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PRESS RELEASES
OVERLAND PARK, Kan., April 29 /PRNewswire-FirstCall/ -- EMBARQ (NYSE: EQ)
today announced results for the first quarter of 2008, including record
earnings and cash flow. The company reported total revenues of $1.57 billion,
operating income of $434 million, diluted earnings per share of $1.38 and cash
flow before dividends of $286 million.
"Improving efficiency continues to be one of our key focus areas and that
was certainly evident in our earnings and cash flow results this quarter,"
said Tom Gerke, EMBARQ Chief Executive Officer. "Given this strong
profitability and the ongoing growth in high-speed Internet and data revenues,
we continue to forecast cash flow improvement for full-year 2008."
First Quarter Highlights
-- First quarter operating income, diluted earnings per share and cash flow
before dividends reached their highest levels since EMBARQ became a
standalone company in mid-2006.
-- Operating income increased 17 percent year-over-year to $434 million.
-- Diluted earnings per share increased 31 percent year-over-year to $1.38.
-- Cash flow before dividends increased 14 percent year-over-year to $286
million.
-- As of April 25th, EMBARQ had repurchased approximately 5.97 million
shares at an average share price of $40, which represents 48 percent of
the $500 million share repurchase authorization the company announced on
January 9, 2008.
-- The company recently introduced EMBARQ(TM) eGo(TM), a next-generation
home phone that combines the quality and reliability of traditional
voice service with Internet-enabled features and functionality.
-- For business customers, the company recently announced EMBARQ(TM)
Business Security Solutions, which includes desktop, network and e-mail
security, as well as continuity services such as back-up, recovery and
re-routing.
Financial Results
EMBARQ reported consolidated operating revenues of $1.57 billion for the
first quarter of 2008, which represents a decrease of 0.4 percent sequentially
and 1.1 percent from the prior year period. Despite a 7.3 percent decline in
access lines compared to the year ago period, Telecommunications segment
revenues declined by 0.5 percent compared to the previous quarter and 1.6
percent year-over-year to $1.46 billion. Growth in high-speed Internet and
data revenues partially offset a decline in voice revenue. The Logistics
segment reported revenue of $115 million, which is a 1.8 percent sequential
improvement and a 5.5 percent increase relative to the prior year period.
The decline in revenue in the first quarter was more than offset by
improvements in operating efficiency and wireless dilution, as well as lower
severance and spin-off expenses. As a result, consolidated operating income
improved 17 percent relative to both the prior quarter and prior year period,
reaching $434 million in the first quarter.
Operating income was impacted by the following items:
Increase (Decrease) 1Q-08 4Q-07 1Q-07
(in millions)
Severance expenses $0 ($31) ($14)
Spin-off related expenses $0 ($5) ($9)
Net wireless dilution ($14) ($14) ($22)
Diluted earnings per share were $1.38 for the quarter, up from $1.05 in
the year ago period and $1.23 in the fourth quarter.
Capital Expenditures and Cash Flow
Net capital expenditures during the period were $177 million, a decline of
1.7 percent year-over-year.
EMBARQ reported cash flow before dividends of $286 million in the quarter,
an increase of 14 percent compared to the prior year period.
The company paid a dividend of $0.6875 per share in the first quarter, and
repurchased approximately 3.35 million common shares at a cost of $135
million. Through April 25, 2008, the company purchased an additional 2.62
million shares at a cost of $104 million.
The company ended the quarter with net debt of $5.6 billion, a sequential
reduction of $187 million.
Subscriber Results
EMBARQ reported a decline of 120,000 access lines in the first quarter,
ending with 6.19 million access lines. During the quarter, the company added
63,000 high-speed Internet subscribers, bringing the total to 1.34 million.
Video net additions totaled 17,000 during the quarter, resulting in the
company ending the quarter with 217,000 of its customers subscribing to video
services.
2008 Outlook
The company updated its 2008 outlook originally provided on February 7,
2008. Current expectations for the year are as follows:
-- Absolute access lines losses over the remainder of 2008 are expected to
be closer to prior year levels than in the first quarter. The company's
previous expectation called for access line losses to be flat or
slightly higher than 2007 levels throughout 2008.
