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CenturyLink Reports Fourth Quarter And Full-Year 2015 Results
PR Newswire
Achieved operating revenues of approximately $4.5 billion, including core revenues(1) of approximately $4.0 billion in fourth quarter; full-year 2015 operating revenues of $17.9 billion, a 0.7% decline from full-year 2014
Achieved sequential and year-over-year income margin expansion for Business and Consumer segments
Generated operating cash flow(2) of $1.8 billion, excluding special items, in fourth quarter; full-year 2015 operating cash flow, excluding special items, of $7.0 billion
Generated free cash flow(2), excluding special items, of $591 million in fourth quarter and $2.7 billion in full-year 2015
Achieved Adjusted Net Income(2) of $434 million and Adjusted Diluted EPS(2) of $0.80 in fourth quarter, excluding special items
Added more than 16,000 Prism™ TV customers during fourth quarter
Completed $1 billion repurchase program in fourth quarter; repurchased approximately 32 million shares under the program since May 2014

MONROE, La., Feb. 10, 2016 /PRNewswire/ -- CenturyLink, Inc. (NYSE: CTL) today reported results for fourth quarter and full-year 2015.

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

"CenturyLink achieved strong fourth quarter financial results as revenues, cash flow and adjusted diluted earnings per share exceeded the top end of our guidance for the quarter, driven by solid revenue performance and lower operating costs," said Glen F. Post III, chief executive officer and president. "Our Consumer segment continued to perform well as revenues grew both sequentially and year-over-year, while Business segment revenues grew sequentially on stronger core revenue generation. Our employees did a great job of containing costs during the second half of the year, which helped us exceed our goal of planned operating expense reductions for the second half of 2015.

"As we look to 2016, we are seeing strong demand for high-bandwidth data and managed services from businesses, which we expect to help mitigate the anticipated further declines in our legacy revenues. Our IT services business, while relatively small today, continued to grow and gain traction during 2015, generating revenues that more than doubled compared to the prior year. We also have a solid funnel of business services opportunities going into 2016, which we expect to help drive network and managed services revenue," Post concluded.

Fourth Quarter 2015 Highlights

  • Achieved core revenues of approximately $4.0 billion in fourth quarter 2015.
  • Revenue from high-bandwidth data services provided to Business customers, including MPLS3 and Ethernet, grew approximately 9% year-over-year; revenue from Consumer strategic services grew more than 6% year-over-year.
  • Operating expenses declined more than $100 million in fourth quarter 2015 compared to third quarter 2015.
  • Generated free cash flow of $591 million, excluding special items.
  • Added approximately 16,000 CenturyLink® PrismTM TV customers during fourth quarter 2015, ending the period with approximately 285,000 customers.
  • Ended the quarter with approximately 6.0 million high-speed Internet customers, a decrease of approximately 22,000 customers in fourth quarter 2015.
  • Purchased and retired more than 10 million shares of CenturyLink common stock for nearly $280 million during fourth quarter 2015.

Consolidated Financial Results

Operating revenues for fourth quarter 2015 were $4.48 billion compared to $4.44 billion in fourth quarter 2014 driven by the increase in high-cost support revenues due to the recognition of Connect America Fund Phase 2 (CAF Phase 2) support during fourth quarter 2015, along with strength in high-bandwidth data services and Consumer strategic revenues. These increases were partially offset by the declines in low-bandwidth data services, as well as the decline in legacy revenues4 which was primarily driven by access line losses and lower long distance revenues. Growth in strategic revenues was primarily due to continued business customer demand for high-bandwidth data services, along with year-over-year growth in consumer high-speed Internet and CenturyLink® PrismTM TV revenues.

Operating expenses, excluding special items, decreased to $3.71 billion from $3.86 billion in fourth quarter 2014. The year-over-year decrease was primarily driven by lower depreciation and amortization expenses and employee-related expenses.

Operating cash flow (as defined in our attached supplemental schedules), excluding special items, increased to $1.82 billion from $1.71 billion in fourth quarter 2014. For fourth quarter 2015, CenturyLink achieved an operating cash flow margin, excluding special items, of 40.6% versus 38.5% in fourth quarter 2014.

