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, 1998
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number: 1-7784
CENTURY TELEPHONE ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
Louisiana 72-0651161
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 Century Park Drive, Monroe, Louisiana 71203
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (318) 388-9000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[X] Yes [ ] No
As of July 31, 1998, there were 91,819,855 shares of common stock
outstanding.
<PAGE>
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, 1998 and 1997 3
Consolidated Statements of Comprehensive Income --
Three Months and Six Months Ended June 30, 1998 and 1997 4
Consolidated Balance Sheets--June 30, 1998 and
December 31, 1997 5
Consolidated Statements of Stockholders' Equity--
Six Months Ended June 30, 1998 and 1997 6
Consolidated Statements of Cash Flows--
Six Months Ended June 30, 1998 and 1997 7
Notes to Consolidated Financial Statements 8-10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11-22
Part II. Other Information:
Item 4. Submission of Matters To a Vote of Security Holders 23
Item 6. Exhibits and Reports on Form 8-K 23
Signature 24
<PAGE>
PART I. FINANCIAL INFORMATION
CENTURY TELEPHONE ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three months Six months
ended June 30, ended June 30,
- ---------------------------------------------------------------------------
1998 1997 1998 1997
- ---------------------------------------------------------------------------
(Dollars, except per share amounts,
and shares expressed in thousands)
OPERATING REVENUES
Telephone $ 265,322 120,425 525,135 237,520
Wireless 104,871 74,470 199,037 140,309
Other 18,185 15,681 35,926 31,732
- ---------------------------------------------------------------------------
Total operating revenues 388,378 210,576 760,098 409,561
- ---------------------------------------------------------------------------
OPERATING EXPENSES
Cost of sales and operating
expenses 185,406 111,830 367,800 217,792
Depreciation and amortization 81,484 36,341 160,678 71,666
- ---------------------------------------------------------------------------
Total operating expenses 266,890 148,171 528,478 289,458
- ---------------------------------------------------------------------------
OPERATING INCOME 121,488 62,405 231,620 120,103
- ---------------------------------------------------------------------------
OTHER INCOME (EXPENSE)
Gain on sales or exchange of
assets, net 25,516 70,121 49,859 70,121
Interest expense (42,072) (11,054) (84,881) (22,364)
Income from unconsolidated
cellular entities 9,066 7,799 15,943 13,379
Minority interest (4,002) (1,541) (6,645) (1,905)
Other income and expense 691 1,059 1,295 2,293
- ---------------------------------------------------------------------------
Total other income (expense) (10,801) 66,384 (24,429) 61,524
- ---------------------------------------------------------------------------
INCOME BEFORE INCOME TAX EXPENSE 110,687 128,789 207,191 181,627
Income tax expense 46,496 45,613 85,306 65,316
- ---------------------------------------------------------------------------
NET INCOME $ 64,191 83,176 121,885 116,311
===========================================================================
BASIC EARNINGS PER SHARE* $ .70 .93 1.34 1.29
===========================================================================
DILUTED EARNINGS PER SHARE* $ .69 .91 1.31 1.28
===========================================================================
DIVIDENDS PER COMMON SHARE* $ .065 .0617 .13 .1234
===========================================================================
AVERAGE BASIC SHARES
OUTSTANDING * 91,281 89,720 91,124 89,627
===========================================================================
AVERAGE DILUTED SHARES
OUTSTANDING * 93,352 91,211 93,134 91,133
===========================================================================
* Reflects March 1998 stock split. See Note 5.
See accompanying notes to consolidated financial statements.
CENTURY TELEPHONE ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
Three months Six months
ended June 30, ended June 30,
- ---------------------------------------------------------------------------
1998 1997 1998 1997
- ---------------------------------------------------------------------------
(Dollars in thousands)
Net income $64,191 83,176 121,885 116,311
- ---------------------------------------------------------------------------
Other comprehensive income, net of tax:
Unrealized holding gains arising
during period, net of tax 1,961 24,565 10,941 24,565
Reclassification adjustment for
gains included in net income,
net of tax (5,683) - (20,478) -
- ---------------------------------------------------------------------------
Other comprehensive income,
net of tax (3,722) 24,565 (9,537) 24,565
- ---------------------------------------------------------------------------
Comprehensive income $60,469 107,741 112,348 140,876
===========================================================================
See accompanying notes to consolidated financial statements.
<PAGE>
CENTURY TELEPHONE ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
June 30, December 31,
1998 1997
- ---------------------------------------------------------------------------
(Dollars in thousands)
ASSETS
- ------
CURRENT ASSETS
Cash and cash equivalents $ 16,966 26,017
Accounts receivable, less allowance of
$8,287 and $5,954 187,245 227,272
Materials and supplies, at average cost 23,278 21,994
Other 8,737 8,197
- ---------------------------------------------------------------------------
236,226 283,480
- ---------------------------------------------------------------------------
NET PROPERTY, PLANT AND EQUIPMENT 2,236,150 2,258,563
- ---------------------------------------------------------------------------
INVESTMENTS AND OTHER ASSETS
Excess cost of net assets acquired, less
accumulated amortization of
$107,664 and $84,132 1,744,834 1,767,352
Other 438,397 400,006
- ---------------------------------------------------------------------------
2,183,231 2,167,358
- ---------------------------------------------------------------------------
$4,655,607 4,709,401
===========================================================================
LIABILITIES AND EQUITY
- ----------------------
CURRENT LIABILITIES
Current maturities of long-term debt $ 47,522 55,244
Accounts payable 76,544 83,378
Accrued expenses and other liabilities
Salaries and benefits 44,096 38,225
Taxes 27,728 74,898
Interest 38,984 20,821
Other 17,367 25,229
Advance billings and customer deposits 27,105 24,213
- ---------------------------------------------------------------------------
279,346 322,008
- ---------------------------------------------------------------------------
LONG-TERM DEBT 2,451,779 2,609,541
- ---------------------------------------------------------------------------
DEFERRED CREDITS AND OTHER LIABILITIES 508,223 477,580
- ---------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Common stock, $1.00 par value, authorized
175,000,000 shares, issued and outstanding
91,799,878 and 91,103,674 shares 91,800 91,104
Paid-in capital 483,407 469,586
Accumulated other comprehensive income -
unrealized holding gain on investments,
net of taxes 2,356 11,893
Retained earnings 837,850 728,033
Unearned ESOP shares (7,260) (8,450)
Preferred stock - non-redeemable 8,106 8,106
- ---------------------------------------------------------------------------
1,416,259 1,300,272
- ---------------------------------------------------------------------------
$4,655,607 4,709,401
===========================================================================
See accompanying notes to consolidated financial statements.
