-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, hUulvwkh0I/oF971/Fcz1Zo6nl9rltI25YjqgdIRFJkDVor3kVyLNQKYQVDzq48R ND+4En6cx/32Xz8chkPblg== 0000018926-94-000011.txt : 19940816 0000018926-94-000011.hdr.sgml : 19940816 ACCESSION NUMBER: 0000018926-94-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19940630 FILED AS OF DATE: 19940811 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CENTURY TELEPHONE ENTERPRISES INC CENTRAL INDEX KEY: 0000018926 STANDARD INDUSTRIAL CLASSIFICATION: 4813 IRS NUMBER: 720651161 STATE OF INCORPORATION: LA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-07784 FILM NUMBER: 94542825 BUSINESS ADDRESS: STREET 1: P O BOX 4065 STREET 2: 100 CENTURY PARK DRIVE CITY: MONROE STATE: LA ZIP: 71211-4065 BUSINESS PHONE: 3183889500 MAIL ADDRESS: STREET 1: P O BOX 4065 STREET 2: P O BOX 4065 CITY: MONROE STATE: LA ZIP: 71211-4065 FORMER COMPANY: FORMER CONFORMED NAME: CENTRAL TELEPHONE & ELECTRONICS CORP DATE OF NAME CHANGE: 19720512 10-Q 1 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 June 30, 1994 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 July 31, 1994, there were 53,389,924 shares of common stock outstanding. CENTURY TELEPHONE ENTERPRISES, INC. TABLE OF CONTENTS Page No. ________ Part I. Financial Information: Consolidated Statements of Income--Three Months and Six Months Ended June 30, 1994 and 1993. . . . . . . . . . . . . . . 3 Consolidated Balance Sheets--June 30, 1994 and December 31, 1993. . . . . . . . . . . . . . . . . . . . . . . . . . 4 Consolidated Statements of Stockholders' Equity-- Six Months Ended June 30, 1994 and 1993. . . . . . . . . . . . . . . 5 Consolidated Statements of Cash Flows-- Six Months Ended June 30, 1994 and 1993. . . . . . . . . . . . . . . 6 Notes to Consolidated Financial Statements. . . . . . . . . . . . . . 7-9 Management's Discussion and Analysis of Financial Condition and Results of Operations. . . . . . . . . . . . . . . . .10-19 Part II. Other Information . . . . . . . . . . . . . . . . . . . . . . . 20 Signature. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Index to Exhibits. . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 2 PART I. FINANCIAL INFORMATION CENTURY TELEPHONE ENTERPRISES, INC. CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three months Six months ended June 30 ended June 30 ----------------- ----------------- 1994 1993 1994 1993 ----------------- ----------------- (expressed in thousands, except per share amounts) REVENUES Telephone $ 94,969 86,875 186,739 165,826 Mobile Communications 37,911 20,463 67,121 38,337 -------- ------- ------- ------- Total revenues 132,880 107,338 253,860 204,163 -------- ------- ------- ------- EXPENSES Cost of sales and operating expenses 68,233 56,947 131,894 108,303 Depreciation and amortization 22,934 19,048 44,367 36,250 -------- ------- ------- ------- Total expenses 91,167 75,995 176,261 144,553 -------- ------- ------- ------- OPERATING INCOME 41,713 31,343 77,599 59,610 -------- ------- ------- ------- OTHER INCOME (EXPENSE) Interest expense (10,824) (7,467) (19,326) (14,379) Gain on sale of asset - - - 1,661 Earnings from unconsolidated cellular partnerships 3,411 1,970 5,975 2,342 Other income and expense (62) 257 129 1,204 -------- ------- ------- ------- Total other income (expense) (7,475) (5,240) (13,222) (9,172) -------- ------- ------- ------- INCOME BEFORE INCOME TAXES 34,238 26,103 64,377 50,438 INCOME TAXES 12,753 9,586 23,691 18,181 -------- ------- ------- ------- NET INCOME $ 21,485 16,517 40,686 32,257 ======== ======= ======= ======= PRIMARY EARNINGS PER SHARE $ .40 .32 .76 .64 ======== ======= ======= ======= FULLY DILUTED EARNINGS PER SHARE $ .39 .32 .74 .63 ======== ======= ======= ======= DIVIDENDS PER COMMON SHARE $ .0800 .0775 .1600 .1550 ======== ======= ======= ======= See accompanying notes to consolidated financial statements.
