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, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number: 1-7784
CENTURY TELEPHONE ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
Louisiana 72-0651161
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 Century Park Drive, Monroe, Louisiana 71203
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (318) 388-9500
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, 1997, there were 60,090,531 shares of common stock
outstanding.
CENTURY TELEPHONE ENTERPRISES, INC.
TABLE OF CONTENTS
Page No.
--------
Part I. Financial Information:
Item 1. Financial Statements
Consolidated Statements of Income--Three Months
Ended March 31, 1997 and 1996 3
Consolidated Balance Sheets--March 31, 1997 and
December 31, 1996 4
Consolidated Statements of Stockholders' Equity--
Three Months Ended March 31, 1997 and 1996 5
Consolidated Statements of Cash Flows--
Three Months Ended March 31, 1997 and 1996 6
Notes to Consolidated Financial Statements 7-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-14
Part II. Other Information:
Item 2. Changes in Securities 15
Item 6. Exhibits and Reports on Form 8-K 15
Signature 16
PART I. FINANCIAL INFORMATION
CENTURY TELEPHONE ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three months
ended March 31,
- ---------------------------------------------------------------------------
1997 1996
- ---------------------------------------------------------------------------
(Dollars, except per
share amounts, and
shares in thousands)
OPERATING REVENUES
Telephone $ 117,095 110,631
Mobile communications 65,839 55,004
Other 16,051 10,179
- ---------------------------------------------------------------------------
Total operating revenues 198,985 175,814
- ---------------------------------------------------------------------------
OPERATING EXPENSES
Cost of sales and operating expenses 105,962 89,560
Depreciation and amortization 35,325 30,739
- ---------------------------------------------------------------------------
Total operating expenses 141,287 120,299
- ---------------------------------------------------------------------------
OPERATING INCOME 57,698 55,515
- ---------------------------------------------------------------------------
OTHER INCOME (EXPENSE)
Interest expense (11,310) (11,596)
Income from unconsolidated cellular entities 5,580 5,634
Minority interest (364) (2,556)
Other income and expense 1,234 147
- ---------------------------------------------------------------------------
Total other income (expense) (4,860) (8,371)
- ---------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 52,838 47,144
Income tax expense 19,703 17,479
- ---------------------------------------------------------------------------
NET INCOME $ 33,135 29,665
===========================================================================
PRIMARY EARNINGS PER SHARE $ .55 .50
===========================================================================
FULLY DILUTED EARNINGS PER SHARE $ .55 .50
===========================================================================
DIVIDENDS PER COMMON SHARE $ .0925 .09
===========================================================================
AVERAGE PRIMARY SHARES OUTSTANDING 60,270 59,478
===========================================================================
AVERAGE FULLY DILUTED SHARES OUTSTANDING 60,880 60,204
===========================================================================
See accompanying notes to consolidated financial statements.
CENTURY TELEPHONE ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31, December 31,
1997 1996
- --------------------------------------------------------------------------
(Dollars in thousands)
ASSETS
- ------
CURRENT ASSETS
Cash and cash equivalents $ 13,675 8,402
Accounts receivable
Customers, less allowance of
$3,635 and $3,327 60,359 60,181
Other 20,522 26,263
Materials and supplies, at average cost 8,022 8,222
Other 5,042 6,166
- --------------------------------------------------------------------------
107,620 109,234
- --------------------------------------------------------------------------
NET PROPERTY, PLANT AND EQUIPMENT 1,168,791 1,149,012
- --------------------------------------------------------------------------
INVESTMENTS AND OTHER ASSETS
Excess cost of net assets acquired,
less accumulated amortization of
$70,840 and $67,061 545,639 532,410
Other 247,797 237,849
- --------------------------------------------------------------------------
793,436 770,259
- --------------------------------------------------------------------------
$ 2,069,847 2,028,505
==========================================================================
LIABILITIES AND EQUITY
- ----------------------
CURRENT LIABILITIES
Current maturities of long-term debt $ 20,454 19,919
Accounts payable 54,905 60,548
Accrued expenses and other liabilities
Salaries and benefits 18,897 20,224
Taxes 26,102 13,913
Interest 10,294 5,581
Other 11,566 8,837
Advance billings and customer deposits 15,506 15,122
- --------------------------------------------------------------------------
157,724 144,144
- --------------------------------------------------------------------------
LONG-TERM DEBT 614,659 625,930
- --------------------------------------------------------------------------
DEFERRED CREDITS AND OTHER LIABILITIES 235,410 230,278
- --------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Common stock, $1.00 par value, authorized
175,000,000 shares, issued and outstanding
60,082,376 and 59,858,540 shares 60,082 59,859
Paid-in capital 480,111 474,607
Retained earnings 522,210 494,726
Unearned ESOP shares (10,390) (11,080)
Preferred stock - non-redeemable 10,041 10,041
- --------------------------------------------------------------------------
1,062,054 1,028,153
- --------------------------------------------------------------------------
$ 2,069,847 2,028,505
==========================================================================
See accompanying notes to consolidated financial statements.
