EMBARQ CORPORATION 
By
For the fourth quarter, the company reported total revenue of
"The strength of our cash flow results, particularly given the economic
environment, illustrates the durability of our business model and the focus of
the EMBARQ team," said
Highlights
-- Full-year 2008 cash flow before dividends of nearly $1.1 billion
represented an increase of 19.1% over the prior year and exceeded the
company's outlook for the year.
-- Data revenue grew at a 4.7% year-over-year rate for both the fourth
quarter and full year, exceeding $800 million for the full year.
-- High-speed Internet revenue increased 10.2% in the fourth quarter and
12.3% for the full year, totaling $549 million in 2008.
-- On Jan. 29, 2009, the company announced the sale of its distribution and
supply chain subsidiary, Embarq Logistics, Inc., to KGP
Telecommunications, Inc.
-- Following the successful launch of its RescueIT(SM) computer support
service for residential customers, the company recently announced the
availability of RescueIT(SM) for EMBARQ(R) Business High-Speed Internet
subscribers.
Financial Results
EMBARQ reported consolidated operating revenue of
Revenue in the company's Logistics segment declined 17.7% year-over-year
to
Fourth quarter Telecommunications segment revenue was
Consolidated operating income was
Operating income in the current and prior year periods included the following unusual or non-recurring items affecting comparability:
2008 2007
Increase (Decrease) 4Q Total 4Q Total
(in millions)
Workforce reduction ($5) ($76) ($31) ($80)
Spin-off related expenses $0 $0 ($5) ($26)
Gain from sale of
real estate $0 $9 $0 $0
In addition, unusual or non-recurring items caused income tax expense to
differ from what would be expected based on the company's normal effective tax
rate of approximately 37.5%:
2008 2007
Increase (Decrease) 4Q Total 4Q Total
(in millions)
Income tax items ($8) ($1) $23 $12
EMBARQ reported diluted earnings per share of
Capital Expenditures and Cash Flow
Net capital expenditures were
Cash flow before dividends totaled
During the fourth quarter, EMBARQ paid a dividend of
The company reduced its net debt by
Subscriber Results
The company ended the year with 5.7 million access lines, 9.8% less than at the end of 2007. In the fourth quarter, absolute line losses totaled 157,000 compared to an absolute loss of 91,000 during the fourth quarter of 2007.
The company added 24,000 high-speed Internet subscribers during the quarter, bringing its subscriber base to 1.41 million at the end of the year, a 10.6% increase from year end 2007.
Video net additions were 13,000 during the quarter, and the company ended the period with 297,000 of its customers subscribing to video services. This is an increase of 48.5% from the prior year end.
Outlook
In light of its pending merger with CenturyTel, the company's outlook for 2009 covers only the first half of the year:
-- Telecom segment revenue is expected to be between $2.68 and $2.72
billion.
-- Net capital expenditures are expected to be less than $300 million.
-- Cash flow before dividends is expected to be between $560 million and
$580 million.
Conference Call
Today EMBARQ will hold a conference call beginning at
Cautionary Statement
This news release contains certain "forward-looking statements" within the meaning of the "safe harbor" provisions of the United States Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the use of words such as "anticipate", "may", "can", "believe", "expect", "project", "intend", "likely", similar expressions and any other statements that predict or indicate future events or trends or that are not statements of historical facts. These forward-looking statements are subject to numerous risks and uncertainties. There are various important factors that could cause actual outcomes and results to differ materially from those in any such forward-looking statements. These factors include, but are not limited to, the following: failure to obtain, delays in obtaining or adverse conditions contained in any required regulatory approvals; failure to consummate or delay in consummating the merger for other reasons; changes in laws or regulations; and changes in general economic conditions. Embarq and CenturyTel undertake no obligation (and expressly disclaim any such obligation) to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. For additional information concerning factors that could cause actual results to materially differ from those projected herein, please refer to Embarq's and CenturyTel's most recent Form 10-K, 10-Q and 8-K reports.
