Louisiana
|
1-7784
|
72-0651161
|
(State
or other jurisdiction
|
(Commission
|
(IRS
Employer
|
of
incorporation)
|
File
Number)
|
Identification
No.)
|
100
CenturyTel Drive
|
|
Monroe,
Louisiana
|
71203
|
(Address
of principal executive offices)
|
(Zip
Code)
|
Item
2.01.
|
Completion
of Acquisition or Disposition of
Assets.
|
Item
3.03.
|
Material
Modifications to Rights of Security
Holders.
|
Item
5.01.
|
Changes
in Control of the Registrant.
|
Item
5.02.
|
Departure
of Directors or Certain Officers; Election of Directors; Appointment of
Certain Officers; Compensatory Arrangements of Certain
Officers.
|
Name
|
Class
|
Principal
Committee(s)
|
Term
Expires
|
|||
William
A. Owens
|
I
|
Nominating
|
2010
|
|||
Stephanie
M. Shern
|
I
|
Audit,
Compensation
|
2010
|
|||
Peter
C. Brown
|
II
|
Audit,
Risk Evaluation
|
2011
|
|||
Richard
A. Gephardt
|
II
|
Nominating
|
2011
|
|||
Thomas
A. Gerke
|
II
|
--
|
2011
|
|||
Steven
A. Davis
|
III
|
Risk
Evaluation
|
2012
|
|||
Laurie
A. Siegel
|
III
|
Compensation
(Chair)
|
2012
|
Item
5.03.
|
Amendments
to Articles of Incorporation or Bylaws; Change in Fiscal
Year.
|
|
•
|
We
amended Sections 1.1, 1.2 and 2.2 of Article I of our bylaws to
(i) clarify the management positions that we are required or permitted to
maintain, (ii) eliminate various references to succession planning, (iii)
provide for the possibility of electing more than one vice chairman and
electing non-executive chairman or vice chairman, (iv) revise the scope of
the powers of the Chairman and the Vice Chairmen, (v) authorize the Board
to periodically designate certain officers as our executive officers, (vi)
authorize multiple assistant secretaries and (vii) make clarifying changes
to the powers and responsibilities of certain
officers.
|
|
•
|
Pursuant
to our obligations under the Merger Agreement, we added Article I,
Section 3, of our bylaws to provide that William A. Owens will serve
as our Chairman, and to provide that if he ceases to be Chairman at any
time before July 1, 2010, his replacement will be chosen from among
Peter C. Brown, Steven A. Davis, Richard A. Gephardt, Thomas A. Gerke,
Stephanie M. Shern or Laurie A.
Siegel.
|
|
•
|
We
amended Sections 3.1 and 3.2 of Article II of our bylaws to (i)
provide that special board meetings may be called by the Chief Executive
Officer, as well as the Chairman, and (ii) shorten the notice periods for
calling special board meetings.
|
|
•
|
We
amended Article II, Section 10, of our bylaws to conform our
indemnification bylaw to the terms of the form of indemnification
agreement described above under
Item 5.02.
|
|
•
|
We
amended Article III, Section 1, of our bylaws to eliminate the
Executive Committee of the Board.
|
|
•
|
We
amended Article III, Section 5, of our bylaws to eliminate the
power of the Chairman to fill committee vacancies when the Board is not in
session, and instead empowered the Nominating and Corporate Governance
Committee to fill any committee vacancy that is not filled by the Board
within 30 days (subject to a provision that requires, for a one-year
period ending on July 1, 2010, any vacancy relating to a committee
position previously held by a director who served CenturyTel or Embarq
immediately prior to the Merger to be filled by another director who
previously served CenturyTel or Embarq,
respectively).
|
|
•
|
We
amended Article IV, Section 3, of our bylaws to provide that
special shareholder meetings may be called only by the Board or, as
previously provided, the holders of a majority of the total voting
power.
|
|
•
|
We
amended Article IV, Section 6.1, of our bylaws to reduce the
quorum required to organize our shareholder
meetings.
|
|
•
|
We
amended Article V of our bylaws to authorize us to issue
uncertificated shares of stock.
|
|
•
|
We
amended Article VIII of our bylaws to authorize executive officers,
as well as the Board, to designate officers with authority to sign checks,
drafts and notes on our behalf.
|
Item
8.01.
|
Other
Events.
|
Name
|
Principal
Committee(s)
|
||
Virginia
Boulet
|
Compensation,
Nominating (Chair)
|
||
W.
Bruce Hanks
|
Audit
(Chair), Risk Evaluation
|
||
Gregory
J. McCray
|
Nominating,
Risk Evaluation
|
||
C.
G. Melville, Jr.
|
Nominating,
Risk Evaluation (Chair)
|
||
Fred
R. Nichols
|
Audit,
Compensation
|
||
Harvey
P. Perry
|
Compensation
|
||
Glen
F. Post, III
|
―
|
||
Joseph
R. Zimmel
|
Audit
|
Item
9.01.
|
Financial
Statements and Exhibits.
|
(a)
|
Financial
statements of business acquired.
|
(b)
|
Pro
forma financial information.
|
(d)
|
Exhibits
|
CENTURYTEL,
INC.
|
|
:
|
By:
/s/ Neil A. Sweasy
|
Neil
A. Sweasy
|
|
Vice
President and Controller
|
|
Dated: July
1, 2009
|
Exhibit
No.
|
Description
|
2.1
|
Agreement
and Plan of Merger, dated as of October 26, 2008, among CenturyTel,
Inc., Embarq Corporation and Cajun Acquisition Company (incorporated by
reference to Exhibit 99.1 of our Current Report on Form 8-K filed on
October 30, 2008).
|
3.1
|
Amended
and Restated Articles of Incorporation of CenturyTel, Inc. (incorporated
by reference to Exhibit 3.1 of Amendment No. 3 to our
Registration Statement on Form 8-A filed on July 1,
2009).
|
3.2
|
Amended
and Restated Bylaws of CenturyTel, Inc. (incorporated by reference to
Exhibit 3.2 of Amendment No. 3 to our Registration Statement on
Form 8-A filed on July 1, 2009).
|
23.1
|
Consent
of KPMG LLP, independent registered public accounting firm for Embarq
Corporation.
|
99.1
|
Press
release dated June 25, 2009, announcing the receipt of the final
regulatory approval required to complete the Merger.
|
99.2
|
Press
release dated July 1, 2009, announcing the completion of the
Merger.
|
99.3
|
Form
of Indemnification Agreement entered into by CenturyTel, Inc. and its
directors.
|
99.4
|
For
the quarterly periods ended March 31, 2009 and 2008, the following
consolidated financial statements of Embarq Corporation are filed
herewith:
|
a).
Consolidated Balance Sheets as of March 31, 2009 and December 31, 2008
(Unaudited)
|
|
b).
Consolidated Statements of Operations and Comprehensive Income for the
Quarterly Periods Ended March 31, 2009 and 2008 (Unaudited)
|
|
c).
Consolidated Statements of Cash Flows for the Quarterly Periods Ended
March 31, 2009 and 2008 (Unaudited)
|
|
d).
Consolidated Statement of Stockholders’ Equity for the Quarterly Period
Ended March 31, 2009 (Unaudited)
|
|
e).
Condensed Notes to Consolidated Financial Statements
(Unaudited)
|
|
For
the years ended December 31, 2008, 2007 and 2006, the following
consolidated financial statements of Embarq Corporation (retrospectively
reclassified for all periods and dates to report the financial results of
Embarq’s logistics business as discontinued operations) are filed
herewith:
|
|
a).
Report of KPMG LLP, Independent Registered Public Accounting
Firm
|
|
b).
Consolidated Balance Sheets as of December 31, 2008 and
2007
|
|
c).
Consolidated Statements of Operations and Comprehensive Income (Loss) for
the Years Ended December 31, 2008, 2007 and 2006
|
|
d).
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2008, 2007 and 2006
e).
Consolidated Statements of Stockholders’ Equity for the Years Ended
December 31, 2008, 2007 and 2006
|
|
f).
