EMBARQ CORPORATION 
By Company Declares Second Quarter Dividend
"Our primary objectives as we entered 2009 were to maintain the momentum that enabled us to post record cash flow in 2008 and to continue to make progress on our merger with CenturyTel," said
First Quarter Highlights
-- First quarter cash flow before dividends was a record $339 million, an
increase of 18.1% over the prior year period.
-- The company reported record first quarter diluted earnings per share
from continuing operations of $1.39.
-- Consumer line loss was approximately flat compared to the year-ago
period for the first time since the fourth quarter of 2007.
-- First quarter high-speed Internet subscriber additions were 40,000, a
67% increase over each of the last three quarters of 2008.
-- The company doubled the subscriber base of its RescueIT(SM) computer
support service, ending the quarter with approximately 36,000
subscribers.
-- EMBARQ Business introduced packages that bundle high-speed Internet
service with value-added IT services, such as desktop security, remote
storage and the company's RescueIT computer support service.
-- The company completed the previously announced sale of its distribution
and supply chain subsidiary, Embarq Logistics, Inc., to KGP
Telecommunications, Inc.
-- The company made progress toward the closing of its merger with
CenturyTel and is now waiting for clearance from the FCC and 5 of the 33
states in which the combined company will conduct business.
Financial Results
EMBARQ reported net operating revenues of
The decline in revenue was partially offset by increased operating efficiency. Driven by improvement in all expense categories, total operating expenses improved 8.2% year-over-year. As a result, operating income declined just 6% from the record level in the year-ago period to
Earnings per share were negatively impacted by a
Diluted earnings per share from continuing operations were a record
Capital Expenditures and Cash Flow
Cash flow before dividends totaled
Capital spending continues to experience cyclical favorability as network expansion requirements decline with the decrease in new residential construction. As a result, net capital expenditures were
During the first quarter, EMBARQ paid a dividend of
Subscriber Results
EMBARQ reported a decline of 144,000 access lines in the first quarter, compared to a decline of 120,000 lines in the year ago period. The 24,000 increase in line loss over the prior-year period was primarily driven by the impact of general economic conditions on business customers. In contrast, consumer line loss was approximately flat compared to the year-ago period for the first time since the fourth quarter of 2007. The company ended the quarter with 5.55 million access lines in total.
During the quarter the company added 40,000 high-speed Internet subscribers, a 67% improvement over each of the last three quarters, ending the period with 1.45 million subscribers. Video net additions totaled 13,000 in the period as the company increased the number of its customers subscribing to video services to 310,000, up 43% in the last year.
Outlook
In light of its pending merger with CenturyTel, the company did not update the outlook it provided on
-- The rate of revenue decline is expected to be similar to or slightly
better than the first quarter.
-- Capital spending is expected to increase sequentially but remain below
the prior year level.
-- Cash flow before dividends is expected to be above the prior year level.
Second Quarter Dividend
The EMBARQ board of directors has declared a dividend on the company's common stock of
Conference Call
Today EMBARQ will hold a conference call beginning at
For those unable to participate live, a replay of the call will be available until
Cautionary Statement
This news release contains "forward-looking statements" within the meaning of the securities laws, including statements relating to EMBARQ's outlook or expectations for earnings, revenues, expenses, depreciation and amortization, asset quality, access line declines, cash flow measures, customer growth, wireless dilution, or other future financial or business performance, strategies or expectations. The words "estimate," "plan," "project," "forecast," "expect," "intend," "anticipate," "believe," "seek," "target," "guidance," "outlook" and similar expressions are intended to identify forward looking statements. These statements reflect management's judgment based on currently available information and involve a number of risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. With respect to these forward-looking statements, management has made assumptions regarding, among other things, customer and network usage, customer retention, pricing, operating costs, technology, and the economic and regulatory environment.
