UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended March 31, 1999
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number: 1-7784
CENTURYTEL, INC.
(Exact name of registrant as specified in its charter)
CENTURY TELEPHONE ENTERPRISES, INC.
(Former name, if changed since last report)
Louisiana 72-0651161
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 Century Park Drive, Monroe, Louisiana 71203
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (318) 388-9000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
[X] Yes [ ] No
As of April 30, 1999, there were 139,318,179 shares of common stock
outstanding.
CENTURYTEL, INC.
TABLE OF CONTENTS
Page No.
--------
Part I. Financial Information:
Financial Statements
Consolidated Statements of Income--Three Months
Ended March 31, 1999 and 1998 3
Consolidated Statements of Comprehensive Income--
Three Months Ended March 31, 1999 and 1998 4
Consolidated Balance Sheets--March 31, 1999 and
December 31, 1998 5
Consolidated Statements of Stockholders' Equity--
Three Months Ended March 31, 1999 and 1998 6
Consolidated Statements of Cash Flows--
Three Months Ended March 31, 1999 and 1998 7
Notes to Consolidated Financial Statements 8-9
Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-18
Quantitative and Qualitative Disclosures About Market Risk 19
Part II. Other Information:
Exhibits and Reports on Form 8-K 20
Signature 21
PART I. FINANCIAL INFORMATION
CENTURYTEL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three months
ended March 31,
- ----------------------------------------------------------------------------
1999 1998
- ----------------------------------------------------------------------------
(Dollars, except per
share amounts, and
shares in thousands)
<S> <C> <C>
OPERATING REVENUES
Telephone $292,961 259,813
Cellular 98,471 94,166
Other 22,824 17,741
- ----------------------------------------------------------------------------
Total operating revenues 414,256 371,720
- ----------------------------------------------------------------------------
OPERATING EXPENSES
Cost of sales and operating expenses 193,652 182,394
Depreciation and amortization 89,981 79,194
- ----------------------------------------------------------------------------
Total operating expenses 283,633 261,588
- ----------------------------------------------------------------------------
OPERATING INCOME 130,623 110,132
- ----------------------------------------------------------------------------
OTHER INCOME (EXPENSE)
Interest expense (42,241) (42,809)
Gain on sale or exchange of assets 10,358 24,343
Income from unconsolidated cellular entities 6,845 6,877
Minority interest (3,310) (2,643)
Other income and expense 2,180 604
- ----------------------------------------------------------------------------
Total other income (expense) (26,168) (13,628)
- ----------------------------------------------------------------------------
INCOME BEFORE INCOME TAX EXPENSE 104,455 96,504
Income tax expense 43,350 38,810
- ----------------------------------------------------------------------------
NET INCOME $ 61,105 57,694
============================================================================
BASIC EARNINGS PER SHARE* $ .44 .42
============================================================================
DILUTED EARNINGS PER SHARE* $ .43 .41
============================================================================
DIVIDENDS PER COMMON SHARE* $ .045 .043
============================================================================
AVERAGE BASIC SHARES OUTSTANDING* 138,086 136,442
============================================================================
AVERAGE DILUTED SHARES OUTSTANDING* 141,028 139,376
============================================================================
* Reflects March 1999 stock split. See Note 4.
See accompanying notes to consolidated financial statements.
</TABLE>
CENTURYTEL, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three months
ended March 31,
- -----------------------------------------------------------------------------
1999 1998
- -----------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C>
Net income $ 61,105 57,694
- -----------------------------------------------------------------------------
Other comprehensive income, net of tax:
Unrealized holding gains arising during period,
net of $1,116 and $4,836 tax 2,073 8,980
Reclassification adjustment for gains
included in net income, net of $3,625 and $7,967 tax (6,733) (14,795)
- -----------------------------------------------------------------------------
Other comprehensive income, net of $2,509 and $3,131 tax (4,660) (5,815)
- -----------------------------------------------------------------------------
Comprehensive income $ 56,445 51,879
=============================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
CENTURYTEL, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
- -------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C>
ASSETS
- ------
CURRENT ASSETS
Cash and cash equivalents $ 4,085 5,742
Accounts receivable, less allowance of
$4,300 and $4,155 193,714 185,398
Materials and supplies, at average cost 24,813 23,709
Other 10,133 11,389
- -------------------------------------------------------------------------------
232,745 226,238
- -------------------------------------------------------------------------------
NET PROPERTY, PLANT AND EQUIPMENT 2,332,240 2,351,453
- -------------------------------------------------------------------------------
INVESTMENTS AND OTHER ASSETS
Excess cost of net assets acquired, less
accumulated amortization of $145,710
and $133,135 1,941,127 1,956,701
Other 391,057 401,063
- -------------------------------------------------------------------------------
2,332,184 2,357,764
- -------------------------------------------------------------------------------
$4,897,169 4,935,455
===============================================================================
LIABILITIES AND EQUITY
- ----------------------
CURRENT LIABILITIES
Current maturities of long-term debt $ 54,611 53,010
Accounts payable 84,559 87,627
Accrued expenses and other liabilities
Salaries and benefits 40,612 36,900
Taxes 75,805 33,411
Interest 22,856 36,926
Other 22,828 24,249
Advance billings and customer deposits 33,651 32,721
- -------------------------------------------------------------------------------
334,922 304,844
- -------------------------------------------------------------------------------
LONG-TERM DEBT 2,426,028 2,558,000
- -------------------------------------------------------------------------------
DEFERRED CREDITS AND OTHER LIABILITIES 539,798 541,129
