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 June 30, 1994
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number: 1-7784
CENTURY TELEPHONE ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
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) 388-9500
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 July 31, 1994, there were 53,389,924 shares of common stock
outstanding.
<PAGE>
CENTURY TELEPHONE ENTERPRISES, INC.
TABLE OF CONTENTS
Page No.
________
Part I. Financial Information:
Consolidated Statements of Income--Three Months and
Six Months Ended June 30, 1994 and 1993. . . . . . . . . . . . . . . 3
Consolidated Balance Sheets--June 30, 1994 and
December 31, 1993. . . . . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Stockholders' Equity--
Six Months Ended June 30, 1994 and 1993. . . . . . . . . . . . . . . 5
Consolidated Statements of Cash Flows--
Six Months Ended June 30, 1994 and 1993. . . . . . . . . . . . . . . 6
Notes to Consolidated Financial Statements. . . . . . . . . . . . . . 7-9
Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . . . . . . .10-19
Part II. Other Information . . . . . . . . . . . . . . . . . . . . . . . 20
Signature. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Index to Exhibits. . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2
<PAGE>
PART I. FINANCIAL INFORMATION
CENTURY TELEPHONE ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three months Six months
ended June 30 ended June 30
----------------- -----------------
1994 1993 1994 1993
----------------- -----------------
(expressed in thousands,
except per share amounts)
<S> <C> <C> <C> <C>
REVENUES
Telephone $ 94,969 86,875 186,739 165,826
Mobile Communications 37,911 20,463 67,121 38,337
-------- ------- ------- -------
Total revenues 132,880 107,338 253,860 204,163
-------- ------- ------- -------
EXPENSES
Cost of sales and operating
expenses 68,233 56,947 131,894 108,303
Depreciation and
amortization 22,934 19,048 44,367 36,250
-------- ------- ------- -------
Total expenses 91,167 75,995 176,261 144,553
-------- ------- ------- -------
OPERATING INCOME 41,713 31,343 77,599 59,610
-------- ------- ------- -------
OTHER INCOME (EXPENSE)
Interest expense (10,824) (7,467) (19,326) (14,379)
Gain on sale of asset - - - 1,661
Earnings from unconsolidated
cellular partnerships 3,411 1,970 5,975 2,342
Other income and expense (62) 257 129 1,204
-------- ------- ------- -------
Total other income
(expense) (7,475) (5,240) (13,222) (9,172)
-------- ------- ------- -------
INCOME BEFORE INCOME TAXES 34,238 26,103 64,377 50,438
INCOME TAXES 12,753 9,586 23,691 18,181
-------- ------- ------- -------
NET INCOME $ 21,485 16,517 40,686 32,257
======== ======= ======= =======
PRIMARY EARNINGS PER SHARE $ .40 .32 .76 .64
======== ======= ======= =======
FULLY DILUTED EARNINGS PER
SHARE $ .39 .32 .74 .63
======== ======= ======= =======
DIVIDENDS PER COMMON SHARE $ .0800 .0775 .1600 .1550
======== ======= ======= =======
See accompanying notes to consolidated financial statements.
</TABLE>
3
<PAGE>
CENTURY TELEPHONE ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1994 1993
- - ------ ------------ ------------
(expressed in thousands)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 24,654 9,777
Accounts receivable
Customers, less allowance for doubtful
accounts of $2,524,000 and $1,473,000 37,272 34,438
Other 21,293 21,771
Materials and supplies, at cost 4,729 4,418
Other 1,344 2,068
---------- ----------
89,292 72,472
---------- ----------
NET PROPERTY, PLANT AND EQUIPMENT 890,560 827,776
---------- ----------
INVESTMENTS AND OTHER ASSETS
Excess cost of net assets acquired 437,691 297,158
Other investments 111,127 98,142
Note receivable 25,000 -
Deferred charges 26,058 23,842
---------- ----------
599,876 419,142
---------- ----------
$1,579,728 1,319,390
========== ==========
LIABILITIES AND EQUITY
- - ----------------------
CURRENT LIABILITIES
Current maturities of long-term debt $ 15,575 14,233
Notes payable to banks 91,200 69,200
Accounts payable 44,513 49,506
Accrued expenses and other liabilities
Salaries and benefits 17,701 15,990
Taxes 16,816 9,327
Interest 8,198 6,476
Other 5,718 5,162
Advance billings and customer deposits 11,236 9,312
---------- ----------
210,957 179,206
---------- ----------
LONG-TERM DEBT 602,972 460,933
---------- ----------
DEFERRED CREDITS AND OTHER LIABILITIES 172,719 165,483
---------- ----------
STOCKHOLDERS' EQUITY
Common stock, $1.00 par value, authorized
100,000,000 shares, issued and outstanding
53,385,094 and 51,294,705 shares 53,385 51,295
Paid-in capital 314,608 262,294
Retained earnings 241,065 208,945
Employee Stock Ownership Plan commitment (18,280) (9,220)
Preferred stock - non-redeemable 2,302 454
---------- ----------
593,080 513,768
---------- ----------
$1,579,728 1,319,390
========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
4
<PAGE>
CENTURY TELEPHONE ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Six months
ended June 30
-------------------
1994 1993
-------------------
(expressed in thousands)
<S> <C> <C>
COMMON STOCK
Balance at beginning of period $ 51,295 48,897
Issuance of common stock for acquisitions 2,000 2,151
Issuance of common stock through dividend
reinvestment, stock purchase and incentive
plans 89 133
Conversion of preferred stock into common
stock 1 -
-------- --------
Balance at end of period 53,385 51,181
-------- --------
PAID-IN CAPITAL
Balance at beginning of period 262,294 191,522
Issuance of common stock for acquisitions 50,311 66,407
Issuance of common stock through dividend
reinvestment, stock purchase and incentive
plans 1,593 1,750
Conversion of preferred stock into common
stock 26 -
Amortization of unearned compensation 384 290
-------- --------
Balance at end of period 314,608 259,969
-------- --------
RETAINED EARNINGS
Balance at beginning of period 208,945 155,676
Net income 40,686 32,257
Cash dividends declared
Common stock-$.1600 and $.1550 per share,
respectively (8,527) (7,759)
Preferred stock (39) (16)
-------- --------
Balance at end of period 241,065 180,158
-------- --------
ESOP COMMITMENT
Balance at beginning of period (9,220) (11,100)
Commitment to ESOP (10,000) -
Reduction of ESOP commitment 940 940
-------- --------
Balance at end of period (18,280) (10,160)
-------- --------
PREFERRED STOCK - NON-REDEEMABLE
Balance at beginning of period 454 454
Issuance of preferred stock for acquisition 1,875 -
Conversion of preferred stock into common
stock (27) -
-------- --------
Balance at end of period 2,302 454
-------- --------
TOTAL STOCKHOLDERS' EQUITY $593,080 481,602
======== ========
See accompanying notes to consolidated financial statements.