CENTURY TELEPHONE ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
Three months
ended March 31,
- -----------------------------------------------------------------------------
1997 1996
- -----------------------------------------------------------------------------
(Dollars in thousands)
COMMON STOCK
Balance at beginning of period $ 59,859 59,114
Conversion of convertible securities
into common stock 113 -
Issuance of common stock through dividend
reinvestment, incentive and benefit plans 110 265
Issuance of common stock for acquisition - 15
Conversion of preferred stock into common stock - 31
- -----------------------------------------------------------------------------
Balance at end of period 60,082 59,425
- -----------------------------------------------------------------------------
PAID-IN CAPITAL
Balance at beginning of period 474,607 453,584
Conversion of convertible securities
into common stock 3,187 -
Issuance of common stock through dividend
reinvestment, incentive and benefit plans 2,106 5,520
Issuance of common stock for acquisition - 468
Conversion of preferred stock into common stock - 90
Amortization of unearned compensation and other 211 398
- -----------------------------------------------------------------------------
Balance at end of period 480,111 460,060
- -----------------------------------------------------------------------------
RETAINED EARNINGS
Balance at beginning of period 494,726 387,424
Net income 33,135 29,665
Cash dividends declared
Common stock-$.0925 and $.09 per share,
respectively (5,523) (5,311)
Preferred stock (128) (36)
- -----------------------------------------------------------------------------
Balance at end of period 522,210 411,742
- -----------------------------------------------------------------------------
UNEARNED ESOP SHARES
Balance at beginning of period (11,080) (13,960)
Release of ESOP shares 690 690
- -----------------------------------------------------------------------------
Balance at end of period (10,390) (13,270)
- -----------------------------------------------------------------------------
PREFERRED STOCK - NON-REDEEMABLE
Balance at beginning of period 10,041 2,262
Conversion of preferred stock into
common stock - (121)
- -----------------------------------------------------------------------------
Balance at end of period 10,041 2,141
- -----------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY $ 1,062,054 920,098
=============================================================================
See accompanying notes to consolidated financial statements.
CENTURY TELEPHONE ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three months
ended March 31,
- ------------------------------------------------------------------------------
1997 1996
- ------------------------------------------------------------------------------
(Dollars in thousands)
OPERATING ACTIVITIES
Net income $ 33,135 29,665
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 35,325 30,739
Deferred income taxes 2,159 1,554
Income from unconsolidated cellular entities (5,580) (5,634)
Minority interest 364 2,556
Loss on investment in unconsolidated
personal communications services entity - 1,100
Changes in current assets and current liabilities:
Decrease in accounts receivable 6,674 1,243
Decrease in accounts payable (5,928) (9,300)
Increase in other accrued taxes 12,291 8,656
Increase in accrued interest payable 4,713 5,538
Changes in other current assets and other
current liabilities, net 3,153 1,691
Increase in other noncurrent liabilities 1,308 1,121
Other, net 2,111 892
- -----------------------------------------------------------------------------
Net cash provided by operating activities 89,725 69,821
- -----------------------------------------------------------------------------
INVESTING ACTIVITIES
Payments for property, plant and equipment (43,977) (41,212)
Acquisitions, net of cash acquired (21,080) -
Purchase of life insurance investment (4,000) (5,018)
Other, net 4,556 1,925
- -----------------------------------------------------------------------------
Net cash used in investing activities (64,501) (44,305)
- -----------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt 14,500 40,000
Payments of long-term debt (31,082) (48,215)
Notes payable, net - (14,199)
Proceeds from issuance of common stock 2,216 5,770
Cash dividends (5,651) (5,347)
Other, net 66 20
- -----------------------------------------------------------------------------
Net cash used in financing activities (19,951) (21,971)
- -----------------------------------------------------------------------------
Net increase in cash and cash equivalents 5,273 3,545
Cash and cash equivalents at beginning of period 8,402 8,540
- -----------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 13,675 12,085
=============================================================================
Supplemental cash flow information:
Income taxes paid $ 725 4,169
=============================================================================
Interest paid $ 6,597 6,058
=============================================================================
See accompanying notes to consolidated financial statements.
