Full-Year 2008 Cash Flow Before Dividends Expected to Exceed $1 Billion Company Repurchases Over 7% of Shares Outstanding Since Beginning of Year
OVERLAND PARK, Kan., July 29 /PRNewswire-FirstCall/ -- EMBARQ (NYSE: EQ)
today announced results for the second quarter of 2008, highlighted by
year-over-year improvement in income and cash flow. The company reported
second quarter revenue of $1.55 billion, operating income of $428 million,
diluted earnings per share of $1.38 and cash flow before dividends of $274
million.
"Despite pressure on the top line, improved efficiency again enabled us to
deliver solid bottom-line results," said Tom Gerke, EMBARQ Chief Executive
Officer. "In addition, the economic environment continues to have a net
positive impact on cash flow as the slowdown in new home construction reduces
our capital expenditures. As a result, we have increased our 2008 cash flow
outlook to more than $1 billion. We are also taking steps to maintain a
strong cash flow profile over the long term."
Second Quarter Highlights
-- Operating income increased 7.0% year-over-year to $428 million in the
second quarter.
-- Diluted earnings per share increased 20.0% year-over-year to $1.38 in
the second quarter, matching the first quarter of 2008 when the company
reported the highest EPS level since spin-off.
-- Second quarter cash flow before dividends was $274 million, bringing
the year-to-date total to $560 million, an increase of 11.1% compared
to the first half of 2007.
-- As of July 25th, the company had repurchased approximately
11.33 million shares for a total of $479 million, which represents 96%
of its current $500 million share repurchase authorization.
-- Second quarter high-speed Internet and data revenues grew 13.2% and
5.9%, respectively, on a year-over-year basis.
-- Second quarter average revenue per household increased 4.8% over the
prior year period.
-- Video subscribers increased by 22,000 during the period, the highest
level of additions in two years.
-- EMBARQ(TM) Business recently announced EMBARQ Smart IP Enterprise(SM),
which delivers an EMBARQ-hosted communications system with dedicated
Internet access, local and long distance voice service, and IP-enabled
calling features.
-- EMBARQ(TM) Business also introduced IPsmartSuite, which utilizes an IP
phone based touch screen for applications that facilitate process
automation in small to mid-sized businesses in several industries,
including the healthcare, legal and retail fields.
Financial Results
EMBARQ reported consolidated operating revenue of $1.55 billion for the
second quarter, a decline of 3.5% from the prior year period. Revenue in the
company's Logistics segment declined 10.6% year-over-year to $110 million.
Revenue in the Telecommunications segment declined 2.9% from the prior
year period to $1.44 billion. The decline in Telecommunications revenue was
driven by a 7.8% decline in access lines, leading to a 7.2% decline in voice
revenue, which was partially offset by high-speed Internet revenue growth of
13.2% and 5.9% growth in data revenue.
Consolidated operating income increased 7.0% year-over-year to $428
million in the second quarter as a result of improved operating efficiency,
lower wireless dilution, the absence of spin-off expenses and lower
depreciation expense. In current and prior periods, operating income was
impacted by the following items:
Increase (Decrease)2Q-08 1Q-08 2Q-07
(in millions)
Spin-off related expenses $0 $0($8)
Net wireless dilution ($3) ($14) ($20)
Gain from sale of real
estate $9 $0 $0
Diluted earnings per share increased 20.0% over the prior year period to
$1.38 for the quarter, which also reflects the after tax impact of the items
above.
Capital Expenditures and Cash Flow
EMBARQ reported net capital expenditures during the period of $179
million. In the year ago period net capital expenditures were $186 million.
Cash flow before dividends increased 7.9% over the prior year period to
$274 million. Year-to-date cash flow before dividends totaled $560 million,
compared to $504 million in the first half of 2007.
The company paid a dividend of $0.6875 per share in the quarter.
The company repurchased approximately 6.22 million shares during the
second quarter at a cost of $265 million. Including repurchases of 3.35
million shares in the first quarter and 1.76 million shares in the first few
weeks of the third quarter, the company has repurchased a total of 11.33
million shares through July 25th. The total cost of these shares was
approximately $479 million, an average of $42.31 per share.
Subscriber Results
The company ended the period with 6.02 million access lines, which
represents a sequential decline of 170,000 lines. Meanwhile, the
year-over-year rate of access line loss increased to 7.8% in the second
quarter.
EMBARQ added 24,000 high-speed Internet subscribers during the period,
bringing its subscriber base to over 1.36 million -- an increase of 18% over
the prior year period.
Video net additions increased by 22,000 during the quarter, and the
company ended the quarter with 239,000 of its customers subscribing to video
services.
