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, 1997
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 of incorporation) (I.R.S. Employer
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, 1997, there were 60,354,401 shares of common stock
outstanding.
CENTURY TELEPHONE ENTERPRISES, INC.
TABLE OF CONTENTS
Page No.
--------
Part I. Financial Information:
Item 1. Financial Statements
Consolidated Statements of Income--Three Months and Six
Months Ended June 30, 1997 and 1996 3
Consolidated Balance Sheets--June 30, 1997 and
December 31, 1996 4
Consolidated Statements of Stockholders' Equity--
Six Months Ended June 30, 1997 and 1996 5
Consolidated Statements of Cash Flows--
Six Months Ended June 30, 1997 and 1996 6
Notes to Consolidated Financial Statements 7-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-20
Part II. Other Information:
Item 4. Submission of Matters To a Vote of Security Holders 21
Item 5. Other Information 21-23
Item 6. Exhibits and Reports on Form 8-K 23-24
2
PART I. FINANCIAL INFORMATION
CENTURY TELEPHONE ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three months Six months
ended June 30 ended June 30
- ---------------------------------------------------------------------------
1997 1996 1997 1996
- ---------------------------------------------------------------------------
(Dollars, except per share amounts,
and shares expressed in thousands)
OPERATING REVENUES
Telephone $ 120,425 111,403 237,520 222,034
Mobile communications 74,470 63,588 140,309 118,592
Other 15,681 11,547 31,732 21,726
- ---------------------------------------------------------------------------
Total operating revenues 210,576 186,538 409,561 362,352
- ---------------------------------------------------------------------------
OPERATING EXPENSES
Cost of sales and operating
expenses 111,830 96,421 217,792 185,981
Depreciation and amortization 36,341 32,420 71,666 63,159
- ---------------------------------------------------------------------------
Total operating expenses 148,171 128,841 289,458 249,140
- ---------------------------------------------------------------------------
OPERATING INCOME 62,405 57,697 120,103 113,212
- ---------------------------------------------------------------------------
OTHER INCOME (EXPENSE)
Gain on sales of assets 70,121 - 70,121 -
Interest expense (11,054) (11,353) (22,364) (22,949)
Income from unconsolidated
cellular entities 7,799 6,960 13,379 12,594
Minority interest (1,541) (1,973) (1,905) (4,529)
Other income and expense 1,059 910 2,293 1,057
- ---------------------------------------------------------------------------
Total other income (expense) 66,384 (5,456) 61,524 (13,827)
- ---------------------------------------------------------------------------
INCOME BEFORE INCOME TAX EXPENSE 128,789 52,241 181,627 99,385
Income tax expense 45,613 19,300 65,316 36,779
- ---------------------------------------------------------------------------
NET INCOME $ 83,176 32,941 116,311 62,606
===========================================================================
PRIMARY EARNINGS PER SHARE $ 1.38 .55 1.93 1.05
===========================================================================
FULLY DILUTED EARNINGS PER SHARE $ 1.36 .55 1.91 1.04
===========================================================================
DIVIDENDS PER COMMON SHARE $ .0925 .09 .185 .18
===========================================================================
AVERAGE PRIMARY SHARES
OUTSTANDING 60,372 59,969 60,321 59,723
===========================================================================
AVERAGE FULLY DILUTED SHARES
OUTSTANDING 61,099 60,695 60,989 60,449
===========================================================================
See accompanying notes to consolidated financial statements.
3
CENTURY TELEPHONE ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
June 30, December 31,
1997 1996
- ---------------------------------------------------------------------------
(Dollars in thousands)
ASSETS
- ------
CURRENT ASSETS
Cash and cash equivalents $ 12,088 8,402
Accounts receivable
Customers, less allowance of
$3,131 and $3,327 66,826 60,181
Other 35,531 26,263
Materials and supplies, at average cost 6,613 8,222
Other 4,033 6,166
- ---------------------------------------------------------------------------
125,091 109,234
- ---------------------------------------------------------------------------
NET PROPERTY, PLANT AND EQUIPMENT 1,139,708 1,149,012
- ---------------------------------------------------------------------------
INVESTMENTS AND OTHER ASSETS
Excess cost of net assets acquired, less
accumulated amortization of $74,745
and $67,061 543,512 532,410
Other 416,148 237,849
- ---------------------------------------------------------------------------
959,660 770,259
- ---------------------------------------------------------------------------
$ 2,224,459 2,028,505
===========================================================================
LIABILITIES AND EQUITY
- ----------------------
CURRENT LIABILITIES
Current maturities of long-term debt $ 20,615 19,919
Accounts payable 57,570 60,548
Accrued expenses and other liabilities
Salaries and benefits 19,814 20,224
Taxes 17,737 13,913
Interest 4,945 5,581
Other 11,530 8,837
Advance billings and customer deposits 16,003 15,122
- ---------------------------------------------------------------------------
148,214 144,144
- ---------------------------------------------------------------------------
LONG-TERM DEBT 630,232 625,930
- ---------------------------------------------------------------------------
DEFERRED CREDITS AND OTHER LIABILITIES 278,957 230,278
- ---------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Common stock, $1.00 par value, authorized
175,000,000 shares, issued and
outstanding 60,152,084 and 59,858,540 shares 60,152 59,859
Paid-in capital 482,211 474,607
Unrealized holding gain on investments,
net of taxes 24,565 -
Retained earnings 599,727 494,726
Unearned ESOP shares (9,640) (11,080)
Preferred stock - non-redeemable 10,041 10,041
- ---------------------------------------------------------------------------
1,167,056 1,028,153
- ---------------------------------------------------------------------------
$ 2,224,459 2,028,505
===========================================================================
See accompanying notes to consolidated financial statements.
4
CENTURY TELEPHONE ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
Six months
ended June 30
- ---------------------------------------------------------------------------
1997 1996
- ---------------------------------------------------------------------------
(Dollars in thousands)
COMMON STOCK
Balance at beginning of period $ 59,859 59,114
Issuance of common stock for acquisitions - 257
Conversion of convertible securities into
common stock 113 -
Issuance of common stock through dividend
reinvestment, incentive and benefit plans 180 306
Conversion of preferred stock into common stock - 31
- ---------------------------------------------------------------------------
Balance at end of period 60,152 59,708
- ---------------------------------------------------------------------------
PAID-IN CAPITAL
Balance at beginning of period 474,607 453,584
Issuance of common stock for acquisitions - 8,201
Conversion of convertible securities into
common stock 3,187 -
Issuance of common stock through dividend
reinvestment, incentive and benefit plans 4,079 6,720
Amortization of unearned compensation and other 338 738
Conversion of preferred stock into common stock - 90
- ---------------------------------------------------------------------------
Balance at end of period 482,211 469,333
- ---------------------------------------------------------------------------
UNREALIZED HOLDING GAIN ON INVESTMENTS, NET OF TAXES
Balance at beginning of period - -
Change in unrealized holding gain
on investments, net of taxes 24,565 -
- ---------------------------------------------------------------------------
Balance at end of period 24,565 -
- ---------------------------------------------------------------------------
RETAINED EARNINGS
Balance at beginning of period 494,726 387,424
Net income 116,311 62,606
Cash dividends declared
Common stock-$.185 and $.18 per
share, respectively (11,055) (10,652)
Preferred stock (255) (164)
- ---------------------------------------------------------------------------
Balance at end of period 599,727 439,214
- ---------------------------------------------------------------------------
UNEARNED ESOP SHARES
Balance at beginning of period (11,080) (13,960)
Release of ESOP shares 1,440 1,440
- ---------------------------------------------------------------------------
Balance at end of period (9,640) (12,520)
- ---------------------------------------------------------------------------
PREFERRED STOCK - NON-REDEEMABLE
Balance at beginning of period 10,041 2,262
Issuance of preferred stock for acquisition - 7,975
Conversion of preferred stock into common stock - (121)
- ---------------------------------------------------------------------------
Balance at end of period 10,041 10,116
- ---------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY $ 1,167,056 965,851
===========================================================================
See accompanying notes to consolidated financial statements.
5
CENTURY TELEPHONE ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six months
ended June 30
- ---------------------------------------------------------------------------
1997 1996
- ---------------------------------------------------------------------------
(Dollars in thousands)
OPERATING ACTIVITIES
Net income $ 116,311 62,606
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 71,666 63,159
Deferred income taxes 29,667 2,893
Income from unconsolidated cellular entities (13,379) (12,594)
Minority interest 1,905 4,529
Loss on investment in unconsolidated personal
communications services entity - 1,100
Gain on sales of assets (70,121) -
Changes in current assets and current
liabilities:
Increase in accounts receivable (15,670) (6,593)
Decrease in accounts payable (4,187) (5,438)
Increase in other accrued taxes 5,343 2,544
Other current assets and other current
liabilities, net 7,012 5,983
Increase in other noncurrent liabilities 3,382 3,570
Other, net (1,522) 3,841
- ---------------------------------------------------------------------------
Net cash provided by operating activities 130,407 125,600
- ---------------------------------------------------------------------------
INVESTING ACTIVITIES
Payments for property, plant and equipment (87,419) (99,321)
Acquisitions, net of cash acquired (23,548) (17,022)
Reimbursement of investment in unconsolidated
personal communications services entity - 18,900
Distributions from unconsolidated
cellular entities 5,723 5,129
Purchase of life insurance investment (11,998) (5,248)
Other, net (2,269) 624
- ---------------------------------------------------------------------------
Net cash used in investing activities (119,511) (96,938)
- ---------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt 28,500 45,395
Payments of long-term debt (28,782) (50,822)
Notes payable, net - (14,199)
Proceeds from issuance of common stock 4,258 7,011
Cash dividends (11,310) (10,816)
Other, net 124 121
- ---------------------------------------------------------------------------
Net cash used in financing activities (7,210) (23,310)
- ---------------------------------------------------------------------------
Net increase in cash and cash equivalents 3,686 5,352
Cash and cash equivalents at beginning of period 8,402 8,540
- ---------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 12,088 13,892
===========================================================================
Supplemental cash flow information:
Income taxes paid $ 38,402 34,851
Interest paid $ 23,000 23,405
See accompanying notes to consolidated financial statements.
