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, 2001
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)
Louisiana 72-0651161
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 CenturyTel 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, 2001, there were 140,995,276 shares of common stock
outstanding.
CenturyTel, Inc.
TABLE OF CONTENTS
Page No.
Part I. Financial Information:
Item 1. Financial Statements
Consolidated Statements of Income--Three Months
Ended March 31, 2001 and 2000 3
Consolidated Statements of Comprehensive Income--
Three Months Ended March 31, 2001 and 2000 4
Consolidated Balance Sheets--March 31, 2001 and
December 31, 2000 5
Consolidated Statements of Stockholders' Equity--
Three Months Ended March 31, 2001 and 2000 6
Consolidated Statements of Cash Flows--
Three Months Ended March 31, 2001 and 2000 7
Notes to Consolidated Financial Statements 8-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-17
Item 3. Quantitative and Qualitative Disclosures About Market Risk 18
Part II. Other Information:
Item 2. Changes in Securities and Use of Proceeds 19
Item 6. Exhibits and Reports on Form 8-K 19
Signature 19
PART I. FINANCIAL INFORMATION
CenturyTel, Inc.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three months
ended March 31,
- ------------------------------------------------------------------------------------------
2001 2000
- ------------------------------------------------------------------------------------------
(Dollars, except per
share amounts, and
shares in thousands)
OPERATING REVENUES
Telephone $ 371,249 276,926
Wireless 104,406 100,404
Other 40,353 35,626
- -------------------------------------------------------------------------------------------
Total operating revenues 516,008 412,956
- -------------------------------------------------------------------------------------------
OPERATING EXPENSES
Cost of sales and operating expenses 266,368 216,723
Depreciation and amortization 115,432 84,811
- -------------------------------------------------------------------------------------------
Total operating expenses 381,800 301,534
- -------------------------------------------------------------------------------------------
OPERATING INCOME 134,208 111,422
- --------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE)
Interest expense (61,703) (36,042)
Income (loss) from unconsolidated cellular entities 5,321 (1,459)
Minority interest (2,649) (2,292)
Gain on sale of assets - 9,910
Other income and expense 2,923 4,229
- --------------------------------------------------------------------------------------------
Total other income (expense) (56,108) (25,654)
- ---------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAX EXPENSE 78,100 85,768
Income tax expense 31,378 36,484
- -------------------------------------------------------------------------------------------
NET INCOME $ 46,722 49,284
===========================================================================================
BASIC EARNINGS PER SHARE $ .33 .35
===========================================================================================
DILUTED EARNINGS PER SHARE $ .33 .35
===========================================================================================
DIVIDENDS PER COMMON SHARE $ .05 .0475
===========================================================================================
AVERAGE BASIC SHARES OUTSTANDING 140,572 139,737
===========================================================================================
AVERAGE DILUTED SHARES OUTSTANDING 142,482 141,728
===========================================================================================
See accompanying notes to consolidated financial statements.
CenturyTel, Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
Three months
ended March 31,
- --------------------------------------------------------------------------------
2001 2000
- --------------------------------------------------------------------------------
(Dollars in thousands)
NET INCOME $ 46,722 49,284
OTHER COMPREHENSIVE INCOME, NET OF TAX:
Unrealized holding loss arising during period,
net of ($1,549) and ($3,765) tax (2,877) (6,993)
- --------------------------------------------------------------------------------
COMPREHENSIVE INCOME $ 43,845 42,291
================================================================================
See accompanying notes to consolidated financial statements.