3 CENTURY TELEPHONE ENTERPRISES, INC. CONSOLIDATED BALANCE SHEETS (UNAUDITED)
June 30, December 31, ASSETS 1994 1993 - - ------ ------------ ------------ (expressed in thousands) CURRENT ASSETS Cash and cash equivalents $ 24,654 9,777 Accounts receivable Customers, less allowance for doubtful accounts of $2,524,000 and $1,473,000 37,272 34,438 Other 21,293 21,771 Materials and supplies, at cost 4,729 4,418 Other 1,344 2,068 ---------- ---------- 89,292 72,472 ---------- ---------- NET PROPERTY, PLANT AND EQUIPMENT 890,560 827,776 ---------- ---------- INVESTMENTS AND OTHER ASSETS Excess cost of net assets acquired 437,691 297,158 Other investments 111,127 98,142 Note receivable 25,000 - Deferred charges 26,058 23,842 ---------- ---------- 599,876 419,142 ---------- ---------- $1,579,728 1,319,390 ========== ========== LIABILITIES AND EQUITY - - ---------------------- CURRENT LIABILITIES Current maturities of long-term debt $ 15,575 14,233 Notes payable to banks 91,200 69,200 Accounts payable 44,513 49,506 Accrued expenses and other liabilities Salaries and benefits 17,701 15,990 Taxes 16,816 9,327 Interest 8,198 6,476 Other 5,718 5,162 Advance billings and customer deposits 11,236 9,312 ---------- ---------- 210,957 179,206 ---------- ---------- LONG-TERM DEBT 602,972 460,933 ---------- ---------- DEFERRED CREDITS AND OTHER LIABILITIES 172,719 165,483 ---------- ---------- STOCKHOLDERS' EQUITY Common stock, $1.00 par value, authorized 100,000,000 shares, issued and outstanding 53,385,094 and 51,294,705 shares 53,385 51,295 Paid-in capital 314,608 262,294 Retained earnings 241,065 208,945 Employee Stock Ownership Plan commitment (18,280) (9,220) Preferred stock - non-redeemable 2,302 454 ---------- ---------- 593,080 513,768 ---------- ---------- $1,579,728 1,319,390 ========== ========== See accompanying notes to consolidated financial statements.
4 CENTURY TELEPHONE ENTERPRISES, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
Six months ended June 30 ------------------- 1994 1993 ------------------- (expressed in thousands) COMMON STOCK Balance at beginning of period $ 51,295 48,897 Issuance of common stock for acquisitions 2,000 2,151 Issuance of common stock through dividend reinvestment, stock purchase and incentive plans 89 133 Conversion of preferred stock into common stock 1 - -------- -------- Balance at end of period 53,385 51,181 -------- -------- PAID-IN CAPITAL Balance at beginning of period 262,294 191,522 Issuance of common stock for acquisitions 50,311 66,407 Issuance of common stock through dividend reinvestment, stock purchase and incentive plans 1,593 1,750 Conversion of preferred stock into common stock 26 - Amortization of unearned compensation 384 290 -------- -------- Balance at end of period 314,608 259,969 -------- -------- RETAINED EARNINGS Balance at beginning of period 208,945 155,676 Net income 40,686 32,257 Cash dividends declared Common stock-$.1600 and $.1550 per share, respectively (8,527) (7,759) Preferred stock (39) (16) -------- -------- Balance at end of period 241,065 180,158 -------- -------- ESOP COMMITMENT Balance at beginning of period (9,220) (11,100) Commitment to ESOP (10,000) - Reduction of ESOP commitment 940 940 -------- -------- Balance at end of period (18,280) (10,160) -------- -------- PREFERRED STOCK - NON-REDEEMABLE Balance at beginning of period 454 454 Issuance of preferred stock for acquisition 1,875 - Conversion of preferred stock into common stock (27) - -------- -------- Balance at end of period 2,302 454 -------- -------- TOTAL STOCKHOLDERS' EQUITY $593,080 481,602 ======== ======== See accompanying notes to consolidated financial statements.
5 CENTURY TELEPHONE ENTERPRISES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six months ended June 30 ------------------ 1994 1993 ------------------ (expressed in thousands) OPERATING ACTIVITIES Net income $ 40,686 32,257 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 49,476 41,032 Deferred income taxes (3,059) (2,878) Equity in earnings of unconsolidated cellular partnerships (6,568) (2,341) Gain on sale of asset - (1,661) Changes in current assets and current liabilities: Decrease in accounts receivable 2,658 4,354 Decrease in accounts payable (10,157) (1,459) Changes in other current assets and other current liabilities, net 12,642 1,700 Other, net 4,810 4,128 -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES 90,488 75,132 -------- -------- INVESTING ACTIVITIES Payments for property, plant and equipment (90,426) (81,689) Acquisitions, net of cash acquired (54,847) (34,171) Purchase of life insurance investment (7,094) (7,105) Note receivable (25,000) - Other, net 1,464 382 -------- -------- NET CASH USED IN INVESTING ACTIVITIES (175,903) (122,583) -------- -------- FINANCING ACTIVITIES Proceeds from issuance of long-term debt 147,547 55,611 Payments of long-term debt (62,551) (25,474) Notes payable, net 22,000 29,500 Proceeds from issuance of common stock 1,682 1,883 Cash dividends paid (8,566) (7,775) Other, net 180 1,094 -------- -------- NET CASH PROVIDED BY FINANCING ACTIVITIES 100,292 54,839 -------- -------- Net increase in cash and cash equivalents 14,877 7,388 Cash and cash equivalents at beginning of period 9,777 9,771 -------- -------- Cash and cash equivalents at end of period $ 24,654 17,159 ======== ======== Supplemental cash flow information: Income taxes paid $ 17,257 19,169 ======== ======== Interest paid $ 17,604 13,945 ======== ======== See accompanying notes to consolidated financial statements.
