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CenturyLink Reports Strong Fourth Quarter 2013 Results

Companies mentioned in this article: CenturyLink, Inc.

MONROE, La., Feb. 12, 2014 /PRNewswire/ -- CenturyLink, Inc. (NYSE: CTL) today reported solid operating revenues, operating cash flow and free cash flow for fourth quarter and full-year 2013.

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"CenturyLink achieved strong financial and operating results for the fourth quarter with operating revenues at the top end of our guidance range for the quarter, record Prism(TM) TV subscriber growth, higher than anticipated high-speed Internet subscriber additions and continued demand from business customers for our high-bandwidth data and hosting services," said Glen F. Post III, chief executive officer and president. "Operating cash flow for the quarter, including the benefit of certain favorable year-end operating expense adjustments, exceeded the top end of our guidance.

"We continue to strengthen and enhance our product and services portfolio through recent acquisitions and new product development. Our November 2013 acquisition of Tier 3 enhances our ability to deliver world class automated cloud and managed services for our customers, while the recently announced strategic partnership with IO expands our colocation footprint and strengthens our ability to deliver flexible data center solutions. Our recent launch of Managed Office provides small and medium-sized businesses user-friendly, fully managed IT services and communications bundles that feature a level of customer service typically available only to larger business customers. We also continue to strategically expand our Prism(TM) TV footprint and enhance our broadband speeds to deliver highly competitive video and high-speed Internet solutions for consumers.

"The investments in our key initiatives continue to strengthen CenturyLink's ability to innovate, differentiate and succeed in a very competitive marketplace," Post concluded.

Fourth Quarter Highlights

    --  Achieved core revenues of $4.1 billion in fourth quarter, a
        year-over-year decline of 0.4% compared with a 2.0% year-over-year
        decline in fourth quarter 2012; Strategic revenues(3) grew 5.4% from the
        fourth quarter a year-ago.
    --  Generated free cash flow of $601 million, excluding special items and
        integration-related capital expenditures.
    --  Continued growing momentum in data hosting cross-sell opportunities and
        new sales.
    --  Added approximately 49,000 high-speed Internet subscribers during fourth
        quarter, ending the period with nearly six million subscribers in
        service.
    --  Ended the quarter with 175,000 CenturyLink(® )Prism(TM) TV subscribers,
        a record increase of approximately 26,000 subscribers in fourth quarter
        2013.
    --  Purchased and retired 10.5 million shares for $331 million during fourth
        quarter 2013.

Consolidated Fourth Quarter Financial Results

Operating revenues for fourth quarter 2013 were $4.54 billion compared to $4.58 billion in fourth quarter 2012. This decrease was driven by lower legacy services revenues primarily due to the impact of access line losses and lower access revenues. These declines were partially offset by increases in strategic revenues resulting primarily from increased business customer demand for high-bandwidth data services and hosting solutions, along with growth in high-speed Internet and CenturyLink(® )Prism(TM) TV subscribers.

Operating expenses, excluding special items, decreased to $3.87 billion from $3.89 billion in fourth quarter 2012. The year-over-year decrease in depreciation and amortization expenses along with favorable year-end employee benefit and operating tax expense adjustments were partially offset by higher facility costs, increased costs related to the growth of Prism(TM) TV and higher selling costs.

Operating cash flow (as defined in our attached supplemental schedules), excluding special items, decreased to $1.84 billion from $1.91 billion in fourth quarter 2012. This decrease was primarily the result of lower legacy revenues described above. For fourth quarter 2013, CenturyLink achieved an operating cash flow margin, excluding special items, of 40.4% versus 41.7% in fourth quarter 2012.

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 fourth quarter 2013 was $396 million compared to Adjusted Net Income of $415 million in fourth quarter 2012. Fourth quarter 2013 Adjusted Diluted EPS was $0.68 compared to $0.67 in the year-ago period. Fourth quarter 2013 Adjusted Net Income and Adjusted Diluted EPS included a release of valuation allowances against state net operating losses and credits, along with adjustments in our 2013 effective tax rate and other corporate taxes which, together, lowered quarterly tax expense by approximately $16 million ($0.03 per share). See the attached schedules for additional information.

Full-Year Results

For the full-year 2013, operating revenues decreased to $18.1 billion from $18.4 billion for the same period in 2012. Operating cash flow, excluding special items, was $7.4 billion for 2013 compared to $7.7 billion in 2012. The decline in operating revenues 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 increased business customer demand for high-bandwidth data services and hosting solutions, along with growth in high-speed Internet and CenturyLink(® )Prism(TM) TV subscribers. The operating cash flow decline was driven by the reduction in higher-margin legacy voice and access revenues, which was partially offset by growth in lower-margin strategic revenues. Adjusted Net Income, excluding special items, was $1.66 billion in both 2013 and 2012. Adjusted Diluted EPS, excluding special items, was $2.76 in 2013 compared to $2.67 for 2012.