CenturyTel, Inc.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31, December 31,
2001 2000
- --------------------------------------------------------------------------------------------------
(Dollars in thousands)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 15,873 19,039
Accounts receivable, less allowance of $10,904 and $12,857 271,468 307,165
Materials and supplies, at average cost 33,858 38,532
Other 14,120 11,768
- --------------------------------------------------------------------------------------------------
Total current assets 335,319 376,504
- --------------------------------------------------------------------------------------------------
NET PROPERTY, PLANT AND EQUIPMENT 2,954,667 2,959,293
- --------------------------------------------------------------------------------------------------
INVESTMENTS AND OTHER ASSETS
Excess cost of net assets acquired, less accumulated
amortization of $235,953 and $219,809 2,526,785 2,509,033
Other 571,954 548,460
- --------------------------------------------------------------------------------------------------
Total investments and other assets 3,098,739 3,057,493
- --------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 6,388,725 6,393,290
==================================================================================================
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 155,574 149,962
Short-term debt 319,347 276,000
Accounts payable 97,227 127,287
Accrued expenses and other liabilities
Salaries and benefits 38,682 33,859
Taxes 63,967 40,023
Interest 56,025 52,011
Other 20,744 23,349
Advance billings and customer deposits 41,335 40,879
- --------------------------------------------------------------------------------------------------
Total current liabilities 792,901 743,370
- --------------------------------------------------------------------------------------------------
LONG-TERM DEBT 2,980,442 3,050,292
- --------------------------------------------------------------------------------------------------
DEFERRED CREDITS AND OTHER LIABILITIES 540,376 567,549
- --------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Common stock, $1.00 par value, authorized 350,000,000 shares,
issued and outstanding 140,992,706 and 140,667,251 shares 140,993 140,667
Paid-in capital 515,478 509,840
Unrealized holding gain on investments, net of taxes 22,594 25,471
Retained earnings 1,391,216 1,351,626
Unearned ESOP shares (3,250) (3,500)
Preferred stock - non-redeemable 7,975 7,975
- --------------------------------------------------------------------------------------------------
Total stockholders' equity 2,075,006 2,032,079
- --------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND EQUITY $ 6,388,725 6,393,290
==================================================================================================
See accompanying notes to consolidated financial statements.
CenturyTel, Inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
Three months
ended March 31,
- -----------------------------------------------------------------------------------------------
2001 2000
- -----------------------------------------------------------------------------------------------
(Dollars in thousands)
COMMON STOCK
Balance at beginning of period $ 140,667 139,946
Conversion of convertible securities into common stock 254 254
Issuance of common stock through dividend reinvestment,
incentive and benefit plans 72 29
- -----------------------------------------------------------------------------------------------
Balance at end of period 140,993 140,229
- -----------------------------------------------------------------------------------------------
PAID-IN CAPITAL
Balance at beginning of period 509,840 493,432
Conversion of convertible securities into common stock 3,046 3,046
Issuance of common stock through dividend
reinvestment, incentive and benefit plans 1,170 1,025
Amortization of unearned compensation and other 1,422 1,030
- -----------------------------------------------------------------------------------------------
Balance at end of period 515,478 498,533
- ------------------------------------------------------------------------------------------------
UNREALIZED HOLDING GAIN ON INVESTMENTS, NET OF TAXES
Balance at beginning of period 25,471 64,362
Change in unrealized holding gain on investments (2,877) (6,993)
- -----------------------------------------------------------------------------------------------
Balance at end of period 22,594 57,369
- -----------------------------------------------------------------------------------------------
RETAINED EARNINGS
Balance at beginning of period 1,351,626 1,146,967
Net income 46,722 49,284
Cash dividends declared
Common stock-$.05 and $.0475 per share, respectively (7,032) (6,642)
Preferred stock (100) (100)
- -----------------------------------------------------------------------------------------------
Balance at end of period 1,391,216 1,189,509
- -----------------------------------------------------------------------------------------------
UNEARNED ESOP SHARES
Balance at beginning of period (3,500) (4,690)
Release of ESOP shares 250 440
- -----------------------------------------------------------------------------------------------
Balance at end of period (3,250) (4,250)
- -----------------------------------------------------------------------------------------------
PREFERRED STOCK - NON-REDEEMABLE
Balance at beginning and end of period 7,975 7,975
- -----------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY $ 2,075,006 1,889,365
===============================================================================================
See accompanying notes to consolidated financial statements.
