MONROE, La., Aug 04, 2010 /PRNewswire via COMTEX/ --
CenturyLink, Inc. (NYSE: CTL) announces operating results for second quarter 2010, which include the effect of the Embarq acquisition completed July 1, 2009.
- Increased operating revenues more than 179% to $1.772 billion as a result of the Embarq acquisition.
- Generated free cash flow of more than $428 million in second quarter 2010, excluding nonrecurring items (free cash flow is defined in the attached financial schedules).
- Achieved approximately $75 million in operating cost synergies from the Embarq acquisition during second quarter 2010; expect to achieve approximately $330 million in annual run rate synergies by year end 2010.
- Added more than 29,000 high-speed Internet customers compared to pro forma second quarter 2009 growth of approximately 28,000.
- Improved access line losses by 22% compared to pro forma second quarter 2009.
Second Quarter Highlights
(Excluding nonrecurring items reflected in the attached financial
schedules)
(In thousands, except per share amounts and subscriber data)
Quarter Ended Quarter Ended
6/30/10 6/30/09
------- -------
Operating Revenues $1,772,030 $634,469
Operating Cash Flow (1) $922,073 $303,593
Net Income (2) $265,680 $83,299
Diluted Earnings Per Share $.88 $.83
Average Diluted Shares Outstanding 300,605 99,450
Capital Expenditures (3) $195,046 $85,305
------------------------ -------- -------
Access Lines (4) 6,767,000 1,961,000
High-Speed Internet Customers 2,336,000 681,000
----------------------------- -------
% Change
Operating Revenues 179.3%
Operating Cash Flow (1) 203.7%
Net Income (2) 218.9%
Diluted Earnings Per Share 6.0%
Average Diluted Shares Outstanding 202.3%
Capital Expenditures (3) 128.6%
------------------------ -----
Access Lines (4) 245.1%
High-Speed Internet Customers 243.0%
----------------------------- -----
(1) Operating Cash Flow is a non-GAAP financial measure. A reconciliation of this item to comparable GAAP measures is included in the attached financial schedules.
(2) All references to net income contained in this release represent net income attributable to CenturyLink, Inc.
(3) Includes capital expenditures of $5.9 million in second quarter 2010 and $13.5 million in second quarter 2009 related to the Embarq integration.
(4) Both periods reflect line count methodology adjustments to standardize legacy CenturyLink and Embarq line counts.
"CenturyLink achieved solid operating revenues and our employees
continued to do an excellent job of containing costs, resulting in
the generation of strong cash flows during the quarter in spite of a
very competitive marketplace and economic conditions that remain
challenging," Glen F. Post, III, chief executive officer and
president, said. "We continue to make solid progress toward our $375
million operating expense synergy target from the Embarq acquisition,
generating total operating expense synergies of $75 million during
the quarter and exiting the quarter with a $315 million annual
synergy run rate."
Operating revenues for second quarter 2010 were $1.772 billion compared to $634.5 million in second quarter 2009. This increase was primarily due to $1.23 billionof revenue contribution from the Embarq acquisition completed July 1, 2009. Additionally, revenue increases primarily driven by growth in high-speed Internet customers and data transport demand from wireless providers were more than offset by revenue declines primarily due to the impact of access line losses, lower switched access revenues, and lower universal service funds receipts, along with the elimination of $54 million of revenues in second quarter 2010, associated with the mid-2009 discontinuance of regulatory accounting for certain regulated operating entities.
Operating expenses, excluding nonrecurring items, were $1.208 billion compared to $459.4 million in second quarter 2009, primarily due to $825 million of operating costs associated with the Embarq acquisition (net of synergies), which more than offset $54 million of reduced operating expenses associated with the discontinuance of regulatory accounting reflected in second quarter 2010.
Operating cash flow, excluding nonrecurring items,increased 203.7% to $922.1 million from $303.6 million in second quarter 2009, primarily due to the Embarq acquisition. For second quarter 2010, CenturyLink achieved an operating cash flow margin, excluding nonrecurring items, of 52.0% versus 47.8% in second quarter 2009.
"We remain focused on positioning CenturyLink as the broadband provider of choice in our markets by enhancing our broadband products portfolio through deploying higher speeds in key markets and expanding the availability of Ethernet and IP-based product offerings," Post said. "We continue to strengthen our capabilities to grow data revenues across all customer segments."
Net income,excluding nonrecurring items, was $265.7 million in second quarter 2010 compared to $83.3 million in second quarter 2009, primarily driven by the Embarq acquisition. Diluted earnings per share, excluding nonrecurring items, was $.88 for second quarter 2010, a 6.0% increase from the $.83 reported in second quarter 2009. This increase was primarily due to the higher net income as discussed above, partially offset by the 202.3% increase in average diluted shares outstanding as a result of our all-stock acquisition of Embarq.
For the first six months of 2010, operating revenues, excluding nonrecurring items, were $3.572 billion compared to $1.270 billion during the same period in 2009, a 181.3% increase. Operating cash flow, excluding nonrecurring items, was $1.857 billion for the first six months of 2010, a 204.9% increase from the $609.1 million during the same period a year ago. Net income, excluding nonrecurring items, increased to $544.9 million from $165.2 million in 2009, while diluted earnings per share, excluding nonrecurring items, increased 10.4% to $1.81 from $1.64 in 2009.
