-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OhYu01F5nwomNr0Rdu/dPVlntuwhC4pW6KwWAgtJpKJd2N+cozfSL0yjJRTulqRM rTNSbEHBkF4qJfQX+b1Z2Q== 0000018926-98-000008.txt : 19980817 0000018926-98-000008.hdr.sgml : 19980817 ACCESSION NUMBER: 0000018926-98-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CENTURY TELEPHONE ENTERPRISES INC CENTRAL INDEX KEY: 0000018926 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE COMMUNICATIONS (NO RADIO TELEPHONE) [4813] IRS NUMBER: 720651161 STATE OF INCORPORATION: LA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-07784 FILM NUMBER: 98689068 BUSINESS ADDRESS: STREET 1: P O BOX 4065 STREET 2: 100 CENTURY PARK DR CITY: MONROE STATE: LA ZIP: 71211-4065 BUSINESS PHONE: 3188889000 MAIL ADDRESS: STREET 1: 100 CENTURY PARK DR 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 2ND QTR 1998 10-Q 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, 1998 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) 388-9000 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 July 31, 1998, there were 91,819,855 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 and Six Months Ended June 30, 1998 and 1997 3 Consolidated Statements of Comprehensive Income -- Three Months and Six Months Ended June 30, 1998 and 1997 4 Consolidated Balance Sheets--June 30, 1998 and December 31, 1997 5 Consolidated Statements of Stockholders' Equity-- Six Months Ended June 30, 1998 and 1997 6 Consolidated Statements of Cash Flows-- Six Months Ended June 30, 1998 and 1997 7 Notes to Consolidated Financial Statements 8-10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11-22 Part II. Other Information: Item 4. Submission of Matters To a Vote of Security Holders 23 Item 6. Exhibits and Reports on Form 8-K 23 Signature 24 PART I. FINANCIAL INFORMATION CENTURY TELEPHONE ENTERPRISES, INC. CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) Three months Six months ended June 30, ended June 30, - --------------------------------------------------------------------------- 1998 1997 1998 1997 - --------------------------------------------------------------------------- (Dollars, except per share amounts, and shares expressed in thousands) OPERATING REVENUES Telephone $ 265,322 120,425 525,135 237,520 Wireless 104,871 74,470 199,037 140,309 Other 18,185 15,681 35,926 31,732 - --------------------------------------------------------------------------- Total operating revenues 388,378 210,576 760,098 409,561 - --------------------------------------------------------------------------- OPERATING EXPENSES Cost of sales and operating expenses 185,406 111,830 367,800 217,792 Depreciation and amortization 81,484 36,341 160,678 71,666 - --------------------------------------------------------------------------- Total operating expenses 266,890 148,171 528,478 289,458 - --------------------------------------------------------------------------- OPERATING INCOME 121,488 62,405 231,620 120,103 - --------------------------------------------------------------------------- OTHER INCOME (EXPENSE) Gain on sales or exchange of assets, net 25,516 70,121 49,859 70,121 Interest expense (42,072) (11,054) (84,881) (22,364) Income from unconsolidated cellular entities 9,066 7,799 15,943 13,379 Minority interest (4,002) (1,541) (6,645) (1,905) Other income and expense 691 1,059 1,295 2,293 - --------------------------------------------------------------------------- Total other income (expense) (10,801) 66,384 (24,429) 61,524 - --------------------------------------------------------------------------- INCOME BEFORE INCOME TAX EXPENSE 110,687 128,789 207,191 181,627 Income tax expense 46,496 45,613 85,306 65,316 - --------------------------------------------------------------------------- NET INCOME $ 64,191 83,176 121,885 116,311 =========================================================================== BASIC EARNINGS PER SHARE* $ .70 .93 1.34 1.29 =========================================================================== DILUTED EARNINGS PER SHARE* $ .69 .91 1.31 1.28 =========================================================================== DIVIDENDS PER COMMON SHARE* $ .065 .0617 .13 .1234 =========================================================================== AVERAGE BASIC SHARES OUTSTANDING * 91,281 89,720 91,124 89,627 =========================================================================== AVERAGE DILUTED SHARES OUTSTANDING * 93,352 91,211 93,134 91,133 =========================================================================== * Reflects March 1998 stock split. See Note 5. See accompanying notes to consolidated financial statements. CENTURY TELEPHONE ENTERPRISES, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) Three months Six months ended June 30, ended June 30, - --------------------------------------------------------------------------- 1998 1997 1998 1997 - --------------------------------------------------------------------------- (Dollars in thousands) Net income $64,191 83,176 121,885 116,311 - --------------------------------------------------------------------------- Other comprehensive income, net of tax: Unrealized holding gains arising during period, net of tax 1,961 24,565 10,941 24,565 Reclassification adjustment for gains included in net income, net of tax (5,683) - (20,478) - - --------------------------------------------------------------------------- Other comprehensive income, net of tax (3,722) 24,565 (9,537) 24,565 - --------------------------------------------------------------------------- Comprehensive income $60,469 107,741 112,348 140,876 =========================================================================== See accompanying notes to consolidated financial statements. CENTURY TELEPHONE ENTERPRISES, INC. CONSOLIDATED BALANCE SHEETS (UNAUDITED) June 30, December 31, 1998 1997 - --------------------------------------------------------------------------- (Dollars in thousands) ASSETS - ------ CURRENT ASSETS Cash and cash equivalents $ 16,966 26,017 Accounts receivable, less allowance of $8,287 and $5,954 187,245 227,272 Materials and supplies, at average cost 23,278 21,994 Other 8,737 8,197 - --------------------------------------------------------------------------- 236,226 283,480 - --------------------------------------------------------------------------- NET PROPERTY, PLANT AND EQUIPMENT 2,236,150 2,258,563 - --------------------------------------------------------------------------- INVESTMENTS AND OTHER ASSETS Excess cost of net assets acquired, less accumulated amortization of $107,664 and $84,132 1,744,834 1,767,352 Other 438,397 400,006 - --------------------------------------------------------------------------- 2,183,231 2,167,358 - --------------------------------------------------------------------------- $4,655,607 4,709,401 =========================================================================== LIABILITIES AND EQUITY - ---------------------- CURRENT LIABILITIES Current maturities of long-term debt $ 47,522 55,244 Accounts payable 76,544 83,378 Accrued expenses and other liabilities Salaries and benefits 44,096 38,225 Taxes 27,728 74,898 Interest 38,984 20,821 Other 17,367 25,229 Advance billings and customer deposits 27,105 24,213 - --------------------------------------------------------------------------- 