6
CENTURY TELEPHONE ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(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, 1996. Certain 1996 amounts have been reclassified to be consistent with the
1997 presentation.
The unaudited financial information for the three months and six months
ended June 30, 1997 and 1996 has not been audited by independent 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 and six-month periods have been
included therein. The results of operations 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) Net Property, Plant and Equipment
Net property, plant and equipment is composed of the following:
June 30, December 31,
1997 1996
- ------------------------------------------------------------------------
(Dollars in thousands)
Telephone, at original cost $1,350,418 1,290,289
Accumulated depreciation (467,228) (417,497)
- -----------------------------------------------------------------------
883,190 872,792
- -----------------------------------------------------------------------
Mobile communications, at cost 291,379 269,389
Accumulated depreciation (88,962) (75,666)
- -----------------------------------------------------------------------
202,417 193,723
- -----------------------------------------------------------------------
Corporate and other, at cost 102,266 126,015
Accumulated depreciation (48,165) (43,518)
- -----------------------------------------------------------------------
54,101 82,497
- -----------------------------------------------------------------------
$1,139,708 1,149,012
=======================================================================
(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 June 30, 1997
and 1996) were accounted for by the equity method.
7
Six months
ended June 30
- ---------------------------------------------------------------------------
1997 1996
- ---------------------------------------------------------------------------
(Dollars in thousands)
Results of operations
Revenues $ 607,564 459,275
Operating income $ 198,951 142,288
Net income $ 199,927 143,132
- ---------------------------------------------------------------------------
(4) Accounting Pronouncement
In March 1997 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings per Share." SFAS
128 establishes requirements for the computation of basic earnings per share and
diluted earnings per share and is effective for financial statements issued for
periods ending after December 15, 1997. The effect of adoption of SFAS 128 is
not expected to materially impact the Company's diluted earnings per share.
(5) Gain on Sales of Assets
In May 1997 the Company sold its majority-owned competitive access
subsidiary to Brooks Fiber Properties, Inc. ("Brooks") in exchange for 4.3
million shares of Brooks' common stock. The Company recorded a pre-tax gain in
the second quarter of 1997 of approximately $71 million ($46 million after-tax;
$.75 per fully diluted share).
(6) Investments in Marketable Equity Securities
Marketable equity securities owned by the Company, substantially all of
which were received as proceeds from the sale of the Company's competitive
access subsidiary to Brooks in May 1997, are classified as available-for-sale
and are reported at fair value, with unrealized holding gains and losses
reported, net of tax, as a separate component of stockholders' equity. As of
June 30, 1997, gross unrealized holding gains of the Company's marketable equity
securities were $37.8 million.
(7) Pending Acquisition
On June 11, 1997, the Company signed a definitive purchase agreement with
PacifiCorp Holdings, Inc. ("Holdings") to acquire the stock of Holdings'
wholly-owned telecommunications subsidiary, Pacific Telecom, Inc. ("PTI"). PTI
provides local exchange telephone service in four midwestern states, seven
western states and Alaska. PTI also has cellular ownership interests in six
states.
The Company will pay $1.523 billion in cash and will assume PTI's debt,
estimated to approximate $700 million at closing, including $232 million
associated with PTI's pending acquisitions. The Company has obtained a $1.6
billion commitment for initial financing through 5-year senior unsecured bank
debt facilities fully underwritten by NationsBank.
The Company anticipates completing the transaction no later than the first
quarter of 1998 subject to the receipt of various regulatory approvals and
certain other closing conditions.
8
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 below should be read in conjunction with MD&A and
other information included in the Company's annual report on Form 10-K for the
year ended December 31, 1996. The results of operations for the three months and
six months ended June 30, 1997 are not necessarily indicative of the results of
operations which might be expected for the entire year.
Century Telephone Enterprises, Inc. (the "Company") is a regional
diversified telecommunications company that is primarily engaged in providing
local telephone services and cellular telephone communications services. At June
30, 1997, the Company's local exchange telephone subsidiaries operated over
525,000 telephone access lines primarily in rural, suburban and small urban
areas in 14 states, and the Company's majority-owned and operated cellular
entities had more than 398,000 cellular subscribers. In May 1997 the Company
sold its majority-owned competitive access subsidiary to Brooks Fiber
Properties, Inc. ("Brooks") in exchange for 4.3 million shares of Brooks' common
stock. In June 1997 Century agreed to purchase Pacific Telecom, Inc. ("PTI") in
exchange for $1.523 billion cash plus the assumption of PTI's debt. PTI provides
local exchange telephone services to approximately 570,000 telephone access
lines (not including PTI's pending acquisition of approximately 70,000 access
lines) and operates cellular entities that serve more than 96,000 subscribers.
RESULTS OF OPERATIONS
Three Months Ended June 30, 1997 Compared
to Three Months Ended June 30, 1996
Net income for the second quarter of 1997, exclusive of the $45.6 million
after-tax gain on sales of assets, increased $4.7 million (14.1%) to $37.6
million from $32.9 million during the second quarter of 1996. Fully diluted
earnings per share, exclusive of the gain, increased to $.62 during the second
quarter of 1997 compared to $.55 during the second quarter of 1996, a 12.7%
increase.
Three months
ended June 30
- ---------------------------------------------------------------------------
1997 1996
- ---------------------------------------------------------------------------
(Dollars, except per
share amounts, and
shares in thousands)
Operating income
Telephone $ 38,972 37,796
Mobile communications 21,812 19,782
Other 1,621 119
- ---------------------------------------------------------------------------
62,405 57,697
Gain on sales of assets 70,121 -
Interest expense (11,054) (11,353)
Income from unconsolidated cellular entities 7,799 6,960
Minority interest (1,541) (1,973)
Other income and expense 1,059 910
Income taxes (45,613) (19,300)
- ---------------------------------------------------------------------------
Net income $ 83,176 32,941
===========================================================================
Fully diluted earnings per share $ 1.36 .55
===========================================================================
Average fully diluted shares outstanding 61,099 60,695
===========================================================================
9
Contributions to operating revenues and operating income by the Company's
telephone, mobile communications, and other operations for the three months
ended June 30, 1997 and 1996 were as follows:
Three months
ended June 30
- ---------------------------------------------------------------------------
1997 1996
- ---------------------------------------------------------------------------
Operating revenues
Telephone operations 57.2% 59.7
Mobile communications operations 35.4% 34.1
Other operations 7.4% 6.2
Operating income
Telephone operations 62.5% 65.5
Mobile communications operations 34.9% 34.3
Other operations 2.6% .2
- ---------------------------------------------------------------------------
Telephone Operations
Three months
ended June 30
- ---------------------------------------------------------------------------
1997 1996
- ---------------------------------------------------------------------------
(Dollars in thousands)
Operating revenues
Local service $ 33,118 30,209
Network access 72,480 68,338
Other 14,827 12,856
- ---------------------------------------------------------------------------
120,425 111,403
- ---------------------------------------------------------------------------
Operating expenses
Plant operations 24,446 22,318
Customer operations 12,345 10,917
Corporate and other 18,783 16,603
Depreciation and amortization 25,879 23,769
- ---------------------------------------------------------------------------
81,453 73,607
- ---------------------------------------------------------------------------
Operating income $ 38,972 37,796
===========================================================================
Telephone operating income increased $1.2 million (3.1%) due to an
increase in operating revenues of $9.0 million (8.1%) which more than offset an
increase in operating expenses of $7.8 million (10.7%).
The increase in revenues was partially due to a $2.6 million increase in
amounts received from the federal Universal Service Fund; a $1.5 million
increase due to acquisitions consummated since the first quarter of 1996; a $1.7
million increase resulting from an increase in the number of access lines
served; a $1.4 million increase in the partial recovery of increased operating
expenses through revenue pools in which the Company participates with other
telephone companies; a $770,000 increase due to the increased demand for custom
calling features; and a $655,000 increase in Internet access revenues
attributable to growth in the number of customers. These increases were
partially offset by a reduction of $1.0 million in access revenues due to the
reduction in intrastate switched access rates mandated by the Louisiana Public
Service Commission which was phased in through July 1997. See Six Months Ended
June 30, 1997 Compared to Six Months Ended June 30, 1996 - Telephone Operations
for additional information.
During the second quarter of 1997, operating expenses, exclusive of
depreciation and amortization, increased $5.7 million (11.5%) substantially due
to an $898,000 increase in expenses (exclusive of sales and marketing expenses)
related to providing Internet access services; an $800,000 increase in sales and
marketing expenses; $700,000 of expenses of companies
10
acquired; and a $552,000 increase in the provision for doubtful accounts. The
remainder of the increase was due to increases in general operating expenses.
The Company's operating loss from providing Internet access services was
$1.2 million in the second quarter of 1997 compared to $772,000 in the second
quarter of 1996. Since the second quarter of 1996, the Company has expanded its
service areas, enhanced its network and expanded its customer service functions
in order to provide service to a larger number of customers and to improve
customer service.
Depreciation and amortization increased $2.1 million (8.9%) primarily due
to higher levels of plant in service.
Cellular Operations and Investments
Three months
ended June 30
- ---------------------------------------------------------------------------
1997 1996
- ---------------------------------------------------------------------------
(Dollars in thousands)
Operating income - mobile
communications segment $ 21,812 19,782
Minority interest - cellular operations (1,776) (2,051)
Income from unconsolidated cellular entities 7,799 6,960
- ---------------------------------------------------------------------------
$ 27,835 24,691
===========================================================================
The Company's mobile communications operations (discussed below) reflects
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."
Mobile Communications Operations
Three months
ended June 30
- ---------------------------------------------------------------------------
1997 1996
- ---------------------------------------------------------------------------
(Dollars in thousands)
Operating revenues
Service revenues $ 73,053 62,554
Equipment sales 1,417 1,034
- ---------------------------------------------------------------------------
74,470 63,588
- ---------------------------------------------------------------------------
Operating expenses
Cost of equipment sold 3,456 2,865
System operations 11,071 9,457
General, administrative and customer service 14,263 12,898
Sales and marketing 13,857 10,728
Depreciation and amortization 10,011 7,858
- ---------------------------------------------------------------------------
52,658 43,806
- ---------------------------------------------------------------------------
Operating income $ 21,812 19,782
===========================================================================
Mobile communications operating income increased $2.0 million (10.3%) to
$21.8 million in the second quarter of 1997 from $19.8 million in the second
quarter of 1996. Mobile communications operating revenues increased $10.9
million (17.1%) while operating expenses increased $8.9 million (20.2%).
