CenturyLink Reports Strong Second Quarter 2014 Results Achieved operating revenues of $4.54 billion, including core revenues[1] of $4.10 billion

Generated operating cash flow[2] of $1.81 billion, excluding special items

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

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

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

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

MONROE, La., Aug. 6, 2014 /PRNewswire/ -- CenturyLink, Inc. (NYSE: CTL) today reported strong operating revenues, operating cash flow and free cash flow for second quarter 2014.

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

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

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

Second Quarter 2014 Highlights

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

Consolidated Financial Results

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

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

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

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

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

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

GAAP Results

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

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

Segment Financial Results[5]

Consumer

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

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

Business

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

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

Wholesale

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

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

Hosting

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

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

Guidance – Third Quarter 2014

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


Third Quarter 2014 (excl. special items)



Operating Revenues

$4.47 to $4.52 billion

Core Revenues

$4.06 to $4.11 billion

Operating Cash Flow

$1.72 to $1.77 billion

Adjusted Diluted EPS

$0.58 to $0.63

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

Investor Call

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

Reconciliation to GAAP

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

About CenturyLink

CenturyLink is the third largest telecommunications company in the United States and is recognized as a leader in the network services market by technology industry analyst firms. The Company is a global leader in cloud infrastructure and hosted IT solutions for enterprise customers. CenturyLink provides data, voice and managed services in local, national and select international markets through its high-quality advanced fiber optic network and multiple data centers for businesses and consumers. The company also offers advanced entertainment services under the CenturyLink® PrismTM TV and DIRECTV brands. Headquartered in Monroe, La., CenturyLink is an S&P 500 company and is included among the Fortune 500 list of America's largest corporations. For more information, visit www.centurylink.com.

Forward Looking Statements

Certain non-historical statements made in this release and future oral or written statements or press releases by us or our management are intended to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current expectations only, and are subject to a number of assumptions, risks and uncertainties, many of which are beyond our control. Actual events and results may differ materially from those anticipated, estimated, projected or implied by us if one or more of these risks or uncertainties materialize, or if our underlying assumptions prove incorrect. Factors that could affect actual results include but are not limited to: the timing, success and overall effects of competition from a wide variety of competitive providers; the risks inherent in rapid technological change, including product displacement; the effects of ongoing changes in the regulation of the communications industry, including the outcome of regulatory or judicial proceedings relating to intercarrier compensation, access charges, universal service, broadband deployment, data protection and net neutrality; our ability to effectively adjust to changes in the communications industry, and changes in our markets, product mix and network caused by our recent acquisitions; our ability to successfully integrate recently-acquired operations into our incumbent operations, including the possibility that the anticipated benefits from our recent acquisitions cannot be fully realized in a timely manner or at all; our ability to effectively manage our expansion opportunities, including retaining and hiring key personnel; possible changes in the demand for, or pricing of, our products and services, including our ability to effectively respond to increased demand for high-speed broadband service; our ability to successfully introduce new product or service offerings on a timely and cost-effective basis; the adverse impact on our business and network from possible equipment failures, security breaches or similar attacks on our network; our ability to successfully negotiate collective bargaining agreements on reasonable terms without work stoppages; our ability to use net operating loss carryovers of Qwest in projected amounts; our continued access to credit markets on favorable terms; our ability to collect our receivables from financially troubled communications companies; our ability to maintain favorable relations with our key business partners, suppliers, vendors, landlords and financial institutions; any adverse developments in legal or regulatory proceedings involving us; changes in our operating plans, corporate strategies, dividend payment plans or other capital allocation plans, including those caused by changes in our cash requirements, capital expenditure needs, debt obligations, pension funding requirements, cash flows, or financial position, or other similar changes; the effects of adverse weather; other risks referenced from time to time in our filings with the SEC; and the effects of more general factors such as changes in interest rates, in tax laws, in accounting policies or practices, in operating, medical, pension or administrative costs, in general market, labor or economic conditions, or in legislation, regulation or public policy. These and other uncertainties related to our business and our recent acquisitions are described in greater detail in Item 1A of our Form 10-Q for the quarter ended March 31, 2014, as updated and supplemented by our subsequent SEC reports. You should be aware that new factors may emerge from time to time and it is not possible for us to identify all such factors nor can we predict the impact of each such factor on the business or the extent to which any one or more factors may cause actual results to differ from those reflected in any forward-looking statements. You are further cautioned not to place undue reliance on these forward-looking statements, which are inherently speculative and speak only as of the date made. We undertake no obligation to update any of our forward-looking statements for any reason.