CENTURY TELEPHONE ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(UNAUDITED)
(1) Basis of Financial Reporting
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to rules and regulations of
the Securities and Exchange Commission; however, the Company believes the
disclosures which are made are adequate to make the information presented not
misleading. The financial statements and footnotes included in this Form 10-Q
should be read in conjunction with the financial statements and notes thereto
included in the Company's annual report on Form 10-K for the year ended December
31, 1996. Certain 1996 amounts have been reclassified to be consistent with the
1997 presentation.
The unaudited financial information for the three months ended March 31,
1997 and 1996 has not been audited by independent public accountants; however,
in the opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the results of operations for
the three-month 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,
1997 1996
- ------------------------------------------------------------------------
(Dollars in thousands)
Telephone, at original cost $ 1,327,745 1,290,289
Accumulated depreciation (445,041) (417,497)
- ------------------------------------------------------------------------
882,704 872,792
- ------------------------------------------------------------------------
Mobile communications, at cost 277,016 269,389
Accumulated depreciation (81,424) (75,666)
- ------------------------------------------------------------------------
195,592 193,723
- ------------------------------------------------------------------------
Corporate and other, at cost 139,978 126,015
Accumulated depreciation (49,483) (43,518)
- ------------------------------------------------------------------------
90,495 82,497
- ------------------------------------------------------------------------
$ 1,168,791 1,149,012
========================================================================
(3) Earnings from Unconsolidated Cellular Entities
The following summarizes the unaudited combined results of operations of
the cellular entities in which the Company's investments (as of March 31, 1997
and 1996) were accounted for by the equity method.
Three months
ended March 31,
- ---------------------------------------------------------------------------
1997 1996
- ---------------------------------------------------------------------------
(Dollars in thousands)
Results of operations
Revenues $ 277,570 205,504
Operating income $ 85,587 63,439
Net income $ 86,241 64,024
- ---------------------------------------------------------------------------
(4) Accounting Pronouncement
In March 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings per Share."
SFAS 128 establishes the requirements for the computation of basic earnings per
share and diluted earnings per share and is effective for financial statements
issued for periods ending after December 15, 1997. The effect of adoption of
SFAS 128 is not expected to materially impact the Company's earnings per share.
(5) Subsequent Event
On May 5, 1997, the Company consummated a transaction with Brooks Fiber
Properties, Inc. ("Brooks") whereby the Company's majority-owned competitive
access subsidiary was conveyed to Brooks by means of a merger. The Company
received 4.3 million shares of Brooks' common stock and will record a pre-tax
gain in the second quarter of 1997 of approximately $70 million ($45 million
after-tax; $.75 per fully diluted share).
CENTURY TELEPHONE ENTERPRISES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") included herein should be read in conjunction with MD&A and
the other information included in the Company's annual report on Form 10-K for
the year ended December 31, 1996. The results of operations for the three months
ended March 31, 1997 are not necessarily indicative of the results of operations
which might be expected for the entire year.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1997 Compared
to Three Months Ended March 31, 1996
Net income for the first quarter of 1997 was $33.1 million compared to
$29.7 million during the first quarter of 1996. Fully diluted earnings per share
increased to $.55 during the three months ended March 31, 1997 from $.50 during
the three months ended March 31, 1996, a 10.0% increase.