The increase in cellular service revenues was primarily due to the
increase in the number of cellular customers. The average number of cellular
11
units in service in majority-owned markets during the second quarter of 1997 and
1996 was 388,300 and 316,100, respectively. Access and usage revenues increased
$7.4 million (16.7%) in the second quarter of 1997 and roaming and toll revenues
increased $3.3 million (19.3%).
The average monthly cellular service revenue per customer declined to $63
during the second quarter of 1997 from $66 during the second quarter of 1996. It
has been an industry-wide trend that early subscribers have normally been the
heaviest users and that a higher percentage of new subscribers tend to be lower
usage customers. 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 and place additional pressure on rates. 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.
Equipment sales increased $383,000 in the second quarter of 1997 compared
to the second quarter of 1996. The increase in cost of sales during the second
quarter of 1997 resulted from the increase in the number of cellular phones
sold.
System operations expenses increased $1.6 million (17.1%) in the second
quarter of 1997 primarily due to (i) a $798,000 increase in the net cost paid to
other carriers for cellular service provided to the Company's customers who roam
in the other carriers' service areas in excess of the amounts the Company bills
its customers and (ii) a $577,000 increase in cell site expenses associated with
a higher number of cell sites in service.
General, administrative and customer service expenses increased $1.4
million (10.6%) primarily due to increased expenses resulting from a larger
customer base, such as customer service ($1.0 million) and billing costs
($784,000). Such increases were partially offset by a $732,000 decrease in the
provision for doubtful accounts.
The Company's average monthly churn rate (the percentage of cellular
customers that terminate service) was 2.16% for the second quarter of 1997 and
2.10% for the second quarter of 1996.
During the second quarter of 1997, sales and marketing expenses increased
$3.1 million (29.2%) primarily due to a $1.8 million increase in advertising
expense and a $1.3 million increase in costs incurred in selling products and
services in retail locations, including Company-owned stores.
Depreciation and amortization increased $2.2 million (27.4%) due primarily
to a higher level of plant in service.
Other Operations
Other operations include the results of operations of subsidiaries of the
Company which are not included in the telephone or mobile communications
segments, including, but not limited to, the Company's nonregulated long
distance and operator services operations. Operating revenues of the long
distance and operator services operations increased $4.8 million during the
second quarter of 1997 while operating expenses of such operations increased
$4.7 million.
12
In May 1997 the Company sold its majority-owned competitive access
subsidiary to Brooks in exchange for 4.3 million shares of Brooks'
publicly-traded common stock. Under the terms of a related management agreement,
the results of operations of the competitive access subsidiary were effectively
assumed by Brooks as of April 1, 1997. Operating revenues and expenses in the
second quarter of 1996 applicable to the competitive access subsidiary were
$772,000 and $2.4 million, respectively.
Gain on Sales of Assets
Gain on sales of assets during the second quarter of 1997 included a
pre-tax gain of $71 million ($46 million after-tax: $.75 per fully diluted
share) as a result of the sale of the Company's competitive access subsidiary to
Brooks in May 1997. For additional information, see Note 5 of Notes to
Consolidated Financial Statements.
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 decreased $432,000 (21.9%) due primarily to the effect of the
Company's acquisition, during the second quarter of 1996, of an additional 25%
interest in a Louisiana cellular partnership which decreased the minority
interest owners' share of such partnership.
Income Tax Expense
Income tax expense increased $26.3 million in the second quarter of 1997
compared to the second quarter of 1996 primarily due to the gain on sales of
assets. The effective income tax rate was 35.4% and 36.9% for the three months
ended June 30, 1997 and 1996, respectively.
Six Months Ended June 30, 1997 Compared
to Six Months Ended June 30, 1996
Net income for the first six months of 1997, exclusive of the $45.6
million after-tax gain on sales of assets, increased $8.1 million (13.0%) to
$70.7 million from $62.6 million during the first six months of 1996. The
increase was principally due to a $6.9 million increase in operating income.
Excluding gain on sales of assets, fully diluted earnings per share increased to
$1.16 for the six months ended June 30, 1997 from $1.04 during the six months
ended June 30, 1996, an 11.5% increase.
13
Six months
ended June 30
- ---------------------------------------------------------------------------
1997 1996
- ---------------------------------------------------------------------------
(Dollars in thousands,
except per share amounts)
Operating income
Telephone $ 79,496 76,415
Mobile communications 38,349 35,952
Other 2,258 845
- ---------------------------------------------------------------------------
120,103 113,212
Gain on sales of assets 70,121 -
Interest expense (22,364) (22,949)
Income from unconsolidated cellular entities 13,379 12,594
Minority interest (1,905) (4,529)
Other income and expense 2,293 1,057
Income tax expense (65,316) (36,779)
- ---------------------------------------------------------------------------
Net income $ 116,311 62,606
===========================================================================
Fully diluted earnings per share $ 1.91 1.04
===========================================================================
Average fully diluted shares outstanding 60,989 60,449
===========================================================================
Contributions to operating revenues and operating income by the Company's
telephone, mobile communications, and other operations for the six months ended
June 30, 1997 and 1996 were as follows:
Six months
ended June 30
- ---------------------------------------------------------------------------
1997 1996
- ---------------------------------------------------------------------------
Operating revenues
Telephone operations 58.0% 61.3
Mobile communications operations 34.3% 32.7
Other operations 7.7% 6.0
Operating income
Telephone operations 66.2% 67.5
Mobile communications operations 31.9% 31.8
Other operations 1.9% .7
- ---------------------------------------------------------------------------
Telephone Operations
Six months
ended June 30
- ---------------------------------------------------------------------------
1997 1996
- ---------------------------------------------------------------------------
(Dollars in thousands)
Operating revenues
Local service $ 65,306 59,294
Network access 144,022 136,701
Other 28,192 26,039
- ---------------------------------------------------------------------------
237,520 222,034
- ---------------------------------------------------------------------------
Operating expenses
Plant operations 48,042 44,697
Customer operations 22,743 20,825
Corporate and other 36,237 33,417
Depreciation and amortization 51,002 46,680
- ---------------------------------------------------------------------------
158,024 145,619
- ---------------------------------------------------------------------------
Operating income $ 79,496 76,415
===========================================================================
14
Telephone operating income increased $3.1 million (4.0%) due to an
increase in operating revenues of $15.5 million (7.0%) which more than offset an
increase in operating expenses of $12.4 million (8.5%).
The increase in revenues was primarily due to a $4.6 million increase in
amounts received from the federal Universal Service Fund; a $3.7 million
increase due to acquisitions consummated since the first quarter of 1996; a $3.0
million increase resulting from an increase in the number of access lines
served; a $1.9 million increase in revenues due to an increase in minutes of
use; a $1.9 million increase in the partial recovery of increased operating
expenses through revenue pools in which the Company participates with other
telephone companies; a $1.5 million increase due to the increased demand for
custom calling features; and a $1.2 million increase in Internet access revenues
attributable to growth in the number of customers.
Such increases in revenues were partially offset by a $2.0 million
reduction in the Company's access revenues due to the reduction in intrastate
switched access rates mandated by the Louisiana Public Service Commission
("LPSC") which was phased in through July 1997. In addition, billing and
collection revenues decreased $727,000 during the six months ended June 30, 1997
compared to the six months ended June 30, 1996.
On June 10, 1997, the LPSC adopted a Consumer Price Protection Plan (the
"Plan") for Century's telephone subsidiaries operating in Louisiana, effective
July 2, 1997. The new form of regulation will focus primarily on price and
quality of service as opposed to rate of return regulation. Under the Plan,
Century's Louisiana telephone subsidiaries' local rates will be frozen for a
period of three years and access rates will be frozen for a period of two years.
Although the Plan has no specified term, it will be reviewed by the LPSC three
years from the effective date. Century's Louisiana telephone subsidiaries have
the option to propose a new plan at any time if (i) effective competition exists
or (ii) unforeseen events threaten the subsidiary's ability to provide adequate
service or impair its financial health.
During the first six months of 1997, operating expenses, exclusive of
depreciation and amortization, increased $8.1 million (8.2%) primarily due to
$1.7 million of expenses of companies acquired; a $1.5 million increase in
expenses (exclusive of sales and marketing expenses) related to providing
Internet access services; a $1.2 million increase in sales and marketing
expenses; an $861,000 increase in the provision for doubtful accounts; and a
$763,000 increase in advalorem taxes. The remainder of the increase was due to
increases in general operating expenses.
The Company's operating loss from providing Internet access services was
$2.1 million in the first six months of 1997 compared to $1.5 million in the
first six months of 1996. Since the second quarter of 1996, the Company has
expanded its service areas, enhanced its network and expanded its customer
service functions in order to provide service to a larger number of customers
and to improve customer service.
Depreciation and amortization increased $4.3 million (9.3%) primarily due
to higher levels of plant in service ($2.8 million) and acquisitions ($920,000).
15
Cellular Operations and Investments
Six months
ended June 30
- ---------------------------------------------------------------------------
1997 1996
- ---------------------------------------------------------------------------
(Dollars in thousands)
Operating income - mobile communications
segment $ 38,349 35,952
Minority interest - cellular operations (3,096) (4,607)
Income from unconsolidated cellular
entities 13,379 12,594
- ---------------------------------------------------------------------------
$ 48,632 43,939
===========================================================================
The Company's mobile communications operations (discussed below) reflects
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." See Income From
Unconsolidated Cellular Entities for additional information.
Mobile Communications Operations
Six months
ended June 30
- ---------------------------------------------------------------------------
1997 1996
- ---------------------------------------------------------------------------
(Dollars in thousands)
Operating revenues
Service revenues $ 137,637 116,597
Equipment sales 2,672 1,995
- ---------------------------------------------------------------------------
140,309 118,592
- ---------------------------------------------------------------------------
Operating expenses
Cost of equipment sold 7,386 5,722
System operations 21,397 16,353
General, administrative and
customer service 28,478 25,097
Sales and marketing 25,427 20,207
Depreciation and amortization 19,272 15,261
- ---------------------------------------------------------------------------
101,960 82,640
- ---------------------------------------------------------------------------
Operating income $ 38,349 35,952
===========================================================================
Mobile communications operating income increased $2.4 million (6.7%) to
$38.3 million in the first six months of 1997 from $36.0 million in the first
six months of 1996. Mobile communications operating revenues increased $21.7
million (18.3%) which more than offset an increase in operating expenses of
$19.3 million (23.4%).