CenturyTel, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three months
ended March 31,
- ------------------------------------------------------------------------------------------------
2001 2000
- ------------------------------------------------------------------------------------------------
(Dollars in thousands)
OPERATING ACTIVITIES
Net income $ 46,722 49,284
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 115,432 84,811
Gain on sale of assets - (9,910)
Deferred income taxes (8,123) 3,231
(Income) loss from unconsolidated cellular entities (5,321) 1,459
Minority interest 2,649 2,292
Changes in current assets and current liabilities:
Accounts receivable 35,697 (15,928)
Accounts payable (30,060) 36,414
Other accrued taxes 23,944 30,525
Other current assets and other current liabilities, net 9,010 (8,143)
Increase in other noncurrent assets (19,201) (16,222)
Increase (decrease) in other noncurrent liabilities (6,757) 4,586
Other, net 19,092 (2,310)
- -----------------------------------------------------------------------------------------------
Net cash provided by operating activities 183,084 160,089
- -----------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Payments for property, plant and equipment (120,585) (58,165)
Acquisitions, net of cash acquired (47,131) (27,980)
Proceeds from sale of assets - 15,849
Purchase of life insurance investment, net (70) (1,627)
Other, net 4,215 (827)
- -----------------------------------------------------------------------------------------------
Net cash used in investing activities (163,571) (72,750)
- -----------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from issuance of debt 172,173 1,079
Payments of debt (189,514) (77,007)
Proceeds from issuance of common stock 1,242 1,054
Cash dividends (7,132) (6,742)
Other, net 552 266
- -----------------------------------------------------------------------------------------------
Net cash used in financing activities (22,679) (81,350)
- -----------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (3,166) 5,989
Cash and cash equivalents at beginning of period 19,039 56,640
- -----------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 15,873 62,629
===============================================================================================
Supplemental cash flow information:
Income taxes paid $ 790 5,146
===============================================================================================
Interest paid (net of capitalized interest of $1,654 and $741) $ 56,035 48,593
===============================================================================================
See accompanying notes to consolidated financial statements.
CenturyTel, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
(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, 2000. Certain 2000 amounts have been reclassified to be
consistent with the Company's 2001 presentation.
The unaudited financial information for the three months ended March 31,
2001 and 2000 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:
March 31, Dec. 31,
2001 2000
- -------------------------------------------------------------------------
(Dollars in thousands)
Telephone, at original cost $ 5,067,201 4,999,808
Accumulated depreciation (2,630,212) (2,552,648)
- -------------------------------------------------------------------------
2,436,989 2,447,160
- -------------------------------------------------------------------------
Wireless, at cost 518,901 522,684
Accumulated depreciation (269,411) (261,401)
- -------------------------------------------------------------------------
249,490 261,283
- -------------------------------------------------------------------------
Other, at cost 415,165 392,024
Accumulated depreciation (146,977) (141,174)
- -------------------------------------------------------------------------
268,188 250,850
- -------------------------------------------------------------------------
$ 2,954,667 2,959,293
=========================================================================
(3) Income (Loss) 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, 2001
and 2000) were accounted for by the equity method.
Three months
ended March 31,
- --------------------------------------------------------------------------
2001 2000
- --------------------------------------------------------------------------
(Dollars in thousands)
Results of operations
Revenues $ 374,406 357,434
Operating income $ 114,937 99,861
Net income $ 112,104 99,149
- --------------------------------------------------------------------------
(4) Sale of Assets
In the first quarter of 2000 the Company recorded a pre-tax gain
aggregating $9.9 million ($5.2 million after-tax; $.04 per diluted share) due to
the sale of the assets of its remaining Alaska cellular operations.
(5) Business Segments
The Company has two separately reportable business segments: telephone and
wireless. The Company's reportable segments are strategic business units that
offer different products and services. The operating income of these segments is
reviewed by the chief operating decision maker to assess performance and make
business decisions. Other operations include, but are not limited to, the
Company's non-regulated long distance operations, Internet operations,
competitive local exchange carrier operations and security monitoring
operations.