Three months
ended March 31,
- ---------------------------------------------------------------------------
1997 1996
- ---------------------------------------------------------------------------
(Dollars, except per
share amounts, and
shares in thousands)
Operating income
Telephone $ 40,524 38,619
Mobile communications 16,537 16,170
Other 637 726
- ---------------------------------------------------------------------------
57,698 55,515
Interest expense (11,310) (11,596)
Income from unconsolidated cellular entities 5,580 5,634
Minority interest (364) (2,556)
Other income and expense 1,234 147
Income taxes (19,703) (17,479)
- ---------------------------------------------------------------------------
Net income $ 33,135 29,665
===========================================================================
Fully diluted earnings per share $ .55 .50
===========================================================================
Average fully diluted shares outstanding 60,880 60,204
===========================================================================
Contributions to operating revenues and operating income by the Company's
telephone, mobile communications, and other operations for the three months
ended March 31, 1997 and 1996 were as follows:
Three months
ended March 31,
- ---------------------------------------------------------------------------
1997 1996
- ---------------------------------------------------------------------------
Operating revenues
Telephone operations 58.8% 62.9
Mobile communications operations 33.1% 31.3
Other operations 8.1% 5.8
Operating income
Telephone operations 70.2% 69.6
Mobile communications operations 28.7% 29.1
Other operations 1.1% 1.3
- ---------------------------------------------------------------------------
Telephone Operations
Three months
ended March 31,
- ---------------------------------------------------------------------------
1997 1996
- ---------------------------------------------------------------------------
(Dollars in thousands)
Operating revenues
Local service $ 32,188 29,085
Network access 71,542 68,363
Other 13,365 13,183
- ---------------------------------------------------------------------------
117,095 110,631
- ---------------------------------------------------------------------------
Operating expenses
Plant operations 23,596 22,379
Customer operations 10,398 9,908
Corporate and other 17,454 16,814
Depreciation and amortization 25,123 22,911
- ---------------------------------------------------------------------------
76,571 72,012
- ---------------------------------------------------------------------------
Operating income $ 40,524 38,619
===========================================================================
Telephone operating income increased $1.9 million (4.9%) due to an
increase in operating revenues of $6.5 million (5.8%) which more than offset an
increase in operating expenses of $4.6 million (6.3%).
The increase in revenues was partially due to a $2.0 million increase in
amounts received from the federal Universal Service Fund; a $2.0 million
increase due to acquisitions consummated since the first quarter of 1996; a $1.4
million increase which resulted from the increase in the number of customer
access lines; a $762,000 increase due to the provision of custom calling
features; and a $539,000 increase attributable to the provision of Internet
access. These increases were partially offset by a reduction of $750,000 in
access revenues due to the reduction in intrastate switched access rates
mandated by the Louisiana Public Service Commission which is being phased in
through July 1997. In addition, billing and collection revenues decreased
$502,000 in the first quarter of 1997 compared to the first quarter of 1996.
During the first quarter of 1997, operating expenses, exclusive of
depreciation and amortization, increased $2.3 million (4.8%) substantially due
to a $1.2 million increase in expenses of companies acquired, a $730,000
increase in expenses related to providing Internet access and a $502,000
increase in operating taxes.
The Company's operating loss from the provision of Internet access was
$975,000 in the first quarter of 1997 compared to $736,000 in the first quarter
of 1996. The increase in the operating loss was primarily due to costs incurred
in the transition of the Company's Internet customer service function from an
outside provider to Company employees.
Depreciation and amortization increased $2.2 million (9.7%) primarily due
to higher levels of plant in service.