GAAP Results - Fourth Quarter and Full-Year

Under generally accepted accounting principles (GAAP), net income for fourth quarter 2013 was $239 million compared to $233 million net income for fourth quarter 2012, and diluted earnings per share for fourth quarter 2013 was $0.41 compared to $0.37 diluted earnings per share for fourth quarter 2012.

Net loss under GAAP for full-year 2013 was $239 million compared to net income of $777 million for full-year 2012, and loss per share for full-year 2013 was $0.40 compared to earnings per share of $1.25 for full-year 2012. 2013 GAAP operating results include the impact of our third quarter goodwill impairment charge for one operating segment. For details regarding this and other of the Company's special items for the three and twelve months ended December 31, 2013 and 2012, please see the accompanying financial schedules.

Segment Fourth Quarter Financial Results

Consumer

The Consumer segment realized continued strategic revenue growth driven by increased high-speed Internet and CenturyLink(® )Prism(TM) TV subscribers.

    --  Strategic revenues were $683 million in the quarter, a 7.7% increase
        over fourth quarter 2012.
    --  Generated nearly $1.50 billion in total revenues, a decrease of 1.7%
        from fourth quarter 2012, reflecting the continued decline in legacy
        services tempered by growth in strategic services.
    --  Added a record 26,000 CenturyLink(® )Prism(TM) TV customers during
        fourth quarter 2013, growing total customers 17% from the prior quarter.

Business

The Business segment achieved year-over-year recurring revenue growth driven by continued demand for high-bandwidth data services and solid sales momentum.

    --  Strategic revenues were $643 million in the quarter, a 7.5% increase
        over fourth quarter 2012, driven by strength in high-bandwidth offerings
        such as MPLS(4) and Ethernet services.
    --  Generated $1.56 billion in total revenues, an increase of 1.0% from
        fourth quarter 2012, as growth in high-bandwidth offerings offset lower
        legacy services revenues.
    --  Continued strong sales momentum in fourth quarter.

Wholesale

The Wholesale segment ended the year with more than 18,800 fiber-connected towers, an increase of nearly 30% from year-end 2012.

    --  Strategic revenues were $581 million in the quarter, a 1.6% increase
        over fourth quarter 2012, as increases in wireless carrier bandwidth
        demand and Ethernet sales, along with delays in copper-based wireless
        disconnects, offset declines in copper-based revenue.
    --  Generated $884 million in total revenues, a decrease of 2.5% from fourth
        quarter 2012, reflecting the continued decline in legacy revenues,
        primarily driven by lower long distance and switched access minutes of
        use, along with access rate reductions.
    --  Completed 930 fiber builds in fourth quarter 2013 and more than 4,100
        fiber builds in full-year 2013.

Data Hosting

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

    --  Operating revenues were $353 million in the quarter, a 3.8% increase
        from fourth quarter 2012.
    --  Colocation revenues were $147 million, a 1.4% increase from fourth
        quarter 2012, and managed hosting revenues were $142 million,
        representing a 14% increase over the same period a year ago.
    --  In January, Savvis began operating as CenturyLink Technology Solutions,
        aligning the brand with CenturyLink and demonstrating deeper ties to the
        broad portfolio of IT solutions delivered to businesses.

Guidance - First Quarter 2014 and Full-Year 2014

The Company expects first quarter 2014 revenue and operating cash flow to decrease compared to fourth quarter 2013 primarily due to the decline in legacy and data integration revenues along with approximately $60 million in favorable year-end expense adjustments, primarily related to employee benefits and operating taxes, reflected in fourth quarter 2013 results that are not expected to recur in first quarter 2014. The Company also anticipates a decline in depreciation and amortization expense in the first quarter of 2014 driven primarily by the impact of declining amortization of acquisition-related intangible assets and the annual review and update of depreciation rates, which more than offset increases in depreciation expense associated with continued capital investment. This anticipated lower level of depreciation expense is expected to be offset by the decrease in operating cash flow, along with the impact of favorable income tax adjustments in the fourth quarter 2013, and result in a decrease in Adjusted Diluted EPS in first quarter 2014 compared to fourth quarter 2013.


    First Quarter 2014 (excl. special
     items)
    ---------------------------------


    Operating Revenues       $4.46 to $4.51 billion

    Core Revenues            $4.07 to $4.12 billion

    Operating Cash Flow      $1.73 to $1.78 billion

    Adjusted Diluted EPS             $0.58 to $0.63
    --------------------                -----------

CenturyLink anticipates full-year 2014 operating cash flow and free cash flow to decline from full-year 2013 primarily driven by the impact of the decline in legacy revenues, investments to continue growth in strategic revenues, as well as a lower level of incremental acquisition-related synergies in 2014 compared to the level of incremental synergies achieved in 2013. The Company also anticipates capital expenditures(5) of approximately $3.0 billion in 2014.