- -------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Common stock, $1.00 par value, authorized
175,000,000 shares, issued and outstanding
139,272,323 and 138,082,926 shares 139,272 138,083
Paid-in capital 464,722 451,535
Accumulated other comprehensive income -
unrealized holding gain on investments,
net of taxes 2,557 7,217
Retained earnings 987,394 932,611
Unearned ESOP shares (5,630) (6,070)
Preferred stock - non-redeemable 8,106 8,106
- -------------------------------------------------------------------------------
1,596,421 1,531,482
- -------------------------------------------------------------------------------
$4,897,169 4,935,455
===============================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
CENTURYTEL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Three months
ended March 31,
- ------------------------------------------------------------------------------
1999 1998
- ------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C>
COMMON STOCK
Balance at beginning of period $ 138,083* 91,104
Conversion of convertible securities into
common stock 254 169
Issuance of common stock through dividend
reinvestment, incentive and benefit plans 935 247
Issuance of common stock for acquisition - 28
- ------------------------------------------------------------------------------
Balance at end of period 139,272 91,548
- ------------------------------------------------------------------------------
PAID-IN CAPITAL
Balance at beginning of period 451,535* 469,586
Conversion of convertible securities into
common stock 3,046 3,131
Issuance of common stock through dividend
reinvestment, incentive and benefit plans 9,688 4,125
Issuance of common stock for acquisition - 1,059
Amortization of unearned compensation and other 453 472
- -------------------------------------------------------------------------------
Balance at end of period 464,722 478,373
- -------------------------------------------------------------------------------
ACCUMULATED OTHER COMPREHENSIVE INCOME
Balance at beginning of period 7,217 11,893
Change in unrealized holding gain on investments,
net of reclassification adjustment (4,660) (5,815)
- -------------------------------------------------------------------------------
Balance at end of period 2,557 6,078
- -------------------------------------------------------------------------------
RETAINED EARNINGS
Balance at beginning of period 932,611 728,033
Net income 61,105 57,694
Cash dividends declared
Common stock-$.045 and $.043 per
share, respectively* (6,220) (5,911)
Preferred stock (102) (102)
- -------------------------------------------------------------------------------
Balance at end of period 987,394 779,714
- -------------------------------------------------------------------------------
UNEARNED ESOP SHARES
Balance at beginning of period (6,070) (8,450)
Release of ESOP shares 440 440
- -------------------------------------------------------------------------------
Balance at end of period (5,630) (8,010)
- -------------------------------------------------------------------------------
PREFERRED STOCK - NON-REDEEMABLE
Balance at beginning and end of period 8,106 8,106
- -------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY $1,596,421 1,355,809
===============================================================================
* Reflects March 1999 stock split. See Note 4.
See accompanying notes to consolidated financial statements.
</TABLE>
CENTURYTEL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months
ended March 31,
- -------------------------------------------------------------------------------
1999 1998
- -------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 61,105 57,694
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 89,981 79,194
Gain on sale or exchange of assets (10,358) (24,343)
Deferred income taxes 2,516 26,599
Income from unconsolidated cellular entities (6,845) (6,877)
Minority interest 3,310 2,643
Changes in current assets and current liabilities:
Accounts receivable (8,316) 45,234
Accounts payable (3,068) (10,627)
Other accrued taxes 42,394 (29,614)
Other current assets and other current
liabilities, net (10,697) 3,316
Increase in other noncurrent liabilities 860 7,660
Other, net (1,290) (4,021)
- -------------------------------------------------------------------------------
Net cash provided by operating activities 159,592 146,858
- -------------------------------------------------------------------------------
INVESTING ACTIVITIES
Payments for property, plant and equipment (63,001) (58,202)
Acquisitions, net of cash acquired - (5,000)
Proceeds from sale of assets 20,056 10,177
Purchase of life insurance investment (1,561) (7,180)
Other, net 5,409 6,446
- -------------------------------------------------------------------------------
Net cash used in investing activities (39,097) (53,759)
- -------------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt 7,779 783,000
Payments of long-term debt (134,269) (838,582)
Payment upon settlement of hedge contracts - (40,237)
Payment of deferred debt issuance costs - (6,625)
Proceeds from issuance of common stock 10,434 4,374
Cash dividends (6,322) (6,013)
Other, net 226 271
- -------------------------------------------------------------------------------
Net cash used in financing activities (122,152) (103,812)
- ------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (1,657) (10,713)
Cash and cash equivalents at beginning of period 5,742 26,017
- -------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 4,085 15,304
===============================================================================
Supplemental cash flow information:
Income taxes paid $ 2,947 47,313
===============================================================================
Interest paid $ 56,311 36,240
===============================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
CENTURYTEL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(UNAUDITED)
(1) Basis of Financial Reporting
The consolidated financial statements of CenturyTel, Inc. and its
subsidiaries (the "Company") include the accounts of CenturyTel, Inc.
("CenturyTel") and its majority-owned subsidiaries and partnerships. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to rules and regulations of the Securities and
Exchange Commission; however, the Company believes the disclosures which are
made are adequate to make the information presented not misleading. The
consolidated financial statements and footnotes included in this Form 10-Q
should be read in conjunction with the consolidated financial statements and
notes thereto included in the Company's annual report on Form 10-K for the year
ended December 31, 1998.
