-----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, RnIt4UllGuEC9U3WKUv+BhtEKWhzIlohTs9SZaaY6wDqYxGqWm8mW0hflTlQxvHJ ri44iZJHfdUIlpmLGyBGow== 0000018926-03-000069.txt : 20031114 0000018926-03-000069.hdr.sgml : 20031114 20031114115614 ACCESSION NUMBER: 0000018926-03-000069 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20030930 FILED AS OF DATE: 20031114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CENTURYTEL 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: 1934 Act SEC FILE NUMBER: 001-07784 FILM NUMBER: 031001674 BUSINESS ADDRESS: STREET 1: P O BOX 4065 STREET 2: 100 CENTURYTEL DR CITY: MONROE STATE: LA ZIP: 71203 BUSINESS PHONE: 3183889000 MAIL ADDRESS: STREET 1: 100 CENTURYTEL DR STREET 2: P O BOX 4065 CITY: MONROE STATE: LA ZIP: 71203 FORMER COMPANY: FORMER CONFORMED NAME: CENTURY TELEPHONE ENTERPRISES INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: CENTRAL TELEPHONE & ELECTRONICS CORP DATE OF NAME CHANGE: 19720512 10-Q 1 submissionfile.txt THIRD QTR 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 September 30, 2003 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission File Number: 1-7784 CenturyTel, Inc. (Exact name of registrant as specified in its charter) Louisiana 72-0651161 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 100 CenturyTel Drive, Monroe, Louisiana 71203 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 Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act) [X] Yes [ ] No As of October 31, 2003, there were 144,205,973 shares of common stock outstanding. CenturyTel, Inc. TABLE OF CONTENTS Page No. -------- Part I. Financial Information: Item 1. Financial Statements Consolidated Statements of Income--Three Months and Nine Months Ended September 30, 2003 and 2002 3 Consolidated Statements of Comprehensive Income-- Three Months and Nine Months Ended September 30, 2003 and 2002 4 Consolidated Balance Sheets--September 30, 2003 and December 31, 2002 5 Consolidated Statements of Cash Flows-- Nine Months Ended September 30, 2003 and 2002 6 Consolidated Statements of Stockholders' Equity-- Nine Months Ended September 30, 2003 and 2002 7 Notes to Consolidated Financial Statements 8-13 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 14-26 Item 3. Quantitative and Qualitative Disclosures About Market Risk 27 Item 4. Controls and Procedures 28 Part II. Other Information: Item 1. Legal Proceedings 29 Item 6. Exhibits and Reports on Form 8-K 29-30 Signature 30 PART I. FINANCIAL INFORMATION Item 1. Financial Statements CenturyTel, Inc. CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three months Nine months ended September 30, ended September 30, - ------------------------------------------------------------------------------------------------------------------- 2003 2002 2003 2002 - ------------------------------------------------------------------------------------------------------------------- (Dollars, except per share amounts, and shares in thousands) OPERATING REVENUES Telephone $ 521,439 460,935 1,547,789 1,214,165 Other 82,313 63,562 226,641 171,952 - ------------------------------------------------------------------------------------------------------------------- Total operating revenues 603,752 524,497 1,774,430 1,386,117 - ------------------------------------------------------------------------------------------------------------------- OPERATING EXPENSES Cost of sales and operating expenses (exclusive of depreciation and amortization) 296,114 257,924 858,835 694,801 Corporate overhead costs allocable to discontinued operations (See Note 4) - 1,343 - 11,275 Depreciation and amortization 116,857 107,514 351,660 293,745 - ------------------------------------------------------------------------------------------------------------------- Total operating expenses 412,971 366,781 1,210,495 999,821 - ------------------------------------------------------------------------------------------------------------------- OPERATING INCOME 190,781 157,716 563,935 386,296 - ------------------------------------------------------------------------------------------------------------------- OTHER INCOME (EXPENSE) Interest expense (54,360) (60,021) (165,909) (164,826) Income from unconsolidated cellular entity 1,736 1,492 4,895 3,852 Nonrecurring gains and losses - - - 3,709 Other income and expense (1,076) (573) (1,034) (356) - ------------------------------------------------------------------------------------------------------------------- Total other income (expense) (53,700) (59,102) (162,048) (157,621) - ------------------------------------------------------------------------------------------------------------------- INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAX EXPENSE 137,081 98,614 401,887 228,675 Income tax expense 46,102 34,025 139,622 79,487 - ------------------------------------------------------------------------------------------------------------------- INCOME FROM CONTINUING OPERATIONS 90,979 64,589 262,265 149,188 DISCONTINUED OPERATIONS (See Note 4) Income from discontinued operations, net of $248,043 and $284,461 tax - 543,160 - 608,091 - ------------------------------------------------------------------------------------------------------------------- NET INCOME $ 90,979 607,749 262,265 757,279 =================================================================================================================== BASIC EARNINGS PER SHARE From continuing operations $ .63 .46 1.83 1.05 From discontinued operations $ - 3.83 - 4.30 Basic earnings per share $ .63 4.29 1.83 5.36 DILUTED EARNINGS PER SHARE From continuing operations $ .63 .45 1.82 1.05 From discontinued operations $ - 3.80 - 4.26 Diluted earnings per share $ .63 4.26 1.82 5.31 DIVIDENDS PER COMMON SHARE $ .055 .0525 .165 .1575 =================================================================================================================== AVERAGE BASIC SHARES OUTSTANDING 143,897 141,692 143,370 141,324 =================================================================================================================== AVERAGE DILUTED SHARES OUTSTANDING 145,171 142,770 144,481 142,710 ===================================================================================================================
See accompanying notes to consolidated financial statements. CenturyTel, Inc. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
Three months Nine months ended September 30, ended September 30, - ----------------------------------------------------------------------------------------------------------------- 2003 2002 2003 2002 - ----------------------------------------------------------------------------------------------------------------- (Dollars in thousands) NET INCOME $ 90,979 607,749 262,265 757,279 OTHER COMPREHENSIVE INCOME, NET OF TAX: Minimum pension liability adjustment: Minimum pension liability adjustment, net of $226 and $(2,236) tax (420) - 4,152 - Derivative instruments: Net losses on derivatives hedging the variability of cash flows, net of ($355), ($36), and ($355) tax - (658) (67) (658) Reclassification adjustment for loss included in net income, net of ($487) tax - - 905 - - ----------------------------------------------------------------------------------------------------------------- COMPREHENSIVE INCOME $ 90,559 607,091 267,255 756,621 =================================================================================================================
See accompanying notes to consolidated financial statements. CenturyTel, Inc. CONSOLIDATED BALANCE SHEETS (UNAUDITED)
September 30, December 31, 2003 2002 - ------------------------------------------------------------------------------------------------------------------- (Dollars in thousands) ASSETS - ------ CURRENT ASSETS Cash and cash equivalents $ 157,944 3,661 Accounts receivable, less allowance of $23,526 and $33,962 246,344 272,992 Materials and supplies, at average cost 9,301 10,150 Other 9,412 9,099 - ------------------------------------------------------------------------------------------------------------------- Total current assets 423,001 295,902 - ------------------------------------------------------------------------------------------------------------------- NET PROPERTY, PLANT AND EQUIPMENT 3,455,210 3,531,645 - ------------------------------------------------------------------------------------------------------------------- INVESTMENTS AND OTHER ASSETS Goodwill 3,429,479 3,427,281 Other 504,131 515,580 - ------------------------------------------------------------------------------------------------------------------- Total investments and other assets 3,933,610 3,942,861 - ------------------------------------------------------------------------------------------------------------------- TOTAL ASSETS $ 7,811,821 7,770,408 =================================================================================================================== LIABILITIES AND EQUITY - ---------------------- CURRENT LIABILITIES Current maturities of long-term debt $ 115,167 70,737 Accounts payable 119,234 64,825 Accrued expenses and other liabilities Salaries and benefits 82,581 63,937 Income taxes 49,965 40,897 Other taxes 47,042 28,183 Interest 50,868 59,045 Other 25,475 18,596 Advance billings and customer deposits 44,685 41,884 - ------------------------------------------------------------------------------------------------------------------- Total current liabilities 535,017 388,104 - ------------------------------------------------------------------------------------------------------------------- LONG-TERM DEBT 3,119,378 3,578,132 - ------------------------------------------------------------------------------------------------------------------- DEFERRED CREDITS AND OTHER LIABILITIES 795,853 716,168 - ------------------------------------------------------------------------------------------------------------------- STOCKHOLDERS' EQUITY Common stock, $1.00 par value, authorized 350,000,000 shares, issued and outstanding 144,176,886 and 142,955,839 shares 144,177 142,956 Paid-in capital 566,133 537,804 Accumulated other comprehensive loss, net of tax (31,713) (36,703) Retained earnings 2,675,751 2,437,472 Unearned ESOP shares (750) (1,500) Preferred stock - non-redeemable 7,975 7,975 - ------------------------------------------------------------------------------------------------------------------- Total stockholders' equity 3,361,573 3,088,004 - ------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND EQUITY $ 7,811,821 7,770,408 ===================================================================================================================
