QWEST COMM 
By MONROE, La., Feb. 15, 2011 /PRNewswire/ -- CenturyLink, Inc. (NYSE: CTL) announces operating results for fourth quarter 2010.
(Logo: http://photos.prnewswire.com/prnh/20090602/DA26511LOGO)
-- Added nearly 29,000 high-speed Internet customers during the quarter and
ended 2010 with 2,394,000 high-speed Internet customers.
-- Reduced access line losses by 12% compared to third quarter 2010 and
15.8% compared to fourth quarter 2009.
-- Generated free cash flow (as defined in the attached financial
schedules) of $342 million in fourth quarter 2010, excluding
nonrecurring items of $7.1 million and $9.1 million of acquisition
related capital expenditures.
-- Achieved approximately $85 million in synergies from the Embarq
acquisition during fourth quarter 2010 and ended 2010 with estimated
annual run rate synergies of more than $340 million.
Fourth Quarter Highlights Quarter Ended Quarter Ended % Change
------------------------- ------------- ------------- --------
(Excluding nonrecurring
items reflected in the
attached financial
schedules) 12/31/10 12/31/09
----------------------- -------- --------
(In thousands, except per
share amounts and
subscriber data)
-------------------------
Operating Revenues $1,721,977 $1,839,424 (6.4)%
Operating Cash Flow (1) $864,318 $943,592 (8.4)%
Net Income (2) $232,287 $286,688 (19.0)%
Diluted Earnings Per
Share $.76 $.95 (20.0)%
Average Diluted Shares
Outstanding 303,201 299,233 1.3%
Capital Expenditures (3) $263,990 $337,417 (21.8)%
------------------------ -------- -------- ------
Access Lines 6,504,000 7,039,000 (7.6)%
High-Speed Internet
Customers 2,394,000 2,236,000 7.1%
------------------- --------- --------- ---
(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 nonrecurring capital expenditures of $9.1 million in
fourth quarter 2010 and $28.1 million in fourth quarter 2009 related
to the Embarq integration.
"CenturyLink's financial and operating results for the fourth quarter
and for full year 2010 reflect an improving revenue trend along with
the challenge of reducing costs in the near term due to the pending
Qwest merger and the market expansion of IPTV service," Glen F.
Post, III, chief executive officer and president, said. "Operating
revenues were better than we had originally anticipated for both the
quarter and full year and our annual rate of access line decline
improved to 7.6% in 2010 from pro forma 8.8% in 2009. We expect our
revenue trend to improve in 2011 compared to 2010 driven by
anticipated lower access line losses and revenues from strategic
initiatives."
Operating revenues, excluding nonrecurring items, for fourth quarter 2010 were $1.72 billion compared to $1.84 billion in fourth quarter 2009. This anticipated revenue decline was primarily due to the impact of access line losses and lower access revenues, including the anticipated impact of lower universal service fund receipts and wireless and long distance traffic migration. These decreases more than offset revenue increases driven by growth in high-speed Internet customers, data services demand from business customers and data transport demand from wireless providers.
Operating expenses, excluding nonrecurring items, decreased to $1.22 billion from $1.25 billion in fourth quarter 2009, primarily due to lower access expenses and transport costs due to the migration of legacy Embarq long distance traffic to our internal IP network, and lower personnel costs. Such increases were partially offset by higher plant operations costs.
Operating cash flow, excluding nonrecurring items, decreased to $864.3 million from $943.6 million in fourth quarter 2009. For fourth quarter 2010, CenturyLink achieved an operating cash flow margin, excluding non-recurring items, of 50.2% versus 51.3% in fourth quarter 2009.
"CenturyLink is well positioned to meet the growing demand for broadband and IP-based services across all customer segments. We added 29,000 high-speed Internet subscribers during the fourth quarter and 158,000 subscriber additions for full year 2010, representing 7.1% annual subscriber growth." Post said. "We expect strategic revenues to increase in the months ahead driven by continued growth in high-speed Internet subscribers, consumer demand for broadband services such as IPTV, and business customer demand for high-bandwidth data services and data transport services."
Net income, excluding nonrecurring items, was $232.3 million in fourth quarter 2010 compared to $286.7 million in fourth quarter 2009. Diluted earnings per share, excluding nonrecurring items, was $.76 for fourth quarter 2010, a 20.0% decrease from the $.95 reported in fourth quarter 2009.
For the year 2010, operating revenues, excluding nonrecurring items, increased 41.6% to $7.04 billion from $4.97 billion for the same period in 2009. Operating cash flow, excluding nonrecurring items, was $3.62 billion for 2010 compared to $2.48 billion in 2009. Net income, excluding nonrecurring items, was $1.03 billion compared to $720.9 million in 2009. Diluted earnings per share, excluding nonrecurring items, was $3.39 compared to $3.60 in 2009. The 2010 results reflect the impact of the Embarq acquisition for the full year, whereas the 2009 results reflect the impact of the Embarq acquisition for the 6 months following the July 1, 2009 completion of the transaction.
Under generally accepted accounting principles (GAAP), net income for fourth quarter 2010 was $225.2 million compared to $230.2 million for fourth quarter 2009, and diluted earnings per share for fourth quarter 2010 was $.74 compared to $.77 for fourth quarter 2009.
