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) |
¬ | 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)) |
Item 2.02. | Results of Operations and Financial Condition. |
Item 9.01 | Financial Statements and Exhibits |
(d) | Exhibits |
CenturyLink, Inc. | ||
Dated: February 12, 2014 | By: | /s/ David D. Cole |
David D. Cole | ||
Executive Vice President - Controller | ||
and Operations Support | ||
Exhibit No. | Description | |
Exhibit 99.1 | Press release dated February 12, 2014, reporting fourth quarter of 2013 operating results. |
NEWS RELEASE |
FOR IMMEDIATE RELEASE: | FOR MORE INFORMATION CONTACT: |
February 12, 2014 | Kristina Waugh 318.340.5627 |
kristina.r.waugh@centurylink.com |
• | Achieved core revenues of $4.1 billion in fourth quarter, a year-over-year decline of 0.4% compared with a 2.0% year-over-year decline in fourth quarter 2012; Strategic revenues3 grew 5.4% from the fourth quarter a year-ago. |
• | Generated free cash flow of $601 million, excluding special items and integration-related capital expenditures. |
• | Continued growing momentum in data hosting cross-sell opportunities and new sales. |
• | Added approximately 49,000 high-speed Internet subscribers during fourth quarter, ending the period with nearly six million subscribers in service. |
• | Ended the quarter with 175,000 CenturyLink® PrismTM TV subscribers, a record increase of approximately 26,000 subscribers in fourth quarter 2013. |
• | Purchased and retired 10.5 million shares for $331 million during fourth quarter 2013. |
• | Strategic revenues were $683 million in the quarter, a 7.7% increase over fourth quarter 2012. |
• | Generated nearly $1.50 billion in total revenues, a decrease of 1.7% from fourth quarter 2012, reflecting the continued decline in legacy services tempered by growth in strategic services. |
• | Added a record 26,000 CenturyLink® PrismTM TV customers during fourth quarter 2013, growing total customers 17% from the prior quarter. |
• | Strategic revenues were $643 million in the quarter, a 7.5% increase over fourth quarter 2012, driven by strength in high-bandwidth offerings such as MPLS4 and Ethernet services. |
• | Generated $1.56 billion in total revenues, an increase of 1.0% from fourth quarter 2012, as growth in high-bandwidth offerings offset lower legacy services revenues. |
• | Continued strong sales momentum in fourth quarter. |
• | Strategic revenues were $581 million in the quarter, a 1.6% increase over fourth quarter 2012, as increases in wireless carrier bandwidth demand and Ethernet sales, along with delays in copper-based wireless disconnects, offset declines in copper-based revenue. |
• | Generated $884 million in total revenues, a decrease of 2.5% from fourth quarter 2012, reflecting the continued decline in legacy revenues, primarily driven by lower long distance and switched access minutes of use, along with access rate reductions. |
• | Completed 930 fiber builds in fourth quarter 2013 and more than 4,100 fiber builds in full-year 2013. |
• | Operating revenues were $353 million in the quarter, a 3.8% increase from fourth quarter 2012. |
• | Colocation revenues were $147 million, a 1.4% increase from fourth quarter 2012, and managed hosting revenues were $142 million, representing a 14% increase over the same period a year ago. |
• | In January, Savvis began operating as CenturyLink Technology Solutions, aligning the brand with CenturyLink and demonstrating deeper ties to the broad portfolio of IT solutions delivered to businesses. |
Operating Revenues | $4.46 to $4.51 billion | |
Core Revenues | $4.07 to $4.12 billion | |
Operating Cash Flow | $1.73 to $1.78 billion | |
Adjusted Diluted EPS | $0.58 to $0.63 |
Operating Revenues | $17.90 to $18.10 billion | |
Annual percent change in Operating Revenues | 0.0% to -1.2% | |
Core Revenues | $16.25 to 16.45 billion | |
Annual percent change in Core Revenues | 0.0% to -1.2 % | |
Operating Cash Flow | $7.05 to $7.25 billion | |
Adjusted Diluted EPS | $2.40 to $2.60 | |
Free Cash Flow5 | $2.6 to $2.8 billion |
CenturyLink, Inc. | ||||||||||||||||||||||||||
CONSOLIDATED STATEMENTS OF (LOSS) INCOME | ||||||||||||||||||||||||||
THREE MONTHS ENDED DECEMBER 31, 2013 AND 2012 | ||||||||||||||||||||||||||