See accompanying notes to consolidated financial statements. CenturyTel, Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine months ended September 30, - ------------------------------------------------------------------------------------------------------------------- 2003 2002 - ------------------------------------------------------------------------------------------------------------------- (Dollars in thousands) OPERATING ACTIVITIES FROM CONTINUING OPERATIONS Net income $ 262,265 757,279 Adjustments to reconcile net income to net cash provided by operating activities from continuing operations: Income from discontinued operations, net of tax - (608,091) Depreciation and amortization 351,660 293,745 Income from unconsolidated cellular entity (4,895) (3,852) Deferred income taxes 68,022 43,343 Nonrecurring gains and losses - (3,709) Changes in current assets and current liabilities: Accounts receivable 27,823 (22,222) Accounts payable 53,932 6,361 Accrued income and other taxes 27,927 58,838 Other current assets and other current liabilities, net 18,865 61,745 Increase in other noncurrent assets (18,280) (23,562) Increase in other noncurrent liabilities 7,047 31,849 Other, net 34,056 43,315 - ------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities from continuing operations 828,422 635,039 - ------------------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES FROM CONTINUING OPERATIONS Payments for property, plant and equipment (256,459) (270,774) Acquisitions, net of cash acquired (37,945) (2,245,026) Proceeds from sale of assets - 4,144 Distributions from unconsolidated cellular entity 1,104 3,719 Other, net (5,184) 5,349 - ------------------------------------------------------------------------------------------------------------------- Net cash used in investing activities from continuing operations (298,484) (2,502,588) - ------------------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES FROM CONTINUING OPERATIONS Proceeds from issuance of debt - 1,168,249 Payments of debt (406,231) (604,593) Proceeds from settlement of interest rate hedge contract 22,315 - Proceeds from issuance of common stock 28,911 14,129 Cash dividends (23,986) (22,563) Payment of debt issuance costs - (12,899) Payment of equity unit issuance costs - (15,867) Other, net 3,336 2,572 - ------------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities from continuing operations (375,655) 529,028 - ------------------------------------------------------------------------------------------------------------------- Net cash provided by discontinued operations (See Note 4) - 1,629,264 - ------------------------------------------------------------------------------------------------------------------- Net increase in cash and cash equivalents 154,283 290,743 Cash and cash equivalents at beginning of period 3,661 3,496 - ------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 157,944 294,239 =================================================================================================================== Supplemental cash flow information: Income taxes paid $ 68,108 26,183 =================================================================================================================== Interest paid (net of capitalized interest of $49 and $1,176) $ 174,037 153,781 ===================================================================================================================
See accompanying notes to consolidated financial statements. CenturyTel, Inc. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
Nine months ended September 30, - ------------------------------------------------------------------------------------------------------------------- 2003 2002 - ------------------------------------------------------------------------------------------------------------------- (Dollars in thousands) COMMON STOCK Balance at beginning of period $ 142,956 141,233 Issuance of common stock through dividend reinvestment, incentive and benefit plans 1,221 810 - ------------------------------------------------------------------------------------------------------------------- Balance at end of period 144,177 142,043 - ------------------------------------------------------------------------------------------------------------------- PAID-IN CAPITAL Balance at beginning of period 537,804 524,668 Equity unit issuance costs and contract adjustment payments - (24,377) Issuance of common stock through dividend reinvestment, incentive and benefit plans 27,690 13,319 Amortization of unearned compensation and other 639 1,983 - ------------------------------------------------------------------------------------------------------------------- Balance at end of period 566,133 515,593 - ------------------------------------------------------------------------------------------------------------------- ACCUMULATED OTHER COMPREHENSIVE LOSS, NET OF TAX Balance at beginning of period (36,703) - Change in other comprehensive loss, net of tax 4,990 (658) - ------------------------------------------------------------------------------------------------------------------- Balance at end of period (31,713) (658) - ------------------------------------------------------------------------------------------------------------------- RETAINED EARNINGS Balance at beginning of period 2,437,472 1,666,004 Net income 262,265 757,279 Cash dividends declared Common stock - $.165 and $.1575 per share, respectively (23,687) (22,264) Preferred stock (299) (299) - ------------------------------------------------------------------------------------------------------------------- Balance at end of period 2,675,751 2,400,720 - ------------------------------------------------------------------------------------------------------------------- UNEARNED ESOP SHARES Balance at beginning of period (1,500) (2,500) Release of ESOP shares 750 750 - ------------------------------------------------------------------------------------------------------------------- Balance at end of period (750) (1,750) - ------------------------------------------------------------------------------------------------------------------- PREFERRED STOCK - NON-REDEEMABLE Balance at beginning and end of period 7,975 7,975 - ------------------------------------------------------------------------------------------------------------------- TOTAL STOCKHOLDERS' EQUITY $ 3,361,573 3,063,923 ===================================================================================================================
See accompanying notes to consolidated financial statements. CenturyTel, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2003 (UNAUDITED) (1) Basis of Financial Reporting The consolidated financial statements of CenturyTel, Inc. and its subsidiaries (the "Company") include the accounts of CenturyTel, Inc. ("CenturyTel") and its majority-owned subsidiaries. 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, in the opinion of management, the disclosures which are made are adequate to make the information presented not misleading. The consolidated financial statements and footnotes included in this Form 10-Q should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 2002. Certain 2002 amounts have been reclassified to be consistent with the Company's 2003 presentation. The unaudited financial information for the three months and nine months ended September 30, 2003 and 2002 has not been audited by independent certified public accountants; however, in the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the results of operations for the three-month and nine-month periods have been included therein. The results of operations for the first nine months of the year are not necessarily indicative of the results of operations which might be expected for the entire year. As a result of the Company's August 1, 2002 sale of substantially all of its wireless operations (see Note 4), such operations have been reflected as discontinued operations for the three months and nine months ended September 30, 2002. In its December 31, 2002 consolidated balance sheet, the Company reflected as "assets held for sale" a minority interest in a cellular partnership that it had previously agreed to sell to ALLTEL Corporation upon the satisfaction of various closing conditions. In light of the failure of the parties to agree upon whether the closing conditions were met, the Company determined during the first quarter of 2003 to retain such investment; therefore, for reporting purposes, this investment (and its related earnings) has been reclassified from discontinued operations to continuing operations on the accompanying financial statements as of and for the three months and nine months ended September 30, 2003. Prior periods have been restated to reflect this investment (and its related earnings) as part of continuing operations. (2) Net Property, Plant and Equipment Net property, plant and equipment is composed of the following:
Sept. 30, Dec. 31, 2003 2002 - ------------------------------------------------------------------------------- (Dollars in thousands) Telephone, at original cost $ 6,536,888 6,347,900 Accumulated depreciation (3,427,401) (3,136,107) - ------------------------------------------------------------------------------- 3,109,487 3,211,793 - ------------------------------------------------------------------------------- Other, at cost 566,045 521,292 Accumulated depreciation (220,322) (201,440) - ------------------------------------------------------------------------------- 345,723 319,852 - ------------------------------------------------------------------------------- $ 3,455,210 3,531,645 ===============================================================================
(3) Acquisitions On July 1, 2002, the Company completed the acquisition of approximately 300,000 telephone access lines in the state of Alabama from Verizon Communications, Inc. ("Verizon") for approximately $1.022 billion cash. On August 31, 2002, the Company completed the acquisition of approximately 350,000 telephone access lines in the state of Missouri from Verizon for approximately $1.179 billion cash. The assets purchased included (i) telephone access lines and related property and equipment comprising Verizon's local exchange operations in predominantly rural markets throughout Alabama and Missouri, (ii) Verizon's assets used to provide digital subscriber line ("DSL") and other high speed data services within the purchased exchanges and (iii) approximately 2,800 route miles of fiber optic cable within the purchased exchanges. The acquired assets did not include Verizon's cellular, personal communications services ("PCS"), long distance, dial-up Internet, or directory publishing operations, or rights under various Verizon contracts, including those relating to customer premise equipment. The Company did not assume any liabilities of Verizon other than (i) those associated with contracts, facilities and certain other assets transferred in connection with the purchase and (ii) certain employee-related liabilities, including liabilities for postretirement health benefits. The following pro forma information represents the consolidated results of continuing operations of the Company for the nine months ended September 30, 2002 as if the Verizon acquisitions had been consummated as of January 1, 2002.