Under generally accepted accounting principles (GAAP), net income for second quarter 2010 was $238.8 million compared to $69.0 million for second quarter 2009, and diluted earnings per share for second quarter 2010 was $.79 compared to $.68 for second quarter 2009.
Second quarter 2010 net income and diluted earnings per share reflect after-tax costs of $11.1 million ($.04 per share) related to integration costs associated with the Embarq acquisition, $8.2 million ($.03 per share) associated with Embarq severance related costs, and $7.6 million ($.02 per share) related to transaction and integration costs associated with the pending Qwest acquisition.
Net income under GAAP for the first six months of 2010 was $491.4 million, compared to $136.2 million for the first six months of 2009, and diluted earnings per share for the first six months of 2010 was $1.63 compared to $1.35 for the first six months of 2009. See the accompanying financial schedules for details of the Company's nonrecurring items for the six months ended June 30, 2010 and 2009.
Outlook. For third quarter 2010, CenturyLink expects total revenues of $1.720 to $1.745 billion and diluted earnings per share of $.77 to $.81.
For full year 2010, CenturyLink is updating its prior free cash flow and diluted earnings per share guidance as follows:
Prior Guidance Revised Guidance
-------------- ----------------
Free Cash Flow $1.525 to $1.575 billion $1.560 to $1.600 billion
Diluted Earning Per
Share $3.20 to $3.30 $3.30 to $3.40
This increased guidance reflects the favorable second quarter results and lower operating expenses than previously anticipated for the second half of 2010.
The Company continues to expect 2010 capital expenditures to be between $825 and $875 million.
These 2010 outlook figures exclude the effects of nonrecurring items, future changes in regulation, future integration expenses associated with the Embarq acquisition, integration and transaction expenses associated with the pending Qwest acquisition, any future changes in operating or capital plans related thereto, and any future mergers, acquisitions, divestitures or other similar business transactions.
Embarq Integration Update. CenturyLink completed the billing and customer care conversion of legacy Embarq customers in North Carolina in late April and has now completed the conversion of approximately 25 percent of the legacy Embarq customers. CenturyLink expects to complete an additional large billing conversion later this year, and expects to complete the final two legacy Embarq customer billing conversions by the end of third quarter 2011.
CenturyLink incurred $31.1 million of pre-tax integration and other costs related to the Embarq acquisition during second quarter 2010. The Company also incurred approximately $5.9 million of integration-related capital expenditures during the second quarter.
CenturyLink achieved approximately $75 million in operating cost synergies during second quarter 2010 and expects to achieve approximately $330 million in annual run rate synergies by year end 2010.
Qwest Transaction. On April 22, CenturyLink and Qwest Communications International Inc. (NYSE: Q) announced that their boards of directors approved a definitive agreement under which CenturyLink will acquire Qwest in a tax-free, stock-for-stock transaction. Qwest shareholders will receive 0.1664 CenturyLink shares for each share of Qwest common stock they own at closing, which is expected to occur in the first half of 2011, subject to various closing conditions. Upon closing of the transaction, CenturyLink shareholders are expected to own approximately 50.5% and Qwest shareholders are expected to own approximately 49.5% of the combined company.
CenturyLink and Qwest filed the requisite notification and report forms under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 with the Antitrust Division of the Department of Justice and the Federal Trade Commission and received clearance thereon on July 15, 2010 to proceed with the transaction.
The transaction requires approval from regulatory commissions in 21 states and the District of Columbia. Six state approvals have been received to date. The Federal Communications Commission also is required to approve the transaction.
CenturyLink and Qwest filed a definitive joint proxy statement-prospectus with the Securities and Exchange Commission on July 19, 2010, which included notices by both companies of special meetings of shareholders on Tuesday, August 24, 2010, to vote on the merger. The record date for determining shareholders entitled to vote at the special meetings was July 13, 2010. The transaction is expected to close in the first half of 2011, subject to receipt of the above-mentioned governmental consents and approvals, as well as approval by both companies' shareholders.
Shareholder Returns. CenturyLink returned approximately $219 million to shareholders in the second quarter through cash dividends paid on June 21, 2010, to shareholders of record as of June 8, 2010.
In accordance with their definitive merger agreement, CenturyLink and Qwest shall coordinate with each other through the closing date to designate the record dates and payment dates for the two companies' respective quarterly dividends, such that neither CenturyLink shareholders nor Qwest shareholders shall receive more than one quarterly dividend during any calendar quarter. Thus, the timing of CenturyLink's future dividends may deviate from historical dates.
Reconciliation to GAAP. This release includes certain non-GAAP financial measures, including but not limited to operating cash flow, free cash flow, adjustments to GAAP measures to exclude the effect of nonrecurring items and certain pro forma combined operating results. In addition to providing key metrics for management to evaluate the Company's performance, we believe these measurements assist investors in their understanding of period-to-period operating performance and in identifying historical and prospective trends. Reconciliations of non-GAAP financial measures to the most comparable GAAP measures are included in the attached financial schedules. Reconciliation of additional non-GAAP financial measures that may be discussed during the earnings call described below will be available in the Investor Relations portion of the Company's Web site at www.centurylink.com. Investors are urged to consider these non-GAAP measures in addition to, and not in substitution for, measures prepared in accordance with GAAP.