Selected Financial Data (Unaudited) - Current Period Results
Compared to Prior Year
Logistics 4Q-08 4Q-07 Fav/(Unfav)
Net Operating Revenues 93 113 (20) -17.7%
Operating Expenses
Cost of services &
products 86 104 18 17.3%
Selling, general and
administrative 13 9 (4) -44.4%
Depreciation 0 1 1 100.0%
Total Operating Expenses 99 114 15 13.2%
Operating Income ($6) ($1) ($5) n/a
Telecom 4Q-08 4Q-07 Fav/(Unfav)
Net Operating Revenues
Voice $937 $1,032 ($95) -9.2%
Data 202 193 9 4.7%
High-speed Internet 141 128 13 10.2%
Wireless 12 16 (4) -25.0%
Other services 60 59 1 1.7%
Service revenues 1,352 1,428 (76) -5.3%
Product revenues 34 36 (2) -5.6%
Total Net Operating
Revenues 1,386 1,464 (78) -5.3%
Operating Expenses
Cost of services 341 397 56 14.1%
Cost of products 27 39 12 30.8%
Selling, general and
administrative 341 395 54 13.7%
Depreciation 253 262 9 3.4%
Total Operating Expenses 962 1,093 131 12.0%
Operating Income $424 $371 $53 14.3%
Consolidated 4Q-08 4Q-07 Fav/(Unfav)
Net Operating Revenues
Voice $937 $1,032 ($95) -9.2%
Data 202 193 9 4.7%
High-speed Internet 141 128 13 10.2%
Wireless 12 16 (4) -25.0%
Other services 60 59 1 1.7%
Service revenues 1,352 1,428 (76) -5.3%
EMBARQ Logistics 93 113 (20) -17.7%
Other product 34 36 (2) -5.6%
Product revenues 127 149 (22) -14.8%
Total Net Operating
Revenues 1,479 1,577 (98) -6.2%
Operating Expenses
Cost of services 342 399 57 14.3%
Cost of products 112 141 29 20.6%
Selling, general
and administrative 354 404 50 12.4%
Depreciation 253 263 10 3.8%
Total Operating Expenses 1,061 1,207 146 12.1%
Operating Income $418 $370 $48 13.0%
Interest expense 100 104 4 3.8%
Other expense (income),
net (1) (1) 0 n/a
Income Before Taxes $319 $267 $52 19.5%
Income tax expense 128 77 (51) -66.2%
Net Income $191 $190 $1 0.5%
Diluted Earnings Per
Share $1.34 $1.23 $0.11 8.9%
Selected Financial Data (Unaudited) - Current Period Results
Compared to Prior Quarter
Logistics 4Q-08 3Q-08 Fav/(Unfav)
Net Operating Revenues 93 117 (24) -20.5%
Operating Expenses
Cost of services
& products 86 106 20 18.9%
Selling, general and
administrative 13 12 (1) -8.3%
Depreciation 0 1 1 100.0%
Total Operating Expenses 99 119 20 16.8%
Operating Income ($6) ($2) ($4) n/a
Telecom 4Q-08 3Q-08 Fav/(Unfav)
Net Operating Revenues
Voice $937 $960 ($23) -2.4%
Data 202 202 0 n/a
High-speed Internet 141 138 3 2.2%
Wireless 12 13 (1) -7.7%
Other services 60 64 (4) -6.3%
Service revenues 1,352 1,377 (25) -1.8%
Product revenues 34 31 3 9.7%
Total Net Operating
Revenues 1,386 1,408 (22) -1.6%
Operating Expenses
Cost of services 341 422 81 19.2%
Cost of products 27 30 3 10.0%
Selling, general and
administrative 341 350 9 2.6%
Depreciation 253 251 (2) -0.8%
Total Operating Expenses 962 1,053 91 8.6%
Operating Income $424 $355 $69 19.4%
Consolidated 4Q-08 3Q-08 Fav/(Unfav)
Net Operating Revenues
Voice $937 $960 ($23) -2.4%
Data 202 202 0 n/a
High-speed Internet 141 138 3 2.2%
Wireless 12 13 (1) -7.7%
Other services 60 64 (4) -6.3%
Service revenues 1,352 1,377 (25) -1.8%
EMBARQ Logistics 93 117 (24) -20.5%
Other product 34 31 3 9.7%
Product revenues 127 148 (21) -14.2%
Total Net Operating
Revenues 1,479 1,525 (46) -3.0%
Operating Expenses
Cost of services 342 421 79 18.8%