6 CENTURY TELEPHONE ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1994 (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, 1993. Certain 1993 amounts have been reclassified to be consistent with the 1994 presentation. The unaudited financial information for the three months and six months ended June 30, 1994 and 1993 has not been audited by independent public accountants; however, in the opinion of management, all adjust- ments (which include only normal recurring adjustments) necessary to present fairly the results of operations for the three-month and six-month periods have been included therein. The results of opera- tions for the first six months of the year are not necessarily indicative of the results of operations which might be expected for the entire year. (2) Accounting Pronouncement In the first quarter of 1994 the Company adopted Statement of Financial Accounting Standards No. 112 ("SFAS 112"), "Employers' Accounting for Postemployment Benefits". SFAS 112 requires the adoption of accrual accounting for workers compensation, disability and other benefits provided after employment but before retirement by requiring accrual of the expected cost when it is probable that a benefit obligation has been incurred and the amount can be reasonably estimated. Liabilities for postemployment benefits in the consolidated balance sheet as of December 31, 1993 were not materially different than those required by SFAS 112; therefore, no cumulative effect of change in accounting principle was recorded upon adoption of SFAS 112. (3) Net Property, Plant and Equipment Net property, plant and equipment is composed of the following:
June 30, December 31, 1994 1993 ----------- ------------- (expressed in thousands) Telephone, at original cost $1,029,212 979,449 Accumulated depreciation (295,329) (288,479) ---------- --------- 733,883 690,970 ---------- --------- Mobile Communications, at cost 145,754 113,252 Accumulated depreciation (39,711) (27,736) ---------- --------- 106,043 85,516 ---------- --------- Other, at cost 80,548 77,737 Accumulated depreciation (29,914) (26,447) ---------- --------- 50,634 51,290 ---------- --------- $ 890,560 827,776 ========== =========
7 (4) Long-Term Debt On May 6, 1994, the Company completed the issuance of $50,000,000 of 10-year, 7.75% senior notes and $100,000,000 of 30-year, 8.25% senior notes. The proceeds were used to reduce certain of the Company's short- term bank indebtedness. Interest payments will be due semi-annually beginning November 1, 1994 and principal payments are due in 2004 and 2024 upon maturity of the 10-year and 30-year notes, respectively. The 30-year notes are subject to redemption at any time on or after May 1, 2004 at the option of the Company. (5) Sale of Asset The Company sold a minority investment in a telephone company in the first quarter of 1993 which resulted in a pre-tax gain of $1,661,000 ($1,080,000 after-tax; $.02 per share). (6) Acquisitions On April 8, 1993, the Company consummated the acquisition of San Marcos Telephone Company, Inc. ("SMTC") in a stock and cash transaction and acquired SM Telecorp, Inc., an affiliate of SMTC, for cash. Subsequent to the acquisitions, the Company changed the names of San Marcos Telephone Company, Inc. and the principal operating subsidiary of SM Telecorp, Inc. to Century Telephone of San Marcos, Inc. and Century Telecommunications, Inc., respectively. The total acquisition price for both companies approximated $100,000,000 (based on Century's stock price on April 8, 1993). As a result of the acquisitions, which were accounted for as purchases, the Company acquired approximately 22,500 telephone access lines in and around San Marcos, Texas, along with a 35% ownership interest in the Austin, Texas Metropolitan Statistical Area ("MSA") wireline cellular market and a 9.6% interest in the Texas Rural Service Area ("RSA") #16 wireline cellular market, together representing approximately 309,000 pops (the Company's pro rata share of population of the licensed areas). On February 10, 1994, the Company acquired Celutel, Inc. ("Celutel") in a stock and cash transaction. Approximately $51,400,000 of the purchase price was paid in cash, with the remainder paid through the issuance of approximately 1,900,000 shares of Century's common stock, the closing price of which was $26.25 per share on February 10, 1994. In connection with the acquisition, Century refinanced approximately $41,700,000 of Celutel's debt. The acquisition was accounted for as a purchase and approximately $140,000,000 of cost in excess of net assets acquired was recorded as a result of the acquisition. Celutel currently provides cellular service to approximately 31,700 customers in five non-wireline provider systems in MSA's in Mississippi and Texas. On March 31, 1994, the Company acquired a local exchange telephone company in Michigan which currently serves approximately 2,500 access lines and which owns a minority interest of approximately 11% in a cellular partnership operated by the Company. The acquisition, which was accounted for as a purchase, was consummated through the issuance of approximately 98,000 shares of Century's common stock and 75,000 shares of Century's preferred stock. The closing price of Century's common stock was $23.125 per share on March 31, 1994. 8 (7) Expected Sale of Cellular Interest In June 1994 the Company entered into a definitive agreement to sell (subject to, among other things, Federal Communications Commission approval) its ownership interest in a cellular RSA in Minnesota. The sales price will be $21,500,000 and the Company expects to recognize a gain of approximately $.16 per share upon future consummation of the transaction. (8) Note Receivable In May 1994 Century loaned the parent company of a telephone company $25,000,000. The loan bears interest at prime plus 1 1/2%; interest is payable quarterly beginning in August 1994. Quarterly principal payments are scheduled to begin in August 1995 with the unpaid balance becoming due in May 1998. The Company received a security interest in the parent company's capital stock, a guaranty from such company's principal stockholder and certain first refusal rights to acquire certain properties under various specified circumstances. 9 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, 1993. The results of operations for the three months and/or six months ended June 30, 1994 are not necessarily indicative of the results of operations which might be expected for the entire year. RESULTS OF OPERATIONS Three Months Ended June 30, 1994 Compared to Three Months Ended June 30, 1993 Net income for the second quarter of 1994 was $21,485,000 compared to $16,517,000 during the second quarter of 1993. This increase was primarily due to a $10,370,000 increase in operating income and a $1,441,000 increase in earnings from unconsolidated cellular partner- ships. These factors were partially offset by increases in interest expense and income tax expense of $3,357,000 and $3,167,000, respectively.
