(1) | Includes approximately $20.0 million of acquired cash and cash equivalents. |
(2) | We paid all the long-term debt and $2.2 million of related accrued interest (included in “current liabilities” in the above table) immediately after closing. |
(3) | Goodwill and Other Intangible Assets |
Goodwill and other intangible assets as of September 30, 2007 and December 31, 2006 were composed of the following:
| | Sept. 30, | | | Dec. 31, | |
| | 2007 | | | 2006 | |
| | (Dollars in thousands) | |
| | | | | | |
Goodwill | | $ | 3,997,028 | | | | 3,431,136 | |
| | | | | | | | |
Intangible assets subject to amortization | | | | | | | | |
Customer base | | | | | | | | |
Gross carrying amount | | $ | 159,894 | | | | 25,094 | |
Accumulated amortization | | | (13,607 | ) | | | (7,022 | ) |
Net carrying amount | | $ | 146,287 | | | | 18,072 | |
| | | | | | | | |
Contract rights | | | | | | | | |
Gross carrying amount | | $ | 4,186 | | | | 4,186 | |
Accumulated amortization | | | (4,186 | ) | | | (3,256 | ) |
Net carrying amount | | $ | - | | | | 930 | |
| | | | | | | | |
Intangible assets not subject to amortization | | $ | 56,090 | | | | 36,690 | |
Goodwill and intangible assets increased in 2007 due to the Madison River acquisition. As of September 30, 2007, we completed the annual impairment test of goodwill required under Statement of Financial Accounting Standards No. 142 and determined that our goodwill is not impaired.
Total amortization expense related to the intangible assets subject to amortization for the first nine months of 2007 was $7.5 million and is expected to be $11.1 million in 2007 and $14.5 million annually thereafter through 2011. Such amortization expense is based on the above-listed amount of intangible assets subject to amortization and is subject to change upon finalization of the Madison River purchase price allocation.
(4) | Postretirement Benefits |
We sponsor health care plans that provide postretirement benefits to all qualified retired employees.
Net periodic postretirement benefit cost for the three months and nine months ended September 30, 2007 and 2006 included the following components:
| | Three months | | | Nine months | |
| | ended September 30, | | | ended September 30, | |
| | 2007 | | | 2006 | | | 2007 | | | 2006 | |
| | | | | (Dollars in thousands) | | | | |
| | | | | | | | | | | | |
Service cost | | $ | 1,739 | | | | 1,746 | | | | 5,189 | | | | 5,237 | |
Interest cost | | | 5,050 | | | | 4,745 | | | | 15,107 | | | | 14,235 | |
Expected return on plan assets | | | (620 | ) | | | (610 | ) | | | (1,861 | ) | | | (1,829 | ) |
Amortization of unrecognized actuarial loss | | | 898 | | | | 930 | | | | 2,696 | | | | 2,790 | |
Amortization of unrecognized prior service cost | | | (505 | ) | | | (217 | ) | | | (1,515 | ) | | | (650 | ) |
Net periodic postretirement benefit cost | | $ | 6,562 | | | | 6,594 | | | | 19,616 | | | | 19,783 | |
We contributed $9.6 million to our postretirement health care plan in the first nine months of 2007 and expect to contribute approximately $13 million for the full year.
(5) | Defined Benefit Retirement Plans |
We sponsor defined benefit pension plans for substantially all employees. We also sponsor a Supplemental Executive Retirement Plan to provide certain officers with supplemental retirement, death and disability benefits.
Net periodic pension expense for the three months and nine months ended September 30, 2007 and 2006 included the following components:
| | Three months | | | Nine months | |
| | ended September 30, | | | ended September 30, | |
| | 2007 | | | 2006 | | | 2007 | | | 2006 | |
| | | | | (Dollars in thousands) | | | | |
| | | | | | | | | | | | |
Service cost | | $ | 4,030 | | | | 4,778 | | | | 13,256 | | | | 13,261 | |
Interest cost | | | 7,079 | | | | 7,078 | | | | 21,055 | | | | 19,455 | |
Expected return on plan assets | | | (9,256 | ) | | | (8,163 | ) | | | (27,475 | ) | | | (24,530 | ) |
Net amortization and deferral | | | 1,612 | | | | 3,423 | | | | 5,428 | | | | 7,269 | |
Net periodic pension expense | | $ | 3,465 | | | | 7,116 | | | | 12,264 | | | | 15,455 | |
The amount of the 2007 contribution to our pension plans will be determined based on a number of factors, including the results of the 2007 actuarial valuation. We have no required contribution to our pension plans for 2007.
(6) | Stock-based Compensation |
Effective January 1, 2006, we adopted the provisions of Statement of Financial Accounting Standards No. 123 (Revised 2004), “Share-Based Payments” (“SFAS 123(R)”). SFAS 123(R) requires us to recognize as compensation expense our cost of awarding employees with equity instruments by allocating the fair value of the award on the grant date over the period during which the employee is required to provide service in exchange for the award.
We currently maintain programs which allow the Board of Directors, through its Compensation Committee, to grant incentives to certain employees and our outside directors in any one or a combination of several forms, including incentive and non-qualified stock options; stock appreciation rights; restricted stock; and performance shares. As of September 30, 2007, we had reserved approximately 6.2 million shares of common stock which may be issued in connection with outstanding incentive awards under our current incentive programs. We also offer an Employee Stock Purchase Plan whereby employees can purchase our common stock at a 15% discount based on the lower of the beginning or ending stock price during recurring six-month periods stipulated in such program.
Stock option awards are generally granted with an exercise price equal to the market price of CenturyTel’s shares at the date of grant. Our outstanding options generally have a three-year vesting period and all of them expire ten years after the date of grant. The fair value of each stock option award is estimated as of the date of grant using a Black-Scholes option pricing model. During the first nine months of 2007, 963,620 options were granted with a weighted average exercise price of $45.79 per share and a weighted average grant date fair value of $14.63 per share.
As of September 30, 2007, outstanding and exercisable stock options were as follows:
| | | | | | | | Average | | | | |
| | | | | Average | | | remaining | | | Aggregate | |
| | Number | | | exercise | | | contractual | | | intrinsic | |
| | of options | | | price | | | term (in years) | | | value | |
Outstanding | | | 3,662,252 | | | $ | 36.74 | | | | 7.0 | | | $ | 34,702,000 | |
Exercisable | | | 2,101,000 | | | $ | 32.90 | | | | 5.5 | | | $ | 27,995,000 | |
Our outstanding restricted stock awards generally vest over a five-year period (for employees) and a three-year period (for outside directors). As of September 30, 2007, there were 861,096 shares of nonvested restricted stock outstanding at an average grant date fair value of $36.93 per share.