    Full-Year 2014 (excl. special items)
    -----------------------------------


    Operating Revenues        $17.90 to $18.10 billion

    Annual percent change in
     Operating Revenues                  0.0% to -1.2%

    Core Revenues              $16.25 to 16.45 billion

    Annual percent change in
     Core Revenues                      0.0% to -1.2 %

    Operating Cash Flow         $7.05 to $7.25 billion

    Adjusted Diluted EPS                $2.40 to $2.60

    Free Cash Flow(5)             $2.6 to $2.8 billion
    ----------------                   ---------------

All 2014 guidance figures and 2014 outlook statements included in this release (i) speak as of February 12, 2014 only, (ii) exclude the impact of any share repurchases made after December 31, 2013 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, February 12, 2014. Interested parties can access the call by dialing 866-835-8905. The call will be accessible for replay through February 19, 2014, by dialing 888-266-2081 and entering the access code 1630419. Investors can also listen to CenturyLink's earnings conference call and webcast replay by accessing the Investor Relations portion of the Company's Web site at www.centurylink.com through March 5, 2014.

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 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® 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 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 September 30, 2013, 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)   In fourth
                   quarter
                   2013, we
                   reallocated
                   our bundled
                   services
                   and CLEC
                   revenues
                   between
                   their
                   component
                   products
                   and
                   services.
                   This change
                   led to a
                   net
                   transfer of
                   revenue
                   between
                   strategic
                   and legacy
                   services.
                   Current and
                   historical
                   revenues
                   have been
                   restated
                   for this
                   change.

               4   Multiprotocol
                   Label
                   Switching

               5   Excludes
                   approximately
                   $30 million
                   of
                   integration-
                   related
                   capital
                   expenditures



                                                                                      CenturyLink, Inc.

                                                                              CONSOLIDATED STATEMENTS OF INCOME

                                                                        THREE MONTHS ENDED DECEMBER 31, 2013 AND 2012

                                                                                         (UNAUDITED)

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


                                        Three months ended December                        Three months ended December
                                                  31, 2013                                           31, 2012
                                       ---------------------------                         ---------------------------


                                                                          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                      $2,260                                                2,260                2,144                                 2,144                   5.4%                5.4%

       Legacy                          1,850                                                1,850                1,983                                 1,983                 (6.7%)              (6.7%)

       Data integration                  186                                                  186                  189                                   189                 (1.6%)              (1.6%)

       Other                             246                                                  246                  267                                   267                 (7.9%)              (7.9%)

                                       4,542                          -                     4,542                4,583               -                 4,583                 (0.9%)              (0.9%)
                                       -----                        ---                     -----                -----             ---                 -----


     OPERATING EXPENSES

       Cost of services
        and products                   1,920                          6            (1)      1,914                1,907               9           (5)   1,898                   0.7%                0.8%

       Selling, general
        and
        administrative                   823                         31            (1)        792                  790              18           (5)     772                   4.2%                2.6%

       Depreciation and
        amortization                   1,166                                                1,166                1,220                                 1,220                 (4.4%)              (4.4%)

       Impairment of
        goodwill                 (8)                (8)              (2)            -                      -                                      -                   0.00%               0.00%

                                       3,901                         29                     3,872                3,917              27                 3,890                 (0.4%)              (0.5%)
                                       -----                        ---                     -----                -----             ---                 -----


     OPERATING INCOME                    641                        (29)                      670                  666             (27)                  693                 (3.8%)              (3.3%)


     OTHER INCOME
      (EXPENSE)

       Interest expense                 (328)                                                (328)                (315)                                 (315)                  4.1%                4.1%

       Other income
        (expense)                         17                         10            (3)          7                   23              18           (6)       5                (26.1%)               40.0%

       Income tax expense                (91)                        33            (4)       (124)                (141)              2           (7)    (143)               (35.5%)             (13.3%)


     NET INCOME                         $239                         14                       225                  233              (7)                  240                   2.6%              (6.3%)



     BASIC EARNINGS
      PER SHARE                        $0.41                       0.02                      0.38                 0.37           (0.01)                 0.39                  10.8%              (2.6%)

     DILUTED EARNINGS
      PER SHARE                        $0.41                       0.02                      0.38                 0.37           (0.01)                 0.38                  10.8%                0.0%


     AVERAGE SHARES
      OUTSTANDING

       Basic                         585,259                                              585,259              621,578                               621,578                 (5.8%)              (5.8%)

       Diluted                       586,382                                              586,382              623,654                               623,654                 (6.0%)              (6.0%)


    DIVIDENDS PER
     COMMON SHARE                     $0.540                                                0.540                0.725                                 0.725                (25.5%)             (25.5%)

    SPECIAL ITEMS

     (1) -                Includes the
                          Communications
                          Workers of
                          America
                          contract
                          ratification
                          bonus ($6
                          million),
                          severance
                          costs
                          associated
                          with recent
                          headcount
                          reductions
                               ($13
                          million),
                          integration,
                          severance and
                          retention
                          costs
                          associated
                          with our
                          acquisition
                          of Qwest ($20
                          million) and
                          integration,
                          severance and
                          retention
                          costs
                          associated
                          with our
                          acquisition
                          of Savvis $2
                          million.

     (2) -                Non-cash,
                          non-tax
                          deductible
                          goodwill
                          impairment
                          adjustment of
                          $8 million.