Three months ended June 30 --------------------- 1994 1993 --------------------- (expressed in thousands, except per share amounts) Operating income Telephone $33,896 28,015 Mobile Communications 7,817 3,328 -------- ------- 41,713 31,343 Interest expense (10,824) (7,467) Earnings from unconsolidated cellular partnerships 3,411 1,970 Other income and expense (62) 257 Income taxes (12,753) (9,586) -------- ------- Net income $21,485 16,517 ======== ======= Fully diluted earnings per share $ .39 .32 ======== =======
Fully diluted earnings per share increased to $.39 for the three months ended June 30, 1994 from $.32 for the three months ended June 30, 1993, a 21.9% increase. The average number of fully diluted shares outstanding increased 4.0% as a result of shares issued for acquisitions and through the Company's dividend reinvestment, stock purchase and incentive plans. The dilutive effect during the second quarter of 1994 resulting from the February 1994 acquisition of Celutel, Inc. ("Celutel") was approximately two and one-half cents on fully diluted earnings per share. The mobile communications operating income reflects the operations of the cellular partnerships in which the Company has a majority interest. The minority interest partners' share of the income (or loss) of such partnerships is reflected as an expense in other income and expense. The Company's share of income (or loss) from the cellular partnerships in which it has less than a majority interest is reflected in earnings from unconsolidated cellular partnerships. The operating income of the mobile communications segment during the second quarter of 1994 includes the operations of Celutel. 10 Contributions to revenues and operating income by the Company's telephone operations and mobile communications operations for the three months ended June 30, 1994 and 1993 were as follows:
Three months ended June 30 ------------------- 1994 1993 ------------------- Revenues Telephone operations 71.5% 80.9 Mobile Communications operations 28.5% 19.1 Operating income Telephone operations 81.3% 89.4 Mobile Communications operations 18.7% 10.6
Telephone Operations
Three months ended June 30 ------------------- 1994 1993 ------------------- (expressed in thousands) Revenues Local $23,967 22,317 Network access and long distance 60,018 53,419 Other 10,984 11,139 ------- ------- 94,969 86,875 ------- ------- Expenses Plant operations 20,377 21,010 Customer operations 8,356 7,955 Corporate and other 14,584 13,707 Depreciation and amortization 17,756 16,188 ------- ------- 61,073 58,860 ------- ------- Operating income $33,896 28,015 ======= =======
Telephone operating income increased $5,881,000 (21.0%) due to an increase in revenues of $8,094,000 (9.3%) which more than offset an increase in operating expenses of $2,213,000 (3.8%). The increase in revenues was primarily due to the partial recovery of increased operating expenses through revenue pools in which the Company participates with other telephone companies, increased recovery from the Federal Communications Commission ("FCC") mandated Universal Service Fund ("USF"), increased minutes of use, improved settlement factors and growth in access lines. During the second quarter of 1994, revenues from the USF increased approximately $2,300,000 over such revenues during the second quarter of 1993. For additional information relating to telephone revenues, see Six Months Ended June 30, 1994 Compared to Six Months Ended June 30, 1993 - Telephone Operations. During the second quarter of 1994, the Company's liability for long-term disability was substantially reduced as a result of the death of a former executive officer. While operating expenses, exclusive of depreciation and amortization, increased $645,000 (1.5%) in the second quarter of 1994 compared to the second quarter of 1993, such increase was net of a reduction of approximately $1,100,000 in postemployment benefit expense. 11 Depreciation and amortization increased $1,568,000 in the second quarter of 1994 compared to the second quarter of 1993. The second quarter of 1994 included depreciation recorded in anticipation of the approval of increases, as of January 1, 1994, in depreciation rates in certain jurisdictions. Higher levels of plant in service also contributed to the increased depreciation. Mobile Communications Operations
Three months ended June 30 -------------------- 1994 1993 -------------------- (expressed in thousands) Revenues Cellular service $34,954 18,486 Equipment and paging 2,957 1,977 ------- ------ 37,911 20,463 ------- ------ Expenses Sales and marketing 8,294 4,043 General, administrative and customer service 8,503 5,696 Cost of sales and other operating 8,119 4,536 Depreciation and amortization 5,178 2,860 ------- ------ 30,094 17,135 ------- ------ Operating income $ 7,817 3,328 ======= ======
Mobile communications operating income increased $4,489,000 (134.9%) to $7,817,000 in the second quarter of 1994 from $3,328,000 in the second quarter of 1993. Mobile communications revenues increased $17,448,000 (85.3%) which more than offset an increase in operating expenses of $12,959,000 (75.6%). The increase in cellular service revenues was substantially due to (i) an increase in the number of cellular units in service and (ii) service revenues generated by Celutel which aggregated approximately $6,900,000 during the second quarter of 1994. The average number of cellular units in service in majority-owned markets during the second quarter of 1994 and 1993 was 169,000 and 84,700, respectively. The average monthly cellular service revenue per subscriber declined to $69 during the second quarter of 1994 from $73 during the second quarter of 1993, primarily due to the continued trend that a higher percentage of recent subscribers tend to be lower-usage customers. The average monthly service revenue per subscriber may further decline as market penetration increases and additional lower-usage customers are activated. The Company will continue to attempt to stimulate cellular usage by promoting the availability of certain enhanced services and by increasing coverage areas through the construction of additional cell sites. Sales and marketing expenses increased $4,251,000 due primarily to an increase in commissions paid to agents for selling cellular services to new customers and to the Celutel acquisition. The increase of $2,807,000 in general, administrative and customer service expenses was primarily due to costs incurred in connection with the Celutel operations and increased costs associated with serving a larger number of cellular customers. 