Three months
ended March 31,
- -------------------------------------------------------------------------------
2001 2000
- -------------------------------------------------------------------------------
(Dollars in thousands)
Operating revenues
Telephone $ 371,249 276,926
Wireless 104,406 100,404
Other operations 40,353 35,626
- -------------------------------------------------------------------------------
Total operating revenues $ 516,008 412,956
===============================================================================
Operating income
Telephone $ 103,981 84,497
Wireless 24,920 19,891
Other operations 5,307 7,034
- -------------------------------------------------------------------------------
Total operating income $ 134,208 111,422
===============================================================================
Operating income $ 134,208 111,422
Interest expense (61,703) (36,042)
Income (loss) from unconsolidated cellular entities 5,321 (1,459)
Minority interest (2,649) (2,292)
Gain on sale of assets - 9,910
Other income and expense 2,923 4,229
- -------------------------------------------------------------------------------
Income before income tax expense $ 78,100 85,768
===============================================================================
March 31, Dec. 31,
2001 2000
- -------------------------------------------------------------------------------
(Dollars in thousands)
Assets
Telephone $ 4,795,612 4,779,812
Wireless 1,190,578 1,204,186
Other operations 402,535 409,292
- -------------------------------------------------------------------------------
Total assets $ 6,388,725 6,393,290
===============================================================================
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, 2000. The results of operations for the three months
ended March 31, 2001 are not necessarily indicative of the results of operations
which might be expected for the entire year.
CenturyTel, Inc. and its subsidiaries (the "Company") is a regional
integrated communications company engaged primarily in providing local exchange,
wireless, long distance, Internet access and data services to customers in 21
states. On July 31, 2000 and September 29, 2000, affiliates of the Company
acquired over 490,000 telephone access lines and related local exchange assets
in Arkansas, Missouri and Wisconsin from affiliates of Verizon Communications,
Inc. ("Verizon") for an aggregate of approximately $1.5 billion cash. The
operations of those acquired properties are included in the Company's results of
operations beginning on the respective dates of acquisition. In February 2000,
the Company sold the assets of its remaining Alaska cellular operations serving
approximately 10,600 cellular subscribers. The operations of this disposed
property are included in the Company's results of operations up to the date of
disposition.
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 Company's
ability to effectively manage its growth, including integrating newly-acquired
businesses into the Company's operations, hiring adequate numbers of qualified
staff and successfully upgrading its billing and other information systems; the
risks inherent in rapid technological change; the effects of ongoing changes in
the regulation of the telecommunications industry; the effects of greater than
anticipated competition in the Company's markets; possible changes in the demand
for, or pricing of, the Company's products and services; the Company's ability
to successfully introduce new product or service offerings on a timely and
cost-effective basis; 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, 2000. 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, 2001 Compared
to Three Months Ended March 31, 2000
Net income (and diluted earnings per share) was $46.7 million ($.33) and
$49.3 million ($.35) for the first quarter of 2001 and 2000, respectively. Net
income (excluding after-tax gain on sale of assets and certain non-recurring
charges) was $47.9 million for both the first quarter of 2001 and the first
quarter of 2000. Diluted earnings per share (excluding after-tax gain on sale of
assets and certain non-recurring charges) was $.34 during both quarters. The
non-recurring charge in first quarter 2001 of $2.0 million ($.01 per diluted
share) was related to ice storm damages in certain of the Company's local
telephone operations. Substantially all of the non-recurring charges in first
quarter 2000 related to the Company's proportionate share ($5.3 million; $.03
per diluted share) of non-cash charges that were recorded by two cellular
entities in which the Company owns a minority interest and is reflected in
"Income (loss) from unconsolidated cellular entities."
