Achieved operating revenues of $4.54 billion, including core revenues[1] of $4.10 billion  Generated operating cash flow[2] of $1.81 billion, excluding special items 

Generated free cash flow[2] of $677 million, excluding special items and integration-related capital expenditures 

Achieved Adjusted Net Income[2] of $408 million and Adjusted Diluted EPS[2] of $0.72, excluding special items 

Completed $2 billion 2013 share repurchase program; Repurchased 59.5 million shares since inception of program in February 2013, representing 9.6% of outstanding shares as of December 31, 2012 

Commenced follow-on $1 billion share repurchase program in second quarter

CenturyLink, Inc. (NYSE: CTL) today reported strong operating revenues, operating cash flow and free cash flow for second quarter 2014.

"CenturyLink second quarter results reflect strong demand for our high-bandwidth data services and cloud and hosting solutions, solid consumer demand for Prism TV service and our continued mitigation of legacy revenue declines," said Glen F. Post III, chief executive officer and president. "Total operating revenues increased slightly year-over-year and exceeded our revenue guidance for the quarter. Cash flows for the quarter were also strong, primarily due to solid revenue performance and continued focus by our employees on containing costs.

"Our reliable, secure solutions that meet both network and hosting needs remain a strong driver of increasing demand from business customers. We continue to experience success with our managed service solutions, as well as multi-site MPLS[3] sales. Our development of advanced cloud infrastructure technology significantly strengthens our capabilities to meet the growing demand for highly automated cloud and managed services, and we have further expanded our hosting footprint with the opening of the new Minneapolis – St Paul data center. Additionally, the expansion of symmetrical 1 gigabit service to 16 cities, announced yesterday, will enhance our capability to provide higher broadband speeds and an enhanced service experience to both residential and business customers.

"Overall, we are pleased with our second quarter results, which reflect our continued progress toward revenue stability. We had a strong funnel of sales opportunities entering the third quarter and we are looking forward to continuing to execute on our strategic priorities to create value for shareholders," Post concluded.

Second Quarter 2014 Highlights

  • Achieved core revenues of $4.10 billion in second quarter, a 0.2% year-over-year decline, compared with a 1.6% year-over-year decline in second quarter 2013; Strategic revenues[4] grew 5.1% from the second quarter a year-ago.
  • Generated free cash flow of $677 million, excluding special items and integration-related capital expenditures.
  • Experienced continued strength in sales of high bandwidth data services to business customers.
  • Added nearly 16,000 CenturyLink® PrismTM TV customers during second quarter, ending the period with approximately 215,000 customers in service.
  • Ended the quarter with more than 6 million high-speed Internet customers, a decrease of approximately 2,100 in second quarter 2014 due to typical seasonality.
  • Purchased and retired an additional 4.5 million shares of CenturyLink common stock for $160 million during second quarter 2014, of which 1.2 million shares were under the $1 billion follow-on program.

Consolidated Financial Results

Operating revenues for second quarter 2014 increased to $4.54 billion from $4.53 billion in second quarter 2013 driven by higher strategic and data integration revenues. The increase in strategic revenues was primarily due to increased business customer demand for high-bandwidth data services and hosting solutions, along with the year-over-year growth in high-speed Internet and CenturyLink® PrismTM TV customers. This increase was partially offset by lower legacy services revenues, primarily due to the impact of access line losses and lower access revenues.

Operating expenses, excluding special items, increased to $3.82 billion from $3.79 billion in second quarter 2013. The year-over-year increase was primarily driven by higher customer premise equipment (CPE) sales costs, expenses related to the growth of PrismTM TV and a higher Universal Service Fund (USF) contribution factor, which were partially offset by lower depreciation and amortization expenses.

Operating cash flow (as defined in our attached supplemental schedules), excluding special items, decreased to $1.81 billion from $1.86 billion in second quarter 2013. For second quarter 2014, CenturyLink achieved an operating cash flow margin, excluding special items, of 39.9% versus 41.1% in second quarter 2013. These decreases were primarily driven by the result of lower legacy revenues and the expense increases described above.

Adjusted Net Income and Adjusted Diluted Earnings Per Share (Adjusted Diluted EPS)

Adjusted Net Income and Adjusted Diluted EPS exclude the after-tax impact of special items, the non-cash after-tax impact of the amortization of intangible assets related to acquisitions since mid-2009, and the non-cash after-tax impact to interest expense of the assignment of fair value to the outstanding debt assumed in connection with those acquisitions.

Excluding the items outlined above, CenturyLink's Adjusted Net Income for second quarter 2014 was $408 million compared to Adjusted Net Income of $417 million in second quarter 2013. Second quarter 2014 Adjusted Diluted EPS was $0.72 compared to $0.69 in the year-ago period. See the attached schedules for additional information.

GAAP Results

Under generally accepted accounting principles (GAAP), net income for second quarter 2014 was $193 million compared to $269 million for second quarter 2013, and diluted earnings per share for second quarter 2014 was $0.34 compared to $0.44 for second quarter 2013.

