Business Context and Reporting Period
This Form 8-K is filed by CenturyLink, Inc. (now Lumen Technologies, Inc.) for the reporting period ending April 30, 2020. The filing details significant changes to the company's financial reporting policies and segment classifications effective for the first quarter of 2020.
Key Financial Metrics and Policy Changes
The filing does not report specific revenue, profit, or cash flow figures for the period. Instead, it outlines two primary accounting changes:
- Segment Reclassification: Customers and certain costs were reclassified among the five reporting segments based on an annual assessment. This change impacts segment-level expenses and Adjusted EBITDA but has no impact on total reported revenue.
- Tax Presentation: The company changed its policy to present Universal Service Fund (USF) regulatory fees and similar taxes on a net basis rather than a gross basis. This reduces reported operating revenue and cost of services.
Impact on Metrics: These changes do not affect Operating Income, Net Income, Earnings Per Share, or total Adjusted EBITDA. However, the net presentation of taxes results in an increase to the reported Adjusted EBITDA margin.
Material Changes Versus Prior Period
Commencing in the first quarter of 2020, the company is applying these changes retrospectively. Historical data for the four quarters of 2019 and full years 2019 and 2018 have been recasted to reflect the new policies. Consequently, operating revenue and cost of services reported for prior periods will appear lower than previously stated to ensure comparability with current results.
Guidance, Outlook, and Management Commentary
Management states that the new net presentation of taxes is preferable due to regulatory rate changes outside the company's control, which previously caused significant variability in tax and fee revenue not indicative of operating performance. The company believes the new policy improves transparency and consistency. The first quarter 2020 earnings results, reflecting these changes, were scheduled for release on May 6, 2020.
Investor Verification Checklist
- Verify the recasted historical financial data provided in Exhibit 99.1 to compare current results against prior periods accurately.
- Confirm that the increase in Adjusted EBITDA margin is solely due to the change in tax presentation and not operational improvement.
- Review the specific segment-level impacts of the customer and cost reclassifications.
- Note that total revenue, net income, and EPS remain unchanged by these accounting policy shifts.