Nov. 5, 2009 (PR Newswire) -- MONROE, La., Nov. 5 /PRNewswire-FirstCall/ -- CenturyLink (CenturyTel, Inc., NYSE: CTL) announces operating results for third quarter 2009, which include the effect of the Embarq acquisition completed July 1, 2009.
-- Added more than 43,500 high-speed Internet customers, reflecting a 52%
increase compared to high-speed Internet customer growth of 28,600
during pro forma second quarter 2009.
-- Achieved 9% and 16% improvement in access line performance compared to
pro forma second quarter 2009 and pro forma third quarter 2008 line
losses, respectively.
-- Made significant progress on the Embarq acquisition integration -
successfully completed financial and human resource systems conversions
and initial billing and customer care conversion, along with the launch
of our new CenturyLink brand across all markets, in October.
-- Generated free cash flow (as defined in the attached financial
schedules), excluding nonrecurring items and $27.1 million of
acquisition related capital expenditures, of $372.1 million in third
quarter 2009.
Third Quarter
Highlights
(Excluding Quarter Ended Quarter Ended % Change
nonrecurring items 9/30/09 (1) 9/30/08
reflected in the
attached financial
schedules)
(In thousands,
except per share
amounts and
subscriber data)
Operating Revenues $1,874,325 $650,073 188.3%
Operating Cash Flow (2) $929,811 $309,079 200.8%
Net Income (3) $269,052 $82,760 225.1%
Diluted Earnings Per
Share $.90 $.81 11.1%
Average Diluted
Shares Outstanding 298,403 100,647 196.5%
Capital Expenditures $286,326 (4) $70,606 305.5%
Access Lines (5) 7,185,000 2,068,000 247.4%
High-Speed Internet
Customers 2,189,000 628,000 248.6%
(1) Quarter Ended 9/30/2009 includes the effect of the Embarq
acquisition. For a comparison of these third quarter 2009 operating
results against the pro forma operating results for second quarter
2009, see the attached supplemental schedule.
(2) Operating Cash Flow is a non-GAAP financial measure. A
reconciliation of this item to comparable GAAP measures is included
in the attached financial schedules.
(3) All references to net income contained in this release represent net
income attributable to CenturyTel, Inc.
(4) Includes $27.1 million of capital expenditures related to the Embarq
integration.
(5) Both periods reflect line count methodology adjustments to
standardize legacy CenturyTel and Embarq line counts.
"CenturyLink achieved solid results in the third quarter reflecting the contribution of the Embarq acquisition to our operations," Glen F. Post, III, chief executive officer and president, said. "We completed the financial and human resource systems conversions, launched our new CenturyLink brand across all our markets in 33 states and completed our initial billing conversion in October. We are off to an excellent start with this strategic combination that we believe positions CenturyLink well to drive long-term shareholder value and to provide our customers expanded products and reliable services."
Operating revenues for third quarter 2009 were $1.874 billion compared to $650.1 million in third quarter 2008. This increase was primarily due to $1.299 billion of revenue contribution from the Embarq acquisition completed July 1, 2009. Additionally, revenue increases primarily driven by growth in high-speed Internet customers and favorable prior period revenue settlements were more than offset by revenue declines primarily due to the impact of access line losses and lower access revenues, along with the elimination of $53 million of revenues associated with the discontinuance of regulatory accounting for certain regulated operating entities during third quarter 2009.
Operating expenses, excluding nonrecurring items, increased 178.4% to $1.307 billion from $469.3 million in third quarter 2008, primarily due to $922 million of operating costs associated with the Embarq acquisition which more than offset the reduction in operating expenses associated with the discontinuance of regulatory accounting during third quarter 2009. Depreciation and amortization expense was approximately $34 million lower in third quarter 2009 compared to amounts previously forecast at the end of second quarter 2009 due to adjustments to reflect the preliminary assignment of fair value and depreciable life to Embarq's property and intangible assets. Such fair value assignment has not been finalized at this time.
Operating cash flow, excluding nonrecurring items, increased 200.8% to $929.8 million from $309.1 million in third quarter 2008, primarily due to the Embarq acquisition. For third quarter 2009, CenturyLink achieved an operating cash flow margin of 49.6% versus 47.5% in third quarter 2008.
"We successfully implemented our region operating model and launched an aggressive broadband strategy across all markets immediately following the close of the Embarq transaction," Post said. "These initiatives, along with our continued focus on owning the broadband position in our markets, resulted in the addition of more than 43,500 high-speed Internet customers during the quarter."