Investor Call. As previously announced, CenturyLink's management will host a conference call at 10:30 a.m. Central Time today. Interested parties can access the call by dialing 866.238.1665. Management will be reviewing an investor presentation during today's call, which is available at ir.centurylink.com or on the Investor Relations section of the corporate Web site at www.centurylink.com.
The call will be accessible for replay through August 10, 2010, by calling 888.266.2081 and entering the conference ID number 1469356. Investors can also listen to CenturyLink's earnings conference call and replay by accessing the Investor Relations portion of the Company's Web site at www.centurylink.com through August 24, 2010.
Forward Looking Statements
Certain non-historical statements made in this release and future oral or written statements or press releases by us or our management are intended to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current expectations only, and are subject to a number of risks, uncertainties and assumptions, many of which are beyond our control. Actual events and results may differ materially from those anticipated, estimated or projected if one or more of these risks or uncertainties materialize, or if underlying assumptions prove incorrect. Factors that could affect actual results include but are not limited to: the timing, success and overall effects of competition from a wide variety of competitive providers; the risks inherent in rapid technological change; the effects of ongoing changes in the regulation of the communications industry (including those arising out of the Federal Communication Commission's National Broadband Plan released in the first quarter of 2010); our ability to effectively adjust to changes in the communications industry; our ability to successfully integrate Embarq into our operations, including the possibility that the anticipated benefits from the Embarq merger cannot be fully realized in a timely manner or at all, or that integrating Embarq's operations into ours will be more difficult, disruptive or costly than anticipated; our ability to successfully complete our pending acquisition of Qwest, including timely receiving all shareholder and regulatory approvals and realizing the anticipated benefits of the transaction; our ability to effectively manage our expansion opportunities, including retaining and hiring key personnel; possible changes in the demand for, or pricing of, our products and services; our ability to successfully introduce new product or service offerings on a timely and cost-effective basis; our continued access to credit markets on favorable terms; our ability to collect our receivables from financially troubled communications companies; our ability to pay a $2.90 per common share dividend annually, which may be affected by changes in our cash requirements, capital spending plans, cash flows or financial position; unanticipated increases in our capital expenditures; our ability to successfully negotiate collective bargaining agreements on reasonable terms without work stoppages; the effects of adverse weather; other risks referenced from time to time in this report or other of our filings with the Securities and Exchange Commission (the "SEC"); and the effects of more general factors such as changes in interest rates, in tax rates, in accounting policies or practices, in operating, medical, pension or administrative costs, in general market, labor or economic conditions, or in legislation, regulation or public policy. These and other uncertainties related to our business and our recently completed or pending acquisitions are described in greater detail in Item 1A to our Form 10-K for the year ended December 31, 2009, as updated and supplemented by our subsequent SEC reports. You should be aware that new factors may emerge from time to time and it is not possible for us to identify all such factors nor can we predict the impact of each such factor on the business or the extent to which any one or more factors may cause actual results to differ from those reflected in any forward-looking statements. You are further cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this release. We undertake no obligation to update any of our forward-looking statements for any reason.
Additional Information About the Pending Qwest Merger
In connection with the proposed Qwest merger, CenturyLink has filed, and the U.S. Securities and Exchange Commission, or SEC, has declared effective, a Registration Statement on Form S-4 that includes a joint proxy statement of CenturyLink and Qwest that also constitutes a prospectus of CenturyLink. CenturyLink and Qwest began mailing the final joint proxy statement/prospectus to their respective shareholders on July 19, 2010. INVESTORS ARE URGED TO READ THE JOINT PROXY STATEMENT/PROSPECTUS BECAUSE IT CONTAINS IMPORTANT INFORMATION. You may obtain the joint proxy statement/prospectus, as well as other filings containing information about CenturyLink and Qwest, free of charge, at the website maintained by the SEC at www.sec.gov. Copies of the joint proxy statement/prospectus and the filings with the SEC that are incorporated by reference in the joint proxy statement/prospectus can also be obtained, free of charge, by directing a request to CenturyLink, 100 CenturyLink Drive, Monroe, Louisiana 71203, Attention: Corporate Secretary, or to Qwest, 1801 California Street, Denver, Colorado 80202, Attention: Shareholder Relations. The respective directors and executive officers of CenturyLink and Qwest and other persons may be deemed to be participants in the solicitation of proxies in respect of the proposed transaction. Information regarding CenturyLink's directors and executive officers is available in its proxy statement filed with the SEC by CenturyLink on April 7, 2010, and information regarding Qwest's directors and executive officers is available in its proxy statement filed with the SEC by Qwest on March 17, 2010. These documents can be obtained free of charge from the sources indicated above. Other information regarding the interests of the participants in the proxy solicitation are included in the joint proxy statement/prospectus and other relevant materials filed or to be filed with the SEC. This communication shall not constitute an offer to sell or the solicitation of an offer to sell or the solicitation of an offer to buy any securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful.
CenturyLink is a leading provider of high-quality broadband, entertainment and voice services over its advanced communications networks to consumers and businesses in 33 states. CenturyLink, headquartered in Monroe, La., is an S&P 500 company and is included among the Fortune 500 list of America's largest corporations. For more information on CenturyLink, visit www.centurylink.com.
CenturyLink, Inc.