Details regarding the Company's special items for the three months ended June 30, 2014 and 2013 are provided in the accompanying financial schedules.

Segment Financial Results[5]

Consumer

The Consumer segment achieved year-over-year revenue growth driven by increased high-speed Internet and CenturyLink® PrismTM TV customers and price increases on certain products.

  • Strategic revenues were $709 million in the quarter, an 8.6% increase over second quarter 2013.
  • Generated $1.50 billion in total revenues, slightly higher than second quarter 2013, reflecting strong growth in strategic services partially offset by the continued decline in legacy services.
  • Added nearly 16,000 CenturyLink® PrismTM TV customers during second quarter 2014, increasing penetration of the more than 2.1 million addressable homes to approximately 10%.

Business

The Business segment achieved its fourth consecutive quarter of year-over-year core revenue growth driven by continued demand for high-bandwidth data services and solid sales momentum.

  • Strategic revenues were $663 million in the quarter, a 7.8% increase over second quarter 2013, driven by strength in high-bandwidth offerings such as MPLS and Ethernet services.
  • Generated $1.56 billion in total revenues, an increase of 2.6% from second quarter 2013, as growth in high-bandwidth offerings and data integration revenues offset lower legacy services revenues. Data integration revenues were $20 million higher in second quarter 2014 compared to second quarter 2013.
  • Achieved segment margin of 37.9%, which declined from 40.2% a year-ago. This decrease was primarily due to higher costs related to business revenue growth such as CPE, facility and sales and marketing, along with the decline in legacy revenues.
  • Continued strong sales momentum in second quarter with solid sales funnel entering third quarter and continued success in sales of Managed Office and Managed Enterprise solutions.

Wholesale

The Wholesale segment ended the quarter with more than 19,700 fiber-connected towers, an increase of 18% from second quarter 2013.

  • Strategic revenues were $568 million in the quarter, down slightly from second quarter 2013, as increases in wireless carrier bandwidth demand and Ethernet sales were offset by declines in low-speed data revenue.
  • Generated $866 million in total revenues, a decrease of 4.8% from second quarter 2013, reflecting the continued decline in low-speed data revenues and in legacy revenues, primarily driven by lower long distance and switched access minutes of use, along with access rate reductions from implementation of the CAF Order[6].
  • Completed approximately 500 fiber builds in second quarter 2014; lowered the annual estimate for fiber builds to between 2,000 to 2,500 for full-year 2014 due to continued customer decisions to defer certain sites into 2015.

Hosting

The Hosting segment grew managed hosting (including cloud) and colocation revenues as cross-selling initiatives continue to strengthen sales opportunities.

  • Operating revenues were $358 million in the quarter, a 3.2% increase from second quarter 2013.
  • Managed hosting revenues[7] were $148 million, representing a 9.6% increase from second quarter 2013, and colocation[7] revenues were $158 million, a 1.9% increase over the same period a year ago.
  • Expenses increased $10 million from second quarter 2013 primarily due to higher employee costs.
  • Opened a data center in Minneapolis, Minnesota offering colocation, cloud and managed hosting services connected to CenturyLink's IP backbone and global data center footprint.

Guidance – Third Quarter 2014

The Company expects third quarter 2014 revenues and operating cash flow to decrease compared to second quarter 2014 primarily due to the continued decline of legacy revenues and increased operating expenses related to the normal seasonality of outside plant maintenance and utility costs.

 

Third Quarter 2014 (excl. special items)

   

Operating Revenues

$4.47 to $4.52 billion

Core Revenues

$4.06 to $4.11 billion

Operating Cash Flow

$1.72 to $1.77 billion

Adjusted Diluted EPS

$0.58 to $0.63

All 2014 guidance figures and 2014 outlook statements included in this release (i) speak as of August 6, 2014 only, (ii) exclude the impact of any share repurchases made after June 30, 2014 and (iii) exclude the effects of special items, future changes in regulation or accounting rules, integration expenses associated with our recent acquisitions, any changes in operating or capital plans or other unforeseen events or circumstances that impact our financial performance, and any future mergers, acquisitions, divestitures or other similar business transactions. See "Forward Looking Statements" below. For additional information on how we define certain of the terms used above, see the attached schedules.

Investor Call

As previously announced, CenturyLink's management will host a conference call at 4:00 p.m. Central Time today, August 6, 2014. Interested parties can access the call by dialing 866-835-8905. The call will be accessible for replay through August 14, 2014, by dialing 888-266-2081 and entering the access code 1640411. Investors can also listen to CenturyLink's earnings conference call and webcast replay by accessing the Investor Relations portion of the Company's website at www.centurylink.com through August 28, 2014. Financial, statistical and other information related to the call will also be posted to our website.

