-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EdtaTzxiaHeQ9kLSZyEYJGa7TCVmnvRG16NYgvoeH1BoLhEYnvTz6RE9W0S5U6aU lfzPgNkzsoz1iJTXUQVoPA== 0000018926-99-000005.txt : 19990517 0000018926-99-000005.hdr.sgml : 19990517 ACCESSION NUMBER: 0000018926-99-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CENTURY TELEPHONE ENTERPRISES INC CENTRAL INDEX KEY: 0000018926 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE COMMUNICATIONS (NO RADIO TELEPHONE) [4813] IRS NUMBER: 720651161 STATE OF INCORPORATION: LA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-07784 FILM NUMBER: 99624124 BUSINESS ADDRESS: STREET 1: P O BOX 4065 STREET 2: 100 CENTURY PARK DR CITY: MONROE STATE: LA ZIP: 71203 BUSINESS PHONE: 3188889600 MAIL ADDRESS: STREET 1: 100 CENTURY PARK DR STREET 2: P O BOX 4065 CITY: MONROE STATE: LA ZIP: 71203 FORMER COMPANY: FORMER CONFORMED NAME: CENTRAL TELEPHONE & ELECTRONICS CORP DATE OF NAME CHANGE: 19720512 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 1999 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission File Number: 1-7784 CENTURYTEL, INC. (Exact name of registrant as specified in its charter) CENTURY TELEPHONE ENTERPRISES, INC. (Former name, if changed since last report) Louisiana 72-0651161 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 100 Century Park Drive, Monroe, Louisiana 71203 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (318) 388-9000 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No As of April 30, 1999, there were 139,318,179 shares of common stock outstanding. CENTURYTEL, INC. TABLE OF CONTENTS Page No. -------- Part I. Financial Information: Financial Statements Consolidated Statements of Income--Three Months Ended March 31, 1999 and 1998 3 Consolidated Statements of Comprehensive Income-- Three Months Ended March 31, 1999 and 1998 4 Consolidated Balance Sheets--March 31, 1999 and December 31, 1998 5 Consolidated Statements of Stockholders' Equity-- Three Months Ended March 31, 1999 and 1998 6 Consolidated Statements of Cash Flows-- Three Months Ended March 31, 1999 and 1998 7 Notes to Consolidated Financial Statements 8-9 Management's Discussion and Analysis of Financial Condition and Results of Operations 10-18 Quantitative and Qualitative Disclosures About Market Risk 19 Part II. Other Information: Exhibits and Reports on Form 8-K 20 Signature 21 PART I. FINANCIAL INFORMATION CENTURYTEL, INC. CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three months ended March 31, - ---------------------------------------------------------------------------- 1999 1998 - ---------------------------------------------------------------------------- (Dollars, except per share amounts, and shares in thousands) OPERATING REVENUES Telephone $292,961 259,813 Cellular 98,471 94,166 Other 22,824 17,741 - ---------------------------------------------------------------------------- Total operating revenues 414,256 371,720 - ---------------------------------------------------------------------------- OPERATING EXPENSES Cost of sales and operating expenses 193,652 182,394 Depreciation and amortization 89,981 79,194 - ---------------------------------------------------------------------------- Total operating expenses 283,633 261,588 - ---------------------------------------------------------------------------- OPERATING INCOME 130,623 110,132 - ---------------------------------------------------------------------------- OTHER INCOME (EXPENSE) Interest expense (42,241) (42,809) Gain on sale or exchange of assets 10,358 24,343 Income from unconsolidated cellular entities 6,845 6,877 Minority interest (3,310) (2,643) Other income and expense 2,180 604 - ---------------------------------------------------------------------------- Total other income (expense) (26,168) (13,628) - ---------------------------------------------------------------------------- INCOME BEFORE INCOME TAX EXPENSE 104,455 96,504 Income tax expense 43,350 38,810 - ---------------------------------------------------------------------------- NET INCOME $ 61,105 57,694 ============================================================================ BASIC EARNINGS PER SHARE* $ .44 .42 ============================================================================ DILUTED EARNINGS PER SHARE* $ .43 .41 ============================================================================ DIVIDENDS PER COMMON SHARE* $ .045 .043 ============================================================================ AVERAGE BASIC SHARES OUTSTANDING* 138,086 136,442 ============================================================================ AVERAGE DILUTED SHARES OUTSTANDING* 141,028 139,376 ============================================================================ * Reflects March 1999 stock split. See Note 4. See accompanying notes to consolidated financial statements.
CENTURYTEL, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
Three months ended March 31, - ----------------------------------------------------------------------------- 1999 1998 - ----------------------------------------------------------------------------- (Dollars in thousands) Net income $ 61,105 57,694 - ----------------------------------------------------------------------------- Other comprehensive income, net of tax: Unrealized holding gains arising during period, net of $1,116 and $4,836 tax 2,073 8,980 Reclassification adjustment for gains included in net income, net of $3,625 and $7,967 tax (6,733) (14,795) - ----------------------------------------------------------------------------- Other comprehensive income, net of $2,509 and $3,131 tax (4,660) (5,815) - ----------------------------------------------------------------------------- Comprehensive income $ 56,445 51,879 ============================================================================= See accompanying notes to consolidated financial statements.