<PAGE>
CENTURY TELEPHONE ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
Six months
ended June 30,
- ---------------------------------------------------------------------------
1998 1997
- ---------------------------------------------------------------------------
(Dollars in thousands)
COMMON STOCK
Balance at beginning of period $ 91,104 * 59,859
Issuance of common stock for acquisitions 28 -
Conversion of convertible securities
into common stock 169 113
Issuance of common stock through dividend
reinvestment, incentive and benefit plans 499 180
- ---------------------------------------------------------------------------
Balance at end of period 91,800 60,152
- ---------------------------------------------------------------------------
PAID-IN CAPITAL
Balance at beginning of period 469,586 * 474,607
Issuance of common stock for acquisitions 1,059 -
Conversion of convertible securities into
common stock 3,131 3,187
Issuance of common stock through dividend
reinvestment, incentive and benefit plans 8,350 4,079
Amortization of unearned compensation and other 1,281 338
- ---------------------------------------------------------------------------
Balance at end of period 483,407 482,211
- ---------------------------------------------------------------------------
ACCUMULATED OTHER COMPREHENSIVE INCOME
Balance at beginning of period 11,893 -
Change in unrealized holding gain on
investments, net of reclassification
adjustment (9,537) 24,565
- ---------------------------------------------------------------------------
Balance at end of period 2,356 24,565
- ---------------------------------------------------------------------------
RETAINED EARNINGS
Balance at beginning of period 728,033 494,726
Net income 121,885 116,311
Cash dividends declared
Common stock-$.13 and $.1234 per
share, respectively * (11,864) (11,055)
Preferred stock (204) (255)
- ---------------------------------------------------------------------------
Balance at end of period 837,850 599,727
- ---------------------------------------------------------------------------
UNEARNED ESOP SHARES
Balance at beginning of period (8,450) (11,080)
Release of ESOP shares 1,190 1,440
- ---------------------------------------------------------------------------
Balance at end of period (7,260) (9,640)
- ---------------------------------------------------------------------------
PREFERRED STOCK - NON-REDEEMABLE
Balance at beginning and end of period 8,106 10,041
- ---------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY $ 1,416,259 1,167,056
===========================================================================
* Reflects March 1998 stock split. See Note 5.
See accompanying notes to consolidated financial statements.
<PAGE>
CENTURY TELEPHONE ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six months
ended June 30,
- ---------------------------------------------------------------------------
1998 1997
- ---------------------------------------------------------------------------
(Dollars in thousands)
OPERATING ACTIVITIES
Net income $ 121,885 116,311
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 160,678 71,666
Deferred income taxes 25,537 29,667
Income from unconsolidated cellular entities (15,943) (13,379)
Minority interest 6,645 1,905
Gain on sales of assets (49,859) (70,121)
Changes in current assets and current
liabilities:
Accounts receivable (20,498) (15,670)
Accounts payable (6,834) (4,187)
Other accrued taxes (47,170) 5,343
Other current assets and other current
liabilities, net 14,240 7,012
Increase in other noncurrent liabilities 5,551 3,382
Other, net (1,845) (1,522)
- ---------------------------------------------------------------------------
Net cash provided by operating activities 192,387 130,407
- ---------------------------------------------------------------------------
INVESTING ACTIVITIES
Payments for property, plant and equipment (122,018) (87,419)
Acquisitions, net of cash acquired (5,000) (23,548)
Proceeds from sales of assets 132,307 -
Distributions from unconsolidated cellular
entities 11,647 5,723
Purchase of life insurance investment (5,150) (11,998)
Other, net 2,386 (2,269)
- ----------------------------------------------------------------------------
Net cash provided by (used in) investing
activities 14,172 (119,511)
- ---------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt 772,852 28,500
Payments of long-term debt (938,532) (28,782)
Payment upon settlement of hedge contracts (40,237) -
Payment of deferred debt issuance costs (6,625) -
Proceeds from issuance of common stock 8,926 4,258
Cash dividends (12,068) (11,310)
Other, net 74 124
- ---------------------------------------------------------------------------
Net cash used in financing activities (215,610) (7,210)
- ---------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (9,051) 3,686
Cash and cash equivalents at beginning of period 26,017 8,402
- ---------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 16,966 12,088
===========================================================================
Supplemental cash flow information:
Income taxes paid $ 118,364 38,402
Interest paid $ 66,718 23,000
- ---------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
<PAGE>
CENTURY TELEPHONE ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
(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, 1997. Certain 1997 amounts have been reclassified to be consistent with the
1998 presentation.
The unaudited financial information for the three months and six months
ended June 30, 1998 and 1997 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,
1998 1997
- -----------------------------------------------------------------------
(Dollars in thousands)
Telephone, at original cost $3,358,280 3,295,860
Accumulated depreciation (1,473,002) (1,375,835)
- -----------------------------------------------------------------------
1,885,278 1,920,025
- -----------------------------------------------------------------------
Wireless, at cost 413,778 380,218
Accumulated depreciation (155,310) (133,357)
- -----------------------------------------------------------------------
258,468 246,861
- -----------------------------------------------------------------------
Corporate and other, at cost 182,771 169,420
Accumulated depreciation (90,367) (77,743)
- -----------------------------------------------------------------------
92,404 91,677
- -----------------------------------------------------------------------
$2,236,150 2,258,563
=======================================================================
(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, 1998
and 1997) were accounted for by the equity method.
