0000018926-14-000008.txt : 20140806 0000018926-14-000008.hdr.sgml : 20140806 20140806162032 ACCESSION NUMBER: 0000018926-14-000008 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20140806 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20140806 DATE AS OF CHANGE: 20140806 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CENTURYLINK, INC CENTRAL INDEX KEY: 0000018926 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE COMMUNICATIONS (NO RADIO TELEPHONE) [4813] IRS NUMBER: 720651161 STATE OF INCORPORATION: LA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-07784 FILM NUMBER: 141020220 BUSINESS ADDRESS: STREET 1: P O BOX 4065 STREET 2: 100 CENTURYLINK DR CITY: MONROE STATE: LA ZIP: 71203 BUSINESS PHONE: 3183889000 MAIL ADDRESS: STREET 1: 100 CENTURYLINK DR STREET 2: P O BOX 4065 CITY: MONROE STATE: LA ZIP: 71203 FORMER COMPANY: FORMER CONFORMED NAME: CENTURYTEL INC DATE OF NAME CHANGE: 19990602 FORMER COMPANY: FORMER CONFORMED NAME: CENTURY TELEPHONE ENTERPRISES INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: CENTRAL TELEPHONE & ELECTRONICS CORP DATE OF NAME CHANGE: 19720512 8-K 1 ctl20148-kearningsreleasex.htm 8-K CTL 2014 8-K Earnings Release - Q2
CTL 8-K 8/6/2014
Section 1: 8-K (8-K)

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 8-K
 
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934


Date of Report (Date of earliest event reported):
August 6, 2014

 

CenturyLink, Inc.
(Exact name of registrant as specified in its charter)
 
 
 
 
 
 
 
 
 
Louisiana
 
001-7784
 
72-0651161
 
 
(State or other jurisdiction
of incorporation)
 
(Commission
File Number)
 
(IRS Employer
Identification No.)
 
  
 
 
 
100 CenturyLink Drive
Monroe, Louisiana
 
71203
(Address of principal executive offices)
 
(Zip Code)
(318) 388-9000
(Telephone number, including area code)
 
 N/A
(Former name or former address, if changed since last report)
_____________________________________________

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligations of any registrant under any of the following provisions:
¨
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 




Item 2.02.
Results of Operations and Financial Condition.

On August 6, 2014, CenturyLink, Inc. ("CenturyLink" or "we" or "us" or "our") issued a press release announcing operating results for the second quarter of 2014. The press release is included as Exhibit 99.1.
 
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, projected, expressed or implied 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 the outcome of regulatory or judicial proceedings relating to intercarrier compensation, access charges, universal services, broadband deployment and net neutrality); our ability to successfully negotiate collective bargaining agreements on reasonable terms without work stoppages; our ability to effectively adjust to changes in the communications industry and changes in the composition of our markets and product mix caused by our recent acquisitions; our ability to successfully integrate 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, or that integrating the acquired operations will be more difficult, disruptive or costly than anticipated; our ability to use net operating loss carryovers of Qwest in projected amounts; 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 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 or regulatory proceedings involving us; our ability to pay common share dividends in accordance with best practices, 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; the effects of adverse weather; other risks referenced from time to time in our filings with the Securities and Exchange Commission (the “SEC”); and the effects of more general factors such as changes in interest rates, in tax rates, in accounting policies or practices, in operating, medical, pension or administrative costs, in general market, labor or economic conditions, or in legislation, regulation or public policy. These and other uncertainties related to our business and our recent acquisitions are described in greater detail in Item 1A to our Form 10- K for the year ended December 31, 2013, as updated and supplemented by our subsequent SEC reports. You should be aware that new factors may emerge from time to time and it is not possible for us to identify all such factors nor can we predict the impact of each such factor on the business or the extent to which any one or more factors may cause actual results to differ from those reflected in any forward-looking statements. You are further cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this release. We undertake no obligation to update any of our forward-looking statements for any reason.
Item 9.01.
Financial Statements and Exhibits.

(d)
Exhibits
The exhibit to this current report on Form 8-K is listed in the Exhibit Index, which appears at the end of this report and is incorporated by reference herein.