CENTURYTEL, INC. CONSOLIDATED BALANCE SHEETS (UNAUDITED)
March 31, December 31, 1999 1998 - ------------------------------------------------------------------------------- (Dollars in thousands) ASSETS - ------ CURRENT ASSETS Cash and cash equivalents $ 4,085 5,742 Accounts receivable, less allowance of $4,300 and $4,155 193,714 185,398 Materials and supplies, at average cost 24,813 23,709 Other 10,133 11,389 - ------------------------------------------------------------------------------- 232,745 226,238 - ------------------------------------------------------------------------------- NET PROPERTY, PLANT AND EQUIPMENT 2,332,240 2,351,453 - ------------------------------------------------------------------------------- INVESTMENTS AND OTHER ASSETS Excess cost of net assets acquired, less accumulated amortization of $145,710 and $133,135 1,941,127 1,956,701 Other 391,057 401,063 - ------------------------------------------------------------------------------- 2,332,184 2,357,764 - ------------------------------------------------------------------------------- $4,897,169 4,935,455 =============================================================================== LIABILITIES AND EQUITY - ---------------------- CURRENT LIABILITIES Current maturities of long-term debt $ 54,611 53,010 Accounts payable 84,559 87,627 Accrued expenses and other liabilities Salaries and benefits 40,612 36,900 Taxes 75,805 33,411 Interest 22,856 36,926 Other 22,828 24,249 Advance billings and customer deposits 33,651 32,721 - ------------------------------------------------------------------------------- 334,922 304,844 - ------------------------------------------------------------------------------- LONG-TERM DEBT 2,426,028 2,558,000 - ------------------------------------------------------------------------------- DEFERRED CREDITS AND OTHER LIABILITIES 539,798 541,129 - ------------------------------------------------------------------------------- STOCKHOLDERS' EQUITY Common stock, $1.00 par value, authorized 175,000,000 shares, issued and outstanding 139,272,323 and 138,082,926 shares 139,272 138,083 Paid-in capital 464,722 451,535 Accumulated other comprehensive income - unrealized holding gain on investments, net of taxes 2,557 7,217 Retained earnings 987,394 932,611 Unearned ESOP shares (5,630) (6,070) Preferred stock - non-redeemable 8,106 8,106 - ------------------------------------------------------------------------------- 1,596,421 1,531,482 - ------------------------------------------------------------------------------- $4,897,169 4,935,455 =============================================================================== See accompanying notes to consolidated financial statements.
CENTURYTEL, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
Three months ended March 31, - ------------------------------------------------------------------------------ 1999 1998 - ------------------------------------------------------------------------------ (Dollars in thousands) COMMON STOCK Balance at beginning of period $ 138,083* 91,104 Conversion of convertible securities into common stock 254 169 Issuance of common stock through dividend reinvestment, incentive and benefit plans 935 247 Issuance of common stock for acquisition - 28 - ------------------------------------------------------------------------------ Balance at end of period 139,272 91,548 - ------------------------------------------------------------------------------ PAID-IN CAPITAL Balance at beginning of period 451,535* 469,586 Conversion of convertible securities into common stock 3,046 3,131 Issuance of common stock through dividend reinvestment, incentive and benefit plans 9,688 4,125 Issuance of common stock for acquisition - 1,059 Amortization of unearned compensation and other 453 472 - ------------------------------------------------------------------------------- Balance at end of period 464,722 478,373 - ------------------------------------------------------------------------------- ACCUMULATED OTHER COMPREHENSIVE INCOME Balance at beginning of period 7,217 11,893 Change in unrealized holding gain on investments, net of reclassification adjustment (4,660) (5,815) - ------------------------------------------------------------------------------- Balance at end of period 2,557 6,078 - ------------------------------------------------------------------------------- RETAINED EARNINGS Balance at beginning of period 932,611 728,033 Net income 61,105 57,694 Cash dividends declared Common stock-$.045 and $.043 per share, respectively* (6,220) (5,911) Preferred stock (102) (102) - ------------------------------------------------------------------------------- Balance at end of period 987,394 779,714 - ------------------------------------------------------------------------------- UNEARNED ESOP SHARES Balance at beginning of period (6,070) (8,450) Release of ESOP shares 440 440 - ------------------------------------------------------------------------------- Balance at end of period (5,630) (8,010) - ------------------------------------------------------------------------------- PREFERRED STOCK - NON-REDEEMABLE Balance at beginning and end of period 8,106 8,106 - ------------------------------------------------------------------------------- TOTAL STOCKHOLDERS' EQUITY $1,596,421 1,355,809 =============================================================================== * Reflects March 1999 stock split. See Note 4. See accompanying notes to consolidated financial statements.