Adjusted Net Income and Adjusted Diluted Earnings Per Share (EPS) exclude the after-tax impact of special items, the non-cash after-tax impact of the amortization of certain intangible assets related to major acquisitions since mid-2009, and the non-cash after-tax impact to interest expense relating to the assignment of fair value to the outstanding debt assumed in connection with those acquisitions. Excluding these items and including the impact of favorable income tax adjustments, CenturyLink's Adjusted Net Income for fourth quarter 2015 was $434 million compared to Adjusted Net Income of $340 million in fourth quarter 2014. Fourth quarter 2015 Adjusted Diluted EPS was $0.80 compared to $0.60 in the year-ago period due to the higher Adjusted Net Income and the impact of the lower number of shares outstanding due to share repurchases in 2015. See the attached schedules for additional information.

Full-Year 2015 Results

For the full-year 2015, operating revenues decreased to $17.9 billion from $18.0 billion in 2014. Core revenues decreased to $16.1 billion in 2015 from $16.3 in 2014. Operating cash flow, excluding special items, was $7.0 billion in 2015 compared to $7.1 billion in 2014. The decline in operating revenues was driven by the impact of lower legacy voice revenues, a decline in strategic low-bandwidth data services and lower data integration revenues. These revenue declines were partially offset by increases in strategic revenues resulting primarily from increased business customer demand for high-bandwidth data services, along with growth in high-speed Internet and CenturyLink® PrismTM TV revenues, and increased high-cost support revenues due to the recognition of CAF Phase 2 funds. The operating cash flow decline was driven primarily by the decline in operating revenues. Adjusted Net Income, excluding special items, was $1.5 billion in 2015, flat compared to 2014. Adjusted Diluted EPS, excluding special items, was $2.71 in 2015 compared to $2.61 in 2014.

GAAP Results - Fourth Quarter and Full-Year

Under generally accepted accounting principles (GAAP), net income for fourth quarter 2015 was $338 million compared to a net income of $188 million for fourth quarter 2014, and diluted earnings per share was $0.62 for fourth quarter 2015 compared to $0.33 for fourth quarter 2014.

Net income under GAAP for full-year 2015 was $878 million compared to net income of $772 million for full-year 2014, and diluted earnings per share for full-year 2015 was $1.58 compared to diluted earnings per share of $1.36 for full-year 2014.

Additional details regarding the company's special items for the three and twelve months ended December 31, 2015 and 2014 are provided in the accompanying financial schedules.

Segment Financial Results5

Segment income margin improved to 50.1% from 49.1% a year ago primarily due to cost reduction efforts and strategic revenue growth, which together more than offset the margin impact of the continued decline in legacy revenue.

Business

The Business segment continued to experience solid demand for high-bandwidth data services in fourth quarter 2015.

  • High-bandwidth data services revenues from business customers grew approximately 9% year-over-year.
  • Strategic revenues were $1.60 billion in the quarter, a 1.4% increase from fourth quarter 2014, primarily due to increased high-bandwidth data services and IT services revenues which were partially offset by continued declines in low-bandwidth data services.
  • Total segment revenues were $2.66 billion, a decrease of 1.6% from fourth quarter 2014, due primarily to declines in low-bandwidth data services and legacy revenues which were partially offset by growth in high-bandwidth data services revenues.

Consumer

The Consumer segment achieved solid year-over-year revenue growth driven primarily by increased high-speed Internet and CenturyLink® PrismTM TV revenues.

  • Total segment revenues were $1.51 billion for fourth quarter 2015, an increase of 1.3% from fourth quarter 2014.
  • Strategic revenues were $773 million in the quarter, a 6.3% increase over fourth quarter 2014.
  • Approximately 16,000 CenturyLink® PrismTM TV customers were added during fourth quarter 2015 and more than 190,000 addressable homes were added in new and existing service areas, ending the quarter with nearly 3.2 million addressable homes.

Guidance — Full-Year and First Quarter 2016

CenturyLink anticipates slightly lower operating revenues and core revenues in full-year 2016 compared to full-year 2015 due to expected legacy revenue declines more than offsetting anticipated increases in strategic revenue growth. Operating cash flow is expected to decline from full-year 2015 primarily driven by the continued decline in legacy and low-bandwidth data services revenues. The company also anticipates lower depreciation and amortization expense for full-year 2016 compared to full-year 2015. Free cash flow in full-year 2016 is expected to decline from full-year 2015 due to the lower level of operating cash flow, an increase in cash income taxes and anticipated capital expenditures of $3 billion for the year.