Fourth quarter 2010 net income and diluted earnings per share reflect after-tax integration and severance-related costs associated with the Embarq acquisition of $16.9 million ($.056 per share) and $6.9 million ($.023 per share) of after-tax costs related to transaction and integration costs associated with the pending Qwest acquisition. Such amounts were partially offset by an after-tax curtailment gain associated with freezing certain future defined benefit pension accruals of $13.0 million ($.04 per share) and a net income tax benefit due to an increase in the net deferred tax asset related to state net operating loss carry forwards and other tax adjustments, of $3.7 million ($.01 per share).
Fourth quarter 2009 net income and diluted earnings per share reflect after-tax costs of $37.8 million ($.13 per share) associated with debt extinguishments, $19.8 million ($.07 per share) related to integration costs associated with the Embarq acquisition, $5.0 million ($.02 per share) related to a litigation settlement, and $4.4 million ($.015 per share) associated with severance related costs and the accelerated recognition of share-based compensation and pension expense. These after-tax costs more than offset a $10.7 million ($.04 per share) net tax benefit related to the recognition of previously unrecognized tax benefits and an adjustment to deferred tax liabilities related to the Embarq acquisition.
Net income under GAAP for full year 2010 was $947.7 million compared to $647.2 million for full year 2009 and diluted earnings per share for full year 2010 was $3.13 compared to $3.23 for full year 2009. See the accompanying financial schedules for detail of the Company's nonrecurring items for full year 2010 and 2009.
Outlook for 2011. For full year 2011, CenturyLink expects operating revenues (excluding the effects of the pending Qwest transaction and any nonrecurring items that may occur ) to be 4% to 5% lower than 2010 operating revenues, as compared to the 6.5% decline in 2010 operating revenues compared to pro forma 2009 operating revenues. In addition, due to (i) anticipated revenue growth associated with the expansion of CenturyLink's Prism TV service, (ii) the revenue impact of the expected continued improvement in the rate of access line loss and (iii) the effects of additional fiber investment, the Company expects its year-over-year rate of revenue decline (excluding the pending Qwest transaction and any nonrecurring items that may occur) to be 2% to 3% by fourth quarter 2011.
The Company currently expects 2011 capital expenditures, excluding any capital related to the integration of the pending Qwest transaction, to be approximately $1 billion, or 16% higher than 2010 capital expenditures of $864 million. This increase is primarily due to the Company's planned incremental fiber to the tower investment for 2011.
Due to the anticipated close of the pending Qwest transaction, CenturyLink is not currently providing full year 2011 free cash flow or diluted earnings per share guidance. However, the Company is providing guidance regarding several items that collectively are anticipated to negatively impact 2011 diluted earnings per share in the range of $.49 to $.55, excluding the effects of the pending Qwest transaction and any nonrecurring items that may occur.
The following items are expected to have a positive impact on 2011 diluted earnings per share (excluding any positive impacts related to the Qwest acquisition):
-- additional synergies associated with the Embarq acquisition - $.09 to
$.11;
-- increased revenues associated with expected growth in high-speed
Internet customers - $.10 to $.14;
-- increased revenues associated with data transport for wireless carriers
- $.06 to $.08; and
-- lower interest expense - $.05 to $.07.
The following items are expected to negatively impact 2011 diluted earnings per share:
-- lower voice-related revenues, primarily due to anticipated access line
losses of 7.0% to 7.5% - ($.40) to ($.45);
-- lower access revenues primarily driven by access line losses and
continued pressure on access minutes of use - ($.18) to ($.22);
-- start-up losses associated with expanding CenturyLink's Prism TV service
- ($.12) to ($.14);
-- reduced interstate universal service funding - ($.05) to ($.06); and
-- additional migration of network traffic from a wireless carrier customer
- ($.05) to ($.07).
For first quarter 2011, CenturyLink expects total revenues of $1.68 to $1.70 billion and diluted earnings per share of $.66 to $.70.
Additionally, CenturyLink is providing the following information regarding the estimated impact that the accounting rules related to business combinations are expected to have on the combined company's annual financial results in order to assist the investment community to better understand the combined company. None of these items will impact cash flow:
-- Purchase accounting rules require that the debt of the acquired company
be adjusted to fair value at the time of the merger close. Based on the
estimated fair value of Qwest's outstanding debt as of December 31,
2010, the impact of this fair value adjustment would have decreased
interest expense in 2011 by approximately $287 million as compared to
its expected levels absent the fair value adjustment.
-- Business combination accounting rules also require that deferred
revenues (and related deferred costs) on Qwest's balance sheet be
assigned a fair value. We currently expect that certain deferred revenue
components (and related deferred costs) will be assigned little or no
value and thus will have negligible amounts recognized in the income
statement subsequent to the merger. As of December 31, 2010, we
currently estimate that the combined company will experience an annual
reduction to revenues of approximately $140 million and an annual
reduction to operating expenses of approximately $100 million to adjust
deferred revenue (and related costs) to their estimated fair value.
-- Additionally, under purchase accounting rules, the tangible and
intangible assets of the acquired company must be reflected on the books
of the combined company at their fair value. The final fair value
assignment may significantly impact depreciation and amortization
expense; however, the impact cannot be determined at this time.
-- The merger will also result in the elimination of approximately $70
million of annual revenues and corresponding expenses related to arms
length business relationships between CenturyLink and Qwest today that
will become intercompany transactions and subject to elimination
following the merger close.