12 Cost of sales and other operating expenses increased $3,583,000 due to expenses incurred in connection with providing service to a larger number of subscribers, the development and operation of the Company's Rural Service Area ("RSA") cellular systems, and the Celutel acquisition. Depreciation and amortization increased $2,318,000 due to a higher level of plant in service and to depreciation and amortization associated with the Celutel acquisition. Interest Expense Interest expense increased $3,357,000 during the second quarter of 1994 compared to the second quarter of 1993 due to a 42% increase in average debt outstanding (primarily due to debt issued in connection with the Celutel acquisition). Earnings from Unconsolidated Cellular Partnerships The increase of $1,441,000 in earnings from unconsolidated cellular partnerships during the second quarter of 1994 compared to the second quarter of 1993 is due to the improvement in profitability of cellular partnerships in which the Company owns less than a majority interest. Other Income and Expense Other income and expense decreased $319,000 in the second quarter of 1994 compared to the second quarter of 1993. The increased profitability of the Company's majority-owned and operated cellular partnerships resulted in a corresponding increase in the expense recorded to reflect the minority interest partners' share of the profits. Other income and expense also includes the results of operations of subsidiaries of the Company which are not included in telephone operations or mobile communications operations including, but not limited to, the Company's competitive access subsidiary and the Company's non-regulated long distance operations. Although not material to consolidated operations, the combined results of such subsidiaries were less favorable during the second quarter of 1994 compared to the second quarter of 1993 primarily due to losses incurred by recently-formed or recently-acquired subsidiaries. Income Taxes Income tax expense increased $3,167,000 during the second quarter of 1994 compared to the second quarter of 1993 primarily due to an increase in income before taxes. 13 Six Months Ended June 30, 1994 Compared to Six Months Ended June 30, 1993 Net income for the six months ended June 30, 1994 was $40,686,000 compared to $32,257,000 for the six months ended June 30, 1993. This increase was primarily due to a $17,989,000 increase in operating income and a $3,633,000 increase in earnings from unconsolidated cellular partnerships. These factors were partially offset by increases in interest expense and income tax expense of $4,947,000 and $5,510,000, respectively, and by a decrease of $1,075,000 in other income and expense. The first six months of 1993 included a $1,661,000 pre-tax gain on the sale of a minority investment in a telephone company.
Six months ended June 30 ------------------ 1994 1993 ------------------ (expressed in thousands, except per share amounts) Operating income Telephone $64,786 53,815 Mobile Communications 12,813 5,795 ------- ------- 77,599 59,610 Interest expense (19,326) (14,379) Gain on sale of asset - 1,661 Earnings from unconsolidated cellular partnerships 5,975 2,342 Other income and expense 129 1,204 Income taxes (23,691) (18,181) ------- ------- Net income $40,686 32,257 ======= ======= Fully diluted earnings per share $ .74 .63 ======= =======
Fully diluted earnings per share increased to $.74 for the six months ended June 30, 1994 from $.63 for the six months ended June 30, 1993, a 17.5% increase. The average number of fully diluted shares outstanding increased 4.7% as a result of shares issued for acquisitions and through the Company's dividend reinvestment, stock purchase and incentive plans. The operating income of the telephone segment during the six months ended June 30, 1993 includes three months of operations of Century Telephone of San Marcos, Inc. ("San Marcos") which was acquired in April 1993. The mobile communications operating income reflects the operations of the cellular partnerships in which the Company has a majority interest. The minority interest partners' share of the income (or loss) of such partnerships is reflected as an expense in other income and expense. The Company's share of income (or loss) from the cellular partnerships in which it has less than a majority interest is reflected in earnings from unconsolidated cellular partnerships. The operating income of the mobile communications segment during the six months ended June 30, 1994 includes the operations of Celutel since its acquisition on February 10, 1994. 14 Contributions to revenues and operating income by the Company's telephone operations and mobile communications operations for the six months ended June 30, 1994 and 1993 were as follows:
Six months ended June 30 ----------------- 1994 1993 ----------------- Revenues Telephone operations 73.6% 81.2 Mobile Communications operations 26.4% 18.8 Operating income Telephone operations 83.5% 90.3 Mobile Communications operations 16.5% 9.7
Telephone Operations
Six months ended June 30 -------------------- 1994 1993 -------------------- (expressed in thousands) Revenues Local $ 47,472 43,190 Network access and long distance 117,925 102,687 Other 21,342 19,949 -------- ------- 186,739 165,826 -------- ------- Expenses Plant operations 41,590 39,721 Customer operations 16,864 14,926 Corporate and other 28,688 26,279 Depreciation and amortization 34,811 31,085 -------- ------- 121,953 112,011 -------- ------- Operating income $ 64,786 53,815 ======== =======