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

[2] See attachments for non-GAAP reconciliations

[3] Multi-protocol Label Switching

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

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

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

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

 

 



 CenturyLink, Inc. 

 CONSOLIDATED STATEMENTS OF INCOME 

 THREE MONTHS ENDED JUNE 30, 2014 AND 2013 

 (UNAUDITED) 

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























 Three months ended June 30, 2014 


 Three months ended June 30, 2013 




























As reported 


Less special items 


As adjusted 

excluding special items

(Non-GAAP) 


 As reported 


Less special items 


As adjusted

excluding

 special items (Non-GAAP) 


Increase (decrease) as reported 


Increase

(decrease) excluding special

 items 





















 OPERATING REVENUES* 



















 Strategic 

$

2,298




2,298


2,186




2,186


5.1%


5.1%



 Legacy 


1,803




1,803


1,923




1,923


(6.2%)


(6.2%)



 Data integration 


187




187


167




167


12.0%


12.0%



 Other 


253




253


249




249


1.6%


1.6%





4,541


-


4,541


4,525


-


4,525


0.4%


0.4%





















 OPERATING EXPENSES 



















 Cost of services and products  


1,962


6

(1)

1,956


1,873


4

(4)

1,869


4.8%


4.7%



 Selling, general and administrative 


831


59

(1)

772


814


16

(4)

798


2.1%


(3.3%)



 Depreciation and amortization 


1,093




1,093


1,123




1,123


(2.7%)


(2.7%)





3,886


65


3,821


3,810


20


3,790


2.0%


0.8%





















 OPERATING INCOME 


655


(65)


720


715


(20)


735


(8.4%)


(2.0%)





















 OTHER INCOME (EXPENSE) 



















 Interest expense 


(325)




(325)


(325)




(325)


0.0%


0.0%



 Other (expense) income  


(7)


(14)

(2)

7


4


-


4


(275.0%)


75.0%



 Income tax expense 


(130)


25

(3)

(155)


(125)


40

(5)

(165)


4.0%


(6.1%)





















 NET INCOME 

$

193


(54)


247


269


20


249


(28.3%)


(0.8%)





















 BASIC EARNINGS PER SHARE 

$

0.34


(0.10)


0.43


0.45


0.03


0.41


(24.4%)


4.9%


 DILUTED EARNINGS PER SHARE 

$

0.34


(0.09)


0.43


0.44


0.03


0.41


(22.7%)


4.9%





















 AVERAGE SHARES OUTSTANDING 



















 Basic 


567,915




567,915


604,302




604,302


(6.0%)


(6.0%)



 Diluted 


569,032




569,032


605,602




605,602


(6.0%)


(6.0%)





















DIVIDENDS PER COMMON SHARE

$

0.540




0.540


0.540




0.540


0.0%


0.0%





















SPECIAL ITEMS


















(1) - 

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

(2) - 

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


(3) - 

Income tax benefit of Item (1).













(4) - 

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


(5) - 

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























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


 



 CenturyLink, Inc. 

 CONSOLIDATED STATEMENTS OF INCOME 

 SIX MONTHS ENDED JUNE 30, 2014 AND 2013 

 (UNAUDITED) 

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






















 Six months ended June 30, 2014 


 Six months ended June 30, 2013 


























As reported 


Less special items 


As adjusted  

excluding special items

(Non-GAAP) 


As reported 


Less special items 


As adjusted

excluding special items (Non-GAAP) 


Increase(decrease) as reported 


Increase(decrease)excluding special  items 



















 OPERATING REVENUES* 


















 Strategic 

$

4,579




4,579


4,350




4,350


5.3%


5.3%


 Legacy 


3,632




3,632


3,875




3,875


(6.3%)