Notes to Consolidated Financial
Statements.
|
Contacts:
For
CenturyTel
Analysts
& Investors
Tony
Davis
318-388-9525
tony.davis@centurytel.com
|
For
EMBARQ
Analysts
& Investors
Kevin
Olin
866-591-1964
investorrelations@embarq.com
|
Media
Annmarie
Sartor
318-388-9671
annmarie.sartor@centurytel.com
|
Media
Debra
Peterson
913-323-4881
Debra.D.Peterson@embarq.com
|
Contacts:
Analysts
& Investors
Tony
Davis
318-388-9525
tony.davis@centurytel.com
|
Media
Annmarie
Sartor
318-388-9671
annmarie.sartor@centurytel.com
|
Media
Debra
Peterson
913-323-4881
Debra.D.Peterson@embarq.com
|
Page
Reference
|
|
Consolidated
Balance Sheets as of March 31, 2009 and December 31,
2008 (Unaudited)
|
F-2
|
Consolidated
Statements of Operations and Comprehensive Income for the Year to Date
Periods Ended March 31, 2009 and 2008 (Unaudited)
|
F-3
|
Consolidated
Statements of Cash Flows for the Year to Date Periods Ended March 31,
2009 and 2008 (Unaudited)
|
F-4
|
Consolidated
Statement of Stockholders’ Equity for the Year to Date Period
Ended March
31, 2009 (Unaudited)
|
F-5
|
Condensed
Notes to Consolidated Financial Statements (Unaudited)
|
F-6
|
Page
Reference
|
|
Report
of KPMG LLP, Independent Registered Public Accounting Firm
|
F-12
|
Consolidated
Balance Sheets as of December 31, 2008 and 2007
|
F-13
|
Consolidated
Statements of Operations and Comprehensive Income (Loss) for the Years
Ended December 31, 2008, 2007 and 2006
|
F-14
|
Consolidated
Statements of Cash Flows for the Years Ended December 31, 2008, 2007
and 2006
|
F-15
|
Consolidated
Statements of Stockholders’ Equity for the Years Ended December 31,
2008, 2007
and 2006
|
F-16
|
Notes
to Consolidated Financial Statements
|
F-17
|
(millions,
except per share data)
|
As
of March 31,
|
As
of Dec. 31,
|
||||||
2009
|
2008
|
|||||||
Assets
|
||||||||
Current
assets
|
||||||||
Cash and equivalents
|
$ | 95 | 107 | |||||
Accounts receivable, net of allowance for doubtful accounts of $55 and
$54
|
444 | 494 | ||||||
Materials and supplies
|
51 | 52 | ||||||
Deferred tax assets
|
72 | 89 | ||||||
Prepaid expenses and other current assets
|
70 | 81 | ||||||
Current assets of discontinued operations
|
- | 67 | ||||||
Total current assets
|
732 | 890 | ||||||
Gross
property, plant and equipment
|
20,960 | 20,946 | ||||||
Accumulated
depreciation
|
(13,709 | ) | (13,547 | ) | ||||
Net property, plant and equipment
|
7,251 | 7,399 | ||||||
Goodwill
|
25 | 27 | ||||||
Other
assets
|
43 | 43 | ||||||
Noncurrent
assets of discontinued operations
|
- | 12 | ||||||
Total
|
$ | 8,051 | 8,371 | |||||
Liabilities
and Stockholders’ Equity
|
||||||||
Current
liabilities
|
||||||||
Current maturities of long-term debt
|
$ | 2 | 2 | |||||
Accounts payable
|
245 | 279 | ||||||
Payroll and employee benefits
|
196 | 219 | ||||||
Accrued operating taxes
|
86 | 78 | ||||||
Deferred revenue
|
175 | 184 | ||||||
Accrued interest
|
139 | 58 | ||||||
Other current liabilities
|
52 | 42 | ||||||
Current liabilities of discontinued operations
|
- | 34 | ||||||
Total current liabilities
|
895 | 896 | ||||||
Noncurrent
liabilities
|
||||||||
Long-term debt
|
5,288 | 5,743 | ||||||
Deferred income taxes
|
872 | 793 | ||||||
Benefit plan obligations
|
1,332 | 1,341 | ||||||
Other noncurrent liabilities
|
191 | 206 | ||||||
Total noncurrent liabilities
|
7,683 | 8,083 | ||||||
Stockholders’
equity
|
||||||||
Preferred stock, $.01 par value; 200 shares authorized; no shares
issued
|
- | - | ||||||
Common stock, $.01 par value; 1,250 shares authorized; 154.6 and 154.2
shares issued;
142.8 and 142.4 shares outstanding
|
2 | 2 | ||||||
Paid-in capital
|
(193 | ) | (193 | ) | ||||
Retained earnings
|
1,062 | 986 | ||||||
Accumulated other comprehensive loss
|
(898 | ) | (903 | ) | ||||
Treasury stock, 11.8 shares held in treasury
|
(500 | ) | (500 | ) | ||||
Total stockholders’ equity
|
(527 | ) | (608 | ) | ||||
Total
|
$ | 8,051 | 8,371 |
(millions,
except per share data)
|
Year
to Date March 31,
|
|||||||
2009
|
2008
|
|||||||
Net
Operating Revenues
|
$ | 1,346 | $ | 1,456 | ||||
Operating
Expenses
|
||||||||
Cost
of services and products
|
363 | 422 | ||||||
Selling,
general and administrative
|
329 | 348 | ||||||
Depreciation
|
244 | 250 | ||||||
Total
operating expenses
|
936 | 1,020 | ||||||
Operating
Income
|
410 | 436 | ||||||
Interest
expense
|
(96 | ) | (104 | ) | ||||
Other
income (expense), net
|
1 | 1 | ||||||
Income
From Continuing Operations Before Income Taxes
|
315 | 333 | ||||||
Income
tax expense
|
(115 | ) | (119 | ) | ||||
Income
From Continuing Operations
|
200 | 214 | ||||||
Loss
from discontinued operations (net of income taxes)
|
(2 | ) | (2 | ) | ||||
Loss
on sale of discontinued operations (net of income taxes)
|
(24 | ) | - | |||||
Net
Income
|
$ | 174 | $ | 212 | ||||
Amortization
(net of income taxes) of:
|
||||||||
Employee
benefit plans prior service cost and actuarial losses
|
6 | 1 | ||||||
Cash
flow derivative
|
(1 | ) | (1 | ) | ||||
Comprehensive
Income, Net of Income Taxes
|
$ | 179 | $ | 212 | ||||
Basic
Earnings per Common Share
|
||||||||
Continuing
operations
|
$ | 1.40 | $ | 1.39 | ||||
Discontinued
operations
|
(0.18 | ) | (0.01 | ) | ||||
Total
|
$ | 1.22 | $ | 1.38 | ||||
Diluted
Earnings per Common Share
|
||||||||
Continuing
operations
|
$ | 1.39 | $ | 1.38 | ||||
Discontinued
operations
|
(0.18 | ) | (0.01 | ) | ||||
Total
|
$ | 1.21 | $ | 1.37 | ||||
Weighted
Average Common Shares Outstanding
|
||||||||
Basic
|
143.2 | 153.8 | ||||||
Potentially
dilutive shares under equity incentive plans
|
0.3 | 0.5 | ||||||
Diluted
|
143.5 | 154.3 |
(millions)
|
Year
to Date March 31,
|
|||||||
2009
|
2008
|
|||||||
Operating
Activities
|
||||||||
Net
income
|
$ | 174 | $ | 212 | ||||
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
||||||||
Loss
from operations and sale of discontinued operations
|
26 | 2 | ||||||
Depreciation
|
244 | 250 | ||||||
Provision
for losses on accounts receivable
|
22 | 21 | ||||||
Deferred
and noncurrent income taxes
|
79 | (20 | ) | |||||
Stock-based
compensation expense
|
6 | 9 | ||||||
Other,
net
|
12 | 11 | ||||||
Changes
in assets and liabilities:
|
||||||||
Accounts
receivable
|
28 | 18 | ||||||
Materials
and supplies and other current assets
|
(3 | ) | (21 | ) | ||||
Accounts
payable and other current liabilities
|
60 | 131 | ||||||
Noncurrent
assets and liabilities, net
|
(14 | ) | (26 | ) | ||||
Net
cash provided by operating activities - continuing
operations
|
634 | 587 | ||||||
Discontinued
operations
|
- | 6 | ||||||
Net
cash provided by operating activities
|
634 | 593 | ||||||
Investing
Activities
|
||||||||
Capital
expenditures
|
(108 | ) | (179 | ) | ||||
Proceeds
from construction reimbursements
|
3 | 2 | ||||||
Proceeds
from sales of assets
|
7 | 2 | ||||||
Proceeds
from sale of discontinued operations
|
12 | - | ||||||
Net
cash used by investing activities
|
(86 | ) | (175 | ) | ||||
Financing
Activities
|
||||||||
Principal payments on long-term debt
|
(80 | ) | - | |||||
Borrowings
under revolving credit facility
|
- | 230 | ||||||
Repayments