Future performance cannot be ensured. Actual results may differ materially from those in the forward looking statements. Some factors that could cause actual results to differ include but are not limited to: failure to obtain, delays in obtaining or adverse conditions contained in any regulatory approvals required for the Embarq-CenturyTel merger; failure to consummate or delay in consummating the merger for other reasons; the effects of vigorous competition in the markets in which we operate, including access line loss to cable operators and wireless providers; the impact of new, emerging and competing technologies on our business; the effect of changes in the legal and regulatory environment and the impact of compliance with regulatory mandates, including pending and future federal and state access and USF proceedings; potential fluctuations in our financial performance, including revenues, capital expenditures and operating expenses; the impact of any adverse change in the ratings assigned to our debt by ratings agencies on the cost of financing or the ability to raise additional financing if needed; the effects of mergers, consolidations or other unexpected developments in the industries relevant to our operations; the failure to realize expected improvement in operating efficiencies; the costs and business risks with the development of new products and services; the uncertainties related to our investments in networks, systems and other businesses; the uncertainties related to the implementation of our business strategies; the inability of third parties to perform to our requirements under agreements related to our business operations; our ownership of or ability to license technology that may be necessary to expand our business offerings; restrictions in our patent agreement with Sprint Nextel; unexpected adverse results of legal proceedings involving our company; the impact of equipment failure or other breaches of network or information technology security; potential work stoppages; a determination by the IRS that the spin-off from Sprint Nextel should be treated as a taxable transaction; volatility and other market conditions in the equity and credit markets, including impacts on the stability of banks and other financial institutions; the effects of changes in both general and local economic conditions on the markets we serve, which can impact demand for our products and services; customer purchasing decisions; collectability of revenue; required levels of capital expenditures related to new construction of residences and businesses; the possible impact of adverse changes in political or other external factors over which we have no control, including hurricanes and other severe weather; and other risks referenced in our Annual Report on Form 10-K, including in Part I, Item 1A, "Risk Factors", and from time to time in other filings of ours with the SEC.
Forward-looking statements speak only as of the date they were made, and EMBARQ undertakes no obligation to update or revise any forward-looking statements in light of new information or future events. You should not place undue reliance on any forward-looking statements, which speak only as of the date of this release. EMBARQ is not obligated to publicly update or release any revisions to these forward-looking statements to reflect any events or circumstances after the date of this news release.
Selected Financial Data (Unaudited) - Current Period Results Compared to
Prior Year
Consolidated 1Q-09 1Q-08 Fav/(Unfav)
------------ ----- ----- -----------
Net Operating Revenues
Voice $916 $1,024 ($108) -10.5%
Data 203 198 5 2.5%
High-speed Internet 143 133 10 7.5%
Wireless 9 16 (7) -43.8%
Other services 55 62 (7) -11.3%
--- --- ---
Service revenues 1,326 1,433 (107) -7.5%
Product revenues 20 23 (3) -13.0%
--- --- ---
Total Net Operating Revenues 1,346 1,456 (110) -7.6%
Operating Expenses
Cost of services 343 389 46 11.8%
Cost of products 20 33 13 39.4%
Selling, general and administrative 329 348 19 5.5%
Depreciation 244 250 6 2.4%
--- --- ---
Total Operating Expenses 936 1,020 84 8.2%
--- ----- ---
Operating Income $410 $436 ($26) -6.0%
Interest expense (96) (104) (8) 7.7%
Other income, net 1 1 - n/a
--- --- ---
Income Before Taxes $315 $333 ($18) -5.4%
Income tax expense (115) (119) 4 3.4%
---- ---- ---
Income from continuing operations $200 $214 ($14) -6.5%
Loss from discontinued operations,
net of taxes (26) (2) (24) n/a
--- --- ---
Net Income $174 $212 $(38) -17.9%
==== ==== ====
Diluted Earnings Per Share
Continuing operations $1.39 $1.38 $0.01 0.7%