</TABLE>
5
<PAGE>
CENTURY TELEPHONE ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six months
ended June 30
------------------
1994 1993
------------------
(expressed in thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 40,686 32,257
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 49,476 41,032
Deferred income taxes (3,059) (2,878)
Equity in earnings of unconsolidated
cellular partnerships (6,568) (2,341)
Gain on sale of asset - (1,661)
Changes in current assets and current
liabilities:
Decrease in accounts receivable 2,658 4,354
Decrease in accounts payable (10,157) (1,459)
Changes in other current assets and other
current liabilities, net 12,642 1,700
Other, net 4,810 4,128
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 90,488 75,132
-------- --------
INVESTING ACTIVITIES
Payments for property, plant and equipment (90,426) (81,689)
Acquisitions, net of cash acquired (54,847) (34,171)
Purchase of life insurance investment (7,094) (7,105)
Note receivable (25,000) -
Other, net 1,464 382
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (175,903) (122,583)
-------- --------
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt 147,547 55,611
Payments of long-term debt (62,551) (25,474)
Notes payable, net 22,000 29,500
Proceeds from issuance of common stock 1,682 1,883
Cash dividends paid (8,566) (7,775)
Other, net 180 1,094
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 100,292 54,839
-------- --------
Net increase in cash and cash equivalents 14,877 7,388
Cash and cash equivalents at beginning
of period 9,777 9,771
-------- --------
Cash and cash equivalents at end of period $ 24,654 17,159
======== ========
Supplemental cash flow information:
Income taxes paid $ 17,257 19,169
======== ========
Interest paid $ 17,604 13,945
======== ========
See accompanying notes to consolidated financial statements.
</TABLE>
6
<PAGE>
CENTURY TELEPHONE ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1994
(UNAUDITED)
(1) Basis of Financial Reporting
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 financial statements and
footnotes included in this Form 10-Q should be read in conjunction with
the financial statements and notes thereto included in the Company's
annual report on Form 10-K for the year ended December 31, 1993.
Certain 1993 amounts have been reclassified to be consistent with
the 1994 presentation.
The unaudited financial information for the three months and six
months ended June 30, 1994 and 1993 has not been audited by independent
public accountants; however, in the opinion of management, all adjust-
ments (which include only normal recurring adjustments) necessary to
present fairly the results of operations for the three-month and
six-month periods have been included therein. The results of opera-
tions for the first six months of the year are not necessarily
indicative of the results of operations which might be expected for
the entire year.
(2) Accounting Pronouncement
In the first quarter of 1994 the Company adopted Statement of
Financial Accounting Standards No. 112 ("SFAS 112"), "Employers'
Accounting for Postemployment Benefits". SFAS 112 requires the
adoption of accrual accounting for workers compensation, disability
and other benefits provided after employment but before retirement
by requiring accrual of the expected cost when it is probable that
a benefit obligation has been incurred and the amount can be reasonably
estimated. Liabilities for postemployment benefits in the
consolidated balance sheet as of December 31, 1993 were not materially
different than those required by SFAS 112; therefore, no cumulative
effect of change in accounting principle was recorded upon adoption
of SFAS 112.
(3) Net Property, Plant and Equipment
Net property, plant and equipment is composed of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
----------- -------------
(expressed in thousands)
<S> <C> <C>
Telephone, at original cost $1,029,212 979,449
Accumulated depreciation (295,329) (288,479)
---------- ---------
733,883 690,970
---------- ---------
Mobile Communications, at cost 145,754 113,252
Accumulated depreciation (39,711) (27,736)
---------- ---------
106,043 85,516
---------- ---------
Other, at cost 80,548 77,737
Accumulated depreciation (29,914) (26,447)
---------- ---------
50,634 51,290
---------- ---------
$ 890,560 827,776
========== =========
</TABLE>
7
<PAGE>
(4) Long-Term Debt
On May 6, 1994, the Company completed the issuance of $50,000,000
of 10-year, 7.75% senior notes and $100,000,000 of 30-year, 8.25% senior
notes. The proceeds were used to reduce certain of the Company's short-
term bank indebtedness. Interest payments will be due semi-annually
beginning November 1, 1994 and principal payments are due in 2004 and
2024 upon maturity of the 10-year and 30-year notes, respectively.