Reconciliation to GAAP

This release includes certain non-GAAP financial measures, including but not limited to operating cash flow, free cash flow, core revenues, Adjusted Net Income and adjustments to GAAP measures to exclude the effect of special items. 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 above will be available in the Investor Relations portion of the Company's website 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.

About CenturyLink

CenturyLink is the third largest telecommunications company in the United States and is recognized as a leader in the network services market by technology industry analyst firms. The Company is a global leader in cloud infrastructure and hosted IT solutions for enterprise customers. CenturyLink provides data, voice and managed services in local, national and select international markets through its high-quality advanced fiber optic network and multiple data centers for businesses and consumers. The company also offers advanced entertainment services under the CenturyLink® PrismTM TV and DIRECTV brands. 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.

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 assumptions, risks and uncertainties, many of which are beyond our control. Actual events and results may differ materially from those anticipated, estimated, projected or implied by us if one or more of these risks or uncertainties materialize, or if our 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, including product displacement; the effects of ongoing changes in the regulation of the communications industry, including the outcome of regulatory or judicial proceedings relating to intercarrier compensation, access charges, universal service, broadband deployment, data protection and net neutrality; our ability to effectively adjust to changes in the communications industry, and changes in our markets, product mix and network caused by our recent acquisitions; our ability to successfully integrate recently-acquired operations into our incumbent operations, including the possibility that the anticipated benefits from our recent acquisitions cannot be fully realized in a timely manner or at all; 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, including our ability to effectively respond to increased demand for high-speed broadband service; our ability to successfully introduce new product or service offerings on a timely and cost-effective basis; the adverse impact on our business and network from possible equipment failures, security breaches or similar attacks on our network; our ability to successfully negotiate collective bargaining agreements on reasonable terms without work stoppages; our ability to use net operating loss carryovers of Qwest in projected amounts; our continued access to credit markets on favorable terms; our ability to collect our receivables from financially troubled communications companies; our ability to maintain favorable relations with our key business partners, suppliers, vendors, landlords and financial institutions; any adverse developments in legal or regulatory proceedings involving us; changes in our operating plans, corporate strategies, dividend payment plans or other capital allocation plans, including those caused by changes in our cash requirements, capital expenditure needs, debt obligations, pension funding requirements, cash flows, or financial position, or other similar changes; the effects of adverse weather; other risks referenced from time to time in our filings with the SEC; and the effects of more general factors such as changes in interest rates, in tax laws, 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 recent acquisitions are described in greater detail in Item 1A of our Form 10-Q for the quarter ended March 31, 2014, 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 are inherently speculative and speak only as of the date made. We undertake no obligation to update any of our forward-looking statements for any reason.

[1] Core revenues defined as Strategic revenues plus Legacy revenues (excludes Data Integration and Other revenues), as described further in the attached schedules

[2] See attachments for non-GAAP reconciliations

[3] Multi-protocol Label Switching

[4] All references to Strategic and Legacy revenues herein reflect certain adjustments described in the attached schedules

[5] All references to segment data herein reflect certain adjustments described in the attached schedules

[6] Federal Communications Commission's Connect America and Intercarrier Compensation Reform Order (the CAF Order) adopted on October 27, 2011

[7] Hosting revenue by product category was restated in 1Q14 to allocate cross-connect revenue with the associated colocation or managed service

 

 CenturyLink, Inc. 

 CONSOLIDATED STATEMENTS OF INCOME 

 THREE MONTHS ENDED JUNE 30, 2014 AND 2013 

 (UNAUDITED) 

 (Dollars in millions, except per share amounts; shares in thousands) 

                                     
     

 Three months ended June 30, 2014

 

 Three months ended June 30, 2013

         
                                     
     

As 
reported

 

Less special 
items

 

As adjusted

excluding special items

(Non-GAAP)

 

 As reported

 

Less special items

 

As adjusted

excluding special items (Non-GAAP)

 

Increase 
(decrease) as reported

 

Increase

(decrease) excluding special items

 
                                     

 OPERATING REVENUES*

                                 
 

 Strategic

$

2,298

     

2,298

 

2,186

     

2,186

 

5.1%

 

5.1%

 
 

 Legacy

 

1,803

     

1,803

 

1,923

     

1,923

 

(6.2%)

 

(6.2%)

 
 

 Data integration

 

187

     

187

 

167

     

167

 

12.0%

 

12.0%

 
 

 Other

 

253

     

253

 

249

     

249

 

1.6%

 

1.6%

 
     

4,541

 

-

 

4,541

 

4,525

 

-

 

4,525

 

0.4%

 

0.4%

 
                                     

 OPERATING EXPENSES

                                 
 

 Cost of services and products 

 

1,962

 

6

(1)

1,956

 

1,873

 

4

(4)

1,869

 

4.8%

 

4.7%

 
 

 Selling, general and administrative

 

831

 

59

(1)

772

 

814

 

16

(4)

798

 

2.1%

 

(3.3%)

 
 

 Depreciation and amortization

 

1,093

     

1,093

 