(UNAUDITED) | ||||||||||||||||||||||||||
(Dollars in millions, except per share amounts; shares in thousands) | ||||||||||||||||||||||||||
Three Months Ended December 31, 2013 | Three Months Ended December 31, 2012 | |||||||||||||||||||||||||
As adjusted | As adjusted | Increase | ||||||||||||||||||||||||
excluding | excluding | (decrease) | ||||||||||||||||||||||||
Less | special | Less | special | Increase | excluding | |||||||||||||||||||||
As | special | items | As | special | items | (decrease) | special | |||||||||||||||||||
reported | Items | (Non-GAAP) | reported | Items | (Non-GAAP) | as reported | items | |||||||||||||||||||
OPERATING REVENUES | ||||||||||||||||||||||||||
Strategic | $ | 2,260 | — | 2,260 | 2,144 | — | 2,144 | 5.4 | % | 5.4 | % | |||||||||||||||
Legacy | 1,850 | — | 1,850 | 1,983 | — | 1,983 | (6.7 | )% | (6.7 | )% | ||||||||||||||||
Data integration | 186 | — | 186 | 189 | — | 189 | (1.6 | )% | (1.6 | )% | ||||||||||||||||
Other | 246 | — | 246 | 267 | — | 267 | (7.9 | )% | (7.9 | )% | ||||||||||||||||
4,542 | — | 4,542 | 4,583 | — | 4,583 | |||||||||||||||||||||
OPERATING EXPENSES | ||||||||||||||||||||||||||
Cost of services and products | 1,920 | 6 | (1) | 1,914 | 1,907 | 9 | (5) | 1,898 | 0.7 | % | 0.8 | % | ||||||||||||||
Selling, general and administrative | 823 | 31 | (1) | 792 | 790 | 18 | (5) | 772 | 4.2 | % | 2.6 | % | ||||||||||||||
Depreciation and amortization | 1,166 | — | 1,166 | 1,220 | — | 1,220 | (4.4 | )% | (4.4 | )% | ||||||||||||||||
Impairment of goodwill | (8 | ) | (8 | ) | (2) | — | — | — | — | — | % | — | % | |||||||||||||
3,901 | 29 | 3,872 | 3,917 | 27 | 3,890 | |||||||||||||||||||||
OPERATING INCOME | 641 | (29 | ) | 670 | 666 | (27 | ) | 693 | ||||||||||||||||||
OTHER INCOME (EXPENSE) | ||||||||||||||||||||||||||
Interest expense | (328 | ) | — | (328 | ) | (315 | ) | — | (315 | ) | 4.1 | % | 4.1 | % | ||||||||||||
Other income (expense) | 17 | 10 | (3) | 7 | 23 | 18 | (6) | 5 | (26.1 | )% | 40.0 | % | ||||||||||||||
Income tax expense | (91 | ) | 33 | (4) | (124 | ) | (141 | ) | 2 | (7) | (143 | ) | (35.5 | )% | (13.3 | )% | ||||||||||
NET INCOME | $ | 239 | 14 | 225 | 233 | (7 | ) | 240 | ||||||||||||||||||
BASIC EARNINGS PER SHARE | $ | 0.41 | 0.02 | 0.38 | 0.37 | (0.01 | ) | 0.39 | 10.8 | % | (2.6 | )% | ||||||||||||||
DILUTED EARNINGS PER SHARE | $ | 0.41 | 0.02 | 0.38 | 0.37 | (0.01 | ) | 0.38 | 10.8 | % | — | % | ||||||||||||||
AVERAGE SHARES OUTSTANDING | ||||||||||||||||||||||||||
Basic | 585,259 | 585,259 | 621,578 | 621,578 | (5.8 | )% | (5.8 | )% | ||||||||||||||||||
Diluted | 586,382 | 586,382 | 623,654 | 623,654 | (6.0 | )% | (6.0 | )% | ||||||||||||||||||
DIVIDENDS PER COMMON SHARE | $ | 0.540 | 0.540 | 0.725 | 0.725 | (25.5 | )% | (25.5 | )% | |||||||||||||||||
SPECIAL ITEMS | ||||||||||||||||||||||||||
(1) - | Includes the Communications Workers of America contract ratification bonus ($6 million), severance costs associated with recent headcount reductions ($13 million), integration, severance and retention costs associated with our acquisition of Qwest ($20 million) and integration, severance and retention costs associated with our acquisition of Savvis $2 million. | |||||||||||||||||||||||||
(2) - | Non-cash, non-tax deductible goodwill impairment adjustment of $8 million. | |||||||||||||||||||||||||
(3) - | Gain on early retirement of debt. | |||||||||||||||||||||||||
(4) - | Income tax benefit of Item (1) and (3) and release of a tax reserve ($22 million). | |||||||||||||||||||||||||
(5) - | Includes severance costs associated with reduction in force initiatives ($13 million), integration, severance and retention costs associated with our acquisition of Qwest ($9 million) and integration, severance, and retention costs associated with our acquisition of Savvis ($5 million). | |||||||||||||||||||||||||
(6) - | Gain on the sale of non-operating investments ($3 million) and early retirement of debt ($15 million). | |||||||||||||||||||||||||
(7) - | Income tax benefit of Items (5) through (6). | |||||||||||||||||||||||||
