0001104659-12-035180.txt : 20120509 0001104659-12-035180.hdr.sgml : 20120509 20120509162243 ACCESSION NUMBER: 0001104659-12-035180 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20120509 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20120509 DATE AS OF CHANGE: 20120509 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: 12826079 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 a12-11757_18k.htm 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):

May 9, 2012

 

 

CENTURYLINK, INC.

(Exact Name of registrant as specified in its charter)

 

Louisiana

 

001-7784

 

72-0651161

(State or other jurisdiction

 

(Commission

 

(IRS Employer

of incorporation)

 

File Number)

 

Identification No.)

 

100 CenturyLink Drive

 

 

Monroe, Louisiana

 

71203

(Address of principal executive offices)

 

(Zip Code)

 

(318) 388-9000

(Registrant’s 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 obligation of the registrant under any of the following provisions:

 

o            Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

o            Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

o            Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

o            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 May 9, 2012, CenturyLink, Inc. (“CenturyLink” or “we” or “us” or “our”) issued a press release announcing operating results for the first quarter of 2012.  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 or projected if one or more of these risks or uncertainties materialize, or if underlying assumptions prove incorrect. Factors that could affect actual results include but are not limited to: the timing, success and overall effects of competition from a wide variety of competitive providers; the risks inherent in rapid technological change; the effects of ongoing changes in the regulation of the communications industry (including recent reforms and changes by the Federal Communications Commission regarding intercarrier compensation and the Universal Service Fund, among other things); our ability to effectively adjust to changes in the communications industry and changes in the composition of our markets and product mix caused by our recent acquisitions of Savvis, Qwest and Embarq; our ability to successfully integrate the operations of Savvis and Qwest into our operations, including the possibility that the anticipated benefits from these acquisitions cannot be fully realized in a timely manner or at all, or that integrating the acquired operations will be more difficult, disruptive or costly than anticipated; our ability to use the net operating loss carryovers of Qwest in projected amounts; the effects of changes in our assignment of the Savvis purchase price to identifiable assets or liabilities after the date hereof; our ability to effectively manage our expansion opportunities, including retaining and hiring key personnel; possible changes in the demand for, or pricing of, our products and services; our ability to successfully introduce new product or service offerings on a timely and cost-effective basis; our continued access to credit markets on favorable terms; our ability to collect our receivables from financially troubled communications companies; any adverse developments in legal proceedings involving us; our ability to pay a $2.90 per common share dividend annually, which may be affected by changes in our cash requirements, capital spending plans, cash flows or financial position; unanticipated increases or other changes in our future cash requirements, whether caused by unanticipated increases in capital expenditures, increases in pension funding requirements or otherwise; our ability to successfully negotiate collective bargaining agreements on reasonable terms without work stoppages; the effects of adverse weather; other risks referenced from time to time in our filings with the Securities and Exchange Commission (the “SEC”); and the effects of more general factors such as changes in interest rates, in tax rates, in accounting policies or practices, in operating, medical, pension or administrative costs, in general market, labor or economic conditions, or in legislation, regulation or public policy. These and other uncertainties related to our business, our July 2011 acquisition of Savvis, our April 2011 acquisition of Qwest and our July 2009 acquisition of Embarq are described in greater detail in Item 1A to our Form 10-K for the year ended December 31, 2011, 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 has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

CenturyLink, Inc.

 

 

 

 

Dated: May 9, 2012

By:

/s/ David D. Cole

 

 

David D. Cole

 

 

Senior Vice President - Controller and Operations Support

 

3



 

EXHIBIT INDEX

 

Exhibit No

 

Description

Exhibit 99.1

 

Press release dated May 9, 2012, reporting first quarter of 2012 operating results.

 

4


EX-99.1 2 a12-11757_1ex99d1.htm EX-99.1

EXHIBIT 99.1

 

FOR IMMEDIATE RELEASE:

FOR MORE INFORMATION CONTACT:

May 9, 2012

Kristina Waugh 318.340.5627

 

kristina.r.waugh@centurylink.com

 

CENTURYLINK REPORTS FIRST QUARTER 2012 EARNINGS; INCREASES ANNUAL OPERATING EXPENSE SYNERGY TARGET FOR QWEST TO $650 MILLION

 

Achieved operating revenues of $4.61 billion, in-line with guidance

 

Improved annual rate of revenue decline to 2.7% in first quarter 2012 compared to 3.6% and 3.2% annual declines in pro forma(1) first quarter 2011and fourth quarter 2011, respectively

 

Achieved Adjusted Diluted EPS(1), (2) of $0.68 compared to $0.55 in fourth quarter 2011 and $0.78 in pro forma first quarter 2011

 

Generated Free Cash Flow(2) of $1.04 billion, excluding special items

 

Continued improvement in line loss trend during first quarter 2012 with 6.4% annual decline compared to 7.6% annual decline in pro forma first quarter 2011

 

Realized strong growth in high-speed Internet and PrismTM TV subscribers during first quarter

 

Raised annual operating expense synergy target for the Qwest acquisition to $650 million from $575 million

 

Exited first quarter 2012 with annual run-rate operating expense synergies of approximately $340 million related to Qwest integration

 

MONROE, La. — CenturyLink, Inc. (NYSE: CTL) today reported strong operating revenues, free cash flow and subscriber results for first quarter 2012.

 

CenturyLink delivered solid financial results again this quarter, highlighting our continuing growth of broadband and PrismTM TV customers, as well as good operating expense control,”  

 


(1)  See the attached pro forma statements of income for more information about our pro forma results discussed in this release.

 

(2)  See attachments for non-GAAP reconciliations.

 

1



 

said Glen F. Post, III, chief executive officer and president.  “We continue to improve our top-line revenue trend and deliver strong subscriber results while investing in key strategic initiatives and meeting our synergy targets for both the Qwest and Savvis integrations.  Our local operating model continues to help drive revenues and improve customer trends.”