The unaudited financial information for the three months ended March 31,
1999 and 1998 has not been audited by independent certified public accountants;
however, in the opinion of management, all adjustments (which include only
normal recurring adjustments) necessary to present fairly the results of
operations for the three-month periods have been included therein. The results
of operations for the first three months of the year are not necessarily
indicative of the results of operations which might be expected for the entire
year.
(2) Net Property, Plant and Equipment
Net property, plant and equipment is composed of the following:
<TABLE>
<CAPTION>
March 31, Dec. 31,
1999 1998
- ----------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C>
Telephone, at original cost $ 3,692,537 3,660,252
Accumulated depreciation (1,718,912) (1,661,315)
- -----------------------------------------------------------------------------
1,973,625 1,998,937
- -----------------------------------------------------------------------------
Cellular, at cost 435,379 428,984
Accumulated depreciation ( 190,769) (178,569)
- -----------------------------------------------------------------------------
244,610 250,415
- -----------------------------------------------------------------------------
Corporate and other, at cost 214,724 200,422
Accumulated depreciation (100,719) (98,321)
- -----------------------------------------------------------------------------
114,005 102,101
- -----------------------------------------------------------------------------
$ 2,332,240 2,351,453
- -----------------------------------------------------------------------------
</TABLE>
(3) Earnings from Unconsolidated Cellular Entities
The following summarizes the unaudited combined results of operations of the
cellular entities in which the Company's investments (as of March 31, 1999 and
1998) were accounted for by the equity method.
Three months
ended March 31,
- ----------------------------------------------------------------------------
1999 1998
- ----------------------------------------------------------------------------
(Dollars in thousands)
Results of operations
Revenues $ 328,540 323,584
Operating income $ 108,541 101,346
Net income $ 108,394 96,449
- ----------------------------------------------------------------------------
(4) Stock Split
On February 23, 1999, the Company's Board of Directors declared a
three-for-two common stock split effected as a 50% stock dividend distributed on
March 31, 1999. Shares outstanding and per share data for the three months ended
March 31, 1998 have been restated to reflect this stock split.
(5) Sale or Exchange of Asset
In the first quarter of 1999 the Company recorded a pre-tax gain aggregating
$10.4 million ($6.7 million after-tax; $.04 per diluted share) due to the sale
of its remaining common shares of MCIWorldCom, Inc.
(6) Business Segments
The Company has two separately reportable business segments: telephone and
cellular. The operating income of these segments is reviewed by the chief
operating decision maker to assess performance and make business decisions.
<TABLE>
<CAPTION>
Three months
ended March 31,
- ---------------------------------------------------------------------------
1999 1998
- ---------------------------------------------------------------------------
<S> <C> <C>
Operating revenues
Telephone segment $ 292,961 259,813
Cellular segment 98,471 94,166
Other operations 22,824 17,741
- ---------------------------------------------------------------------------
$ 414,256 371,720
===========================================================================
Operating income
Telephone segment $ 95,298 76,843
Cellular segment 30,383 29,655
Other operations 4,942 3,634
- ---------------------------------------------------------------------------
$ 130,623 110,132
===========================================================================
Operating income $ 130,623 110,132
Interest expense (42,241) (42,809)
Gain on sale or exchange of assets 10,358 24,343
Income from unconsolidated cellular entities 6,845 6,877
Minority interest (3,310) (2,643)
Other income and expense 2,180 604
- ---------------------------------------------------------------------------
Income before income tax expense $ 104,455 96,504
===========================================================================
</TABLE>
CENTURYTEL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") included herein should be read in conjunction with MD&A and
the other information included in the Company's annual report on Form 10-K for
the year ended December 31, 1998. The results of operations for the three months
ended March 31, 1999 are not necessarily indicative of the results of operations
which might be expected for the entire year.
CenturyTel and its subsidiaries (the "Company") is a regional diversified
communications company that is primarily engaged in providing local telephone
services and cellular telephone communications services. At March 31, 1999, the
Company's local exchange telephone subsidiaries operated over 1.3 million
telephone access lines primarily in rural, suburban and small urban areas in 21
states, and the Company's majority-owned and operated cellular entities had more
than 638,000 cellular subscribers. On December 1, 1998, the Company acquired
from affiliates of Ameritech Corporation ("Ameritech") telephone operations
serving 86,000 access lines in northern and central Wisconsin and the related
telephone directories for approximately $221 million cash. The operations of the
former Ameritech properties are included in the Company's results of operations
beginning December 1, 1998.
In addition to historical information, management's discussion and analysis
includes certain forward-looking statements regarding events and financial
trends that may affect the Company's future operating results and financial
position. Such forward-looking statements are subject to uncertainties that
could cause the Company's actual results to differ materially from such
statements. Such uncertainties include but are not limited to: the effects of
ongoing deregulation in the telecommunications industry; the effects of greater
than anticipated competition in the Company's markets; possible changes in the
demand for the Company's products and services; the Company's ability to
successfully introduce new offerings on a timely and cost-effective basis; the
risks inherent in rapid technological change; the Company's ability to
effectively manage its growth, including integrating newly-acquired properties
into the Company's operations; the success and expense of the remediation
efforts of the Company and its vendors in achieving year 2000 compliance; and
the effects of more general factors such as changes in general market or
economic conditions or in legislation, regulation or public policy. These and
other uncertainties related to the business are described in greater detail in
Item 1 to the Company's Annual Report on Form 10-K for the year ended December
31, 1998. You are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof. The Company undertakes no
obligation to update any of its forward-looking statements for any reason.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1999 Compared
to Three Months Ended March 31, 1998
Net income (excluding after-tax gain on sale or exchange of assets) for the
first quarter of 1999 was $54.4 million compared to $41.9 million during the
first quarter of 1998. Diluted earnings per share (excluding after-tax gain on
sale or exchange of assets) increased to $.39 during the three months ended
March 31, 1999 from $.30 during the three months ended March 31, 1998, a 30.0%
increase.