CENTURYTEL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three months ended March 31, - ------------------------------------------------------------------------------- 1999 1998 - ------------------------------------------------------------------------------- (Dollars in thousands) OPERATING ACTIVITIES Net income $ 61,105 57,694 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 89,981 79,194 Gain on sale or exchange of assets (10,358) (24,343) Deferred income taxes 2,516 26,599 Income from unconsolidated cellular entities (6,845) (6,877) Minority interest 3,310 2,643 Changes in current assets and current liabilities: Accounts receivable (8,316) 45,234 Accounts payable (3,068) (10,627) Other accrued taxes 42,394 (29,614) Other current assets and other current liabilities, net (10,697) 3,316 Increase in other noncurrent liabilities 860 7,660 Other, net (1,290) (4,021) - ------------------------------------------------------------------------------- Net cash provided by operating activities 159,592 146,858 - ------------------------------------------------------------------------------- INVESTING ACTIVITIES Payments for property, plant and equipment (63,001) (58,202) Acquisitions, net of cash acquired - (5,000) Proceeds from sale of assets 20,056 10,177 Purchase of life insurance investment (1,561) (7,180) Other, net 5,409 6,446 - ------------------------------------------------------------------------------- Net cash used in investing activities (39,097) (53,759) - ------------------------------------------------------------------------------- FINANCING ACTIVITIES Proceeds from issuance of long-term debt 7,779 783,000 Payments of long-term debt (134,269) (838,582) Payment upon settlement of hedge contracts - (40,237) Payment of deferred debt issuance costs - (6,625) Proceeds from issuance of common stock 10,434 4,374 Cash dividends (6,322) (6,013) Other, net 226 271 - ------------------------------------------------------------------------------- Net cash used in financing activities (122,152) (103,812) - ------------------------------------------------------------------------------ Net decrease in cash and cash equivalents (1,657) (10,713) Cash and cash equivalents at beginning of period 5,742 26,017 - ------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 4,085 15,304 =============================================================================== Supplemental cash flow information: Income taxes paid $ 2,947 47,313 =============================================================================== Interest paid $ 56,311 36,240 =============================================================================== See accompanying notes to consolidated financial statements.
CENTURYTEL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1999 (UNAUDITED) (1) Basis of Financial Reporting The consolidated financial statements of CenturyTel, Inc. and its subsidiaries (the "Company") include the accounts of CenturyTel, Inc. ("CenturyTel") and its majority-owned subsidiaries and partnerships. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to rules and regulations of the Securities and Exchange Commission; however, the Company believes the disclosures which are made are adequate to make the information presented not misleading. The consolidated financial statements and footnotes included in this Form 10-Q should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 1998. The unaudited financial information for the three months ended March 31, 1999 and 1998 has not been audited by independent certified public accountants; however, in the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the results of operations for the three-month periods have been included therein. The results of operations for the first three months of the year are not necessarily indicative of the results of operations which might be expected for the entire year. (2) Net Property, Plant and Equipment Net property, plant and equipment is composed of the following:
March 31, Dec. 31, 1999 1998 - ---------------------------------------------------------------------------- (Dollars in thousands) Telephone, at original cost $ 3,692,537 3,660,252 Accumulated depreciation (1,718,912) (1,661,315) - ----------------------------------------------------------------------------- 1,973,625 1,998,937 - ----------------------------------------------------------------------------- Cellular, at cost 435,379 428,984 Accumulated depreciation ( 190,769) (178,569) - ----------------------------------------------------------------------------- 244,610 250,415 - ----------------------------------------------------------------------------- Corporate and other, at cost 214,724 200,422 Accumulated depreciation (100,719) (98,321) - ----------------------------------------------------------------------------- 114,005 102,101 - ----------------------------------------------------------------------------- $ 2,332,240 2,351,453 - -----------------------------------------------------------------------------
(3) Earnings from Unconsolidated Cellular Entities The following summarizes the unaudited combined results of operations of the cellular entities in which the Company's investments (as of March 31, 1999 and 1998) were accounted for by the equity method. Three months ended March 31, - ---------------------------------------------------------------------------- 1999 1998 - ---------------------------------------------------------------------------- (Dollars in thousands) Results of operations Revenues $ 328,540 323,584 Operating income $ 108,541 101,346 Net income $ 108,394 96,449 - ---------------------------------------------------------------------------- (4) Stock Split On February 23, 1999, the Company's Board of Directors declared a three-for-two common stock split effected as a 50% stock dividend distributed on March 31, 1999. Shares outstanding and per share data for the three months ended March 31, 1998 have been restated to reflect this stock split. (5) Sale or Exchange of Asset In the first quarter of 1999 the Company recorded a pre-tax gain aggregating $10.4 million ($6.7 million after-tax; $.04 per diluted share) due to the sale of its remaining common shares of MCIWorldCom, Inc. (6) Business Segments The Company has two separately reportable business segments: telephone and cellular. The operating income of these segments is reviewed by the chief operating decision maker to assess performance and make business decisions.