 

“We recently announced an operating group restructuring to more competitively and effectively serve our business and government customers.  We have assembled a strong portfolio of strategic assets and believe that the new structure, which went into effect in April, will help us more efficiently deliver our products and services.  First quarter results represent a good start to the year and I am confident we will be able to continue to strengthen our position as a communications industry leader with global reach” said Post.

 

First Quarter Highlights

 

CenturyLink continued to improve its top-line revenue trend, deliver strong subscriber results, invest in key strategic initiatives and meet its Qwest and Savvis synergy targets in first quarter 2012. Among the quarter’s highlights:

 

·                  Improved pro forma year-over-year top-line revenue trend to a 2.7% rate of decline in first quarter 2012, compared to a 3.6% decline in pro forma first quarter 2011.

·                  Achieved strong free cash flow generation of $1.04 billion, excluding special items of $82 million and integration-related capital of $10 million.

·                  Reduced access line loss by 20% compared to pro forma first quarter 2011 and 6% sequentially.

·                  Added more than 89,000 high-speed Internet customers to end first quarter 2012 with 5.64 million subscribers, representing 4.2% annual growth over pro forma first quarter 2011.

·                  Expanded PrismTM TV subscribers by over 20% in first quarter 2012 from fourth quarter 2011 and increased penetration of available homes in our markets to more than 8%.

·                  Generated sequential recurring revenue growth in our Business Markets Group and Savvis operating group, along with strong sales in both operating groups.

 

Consolidated First Quarter Financial Results

 

Operating revenues for first quarter 2012 were $4.61 billion compared to $1.70 billion in first quarter 2011. This increase was primarily due to $2.7 billion and $266 million of revenue contributions from the Qwest acquisition completed April 1, 2011 and the Savvis acquisition completed July 15, 2011, respectively. Increases in strategic revenues, primarily driven by business demand for high bandwidth data services and growth in high-speed Internet and PrismTM TV subscribers, were more than offset by declines in legacy services revenues primarily due to the impact of access line losses and lower access revenues.

 

First quarter 2012 operating revenues compared to first quarter 2011 pro forma operating revenues declined 2.7% from $4.74 billion a year ago to $4.61 billion this quarter, due to the decline in legacy revenues, more than offsetting the increase in strategic revenues as discussed above. However, the pro forma year-over-year decline in legacy revenues improved to 8.7% in first quarter 2012 from a 10.9% rate of decline in first quarter 2011.

 

Operating expenses, excluding special items, increased to $3.87 billion from $1.20 billion in first quarter 2011, primarily due to $2.3 billion and $281 million of operating costs associated with the Qwest and Savvis acquisitions, respectively.

 

2



 

Operating expenses, excluding special items, decreased to $3.87 billion in first quarter 2012 from pro forma first quarter 2011 operating expenses of $3.89 billion. Expenses declined modestly year-over-year as incremental integration-related cost synergies and operating expense reductions associated with workforce realignment were mostly offset by continued investment in key strategic initiatives.

 

Operating cash flow (as defined in our supplemental schedules), excluding special items, increased 124% to $1.94 billion from $868 million in first quarter 2011, primarily due to the Qwest acquisition. For first quarter 2012, CenturyLink achieved an operating cash flow margin, excluding special items, of 42.2% versus 51.2% in first quarter 2011, reflecting the impact that lower margins of Qwest and Savvis had on CenturyLink’s consolidated operating cash flow margin in first quarter 2012.

 

First quarter 2012 operating cash flow of $1.94 billion, excluding special items, declined 5.8% from first quarter 2011 pro forma operating cash flow of $2.06 billion, primarily due to the decline in legacy revenues.

 

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

 

Adjusted Net Income and Adjusted Diluted EPS exclude special items, the non-cash impact of the amortization of intangibles, the non-cash impact to interest expense of the assignment of fair value to debt outstanding related to the Embarq, Qwest and Savvis transactions, and the non-cash impact of the acquisition related adjustments and special items to our effective book income tax rate.

 

Excluding the items outlined above, CenturyLink’s Adjusted Net Income for first quarter 2012 was $423 million compared to pro forma Adjusted Net Income of $484 million in first quarter 2011. First quarter 2012 Adjusted Diluted EPS was $0.68 compared to pro forma Adjusted Diluted EPS of $0.78 in the year-ago period. The decrease in both measures was primarily driven by the anticipated decline in legacy voice and access revenues associated with access line losses and lower minutes of use, which more than offset the increase in strategic revenues.

 

GAAP Results — First Quarter

 

Under generally accepted accounting principles (GAAP), net income for first quarter 2012 was $200 million compared to $211 million for first quarter 2011, and diluted earnings per share for first quarter 2012 was $0.32 compared to $0.69 for first quarter 2011. First quarter 2012 net income and diluted earnings per share reflect a net $43 million ($0.07 per share) after-tax impact  of severance costs associated with our recent expense reduction initiatives and integration, severance, and retention costs associated with the Qwest and Savvis acquisitions, partially offset by non-operating gains on the early retirement of debt and sale of investment securities. First quarter 2011 net income and diluted earnings per share reflect after-tax integration and severance related costs associated with the Embarq acquisition of $18 million ($0.06 per share) and $4 million ($0.01 per share) of after-tax costs related to transaction and integration costs associated with the Qwest acquisition.

 

3



 

Segment Results / Highlights

 

Regional Markets Group (RMG)

RMG continued to leverage CenturyLink’s local operating model and strengthen its competitive position, resulting in continued improvements in revenue and subscriber trends in our local markets.

 

·                  Strategic revenues for RMG were $764 million in the quarter, a 3.9% increase over pro forma first quarter 2011.

·                  Generated $2.20 billion in total revenues, a decrease of 4.1% from pro forma first quarter 2011, reflecting the continued decline in legacy services.

·                  Added more than 89,000 high-speed Internet subscribers during first quarter 2012 to reach total subscribers of 5.64 million.

·                  Increased PrismTM TV subscribers by nearly 15,000, 55% of which represented new CenturyLink customers, and ended the first quarter with nearly 85,000 PrismTM TV subscribers.