under revolving credit facility
|
(375 | ) | (435 | ) | ||||
Proceeds
from common stock issued
|
1 | 4 | ||||||
Repurchase
of common stock
|
- | (115 | ) | |||||
Dividends
paid to stockholders
|
(100 | ) | (107 | ) | ||||
Tax
effects of stock-based compensation
|
(1 | ) | (3 | ) | ||||
Other,
net
|
(5 | ) | (9 | ) | ||||
Net
cash used by financing activities
|
(560 | ) | (435 | ) | ||||
Increase (Decrease) in Cash and
Equivalents
|
(12 | ) | (17 | ) | ||||
Cash and Equivalents at
Beginning of Period
|
107 | 69 | ||||||
Cash and Equivalents at End of
Period
|
$ | 95 | $ | 52 |
(millions,
except per share data)
|
Preferred
Stock
|
Common
Stock
|
Paid-in
Capital
|
Retained
Earnings
|
Accumulated
Other
Comprehensive
Loss
|
Treasury
Stock
|
Total
Stockholders’
Equity
|
||||||||||||||||
January
1, 2009 Balance
|
$ | - | $ | 2 | $ | (193 | ) | $ | 986 | $ | (903 | ) | $ | (500 | ) | $ | (608 | ) | |||||
Net
income
|
- | - | - | 174 | - | - | 174 | ||||||||||||||||
Dividends
to shareholders ($0.6875 per share)
|
- | - | - | (98 | ) | - | - | (98 | ) | ||||||||||||||
Common
stock issued
|
- | - | 1 | - | - | - | 1 | ||||||||||||||||
Stock-based
compensation expense
|
- | - | 6 | - | - | - | 6 | ||||||||||||||||
Tax
effects of stock-based compensation
|
- | - | (1 | ) | - | - | - | (1 | ) | ||||||||||||||
Restricted
stock units surrendered for tax withholding
|
- | - | (6 | ) | - | - | - | (6 | ) | ||||||||||||||
Amortization
(net of income taxes) of:
|
|||||||||||||||||||||||
Employee
benefit plans prior service cost and
actuarial losses
|
- | - | - | - | 6 | - | 6 | ||||||||||||||||
Cash
flow derivative
|
- | - | - | - | (1 | ) | - | (1 | ) | ||||||||||||||
March
31, 2009 Balance
|
$ | - | $ | 2 | $ | (193 | ) | $ | 1,062 | $ | (898 | ) | $ | (500 | ) | $ | (527 | ) |
Year
to Date March 31,
|
||||||||
2009
|
2008
|
|||||||
(millions)
|
||||||||
Federal
and state USF surcharges
|
$ | 18 | $ | 21 |
Year
to Date March 31,
|
||||||||
2009
|
2008
|
|||||||
Depreciation
expense reduction (millions)
|
$ | 7 | $ | 12 | ||||
Basic
and diluted earning per common share increase
|
0.03 | 0.05 |
Year
to Date Period Ended March 31, 2008
|
||||||||||||
As
Adjusted
|
Previously
Reported
|
Difference
|
||||||||||
Total
Earnings per Common Share
|
||||||||||||
Basic
|
$ | 1.38 | $ | 1.39 | $ | (0.01 | ) | |||||
Diluted
|
1.37 | 1.38 | (0.01 | ) | ||||||||
Weighted
Average Common Shares Outstanding
|
||||||||||||
Basic
(millions)
|
153.8 | 152.7 | 1.1 | |||||||||
Diluted
(millions)
|
154.3 | 154.1 | 0.2 |
Year
to Date March 31,
|
||||||||
2009
|
2008
|
|||||||
(millions)
|
||||||||
Net
operating revenues
|
$ | 58 | $ | 115 | ||||
Operating
expenses
|
62 | 117 | ||||||
Loss
before income taxes
|
(4 | ) | (2 | ) | ||||
Income
tax benefit
|
2 | - | ||||||
Loss
from discontinued operations
|
$ | (2 | ) | $ | (2 | ) |
Year to Date
March 31,
|
||||||||
2009
|
2008
|
|||||||
(millions)
|
||||||||
Income
tax expense at the federal statutory rate
|
$ | 110 | $ | 116 | ||||
Effect
of:
|
||||||||
State
income taxes, net of federal income tax effect
|
6 | 2 | ||||||
Other,
net
|
(1 | ) | 1 | |||||
Income
tax expense
|
$ | 115 | $ | 119 | ||||
Effective
income tax rate
|
36.5 | % | 35.7 | % |
Year
to Date March 31, 2009
|
Year
to Date March 31, 2008
|
|||||||||||||||
Pension
Benefits
|
Other
Post-retirement Benefits
|
Pension
Benefits
|
Other
Post-
retirement
Benefits
|
|||||||||||||
(millions)
|
||||||||||||||||
Service
cost
|
$ | 12 | $ | 2 | $ | 14 | $ | 2 | ||||||||
Interest
cost
|
53 | 4 | 51 | 4 | ||||||||||||
Expected
return on plan assets
|
(67 | ) | - | (69 | ) | (1 | ) | |||||||||
Amortization
of prior service cost (benefit)
|
3 | (14 | ) | 3 | (13 | ) | ||||||||||
Amortization
of actuarial losses
|
14 | 3 | 9 | 3 | ||||||||||||
Contractual
retirement benefits
|
1 | - | - | - | ||||||||||||
Net
cost (benefit)
|
$ | 16 | $ | (5 | ) | $ | 8 | $ | (5 | ) |
Year
to Date March 31,
|
||||||||
2009
|
2008
|
|||||||
(millions)
|
||||||||
Voice
|
$ | 916 | $ | 1,024 | ||||
Data
|
203 | 198 | ||||||
High-speed
Internet
|
143 | 133 | ||||||
Other
|
84 | 101 | ||||||
Total net operating revenues
|
$ | 1,346 | $ | 1,456 |
Year
to Date March 31,
|
||||||||
2009
|
2008
|
|||||||
(millions)
|
||||||||
Supplemental
Cash Flow Information
|
||||||||
Cash paid for interest, net of amounts capitalized
|
$ | 16 | $ | 25 | ||||
Cash paid (refunded) for income taxes
|
(7 | ) | 4 | |||||
Non-Cash
Activities
|
||||||||
Capital expenditure accrual
|
$ | (8 | ) | $ | (14 | ) | ||
Pending settlement of repurchases of common stock
|
- | 20 |
(millions,
except per share data)
|
As
of December 31,
|
|||||||
2008
|
2007
|
|||||||
Assets
|
||||||||
Current
assets
|
||||||||
Cash
and equivalents
|
$ | 107 | $ | 69 | ||||
Accounts
receivable, net of allowance for doubtful accounts of $54 and
$58
|
494 | 582 | ||||||
Materials
and supplies
|
52 | 73 | ||||||
Deferred
tax assets
|
89 | 76 | ||||||
Prepaid
expenses and other current assets
|
81 | 84 | ||||||
Current
assets of discontinued operations
|
67 | 102 | ||||||
Total
current assets
|
890 | 986 | ||||||
Gross
property, plant and equipment
|
20,946 | 20,667 | ||||||
Accumulated
depreciation
|
(13,547 | ) | (12,933 | ) | ||||
Net
property, plant and equipment
|
7,399 | 7,734 | ||||||
Goodwill
|
27 | 27 | ||||||
Prepaid
pension asset
|
- | 108 | ||||||
Other
assets
|
43 | 31 | ||||||
Noncurrent
assets of discontinued operations
|
12 | 15 | ||||||
Total
|
$ | 8,371 | $ | 8,901 | ||||
Liabilities
and Stockholders’ Equity
|
||||||||
Current
liabilities
|
||||||||
Current
maturities of long-term debt
|
$ | 2 | $ | 99 | ||||
Accounts
payable
|
279 | 343 | ||||||
Payroll
and employee benefits
|
219 | 274 | ||||||
Accrued
income taxes
|
- | 27 | ||||||
Accrued
operating taxes
|
78 | 97 | ||||||
Deferred
revenue
|
184 | 202 | ||||||
Accrued
interest
|
58 | 56 | ||||||
Other
current liabilities
|
42 | 46 | ||||||
Current
liabilities of discontinued operations
|
34 | 54 | ||||||
Total
current liabilities
|
896 | 1,198 | ||||||
Noncurrent
liabilities
|
||||||||
Long-term
debt
|
5,743 | 5,779 | ||||||
Deferred
income taxes
|
793 | 1,130 | ||||||
Benefit
plan obligations
|
1,341 | 320 | ||||||
Other
noncurrent liabilities
|
206 | 210 | ||||||
Total
noncurrent liabilities
|
8,083 | 7,439 | ||||||
Stockholders’
equity
|
||||||||
Preferred
stock, $.01 par value; 200 shares authorized; no shares issued
and outstanding
|
- | - | ||||||
Common
stock, $.01 par value; 1,250 shares authorized; 154.2 and 153.1
shares issued;
142.4 and 153.1 shares outstanding
|
2 | 2 | ||||||
Paid-in
capital
|
(193 | ) | (231 | ) | ||||
Retained
earnings
|
986 | 623 | ||||||
Accumulated
other comprehensive income (loss)
|
(903 | ) | (130 | ) | ||||
Treasury
stock, 11.8 and no shares held in treasury
|
(500 | ) | - | |||||
Total
stockholders’ equity
|
(608 | ) | 264 | |||||
Total
|
$ | 8,371 | $ | 8,901 |
For
the Years Ended December 31,
|
||||||||||||
2008
|
2007
|
2006
|
||||||||||
Net
Operating Revenues
|
$ | 5,689 | $ | 5,899 | $ | 5,833 | ||||||
Operating
Expenses
|
||||||||||||