     (3) -                Gain on early
                          retirement of
                          debt.

     (4) -                Income tax
                          benefit of
                          Item (1) and
                          (3) and
                          release of a
                          tax reserve
                               ($22
                          million).

     (5) -                Includes
                          severance
                          costs
                          associated
                          with
                          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).

     (6) -                Gain on the
                          sale of non-
                          operating
                          investments
                          ($3 million)
                          and early
                          retirement of
                          debt ($15
                          million).

     (7) -                Income tax
                          benefit of
                          Items (5)
                          through (6).


    *During the fourth quarter of 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
     revenues from legacy services to strategic
     services.   Also during the fourth quarter of 2013,
     we reallocated our CLEC revenues into their
     component products and services.  The net effect of
     this CLEC reallocation was a reclassification of
     revenues from strategic services to legacy


                                                                                                                                                                                                                                
                                                                                                  CenturyLink, Inc.
                                                                                                                                                                                                                                
                                                                                      CONSOLIDATED STATEMENTS OF (LOSS) INCOME
                                                                                                                                                                                                                                
                                                                                   TWELVE MONTHS ENDED DECEMBER 31, 2013 AND 2012
                                                                                                                                                                                                                                
                                                                                                     (UNAUDITED)
                                                                                                                                                                                                                                
                                                                        (Dollars in millions, except per share amounts; shares in thousands)
                                                                                                                                                                                                                                
                                                                                                                                                                                                                         
                                                        Twelve months ended                                Twelve months ended
                                                         December 31, 2013                                   December 31, 2012
                                                       --------------------                               --------------------
                                                                                                                                                                                                                                
                                                                                                                                                                                                                                
                                                                                      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                                $8,822                                                8,822                8,427                                                8,427                       4.7%                    4.7%
                                                                                                                                                                                                                                           
         Legacy                                    7,617                                                7,617                8,221                                                8,221                     (7.3%)                  (7.3%)
                                                                                                                                                                                                                                           
         Data integration                            656                                                  656                  672                                                  672                     (2.4%)                  (2.4%)
                                                                                                                                                                                                                                           
         Other                                     1,000                                                1,000                1,056                                                1,056                     (5.3%)                  (5.3%)
                                                                                                                                                                                                                                           
                                                  18,095                          -                    18,095               18,376                          -                    18,376                     (1.5%)                  (1.5%)
                                                  ------                        ---                    ------               ------                        ---                    ------
                                                                                                                                                                                                                                
                                                                                                                                                                                                                                
       OPERATING
        EXPENSES
                                                                                                                                                                                                                                           
         Cost of services and products             7,507                         15            (1)      7,492                7,639                         34            (5)      7,605                     (1.7%)                  (1.5%)
                                                                                                                                                                                                                                           
         Selling, general and
          administrative                           3,502                        331            (1)      3,171                3,244                        129            (5)      3,115                       8.0%                    1.8%
                                                                                                                                                                                                                                           
         Depreciation and amortization             4,541                                                4,541                4,780                        (30)           (6)      4,810                     (5.0%)                  (5.6%)
                                                                                                                                                                                                                                
         Impairment of goodwill          1,092               1,092               (2)            -                      -                                                  -                      0.00%                    0.00%
                                                                                                                                                                                                                                           
                                                  16,642                      1,438                    15,204               15,663                        133                    15,530                       6.3%                  (2.1%)
                                                  ------                      -----                    ------               ------                        ---                    ------
                                                                                                                                                                                                                                
                                                                                                                                                                                                                                          
       OPERATING
        INCOME                           1,453              (1,438)                         2,891                            2,713                       (133)                    2,846                    (46.4%)                    1.6%
                                                                                                                                                                                                                                
                                                                                                                                                                                                                                
       OTHER INCOME
        (EXPENSE)
                                                                                                                                                                                                                                           
         Interest expense                         (1,298)                                              (1,298)              (1,319)                                              (1,319)                    (1.6%)                  (1.6%)
                                                                                                                                                                                                                                           
         Other income (expense)                       69                         47            (3)         22                 (144)                      (165)           (7)         21                   (147.9%)                    4.8%
                                                                                                                                                                                                                                           
         Income tax expense                         (463)                       164            (4)       (627)                (473)                       128            (8)       (601)                    (2.1%)                    4.3%
                                                                                                                                                                                                                                
                                                                                                                                                                                                                                          
       NET (LOSS)
        INCOME                                     $(239)                    (1,227)                      988                  777                       (170)                      947                   (130.8%)                    4.3%
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                
                                                                                                                                                                                                                                          
       BASIC (LOSS)
        EARNINGS
        PER SHARE                                 $(0.40)                     (2.04)                     1.64                 1.25                      (0.27)                     1.52                   (132.0%)                    7.9%
                                                                                                                                                                                                                                          
       DILUTED
        (LOSS)
        EARNINGS
        PER SHARE                                 $(0.40)                     (2.04)                     1.64                 1.25                      (0.27)                     1.52                   (132.0%)                    7.9%
                                                                                                                                                                                                                                