-- Driven by the decision to transition away from its wireless MVNO, the
company lowered its outlook for both wireless revenue and
telecommunications segment revenue by $30 million. The updated range
for telecommunications revenue is $5.72 to $5.80 billion. The previous
range was $5.75 to $5.83 billion.
-- Wireless dilution is expected to be approximately $20 million, which is
within the previously provided range.
-- Capital spending is expected to be approximately $780 million, which
represents an improvement of $20 million from the previous outlook of
approximately $800 million.
-- Cash flow before dividends is expected to be between $960 million and
$1.0 billion, a $10 million increase from the previous range of $950 to
$990 million.
Conference Call
Today EMBARQ will hold a conference call beginning at 4:30 p.m. EDT. Dial-
in numbers for the conference call are (866) 245-2310 (U.S. and Canada) and
(816) 650-2838 (International). The code required to access the call is
38553950. Please plan to dial in at least five minutes before the scheduled
start time. A simultaneous audio webcast of the call and a downloadable
presentation will be available at http://www.embarq.com/investors.
For those unable to participate live, a replay of the call will be
available until May 13, 2008, by dialing (800) 642-1687 (U.S. and Canada) or
(706) 645-9291 (International) as well as at http://www.embarq.com/investors.
The accompanying presentation will also be archived and available for download
at this website.
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: 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; 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; the volatility in the equity market; the
possible impact of adverse changes in economic, political or other external
factors, including hurricanes and other severe weather, over which we have no
control; 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-08 1Q-07 Fav/(Unfav)
Net Operating Revenues
Voice $1,024 $1,084 ($60) -5.5%
Data 198 189 9 4.8%
High-speed Internet 133 116 17 14.7%
Wireless 16 9 7 77.8%
Other services 62 60 2 3.3%
Service revenues 1,433 1,458 (25) -1.7%
EMBARQ Logistics 115 109 6 5.5%
Other product 23 22 1 4.5%
Product revenues 138 131 7 5.3%
Total Net Operating Revenues 1,571 1,589 (18) -1.1%
Operating Expenses
Cost of services 390 417 27 6.5%
Cost of products 138 127 (11) -8.7%
Selling, general and
administrative 358 404 46 11.4%
Depreciation 251 270 19 7.0%
Total Operating Expenses 1,137 1,218 81 6.7%
Operating Income $434 $371 $63 17.0%
Interest expense 104 109 5 4.6%
Other expense (income), net (1) 0 1 n/a
Income Before Taxes $331 $262 $69 26.3%
Income tax expense 119 102 (17) -16.7%
Net Income $212 $160 $52 32.5%
Diluted Earnings Per Share $1.38 $1.05 $0.33 31.4%
Telecom 1Q-08 1Q-07 Fav/(Unfav)
Net Operating Revenues
Voice $1,024 $1,084 ($60) -5.5%
Data 198 189 9 4.8%
High-speed Internet 133 116 17 14.7%
Wireless 16 9 7 77.8%
Other services 62 60 2 3.3%
Service revenues 1,433 1,458 (25) -1.7%
Product revenues 23 22 1 4.5%
Total Net Operating Revenues 1,456 1,480 (24) -1.6%
Operating Expenses
Cost of services 389 417 28 6.7%
Cost of products 33 30 (3) -10.0%
Selling, general and
administrative 348 392 44 11.2%
Depreciation 250 267 17 6.4%
Total Operating Expenses 1,020 1,106 86 7.8%
Operating Income $436 $374 $62 16.6%
Logistics 1Q-08 1Q-07 Fav/(Unfav)
Net Operating Revenues 115 109 6 5.5%
Operating Expenses
Cost of services & products 106 97 (9) -9.3%
Selling, general and
administrative 10 12 2 16.7%
Depreciation 1 3 2 66.7%
Total Operating Expenses 117 112 (5) -4.5%
Operating Income ($2) ($3) $1 33.3%
Selected Financial Data (Unaudited) - Current Period Results Compared to