Cost of services and products
|
1,656 | 1,778 | 1,709 | |||||||||
Selling, general and administrative
|
1,394 | 1,567 | 1,548 | |||||||||
Depreciation
|
1,000 | 1,048 | 1,016 | |||||||||
Total operating expenses
|
4,050 | 4,393 | 4,273 | |||||||||
Operating
Income
|
1,639 | 1,506 | 1,560 | |||||||||
Interest expense
|
(404 | ) | (432 | ) | (324 | ) | ||||||
Other income (expense), net
|
3 | 2 | 15 | |||||||||
Income
From Continuing Operations Before Income Taxes
|
1,238 | 1,076 | 1,251 | |||||||||
Income tax expense
|
(464 | ) | (391 | ) | (456 | ) | ||||||
Income
From Continuing Operations
|
774 | 685 | 795 | |||||||||
Loss
from discontinued operations (net of income taxes)
|
(5 | ) | (2 | ) | (11 | ) | ||||||
Net
Income
|
$ | 769 | $ | 683 | $ | 784 | ||||||
Remeasurements of
and amendments to employee benefit
plans (net of income taxes)
|
(773 | ) | 232 | - | ||||||||
Amortization of employee benefit plans prior service cost
and actuarial
losses (net of income taxes)
|
3 | 5 | - | |||||||||
Unrealized holding gains on cash flow derivatives (net of income
taxes)
|
- | - | 39 | |||||||||
Amortization of cash flow derivatives (net of income
taxes)
|
(3 | ) | (4 | ) | (1 | ) | ||||||
Comprehensive
Income (Loss), Net of Income Taxes
|
$ | (4 | ) | $ | 916 | $ | 822 | |||||
Basic
Earnings per Common Share
|
(Pro
forma)
|
|||||||||||
Continuing operations
|
$ | 5.30 | $ | 4.51 | $ | 5.33 | ||||||
Discontinued operations
|
(0.03 | ) | (0.01 | ) | (0.07 | ) | ||||||
Total
|
$ | 5.27 | $ | 4.50 | $ | 5.26 | ||||||
Diluted
Earnings per Common Share
|
||||||||||||
Continuing operations
|
$ | 5.25 | $ | 4.45 | $ | 5.28 | ||||||
Discontinued operations
|
(0.03 | ) | (0.01 | ) | (0.07 | ) | ||||||
Total
|
$ | 5.22 | $ | 4.44 | $ | 5.21 | ||||||
Weighted
Average Common Shares Outstanding
|
||||||||||||
Basic
|
146.0 | 151.9 | 149.2 | |||||||||
Potentially dilutive shares under equity incentive plans
|
1.4 | 2.0 | 1.2 | |||||||||
Diluted
|
147.4 | 153.9 | 150.4 |
For
the Years Ended December 31,
|
||||||||||||
2008
|
2007
|
2006
|
||||||||||
Operating
Activities
|
||||||||||||
Net
income
|
$ | 769 | $ | 683 | $ | 784 | ||||||
Adjustments
to reconcile net income to net cash provided by
operating activities:
|
||||||||||||
Loss
from discontinued operations
|
5 | 2 | 11 | |||||||||
Depreciation
|
1,000 | 1,048 | 1,016 | |||||||||
Provision
for losses on accounts receivable
|
101 | 95 | 54 | |||||||||
Deferred
and noncurrent income taxes
|
103 | (50 | ) | (64 | ) | |||||||
Stock-based
compensation expense
|
47 | 50 | 31 | |||||||||
Net
losses (gains) on sales of assets
|
(9 | ) | (7 | ) | (17 | ) | ||||||
Other,
net
|
53 | 45 | 39 | |||||||||
Changes
in assets and liabilities:
|
||||||||||||
Accounts
receivable
|
(13 | ) | (94 | ) | (57 | ) | ||||||
Materials,
supplies and other current assets
|
(24 | ) | (31 | ) | 33 | |||||||
Accounts
payable and other current liabilities
|
(168 | ) | (86 | ) | 241 | |||||||
Noncurrent
assets and liabilities, net
|
(129 | ) | (78 | ) | (26 | ) | ||||||
Net
cash provided by operating activities – continuing
operations
|
1,735 | 1,577 | 2,045 | |||||||||
Discontinued
operations
|
13 | 47 | 8 | |||||||||
Net
cash provided by operating activities
|
1,748 | 1,624 | 2,053 | |||||||||
Investing
Activities
|
||||||||||||
Capital
expenditures
|
(686 | ) | (829 | ) | (923 | ) | ||||||
Proceeds
from construction reimbursements
|
11 | 10 | 10 | |||||||||
Proceeds
from sales of assets
|
11 | 25 | 33 | |||||||||
Net
cash used by investing activities
|
(664 | ) | (794 | ) | (880 | ) | ||||||
Financing
Activities
|
||||||||||||
Issuance
of long-term debt
|
- | - | 1,600 | |||||||||
Principal
payments on long-term debt
|
(99 | ) | (787 | ) | (492 | ) | ||||||
Borrowings
under revolving credit agreement
|
1,150 | 1,430 | 920 | |||||||||
Repayments
under revolving credit agreement
|
(1,185 | ) | (1,220 | ) | (720 | ) | ||||||
Net
cash paid to Sprint Nextel associated with the spin-off
|
- | - | (2,208 | ) | ||||||||
Proceeds
from common stock issued
|
14 | 116 | 20 | |||||||||
Repurchase
of common stock
|
(500 | ) | (2 | ) | - | |||||||
Dividends
paid to stockholders
|
(404 | ) | (367 | ) | (150 | ) | ||||||
Dividends
paid to Sprint Nextel
|
- | - | (194 | ) | ||||||||
Tax
effects of stock-based compensation
|
(1 | ) | 25 | 2 | ||||||||
Other,
net
|
(21 | ) | (9 | ) | (1 | ) | ||||||
Net
cash used by financing activities
|
(1,046 | ) | (814 | ) | (1,223 | ) | ||||||
Increase (Decrease) in Cash and
Equivalents
|
38 | 16 | (50 | ) | ||||||||
Cash and Equivalents at
Beginning of Period
|
69 | 53 | 103 | |||||||||
Cash and Equivalents at End of
Period
|
$ | 107 | $ | 69 | $ | 53 |
Preferred
Stock
|
Common
Stock
|
Paid-in
Capital
|
Retained
Earnings
|
Accumulated
Other
Comprehensive
Income
(Loss)
|
Business
Equity
|
Treasury
Stock
|
Total
Stockholders’
Equity
|
|||
January
1, 2006 balance
|
-
|
-
|
-
|
-
|
(525)
|
5,377
|
-
|
4,852
|
||
Net
income
|
-
|
-
|
-
|
-
|
-
|
326
|
-
|
326
|
||
Dividends
paid to Sprint Nextel
|
-
|
-
|
-
|
-
|
-
|
(194)
|
-
|
(194)
|
||
Cash
flow derivatives, net of tax
|
-
|
-
|
-
|
-
|
39
|
-
|
-
|
39
|
||
Net
transfer to Sprint Nextel
|
-
|
1
|
(467)
|
-
|
516
|
(5,509)
|
-
|
(5,459)
|
||
May 17,
2006 balance
|
-
|
1
|
(467)
|
-
|
30
|
-
|
-
|
(436)
|
||
Net
income
|
-
|
-
|
-
|
458
|
-
|
-
|
-
|
458
|
||
Dividends
paid to shareholders ($1.00 per share)
|
-
|
-
|
-
|
(150)
|
-
|
-
|
-
|
(150)
|
||
Common
stock issued
|
-
|
-
|
20
|
-
|
-
|
-
|
-
|
20
|
||
Stock-based
compensation expense
|
-
|
-
|
31
|
-
|
-
|
-
|
-
|
31
|
||
Tax
effect of stock-based compensation
|
-
|
-
|
2
|
-
|
-
|
-
|
-
|
2
|
||
Amortization
of cash flow derivative (net of tax)
|
-
|
-
|
-
|
-
|
(1)
|
-
|
-
|
(1)
|
||
Adoption
of SFAS No. 158 (net of tax)
|
-
|
-
|
-
|
-
|
(392)
|
-
|
-
|
(392)
|
||
December 31,
2006 balance
|
-
|
1
|
(414)
|
308
|
(363)
|
-
|
-
|
(468)
|
||
Cumulative
effect of adoption of FIN 48 (net of tax)
|
-
|
-
|
-
|
1
|
-
|
-
|
-
|
1
|
||
January
1, 2007 Balance
|
-
|
1
|
(414)
|
309
|
(363)
|
-
|
-
|
(467)
|
||
Net
income
|
-
|
-
|
-
|
683
|
-
|
-
|
-
|
683
|
||
Dividends
to shareholders ($2.375 per share)
|
-
|
-
|
-
|
(369)
|
-
|
-
|
-
|
(369)
|
||
Common
stock issued
|
-
|
1
|
115
|
-
|
-
|
-
|
-
|
116
|
||
Stock-based
compensation expense
|
-
|
-
|
50
|
-
|
-
|
-
|
-
|
50
|
||
Tax
effect of stock-based compensation
|
-
|
-
|
25
|
-
|
-
|
-
|
-
|
25
|
||
Restricted
stock units surrendered for tax withholding
|
-
|
-
|
(10)
|
-
|
-
|
-
|
-
|
(10)
|
||
Remeasurements
of and amendments to employee benefit
plans (net of tax)
|
-
|
-
|
-
|
-
|
232
|
-
|
-
|
232
|
||
Amortization
(net of tax) of:
|
||||||||||
Employee
benefit plans prior service cost and actuarial
losses
|
-
|
-
|
-
|
-
|
5
|
-
|
-
|
5
|
||
Cash
flow derivative
|
-
|
-
|
-
|
-
|
(4)
|
-
|
-
|
(4)
|
||
Repurchase
of common stock
|
-
|
-
|
-
|
-
|
-
|
-
|
(2)
|
(2)
|
||
Issuance
of treasury stock
|
-
|
-
|
-
|
-
|
-
|
-
|
2
|
2
|
||
Other
|
-
|
-
|
3
|
-
|
-
|
-
|
-
|
3
|
||
December
31, 2007 Balance
|
$ -
|
$ 2
|
$ (231)
|
$ 623
|
$ (130)
|
$ -
|
$ -
|
$ 264
|