Six months
ended June 30,
- ---------------------------------------------------------------------------
1998 1997
- ---------------------------------------------------------------------------
(Dollars in thousands)
Results of operations
Revenues $ 606,793 607,564
Operating income $ 216,062 198,951
Net income $ 216,952 199,927
- ---------------------------------------------------------------------------
(4) Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting
Comprehensive Income" and Statement of Financial Accounting Standards No. 131
("SFAS 131"), "Disclosures About Segments of an Enterprise and Related
Information." SFAS 130 established standards for reporting the components of
comprehensive income, which is defined to include all changes in equity during a
period except those resulting from investments by and distributions to
shareholders. SFAS 131 established standards for reporting information about
operating segments in annual financial statements and interim financial reports
to shareholders. The Company adopted both statements in the first quarter of
1998; however, the provisions of SFAS 131 need not be applied to interim periods
in the initial year of application. SFAS 131 is not expected to materially
impact how the Company currently reports its segment information.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging
Activities." SFAS 133 established accounting and reporting standards for
derivative instruments and for hedging activities by requiring that entities
recognize all derivatives as either assets or liabilities at fair value on the
balance sheet. Based on the Company's current use of derivatives, SFAS 133 is
not expected to materially impact the Company's financial position or results of
operations.
(5) Stock Split
On March 31, 1998, the Company effected a three-for-two common stock split
by means of a 50% stock dividend. Shares outstanding and per share data for the
six months and three months ended June 30, 1997 have been restated to reflect
this stock split.
(6) Debt Issuance
On January 15, 1998, Century issued $100 million of 7-year, 6.15% senior
notes (Series E); $240 million of 10-year, 6.3% senior notes (Series F); and
$425 million of 30-year, 6.875% debentures (Series G) under its shelf
registration statements. The net proceeds of approximately $758 million
(excluding payment obligations of approximately $40 million related to interest
rate hedging effected in connection with the offering) were used to reduce the
bank indebtedness incurred by the Company in connection with its December 1,
1997 acquisition of Pacific Telecom, Inc. ("PTI").
In mid-January 1998, the Company settled numerous interest rate hedge
contracts that had been entered into in anticipation of these debt issuances.
The amounts paid by the Company upon settlement of the hedge contracts
aggregated approximately $40 million, which will be amortized as interest
expense over the lives of the underlying debt instruments. The effective
weighted average interest rate of the above-mentioned debt (after giving
consideration to these payment obligations) is 7.15%. In March 1998 the Company
paid approximately $250,000 upon settlement of its remaining interest rate hedge
contracts.
(7) Sale or Exchange of Assets
In connection with the first quarter 1998 acquisition of Brooks Fiber
Properties, Inc. ("Brooks") by WorldCom, Inc. ("WorldCom") , the Company's
551,000 shares of Brooks' common stock were converted into approximately 1.0
million shares of WorldCom common stock. The Company recorded such conversion at
fair value which resulted in a pre-tax gain of approximately $22.8 million
($14.8 million after-tax; $.16 per diluted share). In the second quarter of
1998, the Company sold 750,000 shares of WorldCom common stock for $35.6 million
cash and recorded a pre-tax gain of $8.7 million ($5.7 million after tax; $.06
per diluted share).
In the second quarter of 1998, the Company sold its minority interests in
two non-strategic cellular entities for approximately $31.0 million cash which
resulted in a pre-tax gain of $21.8 million ($12.3 million after-tax; $.13 per
diluted share). Additionally, in the second quarter the Company wrote off its
minority investment in a start-up company.
During the second quarter of 1998, the Company also sold various other
properties that were acquired in the acquisition of PTI on December 1, 1997,
including, but not limited to, the Company's submarine cable operations. The
Company utilized the proceeds from these transactions to reduce its debt
associated with the acquisition of PTI. In accordance with purchase accounting,
no gain or loss was recorded upon the disposition of these assets.
During the second quarter of 1997, the Company sold its competitive access
subsidiary to Brooks and recorded a pre-tax gain of $71 million ($46 million
after-tax; $.50 per diluted share).
(8) Pending Acquisition
On March 12, 1998, the Company entered into definitive agreements to
purchase from affiliates of Ameritech Corporation ("Ameritech") the assets of
certain of Ameritech's local telephone and directory operations in parts of
northern and central Wisconsin, in exchange for approximately $225 million cash
(subject to adjustments). The assets to be purchased include (i) access lines
and related property and equipment in 21 predominantly rural communities in
Wisconsin which serve approximately 68,000 customers, (ii) Ameritech's directory
publishing operations that relate to nine telephone directories serving such
customers, and (iii) approximately $4 million in net receivables. Subject to the
satisfaction of various closing conditions, this transaction is expected to be
completed in the fourth quarter of 1998.
<PAGE>
CENTURY TELEPHONE ENTERPRISES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") included herein should be read in conjunction with MD&A and
the other information included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1997. The results of operations for the three months
and six months ended June 30, 1998 are not necessarily indicative of the results
of operations which might be expected for the entire year.
Century Telephone Enterprises, Inc. (the "Company"), which operates under
the trade name of CenturyTel, is a regional diversified communications company
that is primarily engaged in providing local telephone services and cellular
telephone communications services. At June 30, 1998, the Company's local
exchange telephone subsidiaries operated over 1.2 million telephone access lines
primarily in rural, suburban and small urban areas in 21 states, and the
Company's majority-owned and operated cellular entities had more than 583,000
cellular subscribers. On December 1, 1997, the Company significantly expanded
its operations by acquiring Pacific Telecom, Inc. ("PTI"). As a result of the
acquisition, the Company acquired (i) over 660,000 telephone access lines, (ii)
over 88,000 cellular subscribers and (iii) various wireless, cable television
and other communications assets.
In addition to historical information, management's discussion and
analysis includes certain forward-looking statements regarding events and
financial trends that may affect the Company's future operating results and
financial position. Such forward-looking statements are subject to uncertainties
that could cause the Company's actual results to differ materially from such
statements. Such uncertainties include but are not limited to: the effects of
ongoing deregulation in the telecommunications industry; the effects of greater
than anticipated competition in the Company's markets; possible changes in the
demand for the Company's products and services; the Company's ability to
successfully introduce new offerings on a timely and cost-effective basis; the
risks inherent in rapid technological change; the Company's ability to
effectively manage its growth, including integrating the operations of PTI into
the Company's operations; the success and expense of the remediation efforts of
the Company and/or its vendors in achieving year 2000 compliance; and the
effects of more general factors such as changes in general market or economic
conditions or in legislation, regulation or public policy. These and other
uncertainties related to the business are described in greater detail in Item 1
to the Company's Annual Report on Form 10-K for the year ended December 31,
1997. You are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof. The Company undertakes no
obligation to update any of its forward-looking statements for any reason.