                                                                                                                                                                       

Full-Year 2016 (excluding special items)

Operating Revenues


$17.55 to $17.8 billion

Core Revenues


$15.75 to $16.0 billion

Operating Cash Flow


$6.6 to $6.8 billion

Adjusted Diluted EPS


$2.50 to $2.70

Free Cash Flow


$1.8 to $2.0 billion

                                                                                                                                                                       

CenturyLink expects first quarter 2016 operating revenues to decrease compared to fourth quarter 2015 primarily due to anticipated declines in legacy, hosting and low-bandwidth data services revenues. The company expects first quarter 2016 operating cash flow to decrease compared to fourth quarter 2015 primarily due to the decline in operating revenues, higher marketing costs and increased payroll taxes, along with approximately $35 million in favorable year-end expense true-ups reflected in fourth quarter 2015 results that are not expected to recur in first quarter 2016. The company also anticipates a decline in depreciation and amortization expense in the first quarter of 2016 which is expected to be more than offset by the decrease in operating cash flow and the impact of favorable income tax adjustments in the fourth quarter 2015, resulting in a decline in adjusted diluted EPS in first quarter 2016 compared to fourth quarter 2015.

                                                                                                                                                                      

First Quarter 2016 (excluding special items)

Operating Revenues


$4.40 to $4.45 billion

Core Revenues


$3.95 to $4.00 billion

Operating Cash Flow


$1.66 to $1.72 billion

Adjusted Diluted EPS


$0.67 to $0.73

                                                                                                                                                                       

All 2016 guidance figures and 2016 outlook statements included in this release (i) speak as of February 10, 2016 only, (ii) exclude the impact of any share repurchases made after December 31, 2015 and (iii) exclude the effects of special items, future impairment charges, future changes in regulation (including changes in the CAF Phase 2 program), future changes in tax laws, accounting rules or our accounting policies, unforeseen litigation or contingencies, integration expenses associated with major acquisitions, any changes in our pension fundings, any changes in operating or capital plans or other unforeseen events or circumstances that impact our financial performance, and any future mergers, acquisitions, divestitures, joint ventures or other similar business transactions. See "Forward Looking Statements" below. For additional information on how we define certain of the terms used above, see the attached schedules.

Investor Call

As previously announced, CenturyLink's management will host a conference call at 4:00 p.m. Central Time today, February 10, 2016. Interested parties can access the call by dialing 866-814-1933. The call will be accessible for replay through February 18, 2016, by dialing 888-266-2081 and entering the access code 1667468. Investors can also listen to CenturyLink's earnings conference call and webcast replay by accessing the Investor Relations portion of the company's website at www.centurylink.com through March 3, 2016. Financial, statistical and other information related to the call will also be posted to our website.

Reconciliation to GAAP

This release includes certain non-GAAP financial measures, including but not limited to operating cash flow, free cash flow, core revenues, Adjusted Net Income, Adjusted Diluted EPS and adjustments to GAAP measures to exclude the effect of special items. In addition to providing key metrics for management to evaluate the company's performance, we believe these measurements assist investors in their understanding of period-to-period operating performance and in identifying historical and prospective trends. Reconciliations of non-GAAP financial measures to the most comparable GAAP measures are included in the attached financial schedules. Reconciliation of additional non-GAAP financial measures that may be discussed during the earnings call described above will be available in the Investor Relations portion of the company's website at www.centurylink.com. Investors are urged to consider these non-GAAP measures in addition to, and not in substitution for, measures prepared in accordance with GAAP.