Three months ended March 31, - --------------------------------------------------------------------------- 1999 1998 - --------------------------------------------------------------------------- Operating revenues Telephone segment $ 292,961 259,813 Cellular segment 98,471 94,166 Other operations 22,824 17,741 - --------------------------------------------------------------------------- $ 414,256 371,720 =========================================================================== Operating income Telephone segment $ 95,298 76,843 Cellular segment 30,383 29,655 Other operations 4,942 3,634 - --------------------------------------------------------------------------- $ 130,623 110,132 =========================================================================== Operating income $ 130,623 110,132 Interest expense (42,241) (42,809) Gain on sale or exchange of assets 10,358 24,343 Income from unconsolidated cellular entities 6,845 6,877 Minority interest (3,310) (2,643) Other income and expense 2,180 604 - --------------------------------------------------------------------------- Income before income tax expense $ 104,455 96,504 ===========================================================================
CENTURYTEL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") included herein should be read in conjunction with MD&A and the other information included in the Company's annual report on Form 10-K for the year ended December 31, 1998. The results of operations for the three months ended March 31, 1999 are not necessarily indicative of the results of operations which might be expected for the entire year. CenturyTel and its subsidiaries (the "Company") is a regional diversified communications company that is primarily engaged in providing local telephone services and cellular telephone communications services. At March 31, 1999, the Company's local exchange telephone subsidiaries operated over 1.3 million telephone access lines primarily in rural, suburban and small urban areas in 21 states, and the Company's majority-owned and operated cellular entities had more than 638,000 cellular subscribers. On December 1, 1998, the Company acquired from affiliates of Ameritech Corporation ("Ameritech") telephone operations serving 86,000 access lines in northern and central Wisconsin and the related telephone directories for approximately $221 million cash. The operations of the former Ameritech properties are included in the Company's results of operations beginning December 1, 1998. In addition to historical information, management's discussion and analysis includes certain forward-looking statements regarding events and financial trends that may affect the Company's future operating results and financial position. Such forward-looking statements are subject to uncertainties that could cause the Company's actual results to differ materially from such statements. Such uncertainties include but are not limited to: the effects of ongoing deregulation in the telecommunications industry; the effects of greater than anticipated competition in the Company's markets; possible changes in the demand for the Company's products and services; the Company's ability to successfully introduce new offerings on a timely and cost-effective basis; the risks inherent in rapid technological change; the Company's ability to effectively manage its growth, including integrating newly-acquired properties into the Company's operations; the success and expense of the remediation efforts of the Company and its vendors in achieving year 2000 compliance; and the effects of more general factors such as changes in general market or economic conditions or in legislation, regulation or public policy. These and other uncertainties related to the business are described in greater detail in Item 1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to update any of its forward-looking statements for any reason. RESULTS OF OPERATIONS Three Months Ended March 31, 1999 Compared to Three Months Ended March 31, 1998 Net income (excluding after-tax gain on sale or exchange of assets) for the first quarter of 1999 was $54.4 million compared to $41.9 million during the first quarter of 1998. Diluted earnings per share (excluding after-tax gain on sale or exchange of assets) increased to $.39 during the three months ended March 31, 1999 from $.30 during the three months ended March 31, 1998, a 30.0% increase.
Three months ended March 31, - ------------------------------------------------------------------------------ 1999 1998 - ------------------------------------------------------------------------------ (Dollars, except per share amounts, and shares in thousands) Operating income Telephone $ 95,298 76,843 Cellular 30,383 29,655 Other 4,942 3,634 - ------------------------------------------------------------------------------ 130,623 110,132 Interest expense (42,241) (42,809) Gain on sale or exchange of assets 10,358 24,343 Income from unconsolidated cellular entities 6,845 6,877 Minority interest (3,310) (2,643) Other income and expense 2,180 604 Income tax expense (43,350) (38,810) - ------------------------------------------------------------------------------ Net income $ 61,105 57,694 ============================================================================== Basic earnings per share $ .44 .42 ============================================================================== Diluted earnings per share $ .43 .41 ============================================================================== Average basic shares outstanding 138,086 136,442 ============================================================================== Average diluted shares outstanding 141,028 139,376 ==============================================================================
Contributions to operating revenues and operating income by the Company's telephone, cellular, and other operations for the three months ended March 31, 1999 and 1998 were as follows:
Three months ended March 31, - ----------------------------------------------------------------------------- 1999 1998 - ----------------------------------------------------------------------------- Operating revenues Telephone operations 70.7 % 69.9 Cellular operations 23.8 % 25.3 Other operations 5.5 % 4.8 Operating income Telephone operations 72.9 % 69.8 Cellular operations 23.3 % 26.9 Other operations 3.8 % 3.3 - -----------------------------------------------------------------------------
Telephone Operations
Three months ended March 31, - ----------------------------------------------------------------------------- 1999 1998 - ----------------------------------------------------------------------------- (Dollars in thousands) Operating revenues Local service $ 90,657 78,126 Network access 167,155 151,178 Other 35,149 30,509 - ----------------------------------------------------------------------------- 292,961 259,813 - ----------------------------------------------------------------------------- Operating expenses Plant operations 67,022 56,659 Customer operations 21,894 22,816 Corporate and other 36,919 39,783 Depreciation and amortization 71,828 63,712 - ----------------------------------------------------------------------------- 197,663 182,970 - ----------------------------------------------------------------------------- Operating income $ 95,298 76,843 =============================================================================
