CenturyLink Reports Third Quarter Earnings

MONROE, La., Nov. 3, 2010 /PRNewswire-FirstCall/ — CenturyLink, Inc. (NYSE:CTL, news, filings) announces operating results for third quarter 2010.

• Achieved operating revenues of $1.747 billion and operating cash flow (as defined in the attached financial schedules), excluding nonrecurring items, of $895 million.
• Generated free cash flow (as defined in the attached financial schedules), excluding nonrecurring items and $11.9 million of acquisition-related capital expenditures, of $383.3 million in third quarter 2010.
• Attained over $80 million in total operating synergies from the Embarq acquisition during third quarter 2010 and exited the quarter at an annual synergy run rate of approximately $330 million.
• Added more than 29,000 high-speed Internet customers.
• Improved trailing 12-months ended September 30, 2010 access line loss rate to 7.8% from 9.1% for the same pro forma period a year ago.

Operating revenues for third quarter 2010 were $1.75 billion compared to $1.87 billion in third quarter 2009. This anticipated revenue decline was primarily due to the impact of access line losses and lower access revenues, including the anticipated impact of wireless traffic migration, that more than offset revenue increases driven by growth in high-speed Internet customers and data transport demand from wireless providers.

Operating expenses, excluding nonrecurring items, decreased 7.4% to $1.21 billion from $1.31 billion in third quarter 2009, primarily due to lower network access expenses and reduced transport costs due to the migration of legacy Embarq long distance traffic to our internal IP network, along with lower personnel costs and depreciation expense.

Operating cash flow, excluding nonrecurring items, decreased 3.7% to $895.3 million from $929.8 million in third quarter 2009. For third quarter 2010, CenturyLink achieved an operating cash flow margin, excluding non-recurring items, of 51.2% versus 49.6% in third quarter 2009.

“CenturyLink’s strategic revenues increased nearly 8% compared to third quarter last year as demand for broadband and IP-based services continues to grow,” Post said. “Our advanced communications network and operating systems position us well to meet the demand for advanced services such as IPTV and local and national Ethernet.”

Net income, excluding nonrecurring items, was $251.1 million in third quarter 2010 compared to $269.1 million in third quarter 2009. Diluted earnings per share, excluding nonrecurring items, was $.83 for third quarter 2010, a 7.8% decrease from the $.90 reported in third quarter 2009.

For the first nine months of 2010, operating revenues, excluding nonrecurring items, increased 69.2% to $5.3 billion from $3.1 billion for the same period in 2009. Operating cash flow, excluding nonrecurring items, was $2.8 billion for the first nine months of 2010 compared to $1.5 billion a year ago. Net income, excluding nonrecurring items, was $796.0 million in the first nine months of 2010 compared to $434.2 million during the same period in 2009. Diluted earnings per share, excluding nonrecurring items, was $2.63 during the first nine months of 2010 compared to $2.60 in the first nine months of 2009. The primary driver of the increases outlined above for the first nine months of 2010 compared to the first nine months of 2009 is that the Embarq acquisition, which closed July 1, 2009, is included for the full nine months of 2010 and for only three of the nine months for 2009.

Under generally accepted accounting principles (GAAP), net income for third quarter 2010 was $231.2 million compared to $280.8 million for third quarter 2009 and, diluted earnings per share for third quarter 2010 was $.76 compared to $.94 for third quarter 2009. Third quarter 2010 net income and diluted earnings per share reflect after-tax integration costs associated with the Embarq acquisition of $14.1 million ($.05 per share), $2.6 million ($.01 per share) associated with Embarq severance related costs, and $3.2 million ($.01 per share) related to transaction and integration costs associated with the pending Qwest acquisition. Third quarter 2009 net income and diluted earnings per share reflect after-tax costs associated with the Embarq acquisition of $127.5 million ($.43 per share) that were more than offset by a net after-tax benefit of $133.2 million ($.44 per share) attributable to the extraordinary gain recognized upon the discontinuance of regulatory accounting and an after-tax benefit of $6.1 million ($.02 per share) related to the favorable resolution of certain transaction tax audit issues.

Net income under GAAP for the first nine months of 2010 was $722.5 million compared to $417.0 million for the first nine months of 2009 and diluted earnings per share for the first nine months of 2010 was $2.39 compared to $2.50 for the first nine months of 2009. See the accompanying financial schedules for details of the Company’s nonrecurring items for the nine months ended September 30, 2010 and 2009.

Outlook. For fourth quarter 2010, CenturyLink expects total operating revenues of $1.69 to $1.71 billion and diluted earnings per share of $.73 to $.77.

The Company is narrowing the range of its anticipated full year 2010 diluted earnings per share from its previously announced range of $3.30 to $3.40 to a range of $3.36 to $3.40, reflecting actual results for the first nine months of 2010 and fourth quarter 2010 guidance.

CenturyLink’s previous guidance that 2010 operating revenues were expected to decline approximately 6.5% to 7.5% compared to pro forma 2009 revenues reflected approximately $135 to $145 million of reductions related to several unusual items, including traffic migration by a wireless carrier. The Company now expects 2010 operating revenues to decline 6.5% to 7.0% and the 2010 revenue impact of those unusual items to be $110 to $120 million primarily due to delays in the timing of the wireless carrier traffic migration.