The increase in cellular service revenues was primarily due to the
increase in the number of cellular customers. The average number of cellular
units in service in majority-owned markets during the first six months of 1997
and 1996 was 380,400 and 306,900, respectively. Access and usage revenues
increased $15.6 million (18.6%) in the first six months of 1997 and roaming and
toll revenues increased $6.4 million (21.2%).
The average monthly cellular service revenue per customer declined to $60
during the first six months of 1997 from $63 during the first six months of
1996. It has been an industry-wide trend that early subscribers have
16
normally been the heaviest users and that a higher percentage of new subscribers
tend to be lower usage customers. 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 and place
additional pressure on rates. 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 increased $5.0 million (30.8%) during the six
months ended June 30, 1997 primarily due to (i) a $2.5 million increase in the
net cost paid to other carriers for cellular service provided to the Company's
customers who roam in the other carriers' service areas in excess of the amounts
the Company bills its customers and (ii) a $1.1 million increase in cell site
expenses associated with a higher number of cell sites in service.
General, administrative and customer service expenses increased $3.4
million (13.5%) primarily due to increased expenses resulting from a larger
customer base, such as customer service and retention costs ($2.2 million) and
billing costs ($1.2 million).
The Company's average monthly churn rate (the percentage of cellular
customers that terminate service) was 2.33% for the first six months of 1997 and
2.19% for the first six months of 1996.
Sales and marketing expenses increased $5.2 million (25.8%) primarily due
to a $2.4 million increase in costs incurred in selling products and services in
retail locations, including Company-owned stores and a $2.2 million increase in
advertising expense.
Depreciation and amortization increased $4.0 million (26.3%) due primarily
to a higher level of plant in service.
Other Operations
Other operations include the results of operations of subsidiaries of the
Company which are not included in the telephone or mobile communications
segments, including, but not limited to, the Company's competitive access
subsidiary (which was sold to Brooks in May 1997) and the Company's nonregulated
long distance and operator services operations. Of the $10.0 million (46.1%)
increase in operating revenues during the six months ended June 30, 1997
compared to the six months ended June 30, 1996, $8.7 million was applicable to
the long distance and operator services operations. Of the $8.6 million (41.2%)
increase in operating expenses, $6.8 million was incurred by the long distance
and operator services operations. As mentioned above, the Company's competitive
access subsidiary was sold in May 1997 and the results of operations of such
subsidiary were effectively assumed by Brooks as of April 1, 1997. The operating
loss of the Company's competitive access subsidiary in 1997 was $2.4 million
compared to $2.6 million during the first six months of 1996.
Gain on Sales of Asset
Gain on sales of assets included a pre-tax gain of $71 million ($46
million after-tax: $.75 per fully diluted share) as a result of the sale of the
Company's competitive access subsidiary to Brooks in May 1997. For additional
information, see Note 5 of Notes to Consolidated Financial Statements.
17
Income from Unconsolidated Cellular Entities
Earnings from unconsolidated cellular entities, net of the amortization of
associated goodwill, increased $785,000 (6.2%) during the first six months of
1997 compared to the first six months of 1996 due to improvement in
profitability of the cellular entities in which the Company owns less than a
majority interest.
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 decreased $2.6 million (57.9%), of which $1.7 million was due
to the effect of the Company's acquisition, during the second quarter of 1996,
of an additional 25% interest in a Louisiana cellular partnership which
decreased the minority interest owners' share of such partnership. In addition,
minority interest decreased $756,000 during 1997 as a result of allocating
thereto a portion of the loss of the Company's majority-owned competitive access
subsidiary to the minority shareholders. In the first six months of 1996, no
portion of the loss of such subsidiary was allocated to minority interest.
Other Income and Expense
Other income and expense for the first six months of 1997 was $2.3 million
compared to $1.1 million during the first six months of 1996. The first quarter
of 1996 included a non-recurring charge of $1.1 million which related to the
Company's withdrawal of its investment in an entity formed to bid on Personal
Communications Services ("PCS") licenses after such entity withdrew from the
federal auction in 1996.
Income Tax Expense
Income tax expense increased $28.5 million (77.6%) in the first six months
of 1997 compared to the first six months of 1996 primarily due to the second
quarter 1997 gain on sales of assets. The effective income tax rate was 36.0%
and 37.0% for the six months ended June 30, 1997 and 1996, respectively.
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 long-term program of capital
improvements. Cash provided by the Company's mobile communications operations
has continued to increase as the cellular industry has matured.
Net cash provided by operating activities was $130.4 million during the
first six months of 1997 compared to $125.6 million during the first six months
of 1996. 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, mobile communications operations, and other operations of
the Company, see Results of Operations.
Net cash used in investing activities was $119.5 million and $96.9 million
for the six months ended June 30, 1997 and 1996, respectively. Payments for
property, plant and equipment were $11.9 million less in the first six months of
1997 than in the comparable period during 1996. Capital expenditures for the six
months ended June 30, 1997 were $49.2 million for
18
telephone, $24.8 million for mobile communications and $13.4 million for other
operations. Cash used in connection with acquisitions was $6.5 million more in
the first six months of 1997 compared to the first six months of 1996. The $96.9
million of net cash used in investing activities in 1996 was net of the
reimbursement of $18.9 million related to the Company's withdrawal of its equity
investment in an entity formed for the purpose of participating in the FCC
auction of 30MHz PCS licenses.
Net cash used in financing activities was $7.2 million during the first
six months of 1997 compared to $23.3 million during the first six months of
1996. Net payments, including notes payable and long-term debt, were $19.3
million less during the first six months of 1997 compared to the first six
months of 1996. Proceeds from the issuance of common stock decreased $2.8
million during the first six months of 1997 compared to the first six months of
1996.
Budgeted capital expenditures for 1997 total $102 million for telephone
operations. Revised budgeted capital expenditures for 1997 total $60 million for
mobile communications operations and $25 million for corporate and other
operations.
As of June 30, 1997, Century's telephone subsidiaries had available for
use $138.1 million of commitments for long-term financing from the Rural
Utilities Service and the Company had $90.6 million of undrawn committed bank
lines of credit. In addition, approximately $130.0 million of uncommitted credit
facilities were available to Century at June 30, 1997. The Company has
experienced no significant problems in obtaining funds through the issuance of
debt or equity for capital expenditures or other purposes.
On June 11, 1997, the Company signed a definitive purchase agreement to
acquire PTI in exchange for $1.523 billion in cash. To finance this transaction,
the Company has obtained a $1.6 billion commitment from NationsBank for initial
financing through 5-year senior unsecured bank debt facilities. NationsBank is
currently in the process of syndicating these floating-rate revolving credit
facilities, the closing of which is expected to occur during the third quarter
of 1997. In June 1997 both Standard & Poor's and Moody's placed the Company's
debt ratings (A- and Baa1, respectively) under review; neither rating agency has
completed its review process in order to assign ratings that consider the PTI
acquisition. Assuming a Standard & Poor's rating of BBB or BBB+ or a Moody's
rating of Baa2 or Baa1, the Company will be able to borrow funds at 35 or 27.5
basis points, respectively, over LIBOR for periods ranging up to six months. The
Company's common stockholders' equity as a percentage of total capitalization
was 63.6% at June 30, 1997. Assuming the PTI acquisition had been consummated as
of June 30, 1997, common stockholders' equity as a percentage of total
capitalization would have been approximately 29%.
OTHER MATTERS
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 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
19
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, without giving
consideration to the PTI acquisition, the noncash, after-tax, extraordinary
charge would be between $100 million and $130 million.
On May 7, 1997, the Federal Communications Commission ("FCC") adopted
orders on universal service and access charges, as mandated by the
Telecommunications Act of 1996 (the "Act"). In the universal service order, the
FCC ruled that rural telephone companies, which are defined to include each of
Century's local exchange carriers ("LEC"), will continue to receive payments
under the support mechanisms currently in effect and that the funding of these
mechanisms would not be frozen. This status quo will continue under the order
until January 2001, at which time rural telephone companies will begin to
receive payments under new, yet to be developed support mechanisms which will be
based on forward-looking economic costs.
The FCC also established a new program to provide up to $2.25 billion of
discounted telecommunications services annually to schools and libraries,
commencing January 1, 1998. In addition, the FCC established a $400 million
annual fund to provide discounted telecommunications services for rural health
care providers. All telecommunications carriers providing interstate
telecommunications services, including the Company's LECs and its cellular and
long distance operations, are required to contribute to these programs. The FCC
stated that local telephone companies will recover their funding contributions
in their rates for interstate services.
In the access charge reform order, the FCC changed its system of
interstate access charges to make them compatible with the deregulatory
framework established by the Act. Such changes are only applicable to price-cap
companies. Century's telephone subsidiaries determine interstate revenues under
rate of return regulation and are, therefore, only minimally impacted by the
access charge reform order. The FCC stated that a separate access charge reform
proceeding would be initiated for rate of return companies.
Numerous petitions for reconsideration or clarification have been filed
with the FCC regarding these two orders.
In July 1997 the United States Court of Appeals for the Eighth Circuit
overturned several provisions of the local competition regulations in the
interconnection order promulgated by the FCC under the Telecommunications Act of
1996, including rules regarding the pricing of interconnection services and
rules placing the burden of proof on rural LECs to retain their rural exemption.
The FCC is expected to appeal the decision to the United States Supreme Court.
20
PART II. OTHER INFORMATION
CENTURY TELEPHONE ENTERPRISES, INC.
Item 4. Submission of Matters to a Vote of Security Holders
- ------- ---------------------------------------------------
At the Company's annual meeting of shareholders on May 8, 1997, the
shareholders elected four Class III directors to serve for a term of three years
and approved the proposals set forth in the Company's proxy statement dated
March 13, 1997.