Cost of products 112 137 25 18.2%
Selling, general
and administrative 354 362 8 2.2%
Depreciation 253 252 (1) -0.4%
Total Operating Expenses 1,061 1,172 111 9.5%
Operating Income $418 $353 $65 18.4%
Interest expense 100 101 1 1.0%
Other expense (income),
net (1) (1) 0 n/a
Income Before Taxes $319 $253 $66 26.1%
Income tax expense 128 93 (35) -37.6%
Net Income $191 $160 $31 19.4%
Diluted Earnings Per
Share $1.34 $1.11 $0.23 20.7%
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 4Q08 3Q08 4Q07
Current maturities $2 $2 $99
Long-term debt 5,743 5,838 5,779
Less: Cash and equivalents (107) (83) (69)
Net Debt $5,638 $5,757 $5,809
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 4Q08 3Q08 4Q07
Capital expenditures 154 172 263
Less: Proceeds from construction
reimbursements (5) (2) (3)
Net Capital Expenditures $149 $170 $260
Reconciliation - Net Capital
Expenditures Year Ended December 31,
2008 2007
Capital expenditures 686 829
Less: Proceeds from construction
reimbursements (11) (10)
Net Capital Expenditures $675 $819
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 - Cash Flow
before Dividends 4Q08 3Q08 4Q07
Net cash provided by
operating activities $375 $530 $397
Add: Changes in assets and
liabilities, net of other
non-cash items 69 (118) 56
Net Income excluding depreciation 444 412 453
Less: Net Capital expenditures (149) (170) (260)
Cash Flow before Dividends $295 $242 $193
Reconciliation - Cash Flow
before Dividends Year Ended December 31,
2008 2007
Net cash provided by
operating activities $1,748 $1,624
Add: Changes in assets
and liabilities, net
of other non-cash items 24 116
Net Income excluding
depreciation 1,772 1,740
Less: Net Capital expenditures (675) (819)
Cash Flow before Dividends $1,097 $921
Because Embarq cannot accurately predict the level of cash flow from operating activities and proceeds from construction reimbursements, Embarq does not provide reconciliations to GAAP of its forward looking measures of cash flow before dividends and net capital expenditures.
Other Financial Measures
Average Revenue per Household is calculated by dividing consumer revenues
by average primary consumer access lines. While this measure is not defined
under accounting principles generally accepted in
HSI Average Revenue per Subscriber is calculated by dividing high-speed
Internet revenues by average high-speed Internet subscribers. While this
measure is not defined under accounting principles generally accepted in
About EMBARQ
Embarq Corporation (NYSE: EQ), headquartered in
For consumers, EMBARQ offers an innovative portfolio of services that includes reliable local and long distance home phone service, high-speed Internet, wireless, and satellite TV from DISH Network(R) -- all on one monthly bill.
For businesses, EMBARQ has a comprehensive range of flexible and integrated services designed to help businesses of all sizes be more productive and communicate with their customers. This service portfolio includes local voice and data services, long distance, Business Class High Speed Internet, wireless, satellite TV from DIRECTV(R), enhanced data network services, voice and data communication equipment and managed network services.
For more information, visit embarq.com.