279,346 322,008 - --------------------------------------------------------------------------- LONG-TERM DEBT 2,451,779 2,609,541 - --------------------------------------------------------------------------- DEFERRED CREDITS AND OTHER LIABILITIES 508,223 477,580 - --------------------------------------------------------------------------- STOCKHOLDERS' EQUITY Common stock, $1.00 par value, authorized 175,000,000 shares, issued and outstanding 91,799,878 and 91,103,674 shares 91,800 91,104 Paid-in capital 483,407 469,586 Accumulated other comprehensive income - unrealized holding gain on investments, net of taxes 2,356 11,893 Retained earnings 837,850 728,033 Unearned ESOP shares (7,260) (8,450) Preferred stock - non-redeemable 8,106 8,106 - --------------------------------------------------------------------------- 1,416,259 1,300,272 - --------------------------------------------------------------------------- $4,655,607 4,709,401 =========================================================================== See accompanying notes to consolidated financial statements. CENTURY TELEPHONE ENTERPRISES, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED) Six months ended June 30, - --------------------------------------------------------------------------- 1998 1997 - --------------------------------------------------------------------------- (Dollars in thousands) COMMON STOCK Balance at beginning of period $ 91,104 * 59,859 Issuance of common stock for acquisitions 28 - Conversion of convertible securities into common stock 169 113 Issuance of common stock through dividend reinvestment, incentive and benefit plans 499 180 - --------------------------------------------------------------------------- Balance at end of period 91,800 60,152 - --------------------------------------------------------------------------- PAID-IN CAPITAL Balance at beginning of period 469,586 * 474,607 Issuance of common stock for acquisitions 1,059 - Conversion of convertible securities into common stock 3,131 3,187 Issuance of common stock through dividend reinvestment, incentive and benefit plans 8,350 4,079 Amortization of unearned compensation and other 1,281 338 - --------------------------------------------------------------------------- Balance at end of period 483,407 482,211 - --------------------------------------------------------------------------- ACCUMULATED OTHER COMPREHENSIVE INCOME Balance at beginning of period 11,893 - Change in unrealized holding gain on investments, net of reclassification adjustment (9,537) 24,565 - --------------------------------------------------------------------------- Balance at end of period 2,356 24,565 - --------------------------------------------------------------------------- RETAINED EARNINGS Balance at beginning of period 728,033 494,726 Net income 121,885 116,311 Cash dividends declared Common stock-$.13 and $.1234 per share, respectively * (11,864) (11,055) Preferred stock (204) (255) - --------------------------------------------------------------------------- Balance at end of period 837,850 599,727 - --------------------------------------------------------------------------- UNEARNED ESOP SHARES Balance at beginning of period (8,450) (11,080) Release of ESOP shares 1,190 1,440 - --------------------------------------------------------------------------- Balance at end of period (7,260) (9,640) - --------------------------------------------------------------------------- PREFERRED STOCK - NON-REDEEMABLE Balance at beginning and end of period 8,106 10,041 - --------------------------------------------------------------------------- TOTAL STOCKHOLDERS' EQUITY $ 1,416,259 1,167,056 =========================================================================== * Reflects March 1998 stock split. See Note 5. See accompanying notes to consolidated financial statements. CENTURY TELEPHONE ENTERPRISES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Six months ended June 30, - --------------------------------------------------------------------------- 1998 1997 - --------------------------------------------------------------------------- (Dollars in thousands) OPERATING ACTIVITIES Net income $ 121,885 116,311 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 160,678 71,666 Deferred income taxes 25,537 29,667 Income from unconsolidated cellular entities (15,943) (13,379) Minority interest 6,645 1,905 Gain on sales of assets (49,859) (70,121) Changes in current assets and current liabilities: Accounts receivable (20,498) (15,670) Accounts payable (6,834) (4,187) Other accrued taxes (47,170) 5,343 Other current assets and other current liabilities, net 14,240 7,012 Increase in other noncurrent liabilities 5,551 3,382 Other, net (1,845) (1,522) - --------------------------------------------------------------------------- Net cash provided by operating activities 192,387 130,407 - --------------------------------------------------------------------------- INVESTING ACTIVITIES Payments for property, plant and equipment (122,018) (87,419) Acquisitions, net of cash acquired (5,000) (23,548) Proceeds from sales of assets 132,307 - Distributions from unconsolidated cellular entities 11,647 5,723 Purchase of life insurance investment (5,150) (11,998) Other, net 2,386 (2,269) - ---------------------------------------------------------------------------- Net cash provided by (used in) investing activities 14,172 (119,511) - --------------------------------------------------------------------------- FINANCING ACTIVITIES Proceeds from issuance of long-term debt 772,852 28,500 Payments of long-term debt (938,532) (28,782) Payment upon settlement of hedge contracts (40,237) - Payment of deferred debt issuance costs (6,625) - Proceeds from issuance of common stock 8,926 4,258 Cash dividends (12,068) (11,310) Other, net 74 124 - --------------------------------------------------------------------------- Net cash used in financing activities (215,610) (7,210) - --------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents (9,051) 3,686 Cash and cash equivalents at beginning of period 26,017 8,402 - --------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 16,966 12,088 =========================================================================== Supplemental cash flow information: Income taxes paid $ 118,364 38,402 Interest paid $ 66,718 23,000 - --------------------------------------------------------------------------- See accompanying notes to consolidated financial statements. CENTURY TELEPHONE ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1998 (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, 1997. Certain 1997 amounts have been reclassified to be consistent with the 1998 presentation. The unaudited financial information for the three months and six months ended June 30, 1998 and 1997 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 and six-month periods have been included therein. The results of operations 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) Net Property, Plant and Equipment Net property, plant and equipment is composed of the following: June 30, December 31, 1998 1997 - ----------------------------------------------------------------------- (Dollars in thousands) Telephone, at original cost $3,358,280 3,295,860 Accumulated depreciation (1,473,002) (1,375,835) - ----------------------------------------------------------------------- 1,885,278 1,920,025 - ----------------------------------------------------------------------- Wireless, at cost 413,778 380,218 Accumulated depreciation (155,310) (133,357) - ----------------------------------------------------------------------- 258,468 246,861 - ----------------------------------------------------------------------- Corporate and other, at cost 182,771 169,420 Accumulated depreciation (90,367) (77,743) - ----------------------------------------------------------------------- 92,404 91,677 - ----------------------------------------------------------------------- $2,236,150 2,258,563 ======================================================================= (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 June 30, 1998 and 1997) were accounted for by the equity method. Six months ended June 30, - --------------------------------------------------------------------------- 1998 1997 - --------------------------------------------------------------------------- (Dollars in thousands) Results of operations Revenues $ 606,793 607,564 Operating income $ 216,062 198,951 Net income $ 216,952 199,927 - --------------------------------------------------------------------------- (4) Accounting Pronouncements In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive Income" and Statement of Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosures About Segments of an Enterprise and Related Information." SFAS 130 established standards for reporting the components of comprehensive income, which is defined to include all changes in equity during a period except those resulting from investments by and distributions to shareholders. SFAS 131 established standards for reporting information about operating segments in annual financial statements and interim financial reports to shareholders. The Company adopted both statements in the first quarter of 1998; however, the provisions of SFAS 131 need not be applied to interim periods in the initial year of application. SFAS 131 is not expected to materially impact how the Company currently reports its segment information. In June 1998, the FASB issued Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities." 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. Based on the Company's current use of derivatives, SFAS 133 is not expected to materially impact the Company's financial position or results of operations. (5) Stock Split On March 31, 1998, the Company effected a three-for-two common stock split by means of a 50% stock dividend. Shares outstanding and per share data for the six months and three months ended June 30, 1997 have been restated to reflect this stock split. (6) Debt Issuance On January 15, 1998, Century issued $100 million of 7-year, 6.15% senior notes (Series E); $240 million of 10-year, 6.3% senior notes (Series F); and $425 million of 30-year, 6.875% debentures (Series G) under its shelf registration statements. The net proceeds of approximately $758 million (excluding payment obligations of approximately $40 million related to interest rate hedging effected in connection with the offering) were used to reduce the bank indebtedness incurred by the Company in connection with its December 1, 1997 acquisition of Pacific Telecom, Inc. ("PTI"). In mid-January 1998, the Company settled numerous interest rate hedge contracts that had been entered into in anticipation of these debt issuances. The amounts paid by the Company upon settlement of the hedge contracts aggregated approximately $40 million, which will be amortized as interest expense over the lives of the underlying debt instruments. The effective weighted average interest rate of the above-mentioned debt (after giving consideration to these payment obligations) is 7.15%. In March 1998 the Company paid approximately $250,000 upon settlement of its remaining interest rate hedge contracts. (7) Sale or Exchange of Assets In connection with the first quarter 1998 acquisition of Brooks Fiber Properties, Inc. ("Brooks") by WorldCom, Inc. ("WorldCom") , the Company's 551,000 shares of Brooks' common stock were converted into approximately 1.0 million shares of WorldCom common stock. The Company recorded such conversion at fair value which resulted in a pre-tax gain of approximately $22.8 million ($14.8 million after-tax; $.16 per diluted share). In the second quarter of 1998, the Company sold 750,000 shares of WorldCom common stock for $35.6 million cash and recorded a pre-tax gain of $8.7 million ($5.7 million after tax; $.06 per diluted share). In the second quarter of 1998, the Company sold its minority interests in two non-strategic cellular entities for approximately $31.0 million cash which resulted in a pre-tax gain of $21.8 million ($12.3 million after-tax; $.13 per diluted share). Additionally, in the second quarter the Company wrote off its minority investment in a start-up company. During the second quarter of 1998, the Company also sold various other properties that were acquired in the acquisition of PTI on December 1, 1997, including, but not limited to, the Company's submarine cable operations. The Company utilized the proceeds from these transactions to reduce its debt associated with the acquisition of PTI. In accordance with purchase accounting, no gain or loss was recorded upon the disposition of these assets. During the second quarter of 1997, the Company sold its competitive access subsidiary to Brooks and recorded a pre-tax gain of $71 million ($46 million after-tax; $.50 per diluted share). (8) Pending Acquisition On March 12, 1998, the Company entered into definitive agreements to purchase from affiliates of Ameritech Corporation ("Ameritech") the assets of certain of Ameritech's local telephone and directory operations in parts of northern and central Wisconsin, in exchange for approximately $225 million cash (subject to adjustments). The assets to be purchased include (i) access lines and related property and equipment in 21 predominantly rural communities in Wisconsin which serve approximately 68,000 customers, (ii) Ameritech's directory publishing operations that relate to nine telephone directories serving such customers, and (iii) approximately $4 million in net receivables. Subject to the satisfaction of various closing conditions, this transaction is expected to be completed in the fourth quarter of 1998. 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, 1997. The results of operations for the three months and six months ended June 30, 1998 are not necessarily indicative of the results of operations which might be expected for the entire year. Century Telephone Enterprises, Inc. (the "Company"), which operates under the trade name of CenturyTel, is a regional diversified communications company that is primarily engaged in providing local telephone services and cellular telephone communications services. At June 30, 1998, the Company's local exchange telephone subsidiaries operated over 1.2 million telephone access lines primarily in rural, suburban and small urban areas in 21 states, and the Company's majority-owned and operated cellular entities had more than 583,000 cellular subscribers. On December 1, 1997, the Company significantly expanded its operations by acquiring Pacific Telecom, Inc. ("PTI"). As a result of the acquisition, the Company acquired (i) over 660,000 telephone access lines, (ii) over 88,000 cellular subscribers and (iii) various wireless, cable television and other communications assets. 