ctllogoa01a07.jpg 
CenturyLink, Inc.
(Exact name of registrant as specified in its charter)
 
 
Louisiana
 
001-7784
 
72-0651161
 
 
(State or other jurisdiction
of incorporation)
 
(Commission
File Number)
 
(IRS Employer
Identification No.)
 
 
100 CenturyLink Drive
Monroe, Louisiana
 
71203
(Address of principal executive offices)
 
(Zip Code)
(318) 388-9000
(Telephone number, including area code)
 
 N/A
(Former name or former address, if changed since last report)
_____________________________________________
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligations of any registrant under any of the following provisions:
¨
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
 

1



Item 2.02.
Results of Operations and Financial Condition.

On November 8, 2017, CenturyLink, Inc. ("CenturyLink" or "we" or "us" or "our") issued a press release announcing operating results for the third quarter of 2017. The press release is included as Exhibit 99.1.


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 complete our pending acquisition of Level 3, including the timely receipt of all requisite financing and all shareholder and 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, 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.
Item 9.01.
Financial Statements and Exhibits.

(d)
Exhibits
The following exhibits are filed herewith:
 

2



SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, CenturyLink, Inc., has duly caused this report to be signed on its behalf by the undersigned duly authorized.
 
 
CenturyLink, Inc.
 
 
 
 
 
 
Dated: November 8, 2017
By:
/s/ David D. Cole
 
 
David D. Cole
 
 
Executive Vice President - Controller
 
 
and Assistant Secretary
 


3

EX-99.1 2 ctl20178-kexhibit9913q.htm EXHIBIT 99.1 Exhibit
                            

earningsreleaselogoa04a03.jpg
FOR IMMEDIATE RELEASE:
FOR MORE INFORMATION CONTACT:
November 8, 2017
Kristina Waugh 318-340-5627
 
kristina.r.waugh@centurylink.com

CenturyLink reports third quarter 2017 results
Includes separate results for CenturyLink and Level 3 Communications
MONROE, La. CenturyLink, Inc. (NYSE: CTL) reports results for CenturyLink and Level 3 Communications1 for third quarter 2017.

CenturyLink - Third Quarter 2017 Results
“We’re excited to have completed the Level 3 acquisition last week. We believe this combination creates one of the world’s most powerful networks. Together, we have a compelling set of assets, the scale to compete globally and the opportunity to drive significant operational efficiencies,” said Glen F. Post, III, CenturyLink chief executive officer.

Although below our expectations, CenturyLink's third quarter 2017 high bandwidth services revenue increased more than five percent on a normalized basis year-over-year. This, together with Level 3's performance, reflects the continuing growth in demand for bandwidth and supports our belief that our increased scale and reach creates even greater potential for us to win in the marketplace. In addition, our commitment to enable market-leading customer experience and drive efficiencies into our business, gives us great opportunity to grow adjusted EBITDA and free cash flow,” concluded Post.
Achieved operating revenues of approximately $4.0 billion
Generated operating income of $487 million
Generated adjusted EBITDA2 of $1.40 billion, excluding special items2 
Achieved net income of $92 million and diluted EPS of $0.17
Generated adjusted net income2 of $228 million and adjusted diluted EPS2 of $0.42, excluding special items
Operating revenues for third quarter 2017 were $4.03 billion compared to $4.38 billion in third quarter 2016. Core revenues3 for third quarter 2017 were $3.60 billion compared to $3.92 billion in third quarter 2016 driven by the decline in legacy3,4 revenues, as well as the approximate $150 million revenue reduction due to the May 1, 2017 sale of the data centers and colocation business (Colocation Sale).

1


                            

Enterprise segment5 revenues were $2.17 billion, a decrease of 11.2% from third quarter 2016, primarily due to the revenue reduction associated with the Colocation Sale, as well as the decline in legacy and data integration revenues. Excluding the impacts of the Colocation Sale and contracted price reductions for a wholesale customer in second quarter 2017, Enterprise strategic revenues grew 4.2% and high-bandwidth data services revenues increased 5.5% year-over-year.
Consumer segment5 revenues were $1.39 billion, a decrease of 5.8% from third quarter 2016, primarily due to a decline in legacy voice revenues, as well as lower video revenues due to the restructuring of a satellite video contract in first quarter 2017. Broadband revenue was flat year-over-year primarily driven by higher average revenue per unit (ARPU) offsetting the approximately 100,000 broadband subscriber decline primarily due to a significant decrease in lower speed sales.
Operating expenses6 decreased to $3.55 billion from $3.79 billion in third quarter 2016, driven by a reduction in depreciation expense, along with expense reductions related to the Colocation Sale and lower salaries and wages expense related to the headcount reduction in fourth quarter 2016. Excluding special items, operating expenses were $3.55 billion compared to $3.78 billion in third quarter 2016.
Operating income decreased to $487 million from $593 million in third quarter 2016 primarily due to the decline in higher margin legacy revenues.
Adjusted EBITDA 2 excluding special items, decreased to $1.40 billion from $1.60 billion in third quarter 2016 primarily due to the decline in higher margin legacy revenues.
Net income and diluted earnings per share (EPS) were $92 million and $0.17, respectively, for third quarter 2017, compared to $152 million and $0.28, respectively, for third quarter 2016. The decrease in net income and diluted EPS was due primarily to the decline in operating income.
Adjusted net income2 and adjusted diluted EPS 2 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 third quarter 2017 was $228 million compared to adjusted net income of $305 million in third quarter 2016. Third quarter 2017 adjusted diluted EPS was $0.42 compared to $0.56 in the year-ago period due to lower adjusted net income.
The accompanying financial schedules provide additional details regarding CenturyLink’s special items and reconciliations of non-GAAP financial measures for the three and nine months ended September 30, 2017 and 2016.
Level 3 Communications1 - Third Quarter 2017 Results
“Level 3 delivered a solid third quarter with continued margin expansion and strong Free Cash Flow generation,” said Jeff Storey, CenturyLink president and chief operating officer. “As a combined company, we are focused on executing against our integration plans, delivering a differentiated customer experience and driving profitable growth.”
Net Income was $157 million
Adjusted EBITDA2 grew to $752 million, excluding $31 million of CenturyLink acquisition-related expenses
Generated Cash Flows from Operating Activities of $701 million and Free Cash Flow2 of $379 million, excluding $10 million of cash used for CenturyLink acquisition-related expenses
Total revenue was $2.059 billion for third quarter 2017, compared to $2.033 billion for the third quarter 2016. Total Core Network Services (CNS) revenue was $1.963 billion in third quarter 2017, increasing 1.8% year-over-year on a reported basis, and 1.5% year-over-year on a constant currency basis.