All of the assets and liabilities of Qwest will be assigned a fair value pursuant to business combination accounting rules upon the consummation of the merger. The actual fair values assigned to the above items may change significantly from those estimates provided herein. The above estimates also assume the associated income statement impacts occur for a full year. The actual results of the fair value adjustments to reflect the business combination accounting rules will only occur subsequent to the merger date.
All 2011 outlook figures included in this release exclude the effects of nonrecurring items, future changes in regulation, integration expenses associated with the Embarq acquisition, transaction or integration expenses associated with the pending Qwest transaction, any changes in operating or capital plans, and any future mergers, acquisitions, divestitures or other similar business transactions.
Integration Update. During fourth quarter 2010, CenturyLink incurred pre-tax costs of $27.2 million related to the Embarq acquisition and $7.1 million related to the Qwest transaction. The Company also incurred approximately $9.1 million of integration-related capital expenditures during the fourth quarter associated with the Embarq integration.
CenturyLink achieved more than $85 million in total operating cost synergies during fourth quarter 2010 and exited 2010 at an annualized synergy run rate of more than $340 million.
Qwest Transaction. On April 21, 2010, CenturyLink and Qwest Communications International Inc. (NYSE: Q) entered into 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. 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.
The transaction requires approval from regulatory commissions in 21 states and the District of Columbia, as well as the Federal Communications Commission (FCC). Eighteen of those state regulatory approvals have been received to date. While the actual closing date depends upon the timing of receipt of FCC and remaining state regulatory approvals, we are currently planning toward an April 1st closing date.
Shareholder Returns. CenturyLink returned approximately $221 million to shareholders in the fourth quarter through cash dividends paid on December 20, 2010, to shareholders of record as of December 7, 2010. In accordance with their definitive merger agreement, CenturyLink and Qwest coordinated the record dates and payment dates for the two companies' respective first quarter dividend. On January 24, both CenturyLink and Qwest issued separate public announcements indicating their first quarter dividend would be paid on February 25, 2011 to holders of record on February 18, 2011. This represents a deviation from CenturyLink's historical dividend record and payments dates for the first quarter. Following the Qwest closing, CenturyLink's future quarterly dividends are not expected to 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 866.818.1393. The call will be accessible for replay through February 21, 2011, by calling 888.266.2081 and entering the conference ID number 1508167. 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 March 7, 2011.
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; and changes in the composition of our markets and product mix caused by our recent acquisitions; 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 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 or other changes 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 release or 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 most recent Form 10-K, 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
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 DECEMBER 31, 2010 AND 2009
(UNAUDITED)
Three months ended December 31, 2010
------------------------------------
As
adjusted
Less excluding
non- non-
As recurring recurring
In thousands, except per share
amounts reported items items
-------- ----- -----
OPERATING REVENUES
Voice $757,098 757,098
Data 488,351 488,351
Network access 254,175 254,175
Other 222,353 222,353
------- -------
1,721,977 - 1,721,977
--------- --- ---------
OPERATING EXPENSES
Cost of services and products 595,975 9,188 (1) 586,787
Selling, general and
administrative 275,058 4,186 (1) 270,872
Depreciation and amortization 364,573 364,573
------- -------
1,235,606 13,374 1,222,232
--------- ------ ---------
OPERATING INCOME 486,371 (13,374) 499,745
OTHER INCOME (EXPENSE)
Interest expense (132,410) (132,410)
Other income (expense) 4,900 4,900
Income tax expense (133,399) 6,253 (2) (139,652)
INCOME BEFORE NONCONTROLLING
INTERESTS AND EXTRAORDINARY
ITEM 225,462 (7,121) 232,583
Noncontrolling interests (296) (296)
---- ----
NET INCOME BEFORE
EXTRAORDINARY ITEM 225,166 (7,121) 232,287
Extraordinary item - -
--- ---
NET INCOME ATTRIBUTABLE TO
CENTURYLINK, INC. $225,166 (7,121) 232,287
======== ====== =======
BASIC EARNINGS PER SHARE
Income before extraordinary
item $0.74 (0.02) 0.76
Extraordinary item $ - - -
Basic earnings per share $0.74 (0.02) 0.76
DILUTED EARNINGS PER SHARE
Income before extraordinary
item $0.74 (0.02) 0.76