The 30-year notes are subject to redemption at any time on or after
May 1, 2004 at the option of the Company.
(5) Sale of Asset
The Company sold a minority investment in a telephone company in
the first quarter of 1993 which resulted in a pre-tax gain of
$1,661,000 ($1,080,000 after-tax; $.02 per share).
(6) Acquisitions
On April 8, 1993, the Company consummated the acquisition of San
Marcos Telephone Company, Inc. ("SMTC") in a stock and cash transaction
and acquired SM Telecorp, Inc., an affiliate of SMTC, for cash.
Subsequent to the acquisitions, the Company changed the names of San
Marcos Telephone Company, Inc. and the principal operating subsidiary
of SM Telecorp, Inc. to Century Telephone of San Marcos, Inc. and
Century Telecommunications, Inc., respectively. The total acquisition
price for both companies approximated $100,000,000 (based on Century's
stock price on April 8, 1993). As a result of the acquisitions, which
were accounted for as purchases, the Company acquired approximately
22,500 telephone access lines in and around San Marcos, Texas, along
with a 35% ownership interest in the Austin, Texas Metropolitan
Statistical Area ("MSA") wireline cellular market and a 9.6% interest
in the Texas Rural Service Area ("RSA") #16 wireline cellular market,
together representing approximately 309,000 pops (the Company's pro
rata share of population of the licensed areas).
On February 10, 1994, the Company acquired Celutel, Inc.
("Celutel") in a stock and cash transaction. Approximately
$51,400,000 of the purchase price was paid in cash, with the
remainder paid through the issuance of approximately 1,900,000
shares of Century's common stock, the closing price of which was
$26.25 per share on February 10, 1994. In connection with the
acquisition, Century refinanced approximately $41,700,000 of
Celutel's debt. The acquisition was accounted for as a purchase and
approximately $140,000,000 of cost in excess of net assets acquired
was recorded as a result of the acquisition. Celutel currently provides
cellular service to approximately 31,700 customers in five non-wireline
provider systems in MSA's in Mississippi and Texas.
On March 31, 1994, the Company acquired a local exchange telephone
company in Michigan which currently serves approximately 2,500 access
lines and which owns a minority interest of approximately 11% in a
cellular partnership operated by the Company. The acquisition, which
was accounted for as a purchase, was consummated through the issuance
of approximately 98,000 shares of Century's common stock and 75,000
shares of Century's preferred stock. The closing price of Century's
common stock was $23.125 per share on March 31, 1994.
8
<PAGE>
(7) Expected Sale of Cellular Interest
In June 1994 the Company entered into a definitive agreement to
sell (subject to, among other things, Federal Communications Commission
approval) its ownership interest in a cellular RSA in Minnesota. The
sales price will be $21,500,000 and the Company expects to recognize a
gain of approximately $.16 per share upon future consummation of the
transaction.
(8) Note Receivable
In May 1994 Century loaned the parent company of a telephone company
$25,000,000. The loan bears interest at prime plus 1 1/2%; interest is
payable quarterly beginning in August 1994. Quarterly principal payments
are scheduled to begin in August 1995 with the unpaid balance becoming
due in May 1998. The Company received a security interest in the parent
company's capital stock, a guaranty from such company's principal
stockholder and certain first refusal rights to acquire certain
properties under various specified circumstances.
9
<PAGE>
CENTURY TELEPHONE ENTERPRISES, 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, 1993. The
results of operations for the three months and/or six months ended June
30, 1994 are not necessarily indicative of the results of operations
which might be expected for the entire year.
RESULTS OF OPERATIONS
Three Months Ended June 30, 1994 Compared
to Three Months Ended June 30, 1993
Net income for the second quarter of 1994 was $21,485,000 compared
to $16,517,000 during the second quarter of 1993. This increase was
primarily due to a $10,370,000 increase in operating income and a
$1,441,000 increase in earnings from unconsolidated cellular partner-
ships. These factors were partially offset by increases in interest
expense and income tax expense of $3,357,000 and $3,167,000,
respectively.
<TABLE>
<CAPTION>
Three months
ended June 30
---------------------
1994 1993
---------------------
(expressed in thousands,
except per share amounts)
<S> <C> <C>
Operating income
Telephone $33,896 28,015
Mobile Communications 7,817 3,328
-------- -------
41,713 31,343
Interest expense (10,824) (7,467)
Earnings from unconsolidated cellular
partnerships 3,411 1,970
Other income and expense (62) 257
Income taxes (12,753) (9,586)
-------- -------
Net income $21,485 16,517
======== =======
Fully diluted earnings per share $ .39 .32
======== =======
</TABLE>
Fully diluted earnings per share increased to $.39 for the three
months ended June 30, 1994 from $.32 for the three months ended June 30,
1993, a 21.9% increase. The average number of fully diluted shares
outstanding increased 4.0% as a result of shares issued for acquisitions
and through the Company's dividend reinvestment, stock purchase and
incentive plans. The dilutive effect during the second quarter of 1994
resulting from the February 1994 acquisition of Celutel, Inc.