Telephone operating income increased $18.5 million (24.0%) due to an increase in operating revenues of $33.1 million (12.8%) which more than offset an increase in operating expenses of $14.7 million (8.0%). Of the $33.1 million increase in operating revenues, $11.2 million was attributable to the properties acquired from Ameritech. The remaining $21.9 million increase in revenues was partially due to a $4.6 million increase which resulted from internal growth in number of customer access lines; a $3.9 million increase in the partial recovery of increased operating expenses through revenue sharing arrangements in which the Company participates with other telephone companies; a $3.4 million increase due to increased minutes of use; a $2.3 million increase resulting from favorable prior period revenue settlements; a $2.2 million increase in amounts received from the federal Universal Service Fund; and a $1.8 million increase from the provision of Internet access. Plant operations expenses increased $10.4 million (18.3%), of which $2.1 million was attributable to the properties acquired from Ameritech. The remaining $8.3 million increase was primarily due to a $4.5 million increase in repair and maintenance expenses; a $2.4 million increase in network operations expenses; and a $922,000 increase in expenses associated with the Company's Internet business. During the first quarter of 1999 customer operations expenses decreased $922,000 (4.0%) primarily due to a $1.4 million decrease is salaries and benefits partially offset by a $724,000 increase attributable to the properties acquired from Ameritech. Corporate and other expenses decreased $2.9 million (7.2%) primarily due to a $2.7 million decrease in salaries and benefits and a $878,000 decrease in certain operating taxes. Such decreases were partially offset by a $1.2 million increase attributable to the properties acquired from Ameritech. Depreciation and amortization increased $8.1 million, of which $3.9 million was attributable to the properties acquired from Ameritech. The remainder of the increase was primarily due to higher levels of plant in service ($2.0 million) and higher recurring rates or nonrecurring depreciation charges which have been approved or are anticipated to be approved for certain subsidiaries ($1.9 million). Cellular Operations and Income From Unconsolidated Cellular Entities
Three months ended March 31, - ---------------------------------------------------------------------------- 1999 1998 - ---------------------------------------------------------------------------- (Dollars in thousands) Operating income - cellular operations $ 30,383 29,655 Minority interest (3,329) (2,643) Income from unconsolidated cellular entities 6,845 6,877 - ---------------------------------------------------------------------------- $ 33,899 33,889 ============================================================================
The Company's cellular operations (discussed below) reflect 100% of the results of operations of the cellular entities in which the Company has a majority ownership interest. The minority interest owners' share of the income of such entities is reflected in the Company's Consolidated Statements of Income as an expense in "Minority interest." See Minority Interest for additional information. The Company's share of earnings from the cellular entities in which it has less than a majority interest is accounted for using the equity method and is reflected in the Company's Consolidated Statements of Income as "Income from unconsolidated cellular entities." Cellular Operations
Three months ended March 31, - ------------------------------------------------------------------------------ 1999 1998 (Dollars in thousands) - ------------------------------------------------------------------------------ Operating revenues Service revenues $ 95,976 92,098 Equipment sales 2,495 2,068 - ----------------------------------------------------------------------------- 98,471 94,166 - ----------------------------------------------------------------------------- Operating expenses Cost of equipment sold 4,381 3,696 System operations 13,303 14,252 General, administrative and customer service 19,160 18,381 Sales and marketing 14,013 13,642 Depreciation and amortization 17,231 14,540 - ----------------------------------------------------------------------------- 68,088 64,511 - ----------------------------------------------------------------------------- Operating income $ 30,383 29,655 =============================================================================
Cellular operating income increased $728,000 (2.5%) to $30.4 million in the first quarter of 1999 from $29.7 million in the first quarter of 1998. Cellular operating revenues increased $4.3 million (4.6%) while operating expenses increased $3.6 million (5.5%). The $3.9 million increase in service revenues was primarily due to increased roaming usage. The following table illustrates the growth in the Company's cellular customer base in its majority-owned markets:
Three months ended March 31, - --------------------------------------------------------------------------- 1999 1998 - --------------------------------------------------------------------------- Customers at beginning of period 624,119 569,983 Gross units added internally 52,982 48,676 Disconnects 38,109 42,262 Net units added 14,873 6,414 Customers at end of period 638,992 576,397 ===========================================================================
The average monthly cellular service revenue per customer declined to $51 during the first quarter of 1999 from $54 during the first quarter of 1998 partially due to the continued trend that a higher percentage of new subscribers tend to be lower usage customers and pricing/promotional rate reductions. The average monthly service revenue per customer may further decline (i) as market penetration increases and additional lower usage customers are activated and (ii) as competitive pressures from current and future wireless communications providers intensify. The Company is responding to such competitive pressures by, among other things, modifying certain of its price plans and implementing certain other plans and promotions, all of which are likely to result in lower average revenue per customer. The Company will continue to focus on customer service and attempt to stimulate cellular usage by promoting the availability of certain enhanced services and by improving the quality of its service through the construction of additional cell sites and other enhancements to its system. System operations expenses decreased $949,000 (6.7%) primarily due to a $1.6 million decrease in the net amounts paid to other carriers for cellular service provided to the Company's customers who roam in the other carriers' service areas primarily due to a decrease in rates. Such decrease was partially offset by a $830,000 increase associated with operating a greater number of cell sites. General, administrative and customer service expenses increased $779,000 (4.2%) due to a $2.9 million increase in general office expenses partially offset by a $2.4 million decrease in the provision for doubtful accounts. The Company's average monthly churn rate (the percentage of cellular customers that terminate service) was 2.00% for the first quarter of 1999 and 2.46% for the first quarter of 1998. Sales and marketing expenses increased $371,000 (2.7%) primarily due to a $1.2 million increase in advertising and sales promotions expenses and a $630,000 increase in costs incurred in selling products and services in retail locations. Such increases were substantially offset by a $1.4 million decrease in commissions paid to agents for selling services to new customers primarily as a result of fewer cellular units being added through this distribution channel during 1999 as compared to 1998. Depreciation and amortization increased $2.7 million (18.5%), of which $1.5 million was due to a higher level of plant in service and $1.2 million was due to an increase in amortization of intangibles. Other Operations