||
Net
income
|
-
|
-
|
-
|
769
|
-
|
-
|
-
|
769
|
||
Dividends
to shareholders ($2.75 per share)
|
-
|
-
|
-
|
(406)
|
-
|
-
|
-
|
(406)
|
||
Common
stock issued
|
-
|
-
|
14
|
-
|
-
|
-
|
-
|
14
|
||
Stock-based
compensation expense
|
-
|
-
|
47
|
-
|
-
|
-
|
-
|
47
|
||
Tax
effect of stock-based compensation
|
-
|
-
|
(1)
|
-
|
-
|
-
|
-
|
(1)
|
||
Restricted
stock units surrendered for tax withholding
|
-
|
-
|
(22)
|
-
|
-
|
-
|
-
|
(22)
|
||
Remeasurement
of employee benefit plans (net of tax)
|
-
|
-
|
-
|
-
|
(773)
|
-
|
-
|
(773)
|
||
Amortization
(net of tax) of:
|
||||||||||
Employee
benefit plans prior service cost and actuarial
losses
|
-
|
-
|
-
|
-
|
3
|
-
|
-
|
3
|
||
Cash
flow derivative
|
-
|
-
|
-
|
-
|
(3)
|
-
|
-
|
(3)
|
||
Repurchase
of common stock
|
-
|
-
|
-
|
-
|
-
|
-
|
(500)
|
(500)
|
||
December
31, 2008 Balance
|
$ -
|
$ 2
|
$ (193)
|
$ 986
|
$ (903)
|
$ -
|
$ (500)
|
$ (608)
|
||
Shares
Outstanding
|
2008
|
2007
|
2006
|
|||||||
Beginning
shares outstanding
|
153.1
|
149.7
|
149.1
|
|||||||
Stock
issued under equity incentive plans
|
1.1
|
3.4
|
0.6
|
|||||||
Repurchase
of common stock
|
(11.8)
|
-
|
-
|
|||||||
Ending
shares outstanding
|
142.4
|
153.1
|
149.7
|
For the Years Ended December 31,
|
||||||||||||
2008
|
2007
|
2006
|
||||||||||
(millions)
|
||||||||||||
Federal
and state USF surcharges
|
$ | 86 | $ | 92 | $ | 98 |
As
of December 31,
|
|||||||||
Range
of Estimated Remaining Useful Lives
|
2008
|
2007
|
|||||||
(years)
|
(millions)
|
||||||||
Network
assets
|
3
to 35
|
$ | 19,351 | $ | 18,900 | ||||
Buildings
and improvements
|
5
to 30
|
1,031 | 1,031 | ||||||
Administrative
and other assets
|
3
to 15
|
564 | 736 | ||||||
Gross
property, plant and equipment
|
$ | 20,946 | $ | 20,667 |
For
the Years Ended December 31,
|
||||||||||||
2008
|
2007
|
2006(1)
|
||||||||||
Depreciation
expense reduction (millions)
|
$ | 50 | $ | 48 | $ | 27 | ||||||
Basic
and diluted earnings per share
|
0.21 | 0.20 | 0.11 |
For the Years Ended December 31,
|
||||||||||||
2008
|
2007
|
2006
|
||||||||||
(millions)
|
||||||||||||
Cost
of services and products
|
$ | 37 | $ | 37 | $ | 20 | ||||||
Selling,
general and administrative
|
38 | 40 | 10 | |||||||||
Total
severance expense
|
$ | 75 | $ | 77 | $ | 30 |
For the Years Ended December 31,
|
||||||||||||
2008
|
2007
|
2006
|
||||||||||
(millions)
|
||||||||||||
Advertising
expense
|
$ | 91 | $ | 93 | $ | 102 |
Interest
|
Penalties
|
|||||||||||||||
2008
|
2007
|
2008
|
2007
|
|||||||||||||
(millions)
|
||||||||||||||||
Recognized
in the Consolidated Balance Sheet
|
$ | 9 | $ | 4 | $ | - | $ | 2 | ||||||||
Recognized
in the Consolidated Statement of Operations and Comprehensive
Income (Loss)
|
5 | 3 | (2 | ) | 2 |
As
of December 31,
|
||||||||
2008
|
2007
|
|||||||
(millions)
|
||||||||
ARO
assets
|
$ | 4 | $ | 4 | ||||
ARO
liability
|
34 | 32 |
As
of December 31,
|
||||||||||||
2008
|
2007
|
2006
|
||||||||||
(millions)
|
||||||||||||
Stock
options
|
5.2 | 2.1 | 3.3 |
For
the Years Ended December 31,
|
||||||||||||
2008
|
2007
|
2006
|
||||||||||
(millions)
|
||||||||||||
Net
operating revenues
|
$ | 435 | $ | 466 | $ | 530 | ||||||
Operating
expenses
|
441 | 468 | 546 | |||||||||
Operating
loss
|
(6 | ) | (2 | ) | (16 | ) | ||||||
Other
income (expense)
|
- | 1 | (1 | ) | ||||||||
Loss
before income taxes
|
(6 | ) | (1 | ) | (17 | ) | ||||||
Income
tax benefit (expense)
|
1 | (1 | ) | 6 | ||||||||
Loss
from discontinued operations (net of income taxes)
|
$ | (5 | ) | $ | (2 | ) | $ | (11 | ) |
As
of December 31,
|
||||||||
2008
|
2007
|
|||||||
Accounts
receivable, net of allowance for doubtful accounts of $3 and
$2
|
$ | 26 | $ | 36 | ||||
Inventory,
net of allowance of $5 and $6
|
41 | 65 | ||||||
Prepaid
expenses and other current assets
|
- | 1 | ||||||
Total current assets of discontinued operations
|
$ | 67 | $ | 102 | ||||
Gross
property, plant and equipment
|
$ | 135 | $ | 135 | ||||
Accumulated
depreciation
|
(123 | ) | (121 | ) | ||||
Other
assets
|
- | 1 | ||||||
Total noncurrent assets of discontinued operations
|
$ | 12 | $ | 15 | ||||
Accounts
payable
|
$ | 29 | $ | 45 | ||||
Payroll
and employee benefits
|
3 | 4 | ||||||
Other
current liabilities
|
2 | 5 | ||||||
Total current liabilities of discontinued operations
|
$ | 34 | $ | 54 |
|
•
|
Embarq
entered into a non-exclusive wholesale agreement, which Embarq refers to
as the MVNO agreement, with Sprint Nextel. Under this agreement, for a
period of 7 years, Embarq is able to resell certain CDMA-based wireless
voice and data services in Embarq’s local service
territories.
|
|
•
|
Under
a 5 year wholesale master services agreement with Sprint Nextel, which
Embarq refers to as the long distance agreement, Embarq has the ability to
market and sell its own branded wireline long distance voice and data
services to consumer and small business customers. Under this agreement,
Embarq must purchase a minimum of 95% of certain categories of its
domestic and international long distance voice and data services from
Sprint Nextel.
|
(millions)
|
||||
2009
|
$ | 156 | ||
2010
|
70 | |||
2011
|
65 | |||
2012
|
61 | |||
2013
|
39 | |||
Thereafter
|
47 |
For
the Years Ended December 31,
|
||||||||||||
2008
|
2007
|
2006
|
||||||||||
(millions)
|
||||||||||||
Purchase
commitments paid
|
$ | 75 | $ | 51 | $ | 17 |
For
the Years Ended December 31,
|
||||||||||||
2008
|
2007
|
2006
|
||||||||||
(millions)
|
||||||||||||
Gross
rental expense
|
$ | 136 | $ | 125 | $ | 110 |
(millions)
|
||||
2009
|
$ | 31 | ||
2010
|
23 | |||
2011
|
17 | |||
2012
|
11 | |||
2013
|
4 | |||
Thereafter
|
6 |
As of December 31,
|
|||||||||||||
Interest Rate
|
Maturing
|
2008
|
2007
|
||||||||||
(millions)
|
|||||||||||||
Senior
notes
|
|||||||||||||
Notes due 2013
|
6.7% |
2013
|
$ | 1,000 | $ | 1,000 | |||||||
Notes due 2016
|
7.1% |
2016
|
2,000 | 2,000 | |||||||||
Notes due 2036
|
8.0% |
2036
|
1,485 | 1,485 | |||||||||
Term
credit facility
|
1.0%
and 5.5%
|
2011
|
360 | 360 | |||||||||
Revolving
credit facility
|
1.6%
and 5.4%
|
2011
|
375 | 410 | |||||||||
Other
|
6.8% to 9.8%
|
2009 to 2025
|
525 | 623 | |||||||||
Total
debt
|
$ | 5,745 | $ | 5,878 | |||||||||
Current
maturities
|
(2 | ) | (99 | ) | |||||||||
Total
long-term debt
|
$ | 5,743 | $ | 5,779 |
(millions)
|
||||
2009
|
$ | 2 | ||
2010
|
2 | |||
2011
|
735 | |||
2012
|
- | |||
2013
|
1,110 | |||
Thereafter
|
3,896 |
For
the Years Ended December 31,
|
||||||||||||
2008
|
2007
|
2006
|
||||||||||
(millions)
|
||||||||||||
Reduction
in interest expense
|
$ | 5 | $ | 5 | $ | 3 |
For
the Years Ended December 31,
|
||||||||||||
2008
|
2007
|
2006
|
||||||||||
(millions)
|
||||||||||||
Current
income tax expense
|
||||||||||||
Federal
|
$ | 343 | $ | 392 | $ | 443 | ||||||
State
|
18 | 49 | 77 | |||||||||
Total
current
|
361 | 441 | 520 | |||||||||
Deferred
and non-current income tax expense (benefit)
|
||||||||||||
Federal
|
85 | (19 | ) | (57 | ) | |||||||
State
|
18 | (31 | ) | (7 | ) | |||||||
Total
deferred and non-current income tax expense (benefit)
|
103 | (50 | ) | (64 | ) | |||||||