About CenturyLink

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

Forward Looking Statements

Except for historical and factual information, the matters set forth in this release and other of our oral or written statements identified by words such as "estimates," "expects," "anticipates," "believes," "plans," "intends," and similar expressions are forward-looking statements as defined by the federal securities laws, and are subject to the "safe harbor" protections thereunder. These forward-looking statements are not guarantees of future results and are based on current expectations only, are inherently speculative, and are subject to a number of assumptions, risks and uncertainties, many of which are beyond our control. Actual events and results may differ materially from those anticipated, estimated, projected, or implied by us if one or more of these risks or uncertainties materialize, or if our underlying assumptions prove incorrect. Factors that could affect actual results include but are not limited to: the effects of competition from a wide variety of competitive providers, including lower demand for our legacy offerings; the effects of new, emerging or competing technologies, including those that could make our products less desirable or obsolete; the effects of ongoing changes in the regulation of the communications industry, including the outcome of regulatory or judicial proceedings relating to intercarrier compensation, interconnection obligations, access charges, universal service, broadband deployment, data protection and net neutrality; our ability to effectively adjust to changes in the communications industry and changes in the composition of our markets and product mix; possible changes in the demand for, or pricing of, our products and services, including our ability to effectively respond to increased demand for high-speed broadband service; our ability to successfully maintain the quality and profitability of our existing product and service offerings and to introduce new offerings on a timely and cost-effective basis; the adverse impact on our business and network from possible equipment failures, service outages, security breaches or similar events impacting our network; our ability to generate cash flows sufficient to fund our financial commitments and objectives, including our capital expenditures, operating costs, share repurchases, dividends, pension contributions and debt payments; changes in our operating plans, corporate strategies, dividend payment plans or other capital allocation plans, whether based upon changes in our cash flows, cash requirements, financial performance, financial position, or otherwise; our ability to effectively retain and hire key personnel and to successfully negotiate collective bargaining agreements on reasonable terms without work stoppages; increases in the costs of our pension, health, post-employment or other benefits, including those caused by changes in markets, interest rates, mortality rates, demographics or regulations; adverse changes in our access to credit markets on favorable terms, whether caused by changes in our financial position, lower debt credit ratings, unstable markets or otherwise; our ability to maintain favorable relations with our key business partners, suppliers, vendors, landlords and financial institutions; our ability to effectively manage our expansion opportunities; our ability to collect our receivables from financially troubled customers; any adverse developments in legal or regulatory proceedings involving us; changes in tax, communications, pension, healthcare or other laws or regulations, in governmental support programs, or in general government funding levels; the effects of changes in accounting policies or practices, including potential future impairment charges; the effects of 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) Core revenues defined as strategic revenues plus legacy revenues (excludes data integration and other revenues), as described further in the attached schedules.

(2) See attachments for non-GAAP reconciliations.

(3) Multi-Protocol Label Switching

(4) Beginning first quarter 2015, certain revenues were reclassified between strategic services and 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.


 


CenturyLink, Inc.

CONSOLIDATED STATEMENTS OF INCOME

THREE MONTHS ENDED DECEMBER 31, 2015 AND 2014

(UNAUDITED)

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




















Three months ended December 31, 2015


Three months ended December 31, 2014











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

$

2,372





2,372



2,304





2,304



3.0

%


3.0

%


Legacy

1,657





1,657



1,744





1,744



(5.0)

%


(5.0)

%


Data integration

139





139



144





144



(3.5)

%


(3.5)

%


Other

308





308



246





246



25.2

%


25.2

%


Total operating revenues

4,476





4,476



4,438





4,438



0.9

%


0.9

%


















OPERATING EXPENSES

















Cost of services and products

1,915



3


(1)

1,912



1,974



38


(3)

1,936



(3.0)

%


(1.2)

%


Selling, general and administrative

757



12


(1)

745



850



57


(3)

793



(10.9)

%


(6.1)

%


Depreciation and amortization

1,053





1,053



1,131





1,131



(6.9)

%


(6.9)

%


Total operating expenses

3,725



15



3,710



3,955



95



3,860



(5.8)

%


(3.9)%

%


















OPERATING INCOME

751



(15)



766



483



(95)



578



55.5

%


32.5

%

















OTHER INCOME (EXPENSE)

















Interest expense

(328)





(328)



(330)





(330)



(0.6)

%


(0.6)

%


Other income, net

7





7



4





4



75.0

%


75.0

%


Income tax expense

(92)



60


(2)

(152)



31



96


(4)

(65)



(396.8)

%


133.8

%

NET INCOME

$

338



45



293



188



1



187



79.8

%


56.7

%

BASIC EARNINGS PER SHARE

$

0.62



0.08



0.54



0.33





0.33



87.9

%


63.6

%

DILUTED EARNINGS PER SHARE

$

0.62



0.08



0.54



0.33





0.33



87.9

%


63.6

%


















AVERAGE SHARES OUTSTANDING
















Basic

541,605




541,605


565,327




565,327


(4.2)

%


(4.2)

%


Diluted

542,493




542,493


567,035




567,035


(4.3)

%


(4.3)

%


















DIVIDENDS PER COMMON SHARE

$

0.54





0.54



0.54





0.54



%


%

















SPECIAL ITEMS
















(1) -

Includes severance costs associated with recent headcount reductions ($9 million) and integration costs associated with our acquisition of

Qwest ($6 million).

(2) -

Income tax benefit of Item (1) and a favorable income tax adjustment of $20 million and $34 million related to affiliate debt rationalization.