1,123

     

1,123

 

(2.7%)

 

(2.7%)

 
     

3,886

 

65

 

3,821

 

3,810

 

20

 

3,790

 

2.0%

 

0.8%

 
                                     

 OPERATING INCOME

 

655

 

(65)

 

720

 

715

 

(20)

 

735

 

(8.4%)

 

(2.0%)

 
                                     

 OTHER INCOME (EXPENSE)

                                 
 

 Interest expense

 

(325)

     

(325)

 

(325)

     

(325)

 

0.0%

 

0.0%

 
 

 Other (expense) income 

 

(7)

 

(14)

(2)

7

 

4

 

-

 

4

 

(275.0%)

 

75.0%

 
 

 Income tax expense

 

(130)

 

25

(3)

(155)

 

(125)

 

40

(5)

(165)

 

4.0%

 

(6.1%)

 
                                     

 NET INCOME

$

193

 

(54)

 

247

 

269

 

20

 

249

 

(28.3%)

 

(0.8%)

 
                                     

 BASIC EARNINGS PER SHARE

$

0.34

 

(0.10)

 

0.43

 

0.45

 

0.03

 

0.41

 

(24.4%)

 

4.9%

 

 DILUTED EARNINGS PER SHARE

$

0.34

 

(0.09)

 

0.43

 

0.44

 

0.03

 

0.41

 

(22.7%)

 

4.9%

 
                                     

 AVERAGE SHARES OUTSTANDING

                                 
 

 Basic

 

567,915

     

567,915

 

604,302

     

604,302

 

(6.0%)

 

(6.0%)

 
 

 Diluted

 

569,032

     

569,032

 

605,602

     

605,602

 

(6.0%)

 

(6.0%)

 
                                     

DIVIDENDS PER COMMON SHARE

$

0.540

     

0.540

 

0.540

     

0.540

 

0.0%

 

0.0%

 
                                     
 

SPECIAL ITEMS

                                 

(1) -

Includes severance costs associated with recent headcount reductions ($33 million), integration and retention costs associated with our acquisition of Qwest ($14 million) and the impairment of two office buildings ($18 million).

(2) -

Impairment of a non-operating investment ($14 million).

 

(3) -

Income tax benefit of Item (1).

                       

(4) -

Includes severance costs associated with reduction in force initiatives ($4 million), integration, severance and retention costs associated with our acquisition of Qwest ($11 million), integration, severance, and retention costs associated with our acquisition of Savvis ($4 million) and an accounting adjustment ($1 million).

 

(5) -

Income tax benefit of Item (4) and a favorable federal income tax settlement ($33 million).

     
                                     
 

* During 2013, we reallocated the discounts on our bundled services (local, long distance, and broadband) to the component products and services. The net effect of the bundled services reallocation was a reclassification of certain revenues from legacy services to strategic services.   Also in 2013, we reallocated our CLEC revenues into their component products and services.  The net effect of this CLEC reallocation was a reclassification of certain revenues from strategic services to legacy services.  The 2013 information presented here has been restated to reflect these reclassifications.

 

 

 CenturyLink, Inc. 

 CONSOLIDATED STATEMENTS OF INCOME 

 SIX MONTHS ENDED JUNE 30, 2014 AND 2013 

 (UNAUDITED) 

 (Dollars in millions, except per share amounts; shares in thousands) 

                                   
     

 Six months ended June 30, 2014

 

 Six months ended June 30, 2013

       
                                   
     

As reported

 

Less special items

 

As adjusted 

excluding special items

(Non-GAAP)

 

As reported

 

Less special items

 

 

As adjusted

excluding special items (Non-GAAP)

 

Increase(decrease) as reported

 

Increase(decrease)excluding special  items

                                   

 OPERATING REVENUES*

                               
 

 Strategic

$

4,579

     

4,579

 

4,350

     

4,350

 

5.3%

 

5.3%

 

 Legacy

 

3,632

     

3,632

 

3,875

     

3,875

 

(6.3%)

 

(6.3%)

 

 Data integration

 

361

     

361

 

307

     

307

 

17.6%

 

17.6%

 

 Other

 

507

     

507

 

506

     

506

 

0.2%

 

0.2%

     

9,079

 

-

 

9,079

 

9,038

 

-

 

9,038

 

0.5%

 

0.5%

                                   

 OPERATING EXPENSES

                               
 

 Cost of services and products 

 

3,897

 

10

(1)

3,887

 

3,669

 

6

(4)

3,663

 

6.2%

 

6.1%

 

 Selling, general and administrative

 

1,674

 

83

(1)

1,591

 

1,632

 

48

(4)

1,584

 

2.6%

 

0.4%

 

 Depreciation and amortization

 

2,200

     

2,200

 

2,240

     

2,240

 

(1.8%)

 

(1.8%)

     

7,771

 

93

 

7,678

 

7,541

 

54

 

7,487

 

3.0%

 

2.6%

                                   