Total
|
$ | 464 | $ | 391 | $ | 456 |
For
the Years Ended December 31,
|
||||||||||||
2008
|
2007
|
2006
|
||||||||||
(millions)
|
||||||||||||
Income
tax expense at the federal statutory rate
|
$ | 433 | $ | 377 | $ | 438 | ||||||
Effect
of:
|
||||||||||||
State
income taxes, net of federal income tax effect
|
28 | 24 | 46 | |||||||||
Nonrecurring
federal and state deferred tax adjustments, net
|
- | (12 | ) | (16 | ) | |||||||
Other,
net
|
3 | 2 | (12 | ) | ||||||||
Income
tax expense
|
$ | 464 | $ | 391 | $ | 456 | ||||||
Effective
income tax rate
|
37.4 | % | 36.3 | % | 36.5 | % |
For
the Years Ended December 31,
|
||||||||||||
2008
|
2007
|
2006
|
||||||||||
(millions)
|
||||||||||||
Remeasurements
of and amendments to employee benefit plans
|
$ | (477 | ) | $ | 150 | $ | - | |||||
Amortization
of employee benefit plans prior service costs and actuarial
loss
|
2 | 4 | - | |||||||||
Additional
minimum pension liability
|
- | - | 321 | |||||||||
Adoption
of SFAS No. 158
|
- | - | (248 | ) | ||||||||
Unrealized
holding gains on cash flow derivatives
|
- | - | 27 | |||||||||
Amortization
of cash flow derivatives
|
(1 | ) | (1 | ) | (2 | ) |
As
of December 31,
|
||||||||||||||||
2008
|
2007
|
|||||||||||||||
Current
|
Noncurrent
|
Current
|
Noncurrent
|
|||||||||||||
(millions)
|
||||||||||||||||
Deferred
Tax Assets
|
||||||||||||||||
Benefit
plan obligations
|
$ | - | $ | 491 | $ | - | $ | 79 | ||||||||
Accruals
and other liabilities
|
89 | 12 | 73 | 11 | ||||||||||||
Stock
based compensation
|
- | 30 | - | 33 | ||||||||||||
Net
operating loss carryforward
|
- | 33 | - | 35 | ||||||||||||
Intangibles
|
- | 26 | - | 29 | ||||||||||||
Other,
net
|
- | 6 | 3 | 16 | ||||||||||||
Total
deferred tax assets before valuation allowance
|
89 | 598 | 76 | 203 | ||||||||||||
Valuation
allowance
|
- | (23 | ) | - | (10 | ) | ||||||||||
Total
deferred tax assets
|
89 | 575 | 76 | 193 | ||||||||||||
Deferred
Tax Liabilities
|
||||||||||||||||
Property,
plant and equipment
|
- | 1,368 | - | 1,323 | ||||||||||||
Total
deferred tax liabilities
|
- | 1,368 | - | 1,323 | ||||||||||||
Current
Deferred Tax Asset
|
$ | 89 | $ | - | $ | 76 | $ | - | ||||||||
Noncurrent
Deferred Tax Liability
|
$ | - | $ | 793 | $ | - | $ | 1,130 |
(millions)
|
||||
Unrecognized
tax benefits as of January 1, 2008
|
$ | 340 | ||
Increase
(decrease) as a result of tax positions taken in prior
years
|
(1 | ) | ||
Increase
(decrease) as result of tax positions taken during the current
year
|
(4 | ) | ||
Unrecognized
tax benefits as of December 31, 2008
|
$ | 335 |
As
of December 31,
|
||||||||
2008
|
2007
|
|||||||
(millions)
|
||||||||
Prepaid
pension asset
|
$ | - | $ | 108 | ||||
Benefit
plan obligations
|
||||||||
Defined benefit pension liability
|
$ | 1,083 | $ | 32 | ||||
Postretirement benefit liability
|
222 | 219 | ||||||
Other benefit obligations
|
36 | 69 | ||||||
Total
|
$ | 1,341 | $ | 320 |
Accumulated
|
||||||||||||||||||||||||||||||||
Projected
|
Unrecognized
|
Unamortized
|
Other
Comp.
|
|||||||||||||||||||||||||||||
Benefit
|
Plan
|
Funded
|
Unrecognized
|
Prior
Service
|
Transition
|
Income
|
||||||||||||||||||||||||||
(millions)
|
Expense
|
Obligation
|
Assets
|
Status
|
Net Loss (1)
|
Cost (1)
|
Asset (1)
|
Recognized (1)
|
||||||||||||||||||||||||
May
17, 2006
|
$ | - | $ | (3,148 | ) | $ | 3,089 | $ | (59 | ) | $ | 742 | $ | 74 | $ | (1 | ) | $ | 815 | |||||||||||||
Service
cost
|
31 | (31 | ) | - | (31 | ) | - | - | - | - | ||||||||||||||||||||||
Interest
cost
|
121 | (121 | ) | - | (121 | ) | - | - | - | - | ||||||||||||||||||||||
Expected
return on assets
|
(166 | ) | - | - | - | 166 | - | - | 166 | |||||||||||||||||||||||
Amortization
of actuarial losses
|
24 | - | - | - | (24 | ) | - | - | (24 | ) | ||||||||||||||||||||||
Amortization
of prior service
cost
|
10 | - | - | - | - | (10 | ) | - | (10 | ) | ||||||||||||||||||||||
Actuarial
losses
|
- | (84 | ) | - | (84 | ) | 84 | - | - | 84 | ||||||||||||||||||||||
Plan
amendments (2)
|
- | (15 | ) | - | (15 | ) | - | 15 | - | 15 | ||||||||||||||||||||||
Actual
return on assets
|
- | - | 249 | 249 | (249 | ) | - | - | (249 | ) | ||||||||||||||||||||||
Benefit
payments
|
- | 106 | (106 | ) | - | - | - | - | - | |||||||||||||||||||||||
Employer
contributions
|
- | - | 2 | 2 | - | - | - | - | ||||||||||||||||||||||||
December
31, 2006 (3)
|
20 | (3,293 | ) | 3,234 | (59 | ) | 719 | 79 | (1 | ) | 797 | |||||||||||||||||||||
Service
cost
|
55 | (55 | ) | - | (55 | ) | - | - | - | - | ||||||||||||||||||||||
Interest
cost
|
199 | (199 | ) | - | (199 | ) | - | - | - | - | ||||||||||||||||||||||
Expected
return on assets
|
(263 | ) | - | - | - | 263 | - | - | 263 | |||||||||||||||||||||||
Amortization
of actuarial losses
|
46 | - | - | - | (46 | ) | - | - | (46 | ) | ||||||||||||||||||||||
Amortization
of prior service cost
|
16 | - | - | - | - | (16 | ) | - | (16 | ) | ||||||||||||||||||||||
Actuarial
gains
|
- | 10 | - | 10 | (10 | ) | - | - | (10 | ) | ||||||||||||||||||||||
Plan
amendments (2)
|
- | (12 | ) | - | (12 | ) | - | 12 | - | 12 | ||||||||||||||||||||||
Actual
return on assets
|
- | - | 314 | 314 | (314 | ) | - | - | (314 | ) | ||||||||||||||||||||||
Benefit
payments
|
- | 207 | (207 | ) | - | - | - | - | - | |||||||||||||||||||||||
Employer
contributions
|
- | - | 77 | 77 | - | - | - | - | ||||||||||||||||||||||||
December
31, 2007 (4)
|
53 | (3,342 | ) | 3,418 | 76 | 612 | 75 | (1 | ) | 686 | ||||||||||||||||||||||
Service
cost
|
53 | (53 | ) | - | (53 | ) | - | - | - | - | ||||||||||||||||||||||
Interest
cost
|
206 | (206 | ) | - | (206 | ) | - | - | - | - | ||||||||||||||||||||||
Expected
return on assets
|
(277 | ) | - | - | - | 277 | - | - | 277 | |||||||||||||||||||||||
Amortization
of actuarial losses
|
35 | - | - | - | (35 | ) | - | - | (35 | ) | ||||||||||||||||||||||
Amortization
of prior service cost
|
13 | - | - | - | - | (13 | ) | - | (13 | ) | ||||||||||||||||||||||
Actuarial
loss
|
- | (20 | ) | - | (20 | ) | 20 | - | - | 20 | ||||||||||||||||||||||
Plan
amendments (2)
|
- | (17 | ) | - | (17 | ) | - | 17 | - | 17 | ||||||||||||||||||||||
Actual
return on assets
|
- | - | (928 | ) | (928 | ) | 928 | - | - | 928 | ||||||||||||||||||||||
Benefit
payments
|
- | 199 | (199 | ) | - | - | - | - | - | |||||||||||||||||||||||
Contractual
retirement benefits (5)
|
13 | (13 | ) | - | (13 | ) | - | - | - | - | ||||||||||||||||||||||
Employer
contributions (6)
|
- | - | 78 | 78 | - | - | - | - | ||||||||||||||||||||||||
December
31, 2008 (7)
|
$ | 43 | $ | (3,452 | ) | $ | 2,369 | $ | (1,083 | ) | $ | 1,802 | $ | 79 | $ | (1 | ) | $ | 1,880 | |||||||||||||
(1) The adoption of SFAS
No. 158 on December 31, 2006, required the recognized pension
obligation to equal the funded status of the plans as measured by the
difference between the projected benefit obligations and the plans asset
values. This resulted in an increase in the obligation of $797 million. In
combination with the associated deferred tax impact of $307 million, this
adjustment reduced stockholder’s equity by $490
million.