(3) -

Includes severance costs associated with reduction in force initiatives ($22 million), integration costs associated with our acquisition of Qwest ($10 million) and a pension settlement charge ($63 million).

(4) -

Income tax benefit of Item (3) and a favorable income tax adjustment of $60 million.



*

During the first quarter of 2015, we determined that certain products and services associated with our acquisition of SAVVIS, Inc. are more closely aligned to legacy services than to strategic services. As a result, these operating revenues are now reflected as legacy services.

 


 

CenturyLink, Inc.

CONSOLIDATED STATEMENTS OF INCOME

TWELVE MONTHS ENDED DECEMBER 31, 2015 AND 2014

(UNAUDITED)

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




















Twelve months ended December 31, 2015


Twelve months ended December 31, 2014











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

$

9,343





9,343



9,166





9,166



1.9

%


1.9

%


Legacy

6,752





6,752



7,172





7,172



(5.9)

%


(5.9)

%


Data integration

573





573



690





690



(17.0)

%


(17.0)

%


Other

1,232





1,232



1,003





1,003



22.8

%


22.8

%


Total operating revenues

17,900





17,900



18,031





18,031



(0.7)%

%


(0.7)%

%


















OPERATING EXPENSES

















Cost of services and products

7,778



14


(1)

7,764



7,846



50


(3)

7,796



(0.9)

%


(0.4)

%


Selling, general and administrative

3,328



152


(1)

3,176



3,347



168


(3)

3,179



(0.6)

%


(0.1)

%


Depreciation and amortization

4,189





4,189



4,428





4,428



(5.4)

%


(5.4)

%


Total operating expenses

15,295



166



15,129



15,621



218



15,403



(2.1)

%


(1.8)

%


















OPERATING INCOME

2,605



(166)



2,771



2,410



(218)



2,628



8.1

%


5.4

%

















OTHER INCOME (EXPENSE)

















Interest expense

(1,312)





(1,312)



(1,311)





(1,311)



0.1

%


0.1

%


Other income, net

23





23



11



(14)


(4)

25



109.1

%


(8.0)

%


Income tax expense

(438)



115


(2)

(553)



(338)



143


(5)

(481)



29.6

%


15.0

%

NET INCOME

$

878



(51)



929



772



(89)



861



13.7

%


7.9

%

BASIC EARNINGS PER SHARE

$

1.58



(0.09)



1.68



1.36



(0.16)



1.51



16.2

%


11.3

%

DILUTED EARNINGS PER SHARE

$

1.58



(0.09)



1.67



1.36



(0.16)



1.51



16.2

%


10.6

%


















AVERAGE SHARES OUTSTANDING
















Basic

554,278




554,278


568,435




568,435


(2.5)

%


(2.5)

%


Diluted

555,093




555,093


569,739




569,739


(2.6)

%


(2.6)

%


















DIVIDENDS PER COMMON SHARE

$

2.16





2.16



2.16





2.16



%


%

















SPECIAL ITEMS
















(1) -

Includes severance costs associated with recent headcount reductions ($99 million), integration costs associated with our acquisition of Qwest ($32 million), regulatory fines associated with a 911 system outage ($15 million), litigation and other adjustments associated with pre-acquisition activities of Qwest and Embarq ($12 million) and the impairment of office buildings ($8 million).

(2) -

Income tax benefit of Item (1) and a favorable income tax adjustment of $20 million and $34 million related to affiliate debt rationalization.

(3) -

Includes severance costs associated with reduction in force initiatives ($88 million), integration and retention costs associated with our acquisition of Qwest ($51 million), the impairment of two office buildings ($18 million) and a pension settlement charge ($63 million), less the offsetting impact of a litigation settlement in the amount of $2 million.

(4) -

Impairment of a non-operating investment ($14 million).

(5) -

Income tax benefit of Item (3) and a favorable income tax adjustment of $60 million.


*

During the first quarter of 2015, we determined that certain products and services associated with our acquisition of SAVVIS, Inc. are more closely aligned to legacy services than to strategic services. As a result, these operating revenues are now reflected as legacy services.