                                                                                                                                                                                                                                
       AVERAGE SHARES
        OUTSTANDING
                                                                                                                                                                                                                                           
         Basic                                   600,892                                              600,892              620,205                                              620,205                     (3.1%)                  (3.1%)
                                                                                                                                                                                                                                           
         Diluted                                 600,892                                              602,201              622,285                                              622,285                     (3.4%)                  (3.2%)
                                                                                                                                                                                                                                
                                                                                                                                                                                                                                          
      DIVIDENDS
       PER COMMON
       SHARE                                      $2.160                                                2.160                2.900                                                2.900                    (25.5%)                 (25.5%)

      SPECIAL ITEMS

       (1) -                  Includes a
                              litigation
                              reserve ($233
                              million), the
                              Communications
                              Workers of
                              American
                              contract
                              ratification
                              bonus ($6
                              million),
                              severance
                              costs
                              associated
                              with recent
                              headcount
                              reductions
                                   ($27
                              million),
                              integration,
                              severance and
                              retention
                              costs
                              associated
                              with our
                              acquisition
                              of Qwest ($47
                              million),
                              integration,
                              severance and
                              retention
                              costs
                              associated
                              with our
                              acquisition
                              of Savvis ($6
                              million), an
                              accounting
                              adjustment
                              ($18 million)
                              and an
                              impairment of
                              an office
                              building ($9
                              million).

       (2) -                  Non-cash,
                              non-tax
                              deductible
                              goodwill
                              impairment
                              charge of
                                   ($1.092
                              billion).

       (3) -                  Gain on the
                              sale of a
                              non-
                              operating
                              investment
                                   ($32
                              million),
                              gain on early
                              retirement of
                              debt ($10
                              million) and
                              settlements
                              of other non-
                              operating
                              issues ($5
                              million).

       (4) -                  Income tax
                              benefit of
                              Items (1) and
                              (3), a
                              favorable
                              federal
                              income tax
                              settlement
                              ($33 million)
                              and release
                              of a tax
                              reserve ($22
                              million).

       (5) -                  Includes
                              severance
                              costs
                              associated
                              with
                              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.

       (6) -                  Out-of-
                              period
                              depreciation
                              adjustment
                              ($30 million)
                              to correct an
                              overstatement
                              of
                              depreciation
                              in prior
                              quarters.

       (7) -                  Net loss
                              associated
                              with early
                              retirement of
                              debt ($179
                              million),
                              partially
                              offset by
                              gains on the
                              sales of non-
                              operating
                              investments
                              $14 million.

       (8) -                  Income tax
                              benefit of
                              Items (5)
                              through (7),
                              partially
                              offset by the
                              benefit from
                              the reversal
                              of a
                              valuation
                              allowance
                                   ($14
                              million).


      *During the fourth
       quarter of 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
       revenues from legacy
       services to
       strategic services.
        Also during the
        fourth quarter of
       2013, we reallocated
       our CLEC revenues
       into their component
       products and
       services.  The net
       effect of this CLEC
       reallocation was a
       reclassification of
       revenues from
       strategic services
       to legacy services.
       The prior periods
       have been restated
       to reflect these
       reclassifications.



                               CenturyLink, Inc.

                     CONDENSED CONSOLIDATED BALANCE SHEETS

                    DECEMBER 31, 2013 AND DECEMBER 31, 2012

                                  (UNAUDITED)

                             (Dollars in millions)


                                       December 31,           December 31,

                                                         2013                2012*
                                                         ----                ----


      ASSETS

    CURRENT ASSETS

      Cash and cash
       equivalents                                       $168                   211

      Other current assets                              3,739                 3,427

         Total current assets                           3,907                 3,638
                                                        -----                 -----


    NET PROPERTY, PLANT
     AND EQUIPMENT

      Property, plant and
       equipment                                       34,307                31,933

      Accumulated
       depreciation                                  (15,661)              (13,024)

         Net property, plant
          and equipment                                18,646                18,909
                                                       ------                ------


    GOODWILL AND OTHER
     ASSETS

      Goodwill                                         20,674                21,627

      Other, net                                        8,560                 9,766

          Total goodwill and
           other assets                                29,234                31,393
                                                       ------                ------


    TOTAL ASSETS                                      $51,787                53,940




      LIABILITIES AND
       STOCKHOLDERS' EQUITY

    CURRENT LIABILITIES

      Current maturities
       of long-term
       debt                                              $785                 1,205

      Other current
       liabilities                                      3,624                 3,390

          Total current
           liabilities                                  4,409                 4,595


    LONG-TERM DEBT                                     20,181                19,400

    DEFERRED CREDITS AND
     OTHER LIABILITIES                                 10,006                10,656

    STOCKHOLDERS' EQUITY                               17,191                19,289
                                                       ------                ------


    TOTAL LIABILITIES
     AND STOCKHOLDERS'
     EQUITY                                           $51,787                53,940

    *We reclassified $123 million in
     software development costs, net
     of $30 million in accumulated
     amortization, from property,
     plant and equipment to other
     intangible assets on our
     consolidated balance sheet as
     of December 31, 2012 to conform
     to the current period
     presentation.