Three months ended March 31, - ---------------------------------------------------------------------------- 1999 1998 - ---------------------------------------------------------------------------- (Dollars in thousands) Operating revenues Long distance $ 17,030 11,264 Call center 2,444 2,599 Other 3,350 3,878 - ---------------------------------------------------------------------------- 22,824 17,741 Operating expenses Cost of sales and operating expenses 16,960 13,165 Depreciation and amortization 922 942 - ---------------------------------------------------------------------------- 17,882 14,107 - ---------------------------------------------------------------------------- Operating income $4,942 3,634 ============================================================================
Other operations include the results of operations of subsidiaries of the Company which are not included in the telephone or cellular segments, including but not limited to the Company's nonregulated long distance and call center operations. The $5.8 million increase in long distance revenues was attributable to the growth in the number of customers. The number of long distance customers as of March 31, 1999 and 1998 was 241,900 and 180,800, respectively. Operating expenses increased $3.8 million primarily due to (i) an increase of $2.1 million in expenses of the Company's long distance operations due primarily to an increase in customers and (ii) a $1.1 million increase in expenses due to the expansion of the Company's security, personal communications services and fiber network businesses. Interest Expense Interest expense decreased $568,000 in the first quarter of 1999 compared to the first quarter of 1998 primarily due to a reduction in debt. Gain on Sale or Exchange of Assets In the first quarter of 1999, the Company recorded a pre-tax gain of approximately $10.4 million ($6.7 million after-tax; $.04 per diluted share) primarily due to the sale of its remaining common shares of MCIWorldCom, Inc. In the first quarter of 1998, the Company recorded a pre-tax gain of approximately $22.8 million ($14.8 million after-tax; $.11 per diluted share) upon the conversion of its investment in the common stock of Brooks Fiber Properties, Inc. into common stock of MCIWorldCom, Inc. Minority Interest Minority interest is the expense recorded by the Company to reflect the minority interest owners' share of the earnings or loss of the Company's majority-owned and operated cellular entities and majority-owned subsidiaries. Minority interest increased $667,000 due to the increased profitability of the Company's majority-owned and operated cellular entities. Income Tax Expense Income tax expense increased $4.5 million in the first quarter of 1999 compared to the first quarter of 1998 primarily due to an increase in income before taxes. The effective income tax rate was 41.5% and 40.2% in the three months ended March 31, 1999 and 1998, respectively. LIQUIDITY AND CAPITAL RESOURCES Excluding cash used for acquisitions, the Company relies on cash provided by operations to provide substantially all of its cash needs. The Company's operations have historically provided a stable source of cash flow which has helped the Company continue its long-term program of capital improvements. Net cash provided by operating activities was $159.6 million during the first three months of 1999 compared to $146.9 million during the first three months of 1998. The Company's accompanying consolidated statements of cash flows identify major differences between net income and net cash provided by operating activities for each of these periods. For additional information relating to the telephone operations, cellular operations, and other operations of the Company, see Results of Operations. Net cash used in investing activities was $39.1 million and $53.8 million for the three months ended March 31, 1999 and 1998, respectively. Payments for property, plant and equipment were $4.8 million more in the first quarter of 1999 than in the comparable period during 1998. Capital expenditures for the three months ended March 31, 1999 were $38.3 million for telephone, $7.2 million for cellular and $17.5 million for other operations. Proceeds from the sale of assets were $20.1 million and $10.2 million for the three months ended March 31, 1999 and 1998, respectively. Net cash used in financing activities was $122.2 million during the first three months of 1999 compared to $103.8 million during the first three months of 1998. Net payments of long-term debt were $70.9 million more during the first quarter of 1999 compared to the first quarter of 1998. During the first quarter of 1998, the Company issued an aggregate of $765 million of senior notes and debentures. The net proceeds of approximately $758 million were used to reduce the bank indebtedness incurred in connection with the acquisition of PTI. In addition, the Company paid approximately $40 million to settle numerous interest rate hedge contracts that had been entered into in anticipation of these debt issuances. Revised budgeted capital expenditures for 1999 total $215 million for telephone operations, $70 million for cellular operations and $60 million for corporate and other operations. As of March 31, 1999, Century's telephone subsidiaries had available for use $135.1 million of commitments for long-term financing from the Rural Utilities Service and the Company had $451.1 million of undrawn committed bank lines of credit. OTHER MATTERS Accounting for the Effects of Regulation The Company currently accounts for its regulated telephone operations in accordance with the provisions of Statement of Financial Accounting Standards No. 71 ("SFAS 71"), "Accounting for the Effects of Certain Types of Regulation." While the ongoing applicability of SFAS 71 to the Company's telephone operations is being monitored due to the changing regulatory, competitive and legislative environments, the Company believes that SFAS 71 still applies. However, it is possible that changes in regulation or legislation or anticipated changes in competition or in the demand for regulated services or products