The total compensation cost for all share-based payment arrangements for the first nine months of 2007 and 2006 was $15.7 million and $8.9 million, respectively. As of September 30, 2007, there was $33.9 million of total unrecognized compensation cost related to the share-based payment arrangements, which is expected to be recognized over a weighted-average period of 3 years.
(7) | Income Tax Uncertainties |
In June 2006, the Financial Accounting Standards Board issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”), which clarifies the accounting for uncertainty in income taxes recognized in financial statements. FIN 48 required us, effective January 1, 2007, to recognize and measure tax benefits taken or expected to be taken in a tax return and disclose uncertainties in income tax positions.
Upon the initial adoption of FIN 48, we recorded a cumulative effect adjustment to retained earnings as of January 1, 2007 (which increased retained earnings by approximately $478,000 as of such date) related to certain previously recognized liabilities that did not meet the criteria for recognition upon the adoption of FIN 48.
As of January 1, 2007, we had approximately $55.9 million of unrecognized tax benefits reflected on our balance sheet, substantially all of which is included as a component of “Deferred credits and other liabilities”. Such amount was reflected in “Accrued income taxes” as of December 31, 2006. As of September 30, 2007, we had approximately $58.8 million of unrecognized tax benefits reflected on our balance sheet, which includes approximately $8.0 million allocated on a preliminary basis to unrecognized tax benefits in connection with our Madison River acquisition. If we were to prevail on all unrecognized tax benefits recorded on our balance sheet, approximately $49.9 million would benefit the effective tax rate.
Our policy is to reflect accrued interest associated with unrecognized tax benefits as income tax. We had accrued interest (presented before related tax benefits) of approximately $20.7 million as of January 1, 2007 and $29.4 million as of September 30, 2007.
We file income tax returns, including returns for our subsidiaries, with federal, state and local jurisdictions. Our uncertain income tax positions are related to tax years that are currently under or remain subject to examination by the relevant taxing authorities. Our open income tax years by major jurisdiction are as follows.
| Jurisdiction | | Open tax years | |
| Federal | | 1998-current | |
| State | | | |
| Georgia | | 2002-current | |
| Louisiana | | 1997-current | |
| Minnesota | | 2001-current | |
| Montana | | 2000-current | |
| Oregon | | 2001-current | |
| Wisconsin | | 2001-current | |
| All other states | | 2002-current | |
Additionally, it is possible that certain jurisdictions in which we do not believe we have an income tax filing responsibility, and accordingly did not file a return, may attempt to assess a liability. Since the period for assessing additional liability typically begins upon the filing of a return, it is possible that certain jurisdictions could assess tax for years prior to the open tax years disclosed above.
Based on (i) the potential outcomes of these ongoing examinations, (ii) the expiration of statute of limitations for specific jurisdictions, (iii) the negotiated settlement of certain disputed issues, or (iv) a jurisdiction’s administrative practices, it is reasonably possible that the related unrecognized tax benefits for tax positions previously taken may materially change within the next 12 months. However, based on the status of such examinations and the protocol of finalizing audits by the relevant tax authorities (which could include formal legal proceedings), we do not believe it is possible to reasonably estimate the amount or range of the impact of such changes, if any, at this time.
On March 29, 2007, we publicly issued $500 million of 6.0% Senior Notes, Series N, due 2017 and $250 million of 5.5% Senior Notes, Series O, due 2013. Our $741.8 million of net proceeds from the sale of these Senior Notes were used to pay a substantial portion of the approximately $844 million of cash that was needed in order to (i) pay the purchase price for the acquisition of Madison River on April 30, 2007 ($322 million) and (ii) pay off Madison River’s existing indebtedness (including accrued interest) at closing ($522 million). We funded the remainder of these cash outflows from borrowings under our commercial paper program and cash on hand. See Note 2 for additional information concerning the acquisition of Madison River.
In anticipation of the debt offerings mentioned above, we had previously entered into four cash flow hedges that effectively locked in the interest rate on an aggregate of $400 million of debt. We locked in the interest rate on (i) $200 million of 10-year debt at 5.0675% and (ii) $200 million of 10-year debt at 5.05%. In March 2007, upon settlement of the hedges, we received an aggregate of $765,000 (reflected in “Accumulated other comprehensive loss” on the balance sheet), which is being amortized as a reduction of interest expense over the 10-year term of the debt.
In July 2007, we called for redemption on August 14, 2007 all of our $165 million aggregate principal amount 4.75% convertible senior debentures, Series K, due 2032 at a redemption price of $1,023.80 per $1,000 principal amount of debentures, plus accrued and unpaid interest through August 13, 2007. In accordance with the indenture, holders could elect to convert their debentures into shares of CenturyTel common stock at a conversion price of $40.455 per share prior to August 10, 2007. In lieu of cash redemption, holders of approximately $149.6 million aggregate principal amount of the debentures elected to convert their holdings into approximately 3.7 million shares of CenturyTel common stock. The remaining $15.4 million of outstanding debentures were retired for cash (including premium and accrued and unpaid interest). As a result, we no longer have any of the Series K debentures outstanding. We recognized a pre-tax charge of approximately $366,000 in third quarter 2007 related to the cash redemption portion of these transactions.
(9) | Reduction in Workforce |
In September 2007, we announced a reduction of our workforce to be completed by mid-2008 of approximately 200 jobs, primarily due to the progress made on our Madison River integration plan and the elimination of certain customer service personnel due to reduced call volumes. We incurred a one-time net pre-tax charge of approximately $2.2 million in the third quarter of 2007 (consisting of a $2.7 million charge to operating expenses, net of a $527,000 favorable revenue impact related to such expenses) in connection with the severance and related costs. Of the $2.7 million charged to operating expenses, approximately $2.0 million is reflected in cost of services and products and $774,000 is reflected in selling, general and administrative expenses. The following table reflects the activity of the severance-related liability for the nine months ended September 30, 2007 (in thousands):
Balance at December 31, 2006 | | $ | 457 | |
Amount accrued to expense | | | 2,741 | |
Amount paid | | | (457 | ) |
Balance at September 30, 2007 | | $ | 2,741 | |
We are an integrated communications company engaged primarily in providing an array of communications services to our customers, including local exchange, long distance, Internet access and broadband services. We strive to maintain our customer relationships by, among other things, bundling our service offerings to provide our customers with a complete offering of integrated communications services. Our operating revenues for our products and services include the following components:
| | Three months | | | Nine months | |
| | ended September 30, | | | ended September 30, | |
| | 2007 | | | 2006 | | | 2007 | | | 2006 | |
| | | | | (Dollars in thousands) | | | | |
| | | | | | | | | | | | |
Voice | | $ | 229,862 | | | | 218,665 | | | | 664,435 | | | | 657,559 | |
Network access | | | 248,490 | | | | 219,897 | | | | 726,091 | | | | 666,883 | |
Data | | | 134,630 | | | | 91,473 | | | | 338,700 | | | | 259,158 | |
Fiber transport and CLEC | | | 41,811 | | | | 37,487 | | | | 120,851 | | | | 109,318 | |
Other | | | 54,040 | | | | 52,315 | | | | 149,602 | | | | 147,117 | |
Total operating revenues | | $ | 708,833 | | | | 619,837 | | | | 1,999,679 | | | | 1,840,035 | |
We derive our voice revenues by providing local exchange telephone and retail long distance services to our customers in our local exchange service areas. Revenues from voice mail services previously reflected in “Other” revenues have been reclassified to “Voice” revenues for all periods presented.