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED JUNE 30, 2010 AND 2009
(UNAUDITED)
Three months ended June 30, 2010
--------------------------------
As adjusted
Less excluding
non- non-
As recurring recurring
In thousands,
except per
share
amounts reported items items
-------- ----- -----
OPERATING
REVENUES*
Voice $790,580 790,580
Data 472,999 472,999
Network
access 274,956 274,956
Other 233,495 233,495
1,772,030 - 1,772,030
--------- --- ---------
OPERATING
EXPENSES
Cost of
services and
products 589,420 11,798 (1) 577,622
Selling,
general and
administrative 301,671 29,336 (1) 272,335
Depreciation
and
amortization 357,951 357,951
1,249,042 41,134 1,207,908
--------- ------ ---------
OPERATING
INCOME 522,988 (41,134) 564,122
OTHER INCOME
(EXPENSE)
Interest
expense (143,249) (143,249)
Other income
(expense) 7,308 7,308
Income tax
expense (147,921) 14,225 (2) (162,146)
NET INCOME 239,126 (26,909) 266,035
Less: Net
income
attributable
to
noncontrolling
interests (355) (355)
----
NET INCOME
ATTRIBUTABLE
TO
CENTURYLINK,
INC. $238,771 (26,909) 265,680
======== ======= =======
BASIC
EARNINGS PER
SHARE $0.79 (0.09) 0.88
DILUTED
EARNINGS PER
SHARE $0.79 (0.09) 0.88
AVERAGE
SHARES
OUTSTANDING
Basic 300,058 300,058
Diluted 300,605 300,605
DIVIDENDS PER
COMMON SHARE $0.725 0.725
Three months ended June 30, 2009
--------------------------------
As adjusted
Less excluding
In thousands, non- non-
except per share As recurring recurring
amounts reported items items
-------- ----- -----
OPERATING REVENUES*
Voice 247,427 247,427
Data 142,923 142,923
Network access 150,542 150,542
Other 93,577 93,577
634,469 - 634,469
------- --- -------
OPERATING EXPENSES
Cost of services and
products 235,732 235,732
Selling, general and
administrative 120,742 25,598 (3) 95,144
Depreciation and
amortization 128,552 128,552
485,026 25,598 459,428
------- ------ -------
OPERATING INCOME 149,443 (25,598) 175,041
OTHER INCOME (EXPENSE)
Interest expense (44,937) 1,700 (4) (46,637)
Other income (expense) 7,635 1,600 (4) 6,035
Income tax expense (42,813) 8,029 (5) (50,842)
NET INCOME 69,328 (14,269) 83,597
Less: Net income
attributable to
noncontrolling interests (298) (298)
----
NET INCOME ATTRIBUTABLE TO
CENTURYLINK, INC. 69,030 (14,269) 83,299
====== ======= ======
BASIC EARNINGS PER SHARE 0.68 (0.14) 0.83
DILUTED EARNINGS PER SHARE 0.68 (0.14) 0.83
AVERAGE SHARES OUTSTANDING
Basic 99,414 99,414
Diluted 99,450 99,450
DIVIDENDS PER COMMON SHARE 0.70 0.70
Increase
(decrease)
Increase excluding
(decrease) nonrecurring
In thousands, except per share as
amounts reported items
-------- -----
OPERATING REVENUES*
Voice 219.5% 219.5%
Data 230.9% 230.9%
Network access 82.6% 82.6%
Other 149.5% 149.5%
179.3% 179.3%
OPERATING EXPENSES
Cost of services and products 150.0% 145.0%
Selling, general and administrative 149.8% 186.2%
Depreciation and amortization 178.4% 178.4%
157.5% 162.9%
OPERATING INCOME 250.0% 222.3%
OTHER INCOME (EXPENSE)
Interest expense 218.8% 207.2%
Other income (expense) (4.3%) 21.1%
Income tax expense 245.5% 218.9%
NET INCOME 244.9% 218.2%
Less: Net income attributable to
noncontrolling interests 19.1% 19.1%
NET INCOME ATTRIBUTABLE TO
CENTURYLINK, INC. 245.9% 218.9%
BASIC EARNINGS PER SHARE 16.2% 6.0%
DILUTED EARNINGS PER SHARE 16.2% 6.0%
AVERAGE SHARES OUTSTANDING
Basic 201.8% 201.8%
Diluted 202.3% 202.3%
DIVIDENDS PER COMMON SHARE 3.6% 3.6%
NONRECURRING ITEMS
(1) -Includes integration costs associated with our acquisition of
Embarq ($17.9 million); severance and related costs due to workforce
reductions ($13.2 million); and transaction
and other costs associated with our pending acquisition of Qwest
($10.0 million).
(2) - Income tax benefit of Item (1).
(3) -Includes integration costs associated with our acquisition of
Embarq ($22.5 million) and costs associated with a legal settlement
($3.1 million).
(4) -Favorable resolution of transaction tax audit issues related to
our wireless operations sold in 2002.
(5) - Income tax benefit of Items (3) and (4).
* Subscriber line charge revenues have been reclassified to "Voice"
revenues from "Network access" revenues for all periods presented.
In addition, revenues previously
disclosed as "Fiber transport and CLEC" revenues are now included in
"Other" revenues.
CenturyLink, Inc.