Nine months ended September 30, 2002 ------------------------ (Dollars in thousands) (unaudited) Operating revenues from continuing operations $ 1,699,540 Income from continuing operations $ 172,947 Basic earnings per share from continuing operations $ 1.22 Diluted earnings per share from continuing operations $ 1.21
The pro forma information is based on various assumptions and estimates. The pro forma information makes no pro forma adjustments to reflect any assumed consummation of the Company's sale of its wireless operations described in Note 4 (or any use of the sale proceeds therefrom) at a date earlier than the actual closing date of August 1, 2002. The pro forma information is not necessarily indicative of the operating results that would have occurred if the Verizon acquisitions had been consummated as of January 1, 2002, nor is it necessarily indicative of future operating results. The pro forma information does not give effect to any potential revenue enhancements or cost synergies or other operating efficiencies that could result from the acquisitions. The actual results of operations of the Verizon properties are included in the consolidated financial statements only from the respective dates of acquisition. In June 2003, the Company purchased the assets of a fiber transport company for $39.4 million cash (of which $35.6 million was paid at acquisition and the remaining $3.8 million was paid as a deposit in 2002). This acquisition is not expected to have a material effect on the Company's results of operations. The Company agreed in July 2003 to purchase additional fiber transport assets for $20 million, subject to various purchase price adjustments, and hopes to complete this acquisition by the end of the fourth quarter of 2003. (4) Discontinued Operations On August 1, 2002, the Company sold substantially all of its wireless operations principally to an affiliate of ALLTEL Corporation for an aggregate of approximately $1.59 billion in cash. As a result, such operations for the three months and nine months ended September 30, 2002 have been reflected as discontinued operations in the Company's consolidated financial statements. Proceeds from the sale of the wireless operations were used to partially fund the Company's acquisitions of telephone properties in Alabama and Missouri during the third quarter of 2002. The following table represents certain summary income statement information related to the Company's wireless operations reflected as discontinued operations for 2002.
Three months ended Nine months ended September 30, 2002 September 30, 2002 - ------------------------------------------------------------------------------------------- (Dollars in thousands) Operating revenues $ 38,012 246,705 - ------------------------------------------------------------------------------------------- Operating income (loss) (1) $ (15,167) 71,258 Income from unconsolidated cellular entities 3,934 25,770 Minority interest expense (1,659) (8,569) Gain on sale of discontinued operations 803,905 803,905 Other income 190 188 - ------------------------------------------------------------------------------------------- Pre-tax income from discontinued operations 791,203 892,552 Income tax expense (248,043) (284,461) - ------------------------------------------------------------------------------------------- Income from discontinued operations, net of tax $ 543,160 608,091 ===========================================================================================
(1) Excludes corporate overhead costs of $1.3 million and $11.3 million for the three months and nine months ended September 30, 2002, respectively, allocated to the wireless operations. Includes a $30.5 million pre-tax charge associated with a write-off of all amounts expended to develop the wireless portion of the Company's billing system currently in development. The following table represents certain summary cash flow statement information related to the Company's wireless operations reflected as discontinued operations for 2002.
Nine months ended September 30, 2002 - -------------------------------------------------------------------------------- (Dollars in thousands) Net cash provided by operating activities $ 57,069 Net cash provided by investing activities 1,572,195 - -------------------------------------------------------------------------------- Net cash provided by discontinued operations $ 1,629,264 ================================================================================
(5) Goodwill and Other Intangible Assets The following information relates to the Company's goodwill as of September 30, 2003 and December 31, 2002:
Sept. 30, Dec. 31, 2003 2002 - -------------------------------------------------------------------------------- (Dollars in thousands) Carrying amount of goodwill Telephone segment $ 3,384,130 3,382,113 Other operations 45,349 45,168 - -------------------------------------------------------------------------------- Total goodwill $ 3,429,479 3,427,281 ================================================================================
The Company completed the annual impairment test of goodwill as of September 30, 2003 and has determined its goodwill is not impaired. The Company also has certain intangible assets that are subject to amortization in accordance with Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). These intangible assets relate to certain customer base assets acquired in connection with the acquisitions of properties from Verizon in 2002. The gross carrying amount (and accumulated amortization) of these assets was $22.7 million ($1.9 million) as of September 30, 2003 and $22.7 million ($729,000) as of December 31, 2002. Total amortization expense for the first nine months of 2003 was $1.1 million and is expected to be $1.5 million annually for each of the next five years. In connection with its acquisitions of properties from Verizon in 2002, the Company allocated $35.3 million of the purchase price as an intangible asset associated with franchise costs. Such asset has an indefinite life and is not subject to amortization currently. (6) Stock-based Compensation The Company accounts for employee stock compensation plans using the intrinsic value method in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," as allowed by Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). Options have been granted to employees at a price either equal to or exceeding the then-current market price. Accordingly, the Company has not recognized compensation cost in connection with issuing stock options. If compensation cost for CenturyTel's options had been recognized in accordance with SFAS 123, the Company's net income and earnings per share on a pro forma basis for the three months and nine months ended September 30, 2003 and 2002 would have been as follows:
Three months Nine months ended September 30, ended September 30, - --------------------------------------------------------------------------------------------------------- 2003 2002 2003 2002 - --------------------------------------------------------------------------------------------------------- (Dollars in thousands, except per share amounts) Net income, as reported $ 90,979 607,749 262,265 757,279 Less: Total stock-based employee compensation expense determined under fair value based method, net of tax $ (3,030) (3,717) (9,910) (11,343) - -------------------------------------------------------------------------------------------------------- Pro forma net income $ 87,949 604,032 252,355 745,936 ======================================================================================================== Basic earnings per share As reported $ .63 4.29 1.83 5.36 Pro forma $ .61 4.26 1.76 5.28 Diluted earnings per share As reported $ .63 4.26 1.82 5.31 Pro forma $ .61 4.23 1.75 5.23 - --------------------------------------------------------------------------------------------------------
(7) Business Segments The Company's only separately reportable business segment is its telephone operations. The operating income of this segment is reviewed by the Company's chief operating decision maker to assess performance and make business decisions. Due to the August 1, 2002 sale of the Company's wireless operations, such operations (which were previously reported as a separate segment) are classified as discontinued operations (see Note 4). Other operations include, but are not limited to, the Company's non-regulated long distance operations, Internet operations, competitive local exchange carrier operations and fiber transport operations.
Three months Nine months ended September 30, ended September 30, - ------------------------------------------------------------------------------------------------------------------- 2003 2002 2003 2002 - ------------------------------------------------------------------------------------------------------------------- (Dollars in thousands) Operating revenues Telephone $ 521,439 460,935 1,547,789 1,214,165 Other operations 82,313 63,562 226,641 171,952 - ------------------------------------------------------------------------------------------------------------------- Total operating revenues $ 603,752 524,497 1,774,430 1,386,117 =================================================================================================================== Operating income Telephone $ 172,643 144,619 518,600 366,296 Other operations 18,138 14,440 45,335 31,275 Corporate overhead costs allocable to discontinued operations (See Note 4) - (1,343) - (11,275) - ------------------------------------------------------------------------------------------------------------------- Total operating income $ 190,781 157,716 563,935 386,296 ===================================================================================================================
Three months Nine months ended September 30, ended September 30, - ------------------------------------------------------------------------------------------------------------------ 2003 2002 2003 2002 - ------------------------------------------------------------------------------------------------------------------ (Dollars in thousands) Operating income $ 190,781 157,716 563,935 386,296 Interest expense (54,360) (60,021) (165,909) (164,826) Income from unconsolidated cellular entity 1,736 1,492 4,895 3,852 Nonrecurring gains and losses - - - 3,709 Other income and expense (1,076) (573) (1,034) (356) - ------------------------------------------------------------------------------------------------------------------- Income from continuing operations before income tax expense $ 137,081 98,614 401,887 228,675 ===================================================================================================================
Sept. 30, Dec. 31, 2003 2002 - --------------------------------------------------------------------------------- (Dollars in thousands) Assets Telephone $ 6,812,503 6,962,713 Other operations 999,318 807,695 - --------------------------------------------------------------------------------- Total assets $ 7,811,821 7,770,408 =================================================================================
(8) Accounting Pronouncements On January 1, 2003, the Company adopted Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations" ("SFAS 143"), which addresses financial accounting and reporting for legal obligations associated with the retirement of tangible long-lived assets and requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred and be capitalized as part of the book value of the long-lived asset. Although the Company generally has had no legal obligation to remove obsolete assets, depreciation rates of certain assets established by regulatory authorities for the Company's telephone operations subject to Statement of Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulation" ("SFAS 71"), have historically included a component for removal costs in excess of the related estimated salvage value. Notwithstanding the adoption of SFAS 143, SFAS 71 requires the Company to continue to reflect this accumulated liability for removal costs in excess of salvage value even though there is no legal obligation to remove the assets. For the Company's telephone operations acquired from Verizon in 2002 and its other operations (neither of which are subject to SFAS 71), the Company has not accrued a liability for anticipated removal costs in the past. For these reasons, the adoption of SFAS 143 did not have a material effect on the Company's financial statements. In May 2003, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 150, "Accounting for Financial Instruments with Characteristics of both Liabilities and Equity" ("SFAS 150"), which provides standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS 150 is effective for financial instruments entered into or modified after May 31, 2003 and for pre-existing instruments as of the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS 150 did not have a material impact on the Company's financial condition or results of operations. (9) Commitments and Contingencies On December 26, 2001, AT&T Corp. and one of its subsidiaries filed a complaint in the U.S. District Court for the Western District of Washington (Case No. CV0121512) seeking money damages against CenturyTel of the Northwest, Inc. The plaintiffs claimed, among other things, that CenturyTel of the Northwest, Inc. had breached its obligations under a 1994 stock purchase agreement to indemnify the plaintiffs for various environmental costs and damages relating to properties sold to the plaintiffs under such 1994 agreement. During the third quarter of 2003, the Company reached a settlement agreement with the plaintiffs. Such settlement did not have a material effect on the Company's results of operations. Certain other legal proceedings in which the Company is involved are discussed in Part I, Item 3, of the Company's Annual Report on Form 10-K for the year ended December 31, 2002, and Part II, Item 1, of the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2003. From time to time, the Company is involved in other litigation incidental to its business, including administrative hearings of state public utility commissions relating primarily to rate making and competition related issues, actions relating to employee claims, occasional grievance hearings before labor regulatory agencies and miscellaneous third party tort actions. (10) Derivative Instruments In May 2003, the Company terminated its fair value interest rate hedge associated with $500 million aggregate principal amount of its Series H senior notes, due 2010. In connection with such termination, the Company received approximately $22.3 million in cash upon settlement, which represented the fair value of the hedge at the termination date. Such amount will be amortized as a reduction of interest expense through 2010, the maturity date of the Series H notes. In May and July 2003, the Company entered into four separate fair value interest rate hedges associated with the full $500 million principal amount of its Series L senior notes, due 2012, that pay interest at a fixed rate of 7.875%. The July 2003 hedges were effective August 15, 2003. These hedges are "fixed to variable" interest rate swaps that effectively convert the Company's fixed rate interest payment obligations under these notes into obligations to pay variable rates that range from the six-month London InterBank Offered Rate ("LIBOR") plus 3.229% to the six-month LIBOR plus 3.67% with settlement and rate reset dates occurring each six months through the expiration of the hedges in August 2012. As of September 30, 2003, the Company realized a weighted average interest rate of 4.7% related to these hedges. Interest expense was reduced by $4.0 million during the nine months ended September 30, 2003 as a result of these hedges. The aggregate fair value of such hedges at September 30, 2003 was $5.3 million and is reflected on the accompanying balance sheet as both a liability (included in "Deferred credits and other liabilities") and as a decrease to the Company's underlying long-term debt. Item 2. CenturyTel, Inc. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") included herein should be read in conjunction with MD&A and the other information included in the Company's annual report on Form 10-K for the year ended December 31, 2002. The results of operations for the three months and nine months ended September 30, 2003 are not necessarily indicative of the results of operations which might be expected for the entire year. CenturyTel, Inc. and its subsidiaries (the "Company") is a regional integrated communications company engaged primarily in providing local exchange, long distance, Internet access and data services to customers in 22 states. On July 1, 2002, the Company acquired the local exchange telephone operations of Verizon Communications, Inc. ("Verizon") in the state of Alabama for approximately $1.022 billion cash. On August 31, 2002, the Company acquired the local exchange telephone operations of Verizon in the state of Missouri for approximately $1.179 billion cash. The results of operations for the Verizon assets acquired are reflected in the Company's consolidated results of operations subsequent to each respective acquisition. On August 1, 2002, the Company sold substantially all of its wireless operations to an affiliate of ALLTEL Corporation ("Alltel") and certain other purchasers in exchange for an aggregate of approximately $1.59 billion in cash. As a result, the Company's wireless operations for the three months and nine months ended September 30, 2002 have been reflected as discontinued operations on the Company's consolidated statements of income and cash flows. For further information, see the subsections entitled "Discontinued Operations" below. In addition to historical information, management's discussion and analysis includes certain forward-looking statements regarding events and financial trends that may affect the Company's future operating results and financial position. Such forward-looking statements are subject to uncertainties that could cause the Company's actual results to differ materially from such statements. Such uncertainties include but are not limited to: the Company's ability to effectively manage its growth, including integrating newly-acquired businesses into the Company's operations, hiring adequate numbers of qualified staff and successfully upgrading its billing and other information systems; the risks inherent in rapid technological change; the effects of ongoing changes in the regulation of the communications industry; the effects of greater than anticipated competition in the Company's markets; possible changes in the demand for, or pricing of, the Company's products and services; the Company's ability to successfully introduce new product or service offerings on a timely and cost-effective basis; the Company's ability to collect its receivables from financially troubled communications companies; and the effects of more general factors such as changes in interest rates, 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, 2002. 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 September 30, 2003 Compared to Three Months Ended September 30, 2002 Net income (and diluted earnings per share) was $91.0 million ($.63) and $607.7 million ($4.26) for the third quarter of 2003 and 2002, respectively. Income from continuing operations was $91.0 million for the third quarter of 2003 and $64.6 million for the third quarter of 2002. Diluted earnings per share from continuing operations was $.63 during the third quarter of 2003 compared to $.45 during the third quarter of 2002. Discontinued operations for the third quarter of 2002 included an $803.9 million pre-tax gain ($3.86 per share) on the sale of assets, substantially all of which relates to the Company's sale of its wireless operations and a $30.5 million pre-tax charge ($.14 per share) attributable to a write-off of the wireless portion of the Company's billing system in development. See Discontinued Operations for additional information.
Three months ended September 30, - --------------------------------------------------------------------------------------------- 2003 2002 - --------------------------------------------------------------------------------------------- (Dollars, except per share amounts, and shares in thousands) Operating income Telephone $ 172,643 144,619 Other 18,138 14,440 Corporate overhead costs allocable to discontinued operations - (1,343) - --------------------------------------------------------------------------------------------- 190,781 157,716 Interest expense (54,360) (60,021) Income from unconsolidated cellular entity 1,736 1,492 Other income and expense (1,076) (573) Income tax expense (46,102) (34,025) - --------------------------------------------------------------------------------------------- Income from continuing operations 90,979 64,589 Discontinued operations, net of tax - 543,160 - --------------------------------------------------------------------------------------------- Net income $ 90,979 607,749 ============================================================================================= Basic earnings per share From continuing operations $ .63 .46 From discontinued operations $ - 3.83 Basic earnings per share $ .63 4.29 Diluted earnings per share From continuing operations $ .63 .45 From discontinued operations $ - 3.80 Diluted earnings per share $ .63 4.26 Average basic shares outstanding 143,897 141,692 ============================================================================================= Average diluted shares outstanding 145,171 142,770 =============================================================================================
Contributions to operating revenues and operating income by the Company's telephone and other operations for the three months ended September 30, 2003 and 2002 were as follows:
Three months ended September 30, - --------------------------------------------------------------------------------------------- 2003 2002 - --------------------------------------------------------------------------------------------- Operating revenues Telephone operations 86.4% 87.9 Other operations 13.6% 12.1 Operating income Telephone operations 90.5% 91.7 Other operations 9.5% 9.2 Corporate overhead costs allocable to discontinued operations -% (.9) - ---------------------------------------------------------------------------------------------
Telephone Operations The Company conducts its telephone operations in rural, suburban and small urban communities in 22 states. As of September 30, 2003, approximately 91% of the Company's 2.4 million access lines were in Wisconsin, Missouri, Alabama, Arkansas, Washington, Michigan, Louisiana, Colorado, Ohio and Oregon. The operating revenues, expenses and income of the Company's telephone operations for the three months ended September 30, 2003 and 2002 are summarized below.
Three months ended September 30, - ----------------------------------------------------------------------------------- 2003 2002 - ----------------------------------------------------------------------------------- (Dollars in thousands) Operating revenues Local service $ 188,951 169,098 Network access 287,191 249,047 Other 45,297 42,790 - ----------------------------------------------------------------------------------- 521,439 460,935 - ----------------------------------------------------------------------------------- Operating expenses Plant operations 130,098 117,997 Customer operations 41,101 41,161 Corporate and other 65,931 52,774 Depreciation and amortization 111,666 104,384 - ----------------------------------------------------------------------------------- 348,796 316,316 - ----------------------------------------------------------------------------------- Operating income $ 172,643 144,619 ===================================================================================
Telephone operating income increased $28.0 million (19.4%) due to an increase in operating revenues of $60.5 million (13.1%) which was partially offset by an increase in operating expenses of $32.5 million (10.3%). Of the $19.9 million increase in local service revenues, $16.8 million was due to the Missouri properties acquired from Verizon on August 31, 2002 (from which the Company received revenue contribution for all three months during the third quarter of 2003 as opposed to only one month during the third quarter of 2002). Of the remaining $3.1 million increase, $2.2 million was due to increased provision of custom calling features and $1.2 million was due to increased rates in certain jurisdictions. Network access revenues increased $38.1 million in the third quarter of 2003, of which $25.3 million was due to the Missouri properties acquired from Verizon on August 31, 2002. The remaining $12.8 million increase is primarily due to a (i) $7.6 million pre-tax charge recorded in the third quarter of 2002 related to the Company's refund of access charges to interexchange carriers, (ii) a $3.4 million increase resulting from the revision of prior year revenue settlement agreements and (iii) a $2.5 million increase in the partial recovery of higher operating expenses through revenue sharing arrangements in which the Company participates with other telephone companies. Other revenues increased $2.5 million during the third quarter of 2003 primarily due to $4.1 million of revenues from the Missouri properties acquired from Verizon on August 31, 2002. Such increase was partially offset by a $1.1 million decrease in directory revenues. Access lines declined 8,700 (0.36%) during the three months ended September 30, 2003 compared to 4,600 (0.26%) during the three months ended September 30, 2002 (exclusive of acquisitions). The Company believes the decline in the number of access lines during 2003 is primarily due to disconnecting service for non-payment and the displacement of traditional wireline telephone services by other competitive services, including the Company's DSL product offering. Based on current conditions, the Company expects to incur a decline in access lines of 1 to 2% on an annualized basis for 2003. Plant operations expenses increased $12.1 million (10.3%), of which $15.9 million was due to the Missouri properties acquired from Verizon on August 31, 2002. Such increase was partially offset by a $1.3 million decrease in engineering expenses and a $1.8 million decrease in repair and maintenance expenses. Customer operations expenses remained stable in the third quarter of 2003 compared to the third quarter of 2002. A $4.3 million increase in customer operations expenses due to the Missouri properties acquired from Verizon on August 31, 2002 was offset by a $1.9 million decrease in customer service and information technology expenses and a $1.7 million decrease in salaries and benefits. Corporate and other expenses increased $13.2 million (24.9%) in the third quarter of 2003 compared to the third quarter of 2002, primarily due to $7.1 million of expenses from the Missouri properties acquired from Verizon on August 31, 2002, a $3.1 million increase in information technology expenses largely attributable to the Company's billing project described below under "Other Matters" and a $3.4 million increase in the provision for uncollectible receivables. Such increases were partially offset by a $1.2 million decrease in operating taxes. Depreciation and amortization increased $7.3 million (7.0%), of which $8.1 million was due to the Missouri properties acquired from Verizon on August 31, 2002. Other Operations Other operations include the results of continuing operations of the Company which are not included in the telephone segment including, but not limited to, the Company's non-regulated long distance operations, Internet operations, competitive local exchange carrier ("CLEC") operations and fiber transport operations. In June 2003, the Company acquired the assets of a fiber optic transport business for $39.4 million cash (which the Company operates under the name LightCore). The operating revenues, expenses and income of the Company's other operations for the three months ended September 30, 2003 and 2002 are summarized below.