We derive our network access revenues primarily from (i) providing services to various carriers and customers in connection with the use of our facilities to originate and terminate their interstate and intrastate voice transmissions and (ii) receiving universal support funds which allows us to recover a portion of our costs under federal and state cost recovery mechanisms. In March 2006, we filed a complaint against a carrier for recovery of unpaid and underpaid access charges for calls made using the carrier’s prepaid calling cards and calls that used Internet Protocol for a portion of their transmission. The carrier filed a counterclaim against us, asserting that we improperly billed them terminating intrastate access charges on certain wireless roaming traffic. In April 2007, we entered into a settlement agreement with the carrier and received approximately $49 million cash from them related to the issues described above. This amount is reflected in our second quarter 2007 results of operations as a component of “Network access” revenues.
In third quarter 2007, upon the lapse of the applicable 2003/2004 monitoring period for certain of our tariffed billings (discussed further in footnote 19 to our financial statements included in our annual report on Form 10-K for the year ended December 31, 2006), we recognized approximately $42.2 million of revenues (of which approximately $25.4 million is reflected in network access revenues and $16.8 million is reflected in data revenues). Such amount represented billings from tariffs prior to July 2004 in excess of the authorized rate of return that we initially recorded as a deferred credit pending completion of such 2003/2004 monitoring period.
We derive our data revenues primarily by providing Internet access services (both high-speed (“DSL”) and dial-up services) and data transmission services over special circuits and private lines in our local exchange service areas.
Our fiber transport and CLEC revenues include revenues from our fiber transport, competitive local exchange carrier and security monitoring businesses.
We derive other revenues primarily by (i) leasing, selling, installing and maintaining customer premise telecommunications equipment and wiring, (ii) providing billing and collection services for third parties, (iii) participating in the publication of local directories and (iv) offering our video and wireless services, as well as other new product offerings.
(11) | Gain on Asset Dispositions |
In third quarter 2007, we sold our interest in a real estate partnership (which owned one building) for approximately $9.0 million cash and recorded a pre-tax gain of approximately $10.4 million.
In April 2006, upon dissolution of the Rural Telephone Bank (“RTB”), we received $122.8 million in cash for redemption of our investment in stock of the RTB and recorded a pre-tax gain of approximately $117.8 million in the second quarter of 2006 related to this transaction. We used the cash to reduce our indebtedness.
In May 2006, we sold the assets of our local exchange operations in Arizona for approximately $5.9 million cash and recorded a pre-tax gain of approximately $866,000 in the second quarter of 2006.
(12) | Recent Accounting Pronouncement |
In June 2006, the Financial Accounting Standards Board issued EITF 06-3, “How Taxes Collected From Customers and Remitted to Governmental Authorities Should be Presented in the Income Statement” (“EITF 06-3”), which requires disclosure of the accounting policy for any tax assessed by a governmental authority that is directly imposed on a revenue-producing transaction. We adopted the disclosure requirements of EITF 06-3 effective January 1, 2007.
We collect various taxes from our customers and subsequently remit such funds to governmental authorities. Substantially all of these taxes are recorded through the balance sheet. We are required to contribute to several universal service fund programs and generally include a surcharge amount on our customers’ bills which is designed to recover our contribution costs. Such amounts are reflected on a gross basis in our statement of income (included in both operating revenues and expenses) and aggregated approximately $30 million for the nine months ended September 30, 2007 and $31 million for the nine months ended September 30, 2006.
(13) | Commitments and Contingencies |
In Barbrasue Beattie and James Sovis, on behalf of themselves and all others similarly situated, v. CenturyTel, Inc., filed on October 28, 2002, in the United States District Court for the Eastern District of Michigan (Case No. 02-10277), the plaintiffs allege that we unjustly and unreasonably billed customers for inside wire maintenance services, and seek unspecified money damages and injunctive relief under various legal theories on behalf of a purported class of over two million customers in our telephone markets. On March 10, 2006, the Court certified a class of plaintiffs and issued a ruling that the billing descriptions we used for these services during an approximately 18-month period between October 2000 and May 2002 were legally insufficient. We have appealed this class certification decision and, although we cannot predict the length of time before this appeal will be adjudicated, we have held oral arguments and expect that a decision may be received within the next several months. Our preliminary analysis indicates that we billed approximately $10 million for inside wire maintenance services under the billing descriptions and time periods specified in the District Court ruling described above. Should other billing descriptions be determined to be inadequate or if claims are allowed for additional time periods, the amount of our potential exposure could increase significantly. The Court’s order does not specify the award of damages, the scope of which remains subject to additional fact-finding and resolution of what we believe are valid defenses to plaintiff’s claims. Accordingly, we cannot reasonably estimate the amount or range of possible loss at this time. However, considering the one-time nature of any adverse claim, we do not believe that the ultimate outcome of this litigation will have a material adverse effect on our financial position or on-going results of operations.
During 2006, we received approximately $122.8 million in cash from the dissolution of the RTB. Some portion of the gain recognized in connection with the receipt of these proceeds, while not estimable at this time, may be subject to review by regulatory authorities which may result in us recording a regulatory liability.
From time to time, we are involved in other proceedings incidental to our business, including administrative hearings of state public utility commissions relating primarily to rate making, actions relating to employee claims, occasional grievance hearings before labor regulatory agencies and miscellaneous third party tort actions. The outcome of these other proceedings is not predictable. However, we do not believe that the ultimate resolution of these other proceedings, after considering available insurance coverage, will have a material adverse effect on our financial position, results of operations or cash flows.