Extraordinary item $ - - -
Diluted earnings per share $0.74 (0.02) 0.76
AVERAGE SHARES OUTSTANDING
Basic 302,301 302,301
Diluted 303,201 303,201
DIVIDENDS PER COMMON SHARE $0.725 0.725
Three months ended December 31, 2009
------------------------------------
As adjusted
Less excluding
non- non-
As recurring recurring
In thousands, except per
share amounts reported items items
-------- ----- -----
OPERATING REVENUES
Voice 821,502 (8,236) (3) 829,738
Data 459,211 (2,128) (3) 461,339
Network access 307,266 307,266
Other 241,081 241,081
------- -------
1,829,060 (10,364) 1,839,424
--------- ------- ---------
OPERATING EXPENSES
Cost of services and
products 596,859 (6,882) (4) 603,741
Selling, general and
administrative 335,479 43,388 (4) 292,091
Depreciation and
amortization 356,384 356,384
------- -------
1,288,722 36,506 1,252,216
--------- ------ ---------
OPERATING INCOME 540,338 (46,870) 587,208
OTHER INCOME (EXPENSE)
Interest expense (133,023) 11,119 (5) (144,142)
Other income (expense) (63,354) (71,968) (5) 8,614
Income tax expense (116,084) 48,467 (6) (164,551)
INCOME BEFORE
NONCONTROLLING
INTERESTS AND
EXTRAORDINARY ITEM 227,877 (59,252) 287,129
Noncontrolling interests (441) (441)
---- ----
NET INCOME BEFORE
EXTRAORDINARY ITEM 227,436 (59,252) 286,688
Extraordinary item 2,744 2,744 (7) -
----- ----- ---
NET INCOME ATTRIBUTABLE
TO CENTURYLINK, INC. 230,180 (56,508) 286,688
======= ======= =======
BASIC EARNINGS PER SHARE
Income before
extraordinary item 0.76 (0.20) 0.96
Extraordinary item 0.01 0.01 -
Basic earnings per share 0.77 (0.19) 0.96
DILUTED EARNINGS PER
SHARE
Income before
extraordinary item 0.76 (0.20) 0.95
Extraordinary item 0.01 0.01 -
Diluted earnings per
share 0.77 (0.19) 0.95
AVERAGE SHARES
OUTSTANDING
Basic 298,580 298,580
Diluted 299,233 299,233
DIVIDENDS PER COMMON
SHARE 0.700 0.700
Increase
(decrease)
Increase excluding
(decrease) nonrecurring
In thousands, except per share amounts as reported items
----------- -----
OPERATING REVENUES
Voice (7.8%) (8.8%)
Data 6.3% 5.9%
Network access (17.3%) (17.3%)
Other (7.8%) (7.8%)
(5.9%) (6.4%)
OPERATING EXPENSES
Cost of services and products (0.1%) (2.8%)
Selling, general and administrative (18.0%) (7.3%)
Depreciation and amortization 2.3% 2.3%
(4.1%) (2.4%)
OPERATING INCOME (10.0%) (14.9%)
OTHER INCOME (EXPENSE)
Interest expense (0.5%) (8.1%)
Other income (expense) (107.7%) (43.1%)
Income tax expense 14.9% (15.1%)
INCOME BEFORE NONCONTROLLING
INTERESTS AND EXTRAORDINARY ITEM (1.1%) (19.0%)
Noncontrolling interests (32.9%) (32.9%)
NET INCOME BEFORE EXTRAORDINARY ITEM (1.0%) (19.0%)
Extraordinary item - -
NET INCOME ATTRIBUTABLE TO CENTURYLINK,
INC. (2.2%) (19.0%)
BASIC EARNINGS PER SHARE
Income before extraordinary item (2.6%) (20.8%)
Extraordinary item - -
Basic earnings per share (3.9%) (20.8%)
DILUTED EARNINGS PER SHARE
Income before extraordinary item (2.6%) (20.0%)
Extraordinary item - -
Diluted earnings per share (3.9%) (20.0%)
AVERAGE SHARES OUTSTANDING
Basic 1.2% 1.2%
Diluted 1.3% 1.3%
DIVIDENDS PER COMMON SHARE 3.6% 3.6%
NONRECURRING ITEMS
(1) -Includes integration and severance related costs associated
with our acquisition of Embarq ($27.2 million) and transaction and
other costs associated with our pending acquisition of Qwest ($7.1
million). These increases were partially offset by a $20.9 million
curtailment gain associated with freezing certain future benefit
accruals related to our defined benefit pension plans.
(2) -Income tax benefit of Item (1) and a net $3.7 million income
tax benefit due to an increase in the net deferred tax asset related
to state net operating loss carryforwards and other tax adjustments.
(3) -Pursuant to business combination accounting rules, certain
deferred revenues and costs we assumed in our Embarq acquisition
were assigned no fair value and have been eliminated from the
balance sheet. The above adjustment represents the revenues (and an
equivalent amount of costs) that were eliminated in our fourth
quarter results that are attributable to the third quarter of 2009.
(4) - Includes integration costs associated with our acquisition of
Embarq ($31.9 million); costs associated with a legal settlement
($8.0 million); accelerated recognition of share-based compensation
and pension expense ($5.5 million) and severance and related costs
due to workforce reductions ($1.5 million). Such increases were
partially offset by the $10.4 million of costs eliminated in our
fourth quarter results that were attributable to the third quarter
of 2009 (as described in (3) above).
(5) - Impact of debt extinguishments.
(6) -Income tax effect of Items (3) through (5). Also includes a
$15.7 million benefit due to the recognition of previously
unrecognized tax benefits and other tax adjustments and a $5.0
million charge related to an adjustment to existing legacy
CenturyLink deferred income tax liabilities due to apportionment
factor changes as a result of the Embarq acquisition.
(7) -Adjust tax effect of extraordinary gain recognized in third
quarter 2009 related to the discontinuance of regulatory accounting.
CenturyLink, Inc.
