CenturyLink Reports Fourth Quarter And Full-Year 2012 Earnings

CenturyLink Reports Fourth Quarter And Full-Year 2012 Earnings

Achieved fourth quarter operating revenues of $4.58 billion and full-year operating revenues of $18.4 billion, in line with guidance

Improved year-over-year rate of revenue decline to 1.5% in fourth quarter 2012 compared to 3.2% year-over-year decline in fourth quarter 2011

Realized strong growth in high-speed Internet subscribers of more than 41,000 during fourth quarter 2012

Achieved Adjusted Diluted EPS1 of $0.67 compared to $0.55 in fourth quarter 2011

Generated Free Cash Flow(1) of $610 million, excluding special items

MONROE, La., Feb. 13, 2013 /PRNewswire/ -- CenturyLink, Inc. (NYSE: CTL) today reported solid operating revenues, operating cash flow and free cash flow for fourth quarter and full-year 2012.

(Logo: http://photos.prnewswire.com/prnh/20090602/DA26511LOGO)

"We are pleased with our fourth quarter and full-year results, which reflect the continued execution of our strategy to focus on investing in our key growth drivers to further stabilize our top-line revenue while aligning our operating costs with revenue and growth opportunities. Our investments in broadband, Prism(TM) TV, fiber-to-the-tower and data hosting continue to provide a broad base of organic revenue growth opportunities and helped drive pro forma full-year operating revenue improvement to a 1.7% decline in 2012 compared to a 3.8% decline a year ago," said Glen F. Post, III, chief executive officer and president.

"We realized solid strategic data and hosting revenue growth during 2012 driven by strong demand from our business customers for high bandwidth data services, colocation and managed services, including cloud. The December commercial launch of our new savvisdirect product, which meets the increasing demand for a simplified approach to cloud computing, reflects the combined strength of our strategic asset portfolio and employee innovation.

"We remain focused on delivering innovative communications and hosted IT solutions that meet the needs of customers, and we continue to expect further improvement in our top-line revenue trend this year and to reach revenue stabilization in 2014," Post concluded.

Fourth Quarter Highlights


-- Improved year-over-year revenue trend to a 1.5% rate of decline compared
to a 3.2% decline in fourth quarter 2011.
-- Achieved free cash flow of $610 million, excluding special items and
integration-related capital expenditures.
-- Ended fourth quarter 2012 with approximately 5.85 million high-speed
Internet subscribers(2); adding more than 41,000 customers in the fourth
quarter.
-- Improved access line loss trend during fourth quarter 2012 to a 5.7%
annual decline compared to a 6.6% annual decline in fourth quarter 2011.
-- Added more than 10,000 CenturyLink(® )Prism(TM) TV subscribers in
fourth quarter 2012, ending the quarter with nearly 115,000 subscribers
in service.
-- Generated sequential recurring revenue growth in our Enterprise Markets
- Network segment.
-- Opened a new data center(3) in Frankfurt, Germany, bringing total data
centers to 54 throughout North America, Europe and Asia, with total
sellable floor space of approximately 1.4 million square feet.
Consolidated Fourth Quarter Financial Results

Operating revenues for fourth quarter 2012 were $4.58 billion compared to $4.65 billion in fourth quarter 2011. This decrease was driven by lower legacy services revenues primarily due to the impact of access line losses and lower access revenues, partially offset by increases in strategic revenues resulting primarily from strong business customer demand for high-bandwidth data services, colocation and managed hosting services and growth in high-speed Internet and CenturyLink(® )Prism(TM) TV subscribers.

Operating expenses, excluding special items, decreased to $3.89 billion from $4.06 billion in fourth quarter 2011. The year-over-year decrease was primarily due to lower personnel-related costs, professional fees and depreciation and amortization expense, which were partially offset by higher colocation and managed hosting expense and network costs.

Operating cash flow (as defined in our attached supplemental schedules), excluding special items, increased to $1.91 billion from $1.85 billion in fourth quarter 2011. This increase was primarily the result of lower personnel-related costs and professional fees being partially offset by the impact of the decline in legacy revenues. For fourth quarter 2012, CenturyLink achieved an operating cash flow margin, excluding special items, of 41.7% versus 39.7% in fourth quarter 2011.

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 intangibles, and the non-cash after-tax impact to interest expense of the assignment of fair value to debt outstanding related to our Embarq, Qwest and Savvis acquisitions.

Excluding the items outlined above, CenturyLink's Adjusted Net Income for fourth quarter 2012 was $415 million compared to Adjusted Net Income of $343 million in fourth quarter 2011. Fourth quarter 2012 Adjusted Diluted EPS was $0.67 compared to Adjusted Diluted EPS of $0.55 in the year-ago period. See the attached schedules for additional information.