("Celutel") was approximately two and one-half cents on fully diluted
earnings per share.
The mobile communications operating income reflects the operations
of the cellular partnerships in which the Company has a majority
interest. The minority interest partners' share of the income (or
loss) of such partnerships is reflected as an expense in other income
and expense. The Company's share of income (or loss) from the cellular
partnerships in which it has less than a majority interest is reflected
in earnings from unconsolidated cellular partnerships. The operating
income of the mobile communications segment during the second quarter
of 1994 includes the operations of Celutel.
10
<PAGE>
Contributions to revenues and operating income by the Company's
telephone operations and mobile communications operations for the three
months ended June 30, 1994 and 1993 were as follows:
<TABLE>
<CAPTION>
Three months
ended June 30
-------------------
1994 1993
-------------------
<S> <C> <C>
Revenues
Telephone operations 71.5% 80.9
Mobile Communications operations 28.5% 19.1
Operating income
Telephone operations 81.3% 89.4
Mobile Communications operations 18.7% 10.6
</TABLE>
Telephone Operations
<TABLE>
<CAPTION>
Three months
ended June 30
-------------------
1994 1993
-------------------
(expressed in thousands)
<S> <C> <C>
Revenues
Local $23,967 22,317
Network access and
long distance 60,018 53,419
Other 10,984 11,139
------- -------
94,969 86,875
------- -------
Expenses
Plant operations 20,377 21,010
Customer operations 8,356 7,955
Corporate and other 14,584 13,707
Depreciation and amortization 17,756 16,188
------- -------
61,073 58,860
------- -------
Operating income $33,896 28,015
======= =======
</TABLE>
Telephone operating income increased $5,881,000 (21.0%) due to an
increase in revenues of $8,094,000 (9.3%) which more than offset an
increase in operating expenses of $2,213,000 (3.8%).
The increase in revenues was primarily due to the partial recovery
of increased operating expenses through revenue pools in which the
Company participates with other telephone companies, increased recovery
from the Federal Communications Commission ("FCC") mandated Universal
Service Fund ("USF"), increased minutes of use, improved settlement
factors and growth in access lines. During the second quarter of 1994,
revenues from the USF increased approximately $2,300,000 over such
revenues during the second quarter of 1993. For additional information
relating to telephone revenues, see Six Months Ended June 30, 1994
Compared to Six Months Ended June 30, 1993 - Telephone Operations.
During the second quarter of 1994, the Company's liability for
long-term disability was substantially reduced as a result of the
death of a former executive officer. While operating expenses,
exclusive of depreciation and amortization, increased $645,000 (1.5%)
in the second quarter of 1994 compared to the second quarter of 1993,
such increase was net of a reduction of approximately $1,100,000 in
postemployment benefit expense.
11
<PAGE>
Depreciation and amortization increased $1,568,000 in the second
quarter of 1994 compared to the second quarter of 1993. The second
quarter of 1994 included depreciation recorded in anticipation of the
approval of increases, as of January 1, 1994, in depreciation rates
in certain jurisdictions. Higher levels of plant in service also
contributed to the increased depreciation.
Mobile Communications Operations
<TABLE>
<CAPTION>
Three months
ended June 30
--------------------
1994 1993
--------------------
(expressed in thousands)
<S> <C> <C>
Revenues
Cellular service $34,954 18,486
Equipment and paging 2,957 1,977
------- ------
37,911 20,463
------- ------
Expenses
Sales and marketing 8,294 4,043
General, administrative and customer
service 8,503 5,696
Cost of sales and other operating 8,119 4,536
Depreciation and amortization 5,178 2,860
------- ------
30,094 17,135
------- ------
Operating income $ 7,817 3,328
======= ======
</TABLE>
Mobile communications operating income increased $4,489,000 (134.9%)
to $7,817,000 in the second quarter of 1994 from $3,328,000 in the second
quarter of 1993. Mobile communications revenues increased $17,448,000
(85.3%) which more than offset an increase in operating expenses of
$12,959,000 (75.6%).
The increase in cellular service revenues was substantially due to
(i) an increase in the number of cellular units in service and (ii)
service revenues generated by Celutel which aggregated approximately
$6,900,000 during the second quarter of 1994. The average number of
cellular units in service in majority-owned markets during the second
quarter of 1994 and 1993 was 169,000 and 84,700, respectively. The
average monthly cellular service revenue per subscriber declined to
$69 during the second quarter of 1994 from $73 during the second
quarter of 1993, primarily due to the continued trend that a higher
percentage of recent subscribers tend to be lower-usage customers.
The average monthly service revenue per subscriber may further decline
as market penetration increases and additional lower-usage customers
are activated. The Company will continue to attempt to stimulate
cellular usage by promoting the availability of certain enhanced
services and by increasing coverage areas through the construction of
additional cell sites.
Sales and marketing expenses increased $4,251,000 due primarily
to an increase in commissions paid to agents for selling cellular
services to new customers and to the Celutel acquisition.
The increase of $2,807,000 in general, administrative and customer
service expenses was primarily due to costs incurred in connection with
the Celutel operations and increased costs associated with serving a
larger number of cellular customers.