CONSOLIDATED STATEMENTS OF INCOME
TWELVE MONTHS ENDED DECEMBER 31, 2010 AND 2009
(UNAUDITED)
Twelve months ended December 31, 2010
-------------------------------------
As adjusted
Less excluding
non- non-
As recurring recurring
In thousands, except
per share amounts reported items items
-------- ----- -----
OPERATING REVENUES
Voice $3,137,921 3,137,921
Data 1,908,901 1,908,901
Network access 1,079,678 1,079,678
Other 915,034 915,034
7,041,534 - 7,041,534
--------- --- ---------
OPERATING EXPENSES
Cost of services and
products 2,410,048 44,380 (1) 2,365,668
Selling, general and
administrative 1,137,989 78,683 (1) 1,059,306
Depreciation and
amortization 1,433,553 1,433,553
4,981,590 123,063 4,858,527
--------- ------- ---------
OPERATING INCOME 2,059,944 (123,063) 2,183,007
OTHER INCOME (EXPENSE)
Interest expense (557,478) (557,478)
Other income (expense) 29,619 29,619
Income tax expense (582,951) 42,494 (2) (625,445)
INCOME BEFORE
NONCONTROLLING
INTERESTS AND
EXTRAORDINARY ITEM 949,134 (80,569) 1,029,703
Noncontrolling
interests (1,429) (1,429)
------ ------
NET INCOME BEFORE
EXTRAORDINARY ITEM 947,705 (80,569) 1,028,274
Extraordinary items,
net of income tax
expense and
noncontrolling
interests - -
--- ---
NET INCOME ATTRIBUTABLE
TO CENTURYLINK, INC. $947,705 (80,569) 1,028,274
======== ======= =========
BASIC EARNINGS PER
SHARE
Income before
extraordinary item $3.13 (0.27) 3.40
Extraordinary item $ - - -
Basic earnings per
share $3.13 (0.27) 3.40
DILUTED EARNINGS PER
SHARE
Income before
extraordinary item $3.13 (0.27) 3.39
Extraordinary item $ - - -
Diluted earnings per
share $3.13 (0.27) 3.39
AVERAGE SHARES
OUTSTANDING
Basic 300,619 300,619
Diluted 301,297 301,297
DIVIDENDS PER COMMON
SHARE $2.90 2.90
Twelve months ended December 31, 2009
-------------------------------------
As adjusted
Less excluding
non- non-
As recurring recurring
In thousands, except
per share amounts reported items items
-------- ----- -----
OPERATING REVENUES
Voice 2,168,480 2,168,480
Data 1,202,284 1,202,284
Network access 927,905 1,028 (3) 926,877
Other 675,570 675,570
4,974,239 1,028 4,973,211
--------- ----- ---------
OPERATING EXPENSES
Cost of services and
products 1,752,087 5,704 (4) 1,746,383
Selling, general and
administrative 1,014,341 270,030 (4) 744,311
Depreciation and
amortization 974,710 974,710
3,741,138 275,734 3,465,404
--------- ------- ---------
OPERATING INCOME 1,233,101 (274,706) 1,507,807
OTHER INCOME (EXPENSE)
Interest expense (370,414) 15,719 (5) (386,133)
Other income (expense) (48,175) (78,368) (6) 30,193
Income tax expense (301,881) 127,673 (7) (429,554)
INCOME BEFORE
NONCONTROLLING
INTERESTS AND
EXTRAORDINARY ITEM 512,631 (209,682) 722,313
Noncontrolling
interests (1,377) (1,377)
------ ------
NET INCOME BEFORE
EXTRAORDINARY ITEM 511,254 (209,682) 720,936
Extraordinary items,
net of income tax
expense and
noncontrolling
interests 135,957 135,957 (8) -
------- ------- ---
NET INCOME ATTRIBUTABLE
TO CENTURYLINK, INC. 647,211 (73,725) 720,936
======= ======= =======
BASIC EARNINGS PER
SHARE
Income before
extraordinary item 2.55 (1.05) 3.60
Extraordinary item 0.68 0.68 -
Basic earnings per
share 3.23 (0.37) 3.60
DILUTED EARNINGS PER
SHARE
Income before
extraordinary item 2.55 (1.05) 3.60
Extraordinary item 0.68 0.68 -
Diluted earnings per
share 3.23 (0.37) 3.60
AVERAGE SHARES
OUTSTANDING
Basic 198,813 198,813
Diluted 199,057 199,057
DIVIDENDS PER COMMON
SHARE 2.80 2.80
Increase
(decrease)
Increase excluding
(decrease) nonrecurring
In thousands, except per share
amounts as reported items
----------- -----
OPERATING REVENUES
Voice 44.7% 44.7%
Data 58.8% 58.8%
Network access 16.4% 16.5%
Other 35.4% 35.4%
41.6% 41.6%
OPERATING EXPENSES
Cost of services and products 37.6% 35.5%
Selling, general and administrative 12.2% 42.3%
Depreciation and amortization 47.1% 47.1%
33.2% 40.2%
OPERATING INCOME 67.1% 44.8%
OTHER INCOME (EXPENSE)
Interest expense 50.5% 44.4%
Other income (expense) (161.5%) (1.9%)
Income tax expense 93.1% 45.6%
INCOME BEFORE NONCONTROLLING
INTERESTS AND EXTRAORDINARY ITEM 85.1% 42.6%
Noncontrolling interests 3.8% 3.8%
NET INCOME BEFORE EXTRAORDINARY ITEM 85.4% 42.6%
Extraordinary items, net of income
tax expense and
noncontrolling interests - -
NET INCOME ATTRIBUTABLE TO
CENTURYLINK, INC. 46.4% 42.6%
BASIC EARNINGS PER SHARE
Income before extraordinary item 22.7% (5.6%)
Extraordinary item - -
Basic earnings per share (3.1%) (5.6%)
DILUTED EARNINGS PER SHARE
Income before extraordinary item 22.7% (5.8%)
Extraordinary item - -
Diluted earnings per share (3.1%) (5.8%)
AVERAGE SHARES OUTSTANDING
Basic 51.2% 51.2%
Diluted 51.4% 51.4%
DIVIDENDS PER COMMON SHARE 3.6% 3.6%
NONRECURRING ITEMS
(1) -Includes integration costs associated with our acquisition of
Embarq ($91.5 million); severance and related costs due to workforce
reductions ($30.2 million) and transaction and other costs
associated with our pending acquisition of Qwest ($22.3 million).