Full-Year Results

For the full-year 2012, operating revenues increased to $18.4 billion from $15.4 billion for 2011. Operating cash flow, excluding special items, was $7.7 billion for 2012 compared to $6.5 billion in 2011. Net income, excluding special items, was $947 million in 2012 compared to $867 million in 2011. Full year 2012 earnings per share, excluding special items, was $1.52 compared to $1.62 for the prior year. The decrease in 2012 earnings per share compared to 2011 is due to a higher average share count in 2012. Full-year 2011 results include Qwest and Savvis operations from the April 1, 2011 and July 15, 2011 transaction closing dates, respectively.

Full-year 2012 operating revenues of $18.4 billion declined 1.7% from operating revenues of $18.7 billion for pro forma full-year 2011(4). Operating cash flow, excluding special items, was $7.7 billion for 2012 compared to $7.8 billion in pro forma 2011. Adjusted Net Income, excluding special items, was $1.66 billion in 2012 compared to $1.63 billion in pro forma 2011. Adjusted Diluted EPS, excluding special items, was $2.67 in 2012 compared to $2.64 for pro forma 2011. The decline in operating revenues and operating cash flow was driven by growth in lower-margin strategic revenues being more than offset by a reduction in higher-margin legacy voice and access revenues.

GAAP Results - Fourth Quarter and Full-Year

Under generally accepted accounting principles (GAAP), net income for fourth quarter 2012 was $233 million compared to $109 million for fourth quarter 2011, and diluted earnings per share for fourth quarter 2012 was $0.37 compared to $0.18 for fourth quarter 2011. Fourth quarter 2012 net income and diluted earnings per share reflect after-tax integration, severance, and retention costs associated with the Qwest and Savvis acquisitions and costs associated with reduction in force initiatives partially offset by a gain on the sale of non-operating investments and the early retirement of debt, which aggregated $7 million ($0.01 per share). Fourth quarter 2011 net income and diluted earnings per share reflect after-tax integration, severance, and retention costs associated with the Embarq, Qwest and Savvis acquisitions and costs associated with the early retirement of Qwest Corporation debt, which aggregated $42 million ($0.07 per share).

Net income under GAAP for full-year 2012 was $777 million compared to $573 million for full-year 2011, and diluted earnings per share for full-year 2012 was $1.25 compared to $1.07 for full-year 2011. For details regarding the Company's special items for the three and twelve months ended December 31, 2012 and 2011, please see the accompanying financial schedules.

Segment Results / Highlights

Regional Markets

The Regional Markets segment realized continued strategic revenue growth driven by increased high-speed Internet and CenturyLink(® )Prism(TM) TV subscribers and higher revenue from strategic business data services.


-- Strategic revenues were $914 million in the quarter, a 3.6% increase
over fourth quarter 2011.
-- Generated $2.45 billion in total revenues, a decrease of 3.9% from
fourth quarter 2011, reflecting the continued decline in legacy services
tempered by the impact of Access Recovery Charges implemented effective
July 1, 2012 in accordance with the CAF Order(5).
-- Added more than 10,000 CenturyLink(® )Prism(TM) TV subscribers during
fourth quarter with more than 90% attachment rate of broadband services.
Wholesale Markets

The Wholesale Markets segment completed approximately 1,175 fiber-to-the-tower builds during the fourth quarter, ending the year with more than 14,700 fiber-connected towers.


-- Strategic revenues of $572 million in the quarter increased slightly
compared to fourth quarter 2011, as wireless carrier bandwidth expansion
and higher Ethernet sales offset declines in copper-based revenue.
-- Generated $908 million in total revenues, a decrease of 5.5% from fourth
quarter 2011, reflecting the continued decline in legacy revenues
primarily driven by the implementation of access rate reductions
effective July 1, 2012 in accordance with the CAF Order(5) and lower
long distance and switched access minutes of use.
-- Completed more than 4,500 fiber builds in 2012 and expect to complete
4,000 to 5,000 fiber builds in 2013.
Enterprise Markets - Network

The Enterprise Markets - Network segment achieved solid growth in recurring revenue sales in the fourth quarter and continues to experience solid sales momentum from enterprise and government customers.


-- Strategic revenues were $346 million in the quarter, a 7.8% increase
over fourth quarter 2011, driven by strength in high-bandwidth offerings
such as MPLS(6) and Ethernet services. Excluding the impact of private
line services, the adjusted growth rate was nearly 13%.
-- Generated $671 million in total revenues, an increase of 5.7% from
fourth quarter 2011, reflecting growth in high-bandwidth offerings and
data integration revenues.
-- Achieved recurring revenue growth of 4.5% year-over-year and the fourth
straight sequential quarter of recurring revenue growth.
Enterprise Markets - Data Hosting

The Enterprise Markets - Data Hosting segment (primarily Savvis operations) grew managed hosting (including cloud) and colocation services revenue, with strength in core managed hosting products and in the financial and consumer brands verticals.