<TABLE>
<CAPTION>
Three months
ended March 31,
- ------------------------------------------------------------------------------
1999 1998
- ------------------------------------------------------------------------------
(Dollars, except per
share amounts, and
shares in thousands)
<S> <C> <C>
Operating income
Telephone $ 95,298 76,843
Cellular 30,383 29,655
Other 4,942 3,634
- ------------------------------------------------------------------------------
130,623 110,132
Interest expense (42,241) (42,809)
Gain on sale or exchange of assets 10,358 24,343
Income from unconsolidated cellular entities 6,845 6,877
Minority interest (3,310) (2,643)
Other income and expense 2,180 604
Income tax expense (43,350) (38,810)
- ------------------------------------------------------------------------------
Net income $ 61,105 57,694
==============================================================================
Basic earnings per share $ .44 .42
==============================================================================
Diluted earnings per share $ .43 .41
==============================================================================
Average basic shares outstanding 138,086 136,442
==============================================================================
Average diluted shares outstanding 141,028 139,376
==============================================================================
</TABLE>
Contributions to operating revenues and operating income by the Company's
telephone, cellular, and other operations for the three months ended March 31,
1999 and 1998 were as follows:
<TABLE>
<CAPTION>
Three months
ended March 31,
- -----------------------------------------------------------------------------
1999 1998
- -----------------------------------------------------------------------------
<S> <C> <C>
Operating revenues
Telephone operations 70.7 % 69.9
Cellular operations 23.8 % 25.3
Other operations 5.5 % 4.8
Operating income
Telephone operations 72.9 % 69.8
Cellular operations 23.3 % 26.9
Other operations 3.8 % 3.3
- -----------------------------------------------------------------------------
</TABLE>
Telephone Operations
<TABLE>
<CAPTION>
Three months
ended March 31,
- -----------------------------------------------------------------------------
1999 1998
- -----------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C>
Operating revenues
Local service $ 90,657 78,126
Network access 167,155 151,178
Other 35,149 30,509
- -----------------------------------------------------------------------------
292,961 259,813
- -----------------------------------------------------------------------------
Operating expenses
Plant operations 67,022 56,659
Customer operations 21,894 22,816
Corporate and other 36,919 39,783
Depreciation and amortization 71,828 63,712
- -----------------------------------------------------------------------------
197,663 182,970
- -----------------------------------------------------------------------------
Operating income $ 95,298 76,843
=============================================================================
</TABLE>
Telephone operating income increased $18.5 million (24.0%) due to an
increase in operating revenues of $33.1 million (12.8%) which more than offset
an increase in operating expenses of $14.7 million (8.0%).
Of the $33.1 million increase in operating revenues, $11.2 million was
attributable to the properties acquired from Ameritech. The remaining $21.9
million increase in revenues was partially due to a $4.6 million increase which
resulted from internal growth in number of customer access lines; a $3.9
million increase in the partial recovery of increased operating expenses through
revenue sharing arrangements in which the Company participates with other
telephone companies; a $3.4 million increase due to increased minutes of use; a
$2.3 million increase resulting from favorable prior period revenue settlements;
a $2.2 million increase in amounts received from the federal Universal Service
Fund; and a $1.8 million increase from the provision of Internet access.
Plant operations expenses increased $10.4 million (18.3%), of which $2.1
million was attributable to the properties acquired from Ameritech. The
remaining $8.3 million increase was primarily due to a $4.5 million increase in
repair and maintenance expenses; a $2.4 million increase in network operations
expenses; and a $922,000 increase in expenses associated with the Company's
Internet business.
During the first quarter of 1999 customer operations expenses decreased
$922,000 (4.0%) primarily due to a $1.4 million decrease is salaries and
benefits partially offset by a $724,000 increase attributable to the properties
acquired from Ameritech.
Corporate and other expenses decreased $2.9 million (7.2%) primarily due to
a $2.7 million decrease in salaries and benefits and a $878,000 decrease in
certain operating taxes. Such decreases were partially offset by a $1.2 million
increase attributable to the properties acquired from Ameritech.
Depreciation and amortization increased $8.1 million, of which $3.9 million
was attributable to the properties acquired from Ameritech. The remainder of the
increase was primarily due to higher levels of plant in service ($2.0 million)
and higher recurring rates or nonrecurring depreciation charges which have been
approved or are anticipated to be approved for certain subsidiaries ($1.9
million).