 

Business Markets Group (BMG)

BMG achieved solid growth in recurring revenue sales again in the first quarter, continuing a trend that began in the last half of 2011, and grew recurring revenue for the second consecutive quarter.

 

·                  Strategic revenues for BMG were $450 million in the quarter, a 3.0% increase over pro forma first quarter 2011 driven by strength in high bandwidth services. Excluding the impact of low-speed private line services, the adjusted growth rate was approximately 8%.

·                  Generated $917 million in total revenues, a decrease of 1.3% from pro forma first quarter 2011, reflecting declines in legacy services revenues and data integration revenues, which more than offset growth in CenturyLink’s high-bandwidth broadband offerings. Excluding data integration revenues, BMG’s first quarter year-over-year revenue decline was 0.4%.

·                  Experienced increased traction in leveraging cross-selling opportunities with Savvis products during the quarter and expect this to continue in second quarter 2012.

 

Wholesale Markets Group (WMG)

WMG capitalized on carrier bandwidth expansion and Ethernet sales to generate solid strategic revenue growth in the first quarter while continuing to implement a strong fiber build program.

 

·                  Strategic revenues for WMG were $576 million in the quarter, a 4.2% increase over pro forma first quarter 2011, driven by wireless carrier bandwidth expansion and Ethernet sales.

·                  Generated $957 million in total revenues, a decrease of 4.2% from pro forma first quarter 2011, reflecting the continued decline in legacy services primarily driven by lower switched access minutes of use associated with access line loss and displacement of access revenue by alternative forms of communication such as email, social media, texting, wireless and VoIP.

·                  Completed approximately 650 fiber builds during the first quarter, ending the quarter with about 10,800 fiber-connected towers.

 

Savvis

Savvis achieved solid revenue growth in the quarter, driven by 7.6% pro forma year-over-year managed hosting revenue growth. New bookings were strong, repeating the level attained in the prior quarter.

 

4



·                  Savvis operating revenues were $266 million in the quarter, a 3.9% increase from pro forma first quarter 2011. Savvis hosting revenues were $202 million, a 5.8% increase from pro forma first quarter 2011, including managed hosting revenues of $99 million, a 7.6% increase from pro forma first quarter 2011.

·                  Achieved strong quarterly bookings which grew more than 26% from the year-ago period. First quarter 2012 and fourth quarter 2011 bookings were the strongest since early 2008.

·                  Savvis announced a joint venture with Digital Realty Trust to build a data center in the Hong Kong financial district and launched Savvis Symphony cloud products in Hong Kong and Japan.

·                  As of March 31, 2012, we had 51 data centers(3)in North America, Europe and Asia, with total sellable floor space of 1.36 million square feet.

 

Operating Group Restructuring

 

In April, CenturyLink restructured its operating groups focused on business and government customer segments into two organizations. National and international Business Markets Group (BMG) customers, Savvis customers and federal government customers will be served by the new Enterprise Markets Group (EMG). In-region large business customers and state and local government customers will be served by the existing Regional Markets Group (RMG). The Savvis Operating Group wholesale customers will be served by the Wholesale Markets Group (WMG).

 

As a result of this restructuring, segment financial information will be realigned to support the new operating group structure.  When the Company announces second quarter 2012 earnings results in August, we plan to provide selected segment financial information for the four segments discussed below, along with restated historical quarterly segment financial information retroactive to first quarter 2011.

 

Enterprise Markets Group will report two segments:

 

·                  Network Services — Network services revenues and the related direct and allocated costs associated with the national and international Business Markets Group (BMG) customers and federal government customers transferred to EMG from BMG, along with the Savvis Operating Group’s network services customers

 

·                  Data Hosting Services — Colocation, managed hosting and cloud services revenues and the related direct and allocated costs associated with the national and international Business Markets Group (BMG) customers and federal government customers transferred to EMG from BMG, along with the Savvis Operating Group’s data hosting services customers

 

Regional Markets Group will report one segment:

 

·                  RMG financial information as previously provided, along with revenues and the related direct and allocated costs associated with the in-region large business customers and state and local government customers transferred to RMG from BMG

 


(3)  We define a “data center” to include any facility where we market, sell and deliver either colocation services or multi-tenant managed services, or both.

 

5



 

Wholesale Markets Group will report one segment:

 

·                  WMG financial information as previously provided, along with revenues and the related direct and allocated costs associated with the Savvis Operating Group wholesale customers transferred from Savvis to WMG

 

Integration Update

 

During first quarter 2012, CenturyLink incurred pre-tax transaction, integration, severance and retention costs of $39 million related to the Qwest and Savvis acquisitions.

 

CenturyLink has raised the anticipated annual operating expense synergy target related to the Qwest acquisition from $575 million to $650 million which we expect to achieve over the next two to four years. The majority of this $75 million increase is driven by non-personnel related cost synergies primarily in RMG, Finance and Network Services. CenturyLink ended first quarter 2012 with annualized operating expense synergy run rate of approximately $340 million from the Qwest acquisition. We now expect to exit 2012 with approximately $465 million in annual run-rate synergies related to the Qwest acquisition.