*During the fourth quarter of 2013, we reallocated the discounts on our bundled services (local, long distance, and broadband) to the component products and services. The net effect of the bundled services reallocation was a reclassification of revenues from legacy services to strategic services. Also during the fourth quarter of 2013, we reallocated our CLEC revenues into their component products and services. The net effect of this CLEC reallocation was a reclassification of revenues from strategic services to legacy services. The prior periods have been restated to reflect these reclassifications. |
CenturyLink, Inc. | ||||||||||||||||||||||||||
CONSOLIDATED STATEMENTS OF (LOSS) INCOME | ||||||||||||||||||||||||||
TWELVE MONTHS ENDED DECEMBER 31, 2013 AND 2012 | ||||||||||||||||||||||||||
(UNAUDITED) | ||||||||||||||||||||||||||
(Dollars in millions, except per share amounts; shares in thousands) | ||||||||||||||||||||||||||
Twelve Months Ended December 31, 2013 | Twelve Months Ended December 31, 2012 | |||||||||||||||||||||||||
As adjusted | As adjusted | Increase | ||||||||||||||||||||||||
excluding | excluding | (decrease) | ||||||||||||||||||||||||
Less | special | Less | special | Increase | excluding | |||||||||||||||||||||
As | special | items | As | special | items | (decrease) | special | |||||||||||||||||||
reported | Items | (Non-GAAP) | reported | Items | (Non-GAAP) | as reported | items | |||||||||||||||||||
OPERATING REVENUES | ||||||||||||||||||||||||||
Strategic | $ | 8,822 | — | 8,822 | 8,427 | — | 8,427 | 4.7 | % | 4.7 | % | |||||||||||||||
Legacy | 7,617 | — | 7,617 | 8,221 | — | 8,221 | (7.3 | )% | (7.3 | )% | ||||||||||||||||
Data integration | 656 | — | 656 | 672 | — | 672 | (2.4 | )% | (2.4 | )% | ||||||||||||||||
Other | 1,000 | — | 1,000 | 1,056 | — | 1,056 | (5.3 | )% | (5.3 | )% | ||||||||||||||||
18,095 | — | 18,095 | 18,376 | — | 18,376 | |||||||||||||||||||||
OPERATING EXPENSES | ||||||||||||||||||||||||||
Cost of services and products | 7,507 | 15 | (1) | 7,492 | 7,639 | 34 | (5) | 7,605 | (1.7 | )% | (1.5 | )% | ||||||||||||||
Selling, general and administrative | 3,502 | 331 | (1) | 3,171 | 3,244 | 129 | (5) | 3,115 | 8.0 | % | 1.8 | % | ||||||||||||||
Depreciation and amortization | 4,541 | — | 4,541 | 4,780 | (30 | ) | (6) | 4,810 | (5.0 | )% | (5.6 | )% | ||||||||||||||
Impairment of goodwill | 1,092 | 1,092 | (2) | — | — | — | — | — | % | — | % | |||||||||||||||
16,642 | 1,438 | 15,204 | 15,663 | 133 | 15,530 | |||||||||||||||||||||
OPERATING INCOME | 1,453 | (1,438 | ) | 2,891 | 2,713 | (133 | ) | 2,846 | ||||||||||||||||||
OTHER INCOME (EXPENSE) | ||||||||||||||||||||||||||
Interest expense | (1,298 | ) | — | (1,298 | ) | (1,319 | ) | — | (1,319 | ) | (1.6 | )% | (1.6 | )% | ||||||||||||
Other income (expense) | 69 | 47 | (3) | 22 | (144 | ) | (165 | ) | (7) | 21 | (147.9 | )% | 4.8 | % | ||||||||||||
Income tax expense | (463 | ) | 164 | (4) | (627 | ) | (473 | ) | 128 | (8) | (601 | ) | (2.1 | )% | 4.3 | % | ||||||||||
NET (LOSS) INCOME | $ | (239 | ) | (1,227 | ) | 988 | 777 | (170 | ) | 947 | ||||||||||||||||
BASIC (LOSS) EARNINGS PER SHARE | $ | (0.40 | ) | (2.04 | ) | 1.64 | 1.25 | (0.27 | ) | 1.52 | (132.0 | )% | 7.9 | % | ||||||||||||
DILUTED (LOSS) EARNINGS PER SHARE | $ | (0.40 | ) | (2.04 | ) | 1.64 | 1.25 | (0.27 | ) | 1.52 | (132.0 | )% | 7.9 | % | ||||||||||||
AVERAGE SHARES OUTSTANDING | ||||||||||||||||||||||||||
Basic | 600,892 | 600,892 | 620,205 | 620,205 | (3.1 | )% | (3.1 | )% | ||||||||||||||||||
Diluted | 600,892 | 602,201 | 622,285 | 622,285 | (3.4 | )% | (3.2 | )% | ||||||||||||||||||
DIVIDENDS PER COMMON SHARE | $ | 2.160 | 2.160 | 2.900 | 2.900 | (25.5 | )% | (25.5 | )% | |||||||||||||||||
SPECIAL ITEMS | ||||||||||||||||||||||||||
(1) - | Includes a litigation reserve ($233 million), the Communications Workers of American contract ratification bonus ($6 million), severance costs associated with recent headcount reductions ($27 million), integration, severance and retention costs associated with our acquisition of Qwest ($47 million), integration, severance and retention costs associated with our acquisition of Savvis ($6 million), an accounting adjustment ($18 million) and an impairment of an office building ($9 million). | |||||||||||||||||||||||||
(2) - | Non-cash, non-tax deductible goodwill impairment charge of ($1.092 billion). | |||||||||||||||||||||||||
