In the coming months, BMG plans to focus on leveraging its increased frontline sales capacity and winning new strategic customers.
WMG generated solid growth in the third quarter by executing on its initiative to expand bandwidth and broaden its client base.
Demand for Ethernet and data transport services remains strong and the Company continues to win contracts from wireless and other wholesale customers. WMG remains focused on the FTTT initiative and meeting the increasing data transport needs of our wholesale customers.
Savvis is experiencing growing market demand for managed hosting and cloud services.
CenturyLink believes Savvis is well positioned to take advantage of secular trends in outsourcing and cloud adoption. The Company anticipates strong cross-selling opportunities to business customers among all CenturyLink segments by leveraging our portfolio of assets, including managed hosting and cloud services, national and international core networks and a full suite of enterprise products and services.
Integration Update: Embarq Near Completion; Qwest and Savvis Integrations on Track
The fifth and final billing and customer care systems conversion for legacy Embarq customers was completed in late July and we expect the Embarq integration to be fully completed by year-end 2011. We also expect to achieve our targeted $375 million in annual run rate operating expense synergies by the end of this year.
CenturyLink ended third quarter 2011 having achieved an annualized operating expense synergy run rate of approximately $160 million from the Qwest acquisition. We continue to expect to achieve approximately $200 million in annual run rate operating expense synergies from the Qwest acquisition by year-end 2011. CenturyLink continues to expect to complete the Qwest financial and HR systems conversion by the end of the year.
2011 Guidance
CenturyLink’s previous full year and pro forma full year 2011 guidance for operating revenues, operating cash flow, capital expenditures and free cash flow remains unchanged. Including CenturyLink’s operating results for the first nine months of 2011 and excluding the effects of all special items referenced below, CenturyLink is providing the following additional guidance for full year 2011. The Company expects pro forma Adjusted Diluted EPS for full year 2011 to be in the range of $2.68 to $2.72.
On a pro forma basis for 2011 giving effect as if the Qwest and Savvis mergers had occurred effective January 1, 2011, and excluding the effects of all special items referenced below, CenturyLink is providing the following updated guidance for full year 2011. The Company expects pro forma Adjusted Diluted EPS for full year 2011 to be in the range of $2.65 to $2.69.
For fourth quarter 2011, including the estimated impacts from the application of business combination accounting rules outlined below, CenturyLink expects total revenues of $4.60 to $4.65 billion and operating cash flow of $1.87 to $1.92 billion, excluding the effects of all special items. The Company also expects Adjusted Diluted EPS to be in the range of $0.58 to $0.62.
Depreciation and amortization expense was approximately $30 million lower in third quarter 2011 compared to amounts previously forecast at the end of second quarter 2011 due to an adjustment in the third quarter to the initial value assigned to Qwest trademark intangibles at the end of second quarter 2011 and longer useful lives assigned to Savvis fixed assets. Fair value assignments for Qwest and Savvis are still subject to change as of the end of the third quarter of 2011, and are expected to be finalized no later than early 2012.
All 2011 outlook figures included in this release exclude the effects of special items, future changes in regulation, integration expenses associated with the Embarq acquisition, transaction and integration expenses associated with the Qwest and Savvis acquisitions, any changes in operating or capital plans and any future mergers, acquisitions, divestitures, buybacks or other similar business transactions. In addition, all outlook and pro forma figures are based on fair value estimates that remain subject to finalization. All assets and liabilities of Qwest and Savvis have been assigned a fair value pursuant to business combination accounting rules. The related income statement impact of these items was significant to our operations results for the second and third quarters of 2011, and will have a significant impact on our results for the remainder of 2011, which may be significantly different than what we have currently included in our outlook information for fourth quarter and full year 2011. Such fair value assignments for Qwest and Savvis were not finalized as of the end of third quarter 2011 and are subject to further adjustment before becoming final.The pro forma figures include adjustments described in the attached supplemental schedule that sets forth unaudited pro forma financial information regarding the Qwest and Savvis acquisitions, except that the figures above assume a
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January 1, 2011 closing date. The pro forma information (i) has not been prepared in accordance with generally accepted accounting principles, (ii) is for illustrative purposes only, and (iii) is not necessarily indicative of the combined operating results that would have occurred if the Qwest and Savvis mergers had been consummated as of January 1, 2011.
Investor Call
As previously announced, CenturyLink’s management will host a conference call at 4:30 p.m. Central Time today, November 2, 2011. Interested parties can access the call by dialing 866.238.1665. The call will be accessible for replay through November 9, 2011, by calling 888.266.2081 and entering the conference ID number 1553442. Investors can also listen to CenturyLink’s earnings conference call and replay by accessing the Investor Relations portion of the Company’s Web site at www.centurylink.com through November 23, 2011.