12
<PAGE>
Cost of sales and other operating expenses increased $3,583,000
due to expenses incurred in connection with providing service to a
larger number of subscribers, the development and operation of the
Company's Rural Service Area ("RSA") cellular systems, and the Celutel
acquisition.
Depreciation and amortization increased $2,318,000 due to a
higher level of plant in service and to depreciation and amortization
associated with the Celutel acquisition.
Interest Expense
Interest expense increased $3,357,000 during the second quarter
of 1994 compared to the second quarter of 1993 due to a 42% increase
in average debt outstanding (primarily due to debt issued in connection
with the Celutel acquisition).
Earnings from Unconsolidated Cellular Partnerships
The increase of $1,441,000 in earnings from unconsolidated cellular
partnerships during the second quarter of 1994 compared to the second
quarter of 1993 is due to the improvement in profitability of cellular
partnerships in which the Company owns less than a majority interest.
Other Income and Expense
Other income and expense decreased $319,000 in the second quarter
of 1994 compared to the second quarter of 1993.
The increased profitability of the Company's majority-owned and
operated cellular partnerships resulted in a corresponding increase in
the expense recorded to reflect the minority interest partners' share
of the profits.
Other income and expense also includes the results of operations
of subsidiaries of the Company which are not included in telephone
operations or mobile communications operations including, but not
limited to, the Company's competitive access subsidiary and the
Company's non-regulated long distance operations. Although not
material to consolidated operations, the combined results of such
subsidiaries were less favorable during the second quarter of 1994
compared to the second quarter of 1993 primarily due to losses
incurred by recently-formed or recently-acquired subsidiaries.
Income Taxes
Income tax expense increased $3,167,000 during the second
quarter of 1994 compared to the second quarter of 1993 primarily due
to an increase in income before taxes.
13
<PAGE>
Six Months Ended June 30, 1994 Compared
to Six Months Ended June 30, 1993
Net income for the six months ended June 30, 1994 was $40,686,000
compared to $32,257,000 for the six months ended June 30, 1993. This
increase was primarily due to a $17,989,000 increase in operating
income and a $3,633,000 increase in earnings from unconsolidated
cellular partnerships. These factors were partially offset by
increases in interest expense and income tax expense of $4,947,000 and
$5,510,000, respectively, and by a decrease of $1,075,000 in other
income and expense. The first six months of 1993 included a $1,661,000
pre-tax gain on the sale of a minority investment in a telephone
company.
<TABLE>
<CAPTION>
Six months
ended June 30
------------------
1994 1993
------------------
(expressed in thousands,
except per share amounts)
<S> <C> <C>
Operating income
Telephone $64,786 53,815
Mobile Communications 12,813 5,795
------- -------
77,599 59,610
Interest expense (19,326) (14,379)
Gain on sale of asset - 1,661
Earnings from unconsolidated cellular
partnerships 5,975 2,342
Other income and expense 129 1,204
Income taxes (23,691) (18,181)
------- -------
Net income $40,686 32,257
======= =======
Fully diluted earnings per share $ .74 .63
======= =======
</TABLE>
Fully diluted earnings per share increased to $.74 for the six
months ended June 30, 1994 from $.63 for the six months ended June 30,
1993, a 17.5% increase. The average number of fully diluted shares
outstanding increased 4.7% as a result of shares issued for acquisitions
and through the Company's dividend reinvestment, stock purchase and
incentive plans.
The operating income of the telephone segment during the six months
ended June 30, 1993 includes three months of operations of Century
Telephone of San Marcos, Inc. ("San Marcos") which was acquired in April
1993.
The mobile communications operating income reflects the operations
of the cellular partnerships in which the Company has a majority
interest. The minority interest partners' share of the income (or loss)
of such partnerships is reflected as an expense in other income and
expense. The Company's share of income (or loss) from the cellular
partnerships in which it has less than a majority interest is reflected
in earnings from unconsolidated cellular partnerships. The operating
income of the mobile communications segment during the six months ended
June 30, 1994 includes the operations of Celutel since its acquisition
on February 10, 1994.
14
<PAGE>
Contributions to revenues and operating income by the Company's
telephone operations and mobile communications operations for the six
months ended June 30, 1994 and 1993 were as follows:
<TABLE>
<CAPTION>
Six months
ended June 30
-----------------
1994 1993
-----------------
<S> <C> <C>
Revenues
Telephone operations 73.6% 81.2
Mobile Communications operations 26.4% 18.8
Operating income
Telephone operations 83.5% 90.3
Mobile Communications operations 16.5% 9.7
</TABLE>
Telephone Operations
<TABLE>
<CAPTION>
Six months
ended June 30
--------------------
1994 1993
--------------------
(expressed in thousands)
<S> <C> <C>
Revenues
Local $ 47,472 43,190
Network access and
long distance 117,925 102,687
Other 21,342 19,949
-------- -------
186,739 165,826
-------- -------
Expenses
Plant operations 41,590 39,721
Customer operations 16,864 14,926
Corporate and other 28,688 26,279
Depreciation and amortization 34,811 31,085
-------- -------
121,953 112,011
-------- -------
Operating income $ 64,786 53,815
======== =======
</TABLE>
Telephone operating income increased $10,971,000 (20.4%) due to an
increase in revenues of $20,913,000 (12.6%) which more than offset an
increase in operating expenses of $9,942,000 (8.9%).