|
||||||||||||||||||||||||||||||||
(2) Plan amendments were a result of
collective bargaining agreement renewals, which impacted certain union
employee benefit schedules.
|
||||||||||||||||||||||||||||||||
(3) The accumulated benefit
obligation was $3,179 million at December 31, 2006.
|
||||||||||||||||||||||||||||||||
(4) The accumulated benefit
obligation was $3,228 million at December 31, 2007.
|
||||||||||||||||||||||||||||||||
(5) Additional pension costs related
to contractual early retirement benefits for certain participants affected
by workforce reductions.
|
||||||||||||||||||||||||||||||||
(6) Total contributions include $14
million in repayments to the plan’s trusts.
|
||||||||||||||||||||||||||||||||
(7) The accumulated benefit
obligation was $3,356 million at December 31, 2008.
|
Plan
Asset Allocations
|
Targeted
|
Actual
|
Expected
Future Benefit Payments
|
|||
2008
|
2008
|
2007
|
(millions)
|
|||
Equity
securities
|
50%
to 65%
|
52%
|
57%
|
2009
|
$ 207
|
|
Debt
securities
|
15%
to 30%
|
24%
|
23%
|
2010
|
210
|
|
Real
estate
|
5%
to 15%
|
11%
|
10%
|
2011
|
215
|
|
Other
|
5%
to 15%
|
13%
|
10%
|
2012
|
222
|
|
Total
|
100%
|
100%
|
100%
|
2013
|
230
|
|
2014-2018
|
1,283
|
Accumulated
|
Accumulated
|
|||||||||||||||||||||||||||||||
Projected
|
Unrecognized
|
Unamortized
|
Other
Comp.
|
|||||||||||||||||||||||||||||
Benefit
|
Plan
|
Funded
|
Unrecognized
|
Prior
Service
|
Transition
|
Income
|
||||||||||||||||||||||||||
(millions)
|
Expense
|
Obligation
|
Assets
|
Status
|
Net Loss(1)
|
Cost(1)
|
Asset(1)
|
Recognized(1)
|
||||||||||||||||||||||||
May
17, 2006
|
$ | - | $ | (601 | ) | $ | 43 | $ | (558 | ) | $ | 173 | $ | (350 | ) | $ | (6 | ) | $ | (183 | ) | |||||||||||
Service
cost
|
5 | (5 | ) | - | (5 | ) | - | - | - | - | ||||||||||||||||||||||
Interest
cost
|
23 | (23 | ) | - | (23 | ) | - | - | - | - | ||||||||||||||||||||||
Expected
return on assets
|
(2 | ) | - | - | - | 2 | - | - | 2 | |||||||||||||||||||||||
Amortization
of actuarial losses
|
11 | - | - | - | (11 | ) | - | - | (11 | ) | ||||||||||||||||||||||
Amortization
of prior service
cost
|
(37 | ) | - | - | - | - | 37 | - | 37 | |||||||||||||||||||||||
Employer
contributions
|
- | - | 27 | 27 | - | - | - | - | ||||||||||||||||||||||||
Benefit
payments
|
- | 28 | (28 | ) | - | - | - | - | - | |||||||||||||||||||||||
Actual
return on assets
|
- | 4 | 4 | (4 | ) | - | - | (4 | ) | |||||||||||||||||||||||
Actuarial
gains or losses
|
- | (2 | ) | - | (2 | ) | 2 | - | - | 2 | ||||||||||||||||||||||
December
31, 2006
|
- | (603 | ) | 46 | (557 | ) | 162 | (313 | ) | (6 | ) | (157 | ) | |||||||||||||||||||
Service
cost
|
8 | (8 | ) | - | (8 | ) | - | - | - | - | ||||||||||||||||||||||
Interest
cost
|
26 | (26 | ) | - | (26 | ) | - | - | - | - | ||||||||||||||||||||||
Expected
return on assets
|
(3 | ) | - | - | - | 3 | - | - | 3 | |||||||||||||||||||||||
Amortization
of prior service
cost
|
(68 | ) | - | - | - | - | 68 | - | 68 | |||||||||||||||||||||||
Amortization
of actuarial losses
|
15 | - | - | - | (15 | ) | - | - | (15 | ) | ||||||||||||||||||||||
Amortization
of transition asset
|
(1 | ) | - | - | - | - | - | 1 | 1 | |||||||||||||||||||||||
Employer
contributions
|
- | - | 37 | 37 | - | - | - | - | ||||||||||||||||||||||||
Benefit
payments
|
- | 39 | (39 | ) | - | - | - | - | - | |||||||||||||||||||||||
Plan
amendments
|
- | 301 | - | 301 | - | (301 | ) | - | (301 | ) | ||||||||||||||||||||||
Actual
return on assets
|
- | - | 3 | 3 | (3 | ) | - | - | (3 | ) | ||||||||||||||||||||||
Actuarial
gains or losses
|
- | 31 | - | 31 | (31 | ) | - | - | (31 | ) | ||||||||||||||||||||||
December
31, 2007
|
$ | (23 | ) | $ | (266 | ) | $ | 47 | $ | (219 | ) | $ | 116 | $ | (546 | ) | $ | (5 | ) | $ | (435 | ) | ||||||||||
Service
cost
|
8 | (8 | ) | - | (8 | ) | - | - | - | - | ||||||||||||||||||||||
Interest
cost
|
16 | (16 | ) | - | (16 | ) | - | - | - | - | ||||||||||||||||||||||
Expected
return on assets
|
(3 | ) | - | - | - | 3 | - | - | 3 | |||||||||||||||||||||||
Amortization
of prior service
cost
|
(53 | ) | - | - | - | - | 53 | - | 53 | |||||||||||||||||||||||
Amortization
of actuarial losses
|
13 | - | - | - | (13 | ) | - | - | (13 | ) | ||||||||||||||||||||||
Amortization
of transition asset
|
(1 | ) | - | - | - | - | - | 1 | 1 | |||||||||||||||||||||||
Employer
contributions
|
- | - | 26 | 26 | - | - | - | - | ||||||||||||||||||||||||
Benefit
payments
|
- | 28 | (28 | ) | - | - | - | - | - | |||||||||||||||||||||||
Plan
amendments
|
- | 13 | - | 13 | - | (13 | ) | - | (13 | ) | ||||||||||||||||||||||
Actual
return on assets
|
- | - | (13 | ) | (13 | ) | 13 | - | - | 13 | ||||||||||||||||||||||
Actuarial
gains or losses
|
- | (5 | ) | - | (5 | ) | 5 | - | - | 5 | ||||||||||||||||||||||
December
31, 2008
|
$ | (20 | ) | $ | (254 | ) | $ | 32 | $ | (222 | ) | $ | 124 | $ | (506 | ) | $ | (4 | ) | $ | (386 | ) | ||||||||||
(1)
The adoption of SFAS No. 158 as of December 31, 2006, required
the recognized post-retirement benefit obligation to equal the funded
status of the plans as measured by the difference between the accumulated
projected benefit obligation and the plan asset value. This resulted in a
decrease in the obligation of $157 million. In combination with the
associated deferred tax impact of $59 million, this adjustment increased
stockholder’s equity by $98 million.
|
Plan
Asset Allocations
|
Actual
|
Expected
Future Benefit Payments
|
||||
2008
|
2007
|
(millions)
|
||||
Equity
securities
|
55%
|
67%
|
2009
|
$ 31
|
||
Debt
securities
|
45%
|
33%
|
2010
|
30
|
||
Total
|
100%
|
100%
|
2011
|
28
|
||
2012
|
26
|
|||||
2013
|
25
|
|||||
2014-2018
|
120
|
·
|
Discount
rate based on a hypothetical portfolio of bonds rated AA- or better
that produce a cash flow matching the projected benefit payments of the
plans.
|
·
|
Expected
rate of future pay raises based on a weighted-average of past experience
and industry peer group survey
data.
|
·
|
Expected
long-term return on plan assets determined by considering both historical
and forward-looking estimates of the expected long-term returns for a
portfolio invested according to the pension trust’s target investment
policy. These estimates were developed using independent data
and were corroborated by comparison to
benchmarks.
|
·
|
Health
care cost increases and assumed health care cost trends based on a review
of surveys of employers’ expectations of medical cost increases and a spot
survey of the retiree medical inflation assumptions expected to be used by
other plan sponsors.