2


                            

For third quarter 2017, total Enterprise CNS revenue, excluding UK Government revenue, was $1.453 billion, which grew 3.4% year-over-year on a reported basis, and 3.3% year-over-year on a constant currency basis.
In the third quarter 2017, Level 3 generated net income of $157 million and basic earnings per share of $0.43.
These Level 3 results are included in a supplemental schedule attached hereto and are also available on CenturyLink’s investor relations Web site at ir.centurylink.com.
Outlook
The company anticipates standalone CenturyLink full-year 2017 results to be below its full-year guidance provided in February of this year (adjusted for the Colocation Sale), primarily due to lower strategic revenue growth during the course of the year and higher capital expenditures than originally anticipated.
CenturyLink is reiterating standalone Level 3 full-year 2017 outlook for Adjusted EBITDA of $2.94 to $3.00 billion and Free Cash Flow of $1.10 to $1.16 billion. All other Level 3 outlook measures also remain unchanged.

All 2017 guidance figures and 2017 outlook statements included in this release (i) speak as of November 8, 2017 only, (ii) include the financial impact of CenturyLink's sale of its data centers and colocation business effective May 1, 2017, (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 the Level 3 acquisition and other 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. All 2017 guidance figures and 2017 outlook statements for standalone CenturyLink exclude the financial impact of acquiring Level 3 on November 1, 2017. 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 4:00 p.m. Central Time today, November 8, 2017. The conference call will be streamed live over CenturyLink's website at ir.centurylink.com. Additional information regarding third quarter 2017 results, including the presentation management will review during the conference call, will be available on the Investor Relations website prior to the call. If you are unable to join the call via the Web, the call can be accessed live at +1 877-283-5145 (U.S. Domestic) or +1 312-281-1200 (International).

A telephone replay of the call will be available beginning at 7:00 p.m. CST on November 8, 2017, and ending November 15, 2017, at 11:59 p.m. CST. The replay can be accessed by dialing +1 800-633-8284 (U.S. Domestic) or +1 402-977-9140 (International), reservation code 21860392. A webcast replay of the call will also be available on our website beginning at 7:00 p.m. CST on November 8, 2017, and ending February 6, 2018 at 7:00 p.m. CST.

Reconciliation to GAAP
This release includes certain non-GAAP historical and forward-looking financial measures, including but not limited to adjusted EBITDA, free cash flow, adjusted free cash flow, unlevered cash flow, core revenues, adjusted net income, adjusted diluted EPS and adjustments to GAAP measures to exclude the effect of special items or currency fluctuations. 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.

3




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 present or calculate its non-GAAP measures differently from other companies and, as noted in Note 2 below, calculates certain of its non-GAAP measures differently from Level 3.
About CenturyLink
CenturyLink (NYSE: CTL) is the second largest U.S. communications provider to global enterprise customers. With customers in more than 60 countries and an intense focus on the customer experience, CenturyLink strives to be the world’s best networking company by solving customers’ increased demand for reliable and secure connections. The company also serves as its customers’ trusted partner, helping them manage increased network and IT complexity and providing managed network and cyber security solutions that help protect their business.
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 timely realize the anticipated benefits of our recently-completed acquisition of Level 3, 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 debt repayments, capital expenditures, operating costs, periodic share repurchases, dividends, 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, 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

4


                            

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)
On November 1, 2017, CenturyLink acquired Level 3 Communications, Inc. through successive merger transactions, including a merger of Level 3 into its successor-in-interest, Level 3 Parent, LLC.
(2)
See attachments for reconciliations of non-GAAP figures used by CenturyLink and Level 3 to comparable GAAP figures. As illustrated in these attached reconciliation statements, CenturyLink and Level 3 have historically defined their respective non-GAAP measures differently.
(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.
 