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 effects of ongoing deregulation in the telecommunications industry; the effects of greater than anticipated competition in the Company's markets; possible changes in the demand for the Company's products and services; the Company's ability to successfully introduce new offerings on a timely and cost-effective basis; the risks inherent in rapid technological change; the Company's ability to effectively manage its growth, including integrating the operations of PTI into the Company's operations; the success and expense of the remediation efforts of the Company and/or its vendors in achieving year 2000 compliance; 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, 1997. 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 June 30, 1998 Compared to Three Months Ended June 30, 1997 Net income (excluding gain on sale or exchange of assets) for the second quarter of 1998 was $49.5 million compared to $37.6 million during the second quarter of 1997. Diluted earnings per share (excluding gain on sale or exchange of assets) increased to $.53 during the three months ended June 30, 1998 from $.41 during the three months ended June 30, 1997, a 29.3% increase. Three months ended June 30, - --------------------------------------------------------------------------- 1998 1997 - --------------------------------------------------------------------------- (Dollars, except per share amounts, and shares in thousands) Operating income Telephone $ 79,954 38,972 Wireless 37,511 21,812 Other 4,023 1,621 - --------------------------------------------------------------------------- 121,488 62,405 Gain on sales or exchange of assets, net 25,516 70,121 Interest expense (42,072) (11,054) Income from unconsolidated cellular entities 9,066 7,799 Minority interest (4,002) (1,541) Other income and expense 691 1,059 Income tax expense (46,496) (45,613) - --------------------------------------------------------------------------- Net income $ 64,191 83,176 =========================================================================== Diluted earnings per share $ .69 .91 =========================================================================== Average diluted shares outstanding 93,352 91,211 =========================================================================== Contributions to operating revenues and operating income by the Company's telephone, wireless, and other operations for the three months ended June 30, 1998 and 1997 were as follows: Three months ended June 30, - ------------------------------------------------------------------------- 1998 1997 - ------------------------------------------------------------------------- Operating revenues Telephone operations 68.3% 57.2 Wireless operations 27.0% 35.4 Other operations 4.7% 7.4 Operating income Telephone operations 65.8% 62.5 Wireless operations 30.9% 34.9 Other operations 3.3% 2.6 - ------------------------------------------------------------------------- Telephone Operations Three months ended June 30, - ------------------------------------------------------------------------- 1998 1997 - ------------------------------------------------------------------------- (Dollars in thousands) Operating revenues Local service $ 81,456 33,118 Network access 151,976 72,480 Other 31,890 14,827 - ------------------------------------------------------------------------- 265,322 120,425 - ------------------------------------------------------------------------- Operating expenses Plant operations 57,548 24,446 Customer operations 23,033 12,345 Corporate and other 39,225 18,783 Depreciation and amortization 65,562 25,879 - ------------------------------------------------------------------------- 185,368 81,453 - ------------------------------------------------------------------------- Operating income $ 79,954 38,972 ========================================================================= Telephone operating income increased $41.0 million (105.2%) due to an increase in operating revenues of $144.9 million (120.3%) which more than offset an increase in operating expenses of $103.9 million (127.6%). Of the $144.9 million increase in operating revenues, $135.9 million was attributable to the properties acquired in the PTI acquisition. The remaining $9.0 million increase in revenues was partially due to a $2.6 million increase in revenues due to increased minutes of use; a $1.9 million increase in amounts received from the federal Universal Service Fund; a $1.6 million increase resulting from the increase in the number of customer access lines and a $1.1 million increase in revenues from the provision of Internet access. During the second quarter of 1998, operating expenses, exclusive of depreciation and amortization, increased $64.2 million, of which $61.0 million was attributable to the properties acquired in the PTI acquisition. The remainder of the increase in operating expenses was due to increases in general operating expenses. Depreciation and amortization increased $39.7 million, of which $37.1 million (which includes $7.0 million of amortization of excess cost of net assets acquired) was attributable to the properties acquired in the PTI acquisition. The remainder of the increase was primarily due to higher levels of plant in service. Wireless Operations and Income From Unconsolidated Cellular Entities Three months ended June 30, - --------------------------------------------------------------------------- 1998 1997 - --------------------------------------------------------------------------- (Dollars in thousands) Operating income - wireless operations $ 37,511 21,812 Minority interest (4,002) (1,776) Income from unconsolidated cellular entities 9,066 7,799 - --------------------------------------------------------------------------- $ 42,575 27,835 =========================================================================== The Company's wireless operations (discussed below) reflect 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." See Income from Unconsolidated Cellular Entities for additional information. Wireless Operations Three months ended June 30, - --------------------------------------------------------------------------- 1998 1997 - --------------------------------------------------------------------------- (Dollars in thousands) Operating revenues Service revenues $ 102,766 73,053 Equipment sales 2,105 1,417 - --------------------------------------------------------------------------- 104,871 74,470 - --------------------------------------------------------------------------- Operating expenses Cost of equipment sold 3,702 3,456 System operations 14,633 11,071 General, administrative and customer service 20,063 14,263 Sales and marketing 13,791 13,857 Depreciation and amortization 15,171 10,011 - --------------------------------------------------------------------------- 67,360 52,658 - --------------------------------------------------------------------------- Operating income $ 37,511 21,812 =========================================================================== Wireless operating income increased $15.7 million (72.0%) to $37.5 million in the second quarter of 1998 from $21.8 million in the second quarter of 1997. Wireless operating revenues increased $30.4 million (40.8%) while operating expenses increased $14.7 million (27.9%). Of the $29.7 million increase in service revenues, $22.0 million was attributable to acquisitions consummated since the second quarter of 1997, including $19.1 million attributable to PTI. The remainder of the increase in cellular service revenues was primarily due to the increase in the number of cellular customers in the Company's incumbent markets. The average number of cellular units in service in majority-owned markets (exclusive of acquisitions) during the second quarter of 1998 and 1997 was 444,300 and 388,300, respectively. Excluding acquisitions, local and toll revenues increased $5.1 million in the second quarter of 1998 and roaming revenues increased $2.6 million. The average monthly cellular service revenue per customer (including acquisitions) declined to $59 during the second quarter of 1998 from $63 during the second quarter of 1997 partially due to the continued trend that a higher percentage of new subscribers tend to be lower usage customers. In addition, the properties acquired in the PTI acquisition historically have had a lower average monthly service revenue per customer than the Company's incumbent properties. 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. 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. System operations expenses increased $3.6 million (32.2%) in the second quarter of 1998 primarily due to $3.6 million of expenses attributable to entities acquired since the second quarter of 1997. A $1.2 million decrease in the amounts paid to other carriers for cellular service provided to the Company's customers who roam in the other carriers' service areas was offset by a $1.2 million increase in operating expenses due to an increase in the number of cell sites. General, administrative and customer service expenses increased $5.8 million (40.7%), of which $3.8 million was attributable to expenses of entities acquired. The remainder of the increase was primarily due to a $1.3 million increase in the provision for doubtful accounts. The Company's average monthly churn rate (the percentage of cellular customers that terminate service) was 2.0% for the second quarter of 1998 and 2.2% for the second quarter of 1997. Entities acquired subsequent to the second quarter of 1997 incurred $2.8 million of sales and marketing expenses in the second quarter of 1998. Commissions paid to agents for selling services to new customers decreased $3.2 million primarily as a result of fewer cellular units added during the second quarter of 1998 compared to the second quarter of 1997. The Company will continue to focus on attracting and retaining higher usage customers. Depreciation and amortization increased $5.2 million (51.5%), of which $3.5 million was attributable to acquisitions. The remainder of the increase was due primarily to a higher level of plant in service. Other Operations Three months ended June 30, - --------------------------------------------------------------------- 1998 1997 - --------------------------------------------------------------------- (Dollars in thousands) Operating revenues Long distance $ 12,338 8,900 Call center 2,349 4,443 Other 3,498 2,338 - --------------------------------------------------------------------- 18,185 15,681 - --------------------------------------------------------------------- Operating expenses Cost of sales and operating expenses 13,411 13,609 Depreciation and amortization 751 451 - --------------------------------------------------------------------- 14,162 14,060 - --------------------------------------------------------------------- Operating income $ 4,023 1,621 ===================================================================== Other operations include the results of operations of subsidiaries of the Company which are not included in the telephone or wireless segments, including, but not limited to, the Company's nonregulated long distance and call center operations. The $3.4 million increase in long distance revenues was primarily attributable to the growth in the number of customers; the $2.1 million decrease in call center revenues was primarily due to the loss of two major customers. The increase in other revenues was primarily attributable to the PTI acquisition and the acquisition of two security alarm businesses subsequent to the second quarter of 1997. Operating expenses increased due to (i) an increase of $2.2 million in expenses of the Company's long distance operations due primarily to an increase in customers and (ii) $2.0 million of operating expenses applicable to acquisitions. Such increases were substantially offset because (i) the amount of intercompany profit with regulated affiliates which was not eliminated in connection with consolidating the results of operations (which acts to offset operating expenses) increased $1.8 million as a result of the PTI acquisition, (ii) the second quarter of 1997 included $1.4 million of costs applicable to entities sold during 1997 and (iii) operating expenses of the Company's call center business decreased $772,000 primarily due to the loss of two major customers. Interest Expense Interest expense increased $31.0 million in the second quarter of 1998 compared to the second quarter of 1997 primarily due to $23.2 million of interest expense on the borrowings used to finance the PTI acquisition and $7.5 million of interest expense applicable to PTI's debt. Gain on Sales or Exchange of Assets, Net In the second quarter of 1998, the Company recorded pre-tax gains aggregating $25.5 million ($14.7 million after-tax; $.16 per diluted share) primarily as a result of the sale of 750,000 shares of WorldCom, Inc. ("WorldCom") stock and the sale of minority interests in two non-strategic cellular entities. See Note 7 of Notes to Consolidated Financial Statements for additional information. In the second quarter of 1997, the Company sold its competitive access subsidiary to Brooks Fiber Properties, Inc. ("Brooks") and recorded a pre-tax gain of $71 million ($46 million after-tax; $.50 per diluted share). Income from Unconsolidated Cellular Entities Earnings from unconsolidated cellular entities, net of the amortization of associated goodwill, increased $1.3 million (16.2%) primarily due to $2.0 million of earnings from interests in unconsolidated entities acquired in the PTI acquisition. Such increase was partially offset by a $744,000 decrease in income due to the sale of the Company's minority interests in two non-strategic cellular entities during the second quarter of 1998. 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 increased $2.5 million primarily due to the increased profitability of the Company's majority-owned and operated cellular entities. Income Tax Expense Income tax expense increased $883,000 in the second quarter of 1998 compared to the second quarter of 1997. The effective income tax rate was 42.0% and 35.4% in the three months ended June 30, 1998 and 1997, respectively. Such increase in the effective income tax rate was primarily due to an increase in non-deductible amortization of excess cost of net assets acquired (goodwill) attributable to the PTI acquisition. Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1997 Net income (excluding gain on sale or exchange of assets) for the first six months of 1998 was $91.4 million compared to $70.7 million during the first six months of 1997. Diluted earnings per share (excluding gain on sale or exchange of assets) increased to $.98 during the six months ended June 30, 1998 from $.78 during the six months ended June 30, 1997, a 25.6% increase. Six months ended June 30, 1998 1997 - --------------------------------------------------------------------------- (Dollars, except per share amounts, and shares in thousands) Operating income Telephone $156,797 79,496 Wireless 67,166 38,349 Other 7,657 2,258 - --------------------------------------------------------------------------- 231,620 120,103 Gain on sales or exchange of assets, net 49,859 70,121 Interest expense (84,881) (22,364) Income from unconsolidated cellular entities 15,943 13,379 Minority interest (6,645) (1,905) Other income and expense 1,295 2,293 Income tax expense (85,306) (65,316) - --------------------------------------------------------------------------- Net income $121,885 116,311 =========================================================================== Diluted earnings per share $ 1.31 1.28 =========================================================================== Average diluted shares outstanding 93,134 91,133 =========================================================================== Contributions to operating revenues and operating income by the Company's telephone, wireless, and other operations for the six months ended June 30, 1998 and 1997 were as follows: Six months ended June 30, - -------------------------------------------------------------------------- 1998 1997 - -------------------------------------------------------------------------- Operating revenues Telephone operations 69.1% 58.0 Wireless operations 26.2% 34.3 Other operations 4.7% 7.7 Operating income Telephone operations 67.7% 66.2 Wireless operations 29.0% 31.9 Other operations 3.3% 1.9 - -------------------------------------------------------------------------- Telephone Operations Six months ended June 30, - --------------------------------------------------------------------------- 1998 1997 - --------------------------------------------------------------------------- (Dollars in thousands) Operating revenues Local service $ 159,582 65,306 Network access 303,154 144,022 Other 62,399 28,192 - --------------------------------------------------------------------------- 525,135 237,520 - --------------------------------------------------------------------------- Operating expenses Plant operations 114,207 48,042 Customer operations 45,849 22,743 Corporate and other 79,008 36,237 Depreciation and amortization 129,274 51,002 - --------------------------------------------------------------------------- 368,338 158,024 - --------------------------------------------------------------------------- Operating income $ 156,797 79,496 =========================================================================== Telephone operating income increased $77.3 million (97.2%) due to an increase in operating revenues of $287.6 million (121.1%) which more than offset an increase in operating expenses of $210.3 million (133.1%). Of the $287.6 million increase in operating revenues, $270.3 million was attributable to the properties acquired in the PTI acquisition. The remaining $17.3 million increase in revenues was partially due to a $4.8 million increase in amounts received from the federal Universal Service Fund; a $4.5 million increase in revenues due to increased minutes of use; and a $3.7 million increase resulting from the increase in the number of customer access lines. During the first six months of 1998, operating expenses, exclusive of depreciation and amortization, increased $132.0 million, of which $126.2 million was attributable to the properties acquired in the PTI acquisition. The remainder of the increase in operating expenses was due to increases in general operating expenses. Depreciation and amortization increased $78.3 million, of which $73.5 million (which includes $13.8 million of amortization of excess cost of net assets acquired) was attributable to the properties acquired in the PTI acquisition. The remainder of the increase was primarily due to higher levels of plant in service. Wireless Operations and Income From Unconsolidated Cellular Entities Six months ended June 30, - --------------------------------------------------------------------------- 1998 1997 - --------------------------------------------------------------------------- (Dollars in thousands) Operating income - wireless operations $ 67,166 38,349 Minority interest (6,645) (3,096) Income from unconsolidated cellular entities 15,943 13,379 - --------------------------------------------------------------------------- $ 76,464 48,632 =========================================================================== The Company's wireless operations (discussed below) reflect 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." See Income from Unconsolidated Cellular Entities for additional information. Wireless Operations Six months ended June 30, - --------------------------------------------------------------------------- 1998 1997 - --------------------------------------------------------------------------- (Dollars in thousands) Operating revenues Service revenues $ 194,864 137,637 Equipment sales 4,173 2,672 - --------------------------------------------------------------------------- 199,037 140,309 - --------------------------------------------------------------------------- Operating expenses Cost of equipment sold 7,398 7,386 System operations 28,885 21,397 General, administrative and customer service 38,444 28,478 Sales and marketing 27,433 25,427 Depreciation and amortization 29,711 19,272 - --------------------------------------------------------------------------- 131,871 101,960 - --------------------------------------------------------------------------- Operating income $ 67,166 38,349 =========================================================================== Wireless operating income increased $28.8 million (75.1%) to $67.2 million in the first six months of 1998 from $38.3 million in the first six months of 1997. Wireless operating revenues increased $58.7 million (41.9%) while operating expenses increased $29.9 million (29.3%). Of the $57.2 million increase in service revenues, $39.7 million was attributable to acquisitions consummated since the second quarter of 1997, including $34.4 million attributable to PTI. The remainder of the increase in cellular service revenues was primarily due to the increase in the number of cellular customers in the Company's incumbent markets. The average number of cellular units in service in majority-owned markets (exclusive of acquisitions) during the first six months of 1998 and 1997 was 447,000 and 380,400, respectively. Excluding acquisitions, local and toll revenues increased $12.3 million in the first six months of 1998 and roaming revenues increased $5.2 million. The average monthly cellular service revenue per customer (including acquisitions) declined to $56 during the first six months of 1998 from $60 during the first six months of 1997 partially due to the continued trend that a higher percentage of new subscribers tend to be lower usage customers. In addition, the properties acquired in the PTI acquisition historically have had a lower average monthly service revenue per customer than the Company's incumbent properties. 