This presentation may contain projections and other forward-looking statements that involve risks and uncertainties. These statements may differ materially from actual future events or results. Readers are referred to the documents filed by us with the Securities and Exchange Commission, specifically the most recent reports which identify important risk factors that could cause actual results to differ from those contained in the forward-looking statements, including but not limited to: access line losses due to increased competition, including from technology substitution of our access lines with wireless and cable alternatives, among others; our substantial indebtedness, and our inability to complete any efforts to further de-lever our balance sheet; adverse results of increased review and scrutiny by media and others (including any internal analyses) of financial reporting issues and practices or otherwise; rapid and significant changes in technology and markets; any adverse developments in commercial disputes or legal proceedings; potential fluctuations in quarterly results; volatility of our stock price; intense competition in the markets in which we compete including the effects of consolidation in our industry; changes in demand for our products and services; acceleration of the deployment of advanced new services, such as broadband data, wireless and video services, which could require substantial expenditure of financial and other resources in excess of contemplated levels; higher than anticipated employee levels, capital expenditures and operating expenses; adverse changes in the regulatory or legislative environment affecting our business; changes in the outcome of future events from the assumed outcome included in our significant accounting policies; our ability to utilize net operating losses in projected amounts; and continued unfavorable general economic conditions.
The information contained in this presentation is a statement of Qwest’s present intention, belief or expectation and is based upon, among other things, the existing regulatory environment, industry conditions, market conditions and prices, the economy in general and Qwest’s assumptions. Qwest may change its intention, belief or expectation, at any time and without notice, based upon any changes in such factors, in Qwest’s assumptions or otherwise. The cautionary statements contained or referred to in this presentation should be considered in connection with any subsequent written or oral forward-looking statements that Qwest or persons acting on its behalf may issue. This presentation may include analysts’ estimates and other information prepared by third parties for which Qwest assumes no responsibility.
Qwest undertakes no obligation to review or confirm analysts’ expectations or estimates or to release publicly any revisions to any forward-looking statements and other statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
By including any information in this presentation, Qwest does not necessarily acknowledge that disclosure of such information is required by applicable law or that the information is material.
The Qwest logo is a registered trademark of Qwest Communications International Inc. in the U.S. and certain other countries.
- In connection with the proposed transaction, CenturyLink filed with the Securities and Exchange Commission (the “SEC”) a registration statement on Form S-4 (Registration No. 333-167339) that includes a joint preliminary proxy statement of CenturyLink and Qwest Communications International Inc. (“Qwest”) and that also constitute a preliminary prospectus of CenturyLink. CenturyLink and Qwest will mail the definitive joint proxy statement/prospectus to their respective stockholders when it becomes available. Investors and security holders are urged to read the joint definitive proxy statement/prospectus and any other relevant documents filed with the SEC when they become available, because they will contain important information about Qwest, CenturyLink and the proposed transaction. The joint proxy statement/prospectus and other documents relating to the proposed transaction (when they are available) can be obtained free of charge from the SEC’s website at www.sec.gov.
These documents (when they are available) can also be obtained free of charge from Qwest upon written request to Qwest Communications International Inc., 1801 California Street, 51st floor, Denver, Colorado 80202, Attention: Shareowner Relations or by calling 1-800-567-7296, or from CenturyLink, upon written request to CenturyLink, 100 CenturyTel Drive, Monroe, Louisiana, 71203, Attention: Corporate Secretary. Qwest, CenturyLink and certain of their respective directors and executive officers may be deemed to be participants in the solicitation of proxies from stockholders in connection with the proposed transaction under the rules of the SEC. Information about the directors and executive officers of Qwest may be found in its 2009 Annual Report on Form 10-K filed with the SEC on February 16, 2010, and in its definitive proxy statement relating to its 2010 Annual Meeting of Stockholders filed with the SEC on March 17, 2010. Information about the directors and executive officers of CenturyLink may be found in its 2009 Annual Report on Form 10-K filed with the SEC on March 1, 2010, and definitive proxy statement relating to its 2010 Annual Meeting of Shareholders filed with the SEC on April 7, 2010. These documents can be obtained free of charge from the sources indicated above. Additional information regarding the interests of these participants will also be included in the definitive joint proxy statement/prospectus regarding the proposed transaction when it becomes available. - This communication does not constitute an offer to sell or the solicitation of an offer to sell or the solicitation of an offer to buy any securities, nor will there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. No offer of securities will be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended.
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Our vision is to be a profitable growth company known for Perfecting the Customer Experience. Our Vision is what we aspire to be, it’s the main focus of everything we do, to differentiate us from competitors. It drives our strategies, priorities and goals.