 

Guidance — Second Quarter 2012 and Full Year 2012

 

Second Quarter 2012

 

Operating Revenue

 

$4.55 to $4.60 billion

 

Operating Cash Flow (excl special items)

 

$1.86 to $1.91 billion

 

Adjusted Diluted EPS (excl special items)

 

$0.59 to $0.64

 

 

Full Year 2012

 

 

 

Previous Guidance

 

Current Guidance

 

 

 

 

 

 

 

Operating Revenue

 

$18.2 to $18.4 billion

 

No revision

 

 

 

 

 

 

 

Operating Cash Flow (excl special items)

 

$7.4 to $7.6 billion

 

$7.45 to $7.65 billion

 

 

 

 

 

 

 

Adjusted Diluted EPS (excl special items)

 

$2.25 to $2.45

 

$2.35 to $2.55

 

 

 

 

 

 

 

Capital Expenditures(4)

 

$2.6 to $2.8 billion

 

No revision

 

 

 

 

 

 

 

Free Cash Flow (excl special items)

 

$3.2 to $3.4 billion

 

No revision

 

 

All 2012 outlook figures included in this release exclude the effects of special items, future changes in regulation, integration expenses associated with the Qwest and Savvis acquisitions, any changes in operating or capital plans and any future mergers, acquisitions, divestitures, buybacks or other similar business transactions. In addition, all outlook figures are based on acquisition-related fair value estimates for Savvis that remain subject to finalization. All assets and liabilities of Savvis have been assigned a fair value pursuant to business combination accounting rules. Such fair value assignments for Savvis have not been finalized and are subject to further adjustment before becoming final.

 


(4)  Excludes approximately $100 million of integration related capital expenditures

 

6



 

Investor Call

 

As previously announced, CenturyLink’s management will host a conference call at 4:00 p.m. Central Time today, May 9, 2012. Interested parties can access the call by dialing 866-804-3547. The call will be accessible for replay through May 16, 2012, by calling 888-266-2081 and entering the conference ID number 1574081. Investors can also listen to CenturyLink’s earnings conference call and replay by accessing the Investor Relations portion of the Company’s Web site at www.centurylink.com through May 31, 2012.

 

Reconciliation to GAAP

 

This release includes certain non-GAAP financial measures, including but not limited to operating cash flow, free cash flow, adjustments to GAAP measures to exclude the effect of special items and certain pro forma combined operating results. In addition to providing key metrics for management to evaluate the Company’s performance, we believe these measurements assist investors in their understanding of period-to-period operating performance and in identifying historical and prospective trends. Reconciliations of non-GAAP financial measures to the most comparable GAAP measures are included in the attached financial schedules. Reconciliation of additional non-GAAP financial measures that may be discussed during the earnings call described below will be available in the Investor Relations portion of the Company’s Web site at www.centurylink.com. Investors are urged to consider these non-GAAP measures in addition to, and not in substitution for, measures prepared in accordance with GAAP.

 

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

 

Forward Looking Statements

 

Certain non-historical statements made in this release and future oral or written statements or press releases by us or our management are intended to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current expectations only, and are subject to a number of risks, uncertainties and assumptions, many of which are beyond our control. Actual events and results may differ materially from those anticipated, estimated or projected if one or more of these risks or uncertainties materialize, or if underlying assumptions prove incorrect. Factors that could affect actual results include but are not limited to: the timing, success and overall effects of competition from a wide variety of competitive providers; the risks inherent in rapid technological change; the effects of ongoing changes in the regulation of the communications industry (including recent reforms and changes by the Federal Communications Commission regarding intercarrier compensation and the Universal Service Fund, among other things); our ability to effectively adjust to changes in the communications industry and changes in the composition of

 

7



 

our markets and product mix caused by our recent acquisitions of Savvis, Qwest and Embarq; our ability to successfully integrate the operations of Savvis and Qwest into our operations, including the possibility that the anticipated benefits from these acquisitions cannot be fully realized in a timely manner or at all, or that integrating the acquired operations will be more difficult, disruptive or costly than anticipated; our ability to use the net operating loss carryovers of Qwest in projected amounts; the effects of changes in our assignment of the Savvis purchase price to identifiable assets or liabilities after the date hereof; our ability to effectively manage our expansion opportunities, including retaining and hiring key personnel; possible changes in the demand for, or pricing of, our products and services; our ability to successfully introduce new product or service offerings on a timely and cost-effective basis; our continued access to credit markets on favorable terms; our ability to collect our receivables from financially troubled communications companies; any adverse developments in legal proceedings involving us; our ability to pay a $2.90 per common share dividend annually, which may be affected by changes in our cash requirements, capital spending plans, cash flows or financial position; unanticipated increases or other changes in our future cash requirements, whether caused by unanticipated increases in capital expenditures, increases in pension funding requirements or otherwise; our ability to successfully negotiate collective bargaining agreements on reasonable terms without work stoppages; the effects of adverse weather; other risks referenced from time to time in our filings with the Securities and Exchange Commission (the “SEC”); and the effects of more general factors such as changes in interest rates, in tax rates, in accounting policies or practices, in operating, medical, pension or administrative costs, in general market, labor or economic conditions, or in legislation, regulation or public policy. These and other uncertainties related to our business, our July 2011 acquisition of Savvis, our April 2011 acquisition of Qwest and our July 2009 acquisition of Embarq are described in greater detail in Item 1A to our Form 10-K for the year ended December 31, 2011, 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.

 

8



 

CenturyLink, Inc.

CONSOLIDATED STATEMENTS OF INCOME

THREE MONTHS ENDED MARCH 31, 2012 AND 2011

(UNAUDITED)

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

 

 

 

Three months ended March 31, 2012

 

Three months ended March 31, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Increase

 

 

 

 

 

 

 

As adjusted

 

 

 

 

 

As adjusted

 

 

 

(decrease)

 

 

 

 

 

Less

 

excluding

 

 

 

Less

 

excluding

 

Increase

 

excluding

 

 

 

As

 

special

 

special

 

As

 

special

 

special

 

(decrease)

 

special

 

 

 

reported

 

items

 

items

 

reported

 

items

 

items

 

as reported

 

items

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING REVENUES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Strategic

 

$

2,056

 

 

 

2,056

 

539

 

 

 

539

 

281.4

%

281.4

%

Legacy

 

2,143

 

 

 

2,143

 

995

 

 

 

995

 

115.4

%

115.4

%

Data integration

 

145

 

 

 

145

 

31

 

 

 

31

 

367.7

%

367.7

%

Other

 

266

 

 

 

266

 

131

 

 

 

131

 

103.1

%

103.1

%

 

 

4,610

 

 

4,610

 

1,696

 

 

1,696

 

171.8

%

171.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of services and products