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. 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. System operations expenses increased $7.5 million (35.0%) in the first six months of 1998 primarily due to $7.7 million of expenses attributable to entities acquired since the second quarter of 1997. A $2.6 million decrease in the amounts paid to other carriers for cellular service provided to the Company's customers who roam in the other carriers' service areas was substantially offset by a $2.3 million increase in operating expenses due to an increase in the number of cell sites. General, administrative and customer service expenses increased $10.0 million (35.0%), of which $7.7 million was attributable to expenses of entities acquired. The remainder of the increase was primarily due to a $1.9 million increase in the provision for doubtful accounts. The Company's average monthly churn rate (the percentage of cellular customers that terminate service) was 2.2% for the first six months of 1998 and 2.3% for the first six months of 1997. Sales and marketing expenses increased $2.0 million in the first six months of 1998 primarily due to $5.3 million of expenses of entities acquired subsequent to the second quarter of 1997 and a $1.4 million increase in costs incurred in selling products and services in retail locations. Such increases were substantially offset by a $4.7 million reduction in commissions paid to agents for selling services to new customers primarily as a result of fewer cellular units added during the first six months of 1998 compared to the first six months of 1997. The Company will continue to focus on attracting and retaining higher usage customers. Depreciation and amortization increased $10.4 million (54.2%), of which $6.9 million was attributable to acquisitions. The remainder of the increase was due primarily to a higher level of plant in service. Other Operations Six months ended June 30, - --------------------------------------------------------------------- 1998 1997 - --------------------------------------------------------------------- (Dollars in thousands) Operating revenues Long distance $ 23,602 16,746 Call center 4,948 8,211 Competitive access - 2,499 Other 7,376 4,276 - --------------------------------------------------------------------- 35,926 31,732 - --------------------------------------------------------------------- Operating expenses Cost of sales and operating expenses 26,576 28,082 Depreciation and amortization 1,693 1,392 - --------------------------------------------------------------------- 28,269 29,474 - --------------------------------------------------------------------- Operating income $ 7,657 2,258 ===================================================================== Other operations include the results of operations of subsidiaries of the Company which are not included in the telephone or wireless segments, including, but not limited to, the Company's competitive access subsidiary (which was sold to Brooks in May 1997) and the Company's nonregulated long distance and call center operations. The $6.9 million increase in long distance revenues was attributable to the growth in the number of customers; the $3.3 million decrease in call center revenues was primarily due to the loss of two major customers. The increase in other revenues was primarily attributable to the PTI acquisition and the acquisition of two security alarm businesses subsequent to the second quarter of 1997. Operating expenses decreased because (i) the first six months of 1997 included $7.3 million of costs applicable to entities sold during the first six months of 1997 and (ii) the amount of intercompany profit with regulated affiliates which was not eliminated in connection with consolidating the results of operations (which acts to offset operating expenses) increased $4.0 million as a result of the acquisition of PTI. Such decreases were substantially offset by increases in operating expenses due to (i) an increase of $6.9 million in expenses of the Company's long distance operations due primarily to an increase in customers and (ii) $3.9 million of operating expenses applicable to acquisitions. Interest Expense Interest expense increased $62.5 million in the first six months of 1998 compared to the first six months of 1997 primarily due to $46.7 million of interest expense on the borrowings used to finance the PTI acquisition and $15.2 million of interest expense applicable to PTI's debt. Gain on Sales or Exchange of Assets, Net In the first six months of 1998, the Company recorded pre-tax gains aggregating $49.9 million ($30.5 million after-tax; $.33 per diluted share) primarily due to the conversion of its investment in the common stock of Brooks into common stock of WorldCom, the subsequent sale of 750,000 shares of WorldCom stock, and the sale of minority interests in two non-strategic cellular entities. See Note 7 of Notes to Consolidated Financial Statements for additional information. In the first six months of 1997, the Company sold its competitive access subsidiary to Brooks and recorded a pre-tax gain of $71 million ($46 million after tax; $.50 per diluted share). Income from Unconsolidated Cellular Entities Earnings from unconsolidated cellular entities, net of the amortization of associated goodwill, increased $2.6 million (19.2%) primarily due to earnings of the cellular entities acquired in the PTI acquisition. 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 increased $4.7 million primarily due to the increased profitability of the Company's majority-owned and operated cellular entities. Income Tax Expense Income tax expense increased $20.0 million in the first six months of 1998 compared to the first six months of 1997 primarily due to an increase in income before taxes. The effective income tax rate was 41.2% and 36.0% in the six months ended June 30, 1998 and 1997, respectively. Such increase in the effective income tax rate was primarily due to an increase in non-deductible amortization of excess cost of net assets acquired (goodwill) attributable to the PTI acquisition. 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 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 $192.4 million during the first six months of 1998 compared to $130.4 million during the first six months of 1997. 