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CenturyLink Reports Second Quarter 2011 Earnings

August 3, 2011

MONROE, La., Aug. 3, 2011 /PRNewswire/ — CenturyLink, Inc. (NYSE: CTL) announces operating results for second quarter 2011, which include the effect of the Qwest acquisition completed April 1, 2011.

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  • Generated free cash flow (see Note 1 below) of $950 million in second quarter 2011, excluding special items of $181 million.
  • Preliminary assignment of fair value and depreciable life to Qwest property and intangible assets resulted in approximately $200 million higher depreciation and amortization expense than originally anticipated, negatively impacting second quarter 2011 diluted earnings per share by $0.20 per share compared to previous company guidance. Excluding this non-cash variance to previous guidance and other special items, diluted earnings per share would have been $0.64, within previous second quarter guidance of $0.63 to $0.67.
  • Reduced access line losses by 18.6% compared to pro forma second quarter 2010, after adjusting for line count methodology changes (see Note 4 below).
  • Completed final billing and customer care conversion for Embarq properties in July 2011. Expect to achieve approximately $375 million in annual run rate operating synergies by year-end 2011 related to the Embarq acquisition.

    Second Quarter
     Highlights (1)       Quarter Ended    Quarter Ended          % Change
    ---------------       -------------    -------------          --------
                               6/30/11 (2)          6/30/10
                               -----------          -------
    (in millions, except
     per share amounts)
    --------------------
    Operating Revenues     $4,406          $1,772            148.6%
    ------------------     ------          ------            -----
    Operating Cash Flow
     (excluding special
     items)                $1,917            $923            107.7%
    -------------------    ------             ---            -----
    Net Income (excluding
     special items) (3)      $262            $266            (1.5)%
    ---------------------     ---             ---            -----
    Diluted Earnings Per
     Share (excluding
     special items) (3)     $0.44           $0.88           (50.0)%
    --------------------    -----           -----           ------
    Capital Expenditures     $579            $195            196.9%
    --------------------      ---             ---            -----
    Free Cash Flow
     (excluding special
     items)                  $950            $267            255.8%
    -------------------       ---             ---            -----
    Average Diluted
     Shares Outstanding       600             301             99.3%
    -------------------       ---             ---             ----
    (in thousands)         15,057
    --------------
    Access Lines (4)        5,427           6,753            123.0%
    ----------------        -----           -----            -----
    High-Speed Internet
     Customers (4)                          2,288            137.2%
    -------------------                     -----            -----


           Throughout this release, we use non-GAAP financial measures
           such as free cash flow and operating cash flow, pro forma
           amounts, and amounts excluding special items. Definitions of
           these measures and reconciliations to comparable GAAP
     (1)   measures are included in the attached financial schedules.
           Quarter Ended 6/30/2011 includes the effect of the Qwest
           acquisition. For a comparison of these second quarter 2011
           operating results against the pro forma operating results
           for second quarter 2010 that give effect to the Qwest
     (2)   acquisition, see the attached supplemental schedule.
           Net income and diluted earnings per share for the quarter
           ended 6/30/2011 were negatively affected by business
           combination accounting rules that increased depreciation and
           amortization. Diluted earnings per share for the quarter
           ended 6/30/2011 was further negatively affected by the
     (3)   shares issued to complete the Qwest merger.
           Quarter ended 6/30/2011 and quarter ended 6/30/2010 reflect
           line count methodology adjustments to standardize legacy
     (4)   CenturyLink and Qwest line counts.


    "CenturyLink achieved solid second quarter results as growth in
     strategic revenues continued to help our top line revenue trend," Glen
     F. Post, III, chief executive officer and president, said. "While
     purchase price accounting adjustments are negatively impacting
     earnings per share, we saw strong free cash flow generation of $950
     million during the quarter. Additionally, Qwest integration efforts
     are off to a good start, synergy achievement during the quarter for
     both the Qwest and Embarq transactions was in line with our
     expectations, and, with the final Embarq customer conversion in late
     July, we have completed the major integration activities for that
     transaction."
    -----------------------------------------------------------------------

The following discussion summarizes information contained in the attached supplemental schedules, which should be consulted for additional information.

CONSOLIDATED FINANCIAL RESULTS

Operating revenues for second quarter 2011 were $4.4 billion compared to $1.8 billion in second quarter 2010. This increase was primarily due to $2.7 billion of revenue contribution from the Qwest acquisition completed April 1, 2011. Additionally, increases in strategic revenues, primarily driven by growth in high-speed Internet customers, data services demand from business customers and data transport demand from wireless providers were more than offset by declines in legacy services and other revenues primarily due to the impact of access line losses and lower access revenues, including the impact of anticipated lower universal service fund receipts.

Second quarter 2011 operating revenues compared to second quarter 2010 pro forma operating revenues declined 4.9% from $4.6 billion a year ago to $4.4 billion this quarter.

Operating expenses, excluding special items, increased to $3.7 billion from $1.2 billion in second quarter 2010, primarily due to $2.6 billion of operating costs associated with Qwest. Depreciation and amortization expense was approximately $200 million higher in second quarter 2011 compared to amounts previously forecast at the end of first quarter 2011 due to higher fair value assignments to certain amortizable intangible assets than originally estimated under business combination accounting. Such fair value assignment is still preliminary as of the end of the second quarter of 2011, and is expected to be completed no later than early 2012.

Operating expenses, excluding special items, of $3.7 billion in second quarter 2011 declined 3.3% from pro forma second quarter 2010 operating expenses of $3.8 billion.

Operating cash flow, excluding special items, increased 107.7% to $1.9 billion from $923 million in second quarter 2010, due to the Qwest acquisition. For second quarter 2011, CenturyLink achieved an operating cash flow margin of 43.5% versus 52.1% in second quarter 2010, reflecting the impact that lower margin Qwest had on CenturyLink’s consolidated operating cash flow margin.

Second quarter 2011 operating cash flow, excluding special items, of $1.9 billion declined 5.0% from second quarter 2010 pro forma operating cash flow of $2.0 billion.

“We are pleased with the early success of our go-to-market plans in the legacy Qwest markets and the continued demand for broadband in legacy CenturyLink markets, as we achieved higher year-over-year high-speed Internet sales during the second quarter compared to pro forma second quarter 2010,” Post said. “However, net broadband customer additions during the quarter were negatively affected by higher than anticipated churn of stand-alone high-speed Internet customers in the legacy Qwest markets. We have taken affirmative steps to mitigate this churn, which we believe will improve net broadband additions in the months ahead.”

Net income, excluding special items, was $262 million in second quarter 2011 compared to $266 million in second quarter 2010. Diluted earnings per share, excluding special items, was $0.44 for second quarter 2011, a 50.0% decrease from the $0.88 reported in second quarter 2010. This decrease was partly due to the non-cash impact that the application of business combination accounting rules associated with the Qwest acquisition had on the combined company’s financial results for the second quarter.

