Operating revenues, excluding nonrecurring items, for third quarter 2007 were $708.3 million compared to $619.2 million in third quarter 2006. Revenue increases aggregating $106 million resulted primarily from $49 million in revenue contribution from the Madison River properties, $42 million related to adjustments to recognize prior period revenue settlements, and $15 million from an increase in high-speed Internet customers in our legacy markets. These increases more than offset revenue declines of $18 million attributable to lower access revenues and access line losses.
Operating expenses, excluding nonrecurring items, increased 7.7% to $481.9 million from $447.6 million in third quarter 2006, primarily due to operating costs associated with the Madison River properties acquired earlier this year. Excluding costs associated with the Madison River properties, operating expenses decreased in third quarter 2007 compared to third quarter 2006, primarily due to lower depreciation expense associated with fully depreciated assets, reduced personnel expenses and lower expenses under our amended satellite television agreement. These decreases more than offset an increase associated with growth in high-speed Internet customers.
Operating cash flow, excluding nonrecurring items, increased to $363.0 million from $301.7 million in third quarter 2006, primarily due to the recognition of prior period revenue settlements during third quarter 2007 and the contribution of the Madison River properties. For third quarter 2007, CenturyTel achieved an operating cash flow margin of 51.2% versus 48.7% in third quarter 2006.
“We remain focused on being the leading provider of broadband products and services to customers in our markets,” Post said. “We added more than 29,000 broadband customers during the third quarter and ended the quarter with more than 29% penetration of broadband-enabled lines.”
Net income, excluding nonrecurring items, was $108.1 million in third quarter 2007 compared to $77.9 million in third quarter 2006. This increase was primarily driven by the after-tax impact of the prior period revenue settlements discussed above. Diluted earnings per share, excluding nonrecurring items, was $.97 for third quarter 2007, a 47.0% increase from the $.66 reported in third quarter 2006. This increase was driven by the higher net income and a 6.8% decline in average diluted shares outstanding as a result of share repurchases since third quarter 2006.
For the first nine months of 2007, operating revenues, excluding nonrecurring items, increased to $1.948 billion from $1.838 billion for the same period in 2006. Operating cash flow, excluding nonrecurring items, was $970.1 million for the first nine months of 2007 compared to $896.5 million a year ago. Net income, excluding nonrecurring items, was $264.4 million in the first nine months of 2007 compared to $223.6 million during the same period in 2006. Diluted earnings per share, excluding nonrecurring items, was $2.34 during the first nine months of 2007 compared to $1.84 in the first nine months of 2006.
Under generally accepted accounting principles (GAAP), net income for third quarter 2007 was $113.2 million compared to $76.3 million for third quarter 2006 and diluted earnings per share for third quarter 2007 was $1.01 compared to $.64 for third quarter 2006. Third quarter 2007 net income and diluted earnings per share reflect a net after-tax charge of $1.4 million ($.01 per share) related to a reduction in workforce during the quarter and a net after-tax gain of $6.4 million ($.06 per share) from the sale of a non-core asset. Third quarter 2006 net income and diluted earnings per share reflect a net after-tax charge of $1.6 million ($.01 per share) related to a reduction in workforce.
Net income under GAAP for the first nine months of 2007 was $303.3 million compared to $297.8 million for the first nine months of 2006 and diluted earnings per share for the first nine months of 2007 was $2.68 compared to $2.44 for the first nine months of 2006. See the accompanying financial schedules for detail of the Company’s nonrecurring items for the nine months ended September 30, 2007 and 2006.
Outlook. For fourth quarter 2007, CenturyTel expects total revenues of $645 to $655 million and diluted earnings per share of $.66 to $.71. As a result of better than anticipated third quarter performance, the Company has increased and narrowed the range of anticipated full year 2007 diluted earnings per share guidance from $2.90 to $3.00 to $3.00 to $3.05.