 OPERATING INCOME

 

1,308

 

(93)

 

1,401

 

1,497

 

(54)

 

1,551

 

(12.6%)

 

(9.7%)

                                   

 OTHER INCOME (EXPENSE)

                               
 

 Interest expense

 

(656)

     

(656)

 

(641)

     

(641)

 

2.3%

 

2.3%

 

 Other (expense) income 

 

2

 

(14)

(2)

16

 

43

 

37

(5)

6

 

(95.3%)

 

166.7%

 

 Income tax expense

 

(258)

 

36

(3)

(294)

 

(332)

 

32

(6)

(364)

 

(22.3%)

 

(19.2%)

                                   

 NET INCOME

$

396

 

(71)

 

467

 

567

 

15

 

552

 

(30.2%)

 

(15.4%)

                                   

 BASIC EARNINGS PER SHARE

$

0.69

 

(0.12)

 

0.82

 

0.93

 

0.02

 

0.90

 

(25.8%)

 

(8.9%)

 DILUTED EARNINGS PER SHARE

$

0.69

 

(0.12)

 

0.82

 

0.92

 

0.02

 

0.90

 

(25.0%)

 

(8.9%)

                                   

 AVERAGE SHARES OUTSTANDING

                               
 

 Basic

 

571,225

     

571,225

 

611,862

     

611,862

 

(6.6%)

 

(6.6%)

 

 Diluted

 

572,244

     

572,244

 

613,338

     

613,338

 

(6.7%)

 

(6.7%)

                                   

DIVIDENDS PER COMMON SHARE

$

1.08

     

1.08

 

1.08

     

1.08

 

0.0%

 

0.0%

                                   
 

SPECIAL ITEMS

                               

 (1) -

Includes severance costs associated with recent headcount reductions ($52 million), integration and retention costs associated with our acquisition of Qwest ($25 million) and the impairment of two office buildings ($18 million), less the offsetting impact of a litigation settlement in the amount of $2 million.

 (2) -

Impairment of a non-operating investment ($14 million).

               

 (3) -

Income tax benefit of Item (1).

                       

 (4) -

Includes severance costs associated with reduction in force initiatives ($11 million), integration, severance and retention costs associated with our acquisition of Qwest ($18 million),  integration, severance, and retention costs associated with our acquisition of Savvis ($7 million) and an accounting adjustment ($18 million).

 (5) -

Gain on the sale of a non-operating investment ($32 million) and settlements of other non-operating issues ($5 million).

 (6) -

Income tax expense of Items (4) and (5) and a favorable federal income tax settlement ($33 million).

 
                                   
 

* During 2013, we reallocated the discounts on our bundled services (local, long distance, and broadband) to the component products and services. The net effect of the bundled services reallocation was a reclassification of certain revenues from legacy services to strategic services.   Also in 2013, we reallocated our CLEC revenues into their component products and services.  The net effect of this CLEC reallocation was a reclassification of certain revenues from strategic services to legacy services.  The 2013 information presented here has been restated to reflect these reclassifications.

 
 

 CenturyLink, Inc. 

 

 CONDENSED CONSOLIDATED BALANCE SHEETS

 

 JUNE 30, 2014 AND DECEMBER 31, 2013 

 

 (UNAUDITED)

 

 (Dollars in millions) 

           
     

June 30,

 

December 31,

     

2014

 

2013

           
 

ASSETS

       

CURRENT ASSETS

       
 

Cash and cash equivalents

$

181

 

168

 

Other current assets

 

3,417

 

3,739

 

   Total current assets

 

3,598

 

3,907

           

NET PROPERTY, PLANT AND EQUIPMENT

       
 

Property, plant and equipment

 

35,404

 

34,307

 

Accumulated depreciation

 

(16,969)

 

(15,661)

 

   Net property, plant and equipment

 

18,435

 

18,646

           

GOODWILL AND OTHER ASSETS

       
 

Goodwill

 

20,674

 

20,674

 

Other, net

 

7,907

 

8,560

 

    Total goodwill and other assets

 

28,581

 

29,234

           

TOTAL ASSETS

$

50,614

 

51,787

           
           
 

LIABILITIES AND STOCKHOLDERS' EQUITY

       

CURRENT LIABILITIES

       
 

Current maturities of long-term debt

$

1,188

 

785

 

Other current liabilities

 

3,255

 

3,624

 

    Total current liabilities

 

4,443

 

4,409

           

LONG-TERM DEBT

 

19,771

 

20,181

DEFERRED CREDITS AND OTHER LIABILITIES

 

9,802

 

10,006

STOCKHOLDERS' EQUITY

 

16,598

 

17,191

           

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

50,614

 

51,787

           
 

 

 

 CenturyLink, Inc. 