RESULTS OF OPERATIONS
Three Months Ended June 30, 1998 Compared
to Three Months Ended June 30, 1997
Net income (excluding gain on sale or exchange of assets) for the second
quarter of 1998 was $49.5 million compared to $37.6 million during the second
quarter of 1997. Diluted earnings per share (excluding gain on sale or exchange
of assets) increased to $.53 during the three months ended June 30, 1998 from
$.41 during the three months ended June 30, 1997, a 29.3% increase.
<PAGE>
Three months
ended June 30,
- ---------------------------------------------------------------------------
1998 1997
- ---------------------------------------------------------------------------
(Dollars, except per
share amounts, and
shares in thousands)
Operating income
Telephone $ 79,954 38,972
Wireless 37,511 21,812
Other 4,023 1,621
- ---------------------------------------------------------------------------
121,488 62,405
Gain on sales or exchange of assets, net 25,516 70,121
Interest expense (42,072) (11,054)
Income from unconsolidated cellular entities 9,066 7,799
Minority interest (4,002) (1,541)
Other income and expense 691 1,059
Income tax expense (46,496) (45,613)
- ---------------------------------------------------------------------------
Net income $ 64,191 83,176
===========================================================================
Diluted earnings per share $ .69 .91
===========================================================================
Average diluted shares outstanding 93,352 91,211
===========================================================================
Contributions to operating revenues and operating income by the Company's
telephone, wireless, and other operations for the three months ended June 30,
1998 and 1997 were as follows:
Three months
ended June 30,
- -------------------------------------------------------------------------
1998 1997
- -------------------------------------------------------------------------
Operating revenues
Telephone operations 68.3% 57.2
Wireless operations 27.0% 35.4
Other operations 4.7% 7.4
Operating income
Telephone operations 65.8% 62.5
Wireless operations 30.9% 34.9
Other operations 3.3% 2.6
- -------------------------------------------------------------------------
Telephone Operations
Three months
ended June 30,
- -------------------------------------------------------------------------
1998 1997
- -------------------------------------------------------------------------
(Dollars in thousands)
Operating revenues
Local service $ 81,456 33,118
Network access 151,976 72,480
Other 31,890 14,827
- -------------------------------------------------------------------------
265,322 120,425
- -------------------------------------------------------------------------
Operating expenses
Plant operations 57,548 24,446
Customer operations 23,033 12,345
Corporate and other 39,225 18,783
Depreciation and amortization 65,562 25,879
- -------------------------------------------------------------------------
185,368 81,453
- -------------------------------------------------------------------------
Operating income $ 79,954 38,972
=========================================================================
Telephone operating income increased $41.0 million (105.2%) due to an
increase in operating revenues of $144.9 million (120.3%) which more than offset
an increase in operating expenses of $103.9 million (127.6%).
Of the $144.9 million increase in operating revenues, $135.9 million was
attributable to the properties acquired in the PTI acquisition. The remaining
$9.0 million increase in revenues was partially due to a $2.6 million increase
in revenues due to increased minutes of use; a $1.9 million increase in amounts
received from the federal Universal Service Fund; a $1.6 million increase
resulting from the increase in the number of customer access lines and a $1.1
million increase in revenues from the provision of Internet access.
During the second quarter of 1998, operating expenses, exclusive of
depreciation and amortization, increased $64.2 million, of which $61.0 million
was attributable to the properties acquired in the PTI acquisition. The
remainder of the increase in operating expenses was due to increases in general
operating expenses.
Depreciation and amortization increased $39.7 million, of which $37.1
million (which includes $7.0 million of amortization of excess cost of net
assets acquired) was attributable to the properties acquired in the PTI
acquisition. The remainder of the increase was primarily due to higher levels of
plant in service.
Wireless Operations and Income From Unconsolidated Cellular Entities
Three months
ended June 30,
- ---------------------------------------------------------------------------
1998 1997
- ---------------------------------------------------------------------------
(Dollars in thousands)
Operating income - wireless operations $ 37,511 21,812
Minority interest (4,002) (1,776)
Income from unconsolidated cellular entities 9,066 7,799
- ---------------------------------------------------------------------------
$ 42,575 27,835
===========================================================================
The Company's wireless operations (discussed below) reflect 100% of the
results of operations of the cellular entities in which the Company has a
majority ownership interest. The minority interest owners' share of the income
of such entities is reflected in the Company's Consolidated Statements of Income
as an expense in "Minority interest." See Minority Interest for additional
information. The Company's share of earnings from the cellular entities in which
it has less than a majority interest is accounted for using the equity method
and is reflected in the Company's Consolidated Statements of Income as "Income
from unconsolidated cellular entities." See Income from Unconsolidated Cellular
Entities for additional information.
Wireless Operations
Three months
ended June 30,
- ---------------------------------------------------------------------------
1998 1997
- ---------------------------------------------------------------------------
(Dollars in thousands)
Operating revenues
Service revenues $ 102,766 73,053
Equipment sales 2,105 1,417
- ---------------------------------------------------------------------------
104,871 74,470
- ---------------------------------------------------------------------------
Operating expenses
Cost of equipment sold 3,702 3,456
System operations 14,633 11,071
General, administrative and customer service 20,063 14,263
Sales and marketing 13,791 13,857
Depreciation and amortization 15,171 10,011
- ---------------------------------------------------------------------------
67,360 52,658
- ---------------------------------------------------------------------------
Operating income $ 37,511 21,812
===========================================================================
Wireless operating income increased $15.7 million (72.0%) to $37.5 million
in the second quarter of 1998 from $21.8 million in the second quarter of 1997.
Wireless operating revenues increased $30.4 million (40.8%) while operating
expenses increased $14.7 million (27.9%).
Of the $29.7 million increase in service revenues, $22.0 million was
attributable to acquisitions consummated since the second quarter of 1997,
including $19.1 million attributable to PTI. The remainder of the increase in
cellular service revenues was primarily due to the increase in the number of
cellular customers in the Company's incumbent markets. The average number of
cellular units in service in majority-owned markets (exclusive of acquisitions)
during the second quarter of 1998 and 1997 was 444,300 and 388,300,
respectively. Excluding acquisitions, local and toll revenues increased $5.1
million in the second quarter of 1998 and roaming revenues increased $2.6
million.
The average monthly cellular service revenue per customer (including
acquisitions) declined to $59 during the second quarter of 1998 from $63 during
the second quarter of 1997 partially due to the continued trend that a higher
percentage of new subscribers tend to be lower usage customers. In addition, the
properties acquired in the PTI acquisition historically have had a lower average
monthly service revenue per customer than the Company's incumbent properties.