2008 Outlook
The company revised its outlook for 2008, which was previously provided on
April 29th, 2008. Current expectations for the year are as follows:
-- Absolute access line losses over the remainder of 2008 are expected to
be closer to prior year levels than in the first quarter, unchanged
from the company's previous expectation.
-- The range for telecommunications revenue is $5.72 to $5.80 billion,
unchanged from the previous range.
-- Wireless dilution is expected to be approximately $20 million,
unchanged from the previous outlook.
-- Net capital spending is expected to be less than $740 million, which is
an improvement from the previous outlook of approximately $780 million.
-- Cash flow before dividends is expected to be between $1.00 and
$1.04 billion, an increase of $40 million from the previous range of
$0.96 to $1.00 billion.
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
50031705. 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 August 12, 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
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; and, 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
($ in millions, except per share amounts)
Consolidated 2Q-082Q-07 Fav/(Unfav)
Net Operating Revenues
Voice $994 $1,071($77) -7.2%
Data 199 188 11 5.9%
High-speed Internet137 121 1613.2%
Wireless17 11 654.5%
Other services 60 63 (3) -4.8%
Service revenues 1,4071,454 (47) -3.2%
EMBARQ Logistics 110 123 (13) -10.6%
Other product 32 28 414.3%
Product revenues 142 151 (9) -6.0%
Total Net Operating Revenues 1,5491,605 (56) -3.5%
Operating Expenses
Cost of services 381 404 23 5.7%
Cost of products 132 142 10 7.0%
Selling, general and
administrative 361 395 34 8.6%
Depreciation 247 264 17 6.4%
Total Operating Expenses 1,1211,205 84 7.0%
Operating Income $428 $400 $28 7.0%
Interest expense 100 111 11 9.9%
Other expense (income), net (1) 0 1 n/a
Income Before Taxes $329 $289 $4013.8%
Income tax expense 123 113 (10) -8.8%
Net Income$206 $176 $3017.0%
Diluted Earnings Per Share $1.38$1.15 $0.2320.0%
Telecom 2Q-082Q-07 Fav/(Unfav)
Net Operating Revenues
Voice $994 $1,071 ($77)-7.2%
Data 199 188 11 5.9%
High-speed Internet137 121 16 13.2%
Wireless17 11 6 54.5%
Other services 60 63 (3)-4.8%
Service revenues 1,4071,454(47)-3.2%
Product revenues 32 28 4 14.3%
Total Net Operating Revenues 1,4391,482(43)-2.9%
Operating Expenses
Cost of services 381 404 23 5.7%
Cost of products 33 33 0 0.0%
Selling, general and
administrative 355 387 32 8.3%
Depreciation 246 262 16 6.1%
Total Operating Expenses 1,0151,086 71 6.5%
Operating Income $424 $396$28 7.1%
Logistics2Q-08 2Q-07 Fav/(Unfav)
Net Operating Revenues110 123 (13)-10.6%
Operating Expenses
Cost of services & products 99 109 10 9.2%
Selling, general and
administrative 6 8 2 25.0%
Depreciation 1 2 1 50.0%
Total Operating Expenses 106 119 13 10.9%
Operating Income $4 $4 $0 0.0%
Selected Financial Data (Unaudited) - Current Period Results Compared to Prior
Quarter
($ in millions, except per share amounts)
Consolidated 2Q-081Q-08 Fav/(Unfav)
Net Operating Revenues
Voice $994$1,024 ($30) -2.9%
Data 199 1981 0.5%
High-speed Internet137 1334 3.0%
Wireless17161 6.3%
Other services 6062 (2) -3.2%
Service revenues 1,407 1,433 (26) -1.8%
EMBARQ Logistics 110 115 (5) -4.3%
Other product 3223939.1%
Product revenues 142 1384 2.9%
Total Net Operating Revenues 1,549 1,571 (22) -1.4%
Operating Expenses
Cost of services 381 3909 2.3%
Cost of products 132 1386 4.3%
Selling, general and
administrative 361 358 (3) -0.8%
Depreciation 247 2514 1.6%
Total Operating Expenses 1,121 1,137 16 1.4%
Operating Income $428 $434 ($6) -1.4%
Interest expense 100 1044 3.8%
Other expense (income), net (1) (1) 0 0.0%
Income Before Taxes $329 $331 ($2) -0.6%
Income tax expense 123 119 (4) -3.4%
Net Income$206 $212 ($6) -2.8%
Diluted Earnings Per Share $1.38 $1.38$0.00 0.0%
Telecom 2Q-081Q-08 Fav/(Unfav)
Net Operating Revenues
Voice $994 $1,024 ($30)-2.9%
Data 199 198 1 0.5%
High-speed Internet137 133 4 3.0%
Wireless17 16 1 6.3%
Other services 60 62 (2)-3.2%
Service revenues 1,4071,433(26)-1.8%
Product revenues 32 23 9 39.1%
Total Net Operating Revenues 1,4391,456(17)-1.2%
Operating Expenses