(3) - | Gain on the sale of a non-operating investment ($32 million), gain on early retirement of debt ($10 million) and settlements of other non-operating issues ($5 million). | |||||||||||||||||||||||||
(4) - | Income tax benefit of Items (1) and (3), a favorable federal income tax settlement ($33 million) and release of a tax reserve ($22 million). | |||||||||||||||||||||||||
(5) - | Includes severance costs associated with reduction in force initiatives ($81 million), integration, severance and retention costs associated with our acquisition of Qwest ($71 million) and integration, severance, and retention costs associated with our acquisition of Savvis ($14 million); partially offset with a $3 million credit related to tax incentives for the Embarq integration. | |||||||||||||||||||||||||
(6) - | Out-of-period depreciation adjustment ($30 million) to correct an overstatement of depreciation in prior quarters. | |||||||||||||||||||||||||
(7) - | Net loss associated with early retirement of debt ($179 million), partially offset by gains on the sales of non-operating investments $14 million. | |||||||||||||||||||||||||
(8) - | Income tax benefit of Items (5) through (7), partially offset by the benefit from the reversal of a valuation allowance ($14 million). | |||||||||||||||||||||||||
*During the fourth quarter of 2013, we reallocated the discounts on our bundled services (local, long distance, and broadband) to the component products and services. The net effect of the bundled services reallocation was a reclassification of revenues from legacy services to strategic services. Also during the fourth quarter of 2013, we reallocated our CLEC revenues into their component products and services. The net effect of this CLEC reallocation was a reclassification of revenues from strategic services to legacy services. The prior periods have been restated to reflect these reclassifications. |
CenturyLink, Inc. | ||||||||
CONDENSED CONSOLIDATED BALANCE SHEETS | ||||||||
DECEMBER 31, 2013 AND DECEMBER 31, 2012 | ||||||||
(UNAUDITED) | ||||||||
(Dollars in millions) | ||||||||
December 31, | December 31, | |||||||
2013 | 2012* | |||||||
ASSETS | ||||||||
CURRENT ASSETS | ||||||||
Cash and cash equivalents | $ | 168 | 211 | |||||
Other current assets | 3,739 | 3,427 | ||||||
Total current assets | 3,907 | 3,638 | ||||||
NET PROPERTY, PLANT AND EQUIPMENT | ||||||||
Property, plant and equipment | 34,307 | 31,933 | ||||||
Accumulated depreciation | (15,661 | ) | (13,024 | ) | ||||
Net property, plant and equipment | 18,646 | 18,909 | ||||||
GOODWILL AND OTHER ASSETS | ||||||||
Goodwill | 20,674 | 21,627 | ||||||
Other, net | 8,560 | 9,766 | ||||||
Total goodwill and other assets | 29,234 | 31,393 | ||||||
TOTAL ASSETS | $ | 51,787 | 53,940 | |||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
CURRENT LIABILITIES | ||||||||
Current maturities of long-term debt | $ | 785 | 1,205 | |||||
Other current liabilities | 3,624 | 3,390 | ||||||
Total current liabilities | 4,409 | 4,595 | ||||||
LONG-TERM DEBT | 20,181 | 19,400 | ||||||
DEFERRED CREDITS AND OTHER LIABILITIES | 10,006 | 10,656 | ||||||
STOCKHOLDERS' EQUITY | 17,191 | 19,289 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 51,787 | 53,940 | |||||
*We reclassified $123 million in software development costs, net of $30 million in accumulated amortization, from property, plant and equipment to other intangible assets on our consolidated balance sheet as of December 31, 2012 to conform to the current period presentation. | ||||||||
During the year ended December 31, 2013, we discovered and corrected an error that resulted in an understatement of our deferred tax benefit recorded in connection with the purchase accounting of Savvis and Qwest in 2011. We recognized a $105 million increase to our deferred tax benefit and a $105 million reduction to goodwill as of December 31, 2013 and 2012. |
CenturyLink, Inc. | |||||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||||||||||
TWELVE MONTHS ENDED DECEMBER 31, 2013 AND 2012 | |||||||||||||||
(UNAUDITED) | |||||||||||||||
(Dollars in millions) | |||||||||||||||