- Ed Mueller
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES —EBITDA (1)
(UNAUDITED)
(Dollars in millions)
| Three Months Ended | ||||||||||||
| 3/31/08 | 3/31/09 | 12/31/09 | 3/31/10 | |||||||||
| EBITDA—as adjusted | $ | 1,141 | $ | 1,145 | $ | 1,085 | $ | 1,124 | ||||
| Less: Legal reserve | — | — | — | — | ||||||||
| Less: Property tax settlement | — | — | — | — | ||||||||
| Less: Realignment, severance and | ||||||||||||
| related costs | (45 | ) | (23 | ) | (56 | ) | (11 | ) | ||||
| EBITDA: | $ | 1,096 | $ | 1,122 | $ | 1,029 | $ | 1,113 | ||||
| Depreciation and amortization | (576 | ) | (573 | ) | (579 | ) | (545 | ) | ||||
| Total other expense—net | (275 | ) | (251 | ) | (273 | ) | (321 | ) | ||||
| Income tax expense | (95 | ) | (92 | ) | (69 | ) | (209 | ) | ||||
| Net income | $ | 150 | $ | 206 | $ | 108 | $ | 38 | ||||
| EBITDA margin percentage—as adjusted: | ||||||||||||
| EBITDA—as adjusted | $ | 1,141 | $ | 1,145 | $ | 1,085 | $ | 1,124 | ||||
| Divided by total operating revenue | $ | 3,399 | $ | 3,173 | $ | 2,994 | $ | 2,966 | ||||
| EBITDA margin percentage—as adjusted | 33.6 | % | 36.1 | % | 36.2 | % | 37.9 | % | ||||
| EBITDA margin percentage: | ||||||||||||
| EBITDA | $ | 1,096 | $ | 1,122 | $ | 1,029 | $ | 1,113 | ||||
| Divided by total operating revenue | $ | 3,399 | $ | 3,173 | $ | 2,994 | $ | 2,966 | ||||
| EBITDA margin percentage | 32.2 | % | 35.4 | % | 34.4 | % | 37.5 | % | ||||
(1) EBITDA, EBITDA margin percentage, EBITDA —as adjusted and EBITDA margin percentage —as adjusted are non-GAAP financial measures. Other companies may calculate these measures (or similarly titled measures) differently. We believe these measures provide useful information to investors in evaluating our capital-intensive business because they reflect our operating performance before the impacts of non-cash items and are indicators of our ability to service debt, pay taxes and fund discretionary spending such as capital expenditures. Management also uses EBITDA for a number of purposes, including setting targets for compensation and assessing the performance of our operations.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES —FREE CASH FLOW FROM OPERATIONS (1)
(UNAUDITED)
(Dollars in millions)
| Years Ended December 31, | |||||||||
| 2007 | 2008 | 2009 | |||||||
| Free cash flow from operations: | |||||||||
| Cash provided by operating activities | $ | 3,026 | $ | 2,931 | $ | 3,307 | |||
| Less: Expenditures for property, plant | |||||||||
| and equipment and capitalized software. | (1,669 | ) | (1,777 | ) | (1,409 | ) | |||
| Free cash flow from operations | 1,357 | 1,154 | 1,898 | ||||||
| Add: certain one-time settlements | 445 | 285 | 32 | ||||||
| Adjusted free cash flow from operations | $ | 1,802 | $ | 1,439 | $ | 1,930 | |||
(1) Free cash flow and adjusted free cash flow from operations are non-GAAP financial measures that indicate cash generated by our business after operating expenses, capital expenditures, interest expense and income tax expense. We believe these measures provide useful information to our investors for purposes of evaluating our ability to satisfy our debt and other mandatory payment obligations and because they reflect cash flows available for financing activities, voluntary debt repayment and to strengthen our balance sheet. This is of particular relevance for our business given our significant debt balance. We also use free cash flow and adjusted free cash flow from operations internally for a variety of purposes, including setting targets for compensation and budgeting our cash needs. These measures are not determined in accordance with GAAP and should not be considered as a substitute for “income before income taxes” or “cash provided by operating activities” or any other measure determined in accordance with GAAP.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES —NET DEBT (1)
(UNAUDITED)
(Dollars in millions)
| 3/31/07 | 3/31/08 | 3/31/09 | 3/31/10 | |||||||||
| Net debt: | ||||||||||||
| Current portion of long-term borrowings | $ | 1,688 | $ | 852 | $ | 587 | $ | 2,046 | ||||
| Long-term borrowings—net | 13,013 | 13,261 | 12,755 | 11,500 | ||||||||
| Total borrowings—net | 14,701 | 14,113 | 13,342 | 13,546 | ||||||||
| Less: cash and cash equivalents | (887 | ) | (634 | ) | (541 | ) | (1,196 | ) | ||||
| Less: short-term investments | (242 | ) | (48 | ) | (6 | ) | (656 | ) | ||||
| Net debt | $ | 13,572 | $ | 13,431 | $ | 12,795 | $ | 11,694 | ||||
| Ratio of net debt to annualized EBITDA—as adjusted: (2) (3) | ||||||||||||
| Total net debt | $ | 13,572 | $ | 13,431 | $ | 12,795 | $ | 11,694 | ||||
| Divided by annualized EBITDA—as adjusted | $ | 4,484 | $ | 4,578 | $ | 4,551 | $ | 4,394 | ||||
| Ratio of net debt to annualized EBITDA—as adjusted | 3.0 | 2.9 | 2.8 | 2.7 | ||||||||
(1) Net debt is a non-GAAP financial measure that we calculate as our total borrowings —net (current plus long-term) less our cash and cash equivalents and short-term investments. We believe net debt is helpful in analyzing our leverage, and management uses this measure in making decisions regarding potential financings. Net debt is not a measure determined in accordance with GAAP and should not be considered as a substitute for “current portion of long-term borrowings” or “long-term borrowings —net” or any other measure determined in accordance with GAAP.
(2) EBITDA —as adjusted is a non-GAAP financial measure that reflects our operating performance before the impacts of certain non-cash items and after removing the effects of items that we believe are not representative of our core ongoing telecommunications operations, such as severance charges, restructuring charges and charges for securities-related litigation. We provide this information to supplement our GAAP financial measures because we believe that investors commonly use this information to analyze the results of our core operations, to identify financial trends in these results and to compare our operating performance to that of our competitors. Management also uses these measures for a number of purposes, including setting targets for compensation and assessing the performance of our operations.
(3) The ratio of net debt to annualized EBITDA —as adjusted is a non-GAAP financial measure that we calculate as net debt divided by a rolling four quarters of EBITDA —as adjusted . Other companies may calculate this measure differently. We believe this measure provides useful information to our investors about our debt level relative to our performance and about our ability to meet our financial obligations.