 

1,877

 

12

(1)

1,865

 

626

 

14

(4)

612

 

199.8

%

204.7

%

Selling, general and administrative

 

871

 

70

(1)

801

 

237

 

21

(4)

216

 

267.5

%

270.8

%

Depreciation and amortization

 

1,208

 

 

 

1,208

 

369

 

 

 

369

 

227.4

%

227.4

%

 

 

3,956

 

82

 

3,874

 

1,232

 

35

 

1,197

 

221.1

%

223.6

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING INCOME

 

654

 

(82

)

736

 

464

 

(35

)

499

 

40.9

%

47.5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OTHER INCOME (EXPENSE)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

(343

)

 

 

(343

)

(128

)

 

 

(128

)

168.0

%

168.0

%

Other income (expense)

 

20

 

13

(2)

7

 

3

 

 

 

3

 

566.7

%

133.3

%

Income tax expense

 

(131

)

26

(3)

(157

)

(128

)

13

(5)

(141

)

2.3

%

11.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCOME

 

$

200

 

(43

)

243

 

211

 

(22

)

233

 

(5.2

)%

4.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BASIC EARNINGS PER SHARE

 

$

0.32

 

(0.07

)

0.39

 

0.69

 

(0.07

)

0.76

 

(53.6

)%

(48.7

)%

DILUTED EARNINGS PER SHARE

 

$

0.32

 

(0.07

)

0.39

 

0.69

 

(0.07

)

0.76

 

(53.6

)%

(48.7

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AVERAGE SHARES OUTSTANDING

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

618,208

 

 

 

618,208

 

303,832

 

 

 

303,832

 

103.5

%

103.5

%

Diluted

 

620,350

 

 

 

620,350

 

304,479

 

 

 

304,479

 

103.7

%

103.7

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

DIVIDENDS PER COMMON SHARE

 

$

0.725

 

 

 

0.725

 

0.725

 

 

 

0.725

 

0.0

%

0.0

%

 


SPECIAL ITEMS

(1) - Includes severance costs associated with recent expense reduction initiatives ($43 million),  integration, severance, and retention costs associated with our acquisition of Qwest ($36 million) and integration, severance, and retention costs associated with our acquisition of Savvis ($3 million).

(2) - Gain associated with early retirement of debt ($8 million) and gain on the sale of a non-operating investment ($5 million).

(3) - Income tax benefit of Items (1) and (2).

(4) - Includes integration and severance related costs associated with our acquisition of Embarq ($29 million) and integration costs associated with our acquisition of Qwest ($6 million).

(5) - Income tax benefit of Item (4).

 



 

CenturyLink, Inc.

CONSOLIDATED BALANCE SHEETS

MARCH 31, 2012 AND DECEMBER 31, 2011

(UNAUDITED)

(Dollars in millions)

 

 

 

March 31,

 

December 31,

 

 

 

2012

 

2011

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

Cash and cash equivalents

 

$

1,530

 

128

 

Other current assets

 

3,352

 

3,389

 

Total current assets

 

4,882

 

3,517

 

 

 

 

 

 

 

NET PROPERTY, PLANT AND EQUIPMENT

 

 

 

 

 

Property, plant and equipment

 

30,188

 

29,595

 

Accumulated depreciation

 

(10,893

)

(10,141

)

Net property, plant and equipment

 

19,295

 

19,454

 

 

 

 

 

 

 

GOODWILL AND OTHER ASSETS

 

 

 

 

 

Goodwill

 

21,726

 

21,726

 

Other

 

10,939

 

11,351

 

Total goodwill and other assets

 

32,665

 

33,077

 

 

 

 

 

 

 

TOTAL ASSETS

 

$

56,842

 

56,048

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

Current maturities of long-term debt

 

$

2,200

 

480

 

Other current liabilities

 

3,443

 

3,537

 

Total current liabilities

 

5,643

 

4,017

 

 

 

 

 

 

 

LONG-TERM DEBT

 

20,667

 

21,356

 

DEFERRED CREDITS AND OTHER LIABILITIES

 

9,894

 

9,848

 

STOCKHOLDERS’ EQUITY

 

20,638

 

20,827

 

 

 

 

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

56,842

 

56,048

 

 



 

CenturyLink, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

THREE MONTHS ENDED MARCH 31, 2012 AND 2011

(UNAUDITED)

(Dollars in millions)

 

 

 

Three Months

 

Three Months

 

 

 

Ended

 

Ended

 

 

 

March 31, 2012

 

March 31, 2011

 

 

 

 

 

 

 

OPERATING ACTIVITIES

 

 

 

 

 

Net income

 

$

200

 

211

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Depreciation and amortization

 

1,208

 

369

 

Deferred income taxes

 

115

 

40

 

Provision for uncollectible accounts

 

56

 

20

 

Changes in current assets and current liabilities, net

 

56

 

152

 

Retirement benefits

 

(75

)

(110

)

Changes in other noncurrent assets and liabilities

 

47

 

(15

)

Other, net

 

(24

)

3

 

Net cash provided by operating activities

 

1,583

 

670

 

 

 

 

 

 

 

INVESTING ACTIVITIES

 

 

 

 

 

Payments for property, plant and equipment and capitalized software

 

(678

)

(211

)

Other, net

 

15

 

3

 

Net cash used in investing activities

 

(663

)

(208

)

 

 

 

 

 

 

FINANCING ACTIVITIES

 

 

 

 

 

Net proceeds from issuance of long-term debt

 

2,032

 

 

Payments of long-term debt

 

(849

)

(3

)

Net payments on credit facility

 

(277

)

(145

)

Proceeds from issuance of common stock

 

35

 

19

 

Repurchase of common stock

 

(11

)

(15

)

Dividends paid

 

(452

)

(222

)

Other, net

 

3

 

1

 

Net cash provided by (used in) financing activities

 

481

 

(365

)

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

1

 

 

 

 

 

 

 

 

Net increase in cash and cash equivalents

 

1,402

 

97

 

Cash and cash equivalents at beginning of period

 

128

 

173

 

 

 

 

 

 

 

Cash and cash equivalents at end of period

 

$

1,530

 

270

 

 



 

CenturyLink, Inc.