Net income, excluding nonrecurring items, was $269.1 million in third quarter 2009 compared to $82.8 million in third quarter 2008, primarily driven by the Embarq acquisition. Diluted earnings per share, excluding nonrecurring items, was $.90 for third quarter 2009, an 11.1% increase from the $.81 reported in third quarter 2008. This increase was primarily due to the higher net income as discussed above, partially offset by the 196.5% increase in average diluted shares outstanding as a result of our all-stock acquisition of Embarq.
For the first nine months of 2009, operating revenues, excluding nonrecurring items, increased 60.8% to $3.144 billion from $1.956 billion for the same period in 2008. Operating cash flow, excluding nonrecurring items, was $1.539 billion for the first nine months of 2009 compared to $946.5 million a year ago. Net income, excluding nonrecurring items, was $434.2 million in the first nine months of 2009 compared to $260.1 million during the same period in 2008. Diluted earnings per share, excluding nonrecurring items, was $2.60 during the first nine months of 2009 compared to $2.48 in the first nine months of 2008.
Under generally accepted accounting principles (GAAP), net income for third quarter 2009 was $280.8 million compared to $84.7 million for third quarter 2008 and, diluted earnings per share for third quarter 2009 was $.94 compared to $.83 for third quarter 2008. Third quarter 2009 net income and diluted earnings per share reflect after-tax costs associated with the Embarq acquisition of $127.5 million ($.43 per share) that were more than offset by a net after-tax benefit of $133.2 million ($.44 per share) attributable to the extraordinary gain recognized upon the discontinuance of regulatory accounting and an after-tax benefit of $6.1 million ($.02 per share) related to the favorable resolution of certain transaction tax audit issues. Third quarter 2008 net income and diluted earnings per share reflect a net after-tax benefit of $2.0 million ($.02 per share) from the sale of a non-core asset.
Net income under GAAP for the first nine months of 2009 was $417.0 million compared to $265.7 million for the first nine months of 2008 and, diluted earnings per share for the first nine months of 2009 was $2.50 compared to $2.53 for the first nine months of 2008. See the accompanying financial schedules for detail of the Company's nonrecurring items for the nine months ended September 30, 2009 and 2008.
Outlook. For fourth quarter 2009, CenturyLink expects total operating revenues of $1.81 to $1.85 billion and diluted earnings per share of $.84 to $.88. The Company has also increased and narrowed the range of anticipated full year 2009 diluted earnings per share guidance from a range of $3.20 to $3.30 to a range of $3.45 to $3.50.
Third quarter 2009 and fourth quarter 2009 diluted earnings per share each reflect an approximately $.07 per share favorable impact from lower depreciation expense than previously forecast at the end of second quarter 2009 due to adjustments to the preliminary assignment of fair value and depreciable life to Embarq's property and intangible assets. Such fair value assignment has not been finalized at this time. Depreciation and amortization may change significantly from amounts reported herein upon finalization of the purchase price allocation process, which we expect to occur during fourth quarter 2009.
In addition to synergies that CenturyLink expects to realize in 2010, the Company has identified the following items that can be expected to negatively impact 2010 results when compared to 2009. First, the Company expects Universal Service Fund receipts to decline. Secondly, a wireless carrier has notified CenturyLink of its intention to migrate a portion of its network traffic from the Company in 2010. The Company expects these items will negatively impact 2010 diluted earnings per share by $.12 to $.15. CenturyLink expects to provide full year 2010 earnings per share guidance in conjunction with its fourth quarter 2009 earnings release.
All outlook figures provided under this section are presented excluding nonrecurring merger integration costs, the potential impact of any future mergers, acquisitions or divestitures, or other nonrecurring events.
Integration Update. CenturyLink incurred $195.5 million of integration, transaction and other costs related to the Embarq acquisition during third quarter 2009. This amount was approximately $60 million higher than originally expected primarily due to earlier than anticipated recognition of severance costs and additional benefits costs recognized due to change of control provisions. The Company also incurred approximately $27.1 million of integration-related capital expenditures.
CenturyLink achieved approximately $14 million in operating cost synergies during third quarter 2009 and expects to realize additional incremental operating cost synergies of approximately $12 million in fourth quarter 2009.
Reconciliation to GAAP. This release includes certain non-GAAP financial measures, including but not limited to operating cash flow, free cash flow, adjustments to GAAP measures to exclude the effect of nonrecurring items and certain pro forma combined operating results. 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 below will be available in the Investor Relations portion of the Company's Web site 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.