Cellular Operations and Investments
Three months
ended March 31,
- ---------------------------------------------------------------------------
1997 1996
- ---------------------------------------------------------------------------
(Dollars in thousands)
Operating income - mobile communications segment $ 16,537 16,170
Minority interest - cellular operations (1,320) (2,556)
Income from unconsolidated cellular entities 5,580 5,634
- ---------------------------------------------------------------------------
$ 20,797 19,248
===========================================================================
The Company's mobile communications segment (discussed below) reflects
100% of the results of operations of the cellular entities in which the Company
has a majority ownership interest. The minority interest owners' share of the
income of such entities is reflected in the Company's Consolidated Statements of
Income as an expense in "Minority interest." See Minority Interest for
additional information. The Company's share of earnings from the cellular
entities in which it has less than a majority interest is accounted for using
the equity method and is reflected in the Company's Consolidated Statements of
Income as "Income from unconsolidated cellular entities."
Mobile Communications Operations
Three months
ended March 31,
- ---------------------------------------------------------------------------
1997 1996
- ---------------------------------------------------------------------------
(Dollars in thousands)
Operating revenues
Service revenues $ 64,584 54,043
Equipment sales 1,255 961
- ---------------------------------------------------------------------------
65,839 55,004
- ---------------------------------------------------------------------------
Operating expenses
Cost of equipment sold 3,930 2,857
System operations 10,326 6,896
General, administrative and customer service 14,215 12,199
Sales and marketing 11,570 9,479
Depreciation and amortization 9,261 7,403
- ---------------------------------------------------------------------------
49,302 38,834
- ---------------------------------------------------------------------------
Operating income $ 16,537 16,170
===========================================================================
Mobile communications operating income increased $367,000 (2.3%) to $16.5
million in the first quarter of 1997 from $16.2 million in the first quarter of
1996. Mobile communications operating revenues increased $10.8 million (19.7%)
while operating expenses increased $10.5 million (27.0%).
The increase in cellular service revenues was primarily due to the
increase in the number of cellular customers. The average number of cellular
units in service in majority-owned markets during the first quarter of 1997 and
1996 was 372,500 and 297,800, respectively. Access and usage revenues increased
$8.0 million (20.6%) in the first quarter of 1997 and roaming and toll revenues
increased $3.2 million (23.5%).
The average monthly cellular service revenue per customer declined to
$58 during the first quarter of 1997 from $60 during the first quarter of 1996.
It has been an industry-wide trend that early subscribers have normally been the
heaviest users and that a higher percentage of new subscribers tend to be lower
usage customers. The average monthly service revenue per customer may further
decline (i) as market penetration increases and additional lower usage customers
are activated and (ii) as competitive pressures from current and future wireless
communications providers intensify and place additional pressure on rates. The
Company is responding to such competitive pressures by, among other things,
modifying certain of its price plans and implementing certain other plans and
promotions, all of which are likely to result in lower average revenue per
customer. The Company will continue to focus on customer service and attempt to
stimulate cellular usage by promoting the availability of certain enhanced
services and by improving the quality of its service through the construction of
additional cell sites and other enhancements to its system.
Equipment sales increased $294,000 in the first quarter of 1997 compared
to the first quarter of 1996. The increase in cost of sales during the first
quarter of 1997 resulted from the increase in the number of cellular phones
sold.
System operations expenses increased $3.4 million (49.7%) in the first
quarter of 1997 primarily due to a $1.8 million increase in the net cost paid to
other carriers for cellular service provided to the Company's customers who roam
in the other carriers' service areas in excess of the amounts the Company bills
its customers and a $561,000 increase in cell site expenses associated with a
higher number of cell sites in service.
General, administrative and customer service expenses increased $2.0
million (16.5%) primarily due to increased expenses resulting from a larger
customer base, such as customer service ($1.2 million), billing costs ($386,000)
and provision for doubtful accounts ($236,000). The remainder of the increase
was primarily due to increases in general office expenses.
The Company's average monthly churn rate (the percentage of cellular
customers that terminate service) was 2.51% for the first quarter of 1997 and
2.28% for the first quarter of 1996.
During the first quarter of 1997, sales and marketing expenses increased
$2.1 million (22.1%) primarily due to a $1.1 million increase in costs incurred
in selling products and services in retail locations, including Company-owned
stores, a $397,000 increase in commissions paid to agents for selling cellular
services to new customers and a $387,000 increase in advertising expense.
Depreciation and amortization increased $1.9 million (25.1%) due primarily
to a higher level of plant in service.