SELECTED SEGMENT FINANCIAL INFORMATION

THREE MONTHS ENDED MARCH 31, 2012 AND 2011

(UNAUDITED)

(Dollars in millions)

 

 

 

Three months ended March 31,

 

 

 

2012

 

2011

 

Total segment revenues

 

$

4,344

 

1,565

 

Total segment expenses

 

1,990

 

582

 

Total segment income

 

$

2,354

 

983

 

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

 

54.2

%

62.8

%

 

 

 

 

 

 

Regional Markets Segment

 

 

 

 

 

Revenues

 

 

 

 

 

Strategic services

 

$

764

 

315

 

Legacy services

 

1,411

 

777

 

Data integration

 

29

 

27

 

 

 

$

2,204

 

1,119

 

Expenses*

 

 

 

 

 

Direct

 

$

903

 

447

 

Allocated

 

19

 

(14

)

 

 

$

922

 

433

 

 

 

 

 

 

 

Segment income

 

$

1,282

 

686

 

Segment income margin

 

58.2

%

61.3

%

 

 

 

 

 

 

Business Markets Segment

 

 

 

 

 

Revenues

 

 

 

 

 

Strategic services

 

$

450

 

14

 

Legacy services

 

351

 

46

 

Data integration

 

116

 

4

 

 

 

$

917

 

64

 

Expenses*

 

 

 

 

 

Direct

 

$

244

 

1

 

Allocated

 

337

 

27

 

 

 

$

581

 

28

 

 

 

 

 

 

 

Segment income

 

$

336

 

36

 

Segment income margin

 

36.6

%

56.3

%

 

 

 

 

 

 

Wholesale Markets Segment

 

 

 

 

 

Revenues

 

 

 

 

 

Strategic services

 

$

576

 

210

 

Legacy services

 

381

 

172

 

 

 

$

957

 

382

 

Expenses*

 

 

 

 

 

Direct

 

$

47

 

32

 

Allocated

 

231

 

89

 

 

 

$

278

 

121

 

 

 

 

 

 

 

Segment income

 

$

679

 

261

 

Segment income margin

 

71.0

%

68.3

%

 

 

 

 

 

 

Savvis Operations Segment

 

 

 

 

 

Revenues

 

$

266

 

 

 

 

 

 

 

 

Expenses - direct*

 

$

209

 

 

 

 

 

 

 

 

Segment income

 

$

57

 

 

Segment income margin

 

21.4

%

 

 


*During the first quarter of 2012, as we transitioned certain of Qwest’s legacy systems to our historical company systems, we have updated how we report our direct expenses and have updated our methodology for how we allocate our expenses to our segments. Specifically, we no longer include certain fleet expenses for our regional markets segment in direct expenses; they are now allocated expenses in our regional markets, business markets and wholesale markets segments. In addition, we now more fully allocate network building rent and power expenses to our regional markets, business markets and wholesale markets segments. We have not recast our segment results for prior periods to reflect these changes in methodology, as it was deemed impracticable to do so.

 



 

CenturyLink, Inc.

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

(UNAUDITED)

(Dollars in millions)

 

 

 

Three months ended March 31, 2012

 

Three months ended March 31, 2011

 

 

 

 

 

 

 

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

 

$

654

 

(82

)(1)

736

 

464

 

(35

)(2)

499

 

Add: Depreciation and amortization

 

1,208

 

 

1,208

 

369

 

 

369

 

Operating cash flow

 

$

1,862

 

(82

)

1,944

 

833

 

(35

)

868

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

4,610

 

 

4,610

 

1,696

 

 

1,696

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income margin (operating income divided by revenues)

 

14.2

%

 

 

16.0

%

27.4

%

 

 

29.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

40.4

%

 

 

42.2

%

49.1

%

 

 

51.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Free cash flow

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating cash flow

 

 

 

 

 

$

1,944

 

 

 

 

 

868

 

Less: Cash paid for income taxes, net of refunds

 

 

 

 

 

(1

)

 

 

 

 

(5

)

Less: Cash paid for interest, net of amounts capitalized

 

 

 

 

 

(244

)

 

 

 

 

(70

)

Less: Capital expenditures (3) 

 

 

 

 

 

(668

)

 

 

 

 

(207

)

Other income (expense)

 

 

 

 

 

7

 

 

 

 

 

3

 

Free cash flow (4) 

 

 

 

 

 

1,038

 

 

 

 

 

589

 

 


SPECIAL ITEMS

(1) - Includes severance costs associated with recent expense reduction initiatives ($43 million),  integration, severance, and retention costs associated with our acquisition of Qwest ($36 million) and integration, severance, and retention costs associated with our acquisition of Savvis ($3 million).

(2) - Includes integration and severance related costs associated with our acquisition of Embarq ($29 million) and integration costs associated with our acquisition of Qwest ($6 million).

(3) - Excludes $10 million in first quarter 2012 and $4 million in first quarter 2011 of capital expenditures related to the integration of Embarq and Qwest.

(4) - Excludes (i) special items identified in items (1) to (3) above and (ii) the impact of pension contributions of $100 million for the three months ended March 31, 2011.

 



 

CenturyLink, Inc.