The average monthly service revenue per customer may further decline (i) as
market penetration increases and additional lower usage customers are activated
and (ii) as competitive pressures from current and future wireless
communications providers intensify. The Company is responding to such
competitive pressures by, among other things, modifying certain of its price
plans and implementing certain other plans and promotions, all of which are
likely to result in lower average revenue per customer. The Company will
continue to focus on customer service and attempt to stimulate cellular usage by
promoting the availability of certain enhanced services and by improving the
quality of its service through the construction of additional cell sites and
other enhancements to its system.
System operations expenses increased $3.6 million (32.2%) in the second
quarter of 1998 primarily due to $3.6 million of expenses attributable to
entities acquired since the second quarter of 1997. A $1.2 million decrease in
the amounts paid to other carriers for cellular service provided to the
Company's customers who roam in the other carriers' service areas was offset by
a $1.2 million increase in operating expenses due to an increase in the number
of cell sites.
General, administrative and customer service expenses increased $5.8
million (40.7%), of which $3.8 million was attributable to expenses of entities
acquired. The remainder of the increase was primarily due to a $1.3 million
increase in the provision for doubtful accounts.
The Company's average monthly churn rate (the percentage of cellular
customers that terminate service) was 2.0% for the second quarter of 1998 and
2.2% for the second quarter of 1997.
Entities acquired subsequent to the second quarter of 1997 incurred $2.8
million of sales and marketing expenses in the second quarter of 1998.
Commissions paid to agents for selling services to new customers decreased $3.2
million primarily as a result of fewer cellular units added during the second
quarter of 1998 compared to the second quarter of 1997. The Company will
continue to focus on attracting and retaining higher usage customers.
Depreciation and amortization increased $5.2 million (51.5%), of which
$3.5 million was attributable to acquisitions. The remainder of the increase was
due primarily to a higher level of plant in service.
<PAGE>
Other Operations
Three months
ended June 30,
- ---------------------------------------------------------------------
1998 1997
- ---------------------------------------------------------------------
(Dollars in thousands)
Operating revenues
Long distance $ 12,338 8,900
Call center 2,349 4,443
Other 3,498 2,338
- ---------------------------------------------------------------------
18,185 15,681
- ---------------------------------------------------------------------
Operating expenses
Cost of sales and operating expenses 13,411 13,609
Depreciation and amortization 751 451
- ---------------------------------------------------------------------
14,162 14,060
- ---------------------------------------------------------------------
Operating income $ 4,023 1,621
=====================================================================
Other operations include the results of operations of subsidiaries of the
Company which are not included in the telephone or wireless segments, including,
but not limited to, the Company's nonregulated long distance and call center
operations. The $3.4 million increase in long distance revenues was primarily
attributable to the growth in the number of customers; the $2.1 million decrease
in call center revenues was primarily due to the loss of two major customers.
The increase in other revenues was primarily attributable to the PTI acquisition
and the acquisition of two security alarm businesses subsequent to the second
quarter of 1997.
Operating expenses increased due to (i) an increase of $2.2 million in
expenses of the Company's long distance operations due primarily to an increase
in customers and (ii) $2.0 million of operating expenses applicable to
acquisitions. Such increases were substantially offset because (i) the amount of
intercompany profit with regulated affiliates which was not eliminated in
connection with consolidating the results of operations (which acts to offset
operating expenses) increased $1.8 million as a result of the PTI acquisition,
(ii) the second quarter of 1997 included $1.4 million of costs applicable to
entities sold during 1997 and (iii) operating expenses of the Company's call
center business decreased $772,000 primarily due to the loss of two major
customers.
Interest Expense
Interest expense increased $31.0 million in the second quarter of 1998
compared to the second quarter of 1997 primarily due to $23.2 million of
interest expense on the borrowings used to finance the PTI acquisition and $7.5
million of interest expense applicable to PTI's debt.
Gain on Sales or Exchange of Assets, Net
In the second quarter of 1998, the Company recorded pre-tax gains
aggregating $25.5 million ($14.7 million after-tax; $.16 per diluted share)
primarily as a result of the sale of 750,000 shares of WorldCom, Inc.
("WorldCom") stock and the sale of minority interests in two non-strategic
cellular entities. See Note 7 of Notes to Consolidated Financial Statements for
additional information.
In the second quarter of 1997, the Company sold its competitive access
subsidiary to Brooks Fiber Properties, Inc. ("Brooks") and recorded a pre-tax
gain of $71 million ($46 million after-tax; $.50 per diluted share).
Income from Unconsolidated Cellular Entities
Earnings from unconsolidated cellular entities, net of the amortization of
associated goodwill, increased $1.3 million (16.2%) primarily due to $2.0
million of earnings from interests in unconsolidated entities acquired in the
PTI acquisition. Such increase was partially offset by a $744,000 decrease in
income due to the sale of the Company's minority interests in two non-strategic
cellular entities during the second quarter of 1998.
Minority Interest
Minority interest is the expense recorded by the Company to reflect the
minority interest owners' share of the earnings or loss of the Company's
majority-owned and operated cellular entities and majority-owned subsidiaries.
Minority interest increased $2.5 million primarily due to the increased
profitability of the Company's majority-owned and operated cellular entities.
<PAGE>
Income Tax Expense
Income tax expense increased $883,000 in the second quarter of 1998
compared to the second quarter of 1997. The effective income tax rate was 42.0%
and 35.4% in the three months ended June 30, 1998 and 1997, respectively. Such
increase in the effective income tax rate was primarily due to an increase in
non-deductible amortization of excess cost of net assets acquired (goodwill)
attributable to the PTI acquisition.
Six Months Ended June 30, 1998 Compared
to Six Months Ended June 30, 1997
Net income (excluding gain on sale or exchange of assets) for the first
six months of 1998 was $91.4 million compared to $70.7 million during the first
six months of 1997. Diluted earnings per share (excluding gain on sale or
exchange of assets) increased to $.98 during the six months ended June 30, 1998
from $.78 during the six months ended June 30, 1997, a 25.6% increase.