Twelve Months Ended December 31, 2013 | Twelve Months Ended December 31, 2012 | ||||||||||||||
OPERATING ACTIVITIES | |||||||||||||||
Net (loss) income | $ | (239 | ) | 777 | |||||||||||
Adjustments to reconcile net (loss) income to net | |||||||||||||||
cash provided by operating activities: | |||||||||||||||
Depreciation and amortization | 4,541 | 4,780 | |||||||||||||
Impairment of goodwill | 1,092 | — | |||||||||||||
Deferred income taxes | 391 | 394 | |||||||||||||
Provision for uncollectible accounts | 152 | 187 | |||||||||||||
Gain on sale of intangible assets | (32 | ) | — | ||||||||||||
Net (gain) loss on early retirement of debt | (10 | ) | 179 | ||||||||||||
Changes in current assets and current liabilities, net | 3 | (224 | ) | ||||||||||||
Retirement benefits | (342 | ) | (169 | ) | |||||||||||
Changes in other noncurrent assets and liabilities | 19 | 161 | |||||||||||||
Other, net | (16 | ) | (20 | ) | |||||||||||
Net cash provided by operating activities | 5,559 | 6,065 | |||||||||||||
INVESTING ACTIVITIES | |||||||||||||||
Payments for property, plant and equipment and capitalized software | (3,048 | ) | (2,919 | ) | |||||||||||
Proceeds from sale of property and intangible assets | 80 | 191 | |||||||||||||
Cash paid for acquisitions | (160 | ) | — | ||||||||||||
Other, net | (20 | ) | 38 | ||||||||||||
Net cash used in investing activities | (3,148 | ) | (2,690 | ) | |||||||||||
FINANCING ACTIVITIES | |||||||||||||||
Net proceeds from issuance of long-term debt | 2,481 | 3,362 | |||||||||||||
Payments of long-term debt | (2,010 | ) | (5,118 | ) | |||||||||||
Early retirement of debt costs | (95 | ) | 543 | ||||||||||||
Net (payments) borrowings on credit facility | (31 | ) | (346 | ) | |||||||||||
Dividends paid | (1,301 | ) | (1,811 | ) | |||||||||||
Net proceeds from issuance of common stock | 73 | 110 | |||||||||||||
Repurchase of common stock | (1,586 | ) | (37 | ) | |||||||||||
Other, net | 15 | 2 | |||||||||||||
Net cash used in financing activities | (2,454 | ) | (3,295 | ) | |||||||||||
Effect of exchange rate changes on cash and cash equivalents | — | 3 | |||||||||||||
Net increase in cash and cash equivalents | (43 | ) | 83 | ||||||||||||
Cash and cash equivalents at beginning of period | 211 | 128 | |||||||||||||
Cash and cash equivalents at end of period | $ | 168 | 211 |
CenturyLink, Inc. | ||||||||||||||||||||
SELECTED SEGMENT FINANCIAL INFORMATION | ||||||||||||||||||||
THREE MONTHS AND TWELVE MONTHS ENDED DECEMBER 31, 2013 AND 2012 | ||||||||||||||||||||
(UNAUDITED) | ||||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||
Three Months Ended December 31, | Twelve Months Ended December 31, | |||||||||||||||||||
2013 | 2012* | 2013 | 2012* | |||||||||||||||||
Total segment revenues | $ | 4,296 | 4,316 | 17,095 | 17,320 | |||||||||||||||
Total segment expenses | 2,140 | 2,090 | 8,249 | 8,244 | ||||||||||||||||
Total segment income | $ | 2,156 | 2,226 | 8,846 | 9,076 | |||||||||||||||
Total segment income margin (segment income divided by segment revenues) | 50.2 | % | 51.6 | % | 51.7 | % | 52.4 | % | ||||||||||||
Consumer | ||||||||||||||||||||
Revenues | ||||||||||||||||||||
Strategic services | $ | 683 | $ | 634 | $ | 2,650 | $ | 2,474 | ||||||||||||
Legacy services | 812 | 886 | 3,349 | 3,681 | ||||||||||||||||
Data integration | 1 | 2 | 5 | 7 | ||||||||||||||||
$ | 1,496 | $ | 1,522 | $ | 6,004 | $ | 6,162 | |||||||||||||
Expenses | ||||||||||||||||||||
Direct | $ | 454 | $ | 449 | $ | 1,758 | $ | 1,796 | ||||||||||||
Allocated | 120 | 122 | 473 | 495 | ||||||||||||||||
$ | 574 | $ | 571 | $ | 2,231 | $ | 2,291 | |||||||||||||
Segment income | $ | 922 | $ | 951 | $ | 3,773 | $ | 3,871 | ||||||||||||
Segment income margin | 61.6 | % | 62.5 | % | 62.8 | % | 62.8 | % | ||||||||||||
Business | ||||||||||||||||||||
Revenues | ||||||||||||||||||||
Strategic services | $ | 643 | $ | 598 | $ | 2,509 | $ | 2,356 | ||||||||||||
Legacy services | 735 | 762 | 2,976 | 3,112 | ||||||||||||||||
Data integration | 185 | 187 | 651 | 665 | ||||||||||||||||
$ | 1,563 | $ | 1,547 | $ | 6,136 | $ | 6,133 | |||||||||||||
Expenses | ||||||||||||||||||||
Direct | $ | 880 | $ | 839 | $ | 3,329 | $ | 3,285 | ||||||||||||
Allocated | 113 | 115 | 440 | 458 | ||||||||||||||||