PRO FORMA STATEMENTS OF INCOME

THREE MONTHS ENDED MARCH 31, 2012 AND DECEMBER 31, 2011 AND PRO FORMA THREE MONTHS ENDED MARCH 31, 2011

(UNAUDITED)

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

 

 

 

 

 

 

 

Pro forma (1)

 

 

 

Three months

 

Three months

 

Three months

 

 

 

ended

 

ended

 

ended

 

 

 

March 31, 2012

 

December 31, 2011

 

March 31, 2011

 

 

 

(excluding

 

(excluding

 

(excluding

 

 

 

special items)(2)

 

special items)(2)

 

special items)(2)

 

 

 

 

 

 

 

 

 

OPERATING REVENUES

 

 

 

 

 

 

 

Strategic services

 

$

2,056

 

2,031

 

1,981

 

Legacy services

 

2,143

 

2,180

 

2,348

 

Data integration

 

145

 

188

 

153

 

Other

 

266

 

254

 

255

 

 

 

4,610

 

4,653

 

4,737

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES

 

 

 

 

 

 

 

Cash expenses

 

2,666

(A)

2,807

(B)

2,674

(C)

Depreciation and amortization

 

1,208

 

1,252

 

1,216

 

 

 

3,874

 

4,059

 

3,890

 

 

 

 

 

 

 

 

 

OPERATING INCOME

 

736

 

594

 

847

 

 

 

 

 

 

 

 

 

OTHER INCOME (EXPENSE)

 

 

 

 

 

 

 

Interest expense

 

(343

)

(340

)

(347

)

Other income (expense)

 

7

(D)

5

(E)

8

 

Income tax expense

 

(157

)(F)

(108

)(F)

(202

)(F)

 

 

 

 

 

 

 

 

NET INCOME

 

$

243

 

151

 

306

 

 

 

 

 

 

 

 

 

DILUTED EARNINGS PER SHARE

 

$

0.39

 

0.24

 

0.50

 

 

 

 

 

 

 

 

 

WEIGHTED AVERAGE DILUTED SHARES OUTSTANDING

 

620,350

 

618,510

 

614,100

 

 

 

 

 

 

 

 

 

OPERATING CASH FLOW

 

 

 

 

 

 

 

Operating income

 

$

736

 

594

 

847

 

Add: Depreciation and amortization

 

1,208

 

1,252

 

1,216

 

Operating cash flow

 

$

1,944

 

1,846

 

2,063

 

 

 

 

 

 

 

 

Pro forma(3)

 

 

 

As of

 

As of

 

as of

 

 

 

March 31, 2012

 

December 31, 2011

 

March 31, 2011

 

OPERATING METRICS

 

 

 

 

 

 

 

Broadband subscribers

 

5,643

 

5,554

 

5,415

 

Access lines

 

14,379

 

14,584

 

15,357

 

 


 

(1)

The pro forma information presented above reflects the operations of CenturyLink, Qwest and Savvis assuming their respective results of operations had been combined as of January 1, 2010.  Pro forma adjustments include (i) the elimination of intercompany billings and the elimination of certain deferred revenues and costs; (ii) the elimination of certain components of pension and postretirement benefit costs; (iii) the amortization of the fair value preliminarily assigned to intangible assets (primarily customer relationship and software); (iv) adjustments to depreciation to reflect the fair value preliminarily assigned to property, plant and equipment; (v) adjustments to interest expense to reflect valuing debt at fair value; and (vi) the related income tax effects.  The above pro forma information (i) has not been prepared in accordance with generally accepted accounting principles, (ii) is for illustrative purposes only, and (iii) is not necessarily indicative of the the combined operating results that would have occurred if the Qwest and Savvis mergers had been consummated as of January 1, 2010.

 

 

(2)

Summary description of special items for First Quarter 2012, Fourth Quarter 2011 and First Quarter 2011:

 

(A)

Excludes severance costs associated with recent expense reduction initiatives $(43 million), integration, severance, and retention costs associated with our acquisition of Qwest ($36 million) and integration, severance, and retention costs associated with our acquisition of Savvis ($3 million).

 

(B)

Excludes integration, severance, retention, and restructuring costs associated with the Qwest, Embarq, and Savvis acquisitions ($61 million).

 

(C)

Excludes integration and severance costs associated with the Qwest and Embarq acquisitions incurred by CenturyLink and realignment, severance and merger related costs incurred by Qwest ($49 million)

 

(D)

Gain associated with early retirement of debt ($8 million) and gain on the sale of non-operating investment securities ($5 million).

 

(E)

Excludes expense associated with early retirement of Qwest debt ($6 million).

 

(F)

Excludes tax effect of above items (A) to (E) ($26 million for first quarter 2012, $25 million for fourth quarter 2011 and $18 million for first quarter 2011).

 

 

 

(3)

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

 



 

CenturyLink, Inc.

SUPPLEMENTAL PRO FORMA INFORMATION - ADJUSTED DILUTED EPS

THREE MONTHS ENDED MARCH 31, 2012 AND PRO FORMA THREE MONTHS ENDED MARCH 31, 2011

(UNAUDITED)

(Dollars in millions, except per share amounts)

 

 

 

 

 

 

 

Pro Forma*

 

 

 

Three months

 

Three months

 

Three months

 

 

 

ended

 

ended

 

ended

 

 

 

March 31, 2012

 

December 31, 2011

 

March 31, 2011

 

 

 

(excluding

 

(excluding

 

(excluding

 

 

 

special items)

 

special items)

 

special items)

 

 

 

 

 

 

 

 

 

Net income

 

$

243

 

151

 

306

 

 

 

 

 

 

 

 

 

Add back:

 

 

 

 

 

 

 

Amortization of customer base intangibles:

 

 

 

 

 

 

 

Qwest

 

244

 

253

 

246

 

Embarq

 

39

 

39

 

44

 

Savvis

 

15

 

20

 

20

 

 

 

 

 

 

 

 

 

Amortization of trademark intangibles:

 

 

 

 

 

 

 

Qwest

 

18

 

19

 

16

 

Savvis

 

2

 

2

 

2

 

 

 

 

 

 

 

 

 

Amortization of fair value adjustment of long-term debt:

 

 

 

 

 

 

 

Embarq

 

1

 

 

1

 

Qwest

 

(28

)

(31

)

(44

)

 

 

 

 

 

 

 

 

Subtotal

 

291

 

302

 

285

 

Tax effect of above items

 

(111

)

(110

)

(107

)

Net adjustment, after taxes

 

180

 

192

 

178

 

 

 

 

 

 

 

 

 

Net income, as adjusted for above items

 

$

423

 

343

 

484

 

 

 

 

 

 

 

 

 

Weighted average diluted shares outstanding

 

620.4

 

618.5

 

614.1

 

 

 

 

 

 

 

 

 

Diluted EPS (excluding special items)

 

$

0.39

 

0.24

 

0.50

 

 

 

 

 

 

 

 

 

Adjusted diluted EPS as adjusted for purchase accounting intangible and interest amortizations (excluding special items)

 

$

0.68

 

0.55

 

0.78

 

 

The above schedule presents adjusted net income and adjusted earnings per share (both excluding special items) by adding back to net income and earnings per share certain non-cash expense items that arise as a result of the application of business combination accounting rules to 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.