Three months
ended March 31,
- -------------------------------------------------------------------------------
2001 2000
- -------------------------------------------------------------------------------
(Dollars, except per
share amounts, and
shares in thousands)
Operating income
Telephone $ 103,981 84,497
Wireless 24,920 19,891
Other 5,307 7,034
- -------------------------------------------------------------------------------
134,208 111,422
Interest expense (61,703) (36,042)
Income (loss) from unconsolidated cellular entities 5,321 (1,459)
Minority interest (2,649) (2,292)
Gain on sale of assets - 9,910
Other income and expense 2,923 4,229
Income tax expense (31,378) (36,484)
- -------------------------------------------------------------------------------
Net income $ 46,722 49,284
===============================================================================
Basic earnings per share $ .33 .35
===============================================================================
Diluted earnings per share $ .33 .35
===============================================================================
Average basic shares outstanding 140,572 139,737
===============================================================================
Average diluted shares outstanding 142,482 141,728
===============================================================================
Contributions to operating revenues and operating income by the Company's
telephone, wireless, and other operations for the three months ended March 31,
2001 and 2000 were as follows:
Three months
ended March 31,
- ------------------------------------------------------------------------------
2001 2000
- ------------------------------------------------------------------------------
Operating revenues
Telephone operations 72.0% 67.1
Wireless operations 20.2% 24.3
Other operations 7.8% 8.6
Operating income
Telephone operations 77.5% 75.8
Wireless operations 18.6% 17.9
Other operations 3.9% 6.3
- ------------------------------------------------------------------------------
Telephone Operations
Three months
ended March 31,
- ------------------------------------------------------------------------------
2001 2000
- ------------------------------------------------------------------------------
Operating revenues
Local service $ 121,161 88,065
Network access 213,867 162,253
Other 36,221 26,608
- ------------------------------------------------------------------------------
371,249 276,926
- ------------------------------------------------------------------------------
Operating expenses
Plant operations 93,885 62,776
Customer operations 29,257 22,761
Corporate and other 46,765 39,532
Depreciation and amortization 97,361 67,360
- ------------------------------------------------------------------------------
267,268 192,429
- ------------------------------------------------------------------------------
Operating income $ 103,981 84,497
==============================================================================
The Company conducts its telephone operations in rural, suburban and
small urban communities in 21 states. As of March 31, 2001, approximately 87% of
the Company's 1.8 million access lines were in Wisconsin, Arkansas, Washington,
Missouri, Michigan, Louisiana, Colorado, Ohio and Oregon.
Telephone operating income increased $19.5 million (23.1%) due to an
increase in operating revenues of $94.3 million (34.1%) which more than offset
an increase in operating expenses of $74.8 million (38.9%).
Of the $94.3 million increase in operating revenues, $88.0 million was
attributable to the acquisitions of the Verizon properties. The remaining $6.3
million increase in revenues was partially due to a $2.4 million increase in
local network service revenues primarily due to an increase in the number of
customer access lines in incumbent markets; a $2.4 million increase in amounts
received from the federal Universal Service Fund; a $1.5 million increase
related to selling, leasing, installing, maintaining and repairing customer
premise telecommunications equipment and wiring and a $1.2 million increase due
to the increased provision of custom calling features. Such increases were
partially offset by a $2.5 million decrease in the Company's partial recovery of
operating costs through revenue sharing arrangements with other telephone
companies. Annualized internal access line growth for first quarter of 2001 and
2000 was 0.6% and 2.9%, respectively. The decline in internal access line growth
during 2001 is substantially due to disconnecting service to customers for
non-payment and the replacement of lines with high-speed data circuits.
Plant operations expenses increased $31.1 million (49.6%), of which $29.9
million (including $2.0 million related to ice storm damages) was attributable
to the acquisitions of the Verizon properties. The remaining $1.2 million
increase was primarily due to an $835,000 increase in access expenses.
During the first quarter of 2001 customer operations expenses increased
$6.5 million (28.5%), substantially all of which was attributable to the Verizon
acquisitions.
Corporate and other expenses increased $7.2 million (18.3%) primarily due
to a $2.3 million increase in expenses associated with the Verizon acquisitions;
a $1.8 million increase in the provision for doubtful accounts; and a $1.3
million increase associated with the Company's sales, leases, installations,
maintenance and repair of customer premise telecommunications equipment and
wiring.
Depreciation and amortization increased $30.0 million, of which $26.8
million was attributable to the Verizon properties acquired (of which $5.9
million related to amortization of goodwill). The remaining $3.2 million
increase was primarily due to higher levels of plant in service.
Wireless Operations and Income (Loss) From Unconsolidated Cellular Entities
Three months
ended March 31,
- -------------------------------------------------------------------------------
2001 2000
- -------------------------------------------------------------------------------
(Dollars in thousands)
Operating income - wireless operations $ 24,920 19,891
Minority interest (2,637) (2,284)
Income (loss) from unconsolidated cellular entities 5,321 (1,459)
- -------------------------------------------------------------------------------
$ 27,604 16,148
===============================================================================
The Company's wireless operations (discussed below) reflect 100% of the
results of operations of the wireless 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
(loss) from unconsolidated cellular entities." See Income (loss) From
Unconsolidated Cellular Entities for additional information.