The following number of votes were cast for or were withheld from the
following nominees:
Class III Nominees For Withheld
------------------ --- --------
Calvin Czeschin 105,467,197 4,768,615
F. Earl Hogan 105,510,706 4,725,106
Harvey P. Perry 106,010,103 4,225,709
Jim D. Reppond 105,036,452 5,199,360
The Class I and Class II directors whose terms continued after the meeting
are:
Class I Class II
------- --------
William R. Boles, Jr. Virginia Boulet
W. Bruce Hanks Ernest Butler, Jr.
C. G. Melville, Jr. James B. Gardner
Glen F. Post, III R. L. Hargrove, Jr.
Clarke M. Williams Johnny Hebert
The following number of votes were cast in the manner indicated below with
respect to the following proposals:
1. Proposal to approve the Company's Chairman/Chief Executive Officer
Short-Term Incentive Program.
For Against Abstain Broker No-Votes
--- ------- ------- ---------------
98,090,887 10,220,048 1,924,875 0
2. Proposal to approve an amendment to the Company's 1995 Incentive
Compensation Plan.
For Against Abstain Broker No-Votes
--- ------- ------- ---------------
97,631,823 11,114,214 1,489,774 0
Item 5. Other Information
- ------- -----------------
Forward-Looking Statements
Item 2 of this report includes, and future oral or written statements
of the Company and its management may include, certain forward-looking
statements, including without limitation statements with respect to the
Company's anticipated future operating and financial performance (including the
impact of pending acquisitions), financial position and liquidity, growth
opportunities and growth rates, business and competitive outlook, investment and
expenditure plans, pricing plans, strategic alternatives, business strategies,
and other similar statements of expectations or objectives that are highlighted
by words such as "expects," "anticipates," "intends," "plans," "believes,"
"projects," "seeks," "estimates," "should" or "may," and
21
variations thereof and similar expressions. Such forward-looking statements are
subject to uncertainties that could cause the Company's actual results to differ
materially from such statements. These uncertainties include but are not limited
to those set forth below:
(i) the effects of ongoing deregulation in the telecommunications
industry as a result of the Telecommunications Act of 1996 (the
"1996 Act") and other similar federal and state legislation and
federal and state regulations enacted thereunder, including without
limitation (i) greater than anticipated competition in the Company's
predominantly rural local exchange telephone markets resulting
therefrom, (ii) greater than anticipated reductions in revenues
received from the Universal Service Fund or other similar federal
and state support funds, (iii) the final outcome of FCC rulemaking
with respect to interconnection agreements and access charge reforms
and (iv) future state regulatory actions taken in response to the
1996 Act.
(ii) the effects of greater than anticipated competition from Personal
Communications Services, Enhanced Specialized Mobile Radio services,
satellite or other wireless companies, including without limitation
competition requiring new pricing or marketing strategies or new
product offerings, and the attendant risk that the Company will not
be able to respond on a timely or profitable basis.
(iii) possible changes in the demand for the Company's products and
services, including without limitation (i) lower than anticipated
demand for premium telephone services or for additional access lines
per household, (ii) lower than anticipated demand for wireless
telephone services, whether caused by changes in economic
conditions, technology, competition, health concerns or otherwise,
and (iii) reduced demand for the Company's access or billing and
collection services.
(iv) the Company's ability to successfully introduce new offerings on a
timely and cost-effective basis, including without limitation the
Company's ability to (i) expand successfully its long distance and
Internet offerings to new markets (including those to be acquired
under pending acquisitions), (ii) offer bundled service packages on
terms attractive to its customers and (iii) successfully initiate
PCS services in its licensed markets.
(v) the risks inherent in rapid technological change, including without
limitation (i) the lack of assurance that the Company's ongoing
wireless network improvements will be sufficient to meet or exceed
the capabilities and quality of competing networks, (ii)
technological developments that could make the Company's analog and
digital wireless networks uncompetitive or obsolete, such as the
risk that the Time Division Multiple Access technology used by the
Company will be uncompetitive with Code Division Multiple Access or
other digital technologies, and (iii) the risk that technologies
will not be developed on a timely or cost-effective basis or perform
according to expectations.
(vi) regulatory limits on the Company's ability to change its prices for
telephone services in response to competitive pressures.
(vii) any significant delay or problem in consummating the Company's
acquisition of Pacific Telecom, Inc.
(viii) the Company's ability to effectively manage its growth, including
without limitation the Company's ability to (i) achieve projected
22
economies of scale and cost savings, (ii) meet pro forma cash flow
projections developed by management in valuing newly-acquired
businesses and (iii) implement necessary internal controls and
retain and attract key personnel.
(ix) any difficulties in the Company's ability to expand through
additional acquisitions, whether caused by financing constraints, a
decrease in the pool of attractive target companies, or competition
for acquisitions from other interested buyers.
(x) higher than anticipated wireless operating costs due to churn or
fraudulent uses of the Company's networks.
(xi) the lack of assurance that the Company can compete effectively
against better capitalized competitors.
(xii) the discontinuance of SFAS 71 by the Company's telephone
subsidiaries.
(xiii) the effects of more general factors, including without limitation:
(a) changes in general industry and market conditions and growth
rates
(b) changes in interest rates or other general national, regional or
local economic conditions
(c) changes in legislation, regulation or public policy, including
changes in federal rural financing programs
(d) unanticipated increases in capital, operating or administrative
costs, or the impact of new business opportunities requiring
significant up-front investments
(e) the continued availability of financing in amounts, and on terms
and conditions, necessary to support the Company's operations
(f) changes in the Company's relationships with vendors
(g) changes in the Company's senior debt ratings
(h) unfavorable outcomes of regulatory or legal proceedings,
including rate proceedings
(i) changes in accounting policies or practices adopted voluntarily
or as required by generally accepted accounting principles.
For a more detailed description of these and other uncertainties, see
Items 1 and 7 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1996. Due to these uncertainties, you are cautioned not to place
undue reliance upon the Company's forward-looking statements, which speak only
as of the date hereof. The Company undertakes no obligation to update or revise
any of its forward-looking statements for any reason.
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
A. Exhibits
--------
10.1 Amendment, dated June 26, 1997, to Registrant's Dollars and Sense
Plan and Trust.
10.2 Amendments, dated January 1, 1997, to Registrant's Stock Bonus
Plan, PAYSOP and Trust.
10.3 Amendments, dated January 1, 1997, to Registrant's Employee Stock
Ownership Plan and Trust.
23
10.4 Form of Stock Option Agreement, pursuant to Registrant's 1995
Incentive Compensation Plan, dated as of February 24, 1997.
10.5 Form of Restricted Stock and Performance Share Agreement,
pursuant to Registrant's 1995 Incentive Compensation Program,
dated as of February 24, 1997.
10.6 Registrant's Chairman/Chief Executive Officer Short-Term
Incentive Program.
10.7 Stock Purchase Agreement, dated as of June 11, 1997, by and
among PacifiCorp Holdings, Inc., Pacific Telecom, Inc., Century
Telephone Enterprises, Inc. and Century Cellunet, Inc.
(incorporated by reference to Exhibit 2.1 to Registrant's Current
Report on Form 8-K filed June 24, 1997).
11 Computations of Earnings Per Share.
27 Financial Data Schedule.
B. Reports on Form 8-K
-------------------
(i) The following item was reported in a Form 8-K filed April
15, 1997.
Item 5. Other Events - News Release announcing letter of
------- intent to acquire cellular properties and PCS
licenses from Pacific Telecom, Inc.
(ii) The following item was reported in a Form 8-K filed May 7,
1997.
Item 5. Other Events - News Release announcing completion of
------- merger of the Company's competitive access subsidiary
into a subsidiary of Brooks Fiber Properties, Inc.
(iii) The following items were reported in a Form 8-K filed June 24,
1997.
Item 5. Other Events - Execution of agreement to purchase
------- Pacific Telecom, Inc.
Item 7. Financial Statements and Exhibits
-------
Stock Purchase Agreement, dated June 11, 1997, by
and among PacifiCorp Holdings, Inc., Pacific
Telecom, Inc., Century Telephone Enterprises, Inc.
and Century Cellunet, Inc.
Press Release issued June 13, 1997 disclosing
execution of the Stock Purchase Agreement.
24
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 8, 1997 /s/ Murray H. Greer
-------------------
Murray H. Greer
Controller
(Principal Accounting Officer)
25
EXHIBIT 10.1
AMENDMENT
TO THE
CENTURY TELEPHONE ENTERPRISES, INC.
DOLLARS AND SENSE PLAN AND TRUST
WHEREAS, Century Telephone Enterprises, Inc. (the "Company"), approved and
adopted the Century Telephone Enterprises, Inc. Dollars and Sense Plan (the
"Plan") and Trust Agreement (the "Trust") which were originally effective May 1,
1986 and most recently restated generally effective April 1, 1992;
WHEREAS, Section 19.1 of the Plan and Trust provides that the Company
reserves the right to amend the Plan and Trust;
NOW THEREFORE RESOLVED, that Section 1 is amended effective for the first
pay period beginning on or about July 1, 1997 as follows:
1. Section 1 is amended to restate Subsection 1.17 in its entirety as
follows:
1.17 "Eligible Employee." An Employee of an Employer, except any
Employee:
(a) whose compensation and conditions of employment are covered by
a collective bargaining agreement to which an Employer is a
party unless the agreement calls for the Employee's
participation in the Plan; or
(b) who is a temporary Employee hired specifically to fill
temporary or occasional needs.
Century Telephone Enterprises, Inc.
Dollars and Sense Plan and Trust
Dated: June 26, 1997 Century Telephone Enterprises, Inc.
By: /s/ R. Stewart Ewing, Jr.
__________________________
Title: CFO
___________________
The provisions of the above amendment which relate to the Trustee are hereby
approved and executed.
Date:_______________ BZW Barclays Global Investors,
National Association
By:____________________________
Title: ____________________
<PAGE>
Date:_______________ BZW Barclays Global Investors,
National Association
By:____________________________
Title: ____________________
EXHIBIT 10.2
AMENDMENTS TO THE
CENTURY TELEPHONE ENTERPRISES, INC.