Item 2.
CenturyTel, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
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 our annual report on Form 10-K for the year ended December 31, 2006. The results of operations for the three months and nine months ended September 30, 2007 are not necessarily indicative of the results of operations which might be expected for the entire year.
We are an integrated communications company engaged primarily in providing an array of communications services, including local and long distance voice, Internet access and broadband services, to customers in 25 states. We currently derive our revenues from providing (i) local exchange and long distance voice services, (ii) network access services, (iii) data services, which includes both high-speed (“DSL”) and dial-up Internet services, as well as special access and private line services, (iv) fiber transport, competitive local exchange and security monitoring services and (v) other related services. For additional information on our revenue sources, see Note 10 to our financial statements included in Item 1 of Part I of this quarterly report.
On April 30, 2007, we acquired all of the outstanding stock of Madison River Communications Corp. (“Madison River”). See Note 2 for additional information. We have reflected the results of operations of the Madison River properties in our consolidated results of operations beginning May 1, 2007.
As discussed in Note 10, we recognized approximately $49.0 million of “network access” revenues in the second quarter of 2007 in connection with a settlement and approximately $42.2 million of revenues in the third quarter of 2007 in connection with the lapse of a regulatory monitoring period. Neither of these favorable revenue items in 2007 are expected to reoccur in the future.
Effective January 1, 2007, we changed our relationship with our provider of satellite television service from a revenue sharing arrangement to an agency relationship and, in connection therewith, we received in the second quarter of 2007 a non-recurring reimbursement of $5.9 million, of which $4.1 million was reflected as a reduction of cost of services and the remainder was reflected as revenues. This change has also resulted in us recognizing lower recurring revenues and lower recurring operating costs compared to our prior method of accounting for this arrangement.
In the third quarter of 2007, we recorded a one-time pre-tax gain of approximately $10.4 million related to the sale of our interest in a real estate partnership. In the second quarter of 2006, we (i) recorded a one-time pre-tax gain of approximately $117.8 million upon redemption of our investment in the stock of the Rural Telephone Bank (“RTB”) and (ii) sold our local exchange operations in Arizona.
In addition to historical information, this management’s discussion and analysis includes certain forward-looking statements that are based on current expectations only, and are subject to a number of risks, uncertainties and assumptions, many of which are beyond our control. 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; our ability to effectively manage our expansion opportunities, including successfully integrating newly-acquired businesses into our operations and retaining and hiring key personnel; possible changes in the demand for, or pricing of, our products and services; our ability to successfully introduce new product or service offerings on a timely and cost-effective basis; our continued access to credit markets on favorable terms; our ability to collect our receivables from financially troubled communications companies; our ability to successfully negotiate collective bargaining agreements on reasonable terms without work stoppages; the effects of adverse weather; other risks referenced from time to time in this report or other of our filings with the Securities and Exchange Commission; 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 business are described in greater detail in Item 1A to our Form 10-K for the year ended December 31, 2006. You should be aware that new factors may emerge from time to time and it is not possible for us to identify all such factors nor can we 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 report. We undertake no obligation to update any of our forward-looking statements for any reason.
RESULTS OF OPERATIONS
Three Months Ended September 30, 2007 Compared
to Three Months Ended September 30, 2006
Net income was $113.2 million and $76.3 million for the third quarter of 2007 and 2006, respectively. Diluted earnings per share for the third quarter of 2007 and 2006 was $1.01 and $0.64, respectively. We recorded $42.2 million of non-recurring operating revenues in third quarter 2007 upon expiration of a regulatory monitoring period (see Note 10). The decline in the number of average diluted shares outstanding is attributable to share repurchases that have occurred after September 30, 2006.
| | Three months | |
| | ended September 30, | |
| | 2007 | | | 2006 | |
| | (Dollars, except per share amounts, | |
| | and shares in thousands) | |
| | | | | | |
Operating income | | $ | 224,185 | | | | 168,942 | |
Interest expense | | | (55,176 | ) | | | (47,857 | ) |
Other income (expense) | | | 14,761 | | | | 2,818 | |
Income tax expense | | | (70,568 | ) | | | (47,579 | ) |
Net income | | $ | 113,202 | | | | 76,324 | |
| | | | | | | | |
Basic earnings per share | | $ | 1.04 | | | | 0.66 | |
| | | | | | | | |
Diluted earnings per share | | $ | 1.01 | | | | 0.64 | |
| | | | | | | | |
Average basic shares outstanding | | | 108,996 | | | | 115,221 | |
| | | | | | | | |
Average diluted shares outstanding | | | 112,229 | | | | 120,448 | |
Operating income increased $55.2 million (32.7%) as an $89.0 million (14.4%) increase in operating revenues was partially offset by a $33.8 million (7.5%) increase in operating expenses.
| | Three months | |
| | ended September 30, | |
| | 2007 | | | 2006 | |
| | (Dollars in thousands) | |
| | | | | | |
Voice | | $ | 229,862 | | | | 218,665 | |
Network access | | | 248,490 | | | | 219,897 | |
Data | | | 134,630 | | | | 91,473 | |
Fiber transport and CLEC | | | 41,811 | | | | 37,487 | |
Other | | | 54,040 | | | | 52,315 | |
| | $ | 708,833 | | | | 619,837 | |
Of the $11.2 million (5.1%) increase in voice revenues, approximately $16.4 million was attributable to the Madison River properties acquired April 30, 2007. The remaining $5.2 million decrease was primarily due to a $5.1 million decrease due to a 5.4% decline in the average number of access lines (normalized for acquisitions, dispositions and previously-disclosed adjustments made during 2006).
Normalized for the adjustments mentioned above, access lines declined 32,400 (1.6%) during the third quarter of 2007 compared to a decline of 29,300 (1.4%) during the third quarter of 2006. We believe the decline in the number of access lines during 2007 and 2006 is primarily due to the displacement of traditional wireline telephone services by other competitive services. Based on current conditions and anticipated competition, we expect access lines to decline between 5.0% and 6.0% for 2007.
Network access revenues increased $28.6 million (13.0%) in the third quarter of 2007 primarily due to the $25.4 million of one-time revenue recorded in third quarter 2007 upon expiration of the above-mentioned regulatory monitoring period and $13.0 million of revenues contributed by Madison River. Such increases were partially offset by (i) a $5.8 million decrease in intrastate revenues due to a reduction in intrastate minutes (partially due to the displacement of minutes by wireless, electronic mail and other optional calling services) and (ii) a $4.6 million reduction in the partial recovery of lower operating costs through revenue sharing arrangements and return on rate base. We believe that intrastate minutes will continue to decline in 2007, although we cannot estimate the magnitude of such decrease.