$ | 993 | $ | 954 | $ | 3,769 | $ | 3,743 | |||||||||||||
Segment income | $ | 570 | $ | 593 | $ | 2,367 | $ | 2,390 | ||||||||||||
Segment income margin | 36.5 | % | 38.3 | % | 38.6 | % | 39.0 | % | ||||||||||||
Wholesale | ||||||||||||||||||||
Revenues | ||||||||||||||||||||
Strategic services | $ | 581 | $ | 572 | $ | 2,287 | $ | 2,297 | ||||||||||||
Legacy services | 303 | 335 | 1,292 | 1,428 | ||||||||||||||||
$ | 884 | $ | 907 | $ | 3,579 | $ | 3,725 | |||||||||||||
Expenses | ||||||||||||||||||||
Direct | $ | 44 | $ | 38 | $ | 169 | $ | 169 | ||||||||||||
Allocated | 246 | 263 | 989 | 1,061 | ||||||||||||||||
$ | 290 | $ | 301 | $ | 1,158 | $ | 1,230 | |||||||||||||
Segment income | $ | 594 | $ | 606 | $ | 2,421 | $ | 2,495 | ||||||||||||
Segment income margin | 67.2 | % | 66.8 | % | 67.6 | % | 67.0 | % | ||||||||||||
CenturyLink, Inc. | ||||||||||||||||||||
SELECTED SEGMENT FINANCIAL INFORMATION (Continued) | ||||||||||||||||||||
THREE AND TWELVE MONTHS ENDED DECEMBER 31, 2013 AND 2012 | ||||||||||||||||||||
(UNAUDITED) | ||||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||
Three Months Ended December 31, | Twelve Months Ended December 31, | |||||||||||||||||||
2013 | 2012* | 2013 | 2012* | |||||||||||||||||
Data Hosting | ||||||||||||||||||||
Revenues | ||||||||||||||||||||
Strategic services | $ | 353 | 340 | 1,376 | 1,300 | |||||||||||||||
$ | 353 | 340 | 1,376 | 1,300 | ||||||||||||||||
Expenses | ||||||||||||||||||||
Direct | $ | 284 | 266 | 1,096 | 987 | |||||||||||||||
Allocated | (1 | ) | (2 | ) | (5 | ) | (7 | ) | ||||||||||||
$ | 283 | 264 | 1,091 | 980 | ||||||||||||||||
Segment income | $ | 70 | 76 | 285 | 320 | |||||||||||||||
Segment income margin | 19.8 | % | 22.4 | % | 20.7 | % | 24.6 | % | ||||||||||||
*During the fourth quarter of 2013, we reallocated the discounts on our bundled services (local, long distance, and broadband) to the component products and services. The net effect of the bundled services reallocation was a reclassification of revenues from legacy services to strategic services. The prior periods have been restated to reflect this reclassification. | ||||||||||||||||||||
During the fourth quarter of 2013, we reallocated our CLEC revenues into their component products and services. The net effect of this CLEC reallocation was a reclassification of revenues from strategic services to legacy services. The prior periods have been restated to reflect this reclassification. | ||||||||||||||||||||
The Direct segment expenses for data hosting for the second quarter of 2013 have been restated to reflect the correction of a $3 million error relevant to severance and retention expenses. | ||||||||||||||||||||
During the first quarter of 2013, we reorganized our operating segments in order to strengthen our focus on the business market while continuing our commitment to our wholesale, hosting and consumer customers. We also revised our methodology for how we allocate our expenses to our segments to better align segment expenses with related revenues. We have restated prior periods to reflect the reorganization and the change in our allocation methodology. |
CenturyLink, Inc. | |||||||||||||||||||||
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES | |||||||||||||||||||||
(UNAUDITED) | |||||||||||||||||||||
(Dollars in millions) | |||||||||||||||||||||
Three Months Ended December 31, 2013 | Three Months Ended December 31, 2012 | ||||||||||||||||||||
As adjusted | As adjusted | ||||||||||||||||||||
Less | excluding | Less | excluding | ||||||||||||||||||
As | special | special | As | special | special | ||||||||||||||||
reported | Items | items | reported | Items | items | ||||||||||||||||
Operating cash flow and cash flow margin | |||||||||||||||||||||
Operating income | $ | 641 | (29 | ) | (1) | 670 | 666 | (27 | ) | (3) | 693 | ||||||||||
Add: Depreciation and amortization | 1,166 | — | 1,166 | 1,220 | — | 1,220 | |||||||||||||||
Add: Impairment of goodwill | (8 | ) | (8 | ) | (2) | — | — | — | — | ||||||||||||
Operating cash flow | $ | 1,799 | (37 | ) | 1,836 | 1,886 | (27 | ) | 1,913 | ||||||||||||
Revenues | $ | 4,542 | — | 4,542 | 4,583 | — | 4,583 | ||||||||||||||