Reconciliation to GAAP
This release includes certain non-GAAP financial measures, including but not limited to operating cash flow, free cash flow, adjustments to GAAP measures to exclude the effect of special items and certain pro forma combined operating results. In addition to providing key metrics for management to evaluate the Company’s performance, we believe these measurements assist investors in their understanding of period-to-period operating performance and in identifying historical and prospective trends. Reconciliations of non-GAAP financial measures to the most comparable GAAP measures are included in the attached financial schedules. Reconciliation of additional non-GAAP financial measures that may be discussed during the earnings call described below will be available in the Investor Relations portion of the Company’s Web site at www.centurylink.com. Investors are urged to consider these non-GAAP measures in addition to, and not in substitution for, measures prepared in accordance with GAAP.
CenturyLink is the third largest telecommunications company in the United States. The company provides broadband, voice, wireless and managed services to consumers and businesses across the country. It also offers advanced entertainment services under the CenturyLinkTM PrismTM TV and DIRECTV brands. In addition, the company provides data, voice and managed services to enterprise, government and wholesale customers in local, national and select international markets through its high-quality advanced fiber optic network and multiple data centers. CenturyLink is recognized as a leader in the network services market by key technology industry analyst firms. CenturyLink's customers range from Fortune 500 companies in some of the country's largest cities to families living in rural America. Headquartered in Monroe, La., CenturyLink is an S&P 500 company and is included among the Fortune 500 list of America's largest corporations. For more information, visit www.centurylink.com.
Forward Looking Statements
Certain non-historical statements made in this release and future oral or written statements or press releases by us or our management are intended to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current expectations only, and are subject to a number of risks, uncertainties and assumptions, many of which are beyond our control. Actual events and results may differ materially from those anticipated, estimated or projected if one or more of these risks or uncertainties materialize, or if underlying assumptions prove incorrect. Factors that could affect actual results include but are not limited to: the timing, success and overall effects of competition from a wide variety of competitive providers; the risks inherent in rapid technological change; the effects of ongoing changes in the regulation of the communications industry (including those arising out of proposed rules of the Federal Communications Commission regarding intercarrier compensation and the Universal Service Fund, among other things; our ability to effectively adjust to changes in the communications industry and changes in the
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composition of our markets and product mix caused by our recent acquisitions of Savvis, Qwest and Embarq; our ability to successfully integrate the operations of Savvis, Qwest and Embarq into our operations, including the possibility that the anticipated benefits from these acquisitions cannot be fully realized in a timely manner or at all, or that integrating the acquired operations will be more difficult, disruptive or costly than anticipated; our ability to use the net operating loss carryovers of Qwest in projected amounts; the effects of changes in our assignment of the Savvis or Qwest purchase price to identifiable assets or liabilities after the date hereof; our ability to effectively manage our expansion opportunities, including retaining and hiring key personnel; possible changes in the demand for, or pricing of, our products and services; our ability to successfully introduce new product or service offerings on a timely and cost-effective basis; our continued access to credit markets on favorable terms; our ability to collect our receivables from financially troubled communications companies; any adverse developments in legal proceedings involving us; our ability to pay a $2.90 per common share dividend annually, which may be affected by changes in our cash requirements, capital spending plans, cash flows or financial position; unanticipated increases or other changes in our future cash requirements, whether caused by unanticipated increases in capital expenditures, increases in pension funding requirements or otherwise; our ability to successfully negotiate collective bargaining agreements on reasonable terms without work stoppages; the effects of adverse weather; other risks referenced from time to time in our filings with the Securities and Exchange Commission (the “SEC”); and the effects of more general factors such as changes in interest rates, in tax rates, in accounting policies or practices, in operating, medical, pension or administrative costs, in general market, labor or economic conditions, or in legislation, regulation or public policy. These and other uncertainties related to our business, our July 2011 acquisition of Savvis, our April 2011 acquisition of Qwest and our July 2009 acquisition of Embarq are described in greater detail in Item 1A to our Form 10-K for the year ended December 31, 2010, as updated and supplemented by our subsequent SEC reports. You should be aware that new factors may emerge from time to time and it is not possible for us to identify all such factors nor can we predict the impact of each such factor on the business or the extent to which any one or more factors may cause actual results to differ from those reflected in any forward-looking statements. You are further cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this presentation. We undertake no obligation to update any of our forward-looking statements for any reason.
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