The increase in revenues was partially due (approximately $6,000,000)
to San Marcos which contributed six months of revenues during the six-month
period ended June 30, 1994 compared to three months of revenues during the
comparable period in 1993. The remaining increase in revenues was primarily
due to the partial recovery of increased operating expenses through revenue
pools in which the Company participates with other telephone companies,
increased recovery from the FCC mandated USF, increased minutes of use,
improved settlement factors and growth in access lines. During the first
six months of 1994, revenues from the USF increased approximately $4,000,000
over such revenues during the first six months of 1993.
The Public Service Commission of Wisconsin ("PSCW") previously
ordered the Wisconsin state support fund existing at July 1, 1993 to be
phased-out. Certain of the Company's subsidiaries affected by the order
have received approval from the PSCW for increased rates and/or
compensation which offset most of the amounts that the Company's
subsidiaries had been receiving from the state support fund. Approval
for such additional revenue was obtained through expedited rate cases.
In July 1994 the Wisconsin Telecommunications Act of 1993 was signed
into law. The act provides, among other things, for local exchange
competition in markets which have more than 50,000 access lines.
15
<PAGE>
Certain long distance carriers have requested the Company to
reduce intrastate access tariffed rates for certain of its telephone
subsidiaries. In March 1994 a long distance carrier filed a petition
with the Louisiana Public Service Commission requesting that the
commission investigate and lower the rates for intrastate access
charges charged to long distance carriers by certain local exchange
telephone companies, including the subsidiaries of the Company which
operate in Louisiana. There is no assurance that this request will
not result in reduced intrastate access revenues.
During the first six months of 1994, operating expenses,
exclusive of depreciation and amortization, increased $6,216,000
(7.7%) due substantially to expenses of approximately $3,800,000
associated with the San Marcos operations. The remainder of the
increase in operating expenses was due to increases in salaries and
wages, employee benefits and other general operating expenses, net of
a reduction of approximately $1,100,000 in postemployment benefit expense
(see Three Months Ended June 30, 1994 Compared to Three Months Ended
June 30, 1993 - Telephone Operations).
During the first six months of 1994, depreciation and amorti-
zation increased $3,726,000 due partially to $1,100,000 of depreci-
ation and amortization related to the San Marcos operations. In addition,
the six months ended June 30, 1994 included depreciation recorded in
anticipation of the approval of increases, as of January 1, 1994, in
depreciation rates in certain jurisdictions. Higher levels of plant
in service also contributed to the increased depreciation.
The Company's regulated telephone operations are subject to the
provisions of Statement of Financial Accounting Standards No. 71 ("SFAS
71"), "Accounting for the Effects of Certain Types of Regulation."
Under SFAS 71 the Company is required to account for the economic
effects of the rate-making process, including the recognition of
depreciation and amortization of plant and equipment over lives
approved by the regulators. The ongoing applicability of SFAS 71
to the Company's regulated telephone operations are being constantly
monitored due to the changing regulatory environment and to increasing
competition. Should the regulated operations of the Company no longer
qualify for the application of SFAS 71 at some future date, the required
accounting impact could result in a material, non-cash charge against
earnings.
Mobile Communications Operations
<TABLE>
<CAPTION>
Six months
ended June 30
-----------------
1994 1993
-----------------
(expressed in thousands)
<S> <C> <C>
Revenues
Cellular service $62,029 34,279
Equipment and paging 5,092 4,058
------- ------
67,121 38,337
------- ------
Expenses
Sales and marketing 14,572 7,576
General, administrative and customer
service 15,683 10,794
Cost of sales and other operating 14,497 9,007
Depreciation and amortization 9,556 5,165
------- ------
54,308 32,542
------- ------
Operating income $12,813 5,795
======= ======
</TABLE>
16
<PAGE>
Mobile communications operating income increased $7,018,000
121.1%) to $12,813,000 during the six months ended June 30, 1994 from
$5,795,000 during the six months ended June 30, 1993. Mobile communi-
cations revenues increased $28,784,000 (75.1%) which more than offset
an increase in operating expenses of $21,766,000 (66.9%).
The increase in cellular service revenues was substantially due
to (i) an increase in the number of cellular units in service and (ii)
service revenues generated by Celutel since it was acquired by the
Company on February 10, 1994 which aggregated approximately $10,800,000
during the six-month period ended June 30, 1994. The average number of
cellular units in service in majority-owned markets during the six
months ended June 30,1994 and 1993 was 152,800 and 81,300, respectively.
The average monthly cellular service revenue per subscriber declined to
$68 during the first six months of 1994 from $70 during the first six
months of 1993, primarily due to the continued trend that a higher
percentage of recent subscribers tend to be lower-usage customers.
The average monthly service revenue per subscriber may further decline
as market penetration increases and additional lower-usage customers
are activated. The Company will continue to attempt to stimulate
cellular usage by promoting the availability of certain enhanced
services and by increasing coverage areas through the construction of
additional cell sites.
Sales and marketing expenses increased $6,996,000 due primarily to
an increase in commissions paid to agents for selling cellular services
to new customers and to the Celutel acquisition.
The increase of $4,889,000 in general, administrative and customer
service expenses was primarily due to costs incurred in connection with
the Celutel operations and increased costs associated with serving a
larger number of cellular customers.