CONSOLIDATED STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(UNAUDITED)
Six months ended June 30, 2010
------------------------------
As adjusted
Less excluding
non- non-
As recurring recurring
In thousands, except
per share amounts reported items items
-------- ----- -----
OPERATING REVENUES*
Voice $1,603,456 1,603,456
Data 940,439 940,439
Network access 561,184 561,184
Other 467,377 467,377
3,572,456 - 3,572,456
--------- --- ---------
OPERATING EXPENSES
Cost of services and
products 1,208,525 24,222 (1) 1,184,303
Selling, general and
administrative 584,600 53,401 (1) 531,199
Depreciation and
amortization 711,113 711,113
2,504,238 77,623 2,426,615
--------- ------ ---------
OPERATING INCOME 1,068,218 (77,623) 1,145,841
OTHER INCOME (EXPENSE)
Interest expense (285,474) (285,474)
Other income (expense) 17,808 17,808
Income tax expense (308,469) 24,089 (2) (332,558)
NET INCOME 492,083 (53,534) 545,617
Less: Net income
attributable to
noncontrolling
interests (711) (711)
----
NET INCOME
ATTRIBUTABLE TO
CENTURYLINK, INC. $491,372 (53,534) 544,906
======== ======= =======
BASIC EARNINGS PER
SHARE $1.63 (0.18) 1.81
DILUTED EARNINGS PER
SHARE $1.63 (0.18) 1.81
AVERAGE SHARES
OUTSTANDING
Basic 299,736 299,736
Diluted 300,301 300,301
DIVIDENDS PER COMMON
SHARE $1.45 1.45
Six months ended June 30, 2009
------------------------------
As adjusted
Less excluding
non- non-
As recurring recurring
In thousands, except
per share amounts reported items items
-------- ----- -----
OPERATING REVENUES*
Voice 497,621 497,621
Data 282,860 282,860
Network access 303,110 1,028 (3) 302,082
Other 187,263 187,263
------- -------
1,270,854 1,028 1,269,826
--------- ----- ---------
OPERATING EXPENSES
Cost of services and
products 470,363 470,363
Selling, general and
administrative 230,587 40,238 (4) 190,349
Depreciation and
amortization 256,124 256,124
------- -------
957,074 40,238 916,836
------- ------ -------
OPERATING INCOME 313,780 (39,210) 352,990
OTHER INCOME
(EXPENSE)
Interest expense (96,969) 1,700 (5) (98,669)
Other income
(expense) 5,817 (6,400) (6) 12,217
Income tax expense (85,920) 14,897 (7) (100,817)
NET INCOME 136,708 (29,013) 165,721
Less: Net income
attributable to
noncontrolling
interests (524) (524)
---- ----
NET INCOME
ATTRIBUTABLE TO
CENTURYLINK, INC. 136,184 (29,013) 165,197
======= ======= =======
BASIC EARNINGS PER
SHARE 1.35 (0.29) 1.64
DILUTED EARNINGS PER
SHARE 1.35 (0.29) 1.64
AVERAGE SHARES
OUTSTANDING
Basic 99,270 99,270
Diluted 99,297 99,297
DIVIDENDS PER COMMON
SHARE 1.40 1.40
Increase
(decrease)
Increase excluding
(decrease) nonrecurring
In thousands, except per share as
amounts reported items
-------- -----
OPERATING REVENUES*
Voice 222.2% 222.2%
Data 232.5% 232.5%
Network access 85.1% 85.8%
Other 149.6% 149.6%
181.1% 181.3%
OPERATING EXPENSES
Cost of services and products 156.9% 151.8%
Selling, general and administrative 153.5% 179.1%
Depreciation and amortization 177.6% 177.6%
161.7% 164.7%
OPERATING INCOME 240.4% 224.6%
OTHER INCOME (EXPENSE)
Interest expense 194.4% 189.3%
Other income (expense) 206.1% 45.8%
Income tax expense 259.0% 229.9%
NET INCOME 260.0% 229.2%
Less: Net income attributable to
noncontrolling interests 35.7% 35.7%
NET INCOME ATTRIBUTABLE TO
CENTURYLINK, INC. 260.8% 229.9%
BASIC EARNINGS PER SHARE 20.7% 10.4%
DILUTED EARNINGS PER SHARE 20.7% 10.4%
AVERAGE SHARES OUTSTANDING
Basic 201.9% 201.9%
Diluted 202.4% 202.4%
DIVIDENDS PER COMMON SHARE 3.6% 3.6%
NONRECURRING ITEMS
(1) -Includes integration costs associated with our acquisition of
Embarq ($39.5 million); severance and related costs due to workforce
reductions ($28.1 million); and transaction
and other costs associated with our pending acquisition of Qwest
($10.0 million).
(2) - Income tax benefit of Item (1), net of a $4.0 million one-
time charge to income tax expense as a result of a change in the tax
treatment of Medicare subsidy receipts.
(3) -Revenue impact of settlement loss related to Supplemental
Executive Retirement Plan.
(4) -Includes integration costs associated with the acquisition of
Embarq ($29.4 million), settlement loss related to Supplemental
Executive Retirement Plan ($7.7 million) and costs
associated with a legal settlement ($3.1 million).
(5) -Favorable resolution of transaction tax audit issues related to
our wireless operation sold in 2002.