Prior Quarter
Consolidated 1Q-08 4Q-07 Fav/(Unfav)
Net Operating Revenues
Voice $1,024 $1,032 ($8) -0.8%
Data 198 193 5 2.6%
High-speed Internet 133 128 5 3.9%
Wireless 16 16 0 0.0%
Other services 62 59 3 5.1%
Service revenues 1,433 1,428 5 0.4%
EMBARQ Logistics 115 113 2 1.8%
Other product 23 36 (13) -36.1%
Product revenues 138 149 (11) -7.4%
Total Net Operating Revenues 1,571 1,577 (6) -0.4%
Operating Expenses
Cost of services 390 399 9 2.3%
Cost of products 138 141 3 2.1%
Selling, general and
administrative 358 404 46 11.4%
Depreciation 251 263 12 4.6%
Total Operating Expenses 1,137 1,207 70 5.8%
Operating Income $434 $370 $64 17.3%
Interest expense 104 104 0 0.0%
Other expense (income), net (1) (1) 0 0.0%
Income Before Taxes $331 $267 $64 24.0%
Income tax expense 119 77 (42) -54.5%
Net Income $212 $190 $22 11.6%
Diluted Earnings Per Share $1.38 $1.23 $0.15 12.2%
Telecom 1Q-08 4Q-07 Fav/(Unfav)
Net Operating Revenues
Voice $1,024 $1,032 ($8) -0.8%
Data 198 193 5 2.6%
High-speed Internet 133 128 5 3.9%
Wireless 16 16 0 0.0%
Other services 62 59 3 5.1%
Service revenues 1,433 1,428 5 0.4%
Product revenues 23 36 (13) -36.1%
Total Net Operating Revenues 1,456 1,464 (8) -0.5%
Operating Expenses
Cost of services 389 397 8 2.0%
Cost of products 33 39 6 15.4%
Selling, general and
administrative 348 395 47 11.9%
Depreciation 250 262 12 4.6%
Total Operating Expenses 1,020 1,093 73 6.7%
Operating Income $436 $371 $65 17.5%
Logistics 1Q-08 4Q-07 Fav/(Unfav)
Net Operating Revenues 115 113 2 1.8%
Operating Expenses
Cost of services & products 106 104 (2) -1.9%
Selling, general and
administrative 10 9 (1) -11.1%
Depreciation 1 1 0 0.0%
Total Operating Expenses 117 114 (3) -2.6%
Operating Income ($2) ($1) ($1) -100.0%
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 1Q08 4Q07 1Q07
Current maturities $99 $99 $37
Long-term debt 5,575 5,779 6,058
Less: Cash and equivalents (52) (69) (46)
Net Debt $5,622 $5,809 $6,049
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 1Q08 4Q07 1Q07
Capital expenditures 179 263 183
Less: Proceeds from construction
reimbursements (2) (3) (3)
Net Capital Expenditures $177 $260 $180
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 1Q08 4Q07 1Q07
Net cash provided by operating
activities $593 $397 $480
Add: Changes in assets and
liabilities, net of other non-cash
items (130) 56 (50)
Net Income excluding depreciation 463 453 430
Less: Net Capital expenditures (177) (260) (180)
Cash Flow before Dividends $286 $193 $250
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 the United States, the
measure uses a GAAP measure as the basis for the calculation. EMBARQ believes
Average Revenue per Household provides useful information concerning the
success of its bundling initiatives and performance in attracting and
retaining high value customers.
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 the
United States, the measure uses a GAAP measure as the basis for the
calculation. EMBARQ believes HSI Average Revenue per Subscriber provides
useful information concerning the appeal of its high-speed Internet pricing
plans and performance in attracting and retaining high value customers.
Reclassifications
Universal Service Fund Receipts and Surcharges
In the first quarter of 2008, Embarq reclassified universal service fund
surcharges related to long distance and wireless services from consumer and
business to wholesale. All universal service fund receipts and surcharges are
now reported within the wholesale operating unit. A comparison of operating
unit revenues both before and after the changes is provided below. Prior to
the fourth quarter 2006, universal service fund surcharges related to wireless
and long distance were not material.