Data revenues increased $43.2 million (47.2%) substantially due to (i) $16.8 million of one-time revenue recorded in third quarter 2007 upon expiration of the above-mentioned regulatory monitoring period, (ii) a $15.5 million increase in DSL-related revenues due primarily to growth in the number of DSL customers and (iii) $13.2 million of revenues contributed by Madison River. Such increases were partially offset by a $2.1 million decrease in special access revenues and a $1.3 million decrease in dial-up Internet revenues due to a decline in the number of dial-up customers.
Fiber transport and CLEC revenues increased $4.3 million (11.5%), of which $1.8 million was contributed by Madison River and $1.7 million was due to growth in our incumbent fiber transport business.
Other revenues increased $1.7 million (3.3%) primarily due to $5.1 million of revenues contributed by Madison River. Such increase was partially offset by a $2.1 million decrease in revenues from the above-described change in the arrangement with our provider of satellite television service.
| | Three months | |
| | ended September 30, | |
| | 2007 | | | 2006 | |
| | (Dollars in thousands) | |
| | | | | | |
Cost of services and products (exclusive of depreciation and amortization) | | $ | 246,430 | | | | 226,536 | |
Selling, general and administrative | | | 101,612 | | | | 94,212 | |
Depreciation and amortization | | | 136,606 | | | | 130,147 | |
| | $ | 484,648 | | | | 450,895 | |
Cost of services and products increased $19.9 million (8.8%) primarily due to (i) $20.2 million of costs incurred by the Madison River properties and (ii) a $4.9 million increase in DSL-related expenses primarily due to growth in the number of DSL customers. Such increases were partially offset by (i) a $4.1 million decrease in expenses associated with our satellite television service offering due to a change in our arrangement as mentioned above and (ii) a $4.4 million decrease in salaries and benefits (due to fewer incumbent employees resulting from our 2006 workforce reduction which was partially offset by costs incurred in third quarter 2007 associated with our 2007 workforce reduction).
Selling, general and administrative expenses increased $7.4 million (7.9%) primarily due to $5.4 million of costs incurred by Madison River and a $3.2 million increase in salaries and benefits.
Depreciation and amortization increased $6.5 million (5.0%) due to $12.4 million of depreciation and amortization incurred by Madison River and a $3.7 million increase due to higher levels of plant in service. Such increases were substantially offset by a $8.7 million reduction in depreciation expense due to certain assets becoming fully depreciated.
Interest Expense
Interest expense increased $7.3 million (15.3%) in the third quarter of 2007 compared to the third quarter of 2006 primarily due to an increase in average debt outstanding caused by the March 2007 issuance of $750 million of senior notes used to fund the Madison River acquisition (see Note 8).
Other Income (Expense)
Other income (expense) includes the effects of certain items not directly related to our core operations, including gains/losses from nonoperating asset dispositions and impairments, our share of the income from our 49% interest in a cellular partnership, interest income and allowance for funds used during construction. Other income (expense) was $14.8 million for the third quarter of 2007 compared to $2.8 million for the third quarter of 2006. The third quarter of 2007 included a pre-tax gain of approximately $10.4 million related to the sale of our interest in a real estate partnership.
Income Tax Expense
The effective income tax rate was 38.4% for both the three months ended September 30, 2007 and the three months ended September 30, 2006.
Nine Months Ended September 30, 2007 Compared
to Nine Months Ended September 30, 2006
Net income was $303.3 million and $297.8 million for the first nine months of 2007 and 2006, respectively. Diluted earnings per share for the first nine months of 2007 and 2006 was $2.68 and $2.44, respectively. We recorded an aggregate of $91.2 million of one-time operating revenues in 2007 (of which $49.0 million related to the settlement of a dispute with a carrier and $42.2 million related to the expiration of the above-described regulatory monitoring period) (see Note 10). Included in net income (and diluted earnings per share) for the first nine months of 2006 was approximately $72.4 million ($.58 per share) related to nonrecurring gains, substantially all of which related to the redemption of our RTB stock. The decline in the number of average diluted shares outstanding is attributable to share repurchases that have occurred since the beginning of 2006.
| | Nine months | |
| | ended September 30, | |
| | 2007 | | | 2006 | |
| | (Dollars, except per share amounts, | |
| | and shares in thousands) | |
| | | | | | |
Operating income | | $ | 624,104 | | | | 491,859 | |
Interest expense | | | (159,804 | ) | | | (148,582 | ) |
Other income (expense) | | | 28,131 | | | | 130,874 | |
Income tax expense | | | (189,094 | ) | | | (176,357 | ) |
Net income | | $ | 303,337 | | | | 297,794 | |
| | | | | | | | |
Basic earnings per share | | $ | 2.77 | | | | 2.53 | |
| | | | | | | | |
Diluted earnings per share | | $ | 2.68 | | | | 2.44 | |
| | | | | | | | |
Average basic shares outstanding | | | 109,478 | | | | 117,685 | |
| | | | | | | | |
Average diluted shares outstanding | | | 114,086 | | | | 123,348 | |
Operating income increased $132.2 million (26.9%) due to a $159.6 million (8.7%) increase in operating revenues partially offset by a $27.4 million (2.0%) increase in operating expenses.
| | Nine months | |
| | ended September 30, | |
| | 2007 | | | 2006 | |
| | (Dollars in thousands) | |
| | | | | | |
Voice | | $ | 664,435 | | | | 657,559 | |
Network access | | | 726,091 | | | | 666,883 | |
Data | | | 338,700 | | | | 259,158 | |
Fiber transport and CLEC | | | 120,851 | | | | 109,318 | |
Other | | | 149,602 | | | | 147,117 | |
| | $ | 1,999,679 | | | | 1,840,035 | |
The $6.9 million (1.0%) increase in voice revenues is primarily due to $27.4 million of revenues attributable to the Madison River properties acquired April 30, 2007. Such increase was partially offset by (i) a $15.5 million decrease due to a 5.1% decline in the average number of access lines (normalized for acquisitions, dispositions and previously-disclosed adjustments made during 2006) and (ii) a $3.9 million decline as a result of a decrease in revenues associated with extended area calling plans.