 


 

CenturyLink, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2015 AND DECEMBER 31, 2014

(UNAUDITED)

(Dollars in millions)


December 31,


December 31,


2015


2014

ASSETS




CURRENT ASSETS




Cash and cash equivalents

$

126



128


Other current assets *

2,524



2,568


   Total current assets

2,650



2,696






NET PROPERTY, PLANT AND EQUIPMENT




Property, plant and equipment

38,785



36,718


Accumulated depreciation

(20,716)



(18,285)


   Net property, plant and equipment

18,069



18,433






GOODWILL AND OTHER ASSETS




Goodwill

20,742



20,755


Other, net *

6,143



7,219


    Total goodwill and other assets

26,885



27,974






TOTAL ASSETS

$

47,604



49,103






LIABILITIES AND STOCKHOLDERS' EQUITY




CURRENT LIABILITIES




Current maturities of long-term debt

$

1,503



550


Other current liabilities

3,101



3,368


    Total current liabilities

4,604



3,918






LONG-TERM DEBT *

18,722



19,953


DEFERRED CREDITS AND OTHER LIABILITIES *

10,218



10,209


STOCKHOLDERS' EQUITY

14,060



15,023






TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

47,604



49,103



* In 2015 we adopted both ASU 2015-03  "Simplifying the Presentation of Debt Issuance Costs" and 2015-17 "Balance Sheet Classification of Deferred Taxes" by retrospectively applying the requirements of the ASUs to our previously issued consolidated financial statements. The impacts of the adoptions on our December 31, 2014 balance sheet were as follows:

A decrease of $880 million in Other current assets;

A decrease of $164 million in Other assets, net;

A decrease of $168 million in Long-term debt; and

A decrease of $876 million in Deferred credits and other liabilities

 


CenturyLink, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

TWELVE MONTHS ENDED DECEMBER 31, 2015 AND 2014

(UNAUDITED)

(Dollars in millions)






Twelve months ended


Twelve months ended


December 31, 2015


December 31, 2014

OPERATING ACTIVITIES




Net income

$

878



772


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




  Depreciation and amortization

4,189



4,428


  Impairment of assets

9



32


  Deferred income taxes

350



291


  Provision for uncollectible accounts

177



159


  Share-based compensation

73



79


  Changes in current assets and liabilities, net

(321)



(447)


  Retirement benefits

(141)



(184)


  Changes in other noncurrent assets and liabilities, net

(78)



99


  Other, net

16



(41)


  Net cash provided by operating activities

5,152



5,188


INVESTING ACTIVITIES




Payments for property, plant and equipment and capitalized software

(2,872)



(3,047)


Cash paid for acquisitions, net

(4)



(93)


Proceeds from sale of property

31



63


Other, net

(8)




Net cash used in investing activities

(2,853)



(3,077)


FINANCING ACTIVITIES




Net proceeds from issuance of long-term debt

989



483


Payments of long-term debt

(966)



(800)


Net payments on credit facility and revolving line of credit

(315)



(4)


Early retirement of debt costs

(1)




Dividends paid

(1,198)



(1,228)


Net proceeds from issuance of common stock

11



50


Repurchase of common stock

(819)



(650)


Other, net

(2)



(2)


Net cash used in financing activities

(2,301)



(2,151)


Net decrease in cash and cash equivalents

(2)



(40)


Cash and cash equivalents at beginning of period

128



168


Cash and cash equivalents at end of period

$

126



128


 


CenturyLink, Inc.

SELECTED SEGMENT FINANCIAL INFORMATION

THREE MONTHS AND TWELVE MONTHS ENDED DECEMBER 31, 2015 AND 2014

(UNAUDITED)

(Dollars in millions)












Three months ended December 31,*


Twelve months ended December 31,*



2015


2014


2015


2014

Total segment revenues

$

4,168



4,192



16,668



17,028


Total segment expenses

2,081



2,135



8,459



8,509


Total segment income

$

2,087



2,057



8,209



8,519


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

50.1

%


49.1

%


49.3

%


50.0

%










Business








Revenues









Strategic services

$

1,599



1,577



6,311



6,316



Legacy services

917



978



3,765



4,032



Data integration

139



143



571



686



Total revenues

2,655



2,698



10,647



11,034


Expenses









Total expenses

1,484



1,521



6,034



6,089











Segment income

$

1,171



1,177



4,613



4,945


Segment income margin

44.1

%


43.6

%


43.3

%


44.8

%










Consumer








Revenues









Strategic services

$

773



727



3,032



2,850



Legacy services

740



766



2,987



3,140



Data integration



1



2



4



Total revenues

1,513



1,494



6,021



5,994


Expenses









Total expenses

597



614



2,425



2,420











Segment income

$

916



880



3,596



3,574


Segment income margin

60.5

%


58.9

%


59.7

%


59.6

%


*

During the fourth quarter of 2014, we implemented a new organizational structure. As a result of this reorganization, we now operate and report two segments in our consolidated financial statements.