(6.3%)


 Data integration 


361




361


307




307


17.6%


17.6%


 Other 


507




507


506




506


0.2%


0.2%




9,079


-


9,079


9,038


-


9,038


0.5%


0.5%



















 OPERATING EXPENSES 


















 Cost of services and products  


3,897


10

(1)

3,887


3,669


6

(4)

3,663


6.2%


6.1%


 Selling, general and administrative 


1,674


83

(1)

1,591


1,632


48

(4)

1,584


2.6%


0.4%


 Depreciation and amortization 


2,200




2,200


2,240




2,240


(1.8%)


(1.8%)




7,771


93


7,678


7,541


54


7,487


3.0%


2.6%



















 OPERATING INCOME 


1,308


(93)


1,401


1,497


(54)


1,551


(12.6%)


(9.7%)



















 OTHER INCOME (EXPENSE) 


















 Interest expense 


(656)




(656)


(641)




(641)


2.3%


2.3%


 Other (expense) income  


2


(14)

(2)

16


43


37

(5)

6


(95.3%)


166.7%


 Income tax expense 


(258)


36

(3)

(294)


(332)


32

(6)

(364)


(22.3%)


(19.2%)



















 NET INCOME 

$

396


(71)


467


567


15


552


(30.2%)


(15.4%)



















 BASIC EARNINGS PER SHARE 

$

0.69


(0.12)


0.82


0.93


0.02


0.90


(25.8%)


(8.9%)

 DILUTED EARNINGS PER SHARE 

$

0.69


(0.12)


0.82


0.92


0.02


0.90


(25.0%)


(8.9%)



















 AVERAGE SHARES OUTSTANDING 


















 Basic 


571,225




571,225


611,862




611,862


(6.6%)


(6.6%)


 Diluted 


572,244




572,244


613,338




613,338


(6.7%)


(6.7%)



















DIVIDENDS PER COMMON SHARE

$

1.08




1.08


1.08




1.08


0.0%


0.0%



















SPECIAL ITEMS

















 (1) - 

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

 (2) - 

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









 (3) - 

Income tax benefit of Item (1).













 (4) - 

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

 (5) - 

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

 (6) - 

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




















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

 


 CenturyLink, Inc. 


 CONDENSED CONSOLIDATED BALANCE SHEETS 


 JUNE 30, 2014 AND DECEMBER 31, 2013  


 (UNAUDITED) 


 (Dollars in millions) 










June 30,


December 31,




2014


2013








ASSETS





CURRENT ASSETS






Cash and cash equivalents

$

181


168


Other current assets


3,417


3,739


   Total current assets


3,598


3,907







NET PROPERTY, PLANT AND EQUIPMENT






Property, plant and equipment


35,404


34,307


Accumulated depreciation


(16,969)


(15,661)


   Net property, plant and equipment


18,435


18,646







GOODWILL AND OTHER ASSETS






Goodwill


20,674


20,674


Other, net


7,907


8,560


    Total goodwill and other assets


28,581


29,234







TOTAL ASSETS

$

50,614


51,787














LIABILITIES AND STOCKHOLDERS' EQUITY





CURRENT LIABILITIES






Current maturities of long-term debt

$

1,188


785


Other current liabilities


3,255


3,624


    Total current liabilities


4,443


4,409







LONG-TERM DEBT


19,771


20,181

DEFERRED CREDITS AND OTHER LIABILITIES


9,802


10,006

STOCKHOLDERS' EQUITY


16,598


17,191







TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

50,614


51,787







 

 CenturyLink, Inc. 