As Currently Reported 4Q-07 3Q-07 2Q-07 1Q-07 4Q-06 3Q-06
Operating Unit Revenues
Consumer $652 $658 $669 $676 $655 $668
Business 389 388 384 383 377 389
Wholesale 423 427 429 421 470 424
Telecommunications segment 1,464 1,473 1,482 1,480 1,502 1,481
Logistics segment 113 121 123 109 115 125
Net operating revenues $1,577 $1,594 $1,605 $1,589 $1,617 $1,606
As Previously Reported 4Q-07 3Q-07 2Q-07 1Q-07 4Q-06 3Q-06
Operating Unit Revenues
Consumer $658 $665 $675 $682 $671 $668
Business 390 391 385 384 381 389
Wholesale 416 417 422 414 450 424
Telecommunications
segment 1,464 1,473 1,482 1,480 1,502 1,481
Logistics segment 113 121 123 109 115 125
Net operating revenues $1,577 $1,594 $1,605 $1,589 $1,617 $1,606
Switched Access Lines
Beginning in January 2008, EMBARQ no longer includes in its business
access line counts lines that support its internal administrative and
operational activities. Accordingly, access line counts for all prior periods
have been updated to reflect this change. A reconciliation of these changes
can be found below.
Access Lines 1Q-08 4Q-07 3Q-07 2Q-07 1Q-07
External Access
Lines 6,192 6,312 6,403 6,533 6,681
Internal Company
Lines 161 162 162 158 156
Access Lines -
Previous
Reporting
Methodology 6,353 6,474 6,565 6,691 6,837
Access Lines 4Q-06 3Q-06 2Q-06 1Q-06
External Access Lines 6,754 6,845 6,967 7,119
Internal Company Lines 154 153 150 149
Access Lines - Previous
Reporting Methodology 6,908 6,998 7,117 7,268
About EMBARQ
Embarq Corporation (NYSE: EQ), headquartered in Overland Park, Kansas,
offers a complete suite of communications services. The company has
approximately 18,000 employees and operates in 18 states. EMBARQ is included
in the S&P 500 and is in the Fortune 500(R) list of America's largest
corporations.
For consumers, EMBARQ offers an innovative portfolio of services that
includes reliable local and long distance home phone service, high-speed
Internet, wireless, and satellite TV from DISH Network(R) -- all on one
monthly bill.
For businesses, EMBARQ has a comprehensive range of flexible and
integrated services designed to help businesses of all sizes be more
productive and communicate with their customers. This service portfolio
includes local voice and data services, long distance, Business Class High
Speed Internet, wireless, satellite TV from DIRECTV(R), enhanced data network
services, voice and data communication equipment and managed network services.
For more information, visit http://www.embarq.com.
Embarq Corporation
Consolidated Statements of Operations
($ in millions, except per share amounts)
(unaudited)
Schedule 1 Quarter Ended March 31,
2008 2007
Net Operating Revenues
Service revenues $1,433 $1,458
Product revenues 138 131
Total net operating revenue 1,571 1,589
Operating Expenses
Cost of services 390 417
Cost of products 138 127
Selling, general and administrative 358 404
Depreciation 251 270
Total Operating Expenses 1,137 1,218
Operating Income 434 371
Interest expense 104 109
Other (income) expense, net (1) -
Income Before Income Taxes 331 262
Income tax expense 119 102
Net Income $212 $160
Basic Earnings Per Share $1.39 $1.07
Basic weighted average shares 152.7 150.2
Diluted Earnings Per Share $1.38 $1.05
Diluted weighted average shares 154.1 152.4
Embarq Corporation
Condensed Consolidated Balance Sheets
($ in millions)
Schedule 2 March December
31, 31,
2008 2007
(unaudited)
Assets
Cash and equivalents $52 $69
Accounts receivable, net 579 616
Inventories, net 128 138
Prepaid expenses and other current
assets 182 163
Total current assets 941 986
Net property, plant and equipment 7,659 7,748
Prepaid pension asset 126 108
Other noncurrent assets 62 59
Total noncurrent assets 7,847 7,915
Total assets $8,788 $8,901
Liabilities and stockholders' equity
Current maturities of long-term debt $99 $99
Accounts payable 404 387
Payroll and employee benefits 140 208
Accrued income taxes 153 27