CenturyTel expects to provide full year 2008 earnings per share guidance in February 2008. However, there are a couple of items that can be expected to affect 2008 results when compared to 2007. First, revenue settlements related to prior periods are anticipated to decline and negatively impact 2008 diluted earnings per share by $.22 to $.24. Additionally, lower Universal Service Fund receipts are expected to negatively impact 2008 diluted earnings by $.08 to $.10 per share. These and other items that may affect 2008 results will be further discussed during the Company’s fourth quarter 2007 earnings call in February 2008.
All outlook figures provided under this section are presented excluding the potential impact of any future mergers, acquisitions or divestitures, any share repurchases after October 31, or other nonrecurring events.
Other. As previously reported, CenturyTel adopted the requirements of Staff Accounting Bulletin No.108 (SAB 108) in fourth quarter 2006, which required the results of operations previously reported in the first, second and third quarters of 2006 to be adjusted. Third quarter 2006 and nine months ended September 30, 2006 amounts included in this press release reflect amounts adjusted for the application of SAB 108.
Reconciliation to GAAP. This release includes certain non-GAAP financial measures, including but not limited to operating cash flow, free cash flow and adjustments to GAAP measures to exclude the effect of nonrecurring items. In addition to providing key metrics for management to evaluate the Company’s performance, we believe these measurements assist investors in their understanding of period-to-period operating performance and in identifying historical and prospective trends. Reconciliations of non-GAAP financial measures to the most comparable GAAP measures are included in the attached financial schedules. Reconciliation of additional non-GAAP financial measures that may be discussed during the earnings call described below will be available in the Investor Relations portion of the Company’s Web site at www.centurytel.com. Investors are urged to consider these non-GAAP measures in addition to, and not in substitution for, measures prepared in accordance with GAAP.
Investor Call. As previously announced, CenturyTel’s management will host a conference call at 10:30 a.m. Central Time today. Interested parties can access the call by dialing 866.219.5631. The call will be accessible for replay through November 7, 2007, by calling 888.258.7854 and entering the access code: 1147641. Investors can also listen to CenturyTel’s earnings conference call and replay by accessing the Investor Relations portion of the Company’s Web site at www.centurytel.com through November 21, 2007.
In addition to historical information, this release includes certain forward-looking statements, estimates and projections that are based on current expectations only, and are subject to a number of risks, uncertainties and assumptions, many of which are beyond the control of the Company. Actual events and results may differ materially from those anticipated, estimated or projected if one or more of these risks or uncertainties materialize, or if underlying assumptions prove incorrect. Factors that could affect actual results include but are not limited to: the timing, success and overall effects of competition from a wide variety of competitive providers; the risks inherent in rapid technological change; the effects of ongoing changes in the regulation of the communications industry; the Company’s ability to effectively manage its expansion opportunities, including successfully integrating newly-acquired properties into the Company’s operations and retaining and hiring key personnel; possible changes in the demand for, or pricing of, the Company’s products and services; the Company’s continued access to credit markets on favorable terms; the Company’s ability to successfully introduce new product or service offerings on a timely and cost-effective basis; the Company’s ability to collect its receivables from financially troubled communications companies; the Company’s ability to successfully negotiate collective bargaining agreements on reasonable terms without work stoppages; the effect of adverse weather; other risks referenced from time to time in the Company’s filings with the Securities and Exchange Commission (the “SEC”); and the effects of more general factors such as changes in interest rates, in tax rates, in accounting policies or practices, in operating, medical or administrative costs, in general market, labor or economic conditions, or in legislation, regulation or public policy. These and other uncertainties related to the Company’s business are described in greater detail in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006, as updated by the Company’s subsequent SEC reports. You should be aware that new factors may emerge from time to time and it is not possible for management to identify all such factors, nor can it predict the impact of each such factor on the business or the extent to which any one or more factors may cause actual results to differ from those reflected in any forward-looking statements. You are further cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this release. The information contained in this release is as of November 1, 2007. The Company undertakes no obligation to update any of its forward-looking statements for any reason.
CenturyTel (NYSE: CTL) is a leading provider of communications, high-speed Internet and entertainment services in small-to-mid-size cities through our broadband and fiber transport networks. Included in the S&P 500 Index, CenturyTel delivers advanced communications with a personal touch to customers in 25 states. Visit us at http://www.centurytel.com.
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