Equity research presentation of Century Link (CTL) for Student Managed Investment Fund.

1. CenturyLink
NYSE: CTL

2. Business
• Integrated Communications company
• Provide a broad array of communications services
including voice, internet, data and video service
– Fiber transport
– Wholesale communications services
– Competitive local exchange carrier service
– Security monitoring
– Other communications, professional and business
information services
• 2010: 4th largest local exchange telephone
company

3. Services
• Voice: fixed monthly charge
– Local calling service
– Enhanced voice services
– Long distance service
– Anticipate 7-7.5% access line loss
• Data: monthly recurring charges
– Broadband High-speed Internet access
– Business data transmission services
• Dedicated equipment for transmitting large amounts of data
– Switched digital television services: 20% of lines
• Network Access
– Wholesale services to carriers and customers

4. Basic Information
Market Cap 23.01 Bil
Fiscal Yearend December 31
Last Earnings Announcements November 2
Next Earnings Announcements February 15
Institutional Ownership 76.57%
Insider Ownership .57%
# of Analysts 24
S&P Quality Ranking

5. Competition
• AT&T Inc
– 169.72B
• Verizon Communications Inc
– 103.22B
• Comcast Corp
– 58.26B

6. Mergers & Acquisitions
• Embarq Corp – July 2009
– Home phone service, high-speed Internet,
wireless, and satellite TV
– Wireline Voice, Cable Video & Communication
Equipment
• Zillion TV Corp – February 2010
– Television Broadcasting service

7. Mergers & Acquisitions
• Qwest Communications International – April 2011
– Fiber-optic network, high-speed internet and digital
home phone services
– Network, data & voice for small & large businesses,
government agencies & wholesale customers
– Networx: largest communication services contract in
world
– Qwest serves 95% of Fortune 500
– Created 173,000-mile fiber network

8. Mergers & Acquisitions
• SAVVIS Inc – July 2011
– Cloud infrastructure and hosted IT solutions for enterprises
– 2,500 unique clients
• 32 of the top 100 companies in the Fortune 500
– Achieve global scale as a managed hosting and colocation
provider
– Accelerate ability to deliver quality managed hosting and
cloud capabilities to business customers
– 48 data centers located in North America, Europe, and Asia
– 207,000-mile fiber network nationally
– 190,000 mile global access network

9. Management Discussion
• Embarq substantially expanded size & scope
– Consolidated results begin July 1, 2009
– Previous year comparisons less meaningful
• Revenue declines in Voice and Network Access
– Declines in access lines, intrastate access rates,
minutes of use and federal support funds
– Bundle & provide new services
– Provide premium service to higher % of customers
– Increase usage of networks
– Market to new customers

10. Risk Factors
• Continued access line losses
– Competition and wireless/broadband substitution
• Technological & regulatory changes increasing
competition
– Wireless providers, Cable television operators, VoIP &
broadband providers
• Network disruptions or system failures
• Limited number of key suppliers and vendors
• PP&E located on property owned by 3rd parties

11. Capital Structure
Qwest acquisition included $11.947 billion of long-term debt

13. Industry Structure
• “The firm should have the financial flexibility
to adapt as the telecom industry changes
while maintaining its dividend. While the
Qwest and Embarq deals brought exposure to
more competitive markets, a significant
portion of CenturyLink's service territory is
rural.”

14. Industry Structure
• "The small business segment is even more
competitive among ISPs, highlighting the need
for providers to develop strong marketing
strategies to ensure they can retain and grow
market share."

15. Industry Structure
“The industry is highly concentrated: the 50
largest companies generate about 90 percent
of revenue.”
Industry Depends Highly on Regulatory
Decisions — “The FCC regulates the interstate
activities of telecom providers, including
pricing and operations, while state public
utility commissions (PUCs) regulate similar
matters at the state level.”
http://subscriber.hoovers.com/H/industry360/overview.html?industryId=1
577

16. (un?)Competitive Advantages
“While CenturyLink's financial position is
better than that of many peers, it still
isn't great, especially considering its
unfunded postretirement benefit
obligations and the cash it will pay for
Savvis.”
Enterprise Cloud Computing:
Should they be diversifying into
this industry?