Discontinued operations ($0.18) ($0.01) ($0.17) n/a
------ ------ ------
Total Diluted Earnings Per Share $1.21 $1.37 ($0.16) -11.7%
===== ===== ======
Selected Financial Data (Unaudited) - Current Period Results Compared
to Prior Quarter
Consolidated 1Q-09 4Q-08 Fav/(Unfav)
------------ ----- ----- -----------
Net Operating Revenues
Voice $916 $937 ($21) -2.2%
Data 203 202 1 0.5%
High-speed Internet 143 141 2 1.4%
Wireless 9 12 (3) -25.0%
Other services 55 60 (5) -8.3%
--- --- ---
Service revenues 1,326 1,352 (26) -1.9%
Product revenues 20 34 (14) -41.2%
--- --- ---
Total Net Operating Revenues 1,346 1,386 (40) -2.9%
Operating Expenses
Cost of services 343 341 (2) -0.6%
Cost of products 20 27 7 25.9%
Selling, general and administrative 329 341 12 3.5%
Depreciation 244 253 9 3.6%
--- --- ---
Total Operating Expenses 936 962 26 2.7%
--- --- ---
Operating Income $410 $424 ($14) -3.3%
Interest expense (96) (99) (3) 3.0%
Other income, net 1 - 1 n/a
--- --- ---
Income Before Taxes $315 $325 ($10) -3.1%
Income tax expense (115) (129) 14 10.9%
---- ---- ---
Income from continuing operations $200 $196 $4 2.0%
Loss from discontinued operations,
net of taxes (26) (5) (21) n/a
--- --- ---
Net Income $174 $191 ($17) -8.9%
==== ==== ====
Diluted Earnings Per Share
Continuing operations $1.39 $1.36 $0.03 2.2%
Discontinued operations ($0.18) ($0.03) ($0.15) n/a
------ ------ ------
Total Diluted Earnings Per Share $1.21 $1.33 ($0.12) -9.0%
===== ===== ======
Non-GAAP Definitions & Reconciliations
The following non-GAAP (generally accepted accounting principles) measures should be used in addition to, but not as a substitute for, the information provided in EMBARQ's consolidated financial statements.
Net Debt
Net debt is consolidated debt, including current maturities, less cash and equivalents. EMBARQ believes that net debt provides useful information about its capital structure.
Reconciliation - Net Debt 1Q09 4Q08 1Q08
---- ---- ----
Current maturities $2 $2 $99
Long-term debt 5,288 5,743 5,575
Less: Cash and equivalents (95) (107) (52)
--- ---- ---
Net Debt $5,195 $5,638 $5,622
Net Capital Expenditures
Net capital expenditures are capital expenditures less proceeds from construction reimbursements. EMBARQ believes that net capital expenditures provides useful information about the capital requirements of its operations.
Reconciliation - Net Capital Expenditures 1Q09 4Q08 1Q08
---- ---- ----
Capital expenditures 108 154 179
Less: Proceeds from construction
reimbursements (3) (5) (2)
--- --- ---
Net Capital Expenditures $105 $149 $177
---- ---- ----
Cash Flow Before Dividends
Cash flow before dividends is net cash provided by operating activities, excluding the effects of changes in assets and liabilities and other non-cash items, less net capital expenditures. EMBARQ believes that cash flow before dividends provides useful information about its capacity to return value to shareholders and reduce debt.
Reconciliation of Non-GAAP measure - Cash Flow
before Dividends 1Q09 4Q08 1Q08
---- ---- ----
Net cash provided by operating activities $634 $375 $593
Changes in assets and liabilities, net of other
non-cash items (216) 69 (131)
---- --- ----
Net Income excluding depreciation 418 444 462
Add: Loss from discontinued operations, net 26 5 2
Less: Net Capital expenditures (105) (149) (177)
---- ---- ----
Cash Flow before Dividends $339 $300 $287
---- ---- ----
Because Embarq cannot accurately predict the level of cash flow from operating activities and proceeds from construction reimbursements, Embarq does not provide reconciliations to GAAP of its forward looking measures of cash flow before dividends and net capital expenditures.
Other Financial Measures
Average Revenue per Household is calculated by dividing consumer revenues by average primary consumer access lines. While this measure is not defined under accounting principles generally accepted in
HSI Average Revenue per Subscriber is calculated by dividing high-speed Internet revenues by average high-speed Internet subscribers. While this measure is not defined under accounting principles generally accepted in
Adoption of New Accounting Pronouncements
First quarter 2009 results include the effects of FSP EITF 03-6-1, which concluded that unvested share-based payment awards that contain a nonforfeitable right to receive dividends, whether paid or unpaid, are participating securities and should be included in the computation of basic earnings per share. As required by this statement, prior period earnings per share and weighted average common shares outstanding were adjusted to conform to the provisions of this standard.