Second quarter 2011 net income, excluding special items, of $262 million declined 13.2% from second quarter 2010 pro forma net income of $302 million.

Under generally accepted accounting principles (GAAP), net income for second quarter 2011 was $102 million compared to $238 million for second quarter 2010, and diluted earnings per share for second quarter 2011 was $0.17 compared to $0.79 for second quarter 2010.

Second quarter 2011 net income and diluted earnings per share reflect after-tax integration, severance, and retention costs associated with the Qwest acquisition of $158 million ($0.26 per share), after-tax integration and severance related costs associated with the Embarq acquisition of $15 million ($0.03 per share), after-tax transaction and integration related costs associated with the Savvis acquisition of $11 million ($0.02 per share), net of a favorable settlement of an operating tax issue of $11 million ($0.02 per share) and the benefit from a reduction of an NOL valuation allowance of $14 million ($0.02 per share).

Second quarter 2010 net income and diluted earnings per share reflect after-tax costs of $11 million ($0.04 per share) related to integration costs associated with the Embarq acquisition, $8 million ($0.03 per share) associated with Embarq severance related costs, and $8 million ($0.02 per share) related to transaction and other costs associated with the then pending Qwest acquisition.

SEGMENT FINANCIAL RESULTS

As previously disclosed, we began reporting the following three segments effective during the second quarter of 2011. The changes in revenue, expense and margin for the three month and six month periods ending June 30, 2011 compared to the three month and six month periods ending June 30, 2010 are primarily due to the acquisition of Qwest.

The following summary compares second quarter 2011 segment performance to pro forma second quarter 2010 as if the Qwest merger had occurred effective January 1, 2010. For additional information we have provided a supplemental schedule attached hereto.

Regional Markets Group

The Regional Markets Group (RMG) generally provides products and services to consumers, small- to medium-sized businesses and regional enterprise customers. RMG revenues of $2.26 billion in second quarter 2011 declined 4.9% from pro forma second quarter 2010. Strategic revenues, which currently represent 32.5% of total segment revenues, increased 5.8% year-over-year due to growth in broadband services, while RMG legacy services revenues decreased 9.1% primarily due to the impact of access line losses on voice and long distance revenues. Segment operating expenses declined 3.9% from pro forma year-ago period driven primarily by lower marketing expense and employee-related costs. RMG income for the quarter declined 5.7% compared to the year-ago period. RMG segment income margin of 56.9% for the second quarter of 2011 declined 40 basis points compared to the year-ago quarter and was flat compared to the first quarter of 2011.

RMG broadband subscribers totaled 5.43 million at the end of second quarter 2011, reflecting the addition of 12,200 high-speed Internet customers during the quarter. RMG experienced solid broadband sales in legacy CenturyLink markets, but a significant portion of that sales momentum was offset by higher than anticipated churn driven by stand-alone high-speed Internet customers in the legacy Qwest markets.

Business Markets Group

The Business Markets Group (BMG) generally provides products and services to enterprise and government customers. BMG second quarter 2011 operating revenues compared to second quarter 2010 pro forma operating revenues declined 4.1% from $961 million a year ago to $922 million this quarter, of which $27 million was due to lower data integration revenues. Segment operating expenses declined 5.2% from the pro forma year-ago period driven primarily by lower data integration expenses and improved operating efficiencies in back office operations. BMG’s segment income declined 2.4% pro forma year-over-year. Segment income margin was 40.2%, a 70 basis point increase from 39.5% in the pro forma second quarter 2010.

Wholesale Markets Group

The Wholesale Markets Group (WMG) provides products and services to other communications providers. WMG second quarter 2011 operating revenues compared to second quarter 2010 pro forma operating revenues declined 4.6% from $1.02 billion a year ago to $975 million this quarter, due primarily to decreases in legacy services revenues, including access and long distance revenues, which were partially offset by increases in strategic services revenues, including data transport services provided to wireless carriers. WMG segment income decreased 5.8% compared to pro forma second quarter 2010. WMG segment income margin of 68.8% declined 90 basis points from the pro forma margin year-over-year.

Outlook for 2011. Including CenturyLink’s reported first half 2011 results, the combined CenturyLink and Savvis operations prospectively from July 15, 2011, and excluding the effects of all special items referenced below, CenturyLink expects the current guidance outlined below for full year 2011:


                               Previous Guidance
                                (1)                   Current Guidance
                              ------------------      ----------------
    Operating revenues        $14.9 to $15.1 billion   $15.2 to $15.4 billion
    Operating cash flow       Not provided               $6.5 to $6.7 billion
    Diluted earnings per
     share                        $2.55 to $2.65 (2)           $1.60 to $1.70
    Capital expenditures        $2.2 to $2.3 billion    $2.35 to $2.5 billion
    Free cash flow            Not provided               $2.9 to $3.1 billion

    (1) Excludes the impact of the Savvis acquisition
    (2) Based on preliminary fair value estimates that have been
     subsequently revised, as described further below.

On a pro forma basis for 2011 giving effect as if the Qwest and Savvis mergers had occurred effective January 1, 2011, and excluding the effects of all special items referenced below, CenturyLink expects the following for full year 2011:


                               Previous Guidance
                               (1) (2)                Current Guidance (2)
                               -----------------      --------------------
    Pro forma operating
     revenues                 $17.6 to $17.8 billion    $18.5 to $18.8 billion
    Pro forma operating cash
     flow                     Not provided                $7.8 to $8.0 billion
    Pro forma diluted
     earnings per share           $2.55 to $2.65 (3)            $1.50 to $1.60
    Pro forma capital
     expenditures               $2.6 to $2.7 billion     $2.85 to $3.0 billion
    Pro forma free cash flow  Not provided                $3.4 to $3.6 billion

    (1) Excludes the impact of the Savvis acquisition
    (2) The pro forma figures include adjustments that (i) with respect
     to the Qwest acquisition are described in the attached supplemental
     schedule that sets forth unaudited pro forma financial information
     regarding the Qwest acquisition, except that the figures above
     assume a January 1, 2011 closing date, and (ii) with respect to the
     Savvis acquisition are substantially similar to the Qwest pro forma
     adjustments, except that no independent appraisal company has yet
     been retained to assist us in allocating fair values to the assets
     acquired and liabilities assumed in connection with the Savvis
     acquisition. The pro forma information included in the chart above
     (i) has not been prepared in accordance with generally accepted
     accounting principles, (ii) is for illustrative purposes only, and
     (iii) is not necessarily indicative of the combined operating
     results that would have occurred if the Qwest and Savvis mergers
     had been consummated as of January 1, 2011.
    (3) Based on preliminary fair value estimates that have been
     subsequently revised, as described further below.

For third quarter 2011, including the estimated impacts from the application of business combination accounting rules outlined below, CenturyLink expects total revenues of $4.55 to $4.60 billion, diluted earnings per share of $0.29 to $0.34 and operating cash flow of $1.88 to $1.92 billion, excluding the effects of all special items.