17. Competitive Advantages

18. Competitive Advantages
• “CenturyLink, which merged with Qwest in
April 2011, ranked as the third largest business
ISP at 7 percent share.”

19. Competitive Advantages

20. Industries
Good.

21. Large Cities

22. Summary
• Rural/small market dominance
• Very competitive market
• Government reg. (good…)
• Alpha – expansion to larger markets
• Alpha – different markets
• Diversification, making sure they aren’t going
to be left behind

23. CenturyLink Income Statement
FQ3 2011 FQ3 2010 FQ3 2009 FQ3 2008 FQ3 2007 FQ3 2011 FQ3 2010 FQ3 2009 FQ3 2008 FQ3 2007
9/30/2011 9/30/2010 9/30/2009 9/30/2008 9/30/2007 9/30/2011 9/30/2010 9/30/2009 9/30/2008 9/30/2007
Revenue 12,419.70 7,149.49 3,788.13 2,613.36 2,607.37
- Cost of Revenue 4,921.43 2,483.96 1,391.02 970.71 909.48 39.6% 34.7% 36.7% 37.1% 34.9%
Gross Profit 7,498.27 4,665.52 2,397.11 1,642.65 1,697.89 60.4% 65.3% 63.3% 62.9% 65.1%
- Operating Expenses 5,537.60 2,550.95 1,527.91 928.76 900.11 44.6% 35.7% 40.3% 35.5% 34.5%
Operating Income 1,960.67 2,114.57 869.21 713.88 797.78 15.8% 29.6% 22.9% 27.3% 30.6%
- Interest Expense 867.96 553.25 290.84 201.87 207.18 7.0% 7.7% 7.7% 7.7% 7.9%
- Foreign Exchange Losses (Gains) 0 0 0 0 0 0.0% 0.0% 0.0% 0.0% 0.0%
- Net Non-Operating Losses (Gains) -4.38 44.85 -30.7 -36.08 -18.83 0.0% 0.6% -0.8% -1.4% -0.7%
Pretax Income 1,097.09 1,516.47 609.06 548.09 609.43 8.8% 21.2% 16.1% 21.0% 23.4%
- Income Tax Expense 418.14 565.63 224.24 167.39 233.86 3.4% 7.9% 5.9% 6.4% 9.0%
Income Before XO Items 678.95 950.83 384.83 380.69 375.57 5.5% 13.3% 10.2% 14.6% 14.4%
- Extraordinary Loss Net of Tax 0 -2.74 -133.21 0 0 0.0% 0.0% -3.5% 0.0% 0.0%
- Minority Interests 0.69 0.8 0.94 0 0 0.0% 0.0% 0.0% 0.0% 0.0%
Net Income 678.26 952.78 517.1 380.69 375.57 5.5% 13.3% 13.7% 14.6% 14.4%