Normalized for the adjustments mentioned above, access lines declined 85,600 (4.1%) during the first nine months of 2007 compared to a decline of 77,200 (3.5%) during the first nine months of 2006. We believe the decline in the number of access lines during 2007 and 2006 is primarily due to the displacement of traditional wireline telephone services by other competitive services. Based on current conditions and anticipated competition, we expect access lines to decline between 5.0% and 6.0% for 2007.
Network access revenues increased $59.2 million (8.9%) in the first nine months of 2007 primarily due to (i) the $49.0 million of one-time revenue recorded in second quarter 2007 upon settlement of a dispute with a carrier; (ii) $25.4 million of one-time revenues recorded in third quarter 2007 upon expiration of the above-described regulatory monitoring period and (iii) $21.3 million of revenues contributed by Madison River. Such increases were partially offset by a $36.5 million decrease in recurring network access revenues for our incumbent telephone operations, principally due to (i) a $15.7 million decrease in the partial recovery of lower operating costs through revenue sharing arrangements and return on rate base and (ii) a $15.2 million decrease in intrastate revenues due to a reduction in intrastate minutes (partially due to the displacement of minutes by wireless, electronic mail and other optional calling services). We believe that intrastate minutes will continue to decline in 2007, although we cannot estimate the magnitude of such decrease.
Data revenues increased $79.5 million (30.7%) substantially due to (i) a $51.5 million increase in DSL-related revenues due primarily to growth in the number of DSL customers; (ii) $21.7 million of revenues contributed by Madison River and (iii) $16.8 million of one-time revenues recorded in third quarter 2007 upon expiration of the above-described regulatory monitoring period. Such increases were partially offset by a $8.1 million decrease in special access revenues primarily due to certain customers disconnecting circuits and a $3.7 million decrease in dial-up Internet revenues due to a decline in the number of dial-up customers.
Fiber transport and CLEC revenues increased $11.5 million (10.5%), of which $10.1 million was due to growth in our incumbent fiber transport business and $3.0 million was contributed by Madison River. Such increases were partially offset by a $2.0 million decrease in CLEC revenues primarily due to customer disconnects.
Other revenues increased $2.5 million (1.7%). Such increase was primarily due to $8.1 million of revenues contributed by Madison River. In connection with receiving a one-time reimbursement as a result of our above-described change in accounting for our relationship with our satellite television service provider, we recorded a $1.9 million one-time increase to revenues in 2007. The impact of the change in the arrangement resulted in a $5.6 million decrease in recurring revenues for the nine months ended September 30, 2007 compared to 2006. In addition, our inside wire maintenance revenues decreased $2.1 million in 2007 compared to 2006.
| | Nine months | |
| | ended September 30, | |
| | 2007 | | | 2006 | |
| | (Dollars in thousands) | |
| | | | | | |
Cost of services and products (exclusive of depreciation and amortization) | | $ | 686,349 | | | | 665,282 | |
Selling, general and administrative | | | 290,525 | | | | 285,748 | |
Depreciation and amortization | | | 398,701 | | | | 397,146 | |
| | $ | 1,375,575 | | | | 1,348,176 | |
Cost of services and products increased $21.1 million (3.2%) primarily due to (i) $32.3 million of costs incurred by our Madison River properties; (ii) a $17.1 million increase in DSL-related expenses due to growth in the number of DSL customers; (iii) a $6.4 million increase in expenses associated with pole attachments primarily due to rate increases and (iv) a $4.4 million increase due to growth in our incumbent fiber transport business. Such increases were substantially offset by (i) a $21.6 million decrease in salaries and benefits due to fewer incumbent employees resulting from our 2006 workforce reduction; (ii) a $14.4 million decrease in expenses associated with our satellite television service offering due to a change in our arrangement as mentioned above (such reduction includes a $4.1 million one-time reimbursement of costs received from the service provider in the second quarter of 2007 in connection with the change in the arrangement) and (iii) a $3.9 million decrease in access expense.
Selling, general and administrative expenses increased $4.8 million (1.7%) primarily due to (i) $9.9 million of costs incurred by Madison River and (ii) a $7.9 million increase in salaries and benefits. Such increases were partially offset by (i) a $7.5 million reduction in bad debt expense and (ii) a $4.6 million decrease in information technology expenses.
Depreciation and amortization increased $1.6 million (0.4%) primarily due to $19.6 million of depreciation and amortization incurred by Madison River and an $11.2 million increase due to higher levels of plant in service. Such increases were substantially offset by a $23.3 million reduction in depreciation expense due to certain assets becoming fully depreciated and a $2.4 million reduction due to depreciation rate reductions in certain jurisdictions.
Interest expense increased $11.2 million (7.6%) in the first nine months of 2007 compared to the first nine months of 2006. A $15.4 million increase due to increased average debt outstanding (primarily due to the $750 million of senior notes issued in March 2007 to fund the Madison River acquisition) was partially offset by a $3.9 million decrease due to lower average interest rates.
Other income (expense) includes the effects of certain items not directly related to our core operations, including gains/losses from nonoperating asset dispositions and impairments, our share of the income from our 49% interest in a cellular partnership, interest income and allowance for funds used during construction. Other income (expense) was $28.1 million for the first nine months of 2007 compared to $130.9 million for the first nine months of 2006. The first nine months of 2007 include a non-recurring pre-tax gain of $10.4 million related to the sale of our interest in a real estate partnership. The first nine months of 2006 included nonrecurring pre-tax gains of $118.6 million, substantially all of which relates to the redemption of our RTB stock upon dissolution of the RTB. Our share of income from our 49% interest in a cellular partnership increased $2.9 million in the first nine months of 2007 compared to 2006 (primarily due to one-time favorable adjustments in 2007).
Income Tax Expense
The effective income tax rate was 38.4% and 37.2% for the nine months ended September 30, 2007 and 2006, respectively. Income tax expense was reduced by approximately $6.4 million in the first nine months of 2006 due to the resolution of various income tax audit issues.
LIQUIDITY AND CAPITAL RESOURCES
Excluding cash used for acquisitions, we rely on cash provided by operations to fund our operating and capital expenditures. Our operations have historically provided a stable source of cash flow which has helped us continue our long-term program of capital improvements.
Net cash provided by operating activities was $789.4 million during the first nine months of 2007 compared to $622.5 million during the first nine months of 2006. Our accompanying consolidated statements of cash flows identify major differences between net income and net cash provided by operating activities for each of these periods. As relief from the effects of Hurricane Katrina, certain of our affected subsidiaries were granted a deferral from making their remaining 2005 estimated federal income and excise tax payments until 2006. In the first nine months of 2006, we made payments of approximately $75 million to satisfy our remaining 2005 estimated payments. For additional information relating to our operations, see Results of Operations.