 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 SIX MONTHS ENDED JUNE 30, 2014 AND 2013

 (UNAUDITED)

 (Dollars in millions) 

                         
                         
                   

Six Months

 

Six Months

                   

 ended

 

 ended

                   

 June 30, 2014

 

 June 30, 2013

                         

 OPERATING ACTIVITIES

             
 

 Net income

       

$

396

 

567

 

 Adjustments to reconcile net income to net

           
   

 cash provided by operating activities:

           
     

 Depreciation and amortization

     

2,200

 

2,240

     

 Impairment of assets

       

32

 

-

     

 Deferred income taxes

       

208

 

307

     

 Provision for uncollectible accounts

     

63

 

65

     

 Gain on sale of intangible assets

     

-

 

(32)

     

 Changes in current assets and current liabilities, net

 

(364)

 

(99)

     

 Retirement benefits

       

(102)

 

(220)

     

 Changes in other noncurrent assets and liabilities

 

66

 

48

     

 Other, net

         

10

 

(20)

       

 Net cash provided by operating activities

   

2,509

 

2,856

                         

 INVESTING ACTIVITIES

               
 

 Payments for property, plant and equipment and capitalized software

 

(1,401)

 

(1,410)

 

 Proceeds from sale of intangible assets or property

   

-

 

75

 

 Other, net

         

(18)

 

23

       

 Net cash used in investing activities

   

(1,419)

 

(1,312)

                         

 FINANCING ACTIVITIES

             
 

 Net proceeds from issuance of long-term debt

   

-

 

1,740

 

 Payments of long-term debt

       

(121)

 

(1,018)

 

 Net borrowings (payments) on credit facility

     

120

 

(775)

 

 Dividends paid

         

(616)

 

(661)

 

 Net proceeds from issuance of common stock

   

32

 

40

 

 Repurchases of common stock

       

(493)

 

(867)

 

 Other, net

         

1

 

-

       

 Net cash used in financing activities

   

(1,077)

 

(1,541)

                         

 Net increase in cash and cash equivalents

     

13

 

3

 Cash and cash equivalents at beginning of period

   

168

 

211

                         

 Cash and cash equivalents at end of period

   

$

181

 

214

                         
 

 

 

 

 

 CenturyLink, Inc. 

 SELECTED SEGMENT FINANCIAL INFORMATION

 THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2014 AND 2013

 (UNAUDITED)

 (Dollars in millions) 

                         
                         
         

 

Three months ended June 30, *

   

 

Six months ended June 30, *

         

2014

 

2013**

   

2014

 

2013**

Total segment revenues

 

$

4,288

 

4,276

 

$

8,572

 

8,532

Total segment expenses

   

2,118

 

2,041

   

4,217

 

3,969

Total segment income

 

$

2,170

 

2,235

 

$

4,355

 

4,563

                         

Total segment income margin (segment income
     divided by segment revenues)

 

50.6%

 

52.3%

   

50.8%

 

53.5%

                         

Consumer

                     

Revenues

                     
 

Strategic services

 

$

709

 

653

 

$

1,411

 

1,298

 

Legacy services

   

790

 

840

   

1,596

 

1,704

 

Data integration

   

1

 

1

   

2

 

3

       

$

1,500

 

1,494

 

$

3,009

 

3,005

Expenses

                     
 

Direct

   

$

478

 

458

 

$

944

 

894

 

Allocated

     

121

 

116

   

238

 

229

       

$

599

 

574

 

$

1,182

 

1,123

                         

Segment income

 

$

901

 

920

 

$

1,827

 

1,882

Segment income margin

   

60.1%

 

61.6%

   

60.7%

 

62.6%

                         

Business

                     

Revenues

                     
 

Strategic services

 

$

663

 

615

 

$

1,318

 

1,229

 

Legacy services

   

715

 

744

   

1,446

 

1,497

 

Data integration

   

186

 

166

   

359

 

304

       

$

1,564

 

1,525

 

$

3,123

 

3,030

Expenses

                     
 

Direct

   

$

866

 

804

 

$

1,720

 

1,557

 

Allocated

     

106

 

108

   

218

 

212

       

$

972

 

912

 

$

1,938

 

1,769

                         

Segment income

 

$

592

 

613

 

$

1,185

 

1,261

Segment income margin

   

37.9%

 

40.2%

   

37.9%

 

41.6%

                         

Wholesale

                     

Revenues

                     
 

Strategic services

 

$

568

 

571

 

$

1,138

 

1,142

 

Legacy services

   

298

 

339

   

590

 

674

       

$

866

 

910

 

$

1,728

 

1,816

Expenses

                     
 

Direct

   

$

46

 

50

 

$

87

 

80

 

Allocated

     

237

 

251

   

472

 

495

       

$

283

 

301

 

$

559

 

575

                         

Segment income

 

$

583

 

609

 

$

1,169

 

1,241

Segment income margin

   

67.3%

 

66.9%

   

67.7%

 

68.3%

                         

Hosting

                     

Revenues

                     
 

Strategic services

 

$

358

 

347

 

$

712

 

681

       

$

358

 

347

 