24. CenturyLink Balance Sheet
FQ3 2011 FQ3 2010 FQ3 2009 FQ3 2008 FQ3 2007 FQ3 2011 FQ3 2010 FQ3 2009 FQ3 2008 FQ3 2007
9/30/2011 9/30/2010 9/30/2009 9/30/2008 9/30/2007 10/1/2011 10/2/2010 10/3/2009 9/30/2008 9/30/2007
Assets
+ Cash & Near Cash Items 1,123.00 243.06 531.19 258.96 58.71 2.0% 1.1% 2.3% 3.1% 0.7%
+ Accounts & Notes Receivable 1,998.00 749.65 670.73 214.01 233.96 3.5% 3.4% 2.9% 2.6% 2.8%
+ Inventories 0.00 35.14 43.37 9.28 7.69 0.0% 0.2% 0.2% 0.1% 0.1%
+ Other Current Assets 687.00 199.26 212.97 26.53 27.52 1.2% 0.9% 0.9% 0.3% 0.3%
Total Current Assets 3,808.00 1,227.11 1,458.26 508.78 327.88 6.7% 5.5% 6.4% 6.1% 4.0%
+ Net Fixed Assets 19,290.00 8,801.74 9,363.19 2,915.35 3,144.82 34.0% 39.6% 40.8% 35.2% 38.2%
+ Other Long-Term Assets 33,637.00 12,191.36 12,135.62 4,848.77 4,759.95 59.3% 54.9% 52.9% 58.6% 57.8%
Total Long-Term Assets 52,927.00 20,993.10 21,498.81 7,764.12 7,904.77 93.3% 94.5% 93.6% 93.9% 96.0%
Total Assets 56,735.00 22,220.21 22,957.06 8,272.90 8,232.65
Liabilities and Equity
+ Accounts Payable 1,360.00 292.68 331.69 98.74 97.91 2.4% 1.3% 1.4% 1.2% 1.2%
+ Short-Term Borrowings 1,034.00 496.55 769.48 45.36 254.90 1.8% 2.2% 3.4% 0.5% 3.1%
+ Other Short-Term Liabilities 2,343.00 860.50 1,048.10 330.62 327.11 4.1% 3.9% 4.6% 4.0% 4.0%
Total Current Liabilities 4,737.00 1,649.73 2,149.28 474.71 679.92 8.3% 7.4% 9.4% 5.7% 8.3%
+ Long-Term Borrowings 21,142.00 7,061.74 7,454.52 3,299.27 2,747.58 37.3% 31.8% 32.5% 39.9% 33.4%
+ Other Long-Term Liabilities 8,880.00 3,902.88 3,989.24 1,302.68 1,440.74 15.7% 17.6% 17.4% 15.7% 17.5%
Total Long-Term Liabilities 30,022.00 10,964.63 11,443.76 4,601.95 4,188.31 52.9% 49.3% 49.8% 55.6% 50.9%
Total Liabilities 34,759.00 12,614.36 13,593.03 5,076.66 4,868.23 61.3% 56.8% 59.2% 61.4% 59.1%
+ Total Prefered Equity 0.00 0.24 0.24 0.24 7.35 0.0% 0.0% 0.0% 0.0% 0.1%
+ Minority Interest 0.00 6.70 6.73 0.00 0.00 0.0% 0.0% 0.0% 0.0% 0.0%
+ Share Capital & APIC 19,471.00 6,389.82 6,256.42 126.46 308.18 34.3% 28.8% 27.3% 1.5% 3.7%
+ Retained Earnings 2,505.00 3,209.10 3,100.65 3,069.54 3,048.89 4.4% 14.4% 13.5% 37.1% 37.0%
Total Equity 21,976.00 9,605.85 9,364.03 3,196.24 3,364.42 38.7% 43.2% 40.8% 38.6% 40.9%
Total Liabilities & Equity 56,735.00 22,220.21 22,957.06 8,272.90 8,232.65

25. CenturyLink Cash Flows
FQ3 2011 FQ3 2010 FQ3 2009 FQ3 2008 FQ3 2007 FQ3 2011 FQ3 2010 FQ3 2009 FQ3 2008 FQ3 2007
10/1/2011 10/2/2010 10/3/2009 9/30/2008 9/30/2007 10/1/2011 10/2/2010 10/3/2009 9/30/2008 9/30/2007
Cash from Operating Activities
+ Net Income 678.26 952.78 517.10 380.69 375.57
+ Depreciation & Amortization 3,135.57 1,425.38 747.12 532.54 525.98 462.3% 149.6% 139.9% 140.0% 140.0%
+ Other Non-Cash Adjustments 101.30 12.01 (184.31) 60.54 63.23 14.9% 1.3% 15.9% 16.8% 16.8%
+ Changes in Non-Cash Capital 121.11 (297.22) 67.91 (65.99) 42.87 17.9% -31.2% -17.3% 11.4% 11.4%
Cash from Operations 4,036.24 2,092.95 1,147.83 907.79 1,007.64 595.1% 219.7% 238.5% 268.3% 268.3%
Cash from Investing Activities
+ Disposal of Fixed Assets 0.00 0.00 0.00 0.00 8.23
+ Capital Expenditures (1,774.99) (937.42) (518.94) (326.75) (291.20) -261.7% -98.4% -85.8% -77.5% -77.5%
+ Other Investing Activities (1,235.20) (2.23) 79.53 (96.79) (301.75) -182.1% -0.2% -25.4% -80.3% -80.3%
Cash from Investing Activities (3,010.19) (939.65) (439.41) (423.54) (584.73) -443.8% -98.6% -111.3% -155.7% -155.7%
Cash from Financing Activities
+ Dividends Paid (1,326.34) (867.74) (421.08) (157.36) (29.07) -195.6% -91.1% -41.3% -7.7% -7.7%
+ Change in Short-Term Borrowings 0.00 0.00 0.00 23.00 (23.00) 0.0% 0.0% 6.0% -6.1% -6.1%
+ Increase in Long-Term Borrowings 3,232.80 0.00 644.42 563.12 764.84 476.6% 0.0% 147.9% 203.6% 203.6%
+ Decrease in Long-Term Borrowings (2,111.51) (665.45) (656.71) (281.94) (729.39) -311.3% -69.8% -74.1% -194.2% -194.2%
+ Increase in Capital Stocks 160.71 101.24 18.04 15.79 88.14 23.7% 10.6% 4.1% 23.5% 23.5%
+ Decrease in Capital Stocks (33.19) (20.79) (8.78) (469.43) (470.84) -4.9% -2.2% -123.3% -125.4% -125.4%
+ Other Financing Activities (68.64) 11.05 (12.08) 22.81 2.43 -10.1% 1.2% 6.0% 0.6% 0.6%
Cash from Financing Activities (146.17) (1,441.69) (436.19) (284.01) (396.90) -21.6% -151.3% -74.6% -105.7% -105.7%
Net Changes in Cash 879.88 (288.38) 272.23 200.24 26.02 129.7% -30.3% 52.6% 6.9% 6.9%