Cellular Operations and Income From Unconsolidated Cellular Entities
<TABLE>
<CAPTION>
Three months
ended March 31,
- ----------------------------------------------------------------------------
1999 1998
- ----------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C>
Operating income - cellular operations $ 30,383 29,655
Minority interest (3,329) (2,643)
Income from unconsolidated cellular entities 6,845 6,877
- ----------------------------------------------------------------------------
$ 33,899 33,889
============================================================================
</TABLE>
The Company's cellular operations (discussed below) reflect 100% of the
results of operations of the cellular entities in which the Company has a
majority ownership interest. The minority interest owners' share of the income
of such entities is reflected in the Company's Consolidated Statements of Income
as an expense in "Minority interest." See Minority Interest for additional
information. The Company's share of earnings from the cellular entities in which
it has less than a majority interest is accounted for using the equity method
and is reflected in the Company's Consolidated Statements of Income as "Income
from unconsolidated cellular entities."
Cellular Operations
<TABLE>
<CAPTION>
Three months
ended March 31,
- ------------------------------------------------------------------------------
1999 1998
(Dollars in thousands)
- ------------------------------------------------------------------------------
<S> <C> <C>
Operating revenues
Service revenues $ 95,976 92,098
Equipment sales 2,495 2,068
- -----------------------------------------------------------------------------
98,471 94,166
- -----------------------------------------------------------------------------
Operating expenses
Cost of equipment sold 4,381 3,696
System operations 13,303 14,252
General, administrative and customer service 19,160 18,381
Sales and marketing 14,013 13,642
Depreciation and amortization 17,231 14,540
- -----------------------------------------------------------------------------
68,088 64,511
- -----------------------------------------------------------------------------
Operating income $ 30,383 29,655
=============================================================================
</TABLE>
Cellular operating income increased $728,000 (2.5%) to $30.4 million in the
first quarter of 1999 from $29.7 million in the first quarter of 1998. Cellular
operating revenues increased $4.3 million (4.6%) while operating expenses
increased $3.6 million (5.5%).
The $3.9 million increase in service revenues was primarily due to increased
roaming usage.
The following table illustrates the growth in the Company's cellular
customer base in its majority-owned markets:
<TABLE>
<CAPTION>
Three months
ended March 31,
- ---------------------------------------------------------------------------
1999 1998
- ---------------------------------------------------------------------------
<S> <C> <C>
Customers at beginning of period 624,119 569,983
Gross units added internally 52,982 48,676
Disconnects 38,109 42,262
Net units added 14,873 6,414
Customers at end of period 638,992 576,397
===========================================================================
</TABLE>
The average monthly cellular service revenue per customer declined to $51
during the first quarter of 1999 from $54 during the first quarter of 1998
partially due to the continued trend that a higher percentage of new subscribers
tend to be lower usage customers and pricing/promotional rate reductions. The
average monthly service revenue per customer may further decline (i) as market
penetration increases and additional lower usage customers are activated and
(ii) as competitive pressures from current and future wireless communications
providers intensify. The Company is responding to such competitive pressures by,
among other things, modifying certain of its price plans and implementing
certain other plans and promotions, all of which are likely to result in lower
average revenue per customer. The Company will continue to focus on customer
service and attempt to stimulate cellular usage by promoting the availability of
certain enhanced services and by improving the quality of its service through
the construction of additional cell sites and other enhancements to its system.
System operations expenses decreased $949,000 (6.7%) primarily due to a $1.6
million decrease in the net amounts paid to other carriers for cellular service
provided to the Company's customers who roam in the other carriers' service
areas primarily due to a decrease in rates. Such decrease was partially offset
by a $830,000 increase associated with operating a greater number of cell sites.
General, administrative and customer service expenses increased $779,000
(4.2%) due to a $2.9 million increase in general office expenses partially
offset by a $2.4 million decrease in the provision for doubtful accounts.
The Company's average monthly churn rate (the percentage of cellular
customers that terminate service) was 2.00% for the first quarter of 1999 and
2.46% for the first quarter of 1998.
Sales and marketing expenses increased $371,000 (2.7%) primarily due to a
$1.2 million increase in advertising and sales promotions expenses and a
$630,000 increase in costs incurred in selling products and services in retail
locations. Such increases were substantially offset by a $1.4 million decrease
in commissions paid to agents for selling services to new customers primarily as
a result of fewer cellular units being added through this distribution channel
during 1999 as compared to 1998.
Depreciation and amortization increased $2.7 million (18.5%), of which $1.5
million was due to a higher level of plant in service and $1.2 million was due
to an increase in amortization of intangibles.
Other Operations
<TABLE>
<CAPTION>
Three months
ended March 31,
- ----------------------------------------------------------------------------
1999 1998
- ----------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C>
Operating revenues
Long distance $ 17,030 11,264
Call center 2,444 2,599
Other 3,350 3,878
- ----------------------------------------------------------------------------
22,824 17,741
Operating expenses
Cost of sales and operating expenses 16,960 13,165
Depreciation and amortization 922 942
- ----------------------------------------------------------------------------
17,882 14,107
- ----------------------------------------------------------------------------
Operating income $4,942 3,634
============================================================================
</TABLE>
Other operations include the results of operations of subsidiaries of the
Company which are not included in the telephone or cellular segments, including
but not limited to the Company's nonregulated long distance and call center
operations. The $5.8 million increase in long distance revenues was attributable
to the growth in the number of customers. The number of long distance customers
as of March 31, 1999 and 1998 was 241,900 and 180,800, respectively.