Accrued operating taxes 90 97
Deferred revenue 200 202
Accrued interest 136 56
Other current liabilities 107 122
Total current liabilities 1,329 1,198
Long-term debt 5,575 5,779
Benefit plan obligations 320 320
Deferred income taxes 1,124 1,130
Other noncurrent liabilities 207 210
Total noncurrent liabilities 7,226 7,439
Stockholders' equity
Common stock 2 2
Paid-in capital (232) (231)
Retained earnings 728 623
Accumulated other comprehensive
income (loss) (130) (130)
Treasury stock, at cost (135) -
Total stockholders' equity 233 264
Total liabilities and stockholders'
equity $8,788 $8,901
Embarq Corporation
Condensed Consolidated Statements of Cash Flows
($ in millions)
(unaudited)
Schedule 3 Quarter Ended March 31,
2008 2007
Operating Activities
Net income $212 $160
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 251 270
Deferred and noncurrent income taxes (20) (36)
Provision for losses on accounts
receivable 21 17
Stock-based compensation expense 9 14
Net losses (gains) on sales of assets - (3)
Other, net 11 11
Changes in assets and liabilities:
Accounts receivable 16 14
Inventories and other current
assets (15) (28)
Accounts payable and other
current liabilities 133 75
Noncurrent assets and
liabilities, net (25) (14)
Net cash provided by operating
activities 593 480
Investing Activities
Net capital expenditures (177) (180)
Proceeds from sales of assets 2 17
Net cash used by investing activities (175) (163)
Financing Activities
Changes in debt, net (205) (360)
Dividends paid to stockholders (107) (4)
Repurchase of common stock (115) -
Common stock issued 4 35
Other, net (12) 5
Net cash used by financing activities (435) (324)
Change in Cash and Equivalents (17) (7)
Cash and Equivalents at Beginning of
Period 69 53
Cash and Equivalents at End of Period $52 $46
Embarq Corporation
Operating Statistics
(Revenues in millions; lines and subscribers in thousands)
(unaudited)
Schedule 4
1Q-08 2007 4Q-07 3Q-07 2Q-07 1Q-07
Service and Product
Revenues
Voice $1,024 $4,238 $1,032 $1,051 $1,071 $1,084
Data 198 765 193 195 188 189
High-speed Internet 133 489 128 124 121 116
Wireless 16 51 16 15 11 9
Other 62 243 59 61 63 60
Service revenues 1,433 5,786 1,428 1,446 1,454 1,458
Logistics 115 466 113 121 123 109
Other 23 113 36 27 28 22
Product revenues 138 579 149 148 151 131
Net operating revenues $1,571 $6,365 $1,577 $1,594 $1,605 $1,589
Operating Unit Revenues
Consumer $656 $2,655 $652 $658 $669 $676
Business 381 1,544 389 388 384 383
Wholesale 419 1,700 423 427 429 421
Telecommunications
segment 1,456 5,899 1,464 1,473 1,482 1,480
Logistics segment 115 466 113 121 123 109
Net operating revenues $1,571 $6,365 $1,577 $1,594 $1,605 $1,589
Access Lines (1)
Consumer 4,172 4,272 4,345 4,461 4,588
Business 1,861 1,876 1,887 1,896 1,909
Wholesale 159 164 171 176 184
Total 6,192 6,312 6,403 6,533 6,681
Average Revenue per
Household (HH)
Consumer revenue $656 $652 $658 $669 $676
Average households 3,926 3,997 4,076 4,180 4,261
Monthly revenue per
average HH $55.70 $54.37 $53.81 $53.35 $52.88
High-speed Internet Lines
Consumer 1,132 1,074 1,017 963 916
Business 167 164 160 154 149
Wholesale 41 39 39 39 39
Total 1,340 1,277 1,216 1,156 1,104
HSI Average Revenue per
Subscriber
High-speed Internet
revenue $133 $128 $124 $121 $116
Average HSI subscribers 1,309 1,247 1,186 1,130 1,061
Monthly revenue per
average subscriber $33.87 $34.22 $34.85 $35.69 $36.44
Wireless Subscribers
Consumer 101 101 98 81 65
Business 11 11 10 8 6
Total 112 112 108 89 71
Entertainment Subscribers 217 200 190 178 170
(1) Beginning in January 2008, we no longer include in our switched
access line counts those lines that support our company's internal
administrative and operational activities. Accordingly, access line
counts for all prior periods have been updated to reflect this
change.
SOURCE EMBARQ
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