Embarq Corporation
Consolidated Statements of Operations
($ in millions, except per share amounts)
Quarter Ended December 31, Year Ended December 31,
2008 2007 2008 2007
(unaudited) (unaudited) (unaudited)
Net Operating Revenues
Service revenues $1,352 $1,428 $5,569 $5,786
Product revenues 127 149 555 579
Total net operating
revenue 1,479 1,577 6,124 6,365
Operating Expenses
Cost of services 342 399 1,534 1,637
Cost of products 112 141 519 559
Selling, general and
administrative 354 404 1,435 1,608
Depreciation 253 263 1,003 1,057
Total Operating Expenses 1,061 1,207 4,491 4,861
Operating Income 418 370 1,633 1,504
Interest expense 100 104 405 432
Other (income) expense,
net (1) (1) (4) (3)
Income Before Income
Taxes 319 267 1,232 1,075
Income tax expense 128 77 463 392
Net Income $191 $190 $769 $683
Basic Earnings Per
Share $1.34 $1.24 $5.27 $4.50
Basic weighted average
shares 142.2 153.0 146.0 151.9
Diluted Earnings Per
Share $1.34 $1.23 $5.22 $4.44
Diluted weighted average
shares 143.0 154.9 147.4 153.9
Embarq Corporation
Condensed Consolidated Balance Sheets
($ in millions)
December 31, December 31,
2008 2007
(unaudited)
Assets
Cash and equivalents $107 $69
Accounts receivable, net 520 618
Inventories, net 93 138
Prepaid expenses and other current assets 170 161
Total current assets 890 986
Net property, plant and equipment 7,411 7,748
Prepaid pension asset - 108
Other noncurrent assets 70 59
Total noncurrent assets 7,481 7,915
Total assets $8,371 $8,901
Liabilities and stockholders' equity
Current maturities of long-term debt $2 $99
Accounts payable 308 388
Payroll and employee benefits 222 278
Accrued income taxes - 27
Accrued operating taxes 78 97
Deferred revenue 184 202
Accrued interest 58 56
Other current liabilities 44 51
Total current liabilities 896 1,198
Long-term debt 5,743 5,779
Benefit plan obligations 1,341 320
Deferred income taxes 793 1,130
Other noncurrent liabilities 206 210
Total noncurrent liabilities 8,083 7,439
Stockholders' equity
Common stock 2 2
Paid-in capital (193) (231)
Retained earnings 986 623
Accumulated other comprehensive income (loss) (903) (130)
Treasury stock, at cost (500) -
Total stockholders' equity (608) 264
Total liabilities and stockholders' equity $8,371 $8,901
Embarq Corporation
Condensed Consolidated Statements of Cash Flows
($ in millions)
Year Ended December 31,
2008 2007
(unaudited)
Operating Activities
Net income $769 $683
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 1,003 1,057
Deferred and noncurrent income taxes 98 (43)
Provision for losses on accounts receivable 103 94
Stock-based compensation expense 47 50
Net losses (gains) on sales of assets (9) (7)
Other, net 53 45
Changes in assets and liabilities:
Accounts receivable (5) (75)
Inventories and other current assets 1 (4)
Accounts payable and other current
liabilities (183) (98)
Noncurrent assets and liabilities, net (129) (78)
Net cash provided by operating activities 1,748 1,624
Investing Activities
Net capital expenditures (675) (819)
Proceeds from sales of assets 11 25
Net cash used by investing activities (664) (794)
Financing Activities
Changes in debt, net (134) (577)
Dividends paid to stockholders (404) (367)
Repurchase of common stock (500) (2)
Proceeds from common stock issued 14 116
Other, net (22) 16
Net cash used by financing activities (1,046) (814)
Change in Cash and Equivalents 38 16
Cash and Equivalents at Beginning of Period 69 53
Cash and Equivalents at End of Period $107 $69
Embarq Corporation
Operating Statistics
(Revenues in millions; lines and subscribers in thousands)
2008(1) 4Q-08(1) 3Q-08(1) 2Q-08(1) 1Q-08(1)
Service and Product
Revenues
Voice $3,915 $937 $960 $994 $1,024
Data 801 202 202 199 198
High-speed
Internet 549 141 138 137 133
Wireless 58 12 13 17 16
Other 246 60 64 60 62