 
 
 

5





CenturyLink, Inc.
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016
(UNAUDITED)
(Dollars in millions, except per share amounts; shares in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended September 30,
 
Increase / (decrease)
 
Nine months ended September 30,
 
Increase / (decrease)
 
 
2017
 
2016
 
 
2017
 
2016
 
OPERATING REVENUES *
 
 
 
 
 
 
 
 
 
 
 
 
Strategic
$
1,892

 
2,027

 
(7
)%
 
5,820

 
6,070

 
(4
)%
 
Legacy
1,705

 
1,888

 
(10
)%
 
5,235

 
5,790

 
(10
)%
 
Data integration
134

 
163

 
(18
)%
 
385

 
402

 
(4
)%
 
Other
303

 
304

 
 %
 
893

 
919

 
(3
)%
 
Total operating revenues
4,034

 
4,382

 
(8
)%
 
12,333

 
13,181

 
(6
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
OPERATING EXPENSES
 
 
 
 
 
 
 
 
 
 
 
 
Cost of services and products
1,927

 
1,996

 
(3
)%
 
5,705

 
5,845

 
(2
)%
 
Selling, general and administrative **
710

 
798

 
(11
)%
 
2,404

 
2,450

 
(2
)%
 
Depreciation and amortization
910

 
995

 
(9
)%
 
2,739

 
2,958

 
(7
)%
 
Total operating expenses
3,547

 
3,789

 
(6
)%
 
10,848

 
11,253

 
(4
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
OPERATING INCOME
487

 
593

 
(18
)%
 
1,485

 
1,928

 
(23
)%
 
 
 
 
 
 
 
 
 
 
 
 
OTHER (EXPENSE) INCOME
 
 
 
 
 
 
 
 
 
 
 
 
Interest expense
(362
)
 
(327
)
 
11
 %
 
(1,000
)
 
(998
)
 
 %
 
Other income (expense), net **
14

 
(17
)
 
(182
)%
 
1

 
16

 
(94
)%
 
Income tax expense
(47
)
 
(97
)
 
(52
)%
 
(214
)
 
(362
)
 
(41
)%
NET INCOME
$
92

 
152

 
(39
)%
 
272

 
584

 
(53
)%
BASIC EARNINGS PER SHARE
$
0.17

 
0.28

 
(39
)%
 
0.50

 
1.08

 
(54
)%
DILUTED EARNINGS PER SHARE
$
0.17

 
0.28

 
(39
)%
 
0.50

 
1.08

 
(54
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
AVERAGE SHARES OUTSTANDING
 
 
 
 
 
Basic
541,521

 
539,806
 
 %
 
541,113

 
539,411
 
 %
 
Diluted
541,963

 
540,917
 
 %
 
541,879

 
540,493
 
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
DIVIDENDS PER COMMON SHARE
$
0.54

 
0.54

 
 %
 
1.62

 
1.62

 
 %
 
 
 
 
 
 
 
 
 
 
 
 

 
 
 
 
 
 
 
 
 
 
 
*
During the second quarter of 2017, CenturyLink determined that certain of its legacy services, specifically its dark fiber network leasing, are more closely aligned with CenturyLink's strategic services than with its legacy services. As a result, CenturyLink now reflects these operating revenues as strategic services, and CenturyLink has 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 $36 million for the three and nine months ended September 30, 2016, respectively.
**
In the first quarter of 2017, CenturyLink 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 CenturyLink's 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 $2 million and $11 million reduction in operating income and a corresponding decrease in other (expense) income, net for the three and nine months ended September 30, 2016, respectively.

6



CenturyLink, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2017 AND DECEMBER 31, 2016
(UNAUDITED)
(Dollars in millions)
 
As of 
 September 30, 2017
 
As of 
 December 31, 2016
ASSETS
 
 
 
CURRENT ASSETS
 
 
 
Cash and cash equivalents
$
160

 
222

Other current assets
2,534

 
4,940

   Total current assets
2,694

 
5,162

 
 
 
 
NET PROPERTY, PLANT AND EQUIPMENT
 
 
 
Property, plant and equipment
41,352

 
39,194

Accumulated depreciation
(23,718
)
 
(22,155
)
   Net property, plant and equipment
17,634

 
17,039

 
 
 
 
GOODWILL AND OTHER ASSETS
 
 
 
Goodwill
19,638

 
19,650

Restricted cash
6,004

 
2

Other, net
4,566

 
5,164

    Total goodwill and other assets
30,208

 
24,816

 
 
 
 
TOTAL ASSETS
$
50,536

 
47,017

 
 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
CURRENT LIABILITIES
 
 
 
Current maturities of long-term debt
$
124

 
1,503

Other current liabilities
3,142

 
3,846

    Total current liabilities
3,266

 
5,349

 
 
 
 
LONG-TERM DEBT
24,854

 
18,185

DEFERRED CREDITS AND OTHER LIABILITIES
9,456

 
10,084

STOCKHOLDERS' EQUITY
12,960

 
13,399

 
 
 
 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$
50,536

 
47,017

 
 
 
 


7



 
CenturyLink, Inc.
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016
 
(UNAUDITED)
 
(Dollars in millions)
 
 
 
 
 
 
 
Nine months ended
 
 
September 30, 2017 *
 
September 30, 2016 *
 
OPERATING ACTIVITIES
 
 
 