STOCK BONUS PLAN, PAYSOP AND TRUST
STATE OF LOUISIANA
PARISH OF OUACHITA
BE IT KNOWN, that on this 1st day of January, 1997, before me, a
Notary Public, duly commissioned and qualified in and for the Parish of
Ouachita, State of Louisiana, therein residing and in the presence of the
undersigned witnesses:
PERSONALLY CAME AND APPEARED:
CENTURY TELEPHONE ENTERPRISES, INC., represented herein by its Senior Vice
President and Chief Financial Officer, R. Stewart Ewing, Jr., as Settlor and
Employer, which hereby executes the following amendments to the Century
Telephone Enterprises, Inc. Stock Bonus Plan, PAYSOP and Trust, such
amendments to be effective as of January 1, 1997:
Insert the following as Section 5.5:
1. "5.5 AGE 65 DISTRIBUTIONS.
Upon the attainment of the age of 65 years, a Participant shall be
entitled to elect a distribution of all or a portion of his Account
in the Plan. A Participate who elects to receive a distribution
pursuant to this Section 5.5 shall continue to be eligible to
participate in the Plan on the same basis as any other Participant."
2. Add the following paragraph at the end of Section 6.3:
"The beneficiary of a Participant who is married at the time of his
death shall be his surviving spouse unless his surviving spouse
consents in writing on the form provided for that purpose by the
Plan Administrator to the designation of another beneficiary. A
consent by a Participant's spouse shall not be effective unless such
consent is witnessed by the Plan Administrator or a Notary Public."
3. Add the following paragraph at the end of Section 6.4:
<PAGE>
"If a Participant who is married at the time of his death has not
properly designated a beneficiary other than his spouse in
accordance with the last paragraph of Section 6.3, the Participant's
beneficiary shall be his surviving spouse."
4. Renumber Sections 5.5 and 5.6 as Sections 5.6 and 5.7, respectively.
5. Revise the Table of Contents of the Plan in accordance with the
above, as follows:
SECTION 5.......................................................29
BENEFITS PAYABLE AFTER NORMAL RETIREMENT..................29
5.1 Optional Methods of Payment Available at
Retirement..................................... 29
5.2 Manner of Payment Following Commencement of
Payments........................................30
5.3 Required Beginning Date............ ............30
5.4 Determination of Amount to be Distributed Each
Year............................................30
5.5 Age 65 Distributions............................30
5.6 Definitions.....................................31
5.7 Small Accounts..................................31
THUS DONE AND SIGNED on the day first above shown, in the presence of the
undersigned competent witnesses, who hereunto sign their names with the said
appearer and me, Notary, after reading of the whole.
WITNESSES: CENTURY TELEPHONE ENTERPRISES, INC.
/s/ Linda Vaughn BY: /s/ R. Stewart Ewing, Jr.
____________________ _____________________________
R. Stewart Ewing, Jr.
Senior Vice President and
/s/ Bette B. Watts Chief Financial Officer
____________________
Billy R. Temple
_____________________________
NOTARY PUBLIC
<PAGE>
ACCEPTANCE OF AMENDMENTS BY THE TRUSTEE
STATE OF LOUISIANA
PARISH OF OUACHITA
On this 25th day of June, 1997,
BEFORE ME, a Notary Public, and in the presence of the undersigned
competent witnesses, personally came and appeared:
REGIONS BANK OF LOUISIANA
which declared that it is appearing herein for the purpose of accepting and it
does hereby accept the Amendments to the Century Telephone Enterprises, Inc.
Stock Bonus Plan, PAYSOP and Trust adopted the Settlor on the 1st day of
January, 1997.
THUS DONE AND SIGNED at Monroe, Louisiana, on the date first above
written.
WITNESSES: REGIONS BANK OF LOUISIANA
/s/ Linda G. Foss BY: /s/ Barry Bledsoe
______________________________ _____________________________
Barry Bledsoe
Executive Vice President
/s/ Doris E. Gatlin
______________________________
/s/ Cathy M. Yelverton
________________________
NOTARY PUBLIC
EXHIBIT 10.3
AMENDMENTS TO THE
CENTURY TELEPHONE ENTERPRISES, INC.
EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST
STATE OF LOUISIANA
PARISH OF OUACHITA
BE IT KNOWN, that on this 1st day of January, 1997, before me,
a Notary Public, duly commissioned and qualified in and for the Parish of
Ouachita, State of Louisiana, therein residing and in the presence of the
undersigned witnesses:
PERSONALLY CAME AND APPEARED:
CENTURY TELEPHONE ENTERPRISES, INC., represented herein by its Senior Vice
President and Chief Financial Officer, R. Stewart Ewing, Jr., as Settlor and
Employer, which hereby executes the following amendments to the Century
Telephone Enterprises, Inc. Employee Stock Ownership Plan and Trust, such
amendments to be effective as of January 1, 1997:
Insert the following as Section 5.5:
1. "5.5 AGE 65 DISTRIBUTIONS.
Upon the attainment of the age of 65 years, a Participant shall be
entitled to elect a distribution of all or a portion of his Account
in the Plan. A Participate who elects to receive a distribution
pursuant to this Section 5.5 shall continue to be eligible to
participate in the Plan on the same basis as any other Participant."
2. Renumber Sections 5.5 and 5.6 as Sections 5.6 and 5.7, respectively.
3. Revise the Table of Contents of the Plan in accordance with the
above, as follows:
SECTION 5.......................................................29
BENEFITS PAYABLE AFTER NORMAL RETIREMENT..................29
5.1 Optional Methods of Payment Available
at Retirement .....................................29
5.2 Manner of Payment Following Commencement of
Payments...........................................30
5.3 Required Beginning Date............................30
5.4 Determination of Amount to be Distributed
Each Year..........................................30
<PAGE>
5.5 Age 65 Distributions...............................30
5.6 Definitions........................................31
5.7 Small Accounts.....................................31
THUS DONE AND SIGNED on the day first above shown, in the presence of the
undersigned competent witnesses, who hereunto sign their names with the said
appearer and me, Notary, after reading of the whole.
WITNESSES: CENTURY TELEPHONE ENTERPRISES, INC.
/s/ Linda Vaughn BY: /s/ R. Stewart Ewing, Jr.
_____________________________ ______________________________
R. Stewart Ewing, Jr.
Senior Vice President and
Chief Financial Officer
/s/ Bette B. Watts
_____________________________
/s/ Billy R. Temple
______________________
NOTARY PUBLIC
<PAGE>
ACCEPTANCE OF AMENDMENTS BY THE TRUSTEE
STATE OF LOUISIANA
PARISH OF OUACHITA
On this 25th day of June, 1997,
BEFORE ME, a Notary Public, and in the presence of the undersigned
competent witnesses, personally came and appeared:
REGIONS BANK OF LOUISIANA
which declared that it is appearing herein for the purpose of accepting and it
does hereby accept the Amendments to the Century Telephone Enterprises, Inc.
Employee Stock Ownership Plan and Trust adopted the Settlor on the 1st day of
January, 1997.
THUS DONE AND SIGNED at Monroe, Louisiana, on the date first above
written.
WITNESSES: REGIONS BANK OF LOUISIANA
/s/ Linda G. Foss BY: /s/ Barry Bledsoe
______________________________ _____________________________
Barry Bledsoe
Executive Vice President
/s/ Doris E. Gatlin
_____________________________
/s/ Cathy M. Yelverton
_________________________
NOTARY PUBLIC
<PAGE>
EXHIBIT 10.4
THIS DOCUMENT CONSTITUTES PART OF A PROSPECTUS COVERING SECURITIES
THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
NON-QUALIFIED STOCK OPTION AGREEMENT
UNDER THE
CENTURY TELEPHONE ENTERPRISES, INC.
1995 INCENTIVE COMPENSATION PLAN
THIS AGREEMENT is entered into as of February 24, 1997 by and between
Century Telephone Enterprises, Inc., a Louisiana corporation ("Century"),
and _____________ ("Optionee").
WHEREAS Optionee is a key employee of Century or one of its subsidiaries
(collectively, the "Company") and Century considers it desirable and in its best
interest that Optionee be given an inducement to acquire a proprietary interest
in Century and an incentive to advance the interests of Century by possessing an
option to purchase shares of the common stock, $1.00 par value per share, of
Century (the "Common Stock") under the Century Telephone Enterprises, Inc. 1995
Incentive Compensation Plan (the "Plan"), which was adopted by the Compensation
Committee of the Board of Directors of Century (the "Committee") on February 19,
1995, ratified by the Board of Directors of Century on February 21, 1995, and
approved by the shareholders at Century's 1995 Annual Meeting of Shareholders;
NOW, THEREFORE, in consideration of the premises, it is agreed as follows:
1.
Grant of Option
1.01 Century hereby grants to Optionee effective February 24, 1997 (the
"Date of Grant") the right, privilege and option to purchase ______ shares of
Common Stock (the "Option") at an exercise price of $30.375 per share.
1.02 The Option is a non-qualified stock option and shall not be treated
as an incentive stock option under Section 422 of the Internal Revenue Code of
1986, as amended (the "Code").
2.
Time of Exercise
2.01 Subject to the provisions of the Plan and Section 2.02 hereof, the
Optionee shall be entitled to exercise the Option as follows:
With respect to 1/3 of the Beginning February 24, 1997
shares covered by the Option
<PAGE>
With respect to 2/3 of the Beginning February 24, 1998
shares covered by the Option,
less any shares previously
issued;
With respect to all of the Beginning February 24, 1999
shares covered by the Option,
less any shares previously
issued;
The Option shall expire and may not be exercised later than ten years after the
Date of Grant.
2.02 Notwithstanding the foregoing, the Option shall become accelerated
and immediately exercisable in full if (a.) Optionee dies while he is employed
by the Company, (b.) Optionee becomes disabled within the meaning of Section
22(e)(3) of the Code ("Disability") while he is employed by the Company, (c.)
Optionee retires from employment with the Company on or after attaining the age
of 55 ("Retirement") or (d.) pursuant to the provisions of the Plan.
3.