Our second quarter results of operations were adversely affected from the assignment of fair value to the assets acquired and liabilities assumed in connection with our Qwest acquisition, principally due to higher amortization associated with the assignment of approximately $7.6 billion to the customer relationship intangible asset. Related depreciation and amortization incurred in the second quarter of 2011 was significantly higher than originally estimated at the end of the first quarter due to the preliminary status of the assignment of fair values to the Qwest assets and liabilities at that time. Based on current circumstances, we expect our depreciation and amortization expense in third and fourth quarters of 2011 to approximate the second quarter 2011 expense level along with the addition of depreciation and amortization related to the Savvis acquisition.

All of the assets and liabilities of Qwest and Savvis will be assigned a fair value pursuant to business combination accounting rules. The related income statement impact of these items may be significant to our results of operations for the remainder of 2011 and may be significantly different than what we have currently included in our outlook information for third quarter and full year 2011. Such fair value assignment for Qwest is still preliminary as of the end of second quarter 2011. Additionally, such fair value assignment for Savvis included in our outlook information for third quarter and full year 2011 is preliminary, and is based solely on internal estimates at this point.

All 2011 outlook figures included in this release exclude the effects of special items, future changes in regulation, integration expenses associated with the Embarq acquisition, transaction and integration expenses associated with the Qwest and Savvis acquisitions, any changes in operating or capital plans and any future mergers, acquisitions, divestitures, buybacks or other similar business transactions.

Savvis Results. The acquisition of Savvis, Inc. was completed July 15, 2011. To assist the investment community in tracking Savvis’ financial and operating trends, the Company is providing below, separate from CenturyLink’s reported results, selected second quarter 2011 Savvis consolidated financial information.

For second quarter 2011, Savvis’ operating revenues were $264 million, an 18.9% increase from $222 million in second quarter 2010 driven primarily by strong managed services growth across Savvis’ key vertical markets of consumer brands, financial and media. Operating cash flow, excluding special items, was $63 million, a 31.2% increase from $48 million in second quarter 2010. Savvis’ operating cash flow margin, excluding special items, for second quarter 2011 was 23.9%, compared to 21.6% in second quarter 2010. As compared to first quarter 2011 operating cash flow, second quarter 2011 operating cash flow was affected by additional rent expense for new data centers, planned maintenance, seasonal utility cost, and increased consulting staffing.

Net loss, excluding special items, for Savvis was ($12) million in second quarter 2011, compared to a second quarter 2010 net loss of ($9) million.

Savvis invested approximately $42 million in capital investments during second quarter 2011 and generated free cash flow (defined as outlined in attached Savvis, Inc. supplemental schedule) of ($2) million for the quarter compared to ($18) million for second quarter 2010.

These results are included in a supplemental schedule attached hereto and are also available on the CenturyLink’s investor relations Web site at ir.centurylink.com.

Under generally accepted accounting principles (GAAP), Savvis’ net loss for second quarter 2011 was ($15) million compared to a net loss of ($13) million for second quarter 2010.

Second quarter 2011 net loss reflects after-tax costs of $3 million related to acquisition and other related costs.

Second quarter 2010 net loss reflects after-tax costs of $4 million related to acquisition and integration costs.

Integration Update. During second quarter 2011, CenturyLink incurred pre-tax transaction, severance and integration costs of $245 million related to the Qwest acquisition, $25 million related to the Embarq acquisition and $18 million related to the Savvis transaction.

Additionally, the fifth and final billing and customer care systems conversion for legacy Embarq customers was recently completed in late July.

CenturyLink ended the second quarter 2011 having achieved an annualized operating synergy run rate of approximately $350 million with respect to the Embarq acquisition, and continues to expect to achieve the full anticipated $375 million in annual run rate operating synergies by year-end 2011. The Company also exited second quarter 2011 having achieved an annualized operating synergy run rate of approximately $70 million with respect to the Qwest acquisition, and currently expects to achieve approximately $200 million in annual run rate synergies by year-end 2011.

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 special 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 866.837.9779. The call will be accessible for replay through August 9, 2011, by calling 888.266.2081 and entering the conference ID number 1538277. 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 23, 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 proposed rules of the Federal Communications Commission (the “FCC”) regarding intercarrier compensation and the Universal Service Fund and the FCC’s related Notice of Proposed Rulemaking released on February 8, 2011); 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 of Savvis, Qwest and Embarq; our ability to successfully integrate the operations of Savvis, Qwest and Embarq into our operations, including the possibility that the anticipated benefits from these acquisitions cannot be fully realized in a timely manner or at all, or that integrating the acquired operations will be more difficult, disruptive or costly than anticipated; our ability to use the net operating loss carryovers of Qwest in projected amounts; the effects of changes in our allocation of the Qwest or Savvis purchase price after the date hereof; 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; any adverse developments in legal proceedings involving us; 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 future cash requirements, whether caused by unanticipated increases in capital expenditures, increases in pension funding requirements or otherwise; 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, our July 2011 acquisition of Savvis, our April 2011 acquisition of Qwest and our July 2009 acquisition of Embarq are described in greater detail in Item 1A to our Form 10-K for the year ended December 31, 2010, 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 presentation. We undertake no obligation to update any of our forward-looking statements for any reason.

CenturyLink is the third largest telecommunications company in the United States. The company provides broadband, voice and wireless services to consumers and businesses across the country and advanced entertainment services under the CenturyLink(TM) Prism(TM) TV and DIRECTV brands. In addition, the company provides data, voice and managed services to business, government and wholesale customers in local, national and select international markets through its high-quality advanced fiber optic network and multiple data centers. CenturyLink also is recognized as a leader in the network services market by key technology industry analyst firms, and is a global leader in cloud infrastructure and hosted IT solutions for enterprises through Savvis, a CenturyLink company. CenturyLink’s customers range from Fortune 500 companies in some of the country’s largest cities to families living in rural America. Headquartered in Monroe, La., CenturyLink is an S&P 500 company and is included among the Fortune 500 list of America’s largest corporations. For more information, visit www.centurylink.com.