-- Operating revenues were $292 million in the quarter, a 12.7% increase
from fourth quarter 2011. Colocation revenues were $114 million, a 9.6%
increase from fourth quarter 2011, and managed hosting revenues were
$120 million, representing a 21.2% increase over the same period a year
ago. Managed hosting revenues include approximately $13 million of
revenues contributed by the Ciber global IT outsourcing, or ITO, assets
acquired October 15, 2012.
-- Continued to expand global geographic reach in key markets with opening
of new data center in Frankfurt, Germany.
-- Achieved strong bookings in fourth quarter -the highest quarterly
bookings level in four years.
-- Launched savvisdirect(7), expanding CenturyLink's portfolio of cloud
services to businesses of all sizes and announced the limited release of
Savvis Symphony Cloud Storage and the availability of Savvis Symphony
Database in Europe.
Integration Update

During fourth quarter 2012, CenturyLink incurred pre-tax integration, severance and retention costs of $14 million ($9 million after-tax) related to the Qwest and Savvis acquisitions.

CenturyLink ended 2012 with an annualized operating expense synergy run rate of approximately $480 million from the Qwest acquisition. Based on current expectations, CenturyLink anticipates exiting 2013 with approximately $600 million in annual run-rate synergies related to the Qwest acquisition.

Changes in Capital Allocation Strategy

We have announced today certain capital allocation initiatives. Please see separate press release for further detail.

Guidance - First Quarter 2013 and Full-Year 2013

The Company expects first quarter 2013 revenue and operating cash flow to decrease compared to fourth quarter 2012 primarily due to the decline in legacy and data integration revenues. The Company also anticipates a decline in depreciation and amortization expense in the first quarter of 2013 driven primarily by the impact of the annual review and update of depreciation and amortization rates. This anticipated lower level of depreciation and amortization expense is expected to more than offset the decrease in operating cash flow and result in an increase in Adjusted Diluted EPS in first quarter 2013 compared to fourth quarter 2012.

CenturyLink anticipates full-year 2013 operating cash flow and free cash flow to decline from full-year 2012 primarily driven by the impact of the decline in legacy revenues, along with a lower level of incremental synergies in 2013 compared to the level of incremental synergies achieved in 2012. The Company also anticipates a decline in depreciation and amortization expense for full-year 2013 compared to full-year 2012.




First Quarter 2013
------------------

Operating Revenue $4.46 to $4.51 billion
Operating Cash Flow (excl special
items) $1.83 to $1.88 billion
Adjusted Diluted EPS (excl special
items) $0.67 to $0.72

Full-Year 2013
--------------

Operating Revenue $18.1 to $18.3 billion
Annual percent change in Operating -0.5%
Revenue to
-1.5%
Operating Cash Flow (excl special
item(s) $7.3 to $7.5 billion
Adjusted Diluted EPS (excl special
items) $2.50 to $2.70
Capital Expenditures8 $2.8 to $3.0 billion
Free Cash Flow (excl special items) $3.0 to $3.2 billion
---------------------------------- -------
All 2013 guidance figures and 2013 outlook statements included in this release (i) speak as of February 13, 2013 only, (ii) include the impact of the Ciber ITO assets acquired on October 15, 2012, (iii) exclude the potential impact of our stock buyback program separately announced today and (iv) exclude the effects of special items, future changes in regulation or accounting rules, integration expenses associated with the Qwest and Savvis acquisitions, any changes in operating or capital plans, the impact of litigation expenses 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, February 13, 2013. Interested parties can access the call by dialing 866-847-7859. The call will be accessible for replay through February 20, 2013, by calling 888-266-2081 and entering the access code 1601920. 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 March 6, 2013.

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.

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(TM) Prism(TM) 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 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 successfully negotiate collective bargaining agreements on reasonable terms without work stoppages; 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; 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, 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; 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 common share dividends in amounts previously indicated, 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; 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 and our recent acquisitions are described in greater detail in Item 1A to our Form 10-Q for the quarter ended September 30, 2012, 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.





1 See attachments for non-GAAP
reconciliations.
2 Effective second quarter 2012,
CenturyLink modified its high-speed
Internet reporting to include
consumer, business and wholesale
subscribers instead of only consumer
and small business subscribers.
3 We define a "data center" as any
facility where we market, sell and
deliver either colocation services or
multi-tenant managed services, or
both.
4 The pro forma figures assume we
acquired Qwest and Savvis as of
January 1, 2010, as explained further
in the attached schedules.
5 Federal Communications Commission's
Connect America and Intercarrier
Compensation Reform Order (the CAF
Order) adopted on October 27, 2011
6 Multiprotocol Label Switching
7 savvisdirect is CenturyLink's highly
scalable and easy-to-use cloud
services platform designed for
business of all sizes that is
immediately accessible to business
users, IT administrators and
developers through an intuitive, user-
friendly Web portal
8 Excludes approximately $70 million of
integration-related capital
expenditures












CenturyLink, Inc.
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED DECEMBER 31, 2012 AND 2011
(UNAUDITED)
(Dollars in millions, except per share amounts; shares in thousands)