 


*The pro forma information presented above reflects the operations of CenturyLink, Qwest and Savvis assuming their respective results of operations had been combined as of January 1, 2010.  Pro forma adjustments include (i) the elimination of intercompany billings and the elimination of certain deferred revenues and costs; (ii) the elimination of certain components of pension and postretirement benefit costs; (iii) the amortization of the fair value preliminarily assigned to intangible assets (primarily customer relationship and software); (iv) adjustments to depreciation to reflect the fair value preliminarily assigned to property, plant and equipment; (v) adjustments to interest expense to reflect valuing debt at fair value; and (vi) the related income tax effects.  The above pro forma information (i) has not been prepared in accordance with generally accepted accounting principles, (ii) is for illustrative purposes only, and (iii) is not necessarily indicative of the combined operating results that would have occurred if the Qwest and Savvis mergers had been consummated as of January 1, 2010.

 



 

CenturyLink, Inc.

SUPPLEMENTAL PRO FORMA SEGMENT DATA

THREE MONTHS ENDED MARCH 31, 2012 AND  DECEMBER 31, 2011 AND PRO FORMA THREE MONTHS ENDED MARCH 31, 2011

ASSUMING CENTURYLINK’S ACQUISITIONS OF QWEST AND SAVVIS OCCURRED JANUARY 1, 2010

(UNAUDITED)

(Dollars in millions)

 

 

 

 

 

 

 

Pro forma*

 

 

 

Three months

 

Three months

 

Three months

 

 

 

ended

 

ended

 

ended

 

 

 

March 31, 2012

 

December 31, 2011

 

March 31, 2011

 

Total segment revenues

 

$

4,344

 

4,399

 

4,482

 

Total segment expenses

 

1,990

 

2,092

 

2,008

 

Total segment income

 

$

2,354

 

2,307

 

2,474

 

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

 

54.2

%

52.4

%

55.2

%

 

 

 

 

 

 

 

 

Regional Markets Segment

 

 

 

 

 

 

 

Revenues

 

 

 

 

 

 

 

Strategic services

 

$

764

 

761

 

735

 

Legacy services

 

1,411

 

1,440

 

1,535

 

Data integration

 

29

 

36

 

28

 

 

 

2,204

 

2,237

 

2,298

 

Expenses**

 

 

 

 

 

 

 

Direct

 

903

 

938

 

933

 

Allocated

 

19

 

59

 

65

 

 

 

922

 

997

 

998

 

 

 

 

 

 

 

 

 

Segment income

 

$

1,282

 

1,240

 

1,300

 

Segment income margin

 

58.2

%

55.4

%

56.6

%

 

 

 

 

 

 

 

 

Business Markets Segment

 

 

 

 

 

 

 

Revenues

 

 

 

 

 

 

 

Strategic services

 

$

450

 

446

 

437

 

Legacy services

 

351

 

350

 

367

 

Data integration

 

116

 

151

 

125

 

 

 

917

 

947

 

929

 

Expenses**

 

 

 

 

 

 

 

Direct

 

244

 

275

 

226

 

Allocated

 

337

 

312

 

304

 

 

 

581

 

587

 

530

 

 

 

 

 

 

 

 

 

Segment income

 

$

336

 

360

 

399

 

Segment income margin

 

36.6

%

38.0

%

42.9

%

 

 

 

 

 

 

 

 

Wholesale Markets Segment

 

 

 

 

 

 

 

Revenues

 

 

 

 

 

 

 

Strategic services

 

$

576

 

564

 

553

 

Legacy services

 

381

 

390

 

446

 

Data integration

 

 

1

 

 

 

 

957

 

955

 

999

 

Expenses**

 

 

 

 

 

 

 

Direct

 

47

 

51

 

44

 

Allocated

 

231

 

249

 

246

 

 

 

278

 

300

 

290

 

 

 

 

 

 

 

 

 

Segment income

 

$

679

 

655

 

709

 

Segment income margin

 

71.0

%

68.6

%

71.0

%

 

 

 

 

 

 

 

 

Savvis Operations Segment

 

 

 

 

 

 

 

Revenues

 

 

 

 

 

 

 

Savvis Operations

 

$

266

 

260

 

256

 

 

 

266

 

260

 

256

 

Expenses**

 

 

 

 

 

 

 

Direct

 

209

 

208

 

190

 

 

 

209

 

208

 

190

 

 

 

 

 

 

 

 

 

Segment income

 

$

57

 

52

 

66

 

Segment income margin

 

21.4

%

20.0

%

25.8

%

 


* For additional information regarding this pro forma information, including related pro forma adjustments,please see the preceding supplemental schedule.

 

**During the first quarter of 2012, as we transitioned certain of Qwest’s legacy systems to our historical company systems, we have updated how we report our direct expenses and have updated our methodology for how we allocate our expenses to our segments. Specifically, we no longer include certain fleet expenses for our regional markets segment in direct expenses; they are now allocated expenses in our regional markets, business markets and wholesale markets segments. In addition, we now more fully allocate network building rent and power expenses to our regional markets, business markets and wholesale markets segments. We have not recast our segment results for prior periods to reflect these changes in methodology, as it was deemed impracticable to do so.

 


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