                              CenturyLink, Inc.
                      CONSOLIDATED STATEMENTS OF INCOME
                  THREE MONTHS ENDED JUNE 30, 2011 AND 2010
                                 (UNAUDITED)
     (Dollars in millions, except per share amounts; shares in thousands)

                                      Three months ended June 30, 2011
                                      --------------------------------

                                                                       As
                                                                    adjusted
                                                    Less           excluding
                                   As             special           special
                                reported           items             items
                                --------           -----             -----

     OPERATING REVENUES
       Strategic services          $1,737                              1,737
       Legacy services              2,265                              2,265
       Data integration               151                                151
       Other                          253                                253
                                    4,406                 -            4,406
                                    -----               ---            -----

     OPERATING EXPENSES
       Cost of services and
        products                    1,781                26  (1)       1,755
       Selling, general and
        administrative                968               234  (1)         734
       Depreciation and
        amortization                1,198                 -            1,198
                                    3,947               260            3,687
                                    -----               ---            -----

     OPERATING INCOME                 459              (260)             719

     OTHER INCOME (EXPENSE)
       Interest expense              (280)                5  (2)        (285)
       Other income (expense)         (14)              (16) (3)           2
       Income tax expense             (63)              111  (4)        (174)

     NET INCOME                      $102              (160)             262
                                     ====              ====              ===

     BASIC EARNINGS PER SHARE       $0.17             (0.27)            0.44
     DILUTED EARNINGS PER SHARE     $0.17             (0.27)            0.44

     AVERAGE SHARES OUTSTANDING
       Basic                      598,884                            598,884
       Diluted                    600,259                            600,259

    DIVIDENDS PER COMMON SHARE     $0.725                              0.725

     SPECIAL ITEMS


                                       Three months ended June 30, 2010
                                      --------------------------------

                                                                  As adjusted
                                                   Less            excluding
                                   As             special           special
                                reported           items             items
                                --------           -----             -----

     OPERATING REVENUES
       Strategic services             507                                 507
       Legacy services              1,083                               1,083
       Data integration                43                                  43
       Other                          139                                 139
                                    1,772                -              1,772
                                    -----              ---              -----

     OPERATING EXPENSES
       Cost of services and
        products                      627               12  (5)           615
       Selling, general and
        administrative                264               30  (5)           234
       Depreciation and
        amortization                  358                -                358
                                    1,249               42              1,207
                                    -----              ---              -----

     OPERATING INCOME                 523              (42)               565

     OTHER INCOME (EXPENSE)
       Interest expense              (140)               -               (140)
       Other income (expense)           4                -                  4
       Income tax expense            (149)              14  (6)          (163)

     NET INCOME                       238              (28)               266
                                      ===              ===                ===

     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

     SPECIAL ITEMS


                                                          Increase
                                                        (decrease)
                                             Increase    excluding
                                           (decrease)     special
                                           as reported     items
                                           -----------     -----

     OPERATING REVENUES
       Strategic services                        242.6%       242.6%
       Legacy services                           109.1%       109.1%
       Data integration                          251.2%       251.2%
       Other                                      82.0%        82.0%
                                                 148.6%       148.6%

     OPERATING EXPENSES
       Cost of services and products             184.1%       185.4%
       Selling, general and administrative       266.7%       213.7%
       Depreciation and amortization             234.6%       234.6%
                                                 216.0%       205.5%

     OPERATING INCOME                           (12.2%)        27.3%

     OTHER INCOME (EXPENSE)
       Interest expense                          100.0%       103.6%
       Other income (expense)                  (450.0%)      (50.0%)
       Income tax expense                       (57.7%)         6.7%

     NET INCOME                                 (57.1%)       (1.5%)

     BASIC EARNINGS PER SHARE                   (78.5%)      (50.0%)
     DILUTED EARNINGS PER SHARE                 (78.5%)      (50.0%)

     AVERAGE SHARES OUTSTANDING
       Basic                                      99.6%        99.6%
       Diluted                                    99.7%        99.7%

    DIVIDENDS PER COMMON SHARE                     0.0%         0.0%

     SPECIAL ITEMS
       (1) -Includes integration, severance, and retention costs associated
       with our acquisition of Qwest, along with restructuring charges
       ($245 million); integration and severance costs associated with our
       acquisition of Embarq ($25 million); transaction and other costs
       associated with our acquisition of Savvis ($2 million); net of a
       favorable settlement of an operating tax issue ($13 million).
       (2) -Reflects the interest component of a favorable settlement of an
       operating tax issue.
       (3) -Expense associated with terminating a bridge credit facility
       related to the Savvis acquisition.
       (4) -Income tax benefit of Items (1) through (3) and a benefit from
       the reduction of an NOL valuation allowance ($14 million).
       (5) -Includes integration costs associated with our acquisition of
       Embarq ($18 million); severance and related costs due to workforce
       reductions ($13 million);  and transaction and other costs
       associated with our acquisition of Qwest ($10 million).
       (6) - Income tax benefit of Item (5).

                              CenturyLink, Inc.
                      CONSOLIDATED STATEMENTS OF INCOME
                   SIX MONTHS ENDED JUNE 30, 2011 AND 2010
                                 (UNAUDITED)
     (Dollars in millions, except per share amounts; shares in thousands)

                                       Six months ended June 30, 2011
                                       ------------------------------

                                                                       As
                                                                    adjusted
                                                    Less           excluding
                                   As             special           special
                                reported           items             items
                                --------           -----             -----

     OPERATING REVENUES
       Strategic services          $2,276                              2,276
       Legacy services              3,256                              3,256
       Data integration               182                                182
       Other                          388                                388
                                    6,102                 -            6,102
                                    -----               ---            -----

     OPERATING EXPENSES
       Cost of services and
        products                    2,407                40  (1)       2,367
       Selling, general and
        administrative              1,205               255  (1)         950
       Depreciation and
        amortization                1,567                 -            1,567
                                    5,179               295            4,884
                                    -----               ---            -----

     OPERATING INCOME                 923              (295)           1,218

     OTHER INCOME (EXPENSE)
       Interest expense              (408)                5  (2)        (413)
       Other income (expense)         (11)              (16) (3)           5
       Income tax expense            (191)              124  (4)        (315)

     NET INCOME                      $313              (182)             495
                                     ====              ====              ===

     BASIC EARNINGS PER SHARE       $0.69             (0.40)            1.09
     DILUTED EARNINGS PER SHARE     $0.69             (0.40)            1.09

     AVERAGE SHARES OUTSTANDING
       Basic                      451,358                            451,358
       Diluted                    452,369                            452,369

    DIVIDENDS PER COMMON SHARE      $1.45                               1.45

     SPECIAL ITEMS


                                      Six months ended June 30, 2010
                                      ------------------------------

                                                                 As adjusted
                                                  Less            excluding
                                 As             special            special
                              reported           items              items
                              --------           -----              -----

     OPERATING REVENUES
       Strategic services         1,009                                1,009
       Legacy services            2,203                                2,203
       Data integration              83                                   83
       Other                        277                                  277
                                  3,572                 -              3,572
                                  -----               ---              -----

     OPERATING EXPENSES
       Cost of services and
        products                  1,271                24  (5)         1,247
       Selling, general and
        administrative              522                54  (5)           468
       Depreciation and
        amortization                711                 -                711
                                  2,504                78              2,426
                                  -----               ---              -----

     OPERATING INCOME             1,068               (78)             1,146

     OTHER INCOME (EXPENSE)
       Interest expense            (278)                -               (278)
       Other income (expense)        10                 -                 10
       Income tax expense          (309)               24  (6)          (333)

     NET INCOME                     491               (54)               545
                                    ===               ===                ===

     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

     SPECIAL ITEMS


                                                          Increase
                                                        (decrease)
                                             Increase    excluding
                                           (decrease)     special
                                           as reported     items
                                           -----------     -----