26. CenturyLink Enterprise Value
11/18/2011 10/1/2011 10/2/2010 10/3/2009 9/30/2008 9/30/2007
Market cap 23005.80 20449.18 11943.94 9994.89 3689.88 5138.69
+ Preferred Equity 0.00 0.00 0.24 0.24 0.87 7.35
+ Minority Interest 0.00 0.00 6.70 6.73 0.00 0.00
+ Total Debt 22176.00 22176.00 7558.30 8224.00 3061.59 3002.47
- Cash & Cash Equiv 1123.00 1123.00 243.06 531.19 63.90 58.71
Enterprise Value 44058.80 41058.80 19266.11 17694.67 6688.44 8089.80

27. Liquidity Ratios
Current Ratio
Quick Ratio

28. Activity Ratios
Asset Turnover
A/R Turnover

29. Leverage Ratios
Financial Leverage
Debt/Equity
Debt/Assets

30. Profitability Ratios
Gross Margin
Operating Margin
Profit Margin

31. ROA
ROE
ROC

32. Dupont Analysis

33. CenturyLink Inc.- Piotroski Breakdown
Qualification Score
1. Positive Net Income 1
2. Positive Cash Flow from Operations 1
3. Increase of Return of Assets 1(by 5 bp)
4. Cash Flow from Operations > Net Income 1
5. Decrease in Long-Term Debt to Assets 0
6. Increase in Current Ratio 1
7. Decrease in Shares Outstanding 0
8. Increase in Gross Margin 1
9. Increase in Asset Turnover 0
Total Score 6/9

34. Price/Book Ratio
Price Multiples
Price/Earnings Ratio
Price/Sales Ratio
Price/ Operating Cash Flow

35. Analyst Coverage

36. Earning Surprise - Quarterly

37. Earning Surprise - Annually

38. Earning Surprise - Matrix

39. Revenue Surprise- Annually

40. Revenue Surprise - Matrix

41. Growth Rates
Revenue Growth
EPS Growth
Asset Growth

42. Dividends
Dividend Yield
Dividend Payout
Dividend Coverage
Income before XO/Cash Common Dividends

43. Dividends
FCF Payout FCF Payout
Company Dividend Yield (unlevered) (levered)
Most Recent Quarter’s Most Recent Quarter’s
AT&T 5.9% 77% 92%
Verizon
5.4% 20% 21%
Communications
Windstream
8.5% 118% 534%
Corporation
CenturyLink 7.7% 49% 63%
Frontier
13.7% 60% 90%
Communications
Source: S&P Capital IQ.

44. 6-Month Comparative vs. Peers

45. 2-Year Comparative vs. Peers

46. 5-Year Comparative vs. Peers

47. 6-month Comparative vs. Index

48. 2-Year Comparative vs. Index

49. 5-Year Comparative vs. Index