CenturyLink's Q2 Disappoints

Announces operating results for Q2, which include the effect of the Qwest acquisition completed on April 1

August 4, 2011

4 Min Read

MONROE, La. -- CenturyLink, Inc. (NYSE: CTL) announces operating results for second quarter 2011, which include the effect of the Qwest acquisition completed April 1, 2011.

  • Generated free cash flow (see Note 1 below) of $950 million in second quarter 2011, excluding special items of $181 million.

  • Preliminary assignment of fair value and depreciable life to Qwest property and intangible assets resulted in approximately $200 million higher depreciation and amortization expense than originally anticipated, negatively impacting second quarter 2011 diluted earnings per share by $0.20 per share compared to previous company guidance. Excluding this non-cash variance to previous guidance and other special items, diluted earnings per share would have been $0.64, within previous second quarter guidance of $0.63 to $0.67.

  • Reduced access line losses by 18.6% compared to pro forma second quarter 2010, after adjusting for line count methodology changes (see Note 4 below).

  • Completed final billing and customer care conversion for Embarq properties in July 2011. Expect to achieve approximately $375 million in annual run rate operating synergies by year-end 2011 related to the Embarq acquisition.

"CenturyLink achieved solid second quarter results as growth in strategic revenues continued to help our top line revenue trend," Glen F. Post, III, chief executive officer and president, said. "While purchase price accounting adjustments are negatively impacting earnings per share, we saw strong free cash flow generation of $950 million during the quarter. Additionally, Qwest integration efforts are off to a good start, synergy achievement during the quarter for both the Qwest and Embarq transactions was in line with our expectations, and, with the final Embarq customer conversion in late July, we have completed the major integration activities for that transaction."

The following discussion summarizes information contained in the attached supplemental schedules, which should be consulted for additional information.


Operating revenues for second quarter 2011 were $4.4 billion compared to $1.8 billion in second quarter 2010. This increase was primarily due to $2.7 billion of revenue contribution from the Qwest acquisition completed April 1, 2011. Additionally, increases in strategic revenues, primarily driven by growth in high-speed Internet customers, data services demand from business customers and data transport demand from wireless providers were more than offset by declines in legacy services and other revenues primarily due to the impact of access line losses and lower access revenues, including the impact of anticipated lower universal service fund receipts.

Second quarter 2011 operating revenues compared to second quarter 2010 pro forma operating revenues declined 4.9% from $4.6 billion a year ago to $4.4 billion this quarter.

Operating expenses, excluding special items, increased to $3.7 billion from $1.2 billion in second quarter 2010, primarily due to $2.6 billion of operating costs associated with Qwest. Depreciation and amortization expense was approximately $200 million higher in second quarter 2011 compared to amounts previously forecast at the end of first quarter 2011 due to higher fair value assignments to certain amortizable intangible assets than originally estimated under business combination accounting. Such fair value assignment is still preliminary as of the end of the second quarter of 2011, and is expected to be completed no later than early 2012.

Operating expenses, excluding special items, of $3.7 billion in second quarter 2011 declined 3.3% from pro forma second quarter 2010 operating expenses of $3.8 billion.

Operating cash flow, excluding special items,increased 107.7% to $1.9 billion from $923 million in second quarter 2010, due to the Qwest acquisition. For second quarter 2011, CenturyLink achieved an operating cash flow margin of 43.5% versus 52.1% in second quarter 2010, reflecting the impact that lower margin Qwest had on CenturyLink's consolidated operating cash flow margin.

Second quarter 2011 operating cash flow, excluding special items, of $1.9 billion declined 5.0% from second quarter 2010 pro forma operating cash flow of $2.0 billion.

"We are pleased with the early success of our go-to-market plans in the legacy Qwest markets and the continued demand for broadband in legacy CenturyLink markets, as we achieved higher year-over-year high-speed Internet sales during the second quarter compared to pro forma second quarter 2010," Post said. "However, net broadband customer additions during the quarter were negatively affected by higher than anticipated churn of stand-alone high-speed Internet customers in the legacy Qwest markets. We have taken affirmative steps to mitigate this churn, which we believe will improve net broadband additions in the months ahead."

CenturyLink Inc. (NYSE: CTL)

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