     OPERATING REVENUES
       Strategic services                        125.6%       125.6%
       Legacy services                            47.8%        47.8%
       Data integration                          119.3%       119.3%
       Other                                      40.1%        40.1%
                                                  70.8%        70.8%

     OPERATING EXPENSES
       Cost of services and products              89.4%        89.8%
       Selling, general and administrative       130.8%       103.0%
       Depreciation and amortization             120.4%       120.4%
                                                 106.8%       101.3%

     OPERATING INCOME                           (13.6%)         6.3%

     OTHER INCOME (EXPENSE)
       Interest expense                           46.8%        48.6%
       Other income (expense)                  (210.0%)      (50.0%)
       Income tax expense                       (38.2%)       (5.4%)

     NET INCOME                                 (36.3%)       (9.2%)

     BASIC EARNINGS PER SHARE                   (57.7%)      (39.8%)
     DILUTED EARNINGS PER SHARE                 (57.7%)      (39.8%)

     AVERAGE SHARES OUTSTANDING
       Basic                                      50.6%        50.6%
       Diluted                                    50.6%        50.6%

    DIVIDENDS PER COMMON SHARE                     0.0%         0.0%

     SPECIAL ITEMS
       (1) -Includes integration, severance, and retention costs associated
       with our acquisition of Qwest, along with restructuring charges
       ($251 million); integration and severance costs associated with our
       acquisition of Embarq ($55 million); transaction and other costs
       associated with our acquisition of Savvis ($2 million); net of a
       favorable settlement of an operating tax issue ($13 million).
       (2) -Reflects the interest component of a favorable settlement of an
       operating tax issue.
       (3) -Expense associated with terminating a bridge credit facility
       related to the Savvis acquisition.
       (4) -Income tax benefit of Items (1) through (3) and a benefit from
       the reduction of an NOL valuation allowance ($14 million).
       (5) -Includes integration costs associated with our acquisition of
       Embarq ($40 million); severance and related costs due to workforce
       reductions ($28 million); and transaction and other costs associated
       with our acquisition of Qwest ($10 million).
       (6) - Income tax benefit of Item (5), net of a $4 million one-time
       charge to income tax expense as a result of a change in the tax
       treatment of Medicare subsidy receipts.

       CenturyLink, Inc.
       CONSOLIDATED BALANCE SHEETS
       JUNE 30, 2011 AND DECEMBER 31, 2010
       (UNAUDITED)
       (in millions)

                                           June 30,      December 31,
                                                   2011            2010
                                                   ----            ----

      ASSETS
    CURRENT ASSETS
      Cash and cash equivalents                  $2,546             173
      Other current assets                        2,461             970
         Total current assets                     5,007           1,143
                                                  -----           -----

    NET PROPERTY, PLANT AND EQUIPMENT
      Property, plant and equipment              26,595          16,329
      Accumulated depreciation                   (8,571)         (7,575)
         Net property, plant and equipment       18,024           8,754
                                                 ------           -----

    GOODWILL AND OTHER ASSETS
      Goodwill                                   20,266          10,261
      Other                                      11,545           1,880
          Total goodwill and other assets        31,811          12,141
                                                 ------          ------

    TOTAL ASSETS                                $54,842          22,038
                                                =======          ======

      LIABILITIES AND EQUITY
    CURRENT LIABILITIES
      Current maturities of long-term
       debt                                      $1,610              12
      Other current liabilities                   3,454             999
          Total current liabilities               5,064           1,011

    LONG-TERM DEBT                               19,734           7,316
    DEFERRED CREDITS AND OTHER
     LIABILITIES                                  8,403           4,064
    STOCKHOLDERS' EQUITY                         21,641           9,647
                                                 ------           -----

    TOTAL LIABILITIES AND EQUITY                $54,842          22,038
                                                =======          ======

                                CenturyLink, Inc.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                     SIX MONTHS ENDED JUNE 30, 2011 AND 2010
                                   (UNAUDITED)
                                   (in millions)

                                            Six Months       Six Months
                                               Ended            Ended
                                           June 30, 2011    June 30, 2010
                                           -------------    -------------

     OPERATING
      ACTIVITIES
       Net income                                     $313              491
       Adjustments to
        reconcile net income
        to net cash provided
        by operating
        activities:
           Depreciation and
            amortization                             1,567              711
           Deferred income taxes                       166              (17)
           Provision for
            uncollectible
            accounts                                    61               42
           Changes in current
            assets and current
            liabilities, net                            73              (63)
           Retirement benefits                        (129)            (280)
           Changes in other
            noncurrent assets and
            liabilities                                (10)             (17)
           Other, net                                  (23)              14
                                                       ---              ---
             Net cash provided by
              operating activities                   2,018              881
                                                     -----              ---

     INVESTING
      ACTIVITIES
       Payments for property,
        plant and equipment                           (790)            (362)
       Cash acquired in Qwest
        acquisition, net of
        $5 cash paid                                   419                -
       Other, net                                        9                2
                                                       ---              ---
           Net cash provided by
            investing activities                      (362)            (360)
                                                      ----             ----

     FINANCING
      ACTIVITIES
       Proceeds from issuance
        of long-term debt                            2,602                -
       Payments of long-term
        debt                                          (857)             (11)
       Net payments on credit
        facility                                      (365)             (68)
       Dividends paid                                 (657)            (437)
       Net proceeds from
        issuance of common
        stock                                           58               26
       Repurchase of common
        stock                                          (30)             (13)
       Other, net                                      (34)               6
             Net cash provided by
              (used in) financing
              activities                               717             (497)
                                                       ---             ----

     Net increase in cash
      and cash equivalents                           2,373               24
     Cash and cash
      equivalents at
      beginning of period                              173              162
                                                       ---              ---

     Cash and cash
      equivalents at end of
      period                                        $2,546              186
                                                    ======              ===

                                     CenturyLink, Inc.
                          SELECTED SEGMENT FINANCIAL INFORMATION
                     THREE MONTHS AND SIX ENDED JUNE 30, 2011 AND 2010
                                       (UNAUDITED)
                                  (Dollars in millions)

                                         Three months ended June
                                                   30,
                                        -----------------------
                                           2011             2010
                                           ----             ----
    Total segment revenues               $4,153            1,633
    Total segment expenses                1,828              594
    Total segment income                 $2,325            1,039
                                         ======            =====
    Total segment income
     margin (segment income
     divided by segment
     revenues)                             56.0%            63.6%
                                           ====             ====

    Regional Markets
     Segment
    ----------------
    Revenues
      Strategic services                   $733              300
      Legacy services                     1,490              827
      Data integration                       33               38
                                            ---              ---
                                         $2,256            1,165
                                         ------            -----
    Expenses
      Direct                               $911              431
      Allocated                              62                1
                                           $973              432
                                            ---              ---

    Segment income                       $1,283              733
                                         ======              ===
    Segment income margin                  56.9%            62.9%
                                           ====             ====