The impact to basic and diluted earnings per share and weighted average common shares outstanding was as follows:
Total Earnings per Common Share Year to Date Period Ended March 31,
2008
-----------------------------------
Previously
As Adjusted Reported Difference
----------- ---------- ----------
Total Earnings per Common Share
Basic $1.38 $1.39 ($0.01)
Diluted 1.37 1.38 -0.01
Weighted Average Common Shares
Outstanding
Basic (millions) 153.8 152.7 1.1
Diluted (millions) 154.3 154.1 0.2
About EMBARQ
Embarq Corporation (NYSE: EQ), headquartered in
For consumers, EMBARQ offers an innovative portfolio of services that includes reliable local and long distance home phone service, high-speed Internet, wireless, and satellite TV from DISH Network(R) -- all on one monthly bill.
For businesses, EMBARQ has a comprehensive range of flexible and integrated services designed to help businesses of all sizes be more productive and communicate with their customers. This service portfolio includes local voice and data services, long distance, Business Class High Speed Internet, wireless, satellite TV from DIRECTV(R), enhanced data network services, voice and data communication equipment and managed network services.
For more information, visit embarq.com.
Embarq Corporation
Consolidated Statements of Operations
($ in millions, except per share amounts)
(unaudited)
Quarter Ended
March 31,
-------------
2009 2008
---- ----
Net Operating Revenues
Service revenues $1,326 $1,433
Product revenues 20 23
--- ---
Total net operating revenue 1,346 1,456
Operating Expenses
Cost of services 343 389
Cost of products 20 33
Selling, general and administrative 329 348
Depreciation 244 250
--- ---
Total Operating Expenses 936 1,020
--- -----
Operating Income 410 436
Interest expense (96) (104)
Other income, net 1 1
--- ---
Income from Continuing Operations before Taxes 315 333
Income tax expense (115) (119)
---- ----
Income from Continuing Operations 200 214
Loss from Discontinued Operations, net of taxes (26) (2)
--- ---
Net Income $174 $212
==== ====
Basic Earnings Per Share
Continuing operations $1.40 $1.39
Discontinued operations (0.18) (0.01)
----- -----
Total Basic Earnings Per Share $1.22 $1.38
===== =====
Basic weighted average shares 143.2 153.8
Diluted Earnings Per Share
Continuing operations $1.39 $1.38
Discontinued operations (0.18) (0.01)
----- -----
Total Diluted Earnings Per Share $1.21 $1.37
===== =====
Diluted weighted average shares 143.5 154.3
Embarq Corporation
Condensed Consolidated Balance Sheets
($ in millions)
(unaudited)
March 31, December 31,
2009 2008
---- ----
Assets
Cash and equivalents $95 $107
Accounts receivable, net 444 494
Materials and supplies 51 52
Prepaid expenses and other current assets 142 170
Current assets of discontinued operations - 67
--- ---
Total current assets 732 890
Net property, plant and equipment 7,251 7,399
Other noncurrent assets 68 70
Noncurrent assets of discontinued operations - 12
--- ---
Total noncurrent assets 7,319 7,481
------ ------
Total assets $8,051 $8,371
====== ======
Liabilities and stockholders' equity
Current maturities of long-term debt $2 $2
Accounts payable 245 279
Payroll and employee benefits 196 219
Accrued operating taxes 86 78
Deferred revenue 175 184
Accrued interest 139 58
Other current liabilities 52 42
Current liabilities of discontinued operations - 34
--- ---
Total current liabilities 895 896
Long-term debt 5,288 5,743
Benefit plan obligations 1,332 1,341
Deferred income taxes 872 793
Other noncurrent liabilities 191 206
--- ---
Total noncurrent liabilities 7,683 8,083
Stockholders' equity
Common stock 2 2
Paid-in capital (193) (193)
Retained earnings 1,062 986
Accumulated other comprehensive income (loss) (898) (903)