Three months ended December 31, 2012 Three months ended December 31, 2011
------------------------------------ ------------------------------------

As adjusted As adjusted Increase
excluding excluding (decrease)
Less special Less special Increase excluding
As special items As special items (decrease) special
reported items (Non-GAAP) reported items (Non-GAAP) as reported items
-------- ----- --------- -------- ----- --------- ----------- -----

OPERATING REVENUES
Strategic $2,124 2,124 2,033 2,033 4.5% 4.5%
Legacy 2,003 2,003 2,178 2,178 (8.0%) (8.0%)
Data integration 189 189 188 188 0.5% 0.5%
Other 267 267 254 254 5.1% 5.1%
4,583 - 4,583 4,653 - 4,653 (1.5%) (1.5%)
----- --- ----- ----- --- -----

OPERATING EXPENSES
Cost of services and products 1,907 9 (1) 1,898 1,968 10 (4) 1,958 (3.1%) (3.1%)
Selling, general and administrative 790 18 (1) 772 900 51 (4) 849 (12.2%) (9.1%)
Depreciation and amortization 1,220 1,220 1,252 1,252 (2.6%) (2.6%)
3,917 27 3,890 4,120 61 4,059 (4.9%) (4.2%)
----- --- ----- ----- --- -----

OPERATING INCOME 666 (27) 693 533 (61) 594 25.0% 16.7%

OTHER INCOME (EXPENSE)
Interest expense (315) (315) (340) (340) (7.4%) (7.4%)
Other income (expense) 23 18 (2) 5 (1) (6) (5) 5 (2400.0%) 0.0%
Income tax expense (141) 2 (3) (143) (83) 25 (6) (108) 69.9% 32.4%

NET INCOME $233 (7) 240 109 (42) 151 113.8% 58.9%


BASIC EARNINGS PER SHARE $0.37 (0.01) 0.39 0.18 (0.07) 0.24 105.6% 62.5%
DILUTED EARNINGS PER SHARE $0.37 (0.01) 0.38 0.18 (0.07) 0.24 105.6% 58.3%

AVERAGE SHARES OUTSTANDING
Basic 621,578 621,578 616,575 616,575 0.8% 0.8%
Diluted 623,654 623,654 618,510 618,510 0.8% 0.8%

DIVIDENDS PER COMMON SHARE $0.725 0.725 0.725 0.725 - -

SPECIAL ITEMS
(1) - Includes severance costs associated with
recent reduction in force initiatives ($13
million), integration, severance and
retention costs associated with our
acquisition of Qwest ($9 million) and
integration, severance, and retention costs
associated with our acquisition of Savvis
($5 million).
(2) - Gain on the sale of non-operating
investments ($3 million) and early
retirement of debt ($15 million).
(3) - Income tax benefit of Items (1) and (2) and
effect of rate adjustment on first three
quarters of year.
(4) - Includes integration, severance, and
retention costs associated with our
acquisition of Qwest, along with
restructuring charges ($55 million);
integration and severance costs associated
with our acquisition of Embarq ($2 million);
and transaction and other costs associated
with our acquisition of Savvis ($4 million).
(5) - Cost associated with early retirement of
Qwest debt.
(6) - Income tax benefit of Items (4) and (5).










CenturyLink, Inc.
CONSOLIDATED STATEMENTS OF INCOME
TWELVE MONTHS ENDED DECEMBER 31, 2012 AND 2011
(UNAUDITED)
(Dollars in millions, except per share amounts; shares in thousands)

Twelve months ended December 31, 2012 Twelve months ended December 31, 2011
------------------------------------- -------------------------------------

As adjusted As adjusted Increase
excluding excluding (decrease)
Less special Less special Increase excluding
As special items As special items (decrease) special
reported items (Non-GAAP) reported items (Non-GAAP) as reported items
-------- ----- --------- -------- ----- --------- ----------- -----

OPERATING REVENUES
Strategic $8,361 8,361 6,262 6,262 33.5% 33.5%
Legacy 8,287 8,287 7,672 7,672 8.0% 8.0%
Data integration 672 672 537 537 25.1% 25.1%
Other 1,056 1,056 880 880 20.0% 20.0%
18,376 - 18,376 15,351 - 15,351 19.7% 19.7%
------ --- ------ ------ --- ------

OPERATING EXPENSES
Cost of services and products 7,639 34 (1) 7,605 6,325 70 (5) 6,255 20.8% 21.6%
Selling, general and administrative 3,244 129 (1) 3,115 2,975 395 (5) 2,580 9.0% 20.7%
Depreciation and amortization 4,780 (30) (2) 4,810 4,026 4,026 18.7% 19.5%
15,663 133 15,530 13,326 465 12,861 17.5% 20.8%
------ --- ------ ------ --- ------