    Business Markets
     Segment
    ----------------
    Revenues
      Strategic services                   $442               14
      Legacy services                       362               48
      Data integration                      118                5
                                            ---              ---
                                           $922               67
                                            ---              ---
    Expenses
      Direct                               $236                1
      Allocated                             315               30
                                           $551               31
                                            ---              ---

    Segment income                         $371               36
                                           ====              ===
    Segment income margin                  40.2%            53.7%
                                           ====             ====

    Wholesale Markets
     Segment
    -----------------
    Revenues
      Strategic services                   $562              193
      Legacy services                       413              208
                                            ---              ---
                                           $975              401
                                            ---              ---
    Expenses
      Direct                                $45               38
      Allocated                             259               93
                                           $304              131
                                            ---              ---

    Segment income                         $671              270
                                           ====              ===
    Segment income margin                  68.8%            67.3%
                                           ====             ====


                                      Six months ended June
                                               30,
                                    ----------------------
                                       2011             2010
                                       ----             ----
    Total segment revenues            5,714            3,295
    Total segment expenses            2,409            1,190
    Total segment income              3,305            2,105
                                      =====            =====
    Total segment income
     margin (segment income
     divided by segment
     revenues)                         57.8%            63.9%
                                       ====             ====

    Regional Markets
     Segment
    ----------------
    Revenues
      Strategic services              1,048              598
      Legacy services                 2,266            1,681
      Data integration                   60               73
                                        ---              ---
                                      3,374            2,352
                                      -----            -----
    Expenses
      Direct                          1,341              847
      Allocated                          63               28
                                      1,404              875
                                      -----              ---

    Segment income                    1,970            1,477
                                      =====            =====
    Segment income margin              58.4%            62.8%
                                       ====             ====

    Business Markets
     Segment
    ----------------
    Revenues
      Strategic services                456               28
      Legacy services                   408               96
      Data integration                  122               10
                                        ---              ---
                                        986              134
                                        ---              ---
    Expenses
      Direct                            237                1
      Allocated                         343               58
                                        580               59
                                        ---              ---

    Segment income                      406               75
                                        ===              ===
    Segment income margin              41.2%            56.0%
                                       ====             ====

    Wholesale Markets
     Segment
    -----------------
    Revenues
      Strategic services                772              383
      Legacy services                   582              426
                                        ---              ---
                                      1,354              809
                                      -----              ---
    Expenses
      Direct                             77               73
      Allocated                         348              183
                                        425              256
                                        ---              ---

    Segment income                      929              553
                                        ===              ===
    Segment income margin              68.6%            68.4%
                                       ====             ====

                   CenturyLink, Inc.
     RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
                      (UNAUDITED)
                     (in millions)

                                    Three months ended June 30, 2011
                                    --------------------------------
                                                                    As
                                                                 adjusted
                                                 Less           excluding
                                 As             special          special
                              reported           items            items
                              --------           -----            -----
     Operating cash flow
      and cash flow margin
       Operating income            $459             (260) (1)         719
       Add:  Depreciation
        and amortization          1,198                -            1,198
       Operating cash flow       $1,657             (260)           1,917
                                 ======             ====            =====

       Revenues                  $4,406                -            4,406
                                 ======              ===            =====

       Operating income
        margin (operating
        income divided by
        revenues)                  10.4%                             16.3%
                                   ====                              ====

       Operating cash flow
        margin (operating
        cash flow divided by
        revenues)                  37.6%                             43.5%
                                   ====                              ====

     Free cash flow
       Net cash provided by
        operating activities     $1,348
       Less:  Capital
        expenditures               (579)
       Free cash flow from
        operations                  769
       Special items:
         Add: Cash paid for
          transaction,
          integration,
          severance, and
          retention costs
          associated with our
          Qwest, Embarq and
          Savvis acquisitions    181
       Free cash flow
        excluding special
        items                      $950
                                   ====


                                    Three months ended June 30, 2010
                                    --------------------------------
                                                                    As
                                                                 adjusted
                                                 Less           excluding
                                 As             special          special
                              reported           items            items
                              --------           -----            -----
     Operating cash flow
      and cash flow margin
       Operating income             523              (42) (2)         565
       Add:  Depreciation
        and amortization            358                -              358
       Operating cash flow          881              (42)             923
                                    ===              ===              ===

       Revenues                   1,772                -            1,772
                                  =====              ===            =====

       Operating income
        margin (operating
        income divided by
        revenues)                  29.5%                             31.9%
                                   ====                              ====

       Operating cash flow
        margin (operating
        cash flow divided by
        revenues)                  49.7%                             52.1%
                                   ====                              ====

     Free cash flow
       Net cash provided by
        operating activities        420
       Less:  Capital
        expenditures               (195)
       Free cash flow from
        operations                  225
       Special items:
         Add: Cash paid for
          transaction,
          integration,
          severance, and
          retention costs
          associated with our
          Qwest, Embarq and
          Savvis acquisitions        42
       Free cash flow
        excluding special
        items                       267
                                    ===
    SPECIAL ITEMS
       (1) -Includes integration, severance, and retention costs associated
       with our acquisition of Qwest, along with restructuring charges
       ($245 million); integration and severance costs associated with our
       acquisition of Embarq ($25 million);  transaction and other costs
       associated with our acquisition of Savvis ($2 million); net of a
       favorable settlement of an operating tax  issue ($13 million).
       (2) -Includes integration costs associated with our acquisition of
       Embarq ($18 million); severance and related costs due to workforce
       reductions ($13 million); and transaction and other costs associated
       with our acquisition of Qwest ($10 million).

                   CenturyLink, Inc.
     RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
                      (UNAUDITED)
                     (in millions)

                                     Six months ended June 30, 2011
                                     ------------------------------
                                                                    As
                                                                 adjusted
                                                 Less           excluding
                                 As             special          special
                              reported           items            items
                              --------           -----            -----
     Operating cash flow
      and cash flow margin
       Operating income            $923             (295) (1)       1,218
       Add:  Depreciation and
        amortization              1,567                -            1,567
       Operating cash flow       $2,490             (295)           2,785
                                 ======             ====            =====

       Revenues                  $6,102                -            6,102
                                 ======              ===            =====

       Operating income
        margin (operating
        income divided by
        revenues)                  15.1%                             20.0%
                                   ====                              ====

       Operating cash flow
        margin (operating
        cash flow divided by
        revenues)                  40.8%                             45.6%
                                   ====                              ====

     Free cash flow
       Net cash provided by
        operating activities     $2,018
       Less:  Capital
        expenditures               (790)
       Free cash flow from
        operations                1,228
       Special items:
        Add: Cash paid for
         transaction,
         integration,
         severance, and
         retention costs
         associated with our
         Qwest, Embarq and
         Savvis acquisitions     222
        Add: Cash paid for
         contribution to
         pension plans              100
       Free cash flow
        excluding special
        items                    $1,550
                                 ======