Such increases were partially offset by a $20.9 million curtailment
gain associated with freezing certain future benefit accruals
related to our defined benefit pension plans.
(2) - Includes income tax benefit of Item (1) and a net $3.7 million
income tax benefit due to an increase in the net deferred tax asset
related to state net operating loss carryforwards and other tax
adjustments. Such amounts were partially offset by 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 the following costs associated with our acquisition
of Embarq: (i) integration and transaction costs ($133.5 million);
(ii) severance, retention and contractual early retirement benefits
related to workforce reductions ($98.9 million); (iii) accelerated
recognition of share-based compensation expense ($21.3 million) and
(iv) settlement expense related to a supplemental executive
retirement plan ($10.1 million). Also includes (i) curtailment
expense related to a supplemental executive retirement plan ($7.7
million); (ii) costs associated with legal settlements ($11.1
million) and (iii) a $6.9 million expense reduction from the
favorable resolution of certain transaction tax audit issues.
(5) -Includes impact of debt extinguishments ($11.1 million) and
favorable resolution of transaction tax audit issues ($4.6 million).
(6) -Includes impact of debt extinguishments ($72.0 million) and
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) -Income tax effect of Items (3) through (6). Also includes a
$15.7 million benefit due to the recognition of previously
unrecognized tax benefits and other tax adjustments; a $5.8 million
income tax benefit caused by a reduction to our deferred tax
valuation allowance; net of $6.7 million income tax expense due to
the nondeductible portion of settlement payments related to a
supplemental pension plan and $5.0 million of additional tax expense
to adjust legacy CenturyLink's existing deferred income tax
liabilities due to apportionment factor changes as a result of the
Embarq acquisition.
(8) -Extraordinary gain upon the discontinuance of regulatory
accounting, net of income tax expense and noncontrolling interests.
CenturyLink, Inc.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2010 AND DECEMBER 31, 2009
(UNAUDITED)
December 31, December 31,
2010 2009
---- ----
(in thousands)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $172,943 161,807
Other current assets 970,186 961,784
Total current assets 1,143,129 1,123,591
--------- ---------
NET PROPERTY, PLANT AND
EQUIPMENT
Property, plant and equipment 16,329,244 15,556,763
Accumulated depreciation (7,574,768) (6,459,624)
Net property, plant and
equipment 8,754,476 9,097,139
--------- ---------
GOODWILL AND OTHER ASSETS
Goodwill 10,260,640 10,251,758
Other 1,879,853 2,090,241
Total goodwill and other
assets 12,140,493 12,341,999
---------- ----------
TOTAL ASSETS $22,038,098 22,562,729
=========== ==========
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Current maturities of long-
term debt $11,583 500,065
Other current liabilities 999,459 1,207,130
Total current liabilities 1,011,042 1,707,195
LONG-TERM DEBT 7,316,004 7,253,653
DEFERRED CREDITS AND OTHER
LIABILITIES 4,063,893 4,135,082
STOCKHOLDERS' EQUITY 9,647,159 9,466,799
--------- ---------
TOTAL LIABILITIES AND EQUITY $22,038,098 22,562,729
=========== ==========
CenturyLink, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
TWELVE MONTHS ENDED DECEMBER 31, 2010 AND 2009
(UNAUDITED)
Twelve Months Twelve Months
Ended Ended
December 31, December 31,
In thousands 2010 2009
------------ ------------
OPERATING ACTIVITIES
Net income $949,134 648,588
Adjustments to reconcile net income
to net
cash provided by operating
activities:
Depreciation and amortization 1,433,553 974,710
Extraordinary item - (135,957)
Deferred income taxes 131,768 153,950
Share-based compensation 38,168 55,153
Income from unconsolidated cellular
entity (16,369) (19,087)
Distributions from unconsolidated
cellular entity 16,029 20,100
Changes in current assets and
current liabilities, net (211,638) (84,680)
Retirement benefits (271,308) (82,114)
Excess tax benefits from share-
based compensation (11,884) (4,194)
Increase in other noncurrent assets (22,980) (2,347)
Increase in other noncurrent
liabilities 10,231 41,649
Other, net - 7,944
--- -----
Net cash provided by operating
activities 2,044,704 1,573,715
--------- ---------
INVESTING ACTIVITIES
Payments for property, plant and
equipment (863,769) (754,544)
Cash acquired from Embarq
acquisition - 76,906
Other, net 4,716 (1,206)
----- ------
Net cash used in investing
activities (859,053) (678,844)
-------- --------
FINANCING ACTIVITIES
Payments of debt (499,931) (1,097,064)
Net proceeds from issuance of long-
term debt 73,800 644,423
Proceeds from issuance of common
stock 130,260 56,823
Repurchase of common stock (16,515) (15,563)
Cash dividends (878,005) (560,697)
Excess tax benefits from share-
based compensation 11,884 4,194