    During the year ended December
     31, 2013, we discovered and
     corrected an error that
     resulted in an understatement
     of our deferred tax benefit
     recorded in connection with the
     purchase accounting of Savvis
     and Qwest in 2011. We
     recognized a $105 million
     increase to our deferred tax
     benefit and a $105 million


                                                  CenturyLink, Inc.

                                   CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                                    TWELVE MONTHS ENDED DECEMBER 31, 2013 AND 2012

                                                     (UNAUDITED)

                                                (Dollars in millions)



                                                                      Twelve Months               Twelve Months

                                                                          ended                       ended

                                                                    December 31, 2013           December 31, 2012
                                                                   -----------------           -----------------


     OPERATING ACTIVITIES

       Net (loss) income                                                                $(239)                        777

       Adjustments to reconcile
        net (loss) income to net

         cash provided by operating
          activities:

           Depreciation and
            amortization                                                                4,541                       4,780

           Impairment of goodwill                                                       1,092                           -

           Deferred income taxes                                                          391                         394

           Provision for uncollectible
            accounts                                                                      152                         187

           Gain on sale of intangible
            assets                                                                        (32)                          -

           Net (gain) loss on early
            retirement of debt                                                            (10)                        179

           Changes in current assets
            and current liabilities,
            net                                                                             3                        (224)

           Retirement benefits                                                           (342)                       (169)

           Changes in other noncurrent
            assets and liabilities                                                         19                         161

           Other, net                                                                     (16)                        (20)

             Net cash provided by operating activities                          5,559                       6,065
                                                                                -----                       -----


     INVESTING ACTIVITIES

       Payments for property,
        plant and equipment and
        capitalized software                                                           (3,048)                     (2,919)

       Proceeds from sale of
        property and intangible
        assets                                                                             80                         191

       Cash paid for acquisitions                                                        (160)                          -

       Other, net                                                                         (20)                         38

             Net cash used in investing activities                             (3,148)                     (2,690)
                                                                               ------                      ------


     FINANCING ACTIVITIES

       Net proceeds from issuance
        of long-term debt                                                               2,481                       3,362

       Payments of long-term debt                                                      (2,010)                     (5,118)

       Net (payments) borrowings
        on credit facility                                                                (95)                        543

       Early retirement of debt
        costs                                                                             (31)                       (346)

       Dividends paid                                                                  (1,301)                     (1,811)

       Net proceeds from issuance
        of common stock                                                                    73                         110

       Repurchases of common stock                                                     (1,586)                        (37)

       Other, net                                                                          15                           2

             Net cash used in financing activities                             (2,454)                     (3,295)
                                                                               ------                      ------


     Effect of exchange rate changes on cash and cash equivalents                   -                           3
                                                                                  ---                         ---


     Net (decrease) increase in cash and cash equivalents                         (43)                         83

     Cash and cash equivalents at beginning of period                             211                         128
                                                                                  ---                         ---


     Cash and cash equivalents at end of period                                          $168                         211



                                                             CenturyLink, Inc.

                                                   SELECTED SEGMENT FINANCIAL INFORMATION

                                      THREE MONTHS AND TWELVE MONTHS ENDED DECEMBER 31, 2013 AND 2012

                                                                (UNAUDITED)

                                                           (Dollars in millions)




                                                                             Three months ended December            Twelve months ended December
                                                                                           31,                                       31,
                                                                              ----------------------------             -----------------------------

                                                                  2013                  2012*                  2013               2012*
                                                                  ----                  ----                   ----               ----

    Total segment revenues                                                      $4,296                  4,316             17,095                 17,320

    Total segment expenses                                                       2,140                  2,090              8,249                  8,244

    Total segment income                                                        $2,156                  2,226              8,846                  9,076



    Total segment income margin (segment income
     divided by segment revenues)                                                 50.2%                  51.6%              51.7%                  52.4%
                                                                                  ====                   ====               ====                   ====


    Consumer
    --------

    Revenues

      Strategic services                                                          $683                    634              2,650                  2,474

      Legacy services                                                              812                    886              3,349                  3,681

      Data integration                                                               1                      2                  5                      7

                                                                                $1,496                  1,522              6,004                  6,162


    Expenses

      Direct                                                                      $454                    449              1,758                  1,796

      Allocated                                                                    120                    122                473                    495

                                                                                  $574                    571              2,231                  2,291



    Segment income                                                                $922                    951              3,773                  3,871


    Segment income margin                                                         61.6%                  62.5%              62.8%                  62.8%
                                                                                  ====                   ====               ====                   ====


    Business
    --------

    Revenues

      Strategic services                                                          $643                    598              2,509                  2,356

      Legacy services                                                              735                    762              2,976                  3,112

      Data integration                                                             185                    187                651                    665