 
Net income
$
272

 
584

 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
2,739

 
2,958

 
Deferred income taxes
(243
)
 
32

 
Loss on the sale of data centers and colocation business
82

 

 
Impairment of assets held for sale
11

 
1

 
Provision for uncollectible accounts
127

 
144

 
Net loss on early retirement of debt
5

 
27

 
Share-based compensation
64

 
60

 
Changes in current assets and liabilities, net
(209
)
 
(129
)
 
Retirement benefits
(181
)
 
(143
)
 
Changes in other noncurrent assets and liabilities, net
(54
)
 
(41
)
 
Other, net
87

 
19

 
Net cash provided by operating activities
2,700

 
3,512

 
INVESTING ACTIVITIES
 
 
 
 
Payments for property, plant and equipment and capitalized software
(2,363
)
 
(2,010
)
 
Cash paid for acquisitions
(5
)
 
(24
)
 
Proceeds from the sale of data centers and colocation business, less cash sold
1,467

 

 
Proceeds from sale of property
51

 
22

 
Net cash used in investing activities
(850
)
 
(2,012
)
 
FINANCING ACTIVITIES
 
 
 
 
Net proceeds from issuance of long-term debt
6,608

 
2,161

 
Proceeds from financing obligation
356

 

 
Payments of long-term debt
(1,612
)
 
(2,436
)
 
Net payments on 2012 credit facility and revolving line of credit
(370
)
 
(325
)
 
Dividends paid
(881
)
 
(876
)
 
Proceeds from issuance of common stock
5

 
5

 
Shares withheld to satisfy tax withholdings
(16
)
 
(15
)
 
Net cash provided by (used in) financing activities
4,090

 
(1,486
)
 
Net increase in cash, cash equivalents and restricted cash
5,940

 
14

*
Cash, cash equivalents and restricted cash at beginning of period
224

 
128

*
Cash, cash equivalents and restricted cash at end of period
$
6,164

 
142

 
 
 
 
 
*
In the second quarter of 2017, CenturyLink 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 prior presentation, which explained 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.

8



CenturyLink, Inc.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(UNAUDITED)
(Dollars in millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended September 30, 2017
 
Three months ended September 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 *
$
487

 

(1)
487

 
593

 
(8
)
(2)
601

 
Add: Depreciation and amortization
910

 


910

 
995

 

 
995

 
Adjusted EBITDA
$
1,397

 

 
1,397

 
1,588

 
(8
)
 
1,596

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
$
4,034

 

 
4,034

 
4,382

 

 
4,382

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating income margin (operating income divided by revenues)
12.1
%
 
 
 
12.1
%
 
13.5
%
 
 
 
13.7
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA margin (adjusted EBITDA divided by revenues)
34.6
%
 
 
 
34.6
%
 
36.2
%
 
 
 
36.4
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted free cash flow
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA
 
 
 
 
$
1,397

 
 
 
 
 
1,596

 
Less: Capital expenditures (3)
 
 
 
 
(749
)
 
 
 
 
 
(740
)
 
Less: Cash paid for interest, net of amounts capitalized
 
 
 
 
(293
)
 
 
 
 
 
(262
)
 
Less: Pension and postretirement impacts (4)
 
 
 
 
(125
)
 
 
 
 
 
(115
)
 
Less: Cash paid for income taxes, net
 
 
 
 
(118
)
 
 
 
 
 
(323
)
 
Less: Ongoing EBITDA impacts of ASC 840-40 on sale of data centers
 
 
 
 
(25
)
 
 
 
 
 

 
Add: Share-based compensation
 
 
 
 
21

 
 
 
 
 
20

 
Add: Other (expense) income, net *
 
 
 
 
1

 
 
 
 
 
10

 
Adjusted free cash flow (5)
 
 
 
 
$
109

 
 
 
 
 
186

 
 
 
 
 
 
 
 
 
 
 
 
 
SPECIAL ITEMS
 
 
 
 
 
 
 
 
 
 
 
(1) -
Costs related to CenturyLink's acquisition of Level 3 ($37 million) offset by a favorable adjustment to the loss associated with the sale of CenturyLink's data centers and colocation business $37 million.
(2) -
Includes severance costs associated with reduction in force initiatives ($4 million), integration costs associated with CenturyLink's acquisition of Qwest ($1 million), costs associated with a large billing system integration project ($7 million), less an offsetting gain on the sale of a building $4 million.
 
 
ADJUSTED FREE CASH FLOW
(3) -
Excludes $4 million in third quarter 2017 and $6 million in third quarter 2016 of capital expenditures related to the integration of Qwest and Savvis.
(4) -
2017 includes net periodic pension benefit expense of $1 million, net periodic postretirement benefit expense of $34 million, contributions to our qualified pension plan trust of ($100 million) and ($1 million) of benefits paid to participants of CenturyLink's non-qualified pension plans. Postretirement contributions included benefits paid by company ($74 million) offset by participant contributions $13 million and direct subsidy receipts $2 million.
     -
2016 includes net periodic pension benefit income of ($18 million), net periodic postretirement benefit expense of $36 million, contributions to our qualified pension plan trust of ($100 million) and ($2 million) of benefits paid to participants of CenturyLink's non-qualified pension plans. Postretirement contributions included benefits paid by company ($47 million) offset by participant contributions $14 million and direct subsidy receipts $2 million.
(5) -
Excludes special items identified in items (1) and (2).
*
In the first quarter of 2017, CenturyLink 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 CenturyLink's 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 $2 million reduction in operating income and a corresponding decrease in total other expense, net for the three months ended September 30, 2016.

