Business Context and Reporting Period
This Form 8-K is filed by CenturyLink, Inc. (now Lumen Technologies, Inc.) on September 1, 2015. The report provides supplemental information regarding the company's acceptance of funding under the Federal Communications Commission's (FCC) Connect America Fund Phase 2 (CAF II) program, amending previous estimates provided on August 5, 2015.
Key Financial Metrics and Impact
The filing details the projected financial impact of accepting approximately $500 million in annual support payments under the CAF II program. The company expects to begin accruing this funding in the third quarter of 2015.
- Q3 2015 Impact: Additional $150 million in operating revenues and operating cash flow; additional $0.16 in Adjusted Diluted Earnings Per Share (EPS).
- Full Year 2015 Impact: Additional $200 million in operating revenues and operating cash flow; additional $0.21 in Adjusted Diluted EPS.
- Free Cash Flow: The benefit to full-year 2015 free cash flow is expected to be offset by the payment of higher cash taxes in 2015, resulting in no significant aggregate net change to previous full-year free cash flow guidance.
The filing does not provide specific values for total revenue, net profit, debt levels, or liquidity ratios for the period, as it focuses solely on the incremental impact of the CAF II program.
Material Changes Versus Prior Period
Compared to the guidance issued on August 5, 2015, the company has updated its outlook to reflect the acceptance of CAF II funding. The primary material change is the inclusion of the incremental revenue and EPS figures noted above. Additionally, the company now expects to pay an estimate of its 2015 federal income tax liability by year-end 2015, a change from prior expectations that impacts the net free cash flow calculation.
Guidance, Outlook, and Risks
Management anticipates the FCC will begin distributing CAF II funding in September or October 2015. The company cautions that forward-looking statements are subject to risks and uncertainties, including:
- Changes in the terms or implementation of the CAF II program.
- Delays in the receipt of funds.
- Court decisions, legislation, or regulatory actions impacting federal support programs.
The company explicitly states it undertakes no obligation to update or revise these forward-looking statements.
Key Facts for Investor Verification
- Verify the actual timing of CAF II fund distribution by the FCC (expected September or October 2015).
- Confirm the final calculation of 2015 federal income tax liability and its impact on free cash flow.
- Monitor regulatory or legal developments that could alter the terms of the CAF II program.
- Review the definition of "Adjusted Diluted Earnings Per Share" in the August 5, 2015 earnings release (Exhibit 99.1) to understand non-GAAP adjustments.