                                                                                $1,563                  1,547              6,136                  6,133


    Expenses

      Direct                                                                      $880                    839              3,329                  3,285

      Allocated                                                                    113                    115                440                    458

                                                                                  $993                    954              3,769                  3,743



    Segment income                                                                $570                    593              2,367                  2,390


    Segment income margin                                                         36.5%                  38.3%              38.6%                  39.0%
                                                                                  ====                   ====               ====                   ====


    Wholesale
    ---------

    Revenues

      Strategic services                                                          $581                    572              2,287                  2,297

      Legacy services                                                              303                    335              1,292                  1,428

                                                                                  $884                    907              3,579                  3,725


    Expenses

      Direct                                                                       $44                     38                169                    169

      Allocated                                                                    246                    263                989                  1,061

                                                                                  $290                    301              1,158                  1,230



    Segment income                                                                $594                    606              2,421                  2,495


    Segment income margin                                                         67.2%                  66.8%              67.6%                  67.0%
                                                                                  ====                   ====               ====                   ====


    Data Hosting
    ------------

    Revenues

      Strategic services                                                          $353                    340              1,376                  1,300

                                                                                  $353                    340              1,376                  1,300


    Expenses

      Direct                                                                      $284                    266              1,096                    987

      Allocated                                                                     (1)                    (2)                (5)                    (7)

                                                                                  $283                    264              1,091                    980



    Segment income                                                                 $70                     76                285                    320


    Segment income margin                                                         19.8%                  22.4%              20.7%                  24.6%
                                                                                  ====                   ====               ====                   ====
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                                                                                          CenturyLink, Inc.

                                                                            RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

                                                                                             (UNAUDITED)

                                                                                        (Dollars in millions)



                                                                                                                                   Three months ended December 31,                          Three months ended December 31,
                                                                                                                                                     2013                                                         2012
                                                                                                                                      --------------------------------                             --------------------------------

                                                                                                                                                      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                                                                                                       $641              (29)           (1)       670              666                (27)           (3)       693

       Add:  Depreciation and amortization                                                                           1,166               -                  1,166                1,220                -                  1,220

       Add:  Impairment of goodwill                                                                                     (8)             (8)      (2)            -                    -                                       -

       Operating cash flow                                                                                                  $1,799              (37)                   1,836            1,886                (27)                   1,913



       Revenues                                                                                                             $4,542                -                    4,542            4,583                  -                    4,583



       Operating income margin (operating income divided by revenues)                                                 14.1%                                  14.8%                14.5%                                   15.1%
                                                                                                                      ====                                   ====                 ====                                    ====


       Operating cash flow margin (operating cash flow divided by revenues)                                           39.6%                                  40.4%                41.2%                                   41.7%
                                                                                                                      ====                                   ====                 ====                                    ====




     Free cash flow

       Operating cash flow                                                                                                                                 $1,836                                                        1,913

       Less: Cash paid for income taxes, net of refunds                                                                                                        (3)                                                         (23)

       Less: Cash paid for interest, net of amounts capitalized                                                                                              (419)                                                        (408)

       Less: Capital expenditures (4)                                                                                                                        (820)                                                        (877)

       Add:  Other income                                                                                                                                       7                                                            5
                                                                                                                                                              ---                                                          ---

       Free cash flow (5)                                                                                                                                    $601                                                          610
                                                                                                                                                             ====                                                          ===

     SPECIAL ITEMS

     (1) -           Includes a non-cash, non-tax
                     deductible goodwill impairment charge
                     of $8 million, the Communications
                     Workers of America contract
                     ratification bonus ($6 million),
                     severance costs associated with recent
                     headcount reductions ($13 million),
                     integration, severance and retention
                     costs associated with our acquisition
                     of Qwest ($20 million) and integration,
                     severance and retention costs
                     associated with our acquisition of
                     Savvis $2 million.

     (2) -           Non-cash, non-tax deductible goodwill
                     impairment charge of $8 million.

     (3) -           Includes severance costs associated with
                     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).

     (4) -           Excludes $17 million in fourth quarter
                     2013 and $18 million in fourth quarter
                     2012 of capital expenditures related to
                     the integration of Embarq, Qwest and
                     Savvis.

     (5) -           Excludes special items identified in
                     items (1) to (3).



                                                                                         CenturyLink, Inc.

                                                                            RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

                                                                                             (UNAUDITED)

                                                                                        (Dollars in millions)



                                                                                                                                  Twelve months ended December 31,                           Twelve months ended December 31,
                                                                                                                                                     2013                                                           2012
                                                                                                                                     ---------------------------------                              ---------------------------------

                                                                                                                                                       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                                                                                                    $1,453             (1,438)           (1)     2,891             2,713               (133)           (3)      2,846

       Add:  Depreciation and amortization                                                                         4,541                 -                   4,541                4,780               (30)      (4)        4,810

       Add:  Impairment of goodwill                                                                                1,092             1,092        (2)            -                    -                                        -

       Operating cash flow                                                                                                 $7,086               (346)                   7,432             7,493               (163)                    7,656