9



CenturyLink, Inc.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(UNAUDITED)
(Dollars in millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine months ended September 30, 2017
 
Nine months ended September 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 *
$
1,485

 
(141
)
(1)
1,626

 
1,928

 
(42
)
(3)
1,970

 
Add: Depreciation and amortization
2,739

 
(6
)
(2)
2,745

 
2,958

 

 
2,958

 
Adjusted EBITDA
$
4,224

 
(147
)
 
4,371

 
4,886

 
(42
)
 
4,928

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
$
12,333

 

 
12,333

 
13,181

 

 
13,181

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating income margin (operating income divided by revenues)
12.0
%
 
 
 
13.2
%
 
14.6
%
 
 
 
14.9
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA margin (adjusted EBITDA divided by revenues)
34.2
%
 
 
 
35.4
%
 
37.1
%
 
 
 
37.4
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted free cash flow
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA
 
 
 
 
$
4,371

 
 
 
 
 
4,928

 
Less: Capital expenditures (4)
 
 
 
 
(2,358
)
 
 
 
 
 
(1,995
)
 
Less: Cash paid for interest, net of amounts capitalized
 
 
 
 
(917
)
 
 
 
 
 
(922
)
 
Less: Pension and postretirement impacts (5)
 
 
 
 
(181
)
 
 
 
 
 
(143
)
 
Less: Cash paid for income taxes, net
 
 
 
 
(378
)
 
 
 
 
 
(344
)
 
Less: Ongoing EBITDA impacts of ASC 840-40 on sale of data centers
 
 
 
 
(40
)
 
 
 
 
 

 
Add: Share-based compensation
 
 
 
 
64

 
 
 
 
 
60

 
Add: Other (expense) income, net *
 
 
 
 
(12
)
 
 
 
 
 
43

 
Adjusted free cash flow (6)
 
 
 
 
$
549

 
 
 
 
 
1,627

 
 
 
 
 
 
 
 
 
 
 
 
 
SPECIAL ITEMS
 
 
 
 
 
 
 
 
 
 
 
(1) -
Costs related to CenturyLink's acquisition of Level 3 ($65 million), a loss associated with the sale of CenturyLink's data centers and colocation business ($82 million), partially offset by the termination of depreciation and amortization expense related to CenturyLink's sale of the data centers and colocation business $50 million, which were substantially offset by additional depreciation expense adjustment recorded on real estate assets CenturyLink was required to reflect on its 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 CenturyLink's 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 CenturyLink was required to reflect on its balance sheet as a result of not meeting the requirement of sale leaseback accounting.
(3) -
Includes severance costs associated with reduction in force initiatives ($25 million), integration costs associated with CenturyLink's 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.
 
 
ADJUSTED FREE CASH FLOW
(4) -
Excludes $5 million in 2017 and $15 million in 2016 of capital expenditures related to the integration of Qwest and Savvis.
(5) -
2017 includes net periodic pension benefit expense of $4 million, net periodic postretirement benefit expense of $102 million, contributions to our pension plan trust of ($100 million) and ($4 million) of benefits paid to participants of CenturyLink's non-qualified pension plans. Postretirement contributions included benefits paid by company ($231 million) offset by participant contributions $41 million and direct subsidy receipts $7 million.
     -
2016 includes net periodic pension benefit income of ($56 million), net periodic postretirement benefit expense of $107 million, contributions to our pension plan trust of ($100 million) and ($5 million) of benefits paid to participants of CenturyLink's non-qualified pension plans. Postretirement contributions included benefits paid by company ($136 million) offset by participant contributions $43 million and direct subsidy receipts $4 million.
(6) -
Excludes special items identified in items (1), (2) and (3).
*
In the first quarter of 2017, CenturyLink 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 CenturyLink's 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 $11 million reduction in operating income and a corresponding decrease in total other expense, net for the nine months ended September 30, 2016.

10



CenturyLink, Inc.
 
SUPPLEMENTAL NON-GAAP INFORMATION - ADJUSTED DILUTED EPS
 
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016
 
(UNAUDITED)
 
(Dollars and shares in millions, except per share amounts)
 
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended
 
Nine months ended
 
 
 
September 30, 2017
 
September 30, 2016
 
September 30, 2017
 
September 30, 2016
 
 
 
 
 
 
 
 
 
 
 
Net Income
$
92

 
152

 
272

 
584

 
 
 
 
 
 
 
 
 
 
 
Less Special Items:
 
 
 
 
 
 
 
 
 
Special items (excluding tax items)
(31
)
(1
)
(35
)
(3
)
(172
)
(5
)
(69
)
(7
)
 
Special income tax items and income tax effect of other special items
9

(2
)
13

(4
)
35

(6
)
26

(8
)
Total impact of special items
(22
)
 
(22
)
 
(137
)
 
(43
)
 
 
 
 
 
 
 
 
 
 
 
Net income, excluding special items
114

 
174

 
409

 
627

 
 