Other Operations
Other operations include the results of operations of subsidiaries of
the Company which are not included in the telephone or mobile communications
segments, including, but not limited to, the Company's majority-owned
competitive access subsidiary and the Company's nonregulated long distance and
operator services operations. Of the $5.9 million (57.7%) increase in operating
revenues in the first quarter of 1997, $3.2 million was applicable to the long
distance and operator services operations and $1.3 million related to the
installation of fiber optic cable for other telecommunications providers by the
competitive access subsidiary. Of the $6.0 million (63.1%) increase in operating
expenses, $1.2 million was incurred by the long distance and operator services
operations and $3.4 million was incurred by the competitive access subsidiary.
During the first quarter of 1997, the operating loss of the competitive access
subsidiary ($2.4 million) was $1.4 million greater than in 1996.
On May 5, 1997, the Company's competitive access subsidiary was conveyed
to Brooks Fiber Properties, Inc. ("Brooks") by means of a merger in exchange for
shares of Brooks' publicly-traded stock. Under the terms of a related management
agreement, the results of operations of the competitive access subsidiary were
effectively assumed by Brooks as of April 1, 1997.
Minority Interest
Minority interest is the expense recorded by the Company to reflect the
minority interest owners' share of the earnings or loss of the Company's
majority-owned and operated cellular entities and majority-owned subsidiaries.
Minority interest decreased $2.2 million (85.8%) due to the effect of the
Company's acquisition, during the second quarter of 1996, of an additional 25%
interest in a Louisiana cellular partnership which decreased the minority
interest owners' share of such partnership. In addition, minority interest
decreased $756,000 as a result of allocating thereto the minority interest
owner's portion of the loss of the Company's competitive access subsidiary
during the first quarter of 1997. In the first quarter of 1996, no portion of
the loss of such subsidiary was allocated to minority interest because the
minority interest owner's equity had been depleted and, at that time, there was
no assurance that such negative equity would be recovered.
Other Income and Expense
Other income and expense for the first quarter of 1997 was $1.2 million
compared to $147,000 during the first quarter of 1996. The first quarter of 1996
included a non-recurring charge of $1.1 million which related to the Company's
withdrawal of its investment in an entity formed to bid on Personal
Communications Services ("PCS") licenses after such entity withdrew from the
federal auction in 1996.
Income Tax Expense
Income tax expense increased $2.2 million in the first quarter of 1997
compared to the first quarter of 1996 primarily due to an increase in income
before taxes. The effective income tax rate was 37.3% and 37.1% in the three
months ended March 31, 1997 and 1996, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Excluding cash used for acquisitions, the Company relies on cash provided
by operations to provide a substantial portion of its cash needs. The Company's
telephone operations have historically provided a stable source of cash flow
which has helped the Company continue its long-term program of capital
improvements. Cash provided by the Company's mobile communications operations
has continued to increase as the cellular industry has continued to mature.
Net cash provided by operating activities was $89.7 million during the
first three months of 1997 compared to $69.8 million during the first three
months of 1996. 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, mobile communications operations, and other operations of
the Company, see Results of Operations.
Net cash used in investing activities was $64.5 million and $44.3 million
for the three months ended March 31, 1997 and 1996, respectively. Payments for
property, plant and equipment were $2.8 million more in the first quarter of
1997 than in the comparable period during 1996. Capital expenditures for the
three months ended March 31, 1997 were $24.6 million for telephone, $9.8
million for mobile communications and $9.6 million for other operations. Cash
used in connection with acquisitions was $21.1 million in the first three
months of 1997, substantially all of which was applicable to the acquisition of
telephone properties in Wisconsin.
Net cash used in financing activities was $20.0 million during the first
three months of 1997 compared to $22.0 million during the first three months of
1996. Net payments, including notes payable and long-term debt, were $5.8
million less during the first quarter of 1997 compared to the first quarter of
1996. Proceeds from the issuance of common stock decreased $3.6 million during
the first quarter of 1997 compared to the first quarter of 1996.
Budgeted capital expenditures for 1997 total $102 million for telephone
operations and $67 million for mobile communications operations. Revised
budgeted capital expenditures for 1997 for corporate and other operations total
$14 million.