Operating income margin (operating income divided by revenues) | 14.1 | % | 14.8 | % | 14.5 | % | 15.1 | % | |||||||||||||
Operating cash flow margin (operating cash flow divided by revenues) | 39.6 | % | 40.4 | % | 41.2 | % | 41.7 | % | |||||||||||||
Free cash flow | |||||||||||||||||||||
Operating cash flow | $ | 1,836 | 1,913 | ||||||||||||||||||
Less: Cash paid for income taxes, net of refunds | (3 | ) | (23 | ) | |||||||||||||||||
Less: Cash paid for interest, net of amounts capitalized | (419 | ) | (408 | ) | |||||||||||||||||
Less: Capital expenditures (4) | (820 | ) | (877 | ) | |||||||||||||||||
Add: Other income | 7 | 5 | |||||||||||||||||||
Free cash flow (5) | $ | 601 | 610 | ||||||||||||||||||
SPECIAL ITEMS | |||||||||||||||||||||
(1) - | Includes a non-cash, non-tax deductible goodwill impairment charge of $8 million, the Communications Workers of America contract ratification bonus ($6 million), severance costs associated with recent headcount reductions ($13 million), integration, severance and retention costs associated with our acquisition of Qwest ($20 million) and integration, severance and retention costs associated with our acquisition of Savvis $2 million. | ||||||||||||||||||||
(2) - | Non-cash, non-tax deductible goodwill impairment charge of $8 million. | ||||||||||||||||||||
(3) - | Includes severance costs associated with reduction in force initiatives ($13 million), integration, severance and retention costs associated with our acquisition of Qwest ($9 million) and integration, severance, and retention costs associated with our acquisition of Savvis ($5 million). | ||||||||||||||||||||
(4) - | Excludes $17 million in fourth quarter 2013 and $18 million in fourth quarter 2012 of capital expenditures related to the integration of Embarq, Qwest and Savvis. | ||||||||||||||||||||
(5) - | Excludes special items identified in items (1) to (3). |
CenturyLink, Inc. | |||||||||||||||||||||
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES | |||||||||||||||||||||
(UNAUDITED) | |||||||||||||||||||||
(Dollars in millions) | |||||||||||||||||||||
Twelve Months Ended December 31, 2013 | Twelve Months Ended December 31, 2012 | ||||||||||||||||||||
As adjusted | As adjusted | ||||||||||||||||||||
Less | excluding | Less | excluding | ||||||||||||||||||
As | special | special | As | special | special | ||||||||||||||||
reported | Items | items | reported | Items | items | ||||||||||||||||
Operating cash flow and cash flow margin | |||||||||||||||||||||
Operating income | $ | 1,453 | (1,438 | ) | (1) | 2,891 | 2,713 | (133 | ) | (3) | 2,846 | ||||||||||
Add: Depreciation and amortization | 4,541 | — | 4,541 | 4,780 | (30 | ) | (4) | 4,810 | |||||||||||||
Add: Impairment of goodwill | 1,092 | 1,092 | (2) | — | — | — | — | ||||||||||||||
Operating cash flow | $ | 7,086 | (346 | ) | 7,432 | 7,493 | (163 | ) | 7,656 | ||||||||||||
Revenues | $ | 18,095 | — | 18,095 | 18,376 | — | 18,376 | ||||||||||||||
Operating income margin (operating income divided by revenues) | 8.0 | % | 16.0 | % | 14.8 | % | 15.5 | % | |||||||||||||
Operating cash flow margin (operating cash flow divided by revenues) | 39.2 | % | 41.1 | % | 40.8 | % | 41.7 | % | |||||||||||||
Free cash flow | |||||||||||||||||||||
Operating cash flow | $ | 7,432 | 7,656 | ||||||||||||||||||
Less: Cash paid for income taxes | (48 | ) | (82 | ) | |||||||||||||||||
Less: Cash paid for interest, net of amounts capitalized | (1,334 | ) | (1,405 | ) | |||||||||||||||||
Less: Capital expenditures (5) | (3,001 | ) | (2,858 | ) | |||||||||||||||||
Add: Other income | 22 | 21 | |||||||||||||||||||
Free cash flow (6) | $ | 3,071 | 3,332 | ||||||||||||||||||
SPECIAL ITEMS | |||||||||||||||||||||
(1) - | Includes a non-cash, non-tax deductible goodwill impairment charge of ($1.092 billion), a litigation reserve ($233 million), the Communications Workers of America contract ratification bonus ($6 million), severance costs associated with recent headcount reductions ($27 million), integration, severance and retention costs associated with our acquisition of Qwest ($47 million), integration, severance and retention costs associated with our acquisition of Savvis ($6 million), an accounting adjustment ($18 million) and an impairment of an office building ($9 million). | ||||||||||||||||||||