Cost of sales and other operating expenses increased $5,490,000 due
to expenses incurred in connection with providing service to a larger
number of subscribers, the development and operation of the Company's
RSA cellular systems, and the Celutel acquisition.
Depreciation and amortization increased $4,391,000 due to a higher
level of plant in service and to depreciation and amortization associated
with the Celutel acquisition.
Interest Expense
Interest expense increased $4,947,000 during the six months ended
June 30, 1994 compared to the six months ended June 30, 1993 primarily
due to a 39% increase in average debt outstanding (significantly due to
debt issued in connection with the Celutel acquisition) which was
partially offset by the effect of lower average interest rates.
Gain on Sale of Asset
During the first quarter of 1993, the Company sold its minority
investment in a telephone company which resulted in a pre-tax gain of
$1,661,000 ($1,080,000 after-tax).
Earnings from Unconsolidated Cellular Partnerships
Earnings from unconsolidated cellular partnerships increased
$3,633,000 during the first six months of 1994 compared to the first six
months of 1993 due to the Company's share of income from the partnership
17
<PAGE>
interests acquired in the San Marcos acquisition and to the improvement
in profitability of other cellular partnerships in which the Company
owns less than a majority interest.
Other Income and Expense
Other income and expense for the first six months of 1994 was
$129,000 compared to $1,204,000 during the first six months of 1993.
The increased profitability of the Company's majority-owned and
operated cellular partnerships resulted in a corresponding increase in
the expense recorded to reflect the minority interest partners' share of
the profits.
Other income and expense also includes the results of operations of
subsidiaries of the Company which are not included in telephone
operations or mobile communications operations including, but not
limited to, the Company's competitive access subsidiary and the
Company's non-regulated long distance operations. Although not material
to consolidated operations, the combined results of such subsidiaries
were less favorable during the first six months of 1994 compared to the
first six months of 1993 primarily due to losses incurred by recently-
formed or recently-acquired subsidiaries.
Income Taxes
Income tax expense increased $5,510,000 during the six months ended
June 30, 1994 compared to the six months ended June 30, 1993 primarily
due to an increase in income before taxes.
LIQUIDITY AND CAPITAL RESOURCES
Excluding cash used for acquisitions, the Company relies on cash
provided by operations to provide a substantial portion of its cash
needs. The Company's telephone operations have historically provided a
stable source of cash flow which has helped the Company continue its
capital improvement program. Cash provided by mobile communications
operations has increased each year since that segment became cash-flow
positive in 1991.
Net cash provided by operating activities was $90,488,000 during
the first six months of 1994 compared to $75,132,000 during the first
six months of 1993. The Company's accompanying consolidated statements
of cash flows identifies major differences between net income and net
cash provided by operating activities for each of these periods. For
additional information relating to the telephone and mobile communica-
tions operations of the Company, see Results of Operations.
Net cash used in investing activities was $175,903,000 and
$122,583,000 for the six months ended June 30, 1994 and 1993,
respectively. Cash used in connection with the Celutel acquisition
during the first six months of 1994 was $54,847,000. Cash used in
connection with the San Marcos acquisitions was $34,171,000 during
the first six months of 1993. Payments for property, plant and equipment
were $8,737,000 more in the first six months of 1994 than in the
comparable period during 1993. Capital expenditures for the six months
ended June 30, 1994 were $70,659,000 for telephone, $16,313,000 for
mobile communications and $3,454,000 for other operations.
18
<PAGE>
In connection with the corporate restructuring of a local exchange
telephone company that has been viewed from time to time as an
acquisition candidate, Century loaned the telephone company's
newly-formed parent company $25,000,000 in May 1994. In exchange,
the Company received a security interest in the parent company's
capital stock, a guaranty from such company's principal stockholder
and certain first refusal rights to acquire certain properties under
various specified circumstances. For additional information see Note
8 of Notes to Consolidated Financial Statements.
Net cash provided by financing activities during the first six months
of 1994 and 1993 was $100,292,000 and $54,839,000, respectively. Net
borrowings, including notes payable and long-term debt, were $47,359,000
more in the first six months of 1994 than in the comparable period of
1993, primarily due to the borrowings incurred in connection with the
acquisition of Celutel. During the first quarter of 1994, the Company
filed a shelf registration statement registering $400,000,000 of senior
unsecured debt securities under which the Company issued $150,000,000
of senior notes on May 6, 1994. See Note 4 of Notes to Consolidated
Financial Statements. The proceeds were used to discharge the Company's
indebtedness under a $90,000,000 bridge loan incurred to fund
substantially all of the Company's cash requirements in connection with
the acquisition of Celutel in February 1994, and to reduce the Company's
short-term bank indebtedness under various credit facilities bearing
interest at rates ranging from 4.0% to 4.6%.
Budgeted capital expenditures for 1994 total $142,000,000 for
telephone operations and $50,000,000 for mobile communications opera-
tions (of which approximately $10,000,000 will be funded by minority
interest partners in cellular partnerships operated by the Company).
The Company anticipates that capital expenditures in its telephone
operations will continue to include the installation of fiber optic
cable, the replacement of mechanical switches with digital switches
and the upgrading of its plant and equipment to provide enhanced
services. Mobile communications capital expenditures are expected
to continue to focus primarily on the construction of additional cell
sites and the upgrading of the Company's cellular systems to increase
capacity and enhance the Company's ability to provide digital service
in the future. Revised budgeted capital expenditures for other
operations total $11,000,000, which includes capital construction
costs currently planned to be expended by the Company's recently-
formed competitive access subsidiary which in May 1994 obtained a
franchise from Fort Worth, Texas to provide voice, data and certain
video services in the Fort Worth market. The Company will continue
to pursue the acquisition and development of other franchised
competitive access markets.