Wireless Operations
Three months
ended March 31,
- -------------------------------------------------------------------------------
2001 2000
- -------------------------------------------------------------------------------
(Dollars in thousands)
Operating revenues
Service $ 80,466 76,261
Roaming 20,634 20,362
Equipment sales 3,306 3,781
- -------------------------------------------------------------------------------
104,406 100,404
- -------------------------------------------------------------------------------
Operating expenses
Cost of equipment sold 5,844 8,180
System operations 17,466 15,653
General, administrative and customer service 20,737 18,206
Sales and marketing 18,825 22,125
Depreciation and amortization 16,614 16,349
- -------------------------------------------------------------------------------
79,486 80,513
- -------------------------------------------------------------------------------
Operating income $ 24,920 19,891
===============================================================================
Wireless operating income increased $5.0 million (25.3%) to $24.9 million
in the first quarter of 2001 from $19.9 million in the first quarter of 2000.
Wireless operating revenues increased $4.0 million (4.0%) while operating
expenses decreased $1.0 million (1.3%).
The $4.2 million increase in service revenues was primarily due to growth
in number of customers and increased minutes of use, both of which were
partially offset by reduced rates. The Company's roaming revenues were
approximately the same in first quarter 2001 and first quarter 2000 as revenues
generated from increased minutes of use were completely offset by a reduction in
roaming rates, a downward trend in rates that the Company anticipates will
continue in the near future.
The following table illustrates the growth in the Company's wireless
customer base in its majority-owned markets:
Three months
ended March 31,
- ------------------------------------------------------------------------------
2001 2000
- ------------------------------------------------------------------------------
Customers at beginning of period 751,200 707,486
Gross units added internally 83,509 93,001
Disconnects 65,894 62,327
Net units added internally 17,615 30,674
Effect of property dispositions - (10,653)
Customers at end of period 768,815 727,507
- ------------------------------------------------------------------------------
The average monthly revenue per customer declined to $44 during the first
quarter of 2001 from $45 during the first quarter of 2000 primarily due to price
reductions in service rates charged to the Company's customers, reductions in
roaming rates charged to other cellular operators and the continued trend that a
higher percentage of new customers tend to be lower usage customers. The average
monthly service revenue per customer is expected to further decline (i) as
market penetration increases and additional lower usage customers are activated;
(ii) as the Company continues to receive pressure from other cellular operators
to reduce roaming rates and (iii) 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, some of which
may result in lower average revenue per customer.
Cost of equipment sold decreased $2.3 million (28.6%) substantially due
to a decrease in units sold.
System operations expenses increased $1.8 million (11.6%) primarily due
to a $1.6 million increase in the net amounts paid to other carriers for
cellular service provided to the Company's customers who roam in such other
carriers' service areas.
General, administrative and customer service expenses increased $2.5
million (13.9%) primarily due to a $900,000 increase in the provision for
doubtful accounts and an $833,000 increase in customer service and retention
costs.
The Company's average monthly postpaid churn rate (the percentage of
contract cellular customers that terminate service) was 2.4% for the first
quarter of 2001 and 2.0% for the first quarter of 2000.
Sales and marketing expenses decreased $3.3 million (14.9%) primarily due
to a $3.1 million decrease in advertising expenses associated with the
introduction of new rate plans during the first quarter of 2000 and a $948,000
decrease in commissions paid to agents for selling services to new customers.
Other Operations
Three months
ended March 31,
- -------------------------------------------------------------------------------
2001 2000
- -------------------------------------------------------------------------------
(Dollars in thousands)
Operating revenues
Long distance $ 27,600 24,827
Internet 8,399 5,012
Other 4,354 5,787
- ------------------------------------------------------------------------------
40,353 35,626
- ------------------------------------------------------------------------------
Operating expenses
Cost of sales and operating expenses 33,589 27,490
Depreciation and amortization 1,457 1,102
- ------------------------------------------------------------------------------
35,046 28,592
- ------------------------------------------------------------------------------
Operating income $ 5,307 7,034
==============================================================================
Other operations include the results of operations of the Company which
are not included in the telephone or wireless segments including, but not
limited to, the Company's non-regulated long distance operations, Internet
operations, call center operations (which ceased operations in the third quarter
of 2000), competitive local exchange carrier operations and security monitoring
operations. The $2.8 million increase in long distance revenues was primarily
attributable to the growth in the number of customers and increased minutes of
use. The number of long distance customers as of March 31, 2001 and 2000 was
392,900 and 319,100, respectively. Internet revenues increased $3.4 million due
primarily to a $2.1 million increase due to growth in the number of customers
and an $867,000 increase due to Internet operations acquired in mid-2000. The
decrease in other revenues is primarily due to the planned phase out of the
Company's third party call center operations in the last half of 2000.