Net cash used in investing activities was $482.4 million and $91.4 million for the nine months ended September 30, 2007 and 2006, respectively. We used $306.8 million of cash (net of approximately $20.0 million of acquired cash) to purchase Madison River Communications Corp. (“Madison River”) on April 30, 2007 (see below and Note 2 for additional information). Payments for property, plant and equipment were $28.7 million less in the first nine months of 2007 than in the comparable period during 2006. Our budgeted capital expenditures for 2007 total approximately $325 million. We received approximately $128.7 million cash from asset dispositions in 2006, of which approximately $122.8 million was from the redemption of our RTB stock upon dissolution of the RTB and $5.9 million was from the sale of our local exchange operations in Arizona.
Net cash used in financing activities was $274.0 million during the first nine months of 2007 compared to $657.2 million during the first nine months of 2006. In late March 2007, we publicly issued an aggregate of $750 million of Senior Notes (see Note 8 for additional information). The net proceeds from the issuance of such Senior Notes aggregated approximately $741.8 million and were used (along with cash on hand and approximately $50 million of borrowings under our commercial paper program) to (i) finance the purchase price for the April 30, 2007 acquisition of Madison River ($322 million) and (ii) pay off Madison River’s existing indebtedness (including accrued interest) at closing ($522 million). We invested the cash proceeds from the debt offering in short-term cash equivalents prior to the acquisition of Madison River.
We repurchased 7.4 million shares (for $338.5 million) and 18.2 million shares (for $669.9 million) in the first nine months of 2007 and 2006, respectively. The 2006 repurchases include 14.36 million shares repurchased (for a total price of approximately $500 million) under accelerated share repurchase agreements with investment banks. We initially funded the accelerated share repurchase agreements principally through borrowings under our $750 million credit facility and cash on hand and subsequently refinanced the credit facility borrowings through the issuance of short-term commercial paper.
As described further in Note 8, we called for redemption on August 14, 2007, all of our $165 million aggregate principal amount of Series K convertible senior debentures, subject to the right of holders to convert their debentures into shares of our common stock at a conversion price of $40.455. In lieu of cash redemption, holders of approximately $149.6 million aggregate principal amount of the debentures elected to convert their holdings into approximately 3.7 million shares of CenturyTel common stock. The remaining $15.4 million of outstanding debentures were retired for cash (including premium and accrued and unpaid interest).
We have available a five-year, $750 million revolving credit facility which expires in December 2011. Up to $150 million of the credit facility can be used for letters of credit, which reduces the amount available for other extensions of credit. Available borrowings under our credit facility are also effectively reduced by any outstanding borrowings under our commercial paper program. Our commercial paper program borrowings are effectively limited to the total amount available under our credit facility. As of September 30, 2007, we had no amounts outstanding under our credit facility or commercial paper program.
We currently account for our regulated telephone operations (except for the properties acquired from Verizon in 2002) in accordance with the provisions of Statement of Financial Accounting Standards No. 71, “Accounting for the Effects of Certain Types of Regulation” (“SFAS 71”). While we continuously monitor the ongoing applicability of SFAS 71 to our regulated telephone operations due to the changing regulatory, competitive and legislative environments, we believe 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 our telephone operations not being subject to SFAS 71 in the 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. SFAS 101 further provides that the carrying amounts of property, plant and equipment are to be adjusted only to the extent the assets are impaired and that impairment shall be judged in the same manner as for nonregulated enterprises.
If our regulated operations cease to qualify for the application of SFAS 71, we do not expect to record an impairment charge related to the carrying value of the property, plant and equipment of our regulated telephone operations. Additionally, upon the discontinuance of SFAS 71, we would be required to revise the lives of our property, plant and equipment to reflect the estimated useful lives of the assets. We do not expect such revisions in asset lives, or the elimination of other regulatory assets and liabilities, to have a material unfavorable impact on our results of operations. For regulatory purposes, the accounting and reporting of our telephone subsidiaries would not be affected by the discontinued application of SFAS 71.
As previously mentioned above, we recorded an aggregate of $91.2 million of revenues in 2007 upon settlement of a dispute with a carrier and the lapse of a regulatory monitoring period, neither of which we expect to reoccur in the future. Additionally, lower Universal Service Fund receipts are expected to negatively impact 2008 diluted earnings per share by $.08 to $.10.
The disclosures presented under this heading exclude the potential impact of any future acquisitions, divestitures, share repurchases after October 31, 2007, or other unusual or unanticipated events. Please see the factors listed above at the beginning of MD&A that could cause our actual results to differ materially from those described above.
CenturyTel, Inc.
QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk from changes in interest rates on our long-term debt obligations. We have estimated our market risk using sensitivity analysis. Market risk is defined as the potential change in the fair value of a fixed-rate debt obligation due to a hypothetical adverse change in interest rates. Fair value on long-term debt obligations is determined based on a discounted cash flow analysis, using the rates and maturities of these obligations compared to terms and rates currently available in the long-term financing markets. The results of the sensitivity analysis used to estimate market risk are presented below, although the actual results may differ from these estimates.
At September 30, 2007, the fair value of our long-term debt was estimated to be $2.9 billion based on the overall weighted average rate of our debt of 6.7% and an overall weighted maturity of 8 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 our long-term debt resulting from a hypothetical increase of 67 basis points in interest rates (ten percent of our overall weighted average borrowing rate). Such an increase in interest rates would result in approximately a $116 million decrease in fair value of our long-term debt at September 30, 2007. As of September 30, 2007, after giving effect to interest rate swaps currently in place, approximately 83% of our long-term debt obligations were fixed rate.
We seek to maintain a favorable mix of fixed and variable rate debt in an effort to limit interest costs and cash flow volatility resulting from changes in rates. From time to time, we use derivative instruments to (i) lock-in or swap our exposure to changing or variable interest rates for fixed interest rates or (ii) to swap obligations to pay fixed interest rates for variable interest rates. We have established policies and procedures for risk assessment and the approval, reporting and monitoring of derivative instrument activities. We do not hold or issue derivative financial instruments for trading or speculative purposes. Management periodically reviews our exposure to interest rate fluctuations and implements strategies to manage the exposure.