Investor Call. As previously announced, CenturyLink's management will host a conference call at 10:30 a.m. Central Time today. Interested parties can access the call by dialing 866.206.5917. The call will be accessible for replay through November 11, 2009, by calling 888.266.2081 and entering the conference ID number 1401927. Investors can also listen to CenturyLink's earnings conference call and replay by accessing the Investor Relations portion of the Company's Web site at www.centurylink.com through November 25, 2009.
Certain non-historical statements made in this release and future oral or written statements or press releases by us or our management are intended to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current expectations only, and are subject to a number of risks, uncertainties and assumptions, many of which are beyond our control. Actual results or performance by CenturyLink may differ materially from those anticipated, estimated or projected if one or more of these risks or uncertainties materialize, or if underlying assumptions prove incorrect. Factors that could impact actual results of CenturyLink include but are not limited to: the timing, success and overall effects of competition from a wide variety of competitive providers; the risks inherent in rapid technological change; the effects of ongoing changes in the regulation of the communications industry (including the Federal Communication Commission's proposed rules regarding inter-carrier compensation and the Universal Service Fund described in our recent SEC reports); our ability to effectively adjust to changes in the communications industry; changes in our allocation of the Embarq purchase price after the date hereof; our ability to successfully integrate Embarq into our operations, including the possibility that the anticipated benefits from the Embarq merger cannot be fully realized in a timely manner or at all, or that integrating Embarq's operations into ours will be more difficult, disruptive or costly than anticipated; our ability to effectively manage our expansion opportunities, including retaining and hiring key personnel; possible changes in the demand for, or pricing of, our products and services; our ability to successfully introduce new product or service offerings on a timely and cost-effective basis; our continued access to credit markets on favorable terms; our ability to collect our receivables from financially troubled communications companies; our ability to pay a $2.80 per common share dividend annually, which may be affected by changes in our cash requirements, capital spending plans, cash flows or financial position; unanticipated increases in our capital expenditures; our ability to successfully negotiate collective bargaining agreements on reasonable terms without work stoppages; the effects of adverse weather; other risks referenced from time to time in our filings with the SEC; and the effects of more general factors such as changes in interest rates, in tax rates, in accounting policies or practices, in operating, medical or administrative costs, in general market, labor or economic conditions, or in legislation, regulation or public policy. These and other uncertainties related to the business and our plans are described in greater detail in Item 1A to our Form 10-K for the year ended December 31, 2008, as updated and supplemented by our subsequent SEC reports. You should be aware that new factors may emerge from time to time and it is not possible for us to identify all such factors nor can we predict the impact of each such factor on the business or the extent to which any one or more factors may cause actual results to differ from those reflected in any forward-looking statements. You are further cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We undertake no obligation to update any of our forward-looking statements for any reason, whether as a result of new information, future events or otherwise.
CenturyLink is a leading provider of high-quality voice, broadband and video services over its advanced communications networks to consumers and businesses in 33 states. CenturyLink, headquartered in Monroe, La., is an S&P 500 Company and expects to be listed in the Fortune 500 list of America's largest corporations. For more information on CenturyLink, visit www.centurylink.com.
CenturyTel, Inc.
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
(UNAUDITED)
Three months ended September 30, 2009
-----------------------------------------
As adjusted
Less excluding
non- non-
In thousands, except per As recurring recurring
share amounts reported items items
------------ --------- ---------
OPERATING REVENUES
Voice $829,697 829,697
Network access 352,759 352,759
Data 470,465 470,465
Fiber transport and
CLEC 43,685 43,685
Other 177,719 177,719
------- --- -------
1,874,325 - 1,874,325
--------- --- ---------
OPERATING EXPENSES
Cost of services and
products 684,865 2,222 (1) 682,643
Selling, general and
administrative 448,275 186,404 (1) 261,871
Depreciation and
amortization 362,202 362,202
------- ------- -------
1,495,342 188,626 1,306,716
--------- ------- ---------
OPERATING INCOME 378,983 (188,626) 567,609
OTHER INCOME (EXPENSE)
Interest expense (140,422) 2,900 (2) (143,322)
Other income
(expense) 9,362 9,362
Income tax expense (99,876) 64,309 (3) (164,185)
INCOME BEFORE NONCONTROLLING
INTERESTS AND
EXTRAORDINARY ITEM 148,047 (121,417) 269,464
Noncontrolling interests (412) (412)
---- -------- ----
NET INCOME BEFORE
EXTRAORDINARY ITEM 147,635 (121,417) 269,052
Extraordinary items, net of
income tax expense and
noncontrolling interests 133,213 133,213 (4) -
------- ------- ---
NET INCOME ATTRIBUTABLE TO
CENTURYTEL, INC.