Conditions for Exercise of Option
During Optionee's lifetime, the Option may be exercised only by him or by
his guardian or legal representative. The Option must be exercised while
Optionee is employed by the Company, or, to the extent exercisable at the time
of termination of employment, within 190 days of the date on which he ceases to
be an employee, except that (a.) if he ceases to be an employee because of
Retirement, the Option may be exercised within three years from the date on
which he ceases to be an employee, (b.) if an Optionee's employment is
terminated for cause, the unexercised portion of the Option is immediately
terminated, and (c.) in the event of Optionee's Disability or death, the Option
may be exercised by the Optionee or, in the case of death, by his estate, or by
the person to whom such right evolves from him by reason of his death within two
years after the date of his Disability or death; provided, however, that no
Option may be exercised later than ten years after the Date of Grant.
4.
Preference Share Purchase Rights
Upon exercise of an Option at a time when preference share purchase rights
to purchase shares of Series BB Participating Cumulative Preference Stock or
other securities or property of the Company (the "Rights" and each a "Right")
remain outstanding pursuant to that certain Rights Agreement dated as of August
27, 1996 between the Company and the Rights Agent named therein, (the "Rights
Agreement") or any successor rights agreement, then the Option shall
automatically be
<PAGE>
converted into the right to receive, upon payment of the exercise price, one
Right for each share of Common Stock received upon exercise of the Option.
5.
Additional Conditions
Anything in this Agreement to the contrary notwithstanding, if at any time
Century further determines, in its sole discretion, that the listing,
registration or qualification (or any updating of any such document) of the
shares of Common Stock issuable pursuant to the exercise of an Option is
necessary on any securities exchange or under any federal or state securities or
blue sky law, or that the consent or approval of any governmental regulatory
body is necessary or desirable as a condition of, or in connection with the
issuance of shares of Common Stock pursuant thereto, or the removal of any
restrictions imposed on such shares, such shares of Common Stock shall not be
issued, in whole or in part, unless such listing, registration, qualification,
consent or approval shall have been effected or obtained free of any conditions
not acceptable to Century. Century agrees to promptly take any and all actions
necessary or desirable in order that all shares of Common Stock issuable
hereunder shall be issued as provided herein.
6.
No Contract of Employment Intended
Nothing in this Agreement shall confer upon Optionee any right to continue
in the employment of the Company or to interfere in any way with the right of
Century to terminate Optionee's employment relationship with the Company at any
time.
7.
Taxes
The Company may make such provisions as it may deem appropriate for the
withholding of any federal, state and local taxes that it determines are
required to be withheld on the exercise of the Option.
8.
Binding Effect
This Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective heirs, executors, administrators and
successors.
<PAGE>
9.
Inconsistent Provisions
The Option granted hereby is subject to the provisions of the Plan. If any
provision of this Agreement conflicts with a provision of the Plan, the Plan
provision shall control.
10.
Adjustments to Options
Appropriate adjustments shall be made to the number and class of shares of
Common Stock subject to the Option and to the exercise price in certain
situations described in Section 10.6 of the Plan.
11.
Termination of Option
The Committee, in its sole discretion, may terminate the Option. However,
no termination may adversely affect the rights of Optionee to the extent that
the Option is currently exercisable on the date of such termination.
IN WITNESS WHEREOF the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
CENTURY TELEPHONE ENTERPRISES, INC.
By: ________________________________
Glen F. Post, III, President and
Chief Executive Officer
________________________________
Name
Optionee
<PAGE>
EXHIBIT 10.5
THIS DOCUMENT CONSTITUTES PART OF A PROSPECTUS COVERING SECURITIES THAT HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
RESTRICTED STOCK AND
PERFORMANCE SHARE AGREEMENT
UNDER THE
1995 INCENTIVE COMPENSATION PROGRAM
THIS AGREEMENT is made as of February 24, 1997, by and between Century
Telephone Enterprises, Inc. ("Century") and ____________ ("Award Recipient").
WHEREAS, Century maintains the 1995 Century Telephone Enterprises, Inc.
Incentive Compensation Plan, as amended (the "Plan"), under which the Incentive
Awards Subcommittee of the Compensation Committee of the Board of Directors of
Century (the "Committee") may, among other things, grant restricted shares (the
"Restricted Stock") of Century's common stock, $1.00 par value per share (the
"Common Stock"), and awards in the form of performance shares (the "Performance
Shares") to key employees of Century or its subsidiaries as the Committee may
determine, subject to terms, conditions, or restrictions as it may deem
appropriate;
WHEREAS, pursuant to the Plan the Committee has awarded to the Award
Recipient a Restricted Stock award and a Performance Share award.
NOW, THEREFORE, in consideration of the premises, it is agreed with the
respect to the Restricted Stock and Performance Shares as follows:
1.
AWARD OF SHARES
1.1 Under the terms of the Plan, the Committee hereby awards to the Award
Recipient, _____________ shares of Restricted Stock that vest on December 31,
2001, if, subject to Section 4 hereof, the Award Recipient remains employed by
Century on that date (the "Time-Vested Restricted Stock").
1.2 Under the terms of the Plan, the Committee also awards to the Award
Recipient, _________ shares of Restricted Stock (the "Performance-Based
Restricted Stock") and ________ Performance Shares that vest if, subject to
Section 4 hereof, the Award Recipient remains employed by Century through
December 31, 2001 and the performance goals described in Section 3 hereof are
achieved. The grant of Performance-Based Restricted Stock and Performance Shares
is subject to shareholder approval of an amendment to the Plan at the 1997
Annual Meeting of Shareholders that provides performance goals applicable to
Performance-Based Restricted Stock and Performance Shares granted under the
Plan.
1.3 All awards hereunder are subject to the terms, conditions, and
restrictions set forth in the Plan and in this Agreement. The date of grant of
the Restricted Stock and Performance Shares is February 24, 1997.
<PAGE>
2.
AWARD RESTRICTIONS ON
RESTRICTED STOCK
2.1 The Restricted Period is a period that begins on the date hereof and
ends at such time after December 31, 2001 as the Committee has been able to
determine if and to what extent the applicable conditions and performance goals
provided herein have been met.
2.2 In addition to the conditions and restrictions provided in the Plan,
during the Restricted Period, the shares of Restricted Stock and the right to
vote the Restricted Stock and to receive dividends thereon may not be sold,
assigned, transferred, exchanged, pledged, hypothecated or otherwise encumbered.
During the Restricted Period, except as otherwise provided in this Section 2,
the Award Recipient shall be entitled to all rights of a shareholder of Century,
including the right to vote the shares and receive dividends and/or other
distributions declared on the Restricted Stock.
3.
PERFORMANCE CRITERIA FOR PERFORMANCE-BASED
RESTRICTED STOCK AND PERFORMANCE SHARES
3.1 The restrictions on shares of Performance-Based Restricted Stock will
lapse and the Performance Shares will be earned depending upon Century's total
shareholder return as compared to the total shareholder return of the other
companies included in the Value Line Telecommunications/Other Majors Index
("Index"), as follows:
a. At the end of the year 2001, the total shareholder return
(increase in stock price plus reinvestment of dividends) for the five-year
period of 1997 through 2001 (the "Performance Period") for each of the
companies included in the Index at the end of the Performance Period will
be calculated and each company ranked based upon total shareholder return.
b. The average shareholder return of the companies that make up the
top one-third, middle one-third and bottom one-third of the companies
included in the Index at the end of the Performance Period will be
calculated.
c. If Century's total shareholder return for the Performance Period
is less than the average total shareholder return of the companies in the
bottom one-third of the Index, none of the shares of Performance-Based
Restricted Stock will vest and no Performance Shares will be earned.
d. If Century's total shareholder return for the Performance Period
equals or exceeds the average total shareholder return of the companies in
the bottom one-third of the Index, then the portion of the Performance-
Based Restricted Stock that vests (not more than the number of
shares granted) will be equal to
(a / b) X c
with a equal to the difference between the Century total shareholder
return and the bottom one-third average return
<PAGE>
and b equal to the difference between the middle one-third average and
the bottom one-third average and c equal to the number of shares of
Performance-Based Restricted Stock granted.
e. In addition to the Performance-Based Restricted Stock that will
vest under the terms described in 3.1.d. above, if Century's total
shareholder return for the Performance Period is greater than the average
shareholder return of the middle one-third of the Index, the Award
Recipient will earn Performance Shares. The portion of the Performance
Shares that are earned (not more than the number granted) will be equal to
(a / b) X c
with a equal to the difference between the Century total
shareholder return and the middle one-third average return
and b equal to the difference between the top one-third
average and the middle one-third average and c equal to the
number of Performance Shares granted.
f. If earned, the Performance Shares will be paid in
shares of Common Stock.
3.3 Although permitted by the terms of the Plan, the Committee may not
waive any of the performance requirements described in this Section 3 or
accelerate the termination of the Restricted Period with respect to the
Performance-Based Restricted Stock and Performance Shares. All shares of
Restricted Stock will vest, and all Performance Shares will be earned, however,
in the event of a Corporate Change of the Company, as provided in Section 10.11
of the Plan.
3.4 Prior to the lapse of restrictions on shares of Performance-Based
Restricted Stock or the issuance of shares of Common Stock in payment of
Performance Shares, the Committee must certify in writing that all applicable
performance goals and conditions have been met.
3.5 Any shares of Restricted Stock with respect to which restrictions do
not lapse and any Performance Shares that are not earned shall be forfeited upon
termination of the Restricted Period.
4.
TERMINATION OF EMPLOYMENT
4.1 If an Award Recipient's employment terminates as the result of death,
disability within the meaning of Section 22(e)(3) of the Internal Revenue Code
("Disability"), or retirement on or after reaching age 55 ("Retirement") during
the Performance Period, all shares of Time-Vested Restricted Stock shall
immediately vest and all restrictions thereon shall lapse. Termination of
employment for any other reason during the Performance Period results in
forfeiture of all Time-Vested Restricted Stock.
4.2 If an Award Recipient's employment terminates during the first year of
the Performance Period for any reason, all shares of Performance-Based
Restricted Stock shall be immediately forfeited and no Performance Shares shall
be earned.
<PAGE>
4.3 If an Award Recipient's employment terminates as a result of death,
Disability or Retirement following the first year of the Performance Period, the
Award Recipient shall receive the pro rata portion of the Performance-Based
Restricted Stock and Performance Shares based upon the number of full years of
the Performance Period that has elapsed prior to termination of employment and
Century's total shareholder return as compared to the Index for such years.
Other shares of Performance-Based Restricted Stock and Performance Shares shall
be forfeited.