Telephone operating income increased $10,971,000 (20.4%) due to an increase in revenues of $20,913,000 (12.6%) which more than offset an increase in operating expenses of $9,942,000 (8.9%). The increase in revenues was partially due (approximately $6,000,000) to San Marcos which contributed six months of revenues during the six-month period ended June 30, 1994 compared to three months of revenues during the comparable period in 1993. The remaining increase in revenues was primarily due to the partial recovery of increased operating expenses through revenue pools in which the Company participates with other telephone companies, increased recovery from the FCC mandated USF, increased minutes of use, improved settlement factors and growth in access lines. During the first six months of 1994, revenues from the USF increased approximately $4,000,000 over such revenues during the first six months of 1993. The Public Service Commission of Wisconsin ("PSCW") previously ordered the Wisconsin state support fund existing at July 1, 1993 to be phased-out. Certain of the Company's subsidiaries affected by the order have received approval from the PSCW for increased rates and/or compensation which offset most of the amounts that the Company's subsidiaries had been receiving from the state support fund. Approval for such additional revenue was obtained through expedited rate cases. In July 1994 the Wisconsin Telecommunications Act of 1993 was signed into law. The act provides, among other things, for local exchange competition in markets which have more than 50,000 access lines. 15 Certain long distance carriers have requested the Company to reduce intrastate access tariffed rates for certain of its telephone subsidiaries. In March 1994 a long distance carrier filed a petition with the Louisiana Public Service Commission requesting that the commission investigate and lower the rates for intrastate access charges charged to long distance carriers by certain local exchange telephone companies, including the subsidiaries of the Company which operate in Louisiana. There is no assurance that this request will not result in reduced intrastate access revenues. During the first six months of 1994, operating expenses, exclusive of depreciation and amortization, increased $6,216,000 (7.7%) due substantially to expenses of approximately $3,800,000 associated with the San Marcos operations. The remainder of the increase in operating expenses was due to increases in salaries and wages, employee benefits and other general operating expenses, net of a reduction of approximately $1,100,000 in postemployment benefit expense (see Three Months Ended June 30, 1994 Compared to Three Months Ended June 30, 1993 - Telephone Operations). During the first six months of 1994, depreciation and amorti- zation increased $3,726,000 due partially to $1,100,000 of depreci- ation and amortization related to the San Marcos operations. In addition, the six months ended June 30, 1994 included depreciation recorded in anticipation of the approval of increases, as of January 1, 1994, in depreciation rates in certain jurisdictions. Higher levels of plant in service also contributed to the increased depreciation. The Company's regulated telephone operations are subject to the provisions of Statement of Financial Accounting Standards No. 71 ("SFAS 71"), "Accounting for the Effects of Certain Types of Regulation." Under SFAS 71 the Company is required to account for the economic effects of the rate-making process, including the recognition of depreciation and amortization of plant and equipment over lives approved by the regulators. The ongoing applicability of SFAS 71 to the Company's regulated telephone operations are being constantly monitored due to the changing regulatory environment and to increasing competition. Should the regulated operations of the Company no longer qualify for the application of SFAS 71 at some future date, the required accounting impact could result in a material, non-cash charge against earnings. Mobile Communications Operations
Six months ended June 30 ----------------- 1994 1993 ----------------- (expressed in thousands) Revenues Cellular service $62,029 34,279 Equipment and paging 5,092 4,058 ------- ------ 67,121 38,337 ------- ------ Expenses Sales and marketing 14,572 7,576 General, administrative and customer service 15,683 10,794 Cost of sales and other operating 14,497 9,007 Depreciation and amortization 9,556 5,165 ------- ------ 54,308 32,542 ------- ------ Operating income $12,813 5,795 ======= ======
16 Mobile communications operating income increased $7,018,000 121.1%) to $12,813,000 during the six months ended June 30, 1994 from $5,795,000 during the six months ended June 30, 1993. Mobile communi- cations revenues increased $28,784,000 (75.1%) which more than offset an increase in operating expenses of $21,766,000 (66.9%). The increase in cellular service revenues was substantially due to (i) an increase in the number of cellular units in service and (ii) service revenues generated by Celutel since it was acquired by the Company on February 10, 1994 which aggregated approximately $10,800,000 during the six-month period ended June 30, 1994. The average number of cellular units in service in majority-owned markets during the six months ended June 30,1994 and 1993 was 152,800 and 81,300, respectively. The average monthly cellular service revenue per subscriber declined to $68 during the first six months of 1994 from $70 during the first six months of 1993, primarily due to the continued trend that a higher percentage of recent subscribers tend to be lower-usage customers. The average monthly service revenue per subscriber may further decline as market penetration increases and additional lower-usage customers are activated. The Company will continue to attempt to stimulate cellular usage by promoting the availability of certain enhanced services and by increasing coverage areas through the construction of additional cell sites. Sales and