Operating expenses increased $3.8 million primarily due to (i) an increase
of $2.1 million in expenses of the Company's long distance operations due
primarily to an increase in customers and (ii) a $1.1 million increase in
expenses due to the expansion of the Company's security, personal communications
services and fiber network businesses.
Interest Expense
Interest expense decreased $568,000 in the first quarter of 1999 compared to
the first quarter of 1998 primarily due to a reduction in debt.
Gain on Sale or Exchange of Assets
In the first quarter of 1999, the Company recorded a pre-tax gain of
approximately $10.4 million ($6.7 million after-tax; $.04 per diluted share)
primarily due to the sale of its remaining common shares of MCIWorldCom, Inc.
In the first quarter of 1998, the Company recorded a pre-tax gain of
approximately $22.8 million ($14.8 million after-tax; $.11 per diluted share)
upon the conversion of its investment in the common stock of Brooks Fiber
Properties, Inc. into common stock of MCIWorldCom, Inc.
Minority Interest
Minority interest is the expense recorded by the Company to reflect the
minority interest owners' share of the earnings or loss of the Company's
majority-owned and operated cellular entities and majority-owned subsidiaries.
Minority interest increased $667,000 due to the increased profitability of the
Company's majority-owned and operated cellular entities.
Income Tax Expense
Income tax expense increased $4.5 million in the first quarter of 1999
compared to the first quarter of 1998 primarily due to an increase in income
before taxes. The effective income tax rate was 41.5% and 40.2% in the three
months ended March 31, 1999 and 1998, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Excluding cash used for acquisitions, the Company relies on cash provided by
operations to provide substantially all of its cash needs. The Company's
operations have historically provided a stable source of cash flow which has
helped the Company continue its long-term program of capital improvements.
Net cash provided by operating activities was $159.6 million during the
first three months of 1999 compared to $146.9 million during the first three
months of 1998. The Company's accompanying consolidated statements of cash flows
identify major differences between net income and net cash provided by operating
activities for each of these periods. For additional information relating to the
telephone operations, cellular operations, and other operations of the Company,
see Results of Operations.
Net cash used in investing activities was $39.1 million and $53.8 million
for the three months ended March 31, 1999 and 1998, respectively. Payments for
property, plant and equipment were $4.8 million more in the first quarter of
1999 than in the comparable period during 1998. Capital expenditures for the
three months ended March 31, 1999 were $38.3 million for telephone, $7.2 million
for cellular and $17.5 million for other operations. Proceeds from the sale of
assets were $20.1 million and $10.2 million for the three months ended March 31,
1999 and 1998, respectively.
Net cash used in financing activities was $122.2 million during the first
three months of 1999 compared to $103.8 million during the first three months of
1998. Net payments of long-term debt were $70.9 million more during the first
quarter of 1999 compared to the first quarter of 1998. During the first quarter
of 1998, the Company issued an aggregate of $765 million of senior notes and
debentures. The net proceeds of approximately $758 million were used to reduce
the bank indebtedness incurred in connection with the acquisition of PTI. In
addition, the Company paid approximately $40 million to settle numerous interest
rate hedge contracts that had been entered into in anticipation of these debt
issuances.
Revised budgeted capital expenditures for 1999 total $215 million for
telephone operations, $70 million for cellular operations and $60 million for
corporate and other operations.
As of March 31, 1999, Century's telephone subsidiaries had available for use
$135.1 million of commitments for long-term financing from the Rural Utilities
Service and the Company had $451.1 million of undrawn committed bank lines of
credit.
OTHER MATTERS
Accounting for the Effects of Regulation
The Company currently accounts for its regulated telephone operations in
accordance with the provisions of Statement of Financial Accounting Standards
No. 71 ("SFAS 71"), "Accounting for the Effects of Certain Types of Regulation."
While the ongoing applicability of SFAS 71 to the Company's telephone operations
is being monitored due to the changing regulatory, competitive and legislative
environments, the Company believes that SFAS 71 still applies. However, it is
possible that changes in regulation or legislation or anticipated changes in
competition or in the demand for regulated services or products could result in
the Company's telephone operations not being subject to SFAS 71 in the near
future. In that event, implementation of Statement of Financial Accounting
Standards No. 101 ("SFAS 101"), "Regulated Enterprises - Accounting for the
Discontinuance of application of FASB Statement No. 71," would require the
write-off of previously established regulatory assets and liabilities, along
with an adjustment of certain accumulated depreciation accounts to reflect the
difference between recorded depreciation and the amount of depreciation that
would have been recorded had the Company's telephone operations not been subject
to rate regulation. Such discontinuance of the application of SFAS 71 would
result in a material, noncash charge against earnings which would be reported as
an extraordinary item. While the effect of implementing SFAS 101 cannot be
precisely estimated at this time, management believes that the noncash,
after-tax, extraordinary charge would be between $350 million and $400 million.
Year 2000 Readiness Disclosure
The Year 2000 issue concerns the inability of computer systems and certain
other equipment to properly recognize and process data that uses two digits
rather than four to designate particular years. The Company has initiated a Year
2000 Project Plan ("the Plan") to assess whether its systems that process date
sensitive information will perform satisfactorily leading up to and beyond
January 1, 2000. The goal of the Plan is to correct, prior to January 1, 2000,
any Year 2000-related problem with critical systems, the failure of which could
have a material adverse effect on the Company's operations. The Plan includes
steps to (i) identify each critical system element that requires date code
remediation, (ii) establish a plan to remediate such systems, (iii) implement
all required remediations and (iv) selectively test the remediated systems.