OPERATING INCOME 2,713 (133) 2,846 2,025 (465) 2,490 34.0% 14.3%

OTHER INCOME (EXPENSE)
Interest expense (1,319) (1,319) (1,072) 5 (6) (1,077) 23.0% 22.5%
Other income (expense) (144) (165) (3) 21 (5) (22) (7) 17 2780.0% 23.5%
Income tax expense (473) 128 (4) (601) (375) 188 (8) (563) 26.1% 6.7%

NET INCOME $777 (170) 947 573 (294) 867 35.6% 9.2%


BASIC EARNINGS PER SHARE $1.25 (0.27) 1.52 1.07 (0.55) 1.62 16.8% (6.2%)
DILUTED EARNINGS PER SHARE $1.25 (0.27) 1.52 1.07 (0.55) 1.62 16.8% (6.2%)

AVERAGE SHARES OUTSTANDING
Basic 620,205 620,205 532,780 532,780 16.4% 16.4%
Diluted 622,285 622,285 534,121 534,121 16.5% 16.5%

DIVIDENDS PER COMMON SHARE $2.90 2.90 2.90 2.90 - -

SPECIAL ITEMS
(1) - Includes severance costs associated with
recent reduction in force initiatives ($81
million), integration, severance, and
retention costs associated with our
acquisition of Qwest ($71 million) and
integration, severance, and retention costs
associated with our acquisition of Savvis
($14 million); partially offset with a $3
million credit related to tax incentives for
the Embarq integration.
(2) - Out-of-period depreciation adjustment ($30
million) to correct an overstatement of
depreciation.
(3) - Net loss associated with early retirement of
debt ($179 million), partially offset by
gains on the sales of non-operating
investments $14 million.
(4) - Income tax benefit of Items (1) through (3)
and benefit from the reversal of a valuation
allowance ($14 million).
(5) - Includes integration, severance, and
retention costs associated with our
acquisition of Qwest, along with
restructuring charges ($371 million);
integration and severance costs associated
with our acquisition of Embarq ($81
million); and transaction and other costs
associated with our acquisition of Savvis
($26 million); net of a favorable settlement
of an operating tax issue $13 million.
(6) - Reflects the interest component of a
favorable settlement of an operating tax
issue.
(7) - Expense associated with terminating a bridge
credit facility related to the Savvis
acquisition ($16 million) and costs
associated with early retirement of Qwest
debt ($6 million).
(8) - Income tax benefit of Items (5) through (7)
and a benefit from the reduction of a
valuation allowance ($14 million).







CenturyLink, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2012 AND 2011
(UNAUDITED)
(Dollars in millions)

December 31, December 31,
2012 2011
---- ----

ASSETS
CURRENT ASSETS
Cash and cash equivalents $211 128
Other current assets 3,396 3,389
Total current assets 3,607 3,517


NET PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment 32,086 29,585
Accumulated depreciation (13,054) (10,141)
Net property, plant and equipment 19,032 19,444


GOODWILL AND OTHER ASSETS
Goodwill 21,691 21,691
Other, net 9,642 11,351
Total goodwill and other assets 31,333 33,042


TOTAL ASSETS $53,972 56,003



LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $1,205 480
Other current liabilities 3,390 3,544
Total current liabilities 4,595 4,024

LONG-TERM DEBT 19,400 21,356
DEFERRED CREDITS AND OTHER LIABILITIES 10,688 9,796
STOCKHOLDERS' EQUITY 19,289 20,827
------ ------

TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $53,972 56,003







CenturyLink, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
TWELVE MONTHS ENDED DECEMBER 31, 2012 AND 2011
(UNAUDITED)
(Dollars in millions)


Twelve Months Twelve Months
Ended Ended
December 31, 2012 December 31, 2011
----------------- -----------------

OPERATING ACTIVITIES
Net income $777 573
Adjustments to
reconcile net
income to net cash
provided by
operating
activities:
Depreciation
and
amortization 4,780 4,026
Deferred
income taxes 394 395
Provision for
uncollectible
accounts 187 153
Net loss on
early
retirement
of debt 179 8
Changes in
current
assets and
current
liabilities,
net (225) (205)
Retirement
benefits (169) (688)
Changes in
other
noncurrent
assets and
liabilities 162 (6)
Other, net (20) (55)
Net cash provided by
operating activities 6,065 4,201
----- -----

INVESTING ACTIVITIES
Payments for
property, plant
and equipment and
capitalized
software (2,919) (2,411)
Cash paid for
Savvis
acquisition, net
of $94 cash
acquired - (1,671)
Cash acquired in
Qwest acquisition,
net of $5 cash
paid - 419
Proceeds from sale
of property and
intangible assets 191 -
Other, net 38 16
Net cash used in
investing activities (2,690) (3,647)
------ ------

FINANCING ACTIVITIES
Net proceeds from
issuance of long-
term debt 3,362 4,102
Payments of long-
term debt (5,118) (2,984)
Early retirement of
debt costs (346) (114)
Net borrowings
(payments) on
credit facility 543 (88)
Dividends paid (1,811) (1,556)
Net proceeds from
issuance of common
stock 110 103
Repurchase of
common stock (37) (31)
Other, net 2 (9)
Net cash used in
financing activities (3,295) (577)
------ ----