marketing expenses increased $6,996,000 due primarily to an increase in commissions paid to agents for selling cellular services to new customers and to the Celutel acquisition. The increase of $4,889,000 in general, administrative and customer service expenses was primarily due to costs incurred in connection with the Celutel operations and increased costs associated with serving a larger number of cellular customers. Cost of sales and other operating expenses increased $5,490,000 due to expenses incurred in connection with providing service to a larger number of subscribers, the development and operation of the Company's RSA cellular systems, and the Celutel acquisition. Depreciation and amortization increased $4,391,000 due to a higher level of plant in service and to depreciation and amortization associated with the Celutel acquisition. Interest Expense Interest expense increased $4,947,000 during the six months ended June 30, 1994 compared to the six months ended June 30, 1993 primarily due to a 39% increase in average debt outstanding (significantly due to debt issued in connection with the Celutel acquisition) which was partially offset by the effect of lower average interest rates. Gain on Sale of Asset During the first quarter of 1993, the Company sold its minority investment in a telephone company which resulted in a pre-tax gain of $1,661,000 ($1,080,000 after-tax). Earnings from Unconsolidated Cellular Partnerships Earnings from unconsolidated cellular partnerships increased $3,633,000 during the first six months of 1994 compared to the first six months of 1993 due to the Company's share of income from the partnership 17 interests acquired in the San Marcos acquisition and to the improvement in profitability of other cellular partnerships in which the Company owns less than a majority interest. Other Income and Expense Other income and expense for the first six months of 1994 was $129,000 compared to $1,204,000 during the first six months of 1993. The increased profitability of the Company's majority-owned and operated cellular partnerships resulted in a corresponding increase in the expense recorded to reflect the minority interest partners' share of the profits. Other income and expense also includes the results of operations of subsidiaries of the Company which are not included in telephone operations or mobile communications operations including, but not limited to, the Company's competitive access subsidiary and the Company's non-regulated long distance operations. Although not material to consolidated operations, the combined results of such subsidiaries were less favorable during the first six months of 1994 compared to the first six months of 1993 primarily due to losses incurred by recently- formed or recently-acquired subsidiaries. Income Taxes Income tax expense increased $5,510,000 during the six months ended June 30, 1994 compared to the six months ended June 30, 1993 primarily due to an increase in income before taxes. 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 capital improvement program. Cash provided by mobile communications operations has increased each year since that segment became cash-flow positive in 1991. Net cash provided by operating activities was $90,488,000 during the first six months of 1994 compared to $75,132,000 during the first six months of 1993. The Company's accompanying consolidated statements of cash flows identifies major differences between net income and net cash provided by operating activities for each of these periods. For additional information relating to the telephone and mobile communica- tions operations of the Company, see Results of Operations. Net cash used in investing activities was $175,903,000 and $122,583,000 for the six months ended June 30, 1994 and 1993, respectively. Cash used in connection with the Celutel acquisition during the first six months of 1994 was $54,847,000. Cash used in connection with the San Marcos acquisitions was $34,171,000 during the first six months of 1993. Payments for property, plant and equipment were $8,737,000 more in the first six months of 1994 than in the comparable period during 1993. Capital expenditures for the six months ended June 30, 1994 were $70,659,000 for telephone, $16,313,000 for mobile communications and $3,454,000 for other operations. 18 In connection with the corporate restructuring of a local exchange telephone company that has been viewed from time to time as an acquisition candidate, Century loaned the telephone company's newly-formed parent company $25,000,000 in May 1994. In exchange, the Company received a security interest in the parent company's capital stock, a guaranty from such company's principal stockholder and certain first refusal rights to acquire certain properties under various specified circumstances. For additional information see Note 8 of Notes to Consolidated Financial Statements. Net cash provided by financing activities during the first six months of 1994 and 1993 was $100,292,000 and $54,839,000, respectively. Net borrowings, including notes payable and long-term debt, were $47,359,000 more in the first six months of 1994 than in the comparable period of 1993, primarily due to the borrowings incurred in connection with the acquisition of Celutel. During the first quarter of 1994, the Company filed a shelf registration statement registering $400,000,000 of senior unsecured debt securities under which the Company issued $150,000,000 of senior notes on May 6, 1994. See Note 4 of Notes to Consolidated Financial Statements. The proceeds were used to discharge the Company's indebtedness under a $90,000,000 bridge loan incurred to fund substantially all of the Company's cash requirements in connection with the acquisition of Celutel in February 1994, and to reduce the Company's short-term bank indebtedness under various credit facilities bearing interest at rates ranging from 4.0% to 4.6%. Budgeted capital expenditures for 1994 total $142,000,000 for telephone operations and $50,000,000 for mobile communications opera- tions (of which approximately $10,000,000 will be funded by minority interest partners in cellular partnerships operated by the Company). The Company anticipates that capital expenditures in its telephone operations will continue to include the installation of fiber optic cable, the replacement of mechanical switches with digital switches and the upgrading of its plant and equipment to provide enhanced services. Mobile communications capital expenditures are expected to continue to focus primarily on the construction of additional cell sites and the upgrading of the Company's cellular systems to increase capacity and enhance the Company's ability to provide digital service in the future. Revised budgeted capital expenditures for other operations total $11,000,000, which includes capital construction costs currently planned to be expended by the Company's recently- formed competitive access subsidiary which in May 1994 obtained a franchise from Fort Worth, Texas to provide voice, data and certain video services in the Fort Worth market. The Company will continue to pursue the acquisition and development of other franchised competitive access markets. As of June 30, 1994 Century's telephone subsidiaries had available for use $84,100,000 of commitments for long-term financing from the Rural Electrification Administration ("REA") and the Company had $54,600,000 of undrawn committed bank lines of credit. In addition, approximately $40,000,000 of uncommitted credit facilities were available to the Company at June 30, 1994. Applications for additional long-term financing for the Company's telephone subsidiaries have been filed with the REA and are in various stages of processing. Federal budget proposals which could significantly reduce the availability of new loan commitments to the Company's telephone subsidiaries under the REA program in future fiscal years were considered in prior years and are expected to continue to be considered. If the Company's telephone subsidiaries are unable to borrow additional funds through the REA program and are forced to borrow from conventional lenders at market rates, the cost of new loans might increase. Although the Company currently expects to participate to some extent in the upcoming auction of personal communications services ("PCS") licenses, there can be no assurance that it will be successful in obtaining any such license. The Federal Communications Commission auction of PCS broadband spectrum is expected to take place later this year or early in 1995. 19 PART II. OTHER INFORMATION CENTURY TELEPHONE ENTERPRISES, INC. Item 4. Submission of Matters to a Vote of Security Holders - - ------- --------------------------------------------------- On April 28, 1994, Century held its annual meeting of shareholders and elected four Class III directors to serve for a term of three years. The following votes were cast for each of the following nominees for director or were withheld with respect to such nominee:
For Withheld ----------- --------- Calvin Czeschin 110,025,892 1,867,593 F. Earl Hogan 109,518,446 2,375,039 Harvey P. Perry 109,379,757 2,513,728 Jim D. Reppond 109,252,013 2,641,472
The Class I and Class II directors whose terms continued after the meeting are:
Class I Class II --------------------- ------------------ William R. Boles, Jr. Ernest Butler, Jr. W. Bruce Hanks James B. Gardner C.G. Melville, Jr. R.L. Hargrove, Jr. Glen F. Post, III Johnny Hebert Clarke M. Williams Tom S. Lovett
Item 6. Exhibits and Reports on Form 8-K - - ------- -------------------------------- A. Exhibits -------- 11 Computations of Earnings Per Share. B. Report on Form 8-K ------------------ The following items were reported in the Form 8-K dated April 22, 1994: Item 5. Other Events - News release reporting results of operations for the quarter ended March 31, 1994. Item 7. Exhibit 12 - Statement regarding computations of ratio of earnings to fixed charges. 20 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: August 10, 1994 /s/ Murray H. Greer ---------------------- Murray H. Greer Controller (Principal Accounting Officer) 21 CENTURY TELEPHONE ENTERPRISES, INC. INDEX TO EXHIBITS Exhibit Number - - ------- 11 Computations of Earnings Per Share, included herein. 22 EX-11 2 EXHIBIT 11 CENTURY TELEPHONE ENTERPRISES, INC. COMPUTATIONS OF EARNINGS PER SHARE (UNAUDITED)
Three months Six months ended June 30 ended June 30 ------------------ ---------------- 1994 1993 1994 1993 ------- ------ ------ ------ (expressed in thousands, except per share amounts) Net income $21,485 16,517 40,686 32,257 Preferred stock dividend requirements (30) (6) (43) (12) ------- ------ ------ ------ Net income applicable to common stock 21,455 16,511 40,643 32,245 Dividends applicable to Series H and Series K Preferred Stock 30 6 43 12 Interest on 6% convertible debentures and amortization of deferred debt costs incurred in connection with the issuance of the debentures, net of taxes 1,146 1,164 2,292 2,328 ------- ------ ------ ------ Net income as adjusted for purposes of computing fully diluted earnings per share $22,631 17,681 42,978 34,585 ======= ====== ====== ====== Weighted average number of shares: Outstanding during period 53,365 50,618 52,825 49,867 Common stock equivalent shares 519 790 525 666 Employee Stock Ownership Plan shares not committed to be released (338) - (193) - ------ ------ ------ ------ Total number of shares for computing primary earnings per share 53,546 51,408 53,157 50,533 Incremental common shares attributable to additional dilutive effect of convertible securities 4,742 4,656 4,702 4,729 ------ ------ ------ ------ Total number of shares as adjusted for purposes of computing fully diluted earnings per share 58,288 56,064 57,859 55,262 ======= ====== ====== ====== Earnings per average common share $ .40 .33 .77 .65 ======= ====== ====== ====== Primary earnings per share $ .40 .32 .76 .64 ======= ====== ====== ====== Fully diluted earnings per share $ .39 .32 .74 .63 ======= ====== ====== ======
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