 
 
 
 
 
 
 
 
 
Add back certain items arising from purchase accounting:
 
 
 
 
 
 
 
 
Amortization of customer base intangibles:
 
 
 
 
 
 
 
 
 
Qwest
167

 
183

 
513

 
561

 
 
Embarq
10

 
15

 
40

 
55

 
 
Savvis
7

 
15

 
22

 
46

 
 
 
 
 
 
 
 
 
 
 
Amortization of fair value adjustment of long-term debt:
 
 
 
 
 
 
 
 
 
Embarq

 

 
1

 
3

 
 
Qwest

 
(3
)
 
(5
)
 
(12
)
 
 
 
 
 
 
 
 
 
 
 
Subtotal
184

 
210

 
571

 
653

 
Tax effect of items arising from purchasing accounting
(70
)
 
(79
)
 
(217
)
 
(247
)
 
Net adjustment, after taxes
114

 
131

 
354

 
406

 
 
 
 
 
 
 
 
 
 
 
Net income, as adjusted for above items
$
228

 
305

 
763

 
1,033

 
 
 
 
 
 
 
 
 
 
 
Weighted average diluted shares outstanding
542.0

 
540.9

 
541.9

 
540.5

 
 
 
 
 
 
 
 
 
 
 
Diluted EPS
(excluding special items)
$
0.21

 
0.32

 
0.75

 
1.16

 
 
 
 
 
 
 
 
 
 
 
Adjusted diluted EPS as adjusted for the above-listed purchase accounting intangible and interest amortizations (excluding special items)
$
0.42

 
0.56

 
1.41

 
1.91

 
 
 
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 CenturyLink's major acquisitions since mid-2009. Such presentation is not in accordance with generally accepted accounting principles but CenturyLink's management believes the presentation is useful to analysts and investors to understand the impacts of growing CenturyLink's business through acquisitions.
 
(1
)
Costs related to CenturyLink's acquisition of Level 3 ($37million) offset by a favorable adjustment to the loss associated with the sale of CenturyLink's data centers and colocation business $37 million, interest expense ($44 million) related to CenturyLink's $6 billion term loan secured financing for the acquisition of Level 3 and interest income $13 million earned from the pre-funded escrow established with the term loan proceeds.
 
(2
)
Income tax benefit of Items (1).
 
(3
)
Includes severance costs associated with reduction in force initiatives ($4 million), integration costs associated with CenturyLink's acquisition of Qwest ($1 million), costs associated with a large billing system integration project ($7 million) and a net loss associated with early retirement of debt ($27 million), less an offsetting gain on the sale of a building $4 million.
 
(4
)
Income tax benefit of Item (3).
 
(5
)
Costs related to CenturyLink's acquisition of Level 3 ($65 million), interest expense ($44 million) related to CenturyLink's $6 billion term loan secured financing for the acquisition of Level 3 and interest income $13 million earned from the pre-funded escrow, a loss associated with the sale of CenturyLink's data centers and colocation business ($82 million), partially offset by the termination of depreciation and amortization expense related to CenturyLink's sale of the data centers and colocation business $50 million, which were substantially offset by additional depreciation expense adjustment recorded on real estate assets CenturyLink was required to reflect on its balance sheet as a result of not meeting the requirement of sale leaseback accounting ($44 million).
 
(6
)
Income tax benefit of Item (5) $73 million, net of a tax benefit related to the sale of CenturyLink's data centers and colocation business ($38 million).
 
(7
)
Includes severance costs associated with reduction in force initiatives ($25 million), integration costs associated with CenturyLink's acquisition of Qwest ($8 million) and costs associated with a large billing system integration project ($13 million) and a net loss associated with early retirement of debt ($27 million), less an offsetting gain on the sale of a building $4 million.
 
(8
)
Income tax benefit of Item (7).
 

11



CenturyLink, Inc.
SELECTED SEGMENT FINANCIAL INFORMATION
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016
(UNAUDITED)
(Dollars in millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended September 30,
 
Nine months ended September 30,
 
 
 
2017
 
2016
 
2017
 
2016
Total reportable segment revenues
 
$
3,558

 
3,916

 
10,943

 
11,776

Total reportable segment expenses
 
1,913

 
2,068

 
5,720

 
6,009

Total reportable segment income
 
$
1,645

 
1,848

 
5,223

 
5,767

Total segment income margin (segment income divided by segment revenues)
 
46.2
%
 
47.2
%
 
47.7
%
 
49.0
%
 
 
 
 
 
 
 
 
 
 
Enterprise
 
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
 
 
 
Strategic services *
 
$
949

 
1,078

 
3,031

 
3,224

 
Legacy services *
 
1,092

 
1,205

 
3,341

 
3,699

 
Data integration
 
130

 
161

 
370

 
398

 
Total revenues
 
2,171

 
2,444

 
6,742

 
7,321

 
 
 
 
 
 
 
 
 
Expenses
 
1,292

 
1,425

 
3,907

 
4,116

 
 
 
 
 
 
 
 
 
 
Segment income
 
$
879

 
1,019

 
2,835

 
3,205

Segment income margin
 
40.5
%
 
41.7
%
 
42.0
%
 
43.8
%
 
 
 
 
 
 
 
 
 