could result in the Company's telephone operations not being subject to SFAS 71 in the near future. In that event, implementation of Statement of Financial Accounting Standards No. 101 ("SFAS 101"), "Regulated Enterprises - Accounting for the Discontinuance of application of FASB Statement No. 71," would require the write-off of previously established regulatory assets and liabilities, along with an adjustment of certain accumulated depreciation accounts to reflect the difference between recorded depreciation and the amount of depreciation that would have been recorded had the Company's telephone operations not been subject to rate regulation. Such discontinuance of the application of SFAS 71 would result in a material, noncash charge against earnings which would be reported as an extraordinary item. While the effect of implementing SFAS 101 cannot be precisely estimated at this time, management believes that the noncash, after-tax, extraordinary charge would be between $350 million and $400 million. Year 2000 Readiness Disclosure The Year 2000 issue concerns the inability of computer systems and certain other equipment to properly recognize and process data that uses two digits rather than four to designate particular years. The Company has initiated a Year 2000 Project Plan ("the Plan") to assess whether its systems that process date sensitive information will perform satisfactorily leading up to and beyond January 1, 2000. The goal of the Plan is to correct, prior to January 1, 2000, any Year 2000-related problem with critical systems, the failure of which could have a material adverse effect on the Company's operations. The Plan includes steps to (i) identify each critical system element that requires date code remediation, (ii) establish a plan to remediate such systems, (iii) implement all required remediations and (iv) selectively test the remediated systems. Thus far, the identification phase has identified Year 2000 issues in the following critical Company-owned systems: (i) switching and transmission hardware and software used by the Company to route and deliver telephone calls; (ii) network support systems, including customer service systems and (iii) billing and collection systems used by the Company to invoice and process most of its customer payments. In addition, the Company (i) receives critical services from providers of utilities and other services to facilities that house employees and switching, transmission and other equipment and (ii) is dependent upon outside vendors for, among other things, the provision of critical network components and cellular billing services. The Company is also critically reliant upon the systems of other telecommunication carriers with which the Company's systems interconnect for the routing and delivery of telephone calls. The Company has also identified potential Year 2000-related liability with respect to telephone equipment manufactured by unaffiliated parties that the Company has sold or leased to its customers ("Customer Premises Equipment" or "CPE"). The identification and planning phases of the Plan are materially complete with respect to Company-owned systems, third party vendors and CPE customers, and are expected to be materially complete by mid-year 1999 with respect to other telecommunication carriers. Based on work completed under the Plan to date, the Company currently intends to take the following additional steps under its Plan with respect to Company-owned systems, third-party vendors, other telecommunications carriers, and CPE customers: o The Company generally plans to remediate Company-owned switching, transmission, billing and collection and other critical systems through the revision or replacement of current system components. Necessary changes to critical Company-owned systems are substantially complete and are expected to be finalized by mid-year 1999. The selective testing and verification of such changes are expected to be completed during 1999. Due to the large number of system components requiring remediation, the Company does not intend to test every remediated system but will rely upon the results of selective testing to determine the effectiveness of remediation efforts. o With respect to critical services provided by utilities and other third parties, the Company has contacted all such suppliers during 1998. Thus far, a majority of those suppliers who have responded have indicated that their systems and service delivery mechanisms are Year 2000 compliant or can be made so through currently available modifications. The Company plans to continue monitoring all third-party remediation efforts and to make contingency plans for the delivery of such services as necessary. o The Company has received certain assurances from industry trade data regarding the Year 2000 readiness of major telecommunications companies with which the Company's switching systems interconnect. In June 1999, the Company plans to make specific inquiries with these and other telecom- munication carriers to determine their compliance status, and expects to obtain information in response thereto during third quarter 1999, although there can be no assurance that carriers will supply this information. o Finally, the Company has obtained Year 2000 compliance information from CPE manufacturers and has provided and will continue to provide this information to the Company's business customers throughout 1999. The Company plans to work with CPE manufacturers to encourage the development of remedies for Year 2000 problems in such equipment and to continue working with its customers to identify Year 2000 problems in CPE. However, there can be no assurance that CPE manufacturers or customers will cooperate with the Company's efforts to address these problems. While the Company currently believes that it will be able to remediate and selectively test Company-owned systems in time to minimize any detrimental effect on its operations, there can be no assurance that such steps will be successful. Failure by the Company to timely and effectively remediate its systems, or the failure of critical vendors and suppliers and other telecommunications carriers to remediate affected systems, could have a material adverse impact on the Company's business, financial condition, results of operations and prospects. Because the impact of Year 2000 issues on the Company is materially dependent on the mitigation efforts of parties outside the Company's control, the Company cannot assess with certainty the magnitude of any such potential adverse impact. However, based upon risk assessment work conducted thus far, the Company believes that the most reasonably likely worst case scenario of the failure by the Company, its suppliers or other telecommunications carriers with which the Company interconnects to resolve Year 2000 issues would be an inability by the Company (i) to provide telecommunications services to the Company's customers, (ii) to route and deliver telephone calls originating from or terminating with other telecommunications carriers, (iii) to timely and accurately process service requests and (iv) to timely and accurately bill its customers. In addition to lost earnings, these failures