Thus far, the identification phase has identified Year 2000 issues in the
following critical Company-owned systems: (i) switching and transmission
hardware and software used by the Company to route and deliver telephone calls;
(ii) network support systems, including customer service systems and (iii)
billing and collection systems used by the Company to invoice and process most
of its customer payments. In addition, the Company (i) receives critical
services from providers of utilities and other services to facilities that house
employees and switching, transmission and other equipment and (ii) is dependent
upon outside vendors for, among other things, the provision of critical network
components and cellular billing services. The Company is also critically reliant
upon the systems of other telecommunication carriers with which the Company's
systems interconnect for the routing and delivery of telephone calls. The
Company has also identified potential Year 2000-related liability with respect
to telephone equipment manufactured by unaffiliated parties that the Company has
sold or leased to its customers ("Customer Premises Equipment" or "CPE"). The
identification and planning phases of the Plan are materially complete with
respect to Company-owned systems, third party vendors and CPE customers, and are
expected to be materially complete by mid-year 1999 with respect to other
telecommunication carriers.
Based on work completed under the Plan to date, the Company currently
intends to take the following additional steps under its Plan with respect to
Company-owned systems, third-party vendors, other telecommunications carriers,
and CPE customers:
o The Company generally plans to remediate Company-owned switching,
transmission, billing and collection and other critical systems through the
revision or replacement of current system components. Necessary changes to
critical Company-owned systems are substantially complete and are expected
to be finalized by mid-year 1999. The selective testing and verification of
such changes are expected to be completed during 1999. Due to the large
number of system components requiring remediation, the Company does not
intend to test every remediated system but will rely upon the results of
selective testing to determine the effectiveness of remediation efforts.
o With respect to critical services provided by utilities and other third
parties, the Company has contacted all such suppliers during 1998. Thus far,
a majority of those suppliers who have responded have indicated that their
systems and service delivery mechanisms are Year 2000 compliant or can be
made so through currently available modifications. The Company plans to
continue monitoring all third-party remediation efforts and to make
contingency plans for the delivery of such services as necessary.
o The Company has received certain assurances from industry trade data
regarding the Year 2000 readiness of major telecommunications companies
with which the Company's switching systems interconnect. In June 1999,
the Company plans to make specific inquiries with these and other telecom-
munication carriers to determine their compliance status, and expects to
obtain information in response thereto during third quarter 1999, although
there can be no assurance that carriers will supply this information.
o Finally, the Company has obtained Year 2000 compliance information from CPE
manufacturers and has provided and will continue to provide this information
to the Company's business customers throughout 1999. The Company plans to
work with CPE manufacturers to encourage the development of remedies for
Year 2000 problems in such equipment and to continue working with its
customers to identify Year 2000 problems in CPE. However, there can be no
assurance that CPE manufacturers or customers will cooperate with the
Company's efforts to address these problems.
While the Company currently believes that it will be able to remediate and
selectively test Company-owned systems in time to minimize any detrimental
effect on its operations, there can be no assurance that such steps will be
successful. Failure by the Company to timely and effectively remediate its
systems, or the failure of critical vendors and suppliers and other
telecommunications carriers to remediate affected systems, could have a material
adverse impact on the Company's business, financial condition, results of
operations and prospects. Because the impact of Year 2000 issues on the Company
is materially dependent on the mitigation efforts of parties outside the
Company's control, the Company cannot assess with certainty the magnitude of any
such potential adverse impact. However, based upon risk assessment work
conducted thus far, the Company believes that the most reasonably likely worst
case scenario of the failure by the Company, its suppliers or other
telecommunications carriers with which the Company interconnects to resolve Year
2000 issues would be an inability by the Company (i) to provide
telecommunications services to the Company's customers, (ii) to route and
deliver telephone calls originating from or terminating with other
telecommunications carriers, (iii) to timely and accurately process service
requests and (iv) to timely and accurately bill its customers. In addition to
lost earnings, these failures could also result in loss of customers due to
service interruptions and billing errors, substantial claims by customers and
increased expenses associated with stabilizing operations and executing
mitigation plans.
Contingency planning to maintain and restore service in the event of
natural disasters, power failures and systems-related problems is a routine part
of the Company's operations. The Company believes that such contingency plans
will assist the Company in responding to the failure by outside service
providers to successfully address Year 2000 issues. In addition, the Company is
currently identifying and considering various Year 2000-specific contingency
plans, including identification of alternate vendors and service providers and
manual alternatives to system operations. These Year 2000-specific contingency
plans are expected to be materially completed mid-year 1999, but their review
and development will continue throughout 1999.
Although the total costs to implement the Plan cannot be precisely
estimated, the Company incurred costs of $4.2 million during 1998 (none of which
was related to hardware costs and other capital items) and $9.8 million during
the first quarter of 1999 ($4.5 million of which was related to hardware costs
and other capital items) and anticipates spending an aggregate of approximately
$29.1 million during the remainder of 1999 (which includes $20.5 million of
hardware costs and other capital items.) All costs will be expensed as incurred,
except for hardware and other items that should be capitalized in accordance
with generally accepted accounting principles. Some of the costs represent
ongoing investment in systems upgrades, the timing of which is being accelerated
in order to facilitate Year 2000 compliance. In some instances, such upgrades
will position the Company to provide more and better-quality services to its
customers than they currently receive. The Company expects to fund these costs
with cash provided by operations. Cost estimates and statements of the Company's
plans and expectations discussed above are forward-looking statements that are
derived using numerous assumptions of future events, many of which are outside
the Company's control, including the availability and future cost of trained
personnel and various other resources, third party modification plans, the
absence of systems requiring remediation that have not yet been discovered, and
other factors.