                                     Six months ended June 30, 2010
                                     ------------------------------
                                                                    As
                                                                 adjusted
                                                 Less           excluding
                                 As             special          special
                              reported           items            items
                              --------           -----            -----
     Operating cash flow
      and cash flow margin
       Operating income           1,068              (78) (2)       1,146
       Add:  Depreciation and
        amortization                711                -              711
       Operating cash flow        1,779              (78)           1,857
                                  =====              ===            =====

       Revenues                   3,572                -            3,572
                                  =====              ===            =====

       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
       Net cash provided by
        operating activities        881
       Less:  Capital
        expenditures               (362)
       Free cash flow from
        operations                  519
       Special items:
        Add: Cash paid for
         transaction,
         integration,
         severance, and
         retention costs
         associated with our
         Qwest, Embarq and
         Savvis acquisitions         81
        Add: Cash paid for
         contribution to
         pension plans              300
       Free cash flow
        excluding special
        items                       900
                                    ===
    SPECIAL ITEMS
       (1) -Includes integration, severance, and retention costs associated
       with our acquisition of Qwest, along with restructuring charges
       ($251 million); integration and severance costs associated with our
       acquisition of Embarq ($55 million); transaction and other costs
       associated with our acquisition of Savvis ($2 million); net of a
       favorable settlement of an operating tax issue ($13 million).
       (2) -Includes integration costs associated with our acquisition of
       Embarq ($40 million); severance and related costs due to workforce
       reductions ($28 million); and transaction and other costs associated
       with our acquisition of Qwest ($10 million).

                              CenturyLink, Inc.
                        PRO FORMA STATEMENTS OF INCOME
      THREE MONTHS ENDED JUNE 30, 2011 AND PRO FORMA THREE MONTHS ENDED
                       MARCH 31, 2011 AND JUNE 30, 2010
                                 (UNAUDITED)
     (Dollars in millions, except per share amounts, shares in thousands)

                                                   Pro forma*
                                                       Three
                                 Three months         months
                                    ended             ended
                                                    March 31,
                                June 30, 2011          2011
                                  (excluding       (excluding
                                                      special
                                special items)        items)
                                --------------       --------

     OPERATING REVENUES
       Strategic                         $1,737          1,725
       Legacy                             2,265          2,342
       Data integration                     151            154
       Other                                253            260
                                          4,406          4,481
                                          -----          -----

     OPERATING EXPENSES
       Cost of services and
        products                          1,755          1,736  (A)
       Selling, general and
        administrative                      734            748  (A)
       Depreciation and
        amortization                      1,198          1,172
                                          -----          -----
                                          3,687          3,656
                                          -----          -----

     OPERATING INCOME                       719            825

     OTHER INCOME (EXPENSE)
       Interest expense                    (285)          (311)
       Other income (expense)                 2              8
       Income tax expense                  (174)          (207) (C)

     NET INCOME                            $262            315
                                           ====            ===

     BASIC EARNINGS PER SHARE             $0.44           0.52
     DILUTED EARNINGS PER SHARE           $0.44           0.52

     AVERAGE SHARES OUTSTANDING
       Basic                            598,884        596,877
       Diluted                          600,259        599,960

     OPERATING CASH FLOW
       Operating income                    $719            825
       Add:  Depreciation and
        amortization                      1,198          1,172
                                          -----          -----
       Operating cash flow               $1,917          1,997
                                         ======          =====

                                                   Pro forma**
                                    As of             as of
                                                    March 31,
     OPERATING METRICS                           June 30, 2011      2011
                                  -------------    ----------
      Broadband subscribers               5,427          5,415
      Access lines                       15,057         15,357


                                              Pro forma*
                                                  Three
                                                 months
                                                 ended
                                                June 30,
                                                  2010
                                              (excluding
                                                 special
                                                 items)
                                                --------

     OPERATING REVENUES
       Strategic                                    1,639
       Legacy                                       2,532
       Data integration                               185
       Other                                          279
                                                    4,635
                                                    -----

     OPERATING EXPENSES
       Cost of services and products                1,797  (A)
       Selling, general and administrative            820  (A)
       Depreciation and amortization                1,195
                                                    -----
                                                    3,812
                                                    -----

     OPERATING INCOME                                 823

     OTHER INCOME (EXPENSE)
       Interest expense                              (327)
       Other income (expense)                           5  (B)
       Income tax expense                            (199) (C)

     NET INCOME                                       302
                                                      ===

     BASIC EARNINGS PER SHARE                        0.51
     DILUTED EARNINGS PER SHARE                      0.51

     AVERAGE SHARES OUTSTANDING
       Basic                                      586,811
       Diluted                                    593,717

     OPERATING CASH FLOW
       Operating income                               823
       Add:  Depreciation and amortization          1,195
                                                    -----
       Operating cash flow                          2,018
                                                    =====

                                              Pro forma**
                                                 as of
                                                June 30,
     OPERATING METRICS                                               2010
                                               ---------
      Broadband subscribers                         5,201
      Access lines                                 16,258
    *The pro forma information presented above reflects the operations of
    CenturyLink and Qwest assuming their respective results of
    operations had been combined as of January 1, 2010.  Pro forma
    adjustments include (i) the elimination of CenturyLink and Qwest
    intercompany billings and the elimination of certain deferred
    revenues and costs; (ii) the elimination of certain components of
    pension and postretirement benefit costs; (iii) the amortization of
    the fair value preliminarily assigned to intangible assets
    (primarily customer relationship and software); (iv) adjustments to
    depreciation to reflect the fair value preliminarily assigned to
    property, plant and equipment; (v) adjustments to interest expense
    to reflect valuing Qwest's debt at fair value; and (vi) the related
    income tax effects. For additional pro forma financial information
    relating to the Qwest merger, please see our Current Report on Form
    8-K filed with the Securities and Exchange Commission on May 17,
    2011.  The above pro forma information (i) has not been prepared in
    accordance with generally accepted accounting principles, (ii) is
    for illustrative purposes only, and (iii) is not necessarily
    indicative of the combined operating results that would have
    occurred if the Qwest merger had been consummated as of January 1,
    2010.

    **The pro forma operating metrics presented above reflects the
    broadband subscribers and access lines of CenturyLink and Qwest as
    though the companies had been combined as of January 1, 2010 after
    conforming the definitions of broadband subscribers and access lines
    between the two companies.

     Summary description of special items for First Quarter 2011 and
     Second Quarter 2010 excluded from above schedule:
    (A)  Integration, transaction and severance costs associated with the
         Qwest and Embarq acquisitions incurred by CenturyLink and
         realignment, severance and merger related costs incurred by Qwest
         ($49 million for first quarter 2011 and $76 million for second
         quarter 2010).
    (B)  Gain on embedded option in convertible debt incurred by Qwest ($21
         million).
    (C)  Tax effect of above items ($18 million for first quarter 2011 and $21
         million for second quarter 2010).