Six months
ended June 30,
1998 1997
- ---------------------------------------------------------------------------
(Dollars, except per
share amounts, and
shares in thousands)
Operating income
Telephone $156,797 79,496
Wireless 67,166 38,349
Other 7,657 2,258
- ---------------------------------------------------------------------------
231,620 120,103
Gain on sales or exchange of assets, net 49,859 70,121
Interest expense (84,881) (22,364)
Income from unconsolidated cellular entities 15,943 13,379
Minority interest (6,645) (1,905)
Other income and expense 1,295 2,293
Income tax expense (85,306) (65,316)
- ---------------------------------------------------------------------------
Net income $121,885 116,311
===========================================================================
Diluted earnings per share $ 1.31 1.28
===========================================================================
Average diluted shares outstanding 93,134 91,133
===========================================================================
Contributions to operating revenues and operating income by the Company's
telephone, wireless, and other operations for the six months ended June 30, 1998
and 1997 were as follows:
Six months
ended June 30,
- --------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------
Operating revenues
Telephone operations 69.1% 58.0
Wireless operations 26.2% 34.3
Other operations 4.7% 7.7
Operating income
Telephone operations 67.7% 66.2
Wireless operations 29.0% 31.9
Other operations 3.3% 1.9
- --------------------------------------------------------------------------
<PAGE>
Telephone Operations
Six months
ended June 30,
- ---------------------------------------------------------------------------
1998 1997
- ---------------------------------------------------------------------------
(Dollars in thousands)
Operating revenues
Local service $ 159,582 65,306
Network access 303,154 144,022
Other 62,399 28,192
- ---------------------------------------------------------------------------
525,135 237,520
- ---------------------------------------------------------------------------
Operating expenses
Plant operations 114,207 48,042
Customer operations 45,849 22,743
Corporate and other 79,008 36,237
Depreciation and amortization 129,274 51,002
- ---------------------------------------------------------------------------
368,338 158,024
- ---------------------------------------------------------------------------
Operating income $ 156,797 79,496
===========================================================================
Telephone operating income increased $77.3 million (97.2%) due to an
increase in operating revenues of $287.6 million (121.1%) which more than offset
an increase in operating expenses of $210.3 million (133.1%).
Of the $287.6 million increase in operating revenues, $270.3 million was
attributable to the properties acquired in the PTI acquisition. The remaining
$17.3 million increase in revenues was partially due to a $4.8 million increase
in amounts received from the federal Universal Service Fund; a $4.5 million
increase in revenues due to increased minutes of use; and a $3.7 million
increase resulting from the increase in the number of customer access lines.
During the first six months of 1998, operating expenses, exclusive of
depreciation and amortization, increased $132.0 million, of which $126.2 million
was attributable to the properties acquired in the PTI acquisition. The
remainder of the increase in operating expenses was due to increases in general
operating expenses.
Depreciation and amortization increased $78.3 million, of which $73.5
million (which includes $13.8 million of amortization of excess cost of net
assets acquired) was attributable to the properties acquired in the PTI
acquisition. The remainder of the increase was primarily due to higher levels of
plant in service.
Wireless Operations and Income From Unconsolidated Cellular Entities
Six months
ended June 30,
- ---------------------------------------------------------------------------
1998 1997
- ---------------------------------------------------------------------------
(Dollars in thousands)
Operating income - wireless operations $ 67,166 38,349
Minority interest (6,645) (3,096)
Income from unconsolidated cellular entities 15,943 13,379
- ---------------------------------------------------------------------------
$ 76,464 48,632
===========================================================================
The Company's wireless operations (discussed below) reflect 100% of the
results of operations of the cellular entities in which the Company has a
majority ownership interest. The minority interest owners' share of the income
of such entities is reflected in the Company's Consolidated Statements of Income
as an expense in "Minority interest." See Minority Interest for additional
information. The Company's share of earnings from the cellular entities in which
it has less than a majority interest is accounted for using the equity method
and is reflected in the Company's Consolidated Statements of Income as "Income
from unconsolidated cellular entities." See Income from Unconsolidated Cellular
Entities for additional information.
Wireless Operations
Six months
ended June 30,
- ---------------------------------------------------------------------------
1998 1997
- ---------------------------------------------------------------------------
(Dollars in thousands)
Operating revenues
Service revenues $ 194,864 137,637
Equipment sales 4,173 2,672
- ---------------------------------------------------------------------------
199,037 140,309
- ---------------------------------------------------------------------------
Operating expenses
Cost of equipment sold 7,398 7,386
System operations 28,885 21,397
General, administrative and customer service 38,444 28,478
Sales and marketing 27,433 25,427
Depreciation and amortization 29,711 19,272
- ---------------------------------------------------------------------------
131,871 101,960
- ---------------------------------------------------------------------------
Operating income $ 67,166 38,349
===========================================================================
Wireless operating income increased $28.8 million (75.1%) to $67.2 million
in the first six months of 1998 from $38.3 million in the first six months of
1997. Wireless operating revenues increased $58.7 million (41.9%) while
operating expenses increased $29.9 million (29.3%).
Of the $57.2 million increase in service revenues, $39.7 million was
attributable to acquisitions consummated since the second quarter of 1997,
including $34.4 million attributable to PTI. The remainder of the increase in
cellular service revenues was primarily due to the increase in the number of
cellular customers in the Company's incumbent markets. The average number of
cellular units in service in majority-owned markets (exclusive of acquisitions)
during the first six months of 1998 and 1997 was 447,000 and 380,400,
respectively. Excluding acquisitions, local and toll revenues increased $12.3
million in the first six months of 1998 and roaming revenues increased $5.2
million.
The average monthly cellular service revenue per customer (including
acquisitions) declined to $56 during the first six months of 1998 from $60
during the first six months of 1997 partially due to the continued trend that a
higher percentage of new subscribers tend to be lower usage customers. In
addition, the properties acquired in the PTI acquisition historically have had a
lower average monthly service revenue per customer than the Company's incumbent
properties. The average monthly service revenue per customer may further decline
(i) as market penetration increases and additional lower usage customers are
activated and (ii) as competitive pressures from current and future wireless
communications providers intensify. The Company is responding to such
competitive pressures by, among other things, modifying certain of its price
plans and implementing certain other plans and promotions, all of which are
likely to result in lower average revenue per customer. The Company will
continue to focus on customer service and attempt to stimulate cellular usage by
promoting the availability of certain enhanced services and by improving the
quality of its service through the construction of additional cell sites and
other enhancements to its system.