CENTURYTEL, INC.
QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
Market Risk
The Company is not exposed to material future earnings or cash flow
exposures from changes in interest rates on long-term debt obligations since the
majority of the Company's long-term debt obligations are fixed rate. At March
31, 1999, the fair value of the Company's long-term debt was estimated to be
$2.6 billion based on the overall weighted average rate of the Company's
long-term debt of 6.6% and an overall weighted maturity of 14 years compared to
terms and rates currently available in long-term financing markets. Market risk
is estimated as the potential decrease in fair value of the Company's long-term
debt resulting from a hypothetical increase of 66 basis points in interest rates
(ten percent of the Company's overall weighted average borrowing rate). Such an
increase in interest rates would result in approximately a $108.2 million
decrease in fair value of the Company's long-term debt. The Company is currently
not evaluating the future use of any derivative financial instruments.
PART II. OTHER INFORMATION
CENTURYTEL, INC.
Item 6: Exhibits and Reports on Form 8-K
--------------------------------
A. Exhibits
--------
11 Computations of Earnings Per Share.
27 Financial Data Schedule as of and for the three months
ended March 31, 1999.
B. Reports on Form 8-K
-------------------
(i) The following item was reported in the Form 8-K filed
February 26, 1999:
Item 5. Other Events - News release announcing the sale of
the operations of the Brownsville and McAllen, Texas wireless
markets to Western Wireless Corporation.
(ii) The following item was reported in the Form 8-K filed
February 26, 1999:
Item 5. Other Events - News release announcing fourth quarter
results of operations.
(iii) The following item was reported in the Form 8-K filed April
30, 1999:
Item 5. Other Events - News release announcing first quarter
results of operations.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CENTURYTEL, INC.
Date: May 14, 1999 /s/ R. Stewart Ewing, Jr.
_________________________
R. Stewart Ewing, Jr.
Chief Financial Officer and
Principal Accounting Officer
EXHIBIT 11
CENTURYTEL, INC.
COMPUTATIONS OF EARNINGS PER SHARE
(UNAUDITED)
<TABLE>
<CAPTION>
Three months
ended March 31,
- ------------------------------------------------------------------------------
1999 1998
- ------------------------------------------------------------------------------
(Dollars, except per share
amounts, and shares
in thousands)
<S> <C> <C>
Income (Numerator):
Net income $ 61,105 57,694
Dividends applicable to preferred stock (102) (102)
- -----------------------------------------------------------------------------
Net income applicable to common stock 61,003 57,592
Dividends applicable to preferred stock 102 102
Interest on convertible securities, net of taxes 63 93
- -----------------------------------------------------------------------------
Net income as adjusted for purposes of
computing diluted earnings per share $ 61,168 57,787
=============================================================================
Shares (Denominator)*:
Weighted average number of shares:
Outstanding during period 138,594 137,043
Employee Stock Ownership Plan shares not
committed to be released (508) (601)
- -----------------------------------------------------------------------------
Number of shares for computing basic
earnings per share 138,086 136,442
Incremental common shares attributable to
dilutive securities:
Conversion of convertible securities 1,019 1,273
Shares issuable under stock option plan 1,923 1,661
- -----------------------------------------------------------------------------
Number of shares as adjusted for purposes of
computing diluted earnings per share 141,028 139,376
=============================================================================
Basic earnings per share* $ .44 .42
=============================================================================
Diluted earnings per share* $ .43 .41
=============================================================================
* Reflects March 1999 stock split. See Note 4
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED BALANCE SHEET OF CENTURYTEL, INC. AND SUBSIDIARIES
AS OF MARCH 31, 1999 AND THE RELATED UNAUDITED CONSOLIDATED STATEMENT OF
INCOME FOR THE THREE MONTH PERIOD THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 4,085
<SECURITIES> 0
<RECEIVABLES> 198,014
<ALLOWANCES> 4,300
<INVENTORY> 24,813
<CURRENT-ASSETS> 232,745
<PP&E> 4,342,640
<DEPRECIATION> 2,010,400
<TOTAL-ASSETS> 4,897,169
<CURRENT-LIABILITIES> 334,922
<BONDS> 2,426,028
0
8,106
<COMMON> 139,272
<OTHER-SE> 1,449,043
<TOTAL-LIABILITY-AND-EQUITY>4,897,169
<SALES> 0
<TOTAL-REVENUES> 414,256
<CGS> 0
<TOTAL-COSTS> 283,633
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 42,241
<INCOME-PRETAX> 104,455
<INCOME-TAX> 43,350
<INCOME-CONTINUING> 61,105
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 61,105
<EPS-PRIMARY> .44 <F1>
<EPS-DILUTED> .43 <F1>
<FN>
<F1> REFLECTS MARCH 1999 STOCK SPLIT. FINANCIAL DATA SCHEDULES FOR PRIOR
PERIODS HAVE NOT BEEN RESTATED TO REFLECT SUCH STOCK SPLIT.
</FN>
</TABLE>