 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 

 SIX MONTHS ENDED JUNE 30, 2014 AND 2013 

 (UNAUDITED) 

 (Dollars in millions) 





































Six Months


Six Months











 ended 


 ended 











 June 30, 2014 


 June 30, 2013 














 OPERATING ACTIVITIES 









 Net income 





$

396


567


 Adjustments to reconcile net income to net 









 cash provided by operating activities: 










 Depreciation and amortization 




2,200


2,240




 Impairment of assets 





32


-




 Deferred income taxes 





208


307




 Provision for uncollectible accounts 




63


65




 Gain on sale of intangible assets 




-


(32)




 Changes in current assets and current liabilities, net 


(364)


(99)




 Retirement benefits 





(102)


(220)




 Changes in other noncurrent assets and liabilities 


66


48




 Other, net 






10


(20)





 Net cash provided by operating activities 



2,509


2,856














 INVESTING ACTIVITIES 










 Payments for property, plant and equipment and capitalized software 


(1,401)


(1,410)


 Proceeds from sale of intangible assets or property 



-


75


 Other, net 






(18)


23





 Net cash used in investing activities 



(1,419)


(1,312)














 FINANCING ACTIVITIES 









 Net proceeds from issuance of long-term debt 



-


1,740


 Payments of long-term debt 





(121)


(1,018)


 Net borrowings (payments) on credit facility 




120


(775)


 Dividends paid 






(616)


(661)


 Net proceeds from issuance of common stock 



32


40


 Repurchases of common stock 





(493)


(867)


 Other, net 






1


-





 Net cash used in financing activities 



(1,077)


(1,541)














 Net increase in cash and cash equivalents 




13


3

 Cash and cash equivalents at beginning of period 



168


211














 Cash and cash equivalents at end of period 



$

181


214














 

 


 CenturyLink, Inc. 

 SELECTED SEGMENT FINANCIAL INFORMATION 

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

 (UNAUDITED) 

 (Dollars in millions) 
































 

Three months ended June 30, *



 

Six months ended June 30, *






2014


2013**



2014


2013**

Total segment revenues


$

4,288


4,276


$

8,572


8,532

Total segment expenses



2,118


2,041



4,217


3,969

Total segment income


$

2,170


2,235


$

4,355


4,563














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


50.6%


52.3%



50.8%


53.5%














Consumer












Revenues













Strategic services


$

709


653


$

1,411


1,298


Legacy services



790


840



1,596


1,704


Data integration



1


1



2


3





$

1,500


1,494


$

3,009


3,005

Expenses













Direct



$

478


458


$

944


894


Allocated




121


116



238


229





$

599


574


$

1,182


1,123














Segment income


$

901


920


$

1,827


1,882

Segment income margin



60.1%


61.6%



60.7%


62.6%














Business












Revenues













Strategic services


$

663


615


$

1,318


1,229


Legacy services



715


744



1,446


1,497


Data integration



186


166



359


304





$

1,564


1,525


$

3,123


3,030

Expenses













Direct



$

866


804


$

1,720


1,557


Allocated




106


108



218


212





$

972


912


$

1,938


1,769














Segment income


$

592


613


$

1,185


1,261

Segment income margin



37.9%


40.2%



37.9%


41.6%














Wholesale












Revenues













Strategic services


$

568


571


$

1,138


1,142


Legacy services



298


339



590


674





$

866


910


$

1,728


1,816

Expenses













Direct



$

46


50


$

87


80


Allocated




237


251



472


495





$

283


301


$

559


575














Segment income


$

583


609


$

1,169


1,241

Segment income margin



67.3%


66.9%



67.7%


68.3%














Hosting












Revenues













Strategic services


$

358


347


$

712


681





$

358


347


$

712


681

Expenses













Direct



$

226


215


$

464


424


Allocated




38


39



74


78





$

264


254


$

538


502














Segment income


$

94


93


$

174


179

Segment income margin



26.3%


26.8%



24.4%


26.3%



























*

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






















-

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






















-

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





















**


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






















See our SEC reports for further information.











 

 CenturyLink, Inc. 