                              CenturyLink, Inc.
                     SUPPLEMENTAL PRO FORMA SEGMENT DATA
      THREE MONTHS ENDED JUNE 30, 2011 AND PRO FORMA THREE MONTHS ENDED
                                JUNE 30, 2010
    ASSUMING CENTURYLINK'S ACQUISITION OF QWEST OCCURRED JANUARY 1, 2010
                                 (UNAUDITED)
                            (Dollars in millions)

                                                    Pro
                                                   forma*
                                      Three        Three
                                      months       months
                                     ended        ended
                                      June         June
                                        30,          30,
                                        2011         2010
                                     -----        -----
    Total segment revenues              $4,153        4,356
    Total segment expenses             1,828        1,904
    Total segment income              $2,325        2,452
                                      ======        =====
    Total segment income
     margin (segment income
     divided by segment
     revenues)                          56.0%        56.3%
                                        ====         ====

    Regional Markets Segment
    ------------------------
    Revenues
      Strategic services                $733          693
      Legacy services                  1,490        1,640
      Data integration                    33           40
                                         ---          ---
                                       2,256        2,373
                                       -----        -----
    Expenses
      Direct                             911          929
      Allocated                           62           84
                                         973        1,013
                                         ---        -----

    Segment income                    $1,283        1,360
                                      ======        =====
    Segment income margin               56.9%        57.3%
                                        ====         ====

    Business Markets Segment
    ------------------------
    Revenues
      Strategic services                $442          429
      Legacy services                    362          387
      Data integration                   118          145
                                         ---          ---
                                         922          961
                                         ---          ---
    Expenses
      Direct                             236          265
      Allocated                          315          316
                                         551          581
                                         ---          ---

    Segment income                      $371          380
                                        ====          ===
    Segment income margin               40.2%        39.5%
                                        ====         ====

    Wholesale Markets
     Segment
    -----------------
    Revenues
      Strategic services                $562          517
      Legacy services                    413          505
      Data integration                     -            -
                                         ---          ---
                                         975        1,022
                                         ---        -----
    Expenses
      Direct                              45           49
      Allocated                          259          261
                                         304          310
                                         ---          ---

    Segment income                      $671          712
                                        ====          ===
    Segment income margin               68.8%        69.7%
                                        ====         ====
    * For additional information regarding this pro forma information,
    including related pro forma adjustments, please see the immediately
    preceding supplemental schedule.

                        SAVVIS, INC.
     (acquired by CenturyLink, Inc. on July 15, 2011)
           SUPPLEMENTAL SELECTED FINANCIAL DATA
                        (UNAUDITED)

                                   Three months ended June 30, 2011
                                   --------------------------------
                                                  Less         Excluding

                                    As           special         special
                                 reported      items (1)          items
                                 --------      ---------          -----
                                          (Dollars in millions)

    OPERATING REVENUES             $264                             264
                                    ---                             ---

    OPERATING EXPENSES
      Cost of services and
       products (exclusive of
       depreciation and
       amortization)                140                             140
      Selling, general and
       administrative                64               3              61
      Depreciation and
       amortization                  54                              54
                                    ---                             ---
                                    258               3             255
                                    ---             ---             ---

    OPERATING INCOME                  6              (3)              9

    OTHER INCOME (EXPENSE)
      Interest expense              (19)                            (19)
      Other income (expense)          -                               -
      Income tax expense             (2)                             (2)
                                    ---                             ---

    NET INCOME                     $(15)             (3)            (12)
                                   ====             ===             ===

    Operating cash flow
     (operating income plus
     depreciation and
     amortization)                  $60              (3)             63
    Operating cash flow margin
     (operating cash flow
     divided by revenues)          22.7%                           23.9%
    Operating income margin
     (operating income divided
     by revenues)                   2.3%                            3.4%

    Adjusted free cash flow
     from operations
      Net cash provided by
       operating activities         $39
      Less: capital expenditures    (42)
                                    ---
      Free cash flow from
       operations                    (3)
      Add: merger related cash
       payments                       1
                                    ---
      Free cash flow excluding
       special items                $(2)
                                    ===


                                 Three months ended June 30, 2010
                                 --------------------------------
                                                 Less           Excluding
                                 As            special          special
                             reported         items (2)           items
                             --------         ---------           -----
                                         (Dollars in millions)

    OPERATING
     REVENUES                    222                                222
                                 ---                                ---

    OPERATING
     EXPENSES
      Cost of services and
       products (exclusive
       of depreciation and
       amortization)             120                                120
      Selling, general and
       administrative             58                  4              54
      Depreciation and
       amortization               42                                 42
                                 ---                                ---
                                 220                  4             216
                                 ---                ---             ---

    OPERATING INCOME               2                 (4)              6

    OTHER INCOME (EXPENSE)
      Interest expense           (15)                               (15)
      Other income (expense)       -                                  -
      Income tax
       expense                     -                                  -
                                 ---                                ---

    NET INCOME                   (13)                (4)             (9)
                                 ===                ===             ===

    Operating cash flow
     (operating income
     plus depreciation and
     amortization)                44                 (4)             48
    Operating cash flow
     margin (operating
     cash flow divided by
     revenues)                  19.8%                              21.6%
    Operating income
     margin (operating
     income divided by
     revenues)                   0.9%                               2.7%

    Adjusted free cash
     flow from operations
      Net cash provided by
       operating activities       32
      Less: capital
       expenditures              (51)
                                 ---
      Free cash flow from
       operations                (19)
      Add: merger related
       cash payments               1
                                 ---
      Free cash flow
       excluding special
       items                     (18)
                                 ===


                                                           Increase
                                                           (decrease)
                                                Increase     excluding
                                                (decrease)    special
                                                    as
                                                        reported       items
                                                ---------       -----

    OPERATING REVENUES                              18.9%        18.9%

    OPERATING EXPENSES
      Cost of services and products
       (exclusive of depreciation and
       amortization)                                16.7%        16.7%
      Selling, general and administrative           10.3%        13.0%
      Depreciation and amortization                 28.6%        28.6%
                                                    17.3%        18.1%

    OPERATING INCOME                               200.0%        50.0%

    OTHER INCOME (EXPENSE)
      Interest expense                              26.7%        26.7%
      Other income (expense)                          NM           NM
      Income tax expense                              NM           NM

    NET INCOME                                      15.4%        33.3%

    Operating cash flow (operating income
     plus depreciation and amortization)
    Operating cash flow margin (operating
     cash flow divided by revenues)
    Operating income margin (operating
     income divided by revenues)

    Adjusted free cash flow from
     operations
      Net cash provided by operating
       activities
      Less: capital expenditures
      Free cash flow from operations
      Add: merger related cash payments
      Free cash flow excluding special items
    (1)  Special items in second quarter 2011 include merger related expenses.

    (2)  Special items in second quarter 2010 include merger related
    expenses associated with Savvis' acquisition of Fusepoint, Inc.

    NM = not meaningful

SOURCE CenturyLink, Inc.


Source: newswire



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