2


SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, CenturyLink, Inc., has duly caused this report to be signed on its behalf by the undersigned duly authorized.
 
 
CenturyLink, Inc.
 
 
 
 
 
 
Dated: August 6, 2014
By:
/s/ David D. Cole
 
 
David D. Cole
 
 
Executive Vice President - Controller
 
 
and Operations Support
 

3


Exhibit Index
 
Exhibit No.
  
Description
Exhibit 99.1
 
Press release dated August 6, 2014, reporting second quarter of 2014 operating results.
        


4
EX-99.1 2 ctl20148-kexhibit991xq2.htm EXHIBIT 99.1 CTL 2014 8-K Exhibit 99.1 - Q2


FOR IMMEDIATE RELEASE:
FOR MORE INFORMATION CONTACT:
August 6, 2014
Kristina Waugh 318.340.5627
 
kristina.r.waugh@centurylink.com

CENTURYLINK REPORTS STRONG SECOND QUARTER 2014 RESULTS
Achieved operating revenues of $4.54 billion, including core revenues1 of $4.10 billion
Generated operating cash flow2 of $1.81 billion, excluding special items
Generated free cash flow2 of $677 million, excluding special items and integration-related capital expenditures
Achieved Adjusted Net Income2 of $408 million and Adjusted Diluted EPS2 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.

MONROE, La. 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 MPLS3 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.
                                                                  
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




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 revenues4 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.

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

2




Segment Financial Results5 
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 Order6.
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.




                                                                  
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.

3




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 revenues7 were $148 million, representing a 9.6% increase from second quarter 2013, and colocation7 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.

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

4




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.

5




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 adjusted
 
 
 
 
 
As adjusted
 
 
 
Increase
 
 
 
 
 
 
excluding
 
 
 
 
 
excluding
 
 
 
(decrease)
 
 
 
 
Less
 
special
 
 
 
Less
 
special
 
Increase
 
excluding
 
 
As
 
special
 
items
 
As
 
special
 
items
 
(decrease)
 
special
 
 
reported
 
Items
 
(Non-GAAP)
 
reported
 
Items
 
(Non-GAAP)
 
as reported
 
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
 %
 
Total operating revenues
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
)%
 
Total operating expenses
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
)
 
 %
 
 %
 
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
$
0.54

 
 
 
0.54

 
0.54

 
 
 
0.54

 
 %
 
 %
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.


6




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 adjusted
 
 
 
 
 
As adjusted
 
 
 
Increase
 
 
 
 
 
 
excluding
 
 
 
 
 
excluding
 
 
 
(decrease)
 
 
 
 
Less
 
special
 
 
 
Less
 
special
 
Increase
 
excluding
 
 
As
 
special
 
items
 
As
 
special
 
items
 
(decrease)
 
special
 
 
reported
 
Items
 
(Non-GAAP)
 
reported
 
Items
 
(Non-GAAP)
 
as reported
 
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
 %
 
Total operating revenues
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
)%
 
Total operating expenses
7,771

 
93

 
7,678

 
7,541

 
54

 
7,487

 
 %
 
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
OPERATING INCOME
1,308

 
(93
)
 
1,401

 
1,497

 
(54
)
 
1,551

 
 %
 
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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

 
 %
 
 %
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

 
 %
 
 %
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.


7




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


8




CenturyLink, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2014 AND 2013
(UNAUDITED)
(Dollars in millions)
 
 
 
 
 
Six Months Ended June 30,
 
2014
 
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, net
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

Repurchase 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


9




CenturyLink, Inc.
SELECTED SEGMENT FINANCIAL INFORMATION
THREE 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
%

10




CenturyLink, Inc.
SELECTED SEGMENT FINANCIAL INFORMATION
THREE 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**
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 report for further information.
 
 
 
 
 
 
 


11




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).











12




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).


13




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


14




CenturyLink, Inc.
SUPPLEMENTAL NON-GAAP INFORMATION - ADJUSTED DILUTED EPS
THREE AND SIX MONTHS ENDED JUNE 30, 2014 AND 2013
(UNAUDITED)
(Dollars in millions, except per share amounts)
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
 
2014
 
2013
 
2014
 
2013
 
 
 
(excluding 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.


15

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