Cost of services 381 389 8 2.1%
Cost of products 33 33 0 0.0%
Selling, general and
administrative 355 348 (7)-2.0%
Depreciation 246 250 4 1.6%
Total Operating Expenses 1,0151,020 5 0.5%
Operating Income $424 $436 ($12)-2.8%
Logistics2Q-08 1Q-08 Fav/(Unfav)
Net Operating Revenues110 115 (5) -4.3%
Operating Expenses
Cost of services & products 99 106 7 6.6%
Selling, general and
administrative 6 10 4 40.0%
Depreciation 1 1 0 0.0%
Total Operating Expenses 106 117 11 9.4%
Operating Income $4 ($2)$6n/a
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 Debt2Q081Q082Q07
Current maturities$82 $99 $54
Long-term debt 5,888 5,575 6,069
Less: Cash and equivalents(50)(52)(14)
Net Debt $5,920 $5,622 $6,109
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 2Q081Q082Q07
Capital expenditures 181 179 188
Less: Proceeds from construction
reimbursements (2) (2) (2)
Net Capital Expenditures $179$177$186
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 Dividends2Q081Q082Q07
Net cash provided by operating
activities $250$593$225
Add: Changes in assets and
liabilities, net of other non-cash
items 203(130)215
Net Income excluding depreciation 453 463 440
Less: Net Capital expenditures(179) (177) (186)
Cash Flow before Dividends$274$286$254
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.
About EMBARQ
Embarq Corporation (NYSE: EQ), headquartered in Overland Park, Kan.,
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 embarq.com.
Embarq Corporation
Consolidated Statements of Operations
($ in millions, except per share amounts)
(unaudited)
Quarter Ended June 30, Six Months Ended June 30,
2008 2007 2008 2007
Net Operating Revenues
Service revenues $1,407 $1,454 $2,840 $2,912
Product revenues142 151 280 282
Total net operating revenue 1,5491,6053,1203,194
Operating Expenses
Cost of services381 404 771 821
Cost of products132 142 270 269
Selling, general and
administrative 361 395 719 799
Depreciation247 264 498 534
Total Operating Expenses1,1211,2052,2582,423
Operating Income 428 400 862 771
Interest expense 100 111 204 220
Other (income) expense, net(1) - (2) -
Income Before Income Taxes329 289 660 551
Income tax expense123 113 242 215
Net Income $206 $176 $418 $336
Basic Earnings Per Share$1.40$1.16$2.79$2.23
Basic weighted average shares 146.8151.8149.7151.0
Diluted Earnings Per Share $1.38$1.15$2.76$2.20
Diluted weighted average
shares 148.8153.6151.4153.0
Embarq Corporation
Condensed Consolidated Balance Sheets
($ in millions)
June 30,December 31,
2008 2007
(unaudited)
Assets
Cash and equivalents $50 $69
Accounts receivable, net 581 616
Inventories, net 119 138
Prepaid expenses and other current
assets165 163
Total current assets 915 986
Net property, plant and equipment7,589 7,748
Prepaid pension asset 130 108
Other noncurrent assets 7259
Total noncurrent assets 7,791 7,915
Total assets$8,706$8,901
Liabilities and stockholders' equity
Current maturities of long-term debt $82 $99
Accounts payable 337 387
Payroll and employee benefits 146 208
Accrued income taxes6827
Accrued operating taxes10597
Deferred revenue 189 202
Accrued interest5956
Other current liabilities 94 122
Total current liabilities1,080 1,198
Long-term debt 5,888 5,779
Benefit plan obligations 318 320
Deferred income taxes1,114 1,130
Other noncurrent liabilities 217 210
Total noncurrent liabilities 7,537 7,439
Stockholders' equity
Common stock 2 2
Paid-in capital (214) (231)
Retained earnings 832 623
Accumulated other comprehensive income
(loss) (130) (130)
Treasury stock, at cost (401)-
Total stockholders' equity89 264
Total liabilities and stockholders'
equity $8,706$8,901
Embarq Corporation
Condensed Consolidated Statements of Cash Flows
($ in millions)
(unaudited)
Six Months Ended June 30,
2008 2007
Operating Activities
Net income $418 $336
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 498 534
Deferred and noncurrent income taxes (21) (52)
Provision for losses on accounts
receivable 4937
Stock-based compensation expense2230
Net losses (gains) on sales of assets (9) (7)
Other, net 2622
Changes in assets and liabilities:
Accounts receivable (14) (26)
Inventories and other current assets (4) (30)
Accounts payable and other current