At September 30, 2007, we had outstanding four fair value interest rate hedges associated with the full $500 million aggregate principal amount of our Series L senior notes, due 2012, that pay interest at a fixed rate of 7.875%. These hedges are “fixed to variable” interest rate swaps that effectively convert our fixed rate interest payment obligations under these notes into obligations to pay variable rates that range from the six-month London InterBank Offered Rate (“LIBOR”) plus 3.229% to the six-month LIBOR plus 3.67%, with settlement and rate reset dates occurring each six months through the expiration of the hedges in August 2012. During the first nine months of 2007, we realized an average interest rate under these hedges of 8.9%. Interest expense was increased by $3.7 million during the first nine months of 2007 as a result of these hedges. The aggregate fair market value of these hedges was $12.4 million at September 30, 2007 and is reflected both as a liability and as a decrease in our underlying long-term debt on the September 30, 2007 balance sheet. With respect to each of these hedges, market risk is estimated as the potential change in the fair value of the hedge resulting from a hypothetical 10% increase in the forward rates used to determine the fair value. A hypothetical 10% increase in the forward rates would result in a $10.8 million decrease in the fair value of these hedges at September 30, 2007, and would also increase our interest expense.
In third quarter 2007, we entered into a hedge transaction that effectively locked-in the interest rate for the six-month period ended February 2008 related to the $500 million of Series L notes that previously were effectively converted to variable rate notes pursuant to the “fixed to variable” interest rate swaps described above. Such transaction does not qualify for hedge accounting treatment and therefore will be reflected at its fair value as an asset or liability (with a corresponding adjustment through the income statement) at the end of each quarterly reporting period through February 2008. The impact of this transaction to third quarter 2007 results of operations was not material. We do not currently expect the income statement impact on future reporting periods to be material, although we cannot provide assurance to this effect.
In anticipation of the issuance of Senior Notes in connection with the Madison River acquisition, we entered into four cash flow hedges that effectively locked in the interest rate on an aggregate of $400 million of debt. The issuance of these Senior Notes was completed in late March 2007 with the issuance of $500 million of 6.0% Senior Notes, due 2017, and $250 million of 5.5% Senior Notes, due 2013. We locked in the interest rate on (i) $200 million of 10-year debt at 5.0675% and (ii) $200 million of 10-year debt at 5.05%. In March 2007, upon settlement of the hedges, we received an aggregate of $765,000 cash, which is being amortized as a reduction of interest expense over the 10-year term of the debt.
Certain shortcomings are inherent in the method of analysis presented in the computation of fair value of financial instruments. Actual values may differ from those presented if market conditions vary from assumptions used in the fair value calculations. The analysis above incorporates only those risk exposures that existed as of September 30, 2007.
Item 4.
CenturyTel, Inc.
CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures designed to provide reasonable assurances that information required to be disclosed by us in the reports we file under the Securities Exchange Act of 1934 is timely recorded, processed, summarized and reported as required. Our Chief Executive Officer, Glen F. Post, III, and our Chief Financial Officer, R. Stewart Ewing, Jr., have evaluated our disclosure controls and procedures as of September 30, 2007. Based on the evaluation, Messrs. Post and Ewing concluded that our disclosure controls and procedures have been effective in providing reasonable assurance that they have been timely alerted of material information required to be filed in this quarterly report. Since the date of Messrs. Post’s and Ewing’s most recent evaluation, there have been no significant changes in our internal controls or in other factors that could significantly affect these controls. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events and contingencies, and there can be no assurance that any design will succeed in achieving its stated goals. Because of inherent limitations in any control system, misstatements due to error or fraud could occur and not be detected.
PART II. OTHER INFORMATION
CenturyTel, Inc.
Item 1. Legal Proceedings.
See Note 13 included in Part I, Item 1, of this report.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
In August 2007, our board of directors authorized a $750 million share repurchase program which expires on September 30, 2009, unless extended by the board. The following table reflects the repurchases of our common stock during the third quarter of 2007 under our $750 million program announced in August 2007. All of these repurchases were effected in open-market transactions in accordance with our stock repurchase program.
| | | | Total | | Approximate |
| | | | Number of | | Dollar Value |
| | | | Shares | | of Shares |
| | | | Purchased as | | that |
| | | | Part of Publicly | | May Yet Be |
| Total Number | | | Announced | | Purchased |
| of Shares | | Average Price | Plans or | | Under the Plans |
Period | Purchased | | Per Share | Programs | | or Programs |
| | | | | | |
July 1 – July 31, 2007 | - | $ | - | - | $ | - |
August 1 – August 31, 2007 | 104,000 | $ | 47.63 | 104,000 | $ | 745,046,019 |
September 1 – September 30, 2007 | 682,000 | $ | 46.11 | 682,000 | $ | 713,601,120 |
| | | | | | |
Total | 786,000 | $ | 46.31 | 786,000 | | |
* * * * * * * * *
In addition to the above repurchases, we also withheld 1,315 shares of stock at an average price of $46.73 per share to pay taxes due upon vesting of restricted stock for certain of our employees in September 2007.
During the preceding quarter, our Board, acting upon a recommendation of its Nominating and Corporate Governance Committee, increased the mandatory retirement age for our directors from 72 to 75. For additional information, see Section 1 of our Corporate Governance Guidelines, an amended copy of which is filed herewith as Exhibit 3 hereto.
| Item 6. | Exhibits and Reports on Form 8-K |
| 3 | Corporate Governance Guidelines, as amended through August 21, 2007. |
11 | Computations of Earnings Per Share. |
31.1 | Registrant’s Chief Executive Officer certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
31.2 | Registrant’s Chief Financial Officer certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| 32 | Registrant’s Chief Executive Officer and Chief Financial Officer certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
The following items were reported in the Form 8-K filed July 13, 2007:
Items 8.01 and 9.01 - Other Events and Financial Statements and Exhibits. News release announcing a call for redemption of our 4.75% Convertible Senior Debentures, Series K, due 2032.
The following items were reported in the Form 8-K filed August 2, 2007:
Items 2.02 and 9.01 – Results of Operations and Financial Condition and Financial Statements and Exhibits. Press release announcing second quarter 2007 results of operations.
The following items were reported in the Form 8-K filed August 14, 2007:
Items 8.01 and 9.01 - Other Events and Financial Statements and Exhibits. News release announcing the completion of the redemption of our 4.75% Convertible Senior Debentures, Series K, due 2032.
The following items were reported in the Form 8-K filed August 22, 2007:
Items 8.01 and 9.01 - Other Events and Financial Statements and Exhibits. News release announcing that CenturyTel’s Board of Directors approved a $750 million stock repurchase program and a regular quarterly cash dividend of $.065 per share.
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: November 7, 2007 | | /s/ Neil A. Sweasy |
| | Neil A. Sweasy |
| | Vice President and Controller |
| | (Principal Accounting Officer) |