As of March 31, 1997, Century's telephone subsidiaries had available for
use $138.1 million of commitments for long-term financing from the Rural
Utilities Service and the Company had $109.1 million of undrawn committed bank
lines of credit. In addition, approximately $130.0 million of uncommitted credit
facilities were available to Century at March 31, 1997. The Company has
experienced no significant problems in obtaining funds through the issuance of
debt or equity for capital expenditures or other purposes.
On April 11, 1997, the Company entered into a letter of intent subject to,
among other things, the negotiation and execution of a definitive agreement,
under which the Company would acquire certain cellular properties and PCS
licenses primarily in Wisconsin and Michigan in exchange for certain of the
Company's telephone operations plus cash of approximately $164 million. The
Company anticipates that it would fund the cash portion of the transaction by
utilizing its existing committed and uncommitted credit facilities until
permanent financing is obtained.
OTHER MATTERS
The Company currently accounts for its regulated telephone operations in
accordance with the provisions of Statement of Financial Accounting Standards
No. 71 ("SFAS 71"), "Accounting for the Effects of Certain Types of Regulation."
While the ongoing applicability of SFAS 71 to the Company's telephone operations
is being monitored due to the changing regulatory, competitive and legislative
environments, the Company believes that SFAS 71 still applies. However, it is
possible that changes in regulation or legislation or anticipated changes in
competition or in the demand for regulated services or products could result in
the Company's telephone operations not being subject to SFAS 71 in the near
future. In that event, implementation of Statement of Financial Accounting
Standards No. 101 ("SFAS 101"), "Regulated Enterprises - Accounting for the
Discontinuance of Application of FASB Statement No. 71," would require the
write-off of previously established regulatory assets and liabilities, along
with an adjustment of certain accumulated depreciation accounts to reflect the
difference between recorded depreciation and the amount of depreciation that
would have been recorded had the Company's telephone operations not been subject
to rate regulation. Such discontinuance of the application of SFAS 71 would
result in a material, noncash charge against earnings which would be reported as
an extraordinary item. While the effect of implementing SFAS 101 cannot be
precisely estimated at this time, management believes that the noncash,
after-tax, extraordinary charge would be between $100 million and $130 million.
On May 7, 1997, the Federal Communications Commission adopted orders on
universal service and access charges, as mandated by the Telecommunications
Act of 1996. Once the orders have been issued, the Company will review such
orders in detail to determine the expected impact on the Company and on our
customers.
PART II. OTHER INFORMATION
CENTURY TELEPHONE ENTERPRISES, INC.
Item 2. Changes in Securities
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In connection with its dividend reinvestment and stock purchase plan, on
March 21 and April 15, 1997, the Company inadvertently issued to its existing
shareholders an aggregate of 25,005 shares that were neither registered under
the federal securities laws nor exempt from registration. In exchange for these
shares, the Company received payments of $756,671. Any shareholder who purchased
any of such shares from the Company may rescind their purchase or may recover
damages if they no longer own the shares.
Item 6. Exhibits and Reports on Form 8-K
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A. Exhibits
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10.1 Amendment, dated February 25, 1997, to Registrant's Amended and
Restated 1995 Incentive Compensation Plan.
10.2 Amendment, dated February 25, 1997, to Registrant's Key
Employee Incentive Compensation Plan.
10.3 Amendment, dated February 25, 1997, to Registrant's 1983
Restricted Stock Plan.
10.4 Amendment, dated December 31, 1996, to Registrant's Stock Bonus
Plan, PAYSOP and Trust.
10.5 Amendment, dated December 31, 1996, to Registrant's
Employee Stock Ownership Plan.
10.6 Amendments, dated March 18, 1997, to Registrant's Employee
Stock Ownership Plan.
11 Computations of Earnings Per Share.
27 Financial Data Schedule.
B. Reports on Form 8-K
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There were no reports on Form 8-K filed during the quarter ended
March 31, 1997.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CENTURY TELEPHONE ENTERPRISES, INC.
Date: May 8, 1997 /s/ Murray H. Greer
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Murray H. Greer
Controller
(Principal Accounting Officer)