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 provided by investing activities was $14.2 million for the six months ended June 30, 1998. Net cash used in investing activities was $119.5 million for the six months ended June 30, 1997. Payments for property, plant and equipment were $34.6 million more in the first six months of 1998 than in the comparable period during 1997. Capital expenditures for the six months ended June 30, 1998 were $78.1 million for telephone, $34.3 million for wireless and $9.6 million for other operations. Proceeds from the sales of assets were $132.3 million in the first six months of 1998. Cash used in connection with acquisitions was $23.5 million in the first six months of 1997, substantially all of which was applicable to the acquisition of telephone properties in Wisconsin. Net cash used in financing activities was $215.6 million during the first six months of 1998 compared to $7.2 million during the first six months of 1997. Net payments of long-term debt were $165.4 million more during the first six months of 1998 compared to the first six months of 1997. During the first six months of 1998, the Company issued an aggregate of $765 million of senior notes and debentures. The net proceeds of approximately $758 million were used to reduce the bank indebtedness incurred in connection with the acquisition of PTI. In addition, the Company paid approximately $40 million to settle numerous interest rate hedge contracts that had been entered into in anticipation of these debt issuances. Revised budgeted capital expenditures for 1998 total $220 million for telephone operations, $67 million for wireless operations and $42 million for corporate and other operations. As of June 30, 1998, Century's telephone subsidiaries had available for use $140.9 million of commitments for long-term financing from the Rural Utilities Service and the Company had $530.1 million of undrawn committed bank lines of credit. During the first quarter of 1998, the Company entered into definitive agreements to purchase from affiliates of Ameritech Corporation ("Ameritech") the assets of certain of Ameritech's local telephone and directory operations in parts of northern and central Wisconsin, in exchange for approximately $225 million cash (subject to adjustments). The Company expects to provide initial financing through its committed credit facilities. In April 1998 the Company acquired 32 Local Multipoint Distribution System licenses in the Federal Communications Commission's A and B band auction for an aggregate of $9.7 million. The licenses acquired cover geographic areas with a combined population of approximately 10.6 million. The Company has not finalized capital expenditure or deployment plans for these systems. 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 $250 million and $300 million. PART II. OTHER INFORMATION CENTURY TELEPHONE ENTERPRISES, INC. Item 4. Submission of Matters to a Vote of Security Holders - ------- --------------------------------------------------- At the Company's annual meeting of shareholders on May 7, 1998, the shareholders elected five Class I directors to serve until the 2001 annual meeting of shareholders and until their successors are duly elected and qualified. The following number of votes were cast for or were withheld from the following nominees: Class I Nominees For Withheld ---------------- --- -------- William R. Boles, Jr. 113,051,782 2,769,665 W. Bruce Hanks 113,136,129 2,685,318 C. G. Melville, Jr. 113,188,120 2,633,327 Glen F. Post, III 113,135,196 2,686,251 Clarke M. Williams 113,050,398 2,771,049 The Class II and Class III directors whose terms continued after the meeting are: Class II Class III -------- --------- Virginia Boulet Calvin Czeschin Ernest Butler, Jr. F. Earl Hogan James B. Gardner Harvey P. Perry R. L. Hargrove, Jr. Jim D. Reppond Johnny Hebert Item 6. Exhibits and Reports on Form 8-K - ------- -------------------------------- A. Exhibits -------- 11 Computations of Earnings Per Share. 27.1 Financial Data Schedule as of and for the six months ended June 30, 1998. 27.2 Restated Financial Data Schedule as of and for the six months ended June 30, 1997. B. Reports on Form 8-K ------------------- There were no reports on Form 8-K filed during the quarter ended June 30, 1998. 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 14, 1998 /s/ Murray H. Greer ------------------- Murray H. Greer Controller (Principal Accounting Officer) EX-11 2 EXHIBIT 11 EXHIBIT 11 CENTURY TELEPHONE ENTERPRISES, INC. COMPUTATIONS OF EARNINGS PER SHARE (UNAUDITED) Three months Six months ended June 30, ended June 30, - ------------------------------------------------------------------------------ 1998 1997 1998 1997 - ------------------------------------------------------------------------------ (Dollars, except per share amounts, and shares expressed in thousands) Net income $ 64,191 83,176 121,88 116,311 Dividends applicable to preferred stock (102) (127) (204) (255) - ------------------------------------------------------------------------------ Net income applicable to common stock 64,089 83,049 121,681 116,056 Dividends applicable to preferred stock 102 127 204 255 Interest on convertible securities, net of taxes 93 120 186 240 - ------------------------------------------------------------------------------ Net income as adjusted for purposes of computing diluted earnings per share $ 64,284 83,296 122,071 116,551 ============================================================================== Weighted average number of shares: Outstanding during period 91,656 90,158 91,509 90,074 Employee Stock Ownership Plan shares not committed to be released (375) (438) (385) (447) - ------------------------------------------------------------------------------ Number of shares for computing basic earnings per share 91,281 89,720 91,124 89,627 Incremental common shares attributable to additional dilutive effect of convertible securities 2,071 1,491 2,010 1,506 - ------------------------------------------------------------------------------ Number of shares as adjusted for purposes of computing diluted earnings per share 93,352 91,211 93,134 91,133 ============================================================================== Basic earnings per share $ .70 .93 1.34 1.29 ============================================================================== Diluted earnings per share $ .69 .91 1.31 1.28 ============================================================================== EX-27.1 3 FDS
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE UNAUDITED CONSOLIDATED BALANCE SHEET OF CENTURY TELEPHONE ENTERPRISES, INC. AND SUBSIDIARIES AS OF JUNE 30, 1998 AND THE RELATED UNAUDITED CONSOLIDATED STATEMENT OF INCOME FOR THE SIX MONTH PERIOD THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 16,966 0 124,970 8,287 23,278 236,226 3,954,829 1,718,679 4,655,607 279,346 2,451,779 0 8,106 91,800 1,316,353 4,655,607 0 760,098 0 528,478 0 0 84,881 207,191 85,306 121,885 0 0 0 121,885 1.34 1.31
EX-27.2 4 FDS
5 THIS RESTATED SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE UNAUDITED CONSOLIDATED BALANCE SHEET OF CENTURY TELEPHONE ENTERPRISES, INC. AND SUBSIDIARIES AS OF JUNE 30, 1997 AND THE RELATED UNAUDITED CONSOLIDATED STATEMENT OF INCOME FOR THE SIX MONTH PERIOD THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 12,088 0 69,957 3,131 6,613 125,091 1,744,063 604,355 2,224,459 148,214 630,232 0 10,041 60,152 1,096,863 2,224,459 0 409,561 0 289,458 0 0 22,364 181,627 65,316 116,311 0 0 0 116,311 1.94 1.92
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