Operating expenses increased $6.5 million primarily due to (i) a $7.1
million increase in expenses related to the provision of Internet access
primarily due to the expansion of the Company's digital subscriber line ("DSL")
product offering; and (ii) a $2.5 million increase due to the expansion of the
Company's competitive local exchange carrier and fiber network businesses. Such
increases were partially offset by a $3.3 million reduction in expenses due to
the planned phase out of the Company's third party call center operations in the
last half of 2000.
The Company anticipates that future operating income for its other
operations will continue to decline in relation to prior periods as it incurs
increasingly larger expenses in connection with expanding its competitive local
exchange carrier and fiber network businesses and its DSL product offering.
Interest Expense
Interest expense increased $25.7 million (71.2%) in the first quarter of
2001 compared to the first quarter of 2000 substantially due to an increase in
interest expense related to the Verizon acquisition indebtedness.
Income (Loss) from Unconsolidated Cellular Entities
Earnings from unconsolidated cellular entities, net of the amortization
of associated goodwill, increased $6.8 million. The first quarter of 2000
included the Company's proportionate share ($5.3 million) of non-cash charges
that was recorded by two cellular entities in which the Company owns a minority
interest. The remaining increase was primarily due to increased earnings of
certain cellular entities in which the Company owns a minority interest.
Minority Interest
Minority interest increased $357,000 in first quarter 2001 compared to
first quarter 2000 due to the increased profitability of the Company's
majority-owned and operated cellular entities.
Gain on Sale of Assets
In the first quarter of 2000, the Company recorded a pre-tax gain of
approximately $9.9 million ($5.2 million after-tax; $.04 per diluted share) due
to the sale of the assets of its remaining Alaska cellular operations.
Other Income and Expense
Other income and expense decreased $1.3 million in first quarter 2001
primarily due to a reduction in interest income.
Income Tax Expense
Income tax expense decreased $5.1 million in the first quarter of 2001
compared to the first quarter of 2000 primarily due to a decrease in income
before taxes. The effective income tax rate was 40.2% and 42.5% in the three
months ended March 31, 2001 and 2000, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Excluding cash used for acquisitions, the Company relies on cash provided
by operations to provide for 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 $183.1 million during the
first three months of 2001 compared to $160.1 million during the first three
months of 2000. The Company's accompanying consolidated statements of cash flows
identify major differences between net income and net cash provided by operating
activities for each of these periods. For additional information relating to the
telephone operations, wireless operations, and other operations of the Company,
see Results of Operations.
Net cash used in investing activities was $163.6 million and $72.8
million for the three months ended March 31, 2001 and 2000, respectively.
Payments for property, plant and equipment were $62.4 million more in the first
quarter of 2001 than in the comparable period during 2000. Capital expenditures
for the three months ended March 31, 2001 were $72.7 million for telephone,
$18.3 million for wireless and $29.6 million for other operations. During the
first quarter of 2001, the Company acquired an additional 18.6% interest for
$47.1 million cash in Spectra Communication Group, LLC, the entity organized to
acquire and operate the former Verizon properties in Missouri. During the first
quarter of 2000, the Company invested $28.0 million in various other
communications entities. Proceeds from the sale of assets were $15.8 million for
the three months ended March 31, 2000.
Net cash used in financing activities was $22.7 million during the first
three months of 2001 compared to $81.4 million during the first three months of
2000. Net payments of debt were $58.6 million less during the first quarter of
2001 compared to the first quarter of 2000.
Budgeted capital expenditures for 2001 total $400 million for telephone
operations, $70 million for wireless operations and $80 million for other
operations.
As of March 31, 2001, CenturyTel's subsidiaries had available for use
$123.0 million of commitments for long-term financing from the Rural Utilities
Service and the Rural Telephone Bank and the Company had $211.1 million of
undrawn committed bank lines of credit. The Company has a commercial paper
program that authorizes it to have outstanding up to $1.5 billion in commercial
paper at any one time. At March 31, 2001, the Company had $30.3 million
outstanding under such program.