As of June 30, 1994 Century's telephone subsidiaries had available
for use $84,100,000 of commitments for long-term financing from the
Rural Electrification Administration ("REA") and the Company had
$54,600,000 of undrawn committed bank lines of credit. In addition,
approximately $40,000,000 of uncommitted credit facilities were
available to the Company at June 30, 1994. Applications for additional
long-term financing for the Company's telephone subsidiaries have been
filed with the REA and are in various stages of processing. Federal
budget proposals which could significantly reduce the availability of
new loan commitments to the Company's telephone subsidiaries under the
REA program in future fiscal years were considered in prior years and
are expected to continue to be considered. If the Company's telephone
subsidiaries are unable to borrow additional funds through the REA
program and are forced to borrow from conventional lenders at market
rates, the cost of new loans might increase.
Although the Company currently expects to participate to some extent
in the upcoming auction of personal communications services ("PCS") licenses,
there can be no assurance that it will be successful in obtaining any such
license. The Federal Communications Commission auction of PCS broadband
spectrum is expected to take place later this year or early in 1995.
19
<PAGE>
PART II. OTHER INFORMATION
CENTURY TELEPHONE ENTERPRISES, INC.
Item 4. Submission of Matters to a Vote of Security Holders
- - ------- ---------------------------------------------------
On April 28, 1994, Century held its annual meeting of
shareholders and elected four Class III directors to serve
for a term of three years. The following votes were cast
for each of the following nominees for director or were
withheld with respect to such nominee:
<TABLE>
<CAPTION>
For Withheld
----------- ---------
<S> <C> <C>
Calvin Czeschin 110,025,892 1,867,593
F. Earl Hogan 109,518,446 2,375,039
Harvey P. Perry 109,379,757 2,513,728
Jim D. Reppond 109,252,013 2,641,472
</TABLE>
The Class I and Class II directors whose terms continued
after the meeting are:
<TABLE>
<CAPTION>
Class I Class II
--------------------- ------------------
<S> <C>
William R. Boles, Jr. Ernest Butler, Jr.
W. Bruce Hanks James B. Gardner
C.G. Melville, Jr. R.L. Hargrove, Jr.
Glen F. Post, III Johnny Hebert
Clarke M. Williams Tom S. Lovett
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
- - ------- --------------------------------
A. Exhibits
--------
11 Computations of Earnings Per Share.
B. Report on Form 8-K
------------------
The following items were reported in the Form 8-K dated April
22, 1994:
Item 5. Other Events - News release reporting results of
operations for the quarter ended March 31, 1994.
Item 7. Exhibit 12 - Statement regarding computations of
ratio of earnings to fixed charges.
20
<PAGE>
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.
CENTURY TELEPHONE ENTERPRISES, INC.
Date: August 10, 1994 /s/ Murray H. Greer
----------------------
Murray H. Greer
Controller
(Principal Accounting Officer)
21
<PAGE>
CENTURY TELEPHONE ENTERPRISES, INC.
INDEX TO EXHIBITS
Exhibit
Number
- - -------
11 Computations of Earnings Per Share, included herein.
22
EXHIBIT 11
CENTURY TELEPHONE ENTERPRISES, INC.
COMPUTATIONS OF EARNINGS PER SHARE
(UNAUDITED)
<TABLE>
<CAPTION>
Three months Six months
ended June 30 ended June 30
------------------ ----------------
1994 1993 1994 1993
------- ------ ------ ------
(expressed in thousands,
except per share amounts)
<S> <C> <C> <C> <C>
Net income $21,485 16,517 40,686 32,257
Preferred stock dividend
requirements (30) (6) (43) (12)
------- ------ ------ ------
Net income applicable to common
stock 21,455 16,511 40,643 32,245
Dividends applicable to Series H
and Series K Preferred Stock 30 6 43 12
Interest on 6% convertible debentures
and amortization of deferred debt
costs incurred in connection with
the issuance of the debentures,
net of taxes 1,146 1,164 2,292 2,328
------- ------ ------ ------
Net income as adjusted for purposes
of computing fully diluted earnings
per share $22,631 17,681 42,978 34,585
======= ====== ====== ======
Weighted average number of shares:
Outstanding during period 53,365 50,618 52,825 49,867
Common stock equivalent shares 519 790 525 666
Employee Stock Ownership Plan
shares not committed to be
released (338) - (193) -
------ ------ ------ ------
Total number of shares for
computing primary earnings
per share 53,546 51,408 53,157 50,533
Incremental common shares
attributable to additional
dilutive effect of convertible
securities 4,742 4,656 4,702 4,729
------ ------ ------ ------
Total number of shares as
adjusted for purposes of
computing fully diluted
earnings per share 58,288 56,064 57,859 55,262
======= ====== ====== ======
Earnings per average common share $ .40 .33 .77 .65
======= ====== ====== ======
Primary earnings per share $ .40 .32 .76 .64
======= ====== ====== ======
Fully diluted earnings per share $ .39 .32 .74 .63
======= ====== ====== ======
</TABLE>