Treasury stock, at cost (500) (500)
---- ----
Total stockholders' equity (527) (608)
------ ------
Total liabilities and stockholders' equity $8,051 $8,371
====== ======
Embarq Corporation
Condensed Consolidated Statements of Cash Flows
($ in millions)
(unaudited)
Year Ended
March 31,
-----------
2009 2008
---- ----
Operating Activities
Net income $174 $212
Adjustments to reconcile net income to net cash
provided by operating activities:
Loss from discontinued operations 26 2
Depreciation 244 250
Deferred and noncurrent income taxes 79 (20)
Provision for losses on accounts receivable 22 21
Stock-based compensation expense 6 9
Other, net 12 11
Changes in assets and liabilities:
Accounts receivable 28 18
Materials and supplies and other current assets (3) (21)
Accounts payable and other current liabilities 60 131
Noncurrent assets and liabilities, net (14) (26)
--- ---
Net cash provided by continuing operations 634 587
Net cash provided by discontinued operations - 6
--- ---
Net cash provided by operating activities 634 593
Investing Activities
Net capital expenditures (105) (177)
Proceeds from sale of discontinued operations 12 -
Proceeds from sales of assets 7 2
--- ---
Net cash used by investing activities (86) (175)
--- ----
Financing Activities
Changes in debt, net (455) (205)
Dividends paid to stockholders (100) (107)
Repurchase of common stock - (115)
Proceeds from common stock issued 1 4
Other, net (6) (12)
--- ---
Net cash used by financing activities (560) (435)
---- ----
Change in Cash and Equivalents (12) (17)
Cash and Equivalents at Beginning of Period 107 69
--- ---
Cash and Equivalents at End of Period $95 $52
=== ===
Embarq Corporation
Operating Statistics
(Revenues in millions; lines and subscribers in thousands)
1Q-09 (1) 2008 4Q-08 (1) 3Q-08 (1) 2Q-08 (1) 1Q-08 (1)
--------- ------- --------- --------- --------- ---------
Service and
Product
Revenues
Voice $916 $3,915 $937 $960 $994 $1,024
Data 203 801 202 202 199 198
High-speed
Internet 143 549 141 138 137 133
Wireless 9 58 12 13 17 16
Other 55 246 60 64 60 62
--- --- --- --- --- ---
Service
revenues 1,326 5,569 1,352 1,377 1,407 1,433
Product
revenues 20 120 34 31 32 23
--- --- --- --- --- ---
Net
operating
revenues $1,346 $5,689 $1,386 $1,408 $1,439 $1,456
====== ====== ====== ====== ====== ======
Operating
Unit
Revenues
Consumer $596 $2,518 $602 $619 $641 $656
Business 362 1,530 381 382 386 381
Wholesale 388 1,641 403 407 412 419
--- ----- --- --- --- ---
Net
operating
revenues $1,346 $5,689 $1,386 $1,408 $1,439 $1,456
====== ====== ====== ====== ====== ======
Access Lines
Consumer 3,677 3,778 3,894 4,029 4,172
Business 1,740 1,779 1,815 1,841 1,861
Wholesale 135 139 144 152 159
--- --- --- --- ---
Total 5,552 5,696 5,853 6,022 6,192
===== ===== ===== ===== =====
Average Revenue
per Household
(HH)
Consumer
revenue $596 $602 $619 $641 $656
Average
households 3,503 3,591 3,698 3,821 3,926
----- ----- ----- ----- -----
Monthly
revenue
per average
HH $56.71 $55.88 $55.80 $55.92 $55.70
====== ====== ====== ====== ======
High-speed
Internet
Lines
Consumer 1,240 1,200 1,177 1,155 1,132
Business 173 172 172 170 167
Wholesale 39 40 39 39 41
--- --- --- --- ---
Total 1,452 1,412 1,388 1,364 1,340
===== ===== ===== ===== =====
HSI Average
Revenue per
Subscriber
High-speed
Internet
revenue $143 $141 $138 $137 $133
Average HSI
subscribers 1,432 1,400 1,376 1,352 1,309
----- ----- ----- ----- -----
Monthly
revenue per
average
subscriber $33.29 $33.57 $33.43 $33.78 $33.87
====== ====== ====== ====== ======
Wireless
Subscribers
Consumer 56 71 83 97 101
Business 6 7 9 10 11
--- --- --- --- ---
Total 62 78 92 107 112
=== === === === ===
Entertainment
Subscribers 310 297 284 239 217
=== === === === ===
(1) unaudited
SOURCE EMBARQ