(6) -Includes costs associated with terminating our $800 million
bridge credit facility related to the Embarq acquisition ($8.0
million) net of favorable resolution of transaction tax audit issues
($1.6 million).
(7) -Includes $5.8 million income tax benefit caused by a reduction
to our deferred tax asset valuation allowance and $15.8 million
income tax benefit related to
items (3) through (6); net of $6.7 million income tax expense due to
the nondeductible portion of settlement payments related to the
Supplemental Executive Retirement Plan.
* Subscriber line charge revenues have been reclassified to "Voice"
revenues from "Network access" revenues for all periods presented.
In addition, revenues previously
disclosed as "Fiber transport and CLEC" revenues are now included in
"Other" revenues.
CenturyLink, Inc.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2010 AND DECEMBER 31, 2009
(UNAUDITED)
June 30, December 31,
2010 2009
---- ----
(in thousands)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $186,357 161,807
Other current assets 897,293 961,784
Total current assets 1,083,650 1,123,591
--------- ---------
NET PROPERTY, PLANT AND
EQUIPMENT
Property, plant and equipment 15,876,487 15,556,763
Accumulated depreciation (7,010,016) (6,459,624)
Net property, plant and
equipment 8,866,471 9,097,139
--------- ---------
GOODWILL AND OTHER ASSETS
Goodwill 10,260,640 10,251,758
Other 1,988,823 2,090,241
Total goodwill and other
assets 12,249,463 12,341,999
---------- ----------
TOTAL ASSETS $22,199,584 22,562,729
=========== ==========
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Current maturities of long-
term debt $496,559 500,065
Other current liabilities 1,133,027 1,207,130
Total current liabilities 1,629,586 1,707,195
LONG-TERM DEBT 7,178,646 7,253,653
DEFERRED CREDITS AND OTHER
LIABILITIES 3,840,256 4,135,082
STOCKHOLDERS' EQUITY 9,551,096 9,466,799
--------- ---------
TOTAL LIABILITIES AND EQUITY $22,199,584 22,562,729
=========== ==========
CenturyLink, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(UNAUDITED)
Six Months Six Months
Ended Ended
June 30, June 30,
In thousands 2010 2009
-------- --------
OPERATING ACTIVITIES
Net income $492,083 136,708
Adjustments to reconcile net income
to net
cash provided by operating
activities:
Depreciation and amortization 711,113 256,124
Deferred income taxes (17,467) 25,831
Share-based compensation 18,126 9,859
Income from unconsolidated cellular
entity (9,787) (9,914)
Distributions from unconsolidated
cellular entity 9,134 9,602
Changes in current assets and current
liabilities, net (21,357) 63,622
Retirement benefits (279,509) (14,537)
Excess tax benefits from share-based
compensation (3,636) (753)
(Increase) decrease in other
noncurrent assets (19,112) 2,542
Increase (decrease) in other
noncurrent liabilities 1,581 (4,823)
Other, net - 7,944
--- -----
Net cash provided by operating
activities 881,169 482,205
------- -------
INVESTING ACTIVITIES
Payments for property, plant and
equipment (362,226) (130,801)
Other, net 2,263 210
----- ---
Net cash provided by investing
activities (359,963) (130,591)
-------- --------
FINANCING ACTIVITIES
Payments of debt (78,513) (394,666)
Proceeds from issuance of common
stock 26,432 7,295
Repurchase of common stock (13,394) (4,786)
Cash dividends (436,916) (141,105)
Excess tax benefits from share-based
compensation 3,636 753
Other, net 2,099 (3,288)
----- ------
Net cash provided by financing
activities (496,656) (535,797)
-------- --------
Net increase (decrease) in cash and
cash equivalents 24,550 (184,183)
Cash and cash equivalents at
beginning of period 161,807 243,327
------- -------
Cash and cash equivalents at end of
period $186,357 59,144
======== ======
CenturyLink, Inc.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(UNAUDITED)
Three months ended June 30, 2010
--------------------------------
As adjusted
Less excluding
non- non-
In thousands As recurring recurring
reported items items
-------- ----- -----
Operating cash flow and
cash flow margin
Operating income $522,988 (41,134) (1) 564,122
Add: Depreciation and
amortization 357,951 357,951
Operating cash flow $880,939 (41,134) 922,073
======== ======= =======
Revenues $1,772,030 - 1,772,030
========== === =========
Operating income margin
(operating income divided
by revenues) 29.5% 31.8%
==== ====
Operating cash flow margin
(operating cash flow
divided by revenues) 49.7% 52.0%
==== ====
Free cash flow (prior to
debt service requirements
and dividends)
Net income attributable to
CenturyLink, Inc. $238,771 (26,909) (2) 265,680
Add: Depreciation and
amortization 357,951 357,951
Less: Capital expenditures (195,046) (195,046)
Free cash flow $401,676 (26,909) 428,585
======== ======= =======
Free cash flow $401,676
Deferred income taxes (2,098)
Changes in current assets
and current liabilities (197,543)
Decrease in other
noncurrent assets 5,985
Increase (decrease) in
other noncurrent
liabilities (421)
Retirement benefits 5,298
Excess tax benefits from
share-based compensation (1,446)
Other, net 13,209
Add: Capital expenditures 195,046
Net cash provided by
operating activities $419,706
========
Three months ended June 30, 2009
--------------------------------
As adjusted
Less excluding
non- non-