|
Benefit
Obligation Assumptions
|
2008
|
2007
|
Discount
rate
|
6.4%
|
6.3%
|
Rate
of compensation increase
|
3.5%
|
4.0%
|
Health
care cost increases in the following year
|
8.0%
|
7.9%
|
Net
Benefit Cost Assumptions
|
2008
|
2007
|
Discount
rate(1)
|
6.3%
|
6.1%
|
Rate
of compensation increase
|
4.0%
|
4.0%
|
Long-term
expected return on plan assets
|
8.5%
|
8.5%
|
Health
care cost increases in the current year
|
7.9%
|
8.6%
|
2008
|
2007
|
|||||||
Health
Care Cost Trend Rate Sensitivity:
|
(millions)
|
|||||||
Effect
on service and interest cost - 100 basis point increase
|
$ | - | $ | 1 | ||||
Effect
on service and interest cost - 100 basis point decrease
|
- | (1 | ) | |||||
Effect
on APBO - 100 basis point increase
|
4 | 4 | ||||||
Effect
on APBO - 100 basis point decrease
|
(4 | ) | (4 | ) |
Defined Benefit
Pension Plan
|
Postretirement
Benefits
|
|||||||
(millions)
|
||||||||
Amortization
of net losses
|
$ | 54 | $ | 12 | ||||
Amortization
of prior service cost (credit)
|
13 | (53 | ) | |||||
Amortization
of net transition asset (credit)
|
- | (1 | ) |
2008
|
2007
|
2006
|
||||||||||
Risk-free
interest rate
|
2.9 | % | 4.7 | % | 5.0 | % | ||||||
Expected
dividend yield
|
6.6 | % | 3.5 | % | 4.4 | % | ||||||
Expected
volatility
|
30.8 | % | 24.4 | % | 22.5 | % | ||||||
Expected
term (years)
|
6.0 | 6.0 | 4.7 |
Options
|
Weighted Average
Exercise
Price
|
|
(millions)
|
||
Beginning
balance outstanding
|
6.4
|
$ 56.51
|
Granted
|
1.0
|
41.95
|
Exercised
|
0.2
|
36.22
|
Forfeited/expired
|
0.5
|
61.15
|
Ending
balance outstanding
|
6.7
|
$ 54.74
|
Options
|
Aggregate
Intrinsic Value
|
Weighted
Average
Remaining
Contractual
Term
|
Weighted Average
Exercise
Price
|
||
(millions)
|
(years)
|
||||
Exercisable
|
4.9
|
$ 4.9
|
3.2
|
$ 57.82
|
|
Expected
to vest, net of expected forfeitures
|
1.7
|
-
|
8.3
|
$ 45.84
|
For
the Years Ended December 31,
|
||||||||||||
2008
|
2007
|
2006
|
||||||||||
(millions)
|
||||||||||||
Cash
received
|
$ | 8 | $ | 109 | $ | 21 | ||||||
Tax
benefit realized
|
1 | 22 | 3 | |||||||||
Intrinsic
value
|
2 | 60 | 8 |
For
the Years Ended December 31,
|
||||||||||||
2008
|
2007
|
2006
|
||||||||||
Weighted
average fair value
|
$ | 11.92 | $ | 11.62 | $ | 18.93 | ||||||
Number
of fully vested options (millions)
|
1.0 | 1.0 | 0.1 |
Unit Award
|
Weighted Average
Fair Value
|
|||||||
(millions)
|
||||||||
Beginning
balance nonvested
|
1.6 | $ | 46.87 | |||||
Granted
|
0.9 | 42.41 | ||||||
Vested
|
1.2 | 43.88 | ||||||
Forfeited
|
0.1 | 45.66 | ||||||
Ending
balance nonvested
|
1.2 | $ | 46.64 |
For
the Years Ended December 31,
|
||||||||||||
2008
|
2007
|
2006
|
||||||||||
(millions)
|
||||||||||||
Compensation
Expense
|
||||||||||||
Post
spin-off direct expense
|
$ | 47 | $ | 50 | $ | 31 | ||||||
Pre
spin-off allocated expense
|
- | - | 22 | |||||||||
Total
|
$ | 47 | $ | 50 | $ | 53 | ||||||
Income
Tax Benefit
|
||||||||||||
Post
spin-off direct expense
|
$ | 17 | $ | 18 | $ | 11 | ||||||
Pre
spin-off allocated expense
|
- | - | 8 | |||||||||
Total
|
$ | 17 | $ | 18 | $ | 19 |
2008
|
2007
|
2006
|
||||||||||
(millions)
|
||||||||||||
Voice
|
$ | 3,915 | $ | 4,238 | $ | 4,346 | ||||||
Data
|
801 | 765 | 706 | |||||||||
High-speed
Internet
|
549 | 489 | 393 | |||||||||
Other
|
424 | 407 | 388 | |||||||||
Total
net operating revenues
|
$ | 5,689 | $ | 5,899 | $ | 5,833 |
2008
|
2007
|
2006
|
||||||||||
(millions)
|
||||||||||||
Supplemental
Cash Flow Information
|
||||||||||||
Cash paid for interest, net of amounts capitalized
|
$ | 407 | $ | 437 | $ | 290 | ||||||
Cash paid for income taxes
|
383 | 449 | 348 | |||||||||
Non-Cash
Activities
|
||||||||||||
Capital expenditure accrual
|
$ | (4 | ) | $ | 1 | $ | 3 | |||||
Dividends accrued
|
2 | 2 | - | |||||||||
Cash held in escrow from the sale of assets
|
10 | 1 | ||||||||||
Proceeds due from sale of assets
|
6 | - | - | |||||||||
Extinguishment of debt
|
- | 3 | - | |||||||||
Issuance of treasury stock to the Employee Stock Purchase
Plan
|
- | 2 | - | |||||||||
Transactions with Sprint Nextel associated with spin-off:
|
||||||||||||
Distribution of senior notes
|
- | - | (4,485 | ) | ||||||||
Transfer of notes receivable
|
- | - | 460 | |||||||||
Transfer and subsequent adjustment of property, plant and equipment,
net
|
- | 4 | 313 | |||||||||
Transfer of post-retirement and other benefit obligations
|
- | - | (358 | ) | ||||||||
Elimination of additional minimum pension liability and
pension intangible
|
- | - | 837 | |||||||||
Transfer and subsequent adjustment of other assets and liabilities,
net
|
- | (2 | ) | 35 | ||||||||
Deferred taxes related to assets and liabilities transferred and
subsequently adjusted
|
- | 1 | (53 | ) |
2008
Quarters
|
||||||||||||||||
1st
|
2nd
|
3rd
|
4th
|
|||||||||||||
(millions,
except per share data)
|
||||||||||||||||
Net
operating revenue
|
$ | 1,456 | $ | 1,439 | $ | 1,408 | $ | 1,386 | ||||||||
Operating
income
|
436 | 424 | 355 | 424 | ||||||||||||
Income
from continuing operations
|
214 | 202 | 162 | 196 | ||||||||||||
Income
(loss) from discontinued operations (net of income taxes)
|
(2 | ) | 4 | (2 | ) | (5 | ) | |||||||||
Net
income
|
$ | 212 | $ | 206 | $ | 160 | $ | 191 | ||||||||
Basic
earnings per share
|
||||||||||||||||
Continuing operations
|
$ | 1.40 | $ | 1.37 | $ | 1.13 | $ | 1.38 | ||||||||
Discontinued operations
|
(0.01 | ) | 0.03 | (0.01 | ) | (0.04 | ) | |||||||||
Total
|
1.39 | 1.40 | 1.12 | 1.34 | ||||||||||||
Diluted
earnings per share
|
||||||||||||||||
Continuing operations
|
$ | 1.39 | $ | 1.35 | $ | 1.12 | $ | 1.37 | ||||||||
Discontinued operations
|
(0.01 | ) | 0.03 | (0.01 | ) | (0.03 | ) | |||||||||
Total
|
1.38 | 1.38 | 1.11 | 1.34 |
2007
Quarters
|
||||||||||||||||
1st
|
2nd
|
3rd
|
4th
|
|||||||||||||
(millions,
except per share data)
|
||||||||||||||||
Net
operating revenue
|
$ | 1,480 | $ | 1,482 | $ | 1,473 | $ | 1,464 | ||||||||
Operating
income
|
374 | 396 | 365 | 371 | ||||||||||||
Income
from continuing operations
|
162 | 174 | 158 | 191 | ||||||||||||
Income
(loss) from discontinued operations (net of income taxes)
|
(2 | ) | 2 | (1 | ) | (1 | ) | |||||||||
Net
income
|
$ | 160 | $ | 176 | $ | 157 | $ | 190 | ||||||||
Basic
earnings per share
|
||||||||||||||||
Continuing operations
|
$ | 1.08 | $ | 1.15 | $ | 1.03 | $ | 1.25 | ||||||||
Discontinued operations
|
(0.01 | ) | 0.01 | (0.01 | ) | (0.01 | ) | |||||||||
Total
|
1.07 | 1.16 | 1.02 | 1.24 | ||||||||||||
Diluted
earnings per share
|
||||||||||||||||
Continuing operations
|
$ | 1.06 | $ | 1.14 | $ | 1.02 | $ | 1.24 | ||||||||
Discontinued operations
|
(0.01 | ) | 0.01 | (0.01 | ) | (0.01 | ) | |||||||||
Total
|
1.05 | 1.15 | 1.01 | 1.23 |
·
|
the
credit agreement will remain in place after consummation of the merger,
with scheduled maturity in May
2011;
|
·
|
the
size of the revolving credit facility will be reduced to $800 million from
$1.5 billion, and the sub-limit for letters of credit will be reduced to
$100 million from $200 million;
|
·
|
the
outstanding term borrowings of $360 million as of December 31, 2008 will
be repaid in full on or before the closing date of the
merger;
|
·
|
the
leverage ratio financial covenant will become more restrictive, along with
other covenant modifications; and
|
·
|
the
interest rates and fees payable on outstanding borrowings and commitments
will be increased.
|