5.
STOCK CERTIFICATES
5.1 The stock certificates evidencing the Restricted Stock shall be
retained by Century until the termination of the Restricted Period and the lapse
of restrictions under the terms hereof. Century shall place a legend on the
stock certificates restricting the transferability of the shares of Restricted
Stock.
5.2 Upon the lapse of restrictions on shares of Restricted Stock and
when Performance Shares are earned, Century shall cause a stock certificate
without a restrictive legend to be issued with respect to the vested Restricted
Stock and the earned Performance Shares in the name of the Award Recipient or
his or her nominee within 30 days after the end of the Restricted Period. Upon
receipt of such stock certificate, the Award Recipient is free to hold or
dispose of the shares represented by such certificate, subject to applicable
securities laws.
6.
DIVIDENDS
Any dividends paid on shares of Restricted Stock shall be paid to the
Award Recipient currently. No dividends or dividend equivalents will be paid
with respect to the Performance Shares prior to the issuance of Common Stock in
payment thereof.
7.
WITHHOLDING TAXES
At the time that all or any portion of the Restricted Stock vests or the
Performance Shares are earned, the Award Recipient must deliver to Century the
amount of income tax withholding required by law.
8.
ADDITIONAL CONDITIONS
Anything in this Agreement to the contrary notwithstanding, if at any time
Century further determines, in its sole discretion, that the listing,
registration or qualification (or any updating of any such document) of the
shares of Common Stock issued or issuable pursuant hereto is necessary on any
securities exchange or under any federal or state securities or blue sky law, or
that the consent or approval of any governmental regulatory body is necessary or
desirable as a condition of, or in connection with the issuance of shares of
Common Stock pursuant hereto, or the removal or any
<PAGE>
restrictions imposed on such shares, such shares of Common Stock shall not be
issued, in whole or in part, or the restrictions thereon removed, unless such
listing, registration, qualification, consent or approval shall have been
effected or obtained free of any conditions not acceptable to Century.
9.
NO CONTRACT OF EMPLOYMENT INTENDED
Nothing in this Agreement shall confer upon the Award Recipient any right
to continue in the employment of Century, or to interfere in any way with the
right of Century to terminate the Award Recipient's employment relationship with
Century at any time.
10.
BINDING EFFECT
This Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective heirs, executors, administrators and
successors.
11.
INCONSISTENT PROVISIONS
The shares of Restricted Stock and Performance Shares granted hereby are
subject to the provisions of the Plan. If any provision of this Agreement
conflicts with a provision of the Plan, the Plan provision shall control.
IN WITNESS WHEREOF the parties hereto have caused this Agreement to be
executed on the day and year first above written.
CENTURY TELEPHONE ENTERPRISES, INC.
By: _______________________________
Glen F. Post, III, President and
Chief Executive Officer
_______________________________
Award Recipient
EXHIBIT 10.6
CENTURY TELEPHONE ENTERPRISES, INC.
CHAIRMAN/CHIEF EXECUTIVE OFFICER
SHORT-TERM INCENTIVE PROGRAM
1. PURPOSE. The purpose of the Century Enterprises, Inc. Chairman/Chief
Executive Officer Short-Term Incentive Program (the "Program") is to
advance the interests of Century Telephone Enterprises, Inc. (the
"Company") by providing an annual incentive bonus to be paid to the
Chairman and the Chief Executive Officer of the Company based on the
achievement of pre-established quantitative Company performance goals.
2. SHAREHOLDER APPROVAL. The payment of any bonus hereunder is subject to the
approval of the Program including the material terms of performance goals
used in the Program by the shareholders of the Company at the 1997 Annual
Meeting.
3. ADMINISTRATION. The Incentive Awards Subcommittee of the Compensation
Committee of the Board of Directors of the Company (the "Committee") shall
have authority to administer the Program in all respects and, in
particular, shall have authority to:
(a) Establish performance goals and objectives for a
particular year;
(b) Establish regulations for the administration of the
Program and make all determinations deemed necessary for
the administration of the Program; and
(c) Certify as to whether performance goals have been met.
4. INCENTIVE BONUS. Each of the Chairman and the CEO shall be eligible to be
paid an annual bonus in an amount not to exceed $800,000. The exact amount
of the bonus for each year shall be calculated according to the formula
established by the Committee before March 31 of that year and shall be
based upon the achievement of annual performance goals. The Committee has
the discretion to decrease, but not increase, the amount of the bonus from
the amount that is payable under the terms of the pre-established formula
for the applicable year. The performance goals each year shall be based
upon one or more of the following performance goals: return on equity,
revenue growth, earnings per share, an economic value added measure,
shareholder return, earnings, return on assets or cash flow. Performance
goals may be measured on an absolute basis or relative to a group of peer
companies selected by the Committee, relative to internal goals or relative
to levels attained in prior years. The Committee may change the performance
goals each year to any of those listed in the foregoing sentence and may
also change the targets applicable to the performance goals from year to
year.
5. PAYMENT OF INCENTIVE BONUS. As soon as practicable after the Company's
financial statements are available for the year for which the incentive
bonus will be paid, the Committee shall apply the formula for that year
and determine the amount of the incentive
<PAGE>
bonus. The Committee shall certify in writing prior to the payment of any
incentive bonus under the Program that the performance goals applicable to
the bonus payment were met. Approved minutes of a Committee meeting will
satisfy this requirement. The incentive bonus may be paid all or a portion
in restricted stock of the Company in the discretion of the Committee.
Shares of restricted stock issued in payment hereunder may be paid under
the Company's 1983 Restricted Stock Plan or 1995 Incentive Compensation
Plan.
6. KEY EMPLOYEE INCENTIVE COMPENSATION PLAN. The Program shall work in
conjunction with the Company's Amended and Restated Key Employee Incentive
Compensation Plan (the "Key Employee Plan"), which is the bonus plan for
other Company officers. The rights and obligations of the Company, CEO and
Chairman hereunder as to forfeiture of benefits by the Chairman and the CEO
under certain conditions and as to the effect of termination of employment
of the Chairman or the CEO or a change of control of the Company shall be
as provided in the Key Employee Plan. Notwithstanding the foregoing, the
Incentive Awards Subcommittee, and not the full Board or Compensation
Committee, has sole and exclusive authority to take all action with respect
to the Program, except that the incentive bonus shall be ratified by the
Board.
7. ASSIGNMENTS AND TRANSFERS. The Chairman or the CEO may not assign, encumber
or transfer his rights and interests under the Program.
8. AMENDMENT AND TERMINATION. The Committee may amend, suspend or terminate
the Program at any time. Any amendment or termination of the Program shall
not, however, affect the right of the Chairman or CEO to receive an
incentive bonus earned for the year during which the Program was amended or
terminated or any earned but unpaid incentive bonus.
9. WITHHOLDING OF TAXES. The Company shall deduct from the amount of any
incentive bonus paid hereunder any federal or state taxes required to be
withheld.
10. TERM OF PROGRAM. The Program shall consist of five individual calendar year
Programs, commencing effective January 1, 1997 and each consecutive January
1 thereafter during the continuation of the Program. The Program shall
continue through 2001 unless terminated earlier by the Committee.
<PAGE>
EXHIBIT 11
CENTURY TELEPHONE ENTERPRISES, INC.
COMPUTATIONS OF EARNINGS PER SHARE
(UNAUDITED)
Three months Six months
ended June 30 ended June 30
- ------------------------------------------------------------------------------
1997 1996 1997 1996
- ------------------------------------------------------------------------------
(Dollars, except per share amounts,
and shares expressed in thousands)
Net income $ 83,176 32,941 116,311 62,606
Dividends applicable to
preferred stock (27) (129) (55) (157)
- ------------------------------------------------------------------------------
Net income applicable to
common stock 83,149 32,812 116,256 62,449
Dividends applicable to
preferred stock 27 129 55 157
Interest on convertible securities,
net of taxes 120 145 240 290
- ------------------------------------------------------------------------------
Net income as adjusted for purposes
of computing fully diluted
earnings per share $ 83,296 33,086 116,551 62,896
==============================================================================
Weighted average number of shares:
Outstanding during period 60,105 59,624 60,051 59,458
Common stock equivalent shares 559 679 571 607
Employee Stock Ownership Plan
shares not committed to
be released (292) (334) (301) (342)
- ------------------------------------------------------------------------------
Number of shares for computing
primary earnings per share 60,372 59,969 60,321 59,723
Incremental common shares
attributable to additional
dilutive effect of convertible
securities 727 726 668 726
- ------------------------------------------------------------------------------
Number of shares as adjusted for
purposes of computing fully diluted
earnings per share 61,099 60,695 60,989 60,449
==============================================================================
Earnings per average common share $ 1.38 .55 1.94 1.05
==============================================================================
Primary earnings per share $ 1.38 .55 1.93 1.05
==============================================================================
Fully diluted earnings per share $ 1.36 .55 1.91 1.04
==============================================================================
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED BALANCE SHEET OF CENTURY TELEPHONE ENTERPRISES, INC.
AND SUBSIDIARIES AS OF JUNE 30, 1997 AND THE RELATED UNAUDITED CONSOLIDATED
STATEMENT OF INCOME FOR THE SIX MONTH PERIOD THEN ENDED AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000018926
<NAME> CENTURY TELEPHONE ENTERPRISES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 12,088
<SECURITIES> 0
<RECEIVABLES> 69,957
<ALLOWANCES> 3,131
<INVENTORY> 6,613
<CURRENT-ASSETS> 125,091
<PP&E> 1,744,063
<DEPRECIATION> 604,355
<TOTAL-ASSETS> 2,224,459
<CURRENT-LIABILITIES> 148,214
<BONDS> 630,232
0
10,041
<COMMON> 60,152
<OTHER-SE> 1,096,863
<TOTAL-LIABILITY-AND-EQUITY> 2,224,459
<SALES> 0
<TOTAL-REVENUES> 409,561
<CGS> 0
<TOTAL-COSTS> 289,458
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,364
<INCOME-PRETAX> 181,627
<INCOME-TAX> 65,316
<INCOME-CONTINUING> 116,311
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 116,311
<EPS-PRIMARY> 1.93
<EPS-DILUTED> 1.91
</TABLE>