System operations expenses increased $7.5 million (35.0%) in the first six
months of 1998 primarily due to $7.7 million of expenses attributable to
entities acquired since the second quarter of 1997. A $2.6 million decrease in
the amounts paid to other carriers for cellular service provided to the
Company's customers who roam in the other carriers' service areas was
substantially offset by a $2.3 million increase in operating expenses due to an
increase in the number of cell sites.
General, administrative and customer service expenses increased $10.0
million (35.0%), of which $7.7 million was attributable to expenses of entities
acquired. The remainder of the increase was primarily due to a $1.9 million
increase in the provision for doubtful accounts.
The Company's average monthly churn rate (the percentage of cellular
customers that terminate service) was 2.2% for the first six months of 1998 and
2.3% for the first six months of 1997.
Sales and marketing expenses increased $2.0 million in the first six months
of 1998 primarily due to $5.3 million of expenses of entities acquired
subsequent to the second quarter of 1997 and a $1.4 million increase in costs
incurred in selling products and services in retail locations. Such increases
were substantially offset by a $4.7 million reduction in commissions paid to
agents for selling services to new customers primarily as a result of fewer
cellular units added during the first six months of 1998 compared to the first
six months of 1997. The Company will continue to focus on attracting and
retaining higher usage customers.
Depreciation and amortization increased $10.4 million (54.2%), of which
$6.9 million was attributable to acquisitions. The remainder of the increase was
due primarily to a higher level of plant in service.
Other Operations
Six months
ended June 30,
- ---------------------------------------------------------------------
1998 1997
- ---------------------------------------------------------------------
(Dollars in thousands)
Operating revenues
Long distance $ 23,602 16,746
Call center 4,948 8,211
Competitive access - 2,499
Other 7,376 4,276
- ---------------------------------------------------------------------
35,926 31,732
- ---------------------------------------------------------------------
Operating expenses
Cost of sales and operating expenses 26,576 28,082
Depreciation and amortization 1,693 1,392
- ---------------------------------------------------------------------
28,269 29,474
- ---------------------------------------------------------------------
Operating income $ 7,657 2,258
=====================================================================
Other operations include the results of operations of subsidiaries of the
Company which are not included in the telephone or wireless 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 call
center operations. The $6.9 million increase in long distance revenues was
attributable to the growth in the number of customers; the $3.3 million decrease
in call center revenues was primarily due to the loss of two major customers.
The increase in other revenues was primarily attributable to the PTI acquisition
and the acquisition of two security alarm businesses subsequent to the second
quarter of 1997.
Operating expenses decreased because (i) the first six months of 1997
included $7.3 million of costs applicable to entities sold during the first six
months of 1997 and (ii) the amount of intercompany profit with regulated
affiliates which was not eliminated in connection with consolidating the results
of operations (which acts to offset operating expenses) increased $4.0 million
as a result of the acquisition of PTI. Such decreases were substantially offset
by increases in operating expenses due to (i) an increase of $6.9 million in
expenses of the Company's long distance operations due primarily to an increase
in customers and (ii) $3.9 million of operating expenses applicable to
acquisitions.
Interest Expense
Interest expense increased $62.5 million in the first six months of 1998
compared to the first six months of 1997 primarily due to $46.7 million of
interest expense on the borrowings used to finance the PTI acquisition and $15.2
million of interest expense applicable to PTI's debt.
<PAGE>
Gain on Sales or Exchange of Assets, Net
In the first six months of 1998, the Company recorded pre-tax gains
aggregating $49.9 million ($30.5 million after-tax; $.33 per diluted share)
primarily due to the conversion of its investment in the common stock of Brooks
into common stock of WorldCom, the subsequent sale of 750,000 shares of WorldCom
stock, and the sale of minority interests in two non-strategic cellular
entities. See Note 7 of Notes to Consolidated Financial Statements for
additional information.
In the first six months of 1997, the Company sold its competitive access
subsidiary to Brooks and recorded a pre-tax gain of $71 million ($46 million
after tax; $.50 per diluted share).
Income from Unconsolidated Cellular Entities
Earnings from unconsolidated cellular entities, net of the amortization of
associated goodwill, increased $2.6 million (19.2%) primarily due to earnings of
the cellular entities acquired in the PTI acquisition.
Minority Interest
Minority interest is the expense recorded by the Company to reflect the
minority interest owners' share of the earnings or loss of the Company's
majority-owned and operated cellular entities and majority-owned subsidiaries.
Minority interest increased $4.7 million primarily due to the increased
profitability of the Company's majority-owned and operated cellular entities.
Income Tax Expense
Income tax expense increased $20.0 million in the first six months of 1998
compared to the first six months of 1997 primarily due to an increase in income
before taxes. The effective income tax rate was 41.2% and 36.0% in the six
months ended June 30, 1998 and 1997, respectively. Such increase in the
effective income tax rate was primarily due to an increase in non-deductible
amortization of excess cost of net assets acquired (goodwill) attributable to
the PTI acquisition.
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
operations have historically provided a stable source of cash flow which has
helped the Company continue its long-term program of capital improvements.
Net cash provided by operating activities was $192.4 million during the
first six months of 1998 compared to $130.4 million during the first six months
of 1997. 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, wireless operations, and other operations of the Company,
see Results of Operations.
Net cash provided by investing activities was $14.2 million for the six
months ended June 30, 1998. Net cash used in investing activities was $119.5
million for the six months ended June 30, 1997. Payments for property, plant and
equipment were $34.6 million more in the first six months of 1998 than in the
comparable period during 1997. Capital expenditures for the six months ended
June 30, 1998 were $78.1 million for telephone, $34.3 million for wireless and
$9.6 million for other operations. Proceeds from the sales of assets were $132.3
million in the first six months of 1998. Cash used in connection with
acquisitions was $23.5 million in the first six months of 1997, substantially
all of which was applicable to the acquisition of telephone properties in
Wisconsin.
Net cash used in financing activities was $215.6 million during the first
six months of 1998 compared to $7.2 million during the first six months of 1997.
Net payments of long-term debt were $165.4 million more during the first six
months of 1998 compared to the first six months of 1997. During the first six
months of 1998, the Company issued an aggregate of $765 million of senior notes
and debentures. The net proceeds of approximately $758 million were used to
reduce the bank indebtedness incurred in connection with the acquisition of PTI.