 RECONCILIATION OF NON-GAAP FINANCIAL MEASURES 

 (UNAUDITED) 

 (Dollars in millions) 
































 Three months ended June 30, 2014 


 Three months ended June 30, 2013 








 As adjusted 






 As adjusted 






 Less 


 excluding 




 Less 


 excluding 




 As 


 special 


 special 


 As 


 special 


 special 




 reported 


 items 


 items 


 reported 


 items 


 items 

 Operating cash flow and cash flow margin 













 Operating income 

$

655


(65)

(1)

720


715


(20)

(2)

735


 Add:  Depreciation and amortization 

1,093


-


1,093


1,123


-


1,123


 Operating cash flow  

$

1,748


(65)


1,813


1,838


(20)


1,858
















 Revenues  

$

4,541


-


4,541


4,525


-


4,525
















 Operating income margin (operating income divided by revenues) 

14.4%




15.9%


15.8%




16.2%
















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

38.5%




39.9%


40.6%




41.1%





























 Free cash flow  













 Operating cash flow 




$

1,813






1,858


 Less: Cash paid for income taxes, net of refunds 





(13)






(38)


 Less: Cash paid for interest, net of amounts capitalized 





(407)






(382)


 Less: Capital expenditures (3) 





(723)






(739)


 Add:  Other income  





7






4


 Free cash flow (4) 




$

677






703















SPECIAL ITEMS

 (1) - 

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

 (2) - 

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

 (3) - 

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

 (4) - 

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

 

 

 CenturyLink, Inc. 

 RECONCILIATION OF NON-GAAP FINANCIAL MEASURES 

 (UNAUDITED) 

 (Dollars in millions) 
































 Six months ended June 30, 2014 


 Six months ended June 30, 2013 








 As adjusted 






 As adjusted 






 Less 


 excluding 




 Less 


 excluding 




 As 


 special 


 special 


 As 


 special 


 special 




 reported 


 items 


 items 


 reported 


 items 


 items 

 Operating cash flow and cash flow margin 













 Operating income 

$

1,308


(93)

(1)

1,401


1,497


(54)

(2)

1,551


 Add:  Depreciation and amortization 

2,200


-


2,200


2,240


-


2,240


 Operating cash flow  

$

3,508


(93)


3,601


3,737


(54)


3,791
















 Revenues  

$

9,079


-


9,079


9,038


-


9,038
















 Operating income margin (operating income divided by revenues) 

14.4%




15.4%


16.6%




17.2%
















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

38.6%




39.7%


41.3%




41.9%





























 Free cash flow  














 Operating cash flow 




$

3,601






3,791


 Less: Cash paid for income taxes, net of refunds 





(23)






(46)


 Less: Cash paid for interest, net of amounts capitalized 





(672)






(647)


 Less: Capital expenditures (3) 





(1,385)






(1,395)


 Add:  Other income  





16






6


 Free cash flow (4) 




$

1,537






1,709















 SPECIAL ITEMS 














 (1) - 

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

 (2) - 

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

 (3) - 

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

 (4) - 

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























 





 CenturyLink, Inc. 









 OPERATING METRICS 









 (UNAUDITED) 









 (In thousands) 


















As of


As of


As of





June 30, 2014


March 31, 2014


June 30, 2013

Broadband subscribers


6,055


6,057


5,909

Access lines



12,707


12,882


13,331

 


 CenturyLink, Inc. 

 SUPPLEMENTAL NON-GAAP INFORMATION - ADJUSTED DILUTED EPS 

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

 (UNAUDITED) 

 (Dollars in millions, except per share amounts) 



























































Three months ended


Six months ended




















June 30, 2014


June 30, 2013


June 30, 2014


June 30, 2013







(excluding


(excluding


(excluding


(excluding







special items)


special items)


special items)


special items)














Net income *




$

247


249


467


552














Add back:












   Amortization of customer base intangibles:










Qwest





216


230


435


464


Embarq





30


34


59


68


Savvis





16


15


31


30














   Amortization of trademark intangibles:











Qwest





5


11


11


23


Savvis





-


2


5


4














   Amortization of fair value adjustment of long-term debt:










Embarq





2


1


3


2


Qwest





(12)


(17)


(24)


(34)














        Subtotal





257


276


520


557

   Tax effect of above items 


(96)


(108)


(198)


(217)

Net adjustment, after taxes


161


168


322


340














Net income, as adjusted for above items


$

408


417


789


892














Weighted average diluted shares outstanding 


569.0


605.6


572.2


613.3














Diluted EPS (excluding special items)


$

0.43


0.41


0.82


0.90














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









   (excluding special items)


$

0.72


0.69


1.38


1.46



























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














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





 

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SOURCE CenturyLink, Inc.



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