The Company has identified the following items that can be expected to negatively impact 2011 results when compared to 2010. First, delays in the timing of the wireless carrier traffic migration discussed above are expected to negatively impact operating revenues by approximately $45 to $50 million in 2011 compared to the expected $30 million provided earlier this year. Second, Universal Service Fund receipts are expected to decline $25 to $30 million in 2011. The Company expects these items to negatively impact 2011 diluted earnings per share by $.10 to $.14. Also, the Company expects to launch its Prism IPTV service in additional markets in 2011. CenturyLink expects to provide full year 2011 earnings per share guidance in conjunction with its fourth quarter 2010 earnings release.

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 changes in regulation, future integration expenses associated with the Embarq acquisition, integration and transaction expenses associated with the pending Qwest acquisition, any future changes in operating or capital plans related thereto, and any future mergers, acquisitions, divestitures or other similar business transactions.

Embarq Integration Update. CenturyLink incurred pre-tax costs of $26.9 million related to the Embarq acquisition and $5.1 million related to the Qwest transaction. The Company also incurred approximately $11.9 million of integration-related capital expenditures.

CenturyLink achieved more than $80 million in total operating cost synergies during third quarter 2010 and continues to expect to exit 2010 at the current annualized synergy run rate of $330 million.

Qwest Transaction. On April 22, 2010, CenturyLink and Qwest Communications International Inc. (NYSE: Q) announced that their boards of directors approved a definitive agreement under which CenturyLink will acquire Qwest in a tax-free, stock-for-stock transaction. Qwest shareholders will receive 0.1664 CenturyLink shares for each share of Qwest common stock they own at closing, which is expected to occur in the first half of 2011, subject to various closing conditions. Upon closing of the transaction, CenturyLink shareholders are expected to own approximately 50.5% and Qwest shareholders are expected to own approximately 49.5% of the combined company.

CenturyLink and Qwest filed the requisite notification and report forms under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and received clearance on July 15, 2010 to proceed with the transaction.

The transaction requires approval from regulatory commissions in 21 states and the District of Columbia.  Twelve of those regulatory approvals have been received to date.  The Federal Communications Commission also is required to approve the transaction.

Special meetings of the shareholders of both CenturyLink and Qwest were held on August 24, 2010 to vote on the merger. At the special meeting of CenturyLink’s shareholders held in Monroe, more than 97 percent of the votes cast supported the proposal to issue CenturyLink common stock to Qwest shareholders in connection with the proposed merger. At the special meeting of Qwest’s shareholders held in Denver, approximately 97 percent of the votes cast voted to adopt the merger agreement.

Shareholder Returns. CenturyLink returned approximately $219.7 million to shareholders in the third quarter through cash dividends paid on September 20, 2010, to shareholders of record as of September 7, 2010.  In accordance with their definitive merger agreement, CenturyLink and Qwest shall coordinate with each other through the closing date to designate the record dates and payment dates for the two companies’ respective quarterly dividends, such that neither CenturyLink shareholders nor Qwest shareholders shall receive more than one quarterly dividend during any calendar quarter.  Thus, the timing of CenturyLink’s future dividends may deviate from historical dates.

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

Investor Call. As previously announced, CenturyLink’s management will host a conference call at 10:30 a.m. Central Time today. Interested parties can access the call by dialing 866.818.1393. The call will be accessible for replay through November 9, 2010, by calling 888.266.2081 and entering the conference ID number 1486281. 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 November 23, 2010.

Forward Looking Statements

Certain non-historical statements made in this release and future oral or written statements or press releases by us or our management are intended to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  These forward-looking statements are based on current expectations only, and are subject to a number of risks, uncertainties and assumptions, many of which are beyond our control.  Actual events and results may differ materially from those anticipated, estimated or projected if one or more of these risks or uncertainties materialize, or if underlying assumptions prove incorrect.  Factors that could affect actual results include but are not limited to:  the timing, success and overall effects of competition from a wide variety of competitive providers; the risks inherent in rapid technological change; the effects of ongoing changes in the regulation of the communications industry (including those arising out of the Federal Communication Commission’s National Broadband Plan released in the first quarter of 2010); our ability to effectively adjust to changes in the communications industry;  our ability to successfully integrate Embarq into our operations, including the possibility that the anticipated benefits from the Embarq merger cannot be fully realized in a timely manner or at all, or that integrating Embarq’s operations into ours will be more difficult, disruptive or costly than anticipated; our ability to successfully complete our pending acquisition of Qwest, including timely receiving all regulatory approvals and realizing the anticipated benefits of the transaction; 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; 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 in our capital expenditures; our ability to successfully negotiate collective bargaining agreements on reasonable terms without work stoppages; the effects of adverse weather; other risks referenced from time to time in this release or 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 recently completed or pending acquisitions are described in greater detail in Item 1A to our Form 10-K for the year ended December 31, 2009, 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.

CenturyLink is a leading provider of high-quality broadband, entertainment and voice services over its advanced communications networks to consumers and businesses in 33 states. CenturyLink, headquartered in Monroe, La., is an S&P 500 company and is included among the Fortune 500 list of America’s largest corporations. For more information on CenturyLink, visit www.centurylink.com.

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