Three months ended September 30, - ------------------------------------------------------------------------------------ 2003 2002 - ------------------------------------------------------------------------------------ (Dollars in thousands) Operating revenues Long distance $ 45,207 39,592 Internet 20,469 14,996 Other 16,637 8,974 - ------------------------------------------------------------------------------------ 82,313 63,562 - ------------------------------------------------------------------------------------ Operating expenses Cost of sales and operating expenses 58,984 45,992 Depreciation and amortization 5,191 3,130 - ------------------------------------------------------------------------------------ 64,175 49,122 - ------------------------------------------------------------------------------------ Operating income $ 18,138 14,440 ====================================================================================
The $5.6 million increase in long distance revenues was primarily attributable to the growth in the number of customers and increased minutes of use ($7.2 million), primarily due to penetration of the markets acquired from Verizon in 2002. Such increase was partially offset by a decrease in the average rate charged by the Company ($1.6 million). The number of long distance customers as of September 30, 2003 and 2002 was 745,200 and 584,900, respectively. Internet revenues increased $5.5 million due primarily to growth in the number of customers, principally due to the expansion of the Company's DSL product offering. Other revenues increased $7.7 million primarily due to $6.8 million of revenues associated with the Company's LightCore operations. Cost of sales and operating expenses increased $13.0 million primarily due to (i) a $6.2 million increase in expenses associated with the Company's Internet operations due to an increase in the number of customers; (ii) a $4.3 million increase in expenses associated with the Company's LightCore operations and (iii) a $1.7 million increase in expenses associated with the Company's long distance operations (of which $2.2 million was due to increased minutes of use). Depreciation and amortization increased $2.1 million (65.8%) primarily due to increased depreciation expense in the Company's CLEC and LightCore businesses. Interest Expense Interest expense decreased $5.7 million (9.4%) in the third quarter of 2003 compared to the third quarter of 2002 due to decreased average debt outstanding and interest savings achieved through hedging activities. Income From Unconsolidated Cellular Entity Income from unconsolidated cellular entity increased $244,000 in the third quarter of 2003 due to increased profitability of the cellular partnership in which the Company owns a 49% minority interest. Income Tax Expense The effective income tax rate from continuing operations was 33.6% and 34.5% for the three months ended September 30, 2003 and 2002, respectively. In the third quarter of 2003, the Company recorded a federal income tax benefit of $5.4 million due to the settlement of various issues in connection with the completion of an income tax audit. Such benefit was partially offset by a $5.2 million increase in state income tax expense ($3.4 million net of federal benefit) recorded in the third quarter of 2003 as a result of clarification of an income tax statute in one of the Company's operating states (which expense reflects the retroactive application of the tax to prior quarters). Discontinued Operations On August 1, 2002, the Company sold substantially all of its wireless operations in exchange for $1.59 billion in cash. As a result, such operations for the three months ended September 30, 2002 have been reflected as discontinued operations in the Company's consolidated financial statements. The following table summarizes certain information concerning the Company's wireless operations for 2002.
Three months ended September 30, 2002 - --------------------------------------------------------------------------------- Dollars in thousands) Operating revenues $ 38,012 Operating expenses, exclusive of corporate overhead costs $ (53,179) Income from unconsolidated cellular entities $ 3,934 Minority interest expense $ (1,659) Gain on sale of discontinued operations $ 803,905 Other income and (expense) $ 190 Income tax expense $ (248,043) Income from discontinued operations, net of tax $ 543,160
Included in operating expenses for the three months ended September 30, 2002 is a $30.5 million charge associated with the write-off of all costs expended to develop the wireless portion of the Company's billing system in development. The Company recorded an $803.9 million pre-tax gain on the sale of substantially all of its wireless business in the third quarter of 2002. RESULTS OF OPERATIONS Nine Months Ended September 30, 2003 Compared to Nine Months Ended September 30, 2002 Net income (and diluted earnings per share) was $262.3 million ($1.82) and $757.3 million ($5.31) for the nine months ended September 30, 2003 and 2002, respectively. Income from continuing operations was $262.3 million for the first nine months of 2003 and $149.2 million for the first nine months of 2002. Diluted earnings per share from continuing operations was $1.82 during the nine months ended September 30, 2003 compared to $1.05 during the nine months ended September 30, 2002. Discontinued operations for the nine months ended September 30, 2002 included an $803.9 million pre-tax gain ($3.86 per share) on the sale of assets, substantially all of which relates to the Company's sale of its wireless operations and a $30.5 million pre-tax charge ($.14 per share) attributable to a write-off of the wireless portion of the Company's billing system in development. See Discontinued Operations for additional information.
Nine months ended September 30, - -------------------------------------------------------------------------------------------- 2003 2002 - -------------------------------------------------------------------------------------------- (Dollars, except per share amounts, and shares in thousands) Operating income Telephone $ 518,600 366,296 Other 45,335 31,275 Corporate overhead costs allocable to discontinued operations - (11,275) - -------------------------------------------------------------------------------------------- 563,935 386,296 Interest expense (165,909) (164,826) Income from unconsolidated cellular entity 4,895 3,852 Nonrecurring gains and losses - 3,709 Other income and expense (1,034) (356) Income tax expense (139,622) (79,487) - -------------------------------------------------------------------------------------------- Income from continuing operations 262,265 149,188 Discontinued operations, net of tax - 608,091 - -------------------------------------------------------------------------------------------- Net income $ 262,265 757,279 ============================================================================================ Basic earnings per share From continuing operations $ 1.83 1.05 From discontinued operations $ - 4.30 Basic earnings per share $ 1.83 5.36 Diluted earnings per share From continuing operations $ 1.82 1.05 From discontinued operations $ - 4.26 Diluted earnings per share $ 1.82 5.31 Average basic shares outstanding 143,370 141,324 ============================================================================================ Average diluted shares outstanding 144,481 142,710 ============================================================================================
Contributions to operating revenues and operating income by the Company's telephone and other operations for the nine months ended September 30, 2003 and 2002 were as follows:
Nine months ended September 30, - -------------------------------------------------------------------------------------------- 2003 2002 - -------------------------------------------------------------------------------------------- Operating revenues Telephone operations 87.2% 87.6 Other operations 12.8% 12.4 Operating income Telephone operations 92.0% 94.8 Other operations 8.0% 8.1 Corporate overhead costs allocable to discontinued operations -% (2.9) - --------------------------------------------------------------------------------------------
Telephone Operations The Company conducts its telephone operations in rural, suburban and small urban communities in 22 states. As of September 30, 2003, approximately 91% of the Company's 2.4 million access lines were in Wisconsin, Missouri, Alabama, Arkansas, Washington, Michigan, Louisiana, Colorado, Ohio and Oregon. The operating revenues, expenses and income of the Company's telephone operations for the nine months ended September 30, 2003 and 2002 are summarized below.