In addition, the Company paid approximately $40 million to settle numerous
interest rate hedge contracts that had been entered into in anticipation of
these debt issuances.
Revised budgeted capital expenditures for 1998 total $220 million for
telephone operations, $67 million for wireless operations and $42 million for
corporate and other operations.
As of June 30, 1998, Century's telephone subsidiaries had available for
use $140.9 million of commitments for long-term financing from the Rural
Utilities Service and the Company had $530.1 million of undrawn committed bank
lines of credit.
During the first quarter of 1998, the Company entered into definitive
agreements to purchase from affiliates of Ameritech Corporation ("Ameritech")
the assets of certain of Ameritech's local telephone and directory operations in
parts of northern and central Wisconsin, in exchange for approximately $225
million cash (subject to adjustments). The Company expects to provide initial
financing through its committed credit facilities.
In April 1998 the Company acquired 32 Local Multipoint Distribution System
licenses in the Federal Communications Commission's A and B band auction for an
aggregate of $9.7 million. The licenses acquired cover geographic areas with a
combined population of approximately 10.6 million. The Company has not finalized
capital expenditure or deployment plans for these systems.
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 the changing regulatory, competitive and legislative
environments, the Company believes that SFAS 71 still applies. However, it is
possible that changes in regulation or legislation or anticipated changes in
competition or in the demand for regulated services or products could result in
the Company's telephone operations not being subject to SFAS 71 in the near
future. In that event, implementation of Statement of Financial Accounting
Standards No. 101 ("SFAS 101"), "Regulated Enterprises - Accounting for the
Discontinuance of Application of FASB Statement No. 71," would require the
write-off of previously established regulatory assets and liabilities, along
with an adjustment of certain accumulated depreciation accounts to reflect the
difference between recorded depreciation and the amount of depreciation that
would have been recorded had the Company's telephone operations not been subject
to rate regulation. Such discontinuance of the application of SFAS 71 would
result in a material, noncash charge against earnings which would be reported as
an extraordinary item. While the effect of implementing SFAS 101 cannot be
precisely estimated at this time, management believes that the noncash,
after-tax, extraordinary charge would be between $250 million and $300 million.
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 7, 1998, the
shareholders elected five Class I directors to serve until the 2001 annual
meeting of shareholders and until their successors are duly elected and
qualified.
The following number of votes were cast for or were withheld from the
following nominees:
Class I Nominees For Withheld
---------------- --- --------
William R. Boles, Jr. 113,051,782 2,769,665
W. Bruce Hanks 113,136,129 2,685,318
C. G. Melville, Jr. 113,188,120 2,633,327
Glen F. Post, III 113,135,196 2,686,251
Clarke M. Williams 113,050,398 2,771,049
The Class II and Class III directors whose terms continued after the
meeting are:
Class II Class III
-------- ---------
Virginia Boulet Calvin Czeschin
Ernest Butler, Jr. F. Earl Hogan
James B. Gardner Harvey P. Perry
R. L. Hargrove, Jr. Jim D. Reppond
Johnny Hebert
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
A. Exhibits
--------
11 Computations of Earnings Per Share.
27.1 Financial Data Schedule as of and for the six months ended
June 30, 1998.
27.2 Restated Financial Data Schedule as of and for the six months
ended June 30, 1997.
B. Reports on Form 8-K
-------------------
There were no reports on Form 8-K filed during the quarter ended
June 30, 1998.
<PAGE>
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CENTURY TELEPHONE ENTERPRISES, INC.
Date: August 14, 1998 /s/ Murray H. Greer
-------------------
Murray H. Greer
Controller
(Principal Accounting Officer)
EXHIBIT 11
CENTURY TELEPHONE ENTERPRISES, INC.
COMPUTATIONS OF EARNINGS PER SHARE
(UNAUDITED)
Three months Six months
ended June 30, ended June 30,
- ------------------------------------------------------------------------------
1998 1997 1998 1997
- ------------------------------------------------------------------------------
(Dollars, except per share amounts,
and shares expressed in thousands)
Net income $ 64,191 83,176 121,88 116,311
Dividends applicable to
preferred stock (102) (127) (204) (255)
- ------------------------------------------------------------------------------
Net income applicable to
common stock 64,089 83,049 121,681 116,056
Dividends applicable to
preferred stock 102 127 204 255
Interest on convertible
securities, net of taxes 93 120 186 240
- ------------------------------------------------------------------------------
Net income as adjusted for
purposes of computing diluted
earnings per share $ 64,284 83,296 122,071 116,551
==============================================================================
Weighted average number of shares:
Outstanding during period 91,656 90,158 91,509 90,074
Employee Stock Ownership
Plan shares not committed
to be released (375) (438) (385) (447)
- ------------------------------------------------------------------------------
Number of shares for computing basic
earnings per share 91,281 89,720 91,124 89,627
Incremental common shares
attributable to additional
dilutive effect of convertible
securities 2,071 1,491 2,010 1,506
- ------------------------------------------------------------------------------
Number of shares as adjusted for
purposes of computing diluted
earnings per share 93,352 91,211 93,134 91,133
==============================================================================
Basic earnings per share $ .70 .93 1.34 1.29
==============================================================================
Diluted earnings per share $ .69 .91 1.31 1.28
==============================================================================
<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, 1998 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>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 16,966
<SECURITIES> 0
<RECEIVABLES> 124,970
<ALLOWANCES> 8,287
<INVENTORY> 23,278
<CURRENT-ASSETS> 236,226
<PP&E> 3,954,829
<DEPRECIATION> 1,718,679
<TOTAL-ASSETS> 4,655,607
<CURRENT-LIABILITIES> 279,346
<BONDS> 2,451,779
0
8,106
<COMMON> 91,800
<OTHER-SE> 1,316,353
<TOTAL-LIABILITY-AND-EQUITY> 4,655,607
<SALES> 0
<TOTAL-REVENUES> 760,098
<CGS> 0
<TOTAL-COSTS> 528,478
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 84,881
<INCOME-PRETAX> 207,191
<INCOME-TAX> 85,306
<INCOME-CONTINUING> 121,885
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 121,885
<EPS-PRIMARY> 1.34
<EPS-DILUTED> 1.31
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS RESTATED 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>
<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> 1.94
<EPS-DILUTED> 1.92
</TABLE>
