Lumen Technologies, Inc. — 2021 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2021. This is an annual report, not a standalone fourth-quarter report; the figures below are primarily full-year results. Dollars are in U.S. dollars.
Business context
Lumen is a global communications and technology provider operating through its Business and Mass Markets segments. It reported approximately 500,000 global fiber route miles, 190,000 on-net enterprise buildings, 28.6 million broadband-enabled locations and 4.5 million Mass Markets broadband subscribers at year-end. Its strategy emphasizes fiber expansion, network modernization, digital services, cost reduction and debt paydown.
Key financial metrics
| Metric | 2021 | 2020 |
|---|---|---|
| Operating revenue | $19.687 billion | $20.712 billion |
| Operating income | $4.285 billion | $962 million |
| Net income (loss) | $2.033 billion | ($1.232 billion) |
| Diluted earnings (loss) per share | $1.91 | ($1.14) |
| Adjusted EBITDA | $8.424 billion | $8.489 billion |
| Cash from operating activities | $6.501 billion | $6.524 billion |
| Capital expenditures | $2.900 billion | $3.729 billion |
| Long-term debt, including current maturities | $28.982 billion | $31.837 billion |
| Cash and cash equivalents | $394 million* | $406 million |
Revenue declined 5% year over year. Adjusted EBITDA margin was approximately 42.8%, versus 41.0%; operating margin was approximately 21.8%, versus 4.6%. The operating-margin comparison is heavily affected by the $2.642 billion goodwill impairment recorded in 2020, with no goodwill impairment in 2021. Operating cash flow less capital expenditures was approximately $3.601 billion in 2021, compared with $2.795 billion in 2020. *The $394 million liquidity figure includes $40 million classified as held for sale; the balance sheet reports $354 million outside held-for-sale assets.
At December 31, 2021, the Company also reported $2.0 billion of unused revolving-credit capacity. Dividends paid were $1.087 billion; the annual dividend declared was $1.00 per common share, unchanged from 2020.
Material changes versus 2020
- Business segment revenue fell 5% to $14.119 billion; Mass Markets revenue fell 6% to $5.568 billion. Declines in legacy voice and other mature services were significant, while broadband and some newer services provided partial offsets.
- Operating expenses fell 22% to $15.402 billion, reflecting lower personnel and other costs, lower depreciation and amortization, and the absence of the prior-year goodwill impairment.
- Interest expense declined 9% to $1.522 billion, reflecting lower average debt and a lower average interest rate.
- Cash flow from operations was broadly flat, while lower capital expenditures reduced investing cash outflow. The Company repurchased $1.0 billion of stock during 2021, completing its authorized program.
- Year-end assets included $8.809 billion of assets held for sale and $2.257 billion of related liabilities following the classification of the Latin American and 20-state ILEC businesses as held for sale.
Outlook, commentary, risks and unusual items
- 2022 plans: Management projected capital expenditures of approximately $3.2–$3.4 billion and anticipated continuing a $0.25 quarterly common-stock dividend, equivalent to approximately $1.00 per share for the year if maintained and declared by the Board. The filing does not provide clear earnings or revenue guidance.
- Planned divestitures: The Latin American business was agreed to be sold for $2.7 billion cash, subject to adjustments; the 20-state ILEC business for $7.5 billion, subject to assumed debt and other adjustments. Both were expected to close around mid-2022, subject to approvals and other conditions. Proceeds and timing were uncertain, and the sales will reduce the retained business’s recurring cash flows.
- Debt and liquidity: The Company had substantial debt, covenant restrictions and a complex structure across multiple borrowers and subsidiaries. It reported compliance with material debt covenants at year-end, but emphasized risks around refinancing, cash transfers among subsidiaries and meeting future commitments.
- Unusual items: 2021 included a $383 million non-cash pension settlement charge and a $138 million gain on an investment in a limited partnership. No 2021 goodwill impairment was recorded; 2020 included a $2.642 billion non-cash, non-tax-deductible charge. The 2021 operating results include the businesses classified as held for sale until their transactions close.
- Pensions and tax: At year-end, the qualified pension plan’s accounting unfunded status was $1.147 billion and qualified post-retirement benefits were underfunded by $2.776 billion. Management estimated 2022 cash income taxes of approximately $100 million, while noting that use of tax-loss carryforwards and future cash taxes depend on earnings, transaction gains and tax limitations.
- Risks and contingencies: Key risks include persistent revenue declines and pricing pressure, competition and technology change, execution of fiber and digital-transformation plans, cyberattacks and outages, supply constraints, regulation, leverage, pension costs and completion/separation risks for the divestitures. The filing identifies a Missouri tax ruling of approximately $55 million plus interest that is under appeal, and Brazilian tax assessments with potential losses up to $46 million beyond recorded accruals. Litigation and non-income-tax contingency accruals totaled approximately $103 million.
- Audit and controls: KPMG issued unqualified opinions on the financial statements and internal control over financial reporting. Revenue testing was identified as a critical audit matter because of the scale and complexity of the systems processing revenue.
Important facts for investors to verify
- Whether both divestitures closed on anticipated terms and timing, and the net proceeds after debt, taxes, expenses and purchase-price adjustments.
- Post-divestiture revenue, adjusted EBITDA, cash generation and the cash flows retained to service debt, fund capital spending and support dividends.
- Debt maturity and refinancing needs, covenant headroom, subsidiary cash-transfer restrictions and the use of divestiture proceeds.
- Whether the planned $3.2–$3.4 billion capital investment and Quantum Fiber expansion generate expected subscriber and return outcomes.
- Continuation of the $0.25 quarterly dividend, alongside ongoing cash needs and the Board’s discretionary capital-allocation decisions.
- Developments in the Missouri and Brazilian tax matters, other litigation, pension obligations and the Company’s ability to use its tax-loss carryforwards.