 
Consumer
 
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
 
 
 
Strategic services
 
$
774

 
789

 
2,306

 
2,363

 
Legacy services
 
613

 
683

 
1,894

 
2,091

 
Data integration
 

 

 
1

 
1

 
Total revenues
 
1,387

 
1,472

 
4,201

 
4,455

 
 
 
 
 
 
 
 
 
Expenses
 
621

 
643

 
1,813

 
1,893

 
 
 
 
 
 
 
 
 
 
Segment income
 
$
766

 
829

 
2,388

 
2,562

Segment income margin
 
55.2
%
 
56.3
%
 
56.8
%
 
57.5
%
 
 
 
 
 
 
 
 
 
 
*
During the second quarter of 2017, CenturyLink determined that certain of its legacy services, specifically its dark fiber network leasing, are more closely aligned with CenturyLink's strategic services than with its legacy services. As a result, CenturyLink now reflects these operating revenues as strategic services, and CenturyLink has 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 $36 million for the three and nine months ended September 30, 2016, respectively.
 
 
 
 
 
 
 
 
 
 
 
In January 2017, CenturyLink implemented a new organizational structure designed to further strengthen its ability to attain its operational, strategic and financial goals. Prior to this reorganization, CenturyLink operated and reported as two segments, business and consumer. As a result of this reorganization, CenturyLink reassigned its information technology, managed hosting, cloud hosting and hosting area network services from its former business segment to a new non-reportable operating segment. In addition, CenturyLink changed the name of the predecessor business segment to enterprise segment. As of September 30, 2017 CenturyLink had the following two reportable segments: enterprise and consumer.


12



CenturyLink, Inc.
REVENUES
(UNAUDITED)
(Dollars in millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended
 
Nine months ended
 
 
 
September 30, 2017
 
September 30, 2016
 
September 30, 2017
 
September 30, 2016
Strategic services *
 
 
 
 
 
 
 
 
 
Enterprise high-bandwidth data services (1)
 
$
767

 
744

 
2,296

 
2,235

 
Other enterprise strategic services (2)
 
182

 
334

 
735

 
989

 
IT and managed services (3)
 
169

 
160

 
483

 
483

 
Consumer broadband services (4)
 
673

 
674

 
1,995

 
2,023

 
Other consumer strategic services (5)
 
101

 
115

 
311

 
340

 
Total strategic services revenues
 
1,892

 
2,027

 
5,820

 
6,070

 
 
 
 
 
 
 
 
 
Legacy services *
 
 
 
 
 
 
 
 
 
Enterprise voice services (6)
 
551

 
601

 
1,682

 
1,834

 
Enterprise low-bandwidth data services (7)
 
289

 
339

 
905

 
1,056

 
Other enterprise legacy services (8)
 
252

 
265

 
754

 
809

 
Consumer voice services (6)
 
541

 
605

 
1,678

 
1,854

 
Other consumer legacy services (9)
 
72

 
78

 
216

 
237

 
Total legacy services revenues
 
1,705

 
1,888

 
5,235

 
5,790

 
 
 
 
 
 
 
 
 
 
Data integration
 
 
 
 
 
 
 
 
 
  Enterprise data integration
 
130

 
161

 
370

 
398

 
  IT and managed services data integration
 
4

 
2

 
14

 
3

 
  Consumer data integration
 

 

 
1

 
1

 
Total data integration revenues
 
134

 
163

 
385

 
402

 
 
 
 
 
 
 
 
 
Other revenues
 
 
 
 
 
 
 
 
 
  High-cost support revenue (10)
 
165

 
171

 
501

 
518

 
  Other revenue (11)
 
138

 
133

 
392

 
401

 
Total other revenues
 
303

 
304

 
893

 
919

 
 
 
 
 
 
 
 
 
Total revenues
 
$
4,034

 
4,382

 
12,333

 
13,181

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1
)
Includes MPLS, Ethernet and wavelength 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, CenturyLink determined that certain of its legacy services, specifically its dark fiber network leasing, are more closely aligned with CenturyLink's strategic services than with its legacy services. As a result, CenturyLink now reflects these operating revenues as strategic services, and CenturyLink has 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 $36 million for the three and nine months ended September 30, 2016, respectively.

13



CenturyLink, Inc.
OPERATING METRICS
(UNAUDITED)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of
 
As of
 
As of
 
 
 
September 30, 2017
 
June 30, 2017
 
September 30, 2016
 
 
 
 
 
 
 
 
 
 
 
(In thousands)
Operating Metrics
 
 
 
 
 
 
Broadband subscribers
 
5,767

 
5,868

 
5,950

Access lines
 
10,506

 
10,733

 
11,231

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


14



 
Level 3 Parent, LLC
 
FINANCIAL RESULTS
 
THREE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016
 
(UNAUDITED)
 
(Dollars in millions, except per share amounts; shares in thousands)
 
 
 
 
 
Three months ended September 30,
 
 
2017
 
2016 (1)
 
 
 
 
 