       Revenues                                                                                                           $18,095                  -                   18,095            18,376                  -                    18,376



       Operating income margin (operating income divided by revenues)                                                8.0%                                     16.0%                14.8%                                    15.5%
                                                                                                                     ===                                      ====                 ====                                     ====


       Operating cash flow margin (operating cash flow divided by revenues)                                         39.2%                                     41.1%                40.8%                                    41.7%
                                                                                                                    ====                                      ====                 ====                                     ====




     Free cash flow

       Operating cash flow                                                                                                                                  $7,432                                                         7,656

       Less: Cash paid for income taxes                                                                                                                        (48)                                                          (82)

       Less: Cash paid for interest, net of amounts capitalized                                                                                             (1,334)                                                       (1,405)

       Less: Capital expenditures (5)                                                                                                                       (3,001)                                                       (2,858)

       Add:  Other income                                                                                                                                       22                                                            21

       Free cash flow (6)                                                                                                                                   $3,071                                                         3,332
                                                                                                                                                            ======                                                         =====

     SPECIAL ITEMS

     (1) -       Includes a non-cash, non-tax deductible goodwill impairment charge of ($1.092 billion), a litigation reserve ($233 million), the Communications Workers of America
                 contract ratification bonus ($6 million), severance costs associated with recent headcount reductions ($27 million), integration, severance and retention costs associated
                 with our acquisition of Qwest ($47 million), integration, severance and retention costs associated with our acquisition of Savvis ($6 million), an accounting adjustment
                 ($18 million) and an impairment of an office building ($9 million).

     (2) -      Non-cash, non-tax deductible goodwill impairment charge of ($1.092 billion).

     (3) -       Includes severance costs associated with 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.

     (4) -      Out-of-period depreciation adjustment ($30 million) to correct an overstatement of depreciation in prior quarters.

     (5) -       Excludes $47 million for the twelve months ended December 31, 2013 and $61 million for the twelve months ended December 31, 2012 of capital expenditures related to the
                 integration of Embarq, Qwest and Savvis.

     (6) -       Excludes special items identified in items (1) to (4) and does not reflect the impact of pension contributions of $147 million for the twelve months ended December 31,
                 2013 and $32 million for the twelve months ended December 31, 2012.



                               CenturyLink, Inc.

                               OPERATING METRICS

                                  (UNAUDITED)

                                (In thousands)




                       As of                    As of                As of

                 December 31, 2013        September 30, 2013  December 31, 2012*
                 -----------------        ------------------   -----------------

     Broadband
     subscribers              5,991                     5,942               5,851

     Access
     lines                   13,002                    13,150              13,751


    * The December 31, 2012
     numbers have been adjusted
     to include the operational
     metrics of our wholly owned
     subsidiary, El Paso County
     Telephone Company, which
     had been previously
     excluded.  The increase (in
     thousands) related to
     including El Paso County
     Telephone Company's




                                                                   CenturyLink, Inc.

                                                SUPPLEMENTAL NON-GAAP INFORMATION - ADJUSTED DILUTED EPS

                           THREE MONTHS ENDED DECEMBER 31, 2013 AND 2012 AND TWELVE MONTHS ENDED DECEMBER 31, 2013 AND 2012

                                                                      (UNAUDITED)

                                                    (Dollars in millions, except per share amounts)





                                                                               Three months                                        Twelve months
                                                                                  ended                                                ended
                                                                              -------------                                       --------------


                                               December 31, 2013            December 31, 2012            December 31, 2013         December 31, 2012

                                                   (excluding                   (excluding                   (excluding                (excluding

                                                 special items)               special items)               special items)            special items)


    Net income *                                                      $225                          240                       988                      947



    Add back:

       Amortization of customer
        base intangibles:

      Qwest                                                            223                          237                       913                      966

      Embarq                                                            30                           34                       127                      146

      Savvis                                                            16                           15                        61                       59


       Amortization of trademark
        intangibles:

      Qwest                                                              7                           14                        39                       63

      Savvis                                                            15                            2                        21                        9


       Amortization of fair value
        adjustment of long-term
        debt:

      Embarq                                                             1                            1                         4                        4

      Qwest                                                            (14)                         (18)                      (62)                     (86)


            Subtotal                                                   278                          285                     1,103                    1,161

       Tax effect of above items                                      (107)                        (110)                     (428)                    (445)
                                                                                                                                                      ----

    Net adjustment, after
     taxes                                                            $171                          175                       675                      716



    Net income, as adjusted
     for above items                                                  $396                          415                     1,663                    1,663


    Weighted average diluted
     shares outstanding                                              586.4                        623.7                     602.2                    622.3


    Diluted EPS (excluding
     special items)                                                  $0.38                         0.38                      1.64                     1.52


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

                                                                     $0.68                         0.67                      2.76                     2.67


    The above schedule
     presents adjusted net
     income and adjusted
     earnings per share (both
     excluding special items)
     by adding back to net
     income and 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 the impact of
     excluded special
     items.

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SOURCE CenturyLink, Inc.