Other, net 3,992 (8,507)
----- ------
Net cash used in financing
activities (1,174,515) (976,391)
---------- --------
Net increase (decrease) in cash and
cash equivalents 11,136 (81,520)
Cash and cash equivalents at
beginning of period 161,807 243,327
------- -------
Cash and cash equivalents at end of
period $172,943 161,807
======== =======
CenturyLink, Inc.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(UNAUDITED)
Three months ended December 31, 2010
------------------------------------
As adjusted
Less excluding
non- non-
In thousands As recurring recurring
reported items items
-------- ----- -----
Operating cash flow
and cash flow
margin
Operating income $486,371 (13,374) (1) 499,745
Add: Depreciation
and amortization 364,573 - 364,573
------- --- -------
Operating cash flow $850,944 (13,374) 864,318
======== ======= =======
Revenues $1,721,977 - 1,721,977
========== === =========
Operating income
margin (operating
income divided by
revenues) 28.2% 29.0%
==== ====
Operating cash flow
margin (operating
cash flow divided
by revenues) 49.4% 50.2%
==== ====
Free cash flow
(prior to debt
service
requirements and
dividends)
Net income $225,166 (7,121) (2) 232,287
Add: Depreciation
and amortization 364,573 - 364,573
Less: Capital
expenditures (263,990) - (263,990) (6)
-------- --- --------
Free cash flow $325,749 (7,121) 332,870
======== ====== =======
Free cash flow $325,749
Deferred income
taxes 112,893
Changes in current
assets and current
liabilities (133,242)
Increase in other
noncurrent assets (5,532)
Increase in other
noncurrent
liabilities 4,977
Retirement benefits (9,957)
Excess tax benefits
from share-based
compensation (5,858)
Other, net 10,225
Add: Capital
expenditures 263,990
-------
Net cash provided
by operating
activities $563,245
========
Three months ended December 31, 2009
------------------------------------
As adjusted
Less excluding
non- non-
In thousands As recurring recurring
reported items items
-------- ----- -----
Operating cash flow and
cash flow margin
Operating income 540,338 (46,870) (3) 587,208
Add: Depreciation and
amortization 356,384 - 356,384
------- --- -------
Operating cash flow 896,722 (46,870) 943,592
======= ======= =======
Revenues 1,829,060 (10,364) (4) 1,839,424
========= ======= =========
Operating income margin
(operating income
divided by revenues) 29.5% 31.9%
==== ====
Operating cash flow
margin (operating cash
flow divided by
revenues) 49.0% 51.3%
==== ====
Free cash flow (prior
to debt service
requirements and
dividends)
Net income 227,436 (59,252) (5) 286,688
Add: Depreciation and
amortization 356,384 - 356,384
Less: Capital
expenditures (337,417) - (337,417)
-------- --- --------
Free cash flow 246,403 (59,252) 305,655
======= ======= =======
Free cash flow 246,403
Deferred income taxes 115,713
Changes in current
assets and current
liabilities (173,223)
Increase in other
noncurrent assets (1,800)
Increase in other
noncurrent liabilities 54,143
Retirement benefits 18,186
Excess tax benefits
from share-based
compensation (3,089)
Other, net 18,205
Add: Capital
expenditures 337,417
-------
Net cash provided by
operating activities 611,955
=======
NONRECURRING ITEMS
(1) -Includes integration and severance related costs associated
with our acquisition of Embarq ($27.2 million) and transaction and
other costs associated with our pending acquisition of Qwest ($7.1
million). These increases were partially offset by a $20.9 million
curtailment gain associated with freezing certain future benefit
accruals related to our defined benefit pension plans.
(2) - After-tax impact of Item (1) and a net $3.7 million income
tax benefit due to an increase in the net deferred tax asset related
to state net operating loss carryforwards and other tax adjustments.
(3) - Includes integration costs associated with our acquisition of
Embarq ($31.9 million); costs associated with a legal settlement
($8.0 million); accelerated recognition of share-based compensation
and pension expense ($5.5 million); and severance and related costs
due to workforce reduction ($1.5 million).
(4) -Revenues eliminated in fourth quarter 2009 attributable to the
third quarter of 2009 pursuant to business combination accounting
rules related to deferred revenues.
(5) - Includes the unfavorable after-tax impact of items (3) and
(4) ($29.2 million) and the after-tax charge associated with debt
extinguishments ($37.8 million). Also includes a net income tax
benefit of $7.8 million due to the recognition of previously
unrecognized tax benefits and an adjustment to existing deferred
income tax liabilities due to apportionment factors changes as a
result of the Embarq acquisition and other tax-related adjustments.
(6) -Includes $9.1 million in fourth quarter 2010 and $28.1 million
in fourth quarter 2009 of capital expenditures related to the
integration of Embarq. Excluding these costs, free cash flow was
$342.0 million for fourth quarter 2010 and $333.7 million for fourth
quarter 2009.