Nine months ended September 30, - ------------------------------------------------------------------------------------------ 2003 2002 - ------------------------------------------------------------------------------------------ (Dollars in thousands) Operating revenues Local service $ 565,599 418,332 Network access 845,999 686,325 Other 136,191 109,508 - ------------------------------------------------------------------------------------------ 1,547,789 1,214,165 - ------------------------------------------------------------------------------------------ Operating expenses Plant operations 378,587 305,230 Customer operations 124,068 103,484 Corporate and other 189,284 155,269 Depreciation and amortization 337,250 283,886 - ------------------------------------------------------------------------------------------ 1,029,189 847,869 - ------------------------------------------------------------------------------------------ Operating income $ 518,600 366,296 ==========================================================================================
Telephone operating income increased $152.3 million (41.6%) due to an increase in operating revenues of $333.6 million (27.5%) which was partially offset by an increase in operating expenses of $181.3 million (21.4%). Of the $147.3 million increase in local service revenues, $132.2 million was due to the properties acquired from Verizon in the third quarter of 2002. Of the remaining $15.1 million increase, $6.5 million was due to increased provision of custom calling features and $4.7 million was due to increased rates in certain jurisdictions. Network access revenues increased $159.7 million in the first nine months of 2003, of which $147.9 million was due to the properties acquired from Verizon in the third quarter of 2002. The remaining $11.8 million increase is primarily due to a (i) $7.6 million pre-tax charge recorded in the third quarter of 2002 related to the Company's refund of access charges to interexchange carriers; (ii) $6.1 million increase resulting from the revision of prior year revenue settlement agreements; (iii) $4.5 million increase in the partial recovery of higher operating expenses through revenue sharing arrangements in which the Company participates with other telephone companies; and (iv) $3.8 million increase in revenues from the federal Universal Service Fund. Such increases were partially offset by a $8.4 million decrease in intrastate revenues due to (i) a reduction in intrastate minutes (partially due to the displacement of minutes by wireless and instant messaging services) and (ii) decreased access rates in certain jurisdictions. Other revenues increased $26.7 million during the first nine months of 2003 substantially all of which is due to the properties acquired from Verizon in the third quarter of 2002. Access lines declined 19,900 (0.8%) during the nine months ended September 30, 2003 compared to a decline of 7,100 (0.39%) during the nine months ended September 30, 2002 (exclusive of acquisitions). The Company believes the decline in the number of access lines during 2003 and 2002 is primarily due to soft general economic conditions in the Company's markets and the displacement of traditional wireline telephone services by other competitive services, including the Company's DSL product offering. Based on current conditions, the Company expects to incur a decline in access lines of 1 to 2% on an annualized basis for 2003. Plant operations expenses increased $73.4 million (24.0%), of which $75.0 million was due to the properties acquired from Verizon in the third quarter of 2002; $3.6 million was due to increased access expenses; and $2.7 million was due to increased salaries and benefits. Such increases were partially offset by a $5.0 million decrease in information technology expenses and a $3.0 million decrease in repair and maintenance expenses. During the nine months ended September 30, 2003 customer operations expenses increased $20.6 million (19.9%), of which $23.8 million was due to the properties acquired from Verizon in the third quarter of 2002. Such increase was partially offset by a $2.2 million decrease in salaries and benefits. Corporate and other expenses increased $34.0 million (21.9%) primarily due to a $44.0 million increase associated with the properties acquired from Verizon in the third quarter of 2002 and a $5.8 million increase in information technology expenses largely attributable to the Company's billing project described below under "Other Matters". Such increases were partially offset by a $14.3 million decrease in the provision for uncollectible receivables. The first nine months of 2002 were adversely impacted by the establishment of a $15.0 million reserve for uncollectible receivables primarily related to the bankruptcy of MCI (formerly WorldCom, Inc.). The first nine months of 2003 was positively impacted by a $5.0 million reduction in the provision for uncollectible receivables due to the partial recovery of amounts previously written off related to the bankruptcy of MCI. Depreciation and amortization increased $53.4 million (18.8%), of which $51.9 million was due to the properties acquired from Verizon in the third quarter of 2002. The remaining increase is primarily due to an increase in depreciation expense due to higher levels of plant in service. Other Operations Other operations include the results of continuing operations of the Company which are not included in the telephone segment including, but not limited to, the Company's non-regulated long distance operations, Internet operations, competitive local exchange carrier ("CLEC") operations and fiber transport operations. In June 2003, the Company acquired the assets of a fiber optic transport business for $39.4 million cash (which the Company operates under the name LightCore). The operating revenues, expenses and income of the Company's other operations for the nine months ended September 30, 2003 and 2002 are summarized below.
Nine months ended September 30, - --------------------------------------------------------------------------------------- 2003 2002 - --------------------------------------------------------------------------------------- (Dollars in thousands) Operating revenues Long distance $ 130,968 105,871 Internet 58,345 42,263 Other 37,328 23,818 - --------------------------------------------------------------------------------------- 226,641 171,952 - --------------------------------------------------------------------------------------- Operating expenses Cost of sales and operating expenses 166,896 130,818 Depreciation and amortization 14,410 9,859 - --------------------------------------------------------------------------------------- 181,306 140,677 - --------------------------------------------------------------------------------------- Operating income $ 45,335 31,275 =======================================================================================
The $25.1 million increase in long distance revenues was primarily attributable to the growth in the number of customers and increased minutes of use ($28.7 million), primarily due to penetration of the markets acquired from Verizon in 2002. Such increases were partially offset by a decrease in the average rate charged by the Company ($3.6 million). The number of long distance customers as of September 30, 2003 and 2002 was 745,200 and 584,900, respectively. Internet revenues increased $16.1 million due primarily to growth in the number of customers, principally due to the expansion of the Company's DSL product offering. Other revenues increased $13.5 million primarily due to (i) $9.3 million of revenues associated with the Company's LightCore operations and (ii) a $3.1 million increase in revenues in the Company's CLEC business primarily due to an increased number of customers, including those acquired in connection with the purchase of certain CLEC operations on February 28, 2002. Cost of sales and operating expenses increased $36.1 million primarily due to (i) a $14.0 million increase in expenses associated with the Company's long distance operations (of which $10.3 million was due to increased minutes of use and $1.9 million was due to an increase in marketing expenses); (ii) a $12.6 million increase in expenses associated with the Company's Internet operations due to an increase in the number of customers and (iii) a $5.8 million increase in expenses associated with the Company's LightCore operations. Depreciation and amortization increased $4.6 million (46.2%) primarily due to increased depreciation expense in the Company's CLEC, Internet and fiber transport businesses (including LightCore). Income From Unconsolidated Cellular Entity Income from unconsolidated cellular entity increased $1.0 million in the first nine months of 2003 due to improved profitability of the cellular partnership in which the Company owns a 49% minority interest. Nonrecurring Gains and Losses In the second quarter of 2002, the Company recorded a pre-tax gain of $3.7 million from the sale of a Personal Communications Services license. Income Tax Expense The effective income tax rate from continuing operations was 34.7% and 34.8% for the nine months ended September 30, 2003 and 2002, respectively. For additional information, see - "Income Tax Expense" in the discussion above of the Company's third quarter results. Discontinued Operations On August 1, 2002, the Company sold substantially all of its wireless operations in exchange for $1.59 billion in cash. As a result, such operations for the nine months ended September 30, 2002 have been reflected as discontinued operations in the Company's consolidated financial statements. The following table summarizes certain information concerning the Company's wireless operations for 2002.