Effect of exchange rate changes on cash and cash equivalents 3 (22)
--- ---

Net increase (decrease) in cash and cash equivalents 83 (45)
Cash and cash equivalents at beginning of period 128 173
--- ---

Cash and cash equivalents at end of period $211 128
====









CenturyLink, Inc.
SELECTED SEGMENT FINANCIAL INFORMATION
THREE MONTHS AND TWELVE MONTHS ENDED DECEMBER 31, 2012 AND 2011
(UNAUDITED)
(Dollars in millions)
Pro forma (*)
Twelve months
ended
Three months ended Twelve months ended
December 31, December 31, December 31, 2011
------------------- -------------------- -----------------
2012 2011 2012 2011
---- ---- ---- ----
Total segment revenues $4,316 4,399 17,320 14,471 17,690
Total segment expenses 2,055 2,085 8,094 6,513 8,167
Total segment income $2,261 2,314 9,226 7,958 9,523

Total segment income margin (segment income divided
by segment revenues)
52.4% 52.6% 53.3% 55.0% 53.8%
==== ==== ==== ==== ====

Regional Markets Segment
------------------------
Revenues
Strategic
services $914 882 3,607 2,890 3,417
Legacy
services 1,455 1,575 5,996 5,593 6,468
Data
integration 76 87 273 260 296
$2,445 2,544 9,876 8,743 10,181
------ ----- ----- ----- ------
Expenses
Direct $994 1,014 3,939 3,469 4,010
Allocated 66 67 279 204 261
$1,060 1,081 4,218 3,673 4,271
------ ----- ----- ----- -----

Segment income $1,385 1,463 5,658 5,070 5,910

Segment income margin 56.6% 57.5% 57.3% 58.0% 58.0%
==== ==== ==== ==== ====

Wholesale Markets Segment
-------------------------
Revenues
Strategic
services $572 571 2,296 1,915 2,266
Legacy
services 335 389 1,424 1,389 1,663
Data
integration 1 1 1 1 1
$908 961 3,721 3,305 3,930
---- --- ----- ----- -----
Expenses
Direct $38 52 169 174 186
Allocated 233 261 948 847 1,032
$271 313 1,117 1,021 1,218
---- --- ----- ----- -----

Segment income $637 648 2,604 2,284 2,712

Segment income margin 70.2% 67.4% 70.0% 69.1% 69.0%
==== ==== ==== ==== ====

Enterprise Markets - Network Segment
------------------------------------
Revenues
Strategic
services $346 321 1,344 967 1,289
Legacy
services 213 214 867 690 897
Data
integration 112 100 398 276 361
$671 635 2,609 1,933 2,547
---- --- ----- ----- -----
Expenses
Direct $209 199 781 568 738
Allocated 280 290 1,110 882 1,166
$489 489 1,891 1,450 1,904
---- --- ----- ----- -----

Segment income $182 146 718 483 643

Segment income margin 27.1% 23.0% 27.5% 25.0% 25.2%
==== ==== ==== ==== ====

Enterprise Markets - Data Hosting Segment
----------------------------------------
Revenues
Strategic
services $292 259 1,114 490 1,032
$292 259 1,114 490 1,032
---- --- ----- --- -----
Expenses
Direct $253 220 940 415 848
Allocated (18) (18) (72) (46) (74)
$235 202 868 369 774
---- --- --- --- ---

Segment income $57 57 246 121 258

Segment income margin 19.5% 22.0% 22.1% 24.7% 25.0%
==== ==== ==== ==== ====

During the second quarter of 2012,
we restructured our four
operating segments to more
effectively leverage the
strategic assets from our recent
acquisitions of Embarq, Qwest and
Savvis. We also revised our
methodology for how we allocate
our expenses to our segments to
better align segment expenses
with related revenues. In
addition, we now allocate certain
expenses from our enterprise
markets-data hosting segment to
our other three segments. We
have restated prior periods to
reflect these changes in our
methodology.

*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 the elimination of
intercompany billings and the
elimination of certain deferred
revenues and costs. 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.
ADJUSTED AND PRO FORMA STATEMENTS OF INCOME - NON-GAAP
TWELVE MONTHS ENDED DECEMBER 31, 2012 AND PRO FORMA TWELVE MONTHS ENDED DECEMBER 31, 2011
(UNAUDITED)
(Dollars in millions, except per share amounts, shares in thousands)

Pro forma*
Twelve months Twelve months
ended ended
December 31, 2012 December 31, 2011
(excluding (excluding
special items)(1) special items)(1)
---------------- ----------------

OPERATING REVENUES
Strategic services $8,361 7,995
Legacy services 8,287 9,037
Data integration 672 658
Other 1,056 1,002
18,376 18,692
------ ------