(2) - | Non-cash, non-tax deductible goodwill impairment charge of ($1.092 billion). | ||||||||||||||||||||
(3) - | Includes severance costs associated with reduction in force initiatives ($81 million), integration, severance and retention costs associated with our acquisition of Qwest ($71 million) and integration, severance, and retention costs associated with our acquisition of Savvis ($14 million); partially offset with a $3 million credit related to tax incentives for the Embarq integration. | ||||||||||||||||||||
(4) - | Out-of-period depreciation adjustment ($30 million) to correct an overstatement of depreciation in prior quarters. | ||||||||||||||||||||
(5) - | Excludes $47 million for the twelve months ended December 31, 2013 and $61 million for the twelve months ended December 31, 2012 of capital expenditures related to the integration of Embarq, Qwest and Savvis. | ||||||||||||||||||||
(6) - | Excludes special items identified in items (1) to (4) and does not reflect the impact of pension contributions of $147 million for the twelve months ended December 31, 2013 and $32 million for the twelve months ended December 31, 2012. |
CenturyLink, Inc. | ||||||
OPERATING METRICS | ||||||
(UNAUDITED) | ||||||
(In thousands) | ||||||
As of | As of | As of | ||||
December 31, 2013 | September 30, 2013 | December 31, 2012* | ||||
Broadband subscribers | 5,991 | 5,942 | 5,851 | |||
Access lines | 13,002 | 13,150 | 13,751 | |||
* The December 31, 2012 numbers have been adjusted to include the operational metrics of our wholly owned subsidiary, El Paso County Telephone Company, which had been previously excluded. The increase (in thousands) related to including El Paso County Telephone Company's broadband subscribers and access lines, is approximately 3 and 4, respectively as of December 31, 2012. |
CenturyLink, Inc. | ||||||||||||||
SUPPLEMENTAL NON-GAAP INFORMATION - ADJUSTED DILUTED EPS | ||||||||||||||
THREE AND TWELVE MONTHS ENDED DECEMBER 31, 2013 AND 2012 | ||||||||||||||
(UNAUDITED) | ||||||||||||||
(Dollars in millions, except per share amounts) | ||||||||||||||
Three Months Ended December 31, | Twelve Months Ended December 31, | |||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||
(excluding special items) | ||||||||||||||
Net income * | $ | 225 | 240 | 988 | 947 | |||||||||
Add back: | ||||||||||||||
Amortization of customer base intangibles: | ||||||||||||||
Qwest | 223 | 237 | 913 | 966 | ||||||||||
Embarq | 30 | 34 | 127 | 146 | ||||||||||
Savvis | 16 | 15 | 61 | 59 | ||||||||||
Amortization of trademark intangibles: | ||||||||||||||
Qwest | 7 | 14 | 39 | 63 | ||||||||||
Savvis | 15 | 2 | 21 | 9 | ||||||||||
Amortization of fair value adjustment of long-term debt: | ||||||||||||||
Embarq | 1 | 1 | 4 | 4 | ||||||||||
Qwest | (14 | ) | (18 | ) | (62 | ) | (86 | ) | ||||||
Subtotal | 278 | 285 | 1,103 | 1,161 | ||||||||||
Tax effect of above items | (107 | ) | (110 | ) | (428 | ) | (445 | ) | ||||||
Net adjustment, after taxes | $ | 171 | 175 | 675 | 716 | |||||||||
Net income, as adjusted for above items | $ | 396 | 415 | 1,663 | 1,663 | |||||||||
Weighted average diluted shares outstanding | 586.4 | 623.7 | 602.2 | 622.3 | ||||||||||
Diluted EPS (excluding special items) | $ | 0.38 | 0.38 | 1.64 | 1.52 | |||||||||
Adjusted diluted EPS as adjusted for the above-listed purchase accounting intangible and interest amortizations (excluding special items) | $ | 0.68 | 0.67 | 2.76 | 2.67 | |||||||||
The above schedule presents adjusted net income and adjusted earnings per share (both excluding special items) by adding back to net income and earnings per share certain non-cash expense items that arise as a result of the application of business combination accounting rules to our recent acquisitions. Such presentation is not in accordance with generally accepted accounting principles but management believes the presentation is useful to analysts and investors to understand the impacts of growing our business through acquisitions. | ||||||||||||||
*See preceding schedules for a summary description of the impact of excluded special items. |
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