Core Network Services Revenue
$
1,963

 
1,929

Wholesale Voice Services Revenue
96

 
104

 
Total Revenue
2,059

 
2,033

Network Access Costs
678

 
675

Network Access Margin
67.1
%
 
66.8
%
Network Related Expenses (NRE) (2)
340

 
331

Selling, General & Administrative Expenses (SG&A) (2)
320

 
311

Non-cash Compensation Expense
33

 
43

Adjusted EBITDA (3)
721

 
716

Adjusted EBITDA, excluding acquisition-related expenses (3) (4)
752

 
716

Adjusted EBITDA Margin (3)
35.0
%
 
35.2
%
Adjusted EBITDA Margin, excluding acquisition-related expenses (3) (4)
36.5
%
 
35.2
%
Cash Flows from Operating Activities (5)
691

 
645

Capital Expenditures
322

 
364

Capital Expenditures, excluding acquisition-related capital expenditures (6)
318

 
364

Unlevered Cash Flow (3)
493

 
407

Unlevered Cash Flow, excluding acquisition-related expenses (3) (5)
503

 
407

Free Cash Flow (3)
369

 
281

Free Cash Flow, excluding acquisition-related expenses (3) (5)
379

 
281

Net Income
$
157

 
143

Net Income per Common Share - Basic
$
0.43

 
0.40

Weighted Average Shares Outstanding - Basic
363,471

 
359,561

 
 
 
 
 
(1) -
The reported third quarter 2016 results have been adjusted to reflect changes made to customer assignments between the wholesale and enterprise channels as of the beginning of 2017.
(2) -
Excludes non-cash compensation expense.
(3) -
See schedule of non-GAAP metrics for definitions and reconciliation to GAAP measures.
(4) -
In the third quarter 2017, acquisition-related expenses were $31 million.
(5) -
In the third quarter 2017, cash paid for acquisition-related expenses was $10 million.
(6) -
In the third quarter 2017, acquisition-related capital expenditures were $4 million.

15



Level 3 Parent, LLC
CORE NETWORK SERVICE REVENUE
(UNAUDITED)
(Dollars in millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3Q17 / 3Q16 Percent Change
 
3Q17 / 3Q16 Percent Change, Constant Currency
 
 
 
 
 
 
 
 
3Q17
 
3Q16 (1)
 
North America
$
1,597

 
$
1,573

 
2
 %
 
2
 %
 
Wholesale
404

 
412

 
(2
)%
 
(2
)%
 
Enterprise
1,193

 
1,161

 
3
 %
 
3
 %
 
 
 
 
 
 
 
 
 
EMEA
$
184

 
$
180

 
2
 %
 
1
 %
 
Wholesale
57

 
58

 
(2
)%
 
(5
)%
 
Enterprise
113

 
105

 
8
 %
 
6
 %
 
UK Government
14

 
17

 
(18
)%
 
(14
)%
 
 
 
 
 
 
 
 
 
Latin America
$
182

 
$
176

 
3
 %
 
3
 %
 
Wholesale
35

 
37

 
(5
)%
 
(8
)%
 
Enterprise
147

 
139

 
6
 %
 
6
 %
 
 
 
 
 
 
 
 
 
Total CNS Revenue
$
1,963

 
$
1,929

 
2
 %
 
2
 %
 
Wholesale CNS
496

 
507

 
(2
)%
 
(3
)%
 
Enterprise CNS
1,467

 
1,422

 
3
 %
 
3
 %
 
 
(1) -
The reported third quarter 2016 results have been adjusted to reflect changes made to customer assignments between the wholesale and enterprise channels as of the beginning of 2017.


16



Level 3 Parent, LLC and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(Dollars in millions, except per share amounts; shares in thousands)

 
 
 
 
 
 
 
Three Months Ended
 
September 30, 2017
 
June 30, 2017
 
September 30, 2016
Revenue
$
2,059

 
2,061

 
2,033

 
 
 
 
 
 
Costs and Expenses
 
 
 
 
 
Network access costs
678

 
675

 
675

Network related expenses
345

 
337

 
337

Depreciation and amortization
333

 
330

 
319

Selling, general and administrative expenses
348

 
366

 
348

Total Costs and Expenses
1,704

 
1,708

 
1,679

 
 
 
 
 
 
Operating Income
355

 
353

 
354

 
 
 
 
 
 
Other Income (Expense):
 
 
 
 
 
Interest income
6

 
3

 
1

Interest expense
(134
)
 
(132
)
 
(139
)
Other, net
6

 
(1
)
 
1

Total Other Expense
(122
)
 
(130
)
 
(137
)
 
 
 
 
 
 
Income Before Income Taxes
233

 
223

 
217

 
 
 
 
 
 
Income Tax Expense
(76
)
 
(69
)
 
(74
)
 
 
 
 
 
 
Net Income
$
157

 
154

 
143

 
 
 
 
 
 
Basic Earnings per Common Share:
 
 
 
 
 
Net Income per Share
$
0.43

 
0.42

 
0.40

Weighted-Average Shares Outstanding (in thousands)
363,471

 
362,385

 
359,561

 
 
 
 
 
 
Diluted Earnings per Common Share:
 
 
 
 
 
Net Income per Share
$
0.43

 
0.42

 
0.39

Weighted-Average Shares Outstanding (in thousands)
365,323

 
365,002

 
361,907


17



Level 3 Parent, LLC and Subsidiaries
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(Dollars in millions)

 
 
 
 
 
 
 
September 30, 2017
 
June 30, 2017
 
September 30, 2016