Service revenues 5,569 1,352 1,377 1,407 1,433
Logistics 435 93 117 110 115
Other 120 34 31 32 23
Product revenues 555 127 148 142 138
Net operating
revenues $6,124 $1,479 $1,525 $1,549 $1,571
Operating Unit
Revenues
Consumer $2,518 $602 $619 $641 $656
Business 1,530 381 382 386 381
Wholesale 1,641 403 407 412 419
Telecommunications
segment 5,689 1,386 1,408 1,439 1,456
Logistics segment 435 93 117 110 115
Net operating
revenues $6,124 $1,479 $1,525 $1,549 $1,571
Access Lines
Consumer 3,778 3,894 4,029 4,172
Business 1,779 1,815 1,841 1,861
Wholesale 139 144 152 159
Total 5,696 5,853 6,022 6,192
Average Revenue
per Household(HH)
Consumer revenue $602 $619 $641 $656
Average households 3,591 3,698 3,821 3,926
Monthly revenue per
average HH $55.88 $55.80 $55.92 $55.70
High-speed Internet
Lines
Consumer 1,200 1,177 1,155 1,132
Business 172 172 170 167
Wholesale 40 39 39 41
Total 1,412 1,388 1,364 1,340
HSI Average Revenue
per Subscriber
High-speed
Internet revenue $141 $138 $137 $133
Average HSI
subscribers 1,400 1,376 1,352 1,309
Monthly revenue per
average subscriber $33.57 $33.43 $33.78 $33.87
Wireless
Subscribers
Consumer 71 83 97 101
Business 7 9 10 11
Total 78 92 107 112
Entertainment
Subscribers 297 284 239 217
2007 4Q-07(1) 3Q-07(1) 2Q-07(1) 1Q-07(1)
Service and Product
Revenues
Voice $4,238 $1,032 $1,051 $1,071 $1,084
Data 765 193 195 188 189
High-speed
Internet 489 128 124 121 116
Wireless 51 16 15 11 9
Other 243 59 61 63 60
Service revenues 5,786 1,428 1,446 1,454 1,458
Logistics 466 113 121 123 109
Other 113 36 27 28 22
Product revenues 579 149 148 151 131
Net operating
revenues $6,365 $1,577 $1,594 $1,605 $1,589
Operating Unit
Revenues
Consumer $2,655 $652 $658 $669 $676
Business 1,544 389 388 384 383
Wholesale 1,700 423 427 429 421
Telecommunications
segment 5,899 1,464 1,473 1,482 1,480
Logistics segment 466 113 121 123 109
Net operating
revenues $6,365 $1,577 $1,594 $1,605 $1,589
Access Lines
Consumer 4,272 4,345 4,461 4,588
Business 1,876 1,887 1,896 1,909
Wholesale 164 171 176 184
Total 6,312 6,403 6,533 6,681
Average Revenue
per Household(HH)
Consumer revenue $652 $658 $669 $676
Average households 3,997 4,076 4,180 4,261
Monthly revenue per
average HH $54.37 $53.81 $53.35 $52.88
High-speed Internet
Lines
Consumer 1,074 1,017 963 916
Business 164 160 154 149
Wholesale 39 39 39 39
Total 1,277 1,216 1,156 1,104
HSI Average Revenue
per Subscriber
High-speed
Internet revenue $128 $124 $121 $116
Average HSI
subscribers 1,247 1,186 1,130 1,061
Monthly revenue per
average subscriber $34.22 $34.85 $35.69 $36.44
Wireless
Subscribers
Consumer 101 98 81 65
Business 11 10 8 6
Total 112 108 89 71
Entertainment
Subscribers 200 190 178 170
(1) unaudited
Embarq Corporation
Supplemental Cash Flow Data
($ in millions)
(unaudited)
Quarter Ended
December 31, 2008
Operating Activities
Net income $191
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 253
Deferred and noncurrent income taxes 83
Provision for losses on accounts receivable 26
Stock-based compensation expense 12
Net losses (gains) on sales of assets -
Other, net 13
Changes in assets and liabilities:
Accounts receivable (2)
Inventories and other current assets 14
Accounts payable and other current liabilities (165)
Noncurrent assets and liabilities, net (50)
Net cash provided by operating activities 375
Investing Activities
Net capital expenditures (149)
Proceeds from sales of assets 1
Net cash used by investing activities (148)
Financing Activities
Changes in debt, net (95)
Dividends paid to stockholders (98)
Repurchase of common stock -
Proceeds from common stock issued 1
Other, net (11)
Net cash used by financing activities (203)
Change in Cash and Equivalents 24
Cash and Equivalents at Beginning of Period 83
Cash and Equivalents at End of Period $107
SOURCE Embarq Corporation