liabilities (98) (146)
Noncurrent assets and liabilities, net(24)7
Net cash provided by operating activities 843 705
Investing Activities
Net capital expenditures (356) (366)
Proceeds from sales of assets218
Net cash used by investing activities (354) (348)
Financing Activities
Changes in debt, net91 (332)
Dividends paid to stockholders(208) (174)
Repurchase of common stock(390) (2)
Common stock issued 1098
Other, net (11) 14
Net cash used by financing activities (508) (396)
Change in Cash and Equivalents (19) (39)
Cash and Equivalents at Beginning of
Period 6953
Cash and Equivalents at End of Period$50 $14
Embarq Corporation
Operating Statistics
(Revenues in millions; lines and subscribers in thousands)
(unaudited)
2Q-081Q-082007 4Q-07
Service and Product Revenues
Voice$994 $1,024 $4,238 $1,032
Data 199 198 765 193
High-speed Internet 137 133 489 128
Wireless 17 16 51 16
Other 60 62 243 59
Service revenues 1,4071,4335,7861,428
Logistics 110 115 466 113
Other 32 23 113 36
Product revenues142 138 579 149
Net operating revenues $1,549 $1,571 $6,365 $1,577
Operating Unit Revenues
Consumer $641 $656 $2,655 $652
Business 386 3811,544 389
Wholesale 412 4191,700 423
Telecommunications segment1,4391,4565,8991,464
Logistics segment 110 115 466 113
Net operating revenues $1,549 $1,571 $6,365 $1,577
Access Lines
Consumer 4,0294,172 4,272
Business 1,8411,861 1,876
Wholesale 152 159 164
Total 6,0226,192 6,312
Average Revenue per Household (HH)
Consumer revenue $641 $656 $652
Average households3,8213,926 3,997
Monthly revenue per average HH $55.92 $55.70$54.37
High-speed Internet Lines
Consumer 1,1551,132 1,074
Business170 167 164
Wholesale39 4139
Total 1,3641,340 1,277
HSI Average Revenue per Subscriber
High-speed Internet revenue$137 $133 $128
Average HSI subscribers $1,352 $1,309 1,247
Monthly revenue per average
subscriber$33.78 $33.87$34.22
Wireless Subscribers
Consumer 97 101 101
Business 10 1111
Total 107 112 112
Entertainment Subscribers 239 217 200
3Q-07 2Q-07 1Q-07
Service and Product Revenues
Voice $1,051 $1,071 $1,084
Data 195 188 189
High-speed Internet 124 121 116
Wireless 15 11 9
Other 61 63 60
Service revenues 1,446 1,454 1,458
Logistics 121 123 109
Other 27 28 22
Product revenues148 151 131
Net operating revenues $1,594 $1,605 $1,589
Operating Unit Revenues
Consumer $658$669$676
Business 388 384 383
Wholesale 427 429 421
Telecommunications segment1,473 1,482 1,480
Logistics segment 121 123 109
Net operating revenues $1,594 $1,605 $1,589
Access Lines
Consumer 4,345 4,461 4,588
Business 1,887 1,896 1,909
Wholesale 171 176 184
Total 6,403 6,533 6,681
Average Revenue per Household (HH)
Consumer revenue $658$669$676
Average households4,076 4,180 4,261
Monthly revenue per average HH $53.81 $53.35 $52.88
High-speed Internet Lines
Consumer 1,017 963 916
Business160 154 149
Wholesale39 39 39
Total 1,216 1,156 1,104
HSI Average Revenue per Subscriber
High-speed Internet revenue$124$121$116
Average HSI subscribers 1,186 1,130 1,061
Monthly revenue per average
subscriber$34.85 $35.69 $36.44
Wireless Subscribers
Consumer 98 81 65
Business 10 8 6
Total 108 89 71
Entertainment Subscribers 190 178 170
Embarq Corporation
Supplemental Cash Flow Data
($ in millions)
(unaudited)
Quarter Ended
June 30, 2008
Operating Activities
Net income $206
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 247
Deferred and noncurrent income taxes (1)
Provision for losses on accounts receivable28
Stock-based compensation expense 13
Net losses (gains) on sales of assets (9)
Other, net 15
Changes in assets and liabilities:
Accounts receivable (30)
Inventories and other current assets 11
Accounts payable and other current
liabilities(231)
Noncurrent assets and liabilities, net 1
Net cash provided by operating activities 250
Investing Activities
Net capital expenditures (179)
Net cash used by investing activities (179)
Financing Activities
Changes in debt, net 296
Dividends paid to stockholders (101)
Repurchase of common stock (275)
Common stock issued 6
Other, net 1
Net cash used by financing activities (73)
Change in Cash and Equivalents (2)
Cash and Equivalents at Beginning of Period 52
Cash and Equivalents at End of Period $50
SOURCE EMBARQ