During the first quarter of 2015, we determined that certain products and services associated with our acquisition of SAVVIS, Inc. are more closely aligned to legacy services than to strategic services. As a result, these operating revenues are now reflected as legacy services.

 


CenturyLink, Inc.

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

(UNAUDITED)

(Dollars in millions)
















Three months ended December 31, 2015


Three months ended December 31, 2014







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

$

751



(15)


(1)

766



483



(95)


(2)

578



Add: Depreciation and amortization

1,053





1,053



1,131





1,131



Operating cash flow

$

1,804



(15)



1,819



1,614



(95)



1,709
















Revenues

$

4,476





4,476



4,438





4,438
















Operating income margin (operating income divided by revenues)

16.8

%




17.1

%


10.9

%




13.0

%















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

40.3

%




40.6

%


36.4

%




38.5

%














Free cash flow













Operating cash flow





$

1,819







1,709



Less: Cash paid for income taxes, net of refunds





(9)







(6)



Less: Cash paid for interest, net of amounts capitalized





(396)







(404)



Less: Capital expenditures (3)





(830)







(930)



Add: Other income





7







4



Free cash flow (4)





$

591







373



SPECIAL ITEMS












(1) -

Includes severance costs associated with recent headcount reductions ($9 million) and integration costs associated with our acquisition of Qwest ($6 million).

(2) -

Includes severance costs associated with reduction in force initiatives ($22 million), integration costs associated with our acquisition of Qwest ($10 million) and a pension settlement charge ($63 million).

(3) -

Excludes $3 million in fourth quarter 2015 and $4 million in fourth quarter 2014 of capital expenditures related to the integration of Qwest and Savvis.

(4) -

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

 


CenturyLink, Inc.

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

(UNAUDITED)

(Dollars in millions)
















Twelve months ended December 31, 2015


Twelve months ended December 31, 2014







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

$

2,605



(166)


(1)

2,771



2,410



(218)


(2)

2,628



Add: Depreciation and amortization

4,189





4,189



4,428





4,428



Operating cash flow

$

6,794



(166)



6,960



6,838



(218)



7,056
















Revenues

$

17,900





17,900



18,031





18,031
















Operating income margin (operating income divided by revenues)

14.6

%




15.5

%


13.4

%




14.6

%















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

38.0

%




38.9

%


37.9

%




39.1

%














Free cash flow













Operating cash flow





$

6,960







7,056



Less: Cash paid for income taxes, net of refunds





(63)







(27)



Less: Cash paid for interest, net of amounts capitalized





(1,310)







(1,338)



Less: Capital expenditures (3)





(2,861)







(3,026)



Add:  Other income





23







25



Free cash flow (4)





$

2,749







2,690















SPECIAL ITEMS












(1) -

Includes severance costs associated with recent headcount reductions ($99 million), integration costs associated with our acquisition of Qwest ($32 million), regulatory fines associated with a 911 system outage ($15 million), litigation and other adjustments associated with pre-acquisition activities of Qwest and Embarq ($12 million) and the impairment of office buildings ($8 million).

(2) -

Includes severance costs associated with reduction in force initiatives ($88 million), integration and retention costs associated with our acquisition of Qwest ($51 million), the impairment of two office buildings ($18 million) and a pension settlement charge ($63 million), less the offsetting impact of a litigation settlement in the amount of $2 million.

(3) -

Excludes $11 million in 2015 and $21 million in 2014 of capital expenditures related to the integration of Qwest and Savvis.

(4) -

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

 


CenturyLink, Inc.

REVENUES

(UNAUDITED)

(Dollars in millions)












Three months ended


Twelve months ended



December 31,
2015


December 31,
2014


December 31,
2015


December 31,
2014

Strategic services









Business high-bandwidth data services (1)

$

733



675



2,816



2,579



Business low-bandwidth data services (2)

497



553



2,052



2,345



Business hosting services (3)

320



328



1,281



1,316



Other business strategic services (4)

49



21



162



76



Consumer high-speed Internet services (5)

666



622



2,611



2,469



Other consumer strategic services (6)

107



105



421



381



Total strategic services revenues

2,372



2,304



9,343



9,166










Legacy services









Business legacy voice services (7)