OPERATING EXPENSES
Cash expenses 10,720 (A) 10,910 (B)
Depreciation and amortization 4,810 4,953
15,530 15,863
------ ------

OPERATING INCOME 2,846 2,829

OTHER INCOME (EXPENSE)
Interest expense (1,319) (1,331) (C)
Other income (expense) 21 (D) 22 (E)
Income tax expense (601) (F) (613) (F)

NET INCOME $947 907


DILUTED EARNINGS PER SHARE $1.52 1.46

WEIGHTED AVERAGE DILUTED SHARES OUTSTANDING 622,285 615,800

OPERATING CASH FLOW
Operating income $2,846 2,829
Add: Depreciation and amortization 4,810 4,953
Operating cash flow $7,656 7,782
====== =====








*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
amortization of the fair value assigned to intangible assets (primarily customer
relationship); (iii) adjustments to depreciation to reflect the fair value assigned to
property, plant and equipment; (iv) adjustments to interest expense to reflect
acquisition date financing and (v) 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.


(1) Summary description of special items for 2012 and 2011 excluded from above
schedule:
(A) Excludes severance costs associated with recent reduction in force initiatives
($81 million), integration, severance, and retention costs associated with our
acquisition of Qwest ($71 million) and integration, severance and retention costs
associated with our acquisition of Savvis ($14 million); partially offset with a
$3 million credit related to tax incentives for the Embarq acquisition.
(B) Excludes integration and severance costs associated with the Qwest and Embarq
acquisitions incurred by CenturyLink; realignment, severance and merger related
costs incurred by Qwest; and merger related costs incurred by Savvis ($482
million).
(C) Excludes the interest component of a favorable settlement of an operating tax
issue ($5 million).
(D) Excludes net loss associated with early retirement of debt ($179 million);
partially offset by gains on the sales of non-operating investments $14 million.
(E) Excludes expense associated with terminating a bridge credit facility related to
the Savvis acquisition ($16 million) and costs associated with early retirement
of Qwest debt ($6 million).
(F) Excludes tax effect of above items (A) to (E) and a benefit from the reduction of
a valuation allowance ($14 million) in 2012 and ($14 million) in 2011.






CenturyLink, Inc.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(UNAUDITED)
(Dollars in millions)


Three months ended December 31, 2012 Three months ended December 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 $666 (27) (1) 693 533 (61) (2) 594
Add: Depreciation and
amortization 1,220 - 1,220 1,252 - 1,252
Operating cash flow $1,886 (27) 1,913 1,785 (61) 1,846


Revenues $4,583 - 4,583 4,653 - 4,653


Operating income margin
(operating income divided by
revenues) 14.5% 15.1% 11.5% 12.8%


Operating cash flow margin
(operating cash flow divided by
revenues) 41.2% 41.7% 38.4% 39.7%



Free cash flow
Operating cash flow $1,913 1,846
Less: Cash (paid) refunded for
income taxes (23) 25
Less: Cash paid for interest,
net of amounts capitalized (408) (465)
Less: Capital expenditures (3) (877) (896)
Other income (expense) 5 5

Free cash flow (4) 610 515

SPECIAL ITEMS
(1) - Includes severance costs associated
with recent reduction in force
initiatives ($13 million),
integration, severance, and
retention costs associated with our
acquisition of Qwest ($9 million)
and integration, severance and
retention costs associated with our
acquisition of Savvis ($5 million).
(2) - Includes integration, severance, and
retention costs associated with our
acquisition of Qwest, along with
restructuring charges ($55 million);
integration and severance costs
associated with our acquisition of
Embarq ($2 million); transaction and
other costs associated with our
acquisition of Savvis ($4 million).
(3) - Excludes $18 million in fourth
quarter 2012 and $4 million in
fourth quarter 2011 of capital
expenditures related to the
integration of Embarq, Qwest and
Savvis.
(4) - Excludes special items identified in
items (1) and (2) and the impact of
pension contributions of $487
million for fourth quarter 2011.









CenturyLink, Inc.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(UNAUDITED)
(Dollars in millions)


Twelve months ended December 31, 2012 Twelve months ended December 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 $2,713 (133) (1) 2,846 2,025 (465) (3) 2,490
Add: Depreciation
and amortization 4,780 (30) (2) 4,810 4,026 - 4,026
Operating cash
flow $7,493 (163) 7,656 6,051 (465) 6,516


Revenues $18,376 - 18,376 15,351 - 15,351


Operating income
margin (operating
income divided by
revenues) 14.8% 15.5% 13.2% 16.2%


Operating cash
flow margin
(operating cash
flow divided by
revenues) 40.8% 41.7% 39.4% 42.4%



Free cash flow
Operating cash
flow $7,656 6,516
Less: Cash (paid)
refunded for
income taxes (82) 118
Less: Cash paid
for interest, net
of amounts
capitalized (1,405) (1,225)
Less: Capital
expenditures (4) (2,858) (2,381)
Other income
(expense) 21 17