In thousands As recurring recurring
reported items items
-------- ----- -----
Operating cash flow and
cash flow margin
Operating income 149,443 (25,598) (3) 175,041
Add: Depreciation and
amortization 128,552 128,552
Operating cash flow 277,995 (25,598) 303,593
======= ======= =======
Revenues 634,469 - 634,469
======= === =======
Operating income margin
(operating income divided
by revenues) 23.6% 27.6%
==== ====
Operating cash flow margin
(operating cash flow
divided by revenues) 43.8% 47.8%
==== ====
Free cash flow (prior to
debt service requirements
and dividends)
Net income attributable to
CenturyLink, Inc. 69,030 (14,269) (4) 83,299
Add: Depreciation and
amortization 128,552 128,552
Less: Capital expenditures (85,305) (85,305)
Free cash flow 112,277 (14,269) 126,546
======= ======= =======
Free cash flow 112,277
Deferred income taxes 8,582
Changes in current assets
and current liabilities 30,591
Decrease in other
noncurrent assets 2,848
Increase (decrease) in
other noncurrent
liabilities (2,044)
Retirement benefits 8,960
Excess tax benefits from
share-based compensation (418)
Other, net 5,937
Add: Capital expenditures 85,305
Net cash provided by
operating activities 252,038
=======
NONRECURRING ITEMS
(1) -Includes integration costs associated with our acquisition of
Embarq ($17.9 million); severance and related costs due to workforce
reductions ($13.2 million); and transaction
and other costs associated with our pending acquisition of Qwest
($10.0 million).
(2) - After-tax impact of Item (1).
(3) -Includes integration costs associated with the acquisition of
Embarq ($22.5 million) and costs associated with a legal settlement
($3.1 million).
(4) - Includes after-tax impact of integration costs associated
with the acquisition of Embarq ($14.4 million) and the after-tax
impact of a legal settlement ($1.9 million), net of after-tax
favorable impact due to the resolution of transaction tax audit
issues related to our wireless operations sold in 2002 ($2.0
million).
CenturyLink, Inc.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(UNAUDITED)
Six months ended June 30, 2010
------------------------------
As adjusted
Less excluding
non- non-
In thousands As recurring recurring
reported items items
-------- ----- -----
Operating cash flow and
cash flow margin
Operating income $1,068,218 (77,623) (1) 1,145,841
Add: Depreciation and
amortization 711,113 711,113
Operating cash flow $1,779,331 (77,623) 1,856,954
========== ======= =========
Revenues $3,572,456 - 3,572,456
========== === =========
Operating income margin
(operating income divided
by revenues) 29.9% 32.1%
==== ====
Operating cash flow margin
(operating cash flow
divided by revenues) 49.8% 52.0%
==== ====
Free cash flow (prior to
debt service requirements
and dividends)
Net income attributable to
CenturyLink, Inc. $491,372 (53,534) (2) 544,906
Add: Depreciation and
amortization 711,113 711,113
Less: Capital expenditures (362,226) (362,226)
Free cash flow $840,259 (53,534) 893,793
======== ======= =======
Free cash flow $840,259
Deferred income taxes (17,467)
Changes in current assets
and current liabilities (21,357)
(Increase) decrease in
other noncurrent assets (19,112)
Increase (decrease) in
other noncurrent
liabilities 1,581
Retirement benefits (279,509)
Excess tax benefits from
share-based compensation (3,636)
Other, net 18,184
Add: Capital expenditures 362,226
Net cash provided by
operating activities $881,169
========
Six months ended June 30, 2009
------------------------------
As adjusted
Less excluding
non- non-
In thousands As recurring recurring
reported items items
-------- ----- -----
Operating cash flow and cash
flow margin
Operating income 313,780 (39,210) (3) 352,990
Add: Depreciation and
amortization 256,124 256,124
Operating cash flow 569,904 (39,210) 609,114
======= ======= =======
Revenues 1,270,854 1,028 (4) 1,269,826
========= ===== =========
Operating income margin
(operating income divided
by revenues) 24.7% 27.8%
==== ====
Operating cash flow margin
(operating cash flow
divided by revenues) 44.8% 48.0%
==== ====
Free cash flow (prior to
debt service requirements
and dividends)
Net income attributable to
CenturyLink, Inc. 136,184 (29,013) (5) 165,197
Add: Depreciation and
amortization 256,124 256,124
Less: Capital expenditures (130,801) (130,801)
Free cash flow 261,507 (29,013) 290,520
======= ======= =======
Free cash flow 261,507
Deferred income taxes 25,831
Changes in current assets
and current liabilities 63,622
(Increase) decrease in other
noncurrent assets 2,542
Increase (decrease) in other
noncurrent liabilities (4,823)
Retirement benefits (14,537)
Excess tax benefits from
share-based compensation (753)
Other, net 18,015
Add: Capital expenditures 130,801
Net cash provided by
operating activities 482,205
=======
NONRECURRING ITEMS
(1) -Includes integration costs associated with our acquisition of
Embarq ($39.5 million); severance and related costs due to workforce
reductions ($28.1 million); and transaction
and other costs associated with our pending acquisition of Qwest
($10.0 million).
(2) - Includes after-tax impact of Item (1), net of a $4.0 million
one-time charge to income tax expense as a result of a change in
the tax treatment of Medicare subsidy receipts.