$

712

 

681

Expenses

                     
 

Direct

   

$

226

 

215

 

$

464

 

424

 

Allocated

     

38

 

39

   

74

 

78

       

$

264

 

254

 

$

538

 

502

                         

Segment income

 

$

94

 

93

 

$

174

 

179

Segment income margin

   

26.3%

 

26.8%

   

24.4%

 

26.3%

                         
                         
 

*

During the first quarter of 2014, we adopted several changes with respect to the assignment of certain expenses to our segments.  We have restated the previously reported segment results for the three and six months ended June 30, 2013 to conform to the current presentation.  The nature of the most significant changes and the related effect on segment expenses for the three and six months ended June 30, 2013 are as follows:

                                       
 

-

The method for allocating certain shared costs of consumer sales and care, including bad debt expense and credit card fees, was revised, which resulted in an increase in consumer segment expenses of $22 million and $42 million with a corresponding decrease in business segment expenses for the three and six months ended June 30, 2013, respectively; and

                                       
 

-

Hosting segment expenses have been conformed to the reporting of our other segments' expenses.  Specifically, our integration efforts and centralization of certain administrative functions reached the point where it has become more practical to discontinue including certain finance, information technology, legal and human resources expenses in the hosting segment, which resulted in a decrease of $21 million and $39 million in hosting segment expenses for the three and six months ended June 30, 2013, respectively.

                                       

**

 

During 2013, we reallocated the discounts on our bundled services (local, long distance, and broadband) to the component products and services. The net effect of the bundled services reallocation was a reclassification of certain revenues from legacy services to strategic services. Also in 2013, we reallocated our CLEC revenues into their component products and services.  The net effect of this CLEC reallocation was a reclassification of certain revenues from strategic services to legacy services.  The 2013 information presented here has been restated to reflect these reclassifications.

                                       
 

See our SEC reports for further information.

                   
 

 

 

 CenturyLink, Inc. 

 RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

 (UNAUDITED)

 (Dollars in millions) 

                           
                           
     

 Three months ended June 30, 2014

 

 Three months ended June 30, 2013

             

 As adjusted

         

 As adjusted

         

 Less

 

 excluding

     

 Less

 

 excluding

     

 As

 

 special

 

 special

 

 As

 

 special

 

 special

     

 reported

 

 items

 

 items

 

 reported

 

 items

 

 items

 Operating cash flow and cash flow margin 

                     
 

 Operating income

$

655

 

(65)

(1)

720

 

715

 

(20)

(2)

735

 

 Add:  Depreciation and amortization

1,093

 

-

 

1,093

 

1,123

 

-

 

1,123

 

 Operating cash flow 

$

1,748

 

(65)

 

1,813

 

1,838

 

(20)

 

1,858

                           
 

 Revenues 

$

4,541

 

-

 

4,541

 

4,525

 

-

 

4,525

                           
 

 Operating income margin (operating income divided by revenues)

14.4%

     

15.9%

 

15.8%

     

16.2%

                           
 

 Operating cash flow margin (operating cash flow divided by revenues)

38.5%

     

39.9%

 

40.6%

     

41.1%

                           
                           

 Free cash flow  

                     
 

 Operating cash flow

     

$

1,813

         

1,858

 

 Less: Cash paid for income taxes, net of refunds

       

(13)

         

(38)

 

 Less: Cash paid for interest, net of amounts capitalized

       

(407)

         

(382)

 

 Less: Capital expenditures (3)

       

(723)

         

(739)

 

 Add:  Other income 

       

7

         

4

 

 Free cash flow (4)

     

$

677

         

703

                           
 

 

SPECIAL ITEMS

 (1) -

Includes severance costs associated with recent headcount reductions ($33 million), integration and retention costs associated with our acquisition of Qwest ($14 million) and the impairment of two office buildings ($18 million).

 (2) -

Includes severance costs associated with reduction in force initiatives ($4 million), integration, severance and retention costs associated with our acquisition of Qwest ($11 million), integration, severance, and retention costs associated with our acquisition of Savvis ($4 million) and an accounting adjustment ($1 million).

 (3) -

Excludes $8 million in second quarter 2014 and $8 million in second quarter 2013 of capital expenditures related to the integration of Embarq, Qwest and Savvis.

 (4) -

Excludes special items identified in items (1) and (2).

 

 

 

 

 CenturyLink, Inc. 

 RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

 (UNAUDITED)

 (Dollars in millions) 

                           
                           
     

 Six months ended June 30, 2014

 

 Six months ended June 30, 2013

             

 As adjusted

         

 As adjusted

         

 Less

 

 excluding

     

 Less

 

 excluding

     

 As

 

 special

 

 special

 

 As

 

 special

 

 special

     

 reported

 

 items

 

 items

 

 reported

 

 items

 

 items

 Operating cash flow and cash flow margin 

                     
 

 Operating income

$

1,308

 

(93)

(1)

1,401

 

1,497

 

(54)

(2)

1,551

 

 Add:  Depreciation and amortization

2,200

 

-

 

2,200

 

2,240

 

-

 

2,240

 

 Operating cash flow 

$

3,508

 

(93)

 

3,601

 

3,737

 

(54)

 

3,791

                           
 

 Revenues 

$

9,079

 

-

 

9,079

 

9,038

 

-

 

9,038

                           
 

 Operating income margin (operating income divided by revenues)

14.4%

     

15.4%

 

16.6%

     

17.2%

                           
 

 Operating cash flow margin (operating cash flow divided by revenues)

38.6%

     

39.7%

 

41.3%

     

41.9%

                           
                           

 Free cash flow  

                       
 

 Operating cash flow

     

$

3,601

         

3,791

 

 Less: Cash paid for income taxes, net of refunds

       

(23)

         

(46)

 

 Less: Cash paid for interest, net of amounts capitalized

       

(672)

         

(647)

 

 Less: Capital expenditures (3)

       

(1,385)

         

(1,395)

 

 Add:  Other income 

       

16

         

6

 

 Free cash flow (4)

     

$

1,537

         

1,709

                           
 

 

 SPECIAL ITEMS

                         

 (1) -

Includes severance costs associated with recent headcount reductions ($52 million), integration and retention costs associated with our acquisition of Qwest ($25 million) and the impairment of two office buildings ($18 million), less the offsetting impact of a litigation settlement in the amount of $2 million.

 (2) -

Includes severance costs associated with reduction in force initiatives ($11 million), integration, severance and retention costs associated with our acquisition of Qwest ($18 million), integration, severance, and retention costs associated with our acquisition of Savvis ($7 million) and an accounting adjustment ($18 million).

 (3) -

Excludes $16 million in second quarter 2014 and $15 million in second quarter 2013 of capital expenditures related to the integration of Embarq, Qwest and Savvis.

 (4) -

Excludes special items identified in items (1) and (2).

             
                             
 

 

 

       

 CenturyLink, Inc. 

       
       

 OPERATING METRICS

       
       

 (UNAUDITED)

       
       

 (In thousands) 

       
                 
       

As of

 

As of

 

As of

       

June 30, 2014

 

March 31, 2014

 

June 30, 2013

Broadband subscribers

 

6,055

 

6,057

 

5,909

Access lines

   

12,707

 

12,882

 

13,331

 

 

 

 

 CenturyLink, Inc. 

 SUPPLEMENTAL NON-GAAP INFORMATION - ADJUSTED DILUTED EPS

 THREE MONTHS ENDED JUNE 30, 2014 AND 2013 AND SIX MONTHS ENDED JUNE 30, 2014 AND 2013

 (UNAUDITED)

 (Dollars in millions, except per share amounts) 

                         
                         
                         
                         
           

Three months ended

 

Six months ended

                         
           

June 30, 2014

 

June 30, 2013

 

June 30, 2014

 

June 30, 2013

           

(excluding

 

(excluding

 

(excluding

 

(excluding

           

special items)

 

special items)

 

special items)

 

special items)

                         

Net income *

     

$

247

 

249

 

467

 

552

                         

Add back:

                     

   Amortization of customer base intangibles:

               
 

Qwest

       

216

 

230

 

435

 

464

 

Embarq

       

30

 

34

 

59

 

68

 

Savvis

       

16

 

15

 

31

 

30

                         

   Amortization of trademark intangibles:

                 
 

Qwest

       

5

 

11

 

11

 

23

 

Savvis

       

-

 

2

 

5

 

4

                         

   Amortization of fair value adjustment of long-term debt:

               
 

Embarq

       

2

 

1

 

3

 

2

 

Qwest

       

(12)

 

(17)

 

(24)

 

(34)

                         

        Subtotal

       

257

 

276

 

520

 

557

   Tax effect of above items

 

(96)

 

(108)

 

(198)

 

(217)

Net adjustment, after taxes

 

161

 

168

 

322

 

340

                         

Net income, as adjusted for above items

 

$

408

 

417

 

789

 

892

                         

Weighted average diluted shares outstanding

 

569.0

 

605.6

 

572.2

 

613.3

                         

Diluted EPS (excluding special items)

 

$

0.43

 

0.41

 

0.82

 

0.90

                         

Adjusted diluted EPS as adjusted for the above-listed purchase accounting intangible and interest amortizations

               

   (excluding special items)

 

$

0.72

 

0.69

 

1.38

 

1.46

                         
                         
 

The above schedule presents adjusted net income and adjusted diluted earnings per share (both excluding special items) by adding back to net income and diluted earnings per share certain non-cash expense items that arise as a result of the application of business combination accounting rules to our recent acquisitions.  Such presentation is not in accordance with generally accepted accounting principles but management believes the presentation is useful to analysts and investors to understand the impacts of growing our business through acquisitions.

                         

*See preceding schedules for a summary description of special items.