could also result in loss of customers due to service interruptions and billing errors, substantial claims by customers and increased expenses associated with stabilizing operations and executing mitigation plans. Contingency planning to maintain and restore service in the event of natural disasters, power failures and systems-related problems is a routine part of the Company's operations. The Company believes that such contingency plans will assist the Company in responding to the failure by outside service providers to successfully address Year 2000 issues. In addition, the Company is currently identifying and considering various Year 2000-specific contingency plans, including identification of alternate vendors and service providers and manual alternatives to system operations. These Year 2000-specific contingency plans are expected to be materially completed mid-year 1999, but their review and development will continue throughout 1999. Although the total costs to implement the Plan cannot be precisely estimated, the Company incurred costs of $4.2 million during 1998 (none of which was related to hardware costs and other capital items) and $9.8 million during the first quarter of 1999 ($4.5 million of which was related to hardware costs and other capital items) and anticipates spending an aggregate of approximately $29.1 million during the remainder of 1999 (which includes $20.5 million of hardware costs and other capital items.) All costs will be expensed as incurred, except for hardware and other items that should be capitalized in accordance with generally accepted accounting principles. Some of the costs represent ongoing investment in systems upgrades, the timing of which is being accelerated in order to facilitate Year 2000 compliance. In some instances, such upgrades will position the Company to provide more and better-quality services to its customers than they currently receive. The Company expects to fund these costs with cash provided by operations. Cost estimates and statements of the Company's plans and expectations discussed above are forward-looking statements that are derived using numerous assumptions of future events, many of which are outside the Company's control, including the availability and future cost of trained personnel and various other resources, third party modification plans, the absence of systems requiring remediation that have not yet been discovered, and other factors. CENTURYTEL, INC. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market Risk The Company is not exposed to material future earnings or cash flow exposures from changes in interest rates on long-term debt obligations since the majority of the Company's long-term debt obligations are fixed rate. At March 31, 1999, the fair value of the Company's long-term debt was estimated to be $2.6 billion based on the overall weighted average rate of the Company's long-term debt of 6.6% and an overall weighted maturity of 14 years compared to terms and rates currently available in long-term financing markets. Market risk is estimated as the potential decrease in fair value of the Company's long-term debt resulting from a hypothetical increase of 66 basis points in interest rates (ten percent of the Company's overall weighted average borrowing rate). Such an increase in interest rates would result in approximately a $108.2 million decrease in fair value of the Company's long-term debt. The Company is currently not evaluating the future use of any derivative financial instruments. PART II. OTHER INFORMATION CENTURYTEL, INC. Item 6: Exhibits and Reports on Form 8-K -------------------------------- A. Exhibits -------- 11 Computations of Earnings Per Share. 27 Financial Data Schedule as of and for the three months ended March 31, 1999. B. Reports on Form 8-K ------------------- (i) The following item was reported in the Form 8-K filed February 26, 1999: Item 5. Other Events - News release announcing the sale of the operations of the Brownsville and McAllen, Texas wireless markets to Western Wireless Corporation. (ii) The following item was reported in the Form 8-K filed February 26, 1999: Item 5. Other Events - News release announcing fourth quarter results of operations. (iii) The following item was reported in the Form 8-K filed April 30, 1999: Item 5. Other Events - News release announcing first quarter results of operations. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CENTURYTEL, INC. Date: May 14, 1999 /s/ R. Stewart Ewing, Jr. _________________________ R. Stewart Ewing, Jr. Chief Financial Officer and Principal Accounting Officer EX-11 2 EXHIBIT 11 CENTURYTEL, INC. COMPUTATIONS OF EARNINGS PER SHARE (UNAUDITED)
Three months ended March 31, - ------------------------------------------------------------------------------ 1999 1998 - ------------------------------------------------------------------------------ (Dollars, except per share amounts, and shares in thousands) Income (Numerator): Net income $ 61,105 57,694 Dividends applicable to preferred stock (102) (102) - ----------------------------------------------------------------------------- Net income applicable to common stock 61,003 57,592 Dividends applicable to preferred stock 102 102 Interest on convertible securities, net of taxes 63 93 - ----------------------------------------------------------------------------- Net income as adjusted for purposes of computing diluted earnings per share $ 61,168 57,787 ============================================================================= Shares (Denominator)*: Weighted average number of shares: Outstanding during period 138,594 137,043 Employee Stock Ownership Plan shares not committed to be released (508) (601) - ----------------------------------------------------------------------------- Number of shares for computing basic earnings per share 138,086 136,442 Incremental common shares attributable to dilutive securities: Conversion of convertible securities 1,019 1,273 Shares issuable under stock option plan 1,923 1,661 - ----------------------------------------------------------------------------- Number of shares as adjusted for purposes of computing diluted earnings per share 141,028 139,376 ============================================================================= Basic earnings per share* $ .44 .42 ============================================================================= Diluted earnings per share* $ .43 .41 ============================================================================= * Reflects March 1999 stock split. See Note 4
EX-27 3 FDS
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE UNAUDITED CONSOLIDATED BALANCE SHEET OF CENTURYTEL, INC. AND SUBSIDIARIES AS OF MARCH 31, 1999 AND THE RELATED UNAUDITED CONSOLIDATED STATEMENT OF INCOME FOR THE THREE MONTH PERIOD THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 4,085 0 198,014 4,300 24,813 232,745 4,342,640 2,010,400 4,897,169 334,922 2,426,028 0 8,106 139,272 1,449,043 4,897,169 0 414,256 0 283,633 0 0 42,241 104,455 43,350 61,105 0 0 0 61,105 .44 .43 REFLECTS MARCH 1999 STOCK SPLIT. FINANCIAL DATA SCHEDULES FOR PRIOR PERIODS HAVE NOT BEEN RESTATED TO REFLECT SUCH STOCK SPLIT.
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