632



677



2,590



2,780



Other business legacy services (8)

285



301



1,175



1,252



Consumer legacy voice services (7)

649



694



2,676



2,864



Other consumer legacy services (9)

91



72



311



276



Total legacy services revenues

1,657



1,744



6,752



7,172











Data integration









Business data integration

139



143



571



686



Consumer data integration



1



2



4



Total data integration revenues

139



144



573



690










Other revenues









High-cost support revenue (10)

182



128



732



528



Other revenue (11)

126



118



500



475



Total other revenues

308



246



1,232



1,003










Total revenues

$

4,476



4,438



17,900



18,031




















(1)


Includes MPLS and Ethernet revenue

(2)


Includes private line and high-speed Internet revenue

(3)


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

(4)


Includes primarily VoIP, video and IT services revenue

(5)


Includes high-speed Internet and related services revenue

(6)


Includes video and Verizon wireless revenue

(7)


Includes local and long-distance voice revenue

(8)


Includes UNEs, public access and other ancillary revenue

(9)


Includes switched access and other ancillary revenue

(10)


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

(11)


Includes USF surcharges











During the first quarter of 2015, we determined that certain products and services associated with our acquisition of SAVVIS, Inc. are more closely aligned to legacy services than to strategic services. As a result, these operating revenues are now reflected as legacy services

 


 

CenturyLink, Inc

HOSTING REVENUES AND OPERATING METRICS

(UNAUDITED)












Three months ended


Twelve months ended



December 31,
2015


December 31,
2014


December 31,
2015


December 31,
2014










Hosting Revenue Detail (1)

(In millions)

Colocation

$

163



160



626



644


Managed Hosting / Cloud

136



147



570



580


Hosting Area Network

21



21



85



92


Total Hosting Revenue

$

320



328



1,281



1,316




















(1)


Excludes Wide-Area Network (WAN) revenue previously reported in total Hosting revenue














As of


As of


As of





December 31,
2015


September
2015


December 31,
2014

Hosting Data Center Metrics








Number of data centers (2)



59



59



58


Sellable square feet, million sq ft



1.58



1.59



1.46


Billed square feet, million sq ft



0.99



1.01



0.92


Utilization



63

%


64

%


63

%



















(2)


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














As of


As of


As of





December 31,
2015


September
2015


December 31,
2014










Operating Metrics



(In thousands)

High-speed Internet subscribers



6,048



6,071



6,082


Access lines



11,748



11,915



12,394


Prism subscribers



285



269



242





















Our methodology for counting high-speed Internet subscribers, access lines and Prism subscribers may not be comparable to those of other companies

 


CenturyLink, Inc.

SUPPLEMENTAL NON-GAAP INFORMATION - ADJUSTED DILUTED EPS

THREE MONTHS ENDED DECEMBER 31, 2015 AND 2014 AND TWELVE MONTHS ENDED DECEMBER 31, 2015 AND 2014

(UNAUDITED)

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














Three months ended


Twelve months ended




December 31, 2015
(excluding
special items)


December 31, 2014
(excluding
special items)


December 31, 2015
(excluding
special items)


December 31, 2014
(excluding
special items)











Net income *


$

293



187



929



861












Add back:









Amortization of customer base intangibles:










Qwest


195



209



799



856



Embarq


20



25



89



108



Savvis


16



16



62



62












Amortization of trademark intangibles




2



1



22












Amortization of fair value adjustment of long-term debt:










Embarq


2



1



6



5



Qwest


(6)



(6)



(23)



(42)












Subtotal


227



247



934



1,011


Tax effect of above items


(86)



(94)



(356)



(384)


Net adjustment, after taxes


141



153



578



627












Net income, as adjusted for above items


$

434



340



1,507



1,488












Weighted average diluted shares outstanding


542.5



567.0



555.1



569.7












Diluted EPS
(excluding special items)


$

0.54



0.33



1.67



1.51












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


$

0.80



0.60



2.71



2.61



The above non-GAAP schedule presents adjusted net income and adjusted diluted earnings per share (both excluding special items) by adding back to net income and diluted earnings per share certain non-cash expense items that arise as a result of the application of business combination accounting rules to our major acquisitions since mid-2009. Such presentation is not in accordance with generally accepted accounting principles but management believes the presentation is useful to analysts and investors to understand the impacts of growing our business through acquisitions.


*See preceding schedules for a summary description of special items.

 

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SOURCE CenturyLink, Inc.

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