In April 2001, the Company completed the sale of 29 PCS (Personal
Communications Service) operating licenses for an aggregate of $175 million to
Leap Wireless International, Inc. ("Leap"). The Company received approximately
$89 million of the purchase price in cash at closing. The remaining $86 million
is payable in the form of a promissory note bearing interest at 10% per annum.
$74 million will be payable within nine months after issuance of the note with
the remainder payable in 2002 upon maturity of the note. One additional license
was sold to Leap for approximately $30 million in cash in early May 2001. Cash
received from these sales will be used to pay down indebtedness.
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 $400 million and $450 million.
Regulatory Issues
On April 19, 2001, the Wisconsin Public Service Commission ("WPSC")
approved an interim rate increase of $8.8 million annually for the local
exchange properties that the Company acquired from Ameritech in December 1998.
Final rates will be determined in a rate case the Company has filed with the
WPSC. Separately, the WPSC ordered the Company to refund $14.7 million related
to access charges collected from interexchange carriers on the former Ameritech
properties from December 1998 through 2000. The Company is challenging the
refund order in Wisconsin State Court. If the appeal is unsuccessful, the
Company will have to record a one-time charge of $.03 per share.
Accounting Pronouncement
Effective January 1, 2001, the Company adopted Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"). SFAS 133 established accounting and reporting
standards for derivative instruments and for hedging activities by requiring
that entities recognize all derivatives as either assets or liabilities at fair
value on the balance sheet. The Company had no derivative instruments
outstanding at January 1, 2001, and thus no transition adjustment was recorded
upon adoption of SFAS 133.
As of March 31, 2001, the Company had outstanding an interest rate swap
relating to $237.8 million of floating rate debt designed to eliminate the
variability of cash flows in the payment of interest related to such debt. Since
the terms of the swap match the terms of the floating rate debt, such swap is
expected to have no ineffectiveness. In addition, the Company has from time to
time entered into interest rate hedge contracts in anticipation of certain debt
issuances to manage interest rate exposure. The Company does not utilize
derivative financial instruments for trading or other speculative purposes.
CenturyTel, Inc.
QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
Market Risk
The majority of the Company's long-term debt obligations are fixed rate.
At March 31, 2001, the fair value of the Company's long-term debt was estimated
to be $3.1 billion based on the overall weighted average rate of the Company's
long-term debt of 7.0% and an overall weighted maturity of 12 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 70 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 $107.5 million
decrease in fair value of the Company's long-term debt. As of March 31, 2001,
the Company owed $857.1 million of debt on a floating-rate basis.
At the end of the first quarter of 2001, the Company entered into an
interest rate swap relating to $237.8 million of floating rate debt designed to
eliminate the variability of cash flows in the payment of interest related to
such debt. The swap expires in August 2002. The Company will initially realize a
fixed effective rate of 4.845% and will receive or make settlement payments
based upon the 3-month London InterBank Offered Rate, with settlement and rate
reset dates at three month intervals through the expiration date.
PART II. OTHER INFORMATION
CenturyTel, Inc.
Item 2: Changes in Securities and Use of Proceeds
At various times during the first quarter of 2001, CenturyTel sold at
market prices approximately 400 shares of CenturyTel common stock to
participants in its Union Group Incentive Plan. All such shares were privately
placed under Section 4(2) of the Securities Act of 1933, as amended.
Item 6: Exhibits and Reports on Form 8-K
A. Exhibits
10.1 Amendment to the Registrant's 1983 Restricted Stock Plan, dated
April 25, 2001.
10.2 Amendment to the Registrant's Key Employee Incentive Compensation
Plan, dated April 25, 2001.
11 Computations of Earnings Per Share.
B. Reports on Form 8-K
The following items were reported in the Form 8-K filed
February 7, 2001:
Item 5. Other Events
(i) News release announcing fourth quarter
2000 operating results and
(ii) News release announcing growth initiatives
and financial guidance for 2001.
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 15, 2001 /s/ Neil A. Sweasy
----------------------------
Neil A. Sweasy
Vice President and Controller
(Principal Accounting Officer)