Nine months ended September 30, 2002 - -------------------------------------------------------------------------------------- (Dollars in thousands) Operating revenues $ 246,705 Operating expenses, exclusive of corporate overhead costs $ (175,447) Income from unconsolidated cellular entities $ 25,770 Minority interest expense $ (8,569) Gain on sale of discontinued operations $ 803,905 Other income $ 188 Income tax expense $ (284,461) Income from discontinued operations, net of tax $ 608,091
Included in operating expenses for the nine months ended September 30, 2002 is a $30.5 million charge associated with the write-off of all costs expended to develop the wireless portion of the Company's billing system in development. The Company recorded an $803.9 million pre-tax gain on the sale of substantially all of its wireless business in the third quarter of 2002. ACCOUNTING PRONOUNCEMENTS On January 1, 2003, the Company adopted Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations" ("SFAS 143"), which addresses financial accounting and reporting for legal obligations associated with the retirement of tangible long-lived assets and requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred and be capitalized as part of the book value of the long-lived asset. Although the Company generally has had no legal obligation to remove obsolete assets, depreciation rates of certain assets established by regulatory authorities for the Company's telephone operations subject to Statement of Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulation" ("SFAS 71"), have historically included a component for removal costs in excess of the related estimated salvage value. Notwithstanding the adoption of SFAS 143, SFAS 71 requires the Company to continue to reflect this accumulated liability for removal costs in excess of salvage value even though there is no legal obligation to remove the assets. For the Company's telephone operations acquired from Verizon in 2002 and its other operations (neither of which are subject to SFAS 71), the Company has not accrued a liability for anticipated removal costs in the past. For these reasons, the adoption of SFAS 143 did not have a material effect on the Company's financial statements. In May 2003, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 150, "Accounting for Financial Instruments with Characteristics of both Liabilities and Equity" ("SFAS 150"), which provides standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS 150 is effective for financial instruments entered into or modified after May 31, 2003 and for pre-existing instruments as of the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS 150 did not have a material impact on the Company's financial condition or results of operations. LIQUIDITY AND CAPITAL RESOURCES Excluding cash used for acquisitions, the Company relies on cash provided by operations to fund its operating and capital expenditures. 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 from continuing operations was $828.4 million during the first nine months of 2003 compared to $635.0 million during the first nine months of 2002. 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 continuing operations of the Company, see Results of Operations. Net cash used in investing activities from continuing operations was $298.5 million and $2.503 billion for the nine months ended September 30, 2003 and 2002, respectively. Payments for property, plant and equipment were $14.3 million less in the first nine months of 2003 than in the comparable period during 2002. Capital expenditures for the nine months ended September 30, 2003 were $216.5 million for telephone operations and $40.0 million for other operations. In June 2003, the Company acquired the assets of a fiber transport business for $39.4 million cash (of which $35.6 million was paid at acquisition and the remaining $3.8 million was paid as a deposit in 2002). During the third quarter of 2002, the Company acquired the assets of Verizon's Alabama and Missouri local exchange telephone operations for $2.201 billion cash. During the first quarter of 2002, the Company acquired the assets of certain CLEC operations for $43.8 million cash. Net cash used in financing activities from continuing operations was $375.7 million during the first nine months of 2003. Net cash provided by financing activities was $529.0 million during the first nine months of 2002. In May 2002, the Company issued $500 million of Equity Units. In the third quarter of 2002, the Company issued $500 million of 7.875% senior notes, due 2012, and $165 million of 4.75% convertible debentures. Proceeds from the Equity Units, senior notes, convertible debentures, along with proceeds received from the sale of the Company's wireless operations and utilization of its credit facilities, were used to finance the $2.201 billion cash purchase of local exchange telephone assets in Alabama and Missouri from Verizon in the third quarter of 2002 and the redemption of $400 million principal amount in remarketable debt securities (plus an associated $71.1 million premium payment) in October 2002. Budgeted capital expenditures for 2003 total $400 million. See Other Matters for additional expenditures related to the Company's billing system currently under development. The following table contains certain information concerning the Company's material contractual obligations as of September 30, 2003.
Payments due by period - ---------------------------------------------------------------------------------------------------------- Total contractual Less than After obligations Total 1 year 1-3 years 4-5 years 5 years - ---------------------------------------------------------------------------------------------------------- (Dollars in thousands) Long-term debt, including current maturities and capital lease obligations $ 3,234,545 115,167 431,276 (1) 874,477 (2) 1,813,625 - ----------------------------------------------------------------------------------------------------------
(1) Includes $165 million aggregate principal amount of the Company's convertible debentures, Series K, due 2032, which can be put to the Company at various dates beginning in August 2006. (2) Includes $500 million aggregate principal amount of the Company's senior notes, Series J, due 2007, which the Company is committed to remarket in 2005. As of September 30, 2003, the Company had $533.0 million of undrawn committed bank lines of credit and the Company's telephone subsidiaries had available for use $123.0 million of commitments for long-term financing from the Rural Utilities Service and the Rural Telephone Bank. The Company did not renew its $267 million 364-day facility which expired in July 2003. The Company has a commercial paper program that authorizes it to have outstanding up to $1.5 billion in commercial paper at any one time. At September 30, 2003, the Company had no commercial paper outstanding under such program. At September 30, 2003, the Company held almost $158 million of cash and cash equivalents. OTHER MATTERS Accounting for the Effects of Regulation The Company currently accounts for its regulated telephone operations (except for the properties acquired from Verizon in 2002) in accordance with the provisions of Statement of Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulation" ("SFAS 71"). While the ongoing applicability of SFAS 71 to the Company's regulated 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. SFAS 101 further provides that the carrying amounts of property, plant and equipment are to be adjusted only to the extent the assets are impaired and that impairment shall be judged in the same manner as for nonregulated enterprises. If and when the Company's regulated operations no longer qualify for the application of SFAS 71, the Company does not currently expect to record an impairment charge related to the carrying value of the property, plant and equipment of its regulated telephone operations. Additionally, upon discontinuance of SFAS 71, the Company would be required to revise the lives of its property, plant and equipment to reflect the estimated useful lives of the assets. The Company does not expect such revisions in asset lives, or the elimination of other regulatory assets and liabilities, to have a material impact on the Company's results of operations. Development of Billing System The Company is in the process of developing an integrated billing and customer care system to replace its current system. The costs to develop this new system have been accounted for in accordance with Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" ("SOP 98-1"). The capitalized costs of the system aggregated $158.1 million (before accumulated amortization) at September 30, 2003. The Company began amortizing its billing system costs in early 2003 (over a 20-year period) based on the total number of customers that the Company has migrated to the new system. The system remains in the development stage and has required substantially more time and money to develop than originally anticipated. The Company currently expects to complete all phases of the new system no later than mid-2005 at an aggregate capitalized cost in accordance with SOP 98-1 of approximately $200-215 million which will be amortized over 20 years. In addition, the Company expects to incur additional costs related to completion of the project, including (i) approximately $15 million of customer service related and data conversion costs (the majority of which are expected to be incurred in 2004) that will be expensed as incurred and (ii) $10 million of capitalized hardware costs (which will be amortized over a three-year period). The estimates above do not include any amounts for maintenance or on-going support of either the old or new system, and are based on assumptions regarding various future events, several of which are beyond the Company's control. There is no assurance that the system will be completed in accordance with this schedule or budget, or that the system will function as anticipated. If the system does not function as anticipated, the Company may have to write-off part or all of its development costs and further explore its other billing and customer care system alternatives. Pension and Medical Costs The decline in equity markets in recent years, coupled with record low interest rates and rising medical costs, have increased the Company's employee benefits expenses, including defined benefit pension expenses and pre- and post-retirement medical expenses. Through the first nine months of 2003, such costs have increased approximately $17.2 million over the first nine months of 2002 and are expected to trend similarly for the remainder of the year. As a result of continued increases in medical costs, the Company discontinued its practice of subsidizing post-retirement medical benefits for persons hired on or after January 1, 2003. In addition, the Company recently announced changes, effective January 1, 2004, that would decrease its subsidization of benefits provided under its postretirement medical plan. The amount of the Company's cost savings will be dependent upon the employees' age and years of service at retirement. The Company also lowered its expected long-term return on plan assets for its pension and post-retirement plans to range between 8 and 8.25% for 2003 compared to 8 to 10% for 2002. Minority Interest in Cellular Partnership In its balance sheet as of December 31, 2002 the Company reflected its minority interest in a cellular partnership as "assets held for sale" in light of a July 2002 agreement to sell such interest for $68 million cash, subject to several closing conditions. In light of the failure of the parties to this agreement to agree upon whether the closing conditions had been met, the Company determined to retain this investment. See Note 1 to the Company's consolidated financial statements appearing elsewhere in this report. Item 3. CenturyTel, Inc. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market Risk The Company is exposed to market risk from changes in interest rates on its long-term debt obligations. The Company has estimated its market risk using sensitivity analysis. Market risk is defined as the potential change in the fair value of a fixed-rate debt obligation due to a hypothetical adverse change in interest rates. Fair value of long-term debt obligations is determined based on a discounted cash flow analysis, using the rates and maturities of these obligations compared to terms and rates currently available in the long-term financing markets. The results of the sensitivity analysis used to estimate market risk are presented below, although the actual results may differ from these estimates. At September 30, 2003, the fair value of the Company's long-term debt was estimated to be $3.5 billion based on the overall weighted average rate of the Company's long-term debt of 6.3% and an overall weighted maturity of 11 years compared to terms and rates currently available in long-term financing markets. Market risk is estimated as the potential decrease in fair value of the Company's long-term debt resulting from a hypothetical increase of 63 basis points in interest rates (ten percent of the Company's overall weighted average borrowing rate). Such an increase in interest rates would result in approximately a $148.4 million decrease in the fair value of the Company's long-term debt. As of September 30, 2003, after giving effect to interest rate swaps currently in place, approximately 85% of the Company's long-term debt obligations were fixed rate. The Company seeks to maintain a favorable mix of fixed and variable rate debt in an effort to limit interest costs and cash flow volatility resulting from changes in rates. From time to time, the Company uses derivative instruments to (i) lock-in or swap its exposure to changing or variable interest rates for fixed interest rates or (ii) to swap obligations to pay fixed interest rates for variable interest rates. The Company has established policies and procedures for risk assessment and the approval, reporting and monitoring of derivative instrument activities. The Company does not hold or issue derivative financial instruments for trading or speculative purposes. Management periodically reviews the Company's exposure to interest rate fluctuations and implements strategies to manage the exposure. At September 30, 2003, the Company had outstanding four fair value interest rate hedges associated with the full $500 million aggregate principal amount of its Series L senior notes, due 2012, that pay interest at a fixed rate of 7.875%. These hedges are "fixed to variable" interest rate swaps that effectively convert the Company's fixed rate interest payment obligations under these notes into obligations to pay variable rates that range from the six-month London InterBank Offered Rate ("LIBOR") plus 3.229% to the six-month LIBOR plus 3.67% with settlement and rate reset dates occurring each six months through the expiration of the hedges in August 2012. At September 30, 2003, the Company realized a rate under these hedges of 4.7%. Interest expense was reduced by $4.0 million during the nine months ended September 30, 2003 as a result of these hedges. The aggregate fair market value of these hedges was $5.3 million at September 30, 2003 and is reflected both as a liability and as a decrease in the Company's underlying long-term debt on the September 30, 2003 balance sheet. With respect to these hedges, market risk is estimated as the potential change in the fair value of the hedge resulting from a hypothetical 10% increase in the forward rates used to determine the fair value. A hypothetical 10% increase in the forward rates would result in a $17.1 million decrease in the fair value of these hedges. Effective May 8, 2003, the Company terminated a fair value interest rate hedge associated with $500 million aggregate principal amount of its Series H senior notes and received $22.3 million cash upon settlement, which represented the fair value of the hedge at the termination date. Such amount will be amortized as a reduction of interest expense through 2010, the maturity date of the Series H notes. At September 30, 2003, the Company also had outstanding a cash flow hedge associated with $400 million of borrowings incurred in the fourth quarter of 2002 under its $800 million credit facilities. Such hedge expired in October 2003. During the second quarter of 2003, the Company retired all outstanding indebtedness associated with its $800 million credit facilities; therefore, such cash flow hedge was deemed ineffective during the second quarter of 2003 and resulted in a $722,000 unfavorable pre-tax charge to the Company's income for the nine months ended September 30, 2003. Item 4. CONTROLS AND PROCEDURES The Company maintains disclosure controls and procedures designed to provide reasonable assurances that information required to be disclosed by the Company in the reports it files under the Securities Exchange Act of 1934 is timely recorded, processed, summarized and reported as required. The Company's Chief Executive Officer, Glen F. Post, III, and the Company's Chief Financial Officer, R. Stewart Ewing, Jr., have evaluated the Company's disclosure controls and procedures as of September 30, 2003. Based on the evaluation, Messrs. Post and Ewing concluded that the Company's disclosure controls and procedures have been effective in providing reasonable assurance that they have been timely alerted of material information required to be filed in this quarterly report. Since the date of Messrs. Post's and Ewing's most recent evaluation, there have been no significant changes in the Company's internal controls or in other factors that could significantly affect these controls. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events and contingencies, and there can be no assurance that any design will succeed in achieving its stated goals. PART II. OTHER INFORMATION CenturyTel, Inc. Item 1. Legal Proceedings ----------------- On December 26, 2001, AT&T Corp. and one of its subsidiaries filed a complaint in the U.S. District Court for the Western District of Washington (Case No. CV0121512) seeking money damages against CenturyTel of the Northwest, Inc. The plaintiffs claimed, among other things, that CenturyTel of the Northwest, Inc. had breached its obligations under a 1994 stock purchase agreement to indemnify the plaintiffs for various environmental costs and damages relating to properties sold to the plaintiffs under such 1994 agreement. During the third quarter of 2003, the Company reached a settlement agreement with the plaintiffs. Such settlement did not have a material effect on the Company's results of operations. Certain other legal proceedings in which the Company is involved are discussed in Part I, Item 3, of the Company's Annual Report on Form 10-K for the year ended December 31, 2002, and Part II, Item 1, of the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2003. From time to time, the Company is involved in other litigation incidental to its business, including administrative hearings of state public utility commissions relating primarily to rate making and competition related issues, actions relating to employee claims, occasional grievance hearings before labor regulatory agencies and miscellaneous third party tort actions. Item 6: Exhibits and Reports on Form 8-K -------------------------------- A. Exhibits -------- 3.1 Registrant's Bylaws, as amended through August 26, 2003 (incorporated by reference to Exhibit 3.1 of Registrant's Current Report on Form 8-K dated August 26, 2003 and filed on September 2, 2003). 10.1 Form of Change of Control Agreement dated August 26, 2003 by and between Registrant and Stacey W. Goff (incorporated by reference to Exhibit 10.1(c) of Registrant's Quarterly Report on Form 10-Q for the period ended March 31, 2000). 11 Computations of Earnings Per Share. 31.1 Registrant's Chief Executive Officer certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Registrant's Chief Financial Officer certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32 Registrant's Chief Executive Officer and Chief Financial Officer certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. B. Reports on Form 8-K ------------------- The following item was reported in the Form 8-K filed July 31, 2003: Item 12. Results of Operations and Financial Condition - News release announcing second quarter 2003 operating results. The following items were reported in the Form 8-K filed September 2, 2003: Items 5 & 7. Other Events and Regulation FD Disclosure and Exhibits - News release announcing the promotion of two of the Registrant's Officers and Registrant's Bylaws, as amended through August 26, 2003. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CenturyTel, Inc. Date: November 14, 2003 /s/ Neil A. Sweasy ----------------------------- Neil A. Sweasy Vice President and Controller (Principal Accounting Officer) EX-11 3 exhibit11.txt EXHIBIT 11 EXHIBIT 11 CenturyTel, Inc. COMPUTATIONS OF EARNINGS PER SHARE (UNAUDITED)
Three months Nine months ended September 30, ended September 30, - -------------------------------------------------------------------------------------------------------------------------- 2003 2002 2003 2002 - -------------------------------------------------------------------------------------------------------------------------- (Dollars, except per share amounts, and shares in thousands) Income (Numerator): Income from continuing operations $ 90,979 64,589 262,265 149,188 Discontinued operations, net of tax - 543,160 - 608,091 - -------------------------------------------------------------------------------------------------------------------------- Net income 90,979 607,749 262,265 757,279 Dividends applicable to preferred stock (100) (100) (299) (299) - -------------------------------------------------------------------------------------------------------------------------- Net income applicable to common stock 90,879 607,649 261,966 756,980 Dividends applicable to preferred stock 100 100 299 299 - -------------------------------------------------------------------------------------------------------------------------- Net income as adjusted for purposes of computing diluted earnings per share $ 90,979 607,749 262,265 757,279 ========================================================================================================================== Shares (Denominator): Weighted average number of shares: Outstanding during period 143,983 141,872 143,474 141,522 Employee Stock Ownership Plan shares not committed to be released (86) (180) (104) (198) - -------------------------------------------------------------------------------------------------------------------------- Number of shares for computing basic earnings per share 143,897 141,692 143,370 141,324 Incremental common shares attributable to dilutive securities: Conversion of convertible securities 435 435 435 435 Shares issuable under stock option plan 839 643 676 951 - -------------------------------------------------------------------------------------------------------------------------- Number of shares as adjusted for purposes of computing diluted earnings per share 145,171 142,770 144,481 142,710 ========================================================================================================================== Basic earnings per share From continuing operations $ .63 .46 1.83 1.05 From discontinued operations $ - 3.83 - 4.30 Basic earnings per share $ .63 4.29 1.83 5.36 Diluted earnings per share From continuing operations $ .63 .45 1.82 1.05 From discontinued operations $ - 3.80 - 4.26 Diluted earnings per share $ .63 4.26 1.82 5.31
EX-31 4 exh311.txt EXHIBIT 31.1 Exhibit 31.1 CERTIFICATIONS I, Glen F. Post, III, Chairman of the Board and Chief Executive Officer, certify that: 1. I have reviewed this quarterly report on Form 10-Q of CenturyTel, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods present in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15 (e)) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee or registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 14, 2003 /s/ Glen F. Post, III -------------------------- Glen F. Post, III Chairman of the Board and Chief Executive Officer EX-31 5 exh312.txt EXHIBIT 31.2 Exhibit 31.2 CERTIFICATIONS I, R. Stewart Ewing, Jr., Executive Vice President and Chief Financial Officer, certify that: 1. I have reviewed this quarterly report on Form 10-Q of CenturyTel, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods present in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15 (e)) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee or registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 14, 2003 /s/ R. Stewart Ewing, Jr. --------------------------------- R. Stewart Ewing, Jr. Executive Vice President and Chief Financial Officer EX-32 6 exh32.txt EXHIBIT 32 Exhibit 32 CenturyTel, Inc. November 14, 2003 VIA EDGAR TRANSMISSION Securities and Exchange Commission 450 Fifth Street, NW Washington, D.C. 20549 Re: CenturyTel, Inc. Certification of Contents of Form 10-Q for the period ending September 30, 2003, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Ladies and Gentlemen: CenturyTel, Inc. (the "Company") filed today, via EDGAR, its quarterly report on Form 10-Q for the period ending September 30, 2003. The undersigned, acting in their capacities as the Chief Executive Officer and the Chief Financial Officer of the Company, certify that the Form 10-Q fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and that the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company for the period covered by such report. This certification is being furnished as an exhibit to the Form 10-Q solely to comply with the requirements of Section 906 of the Sarbanes-Oxley Act of 2002, Pub. L. No. 107-204, and should not be deemed to be filed with the Securities and Exchange Commission, either as a part of the Form 10-Q or otherwise. A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. Very truly yours, /s/ Glen F. Post, III /s/ R. Stewart Ewing, Jr. - --------------------------- ------------------------------ Glen F. Post, III R. Stewart Ewing, Jr. Chairman of the Board Executive Vice President and and Chief Executive Officer Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----