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Press Release -- August 4th, 2010
Source: CenturyLink
Tags: Earnings, Ethernet

CenturyLink Reports Second Quarter 2010 Earnings

MONROE, La., Aug. 4 /PRNewswire-FirstCall/ -- CenturyLink, Inc. (NYSE:CTL, news, filings) announces operating results for second quarter 2010, which include the effect of the Embarq acquisition completed July 1, 2009.

  • Increased operating revenues more than 179% to $1.772 billion as a result of the Embarq acquisition.
  • Generated free cash flow of more than $428 million in second quarter 2010, excluding nonrecurring items (free cash flow is defined in the attached financial schedules).
  • Achieved approximately $75 million in operating cost synergies from the Embarq acquisition during second quarter 2010; expect to achieve approximately $330 million in annual run rate synergies by year end 2010.
  • Added more than 29,000 high-speed Internet customers compared to pro forma second quarter 2009 growth of approximately 28,000.
  • Improved access line losses by 22% compared to pro forma second quarter 2009.
Second Quarter Highlights
(Excluding nonrecurring items reflected in the attached financial schedules)
(In thousands, except per share amounts and subscriber data)





Quarter Ended
6/30/10
Quarter Ended
6/30/09
% Change



Operating Revenues
Operating Cash Flow (1)
Net Income (2)
Diluted Earnings Per Share
Average Diluted Shares Outstanding
Capital Expenditures (3)
$
$
$
$

$

1,772,030
922,073
265,680
.88
300,605
195,046


$
$
$
$

$


634,469
303,593
83,299
.83
99,450
85,305


179.3
203.7
218.9
6.0
202.3
128.6

%
%
%
%
%
%


Access Lines (4)
High-Speed Internet Customers

6,767,000
2,336,000



1,961,000
681,000


245.1
243.0

%
%

(1)  Operating Cash Flow is a non-GAAP financial measure. A reconciliation of this item to comparable GAAP measures is included in the attached financial schedules.

(2)  All references to net income contained in this release represent net income attributable to CenturyLink, Inc.

(3)  Includes capital expenditures of $5.9 million in second quarter 2010 and $13.5 million in second quarter 2009 related to the Embarq integration.

(4)  Both periods reflect line count methodology adjustments to standardize legacy CenturyLink and Embarq line counts.










"CenturyLink achieved solid operating revenues and our employees continued to do an excellent job of containing costs, resulting in the generation of strong cash flows during the quarter in spite of a very competitive marketplace and economic conditions that remain challenging," Glen F. Post, III, chief executive officer and president, said. "We continue to make solid progress toward our $375 million operating expense synergy target from the Embarq acquisition, generating total operating expense synergies of $75 million during the quarter and exiting the quarter with a $315 million annual synergy run rate."

Operating revenues for second quarter 2010 were $1.772 billion compared to $634.5 million in second quarter 2009. This increase was primarily due to $1.23 billion of revenue contribution from the Embarq acquisition completed July 1, 2009. Additionally, revenue increases primarily driven by growth in high-speed Internet customers and data transport demand from wireless providers were more than offset by revenue declines primarily due to the impact of access line losses, lower switched access revenues, and lower universal service funds receipts, along with the elimination of $54 million of revenues in second quarter 2010, associated with the mid-2009 discontinuance of regulatory accounting for certain regulated operating entities.

Operating expenses, excluding nonrecurring items, were $1.208 billion compared to $459.4 million in second quarter 2009, primarily due to $825 million of operating costs associated with the Embarq acquisition (net of synergies), which more than offset $54 million of reduced operating expenses associated with the discontinuance of regulatory accounting reflected in second quarter 2010.

Operating cash flow, excluding nonrecurring items, increased 203.7% to $922.1 million from $303.6 million in second quarter 2009, primarily due to the Embarq acquisition. For second quarter 2010, CenturyLink achieved an operating cash flow margin, excluding nonrecurring items, of 52.0% versus 47.8% in second quarter 2009.

"We remain focused on positioning CenturyLink as the broadband provider of choice in our markets by enhancing our broadband products portfolio through deploying higher speeds in key markets and expanding the availability of Ethernet and IP-based product offerings," Post said. "We continue to strengthen our capabilities to grow data revenues across all customer segments."

Net income, excluding nonrecurring items, was $265.7 million in second quarter 2010 compared to $83.3 million in second quarter 2009, primarily driven by the Embarq acquisition. Diluted earnings per share, excluding nonrecurring items, was $.88 for second quarter 2010, a 6.0% increase from the $.83 reported in second quarter 2009. This increase was primarily due to the higher net income as discussed above, partially offset by the 202.3% increase in average diluted shares outstanding as a result of our all-stock acquisition of Embarq.

For the first six months of 2010, operating revenues, excluding nonrecurring items, were $3.572 billion compared to $1.270 billion during the same period in 2009, a 181.3% increase. Operating cash flow, excluding nonrecurring items, was $1.857 billion for the first six months of 2010, a 204.9% increase from the $609.1 million during the same period a year ago. Net income, excluding nonrecurring items, increased to $544.9 million from $165.2 million in 2009, while diluted earnings per share, excluding nonrecurring items, increased 10.4% to $1.81 from $1.64 in 2009.

Under generally accepted accounting principles (GAAP), net income for second quarter 2010 was $238.8 million compared to $69.0 million for second quarter 2009, and diluted earnings per share for second quarter 2010 was $.79 compared to $.68 for second quarter 2009.

Second quarter 2010 net income and diluted earnings per share reflect after-tax costs of $11.1 million ($.04 per share) related to integration costs associated with the Embarq acquisition, $8.2 million ($.03 per share) associated with Embarq severance related costs, and $7.6 million ($.02 per share) related to transaction and integration costs associated with the pending Qwest acquisition.

Net income under GAAP for the first six months of 2010 was $491.4 million, compared to $136.2 million for the first six months of 2009, and diluted earnings per share for the first six months of 2010 was $1.63 compared to $1.35 for the first six months of 2009.  See the accompanying financial schedules for details of the Company's nonrecurring items for the six months ended June 30, 2010 and 2009.

Outlook. For third quarter 2010, CenturyLink expects total revenues of $1.720 to $1.745 billion and diluted earnings per share of $.77 to $.81.

For full year 2010, CenturyLink is updating its prior free cash flow and diluted earnings per share guidance as follows:


Prior Guidance Revised Guidance




Free Cash Flow $1.525 to $1.575 billion $1.560 to $1.600 billion
Diluted Earning Per Share $3.20 to $3.30 $3.30 to $3.40



This increased guidance reflects the favorable second quarter results and lower operating expenses than previously anticipated for the second half of 2010.

The Company continues to expect 2010 capital expenditures to be between $825 and $875 million.

These 2010 outlook figures exclude the effects of nonrecurring items, future change

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