CenturyLink, Inc.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(UNAUDITED)
Twelve months ended December 31, 2010
-------------------------------------
As adjusted
Less excluding
non- non-
In thousands As recurring recurring
reported items items
-------- ----- -----
Operating cash flow
and cash flow
margin
Operating income $2,059,944 (123,063) (1) 2,183,007
Add: Depreciation
and amortization 1,433,553 - 1,433,553
Operating cash flow $3,493,497 (123,063) 3,616,560
========== ======== =========
Revenues $7,041,534 - 7,041,534
========== === =========
Operating income
margin (operating
income divided by
revenues) 29.3% 31.0%
==== ====
Operating cash flow
margin (operating
cash flow divided
by revenues) 49.6% 51.4%
==== ====
Free cash flow
(prior to debt
service
requirements and
dividends)
Net income before
extraordinary item $947,705 (80,569) (2) 1,028,274
Add: Depreciation
and amortization 1,433,553 - 1,433,553
Less: Capital
expenditures (863,769) - (863,769) (6)
$1,517,489 (80,569) 1,598,058
========== ======= =========
Free cash flow $1,517,489
Deferred income
taxes 131,768
Changes in current
assets and current
liabilities (211,638)
Increase in other
noncurrent assets (22,980)
Increase in other
noncurrent
liabilities 10,231
Retirement benefits (271,308)
Excess tax benefits
from share-based
compensation (11,884)
Other, net 39,257
Add: Capital
expenditures 863,769
Net cash provided
by operating
activities $2,044,704
==========
Twelve months ended December 31, 2009
-------------------------------------
As adjusted
Less excluding
non- non-
In thousands As recurring recurring
reported items items
-------- ----- -----
Operating cash flow and
cash flow margin
Operating income 1,233,101 (274,706) (3) 1,507,807
Add: Depreciation and
amortization 974,710 - 974,710
------- --- -------
Operating cash flow 2,207,811 (274,706) 2,482,517
========= ======== =========
Revenues 4,974,239 1,028 (4) 4,973,211
========= ===== =========
Operating income margin
(operating income
divided by revenues) 24.8% 30.3%
==== ====
Operating cash flow
margin (operating cash
flow divided by
revenues) 44.4% 49.9%
==== ====
Free cash flow (prior
to debt service
requirements and
dividends)
Net income before
extraordinary item 511,254 (209,682) (5) 720,936
Add: Depreciation and
amortization 974,710 - 974,710
Less: Capital
expenditures (754,544) - (754,544)
-------- --- --------
731,420 (209,682) 941,102
======= ======== =======
Free cash flow 731,420
Deferred income taxes 153,950
Changes in current
assets and current
liabilities (84,680)
Increase in other
noncurrent assets (2,347)
Increase in other
noncurrent liabilities 41,649
Retirement benefits (82,114)
Excess tax benefits
from share-based
compensation (4,194)
Other, net 65,487
Add: Capital
expenditures 754,544
-------
Net cash provided by
operating activities 1,573,715
=========
NONRECURRING ITEMS
(1) -Includes integration costs associated with our acquisition of
Embarq ($91.5 million); severance and related costs due to workforce
reductions ($30.2 million) and transaction and other costs
associated with our pending acquisition of Qwest ($22.3 million).
Such increases were partially offset by a $20.9 million curtailment
gain associated with freezing certain future benefit accruals
related to our defined benefit pension plans.
(2) - Includes after-tax impact of Item (1) and a net $3.7 million
income tax benefit due to an increase in the net deferred tax asset
related to state net operating loss carryforwards and other tax
adjustments. Such amounts were partially offset by 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 the following costs associated with our acquisition
of Embarq: (i) integration and transaction costs ($133.5 million);
(ii) severance, retention and contractual early retirement benefits
related to workforce reductions ($98.9 million); (iii) accelerated
recognition of share-based compensation expense ($21.3 million) and
(iv) settlement expense related to a supplemental pension plan
($10.1 million). Also includes (i) curtailment expense, net of
revenue impact, related to a supplemental pension plan ($6.7
million); (ii) costs associated with a legal settlement ($11.1
million) and (iii) a $6.9 million expense reduction from the
favorable resolution of certain transaction tax audit issues.
(4) -Revenue impact of curtailment loss related to Supplemental
Executive Retirement Plan.
(5) - Includes (i) the unfavorable after-tax impact of Items (1)
and (2) ($178.3 million); (ii) the after-tax charge associated with
debt extinguishment ($38.3 million); (iii) the after-tax charge
associated with our $800 million bridge credit facility ($5.0
million); and (iv) $6.6 million income tax expense due to the
nondeductible portion of settlement payments related to a
supplemental pension plan. Such items were partially offset by (i)
a net $10.7 million tax benefit related to the recognition of
previously unrecognized tax benefits and the adjustment to our
existing deferred income tax liabilities due to apportionment factor
changes as a result of the Embarq acquisition; (ii) a $5.8 million
reduction to our deferred tax asset valuation allowance; and (iii)
the after-tax favorable resolution of transaction tax audit issues
($2.1 million).
(6) -Includes $29.0 million in 2010 and $75.1 million in 2009 of
capital expenditures related to the integration of Embarq.
Excluding these costs, free cash flow was $1.627 billion for the
twelve months ended December 31, 2010 and $1.016 billion for the
twelve months ended December 31, 2009.
SOURCE CenturyLink, Inc.