(3) -Includes (i) integration costs associated with the acquisition
of Embarq ($29.4 million), (ii) settlement loss related to
Supplemental Executive Retirement Plan, including revenue impact
($6.7 million);
and (iii) costs associated with a legal settlement ($3.1 million).
(4) -Revenue impact of settlement loss related to Supplemental
Executive Retirement Plan.
(5) - Includes (i) $19.1 million after-tax impact of integration
costs associated with the acquisition of Embarq; (ii) $6.7 million
income tax expense due to the nondeductible portion of settlement
payments
related to the Supplemental Executive Retirement Plan; (iii) $5.0
million after-tax charge associated with terminating our $800
million bridge credit facility related to the Embarq acquisition;
(iv) $4.1 million after-tax impact of settlement loss related to
Supplemental Executive Retirement Plan, including revenue impact;
and (v) after-tax impact of a legal settlement ($1.9 million).
These
unfavorable items were partially offset by $5.8 million income tax
benefit caused by a reduction to our deferred tax asset valuation
allowance and $2.0 million after-tax favorable impact due to the
resolution
of transaction tax audit issues related to our wireless operations
sold in 2002.
CenturyLink, Inc.
SUPPLEMENTAL SCHEDULE RELATED TO EMBARQ MERGER (1)
(UNAUDITED)
Pro forma*
Three months Three months
ended ended
June 30, 2010 June 30, 2009
-------------
(Dollars in thousands)
OPERATING REVENUES (2) $1,772,030 1,906,413
----------
OPERATING EXPENSES
Cash expenses (3) 849,957 939,552
Depreciation and amortization 357,951 372,404
1,207,908 1,311,956
OPERATING INCOME 564,122 594,457
OTHER INCOME (EXPENSE)
Interest expense (143,249) (140,289)
Other income (expense) 7,308 6,195
Income tax expense (162,146) (172,780)
Noncontrolling interests (355) (298)
---- ----
INCOME FROM CONTINUING OPERATIONS $265,680 287,285
========
Operating cash flow (operating
income plus depreciation) $922,073 966,861
Free cash flow (income from
continuing operations plus
depreciation
minus capital expenditures) $428,585 428,584
Operating cash flow margin
(operating cash flow divided by
revenues) 52.0% 50.7%
Operating income margin (operating
income divided by revenues) 31.8% 31.2%
CAPITAL EXPENDITURES (including
merger related integration
capital) $195,046 231,105
SUBSCRIBER DATA
Access lines, end of period 6,767,000 7,355,000
High-speed Internet customers,
end of period 2,336,000 2,146,000
Access line loss during period (146,000) (188,000)
High-speed Internet customers
added during period 29,000 28,000
Increase
(decrease)
----------
(Dollars in thousands)
OPERATING REVENUES (2) (7.0%)
OPERATING EXPENSES
Cash expenses (3) (9.5%)
Depreciation and amortization (3.9%)
(7.9%)
OPERATING INCOME (5.1%)
OTHER INCOME (EXPENSE)
Interest expense 2.1%
Other income (expense) 18.0%
Income tax expense (6.2%)
Noncontrolling interests 19.1%
INCOME FROM CONTINUING OPERATIONS (7.5%)
Operating cash flow (operating income plus
depreciation) (4.6%)
Free cash flow (income from continuing
operations plus depreciation
minus capital expenditures) 0.0%
Operating cash flow margin (operating cash
flow divided by revenues)
Operating income margin (operating income
divided by revenues)
CAPITAL EXPENDITURES (including merger related
integration capital) (15.6%)
SUBSCRIBER DATA
Access lines, end of period (8.0%)
High-speed Internet customers, end of period 8.9%
Access line loss during period (22.3%)
High-speed Internet customers added during
period 3.6%
(1) Except as noted, excludes merger integration costs and certain
other non-recurring items as further described in the other
attached financial schedules.
(2) Decline in operating revenues driven primarily by access line
losses and declining access minutes of use.
(3) Decrease in cash expenses driven primarily by lower salaries and
benefits due to headcount reductions.
* The pro forma information for the three months ended June 30, 2009
does not reflect information prepared in accordance with generally
accepted
accounting principles. Such information:
a) reflects the results of operations of CenturyTel and Embarq
assuming the respective results of operations had been combined on
January 1, 2009;
b) reflects a pro forma adjustment to eliminate revenues and
expenses of $53 million for the second quarter of 2009 as if the
discontinuance of
regulatory accounting implemented on July 1, 2009 had occurred in
prior periods;
c) other than as noted in (b) above, does not reflect any pro forma
adjustments and has not been prepared in accordance with the rules
and regulations
of the
Securities and Exchange Commission;
d) excludes certain non-recurring items; and
e) does not address the impact of the pending Qwest merger.
For additional pro forma financial information relating to the Embarq
merger, please see our Current Report on Form 8-K/A filed
with the Securities and Exchange Commission on August 5, 2009. The
above pro forma information is for illustrative purposes
only and is not necessarily indicative of the combined operating
results that would have occurred if the Embarq merger had been
consummated as of January 1, 2009. Management believes the
presentation of this information will assist users in their
understanding
of period-to-period operating performance.
SOURCE CenturyLink, Inc.