Free cash flow (5) 3,332 3,045

SPECIAL ITEMS
(1) - Includes severance costs associated
with recent reduction in force
initiatives ($81 million),
integration, severance, and
retention costs associated with our
acquisition of Qwest ($71 million)
and integration, severance and
retention costs associated with our
acquisition of Savvis ($14 million);
partially offset with a $30 million
out-of-period depreciation
(2) - Out-of-period depreciation
adjustment ($30 million) to correct
an overstatement of depreciation.
(3) - Includes integration, severance, and
retention costs associated with our
acquisition of Qwest, along with
restructuring charges ($371
million); integration and severance
costs associated with our
acquisition of Embarq ($81 million);
transaction and other costs
associated with our acquisition of
Savvis ($26 million); net of a
favorable settlement of an operating
(4) - Excludes $61 million for the twelve
months ended December 31, 2012 and
$30 million for the twelve months
ended December 31, 2011 of capital
expenditures related to the
integration of Embarq, Qwest and
Savvis.
(5) - Excludes (i) special items identified
in items (1) to (3) and (ii) the
impact of pension contributions of
$32 million for the twelve months
ended December 31, 2012 and $587
million for the twelve months ended
December 31, 2011.












CenturyLink, Inc.
OPERATING METRICS
(UNAUDITED)
(In thousands)



As of As of As of
December 31, 2012 September 30, 2012 December 31, 2011
----------------- ------------------ -----------------
Broadband
subscribers 5,848 5,807 5,652
Access lines 13,748 13,946 14,584










CenturyLink, Inc.
SUPPLEMENTAL NON-GAAP INFORMATION - ADJUSTED DILUTED EPS
THREE MONTHS ENDED DECEMBER 31, 2012, SEPTEMBER 30, 2012 AND DECEMBER 31, 2011
(UNAUDITED)
(Dollars in millions, except per share amounts)




Three months Three months Three months
ended ended ended
December 31, 2012 September 30, 2012 December 31, 2011
(excluding (excluding (excluding
special items) special items) special items)

Net income * $240 237 151
--- ---

Add back:
Amortization of customer base intangibles:
Qwest 237 241 253
Embarq 34 34 39
Savvis 15 15 20

Amortization of trademark intangibles:
Qwest 14 15 19
Savvis 2 2 2

Amortization of fair value adjustment of
long-term debt:
Embarq 1 1 -
Qwest (18) (20) (31)

Subtotal 285 288 302
Tax effect of above items (110) (112) (110)
Net adjustment, after taxes 175 176 192
--- --- ---

Net income, as adjusted for above
items $415 413 343

Weighted average diluted shares outstanding 623.7 623.3 618.5

Diluted EPS (excluding special
items) $0.38 0.38 0.24

Adjusted diluted EPS as adjusted for the
above-listed purchase accounting
intangible and interest amortizations
(excluding special items)
$0.67 0.66 0.55

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CenturyLink, Inc.
SUPPLEMENTAL NON-GAAP INFORMATION - ADJUSTED DILUTED EPS
TWELVE MONTHS ENDED DECEMBER 31 AND DECEMBER 31, 2011
(UNAUDITED)
(Dollars in millions, except per share amounts)



Pro Forma*
Twelve months Twelve months
ended ended
December 31, 2012 December 31, 2011
(excluding (excluding
special items) special items)

Net income ** $947 907
---

Add back:
Amortization of customer
base intangibles:
Qwest 966 1,016
Embarq 146 166
Savvis 59 80

Amortization of trademark
intangibles:
Qwest 63 76
Savvis 9 8

Amortization of fair value
adjustment of long-term
debt:
Embarq 4 3
Qwest (86) (198)

Subtotal 1,161 1,151
Tax effect of above items (445) (426)
Net adjustment, after taxes 716 725
--- ---

Net income, as
adjusted for
above items $1,663 1,632

Weighted average diluted
shares outstanding 622.3 615.8

Diluted EPS
(excluding
special items) $1.52 1.46

Adjusted diluted EPS as
adjusted for the above-
listed purchase accounting
intangible and interest
amortizations (excluding
special items)
$2.67 2.64

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CenturyLink, Inc.
SUPPLEMENTAL SELECT SAVVIS REVENUE INFORMATION
THREE MONTHS ENDED DECEMBER 31, 2012, SEPTEMBER 30, 2012 AND DECEMBER 31, 2011
(UNAUDITED)
(Dollars in millions)


Three months Three months Three months
ended ended ended
December 31, 2012 September 30, 2012 December 31, 2011

Colocation
revenue $113 110 99
Managed hosting
revenue 121 108 98


SOURCE CenturyLink, Inc.

Photo:http://photos.prnewswire.com/prnh/20090602/DA26511LOGO
http://photoarchive.ap.org/
CenturyLink, Inc.

CONTACT: Kristina Waugh, 318.340.5627, kristina.r.waugh@centurylink.com

Web Site: http://www.centurytel.com


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