Business Context and Reporting Period
Company: CenturyTel, Inc. (Note: The filing identifies the registrant as CenturyTel, Inc., though the request metadata references Lumen Technologies, Inc. CenturyTel was acquired by Lumen in 2011).
Reporting Period: Fiscal year ended December 31, 2001.
Business Overview: CenturyTel is a regional integrated communications company providing local exchange telephone services, wireless communications, long distance, Internet access, and broadband data services. Operations are conducted in 21 states, primarily in rural, suburban, and small urban areas. As of December 31, 2001, the Company operated approximately 1.8 million telephone access lines and served approximately 797,000 wireless customers in majority-owned markets.
Key Financial Metrics
| Metric | 2001 | 2000 | 1999 |
|---|---|---|---|
| Total Operating Revenues | $2,117.5 million | $1,845.9 million | $1,676.7 million |
| Operating Income | $557.9 million | $525.4 million | $508.1 million |
| Net Income | $343.0 million | $231.5 million | $239.8 million |
| Diluted Earnings Per Share | $2.41 | $1.63 | $1.70 |
| Net Cash Provided by Operating Activities | $665.4 million | $562.5 million | $408.7 million |
| Total Assets | $6,318.7 million | $6,393.3 million | $4,705.4 million |
| Long-Term Debt (excl. current) | $2,087.5 million | $3,050.3 million | $2,078.3 million |
| Stockholders' Equity | $2,337.4 million | $2,032.1 million | $1,848.0 million |
Segment Performance (2001):
- Telephone: $1,505.7 million revenue (71.1% of total); $423.4 million operating income.
- Wireless: $438.0 million revenue (20.7% of total); $112.4 million operating income.
- Other: $173.8 million revenue (8.2% of total); $22.1 million operating income.
Material Changes vs. Prior Period
- Revenue Growth: Total operating revenues increased 14.7% to $2.12 billion, driven primarily by the inclusion of Verizon properties acquired in late 2000 (adding ~490,000 access lines) and growth in long-distance and Internet services.
- Profitability: Net income increased 48.2% to $343.0 million. This surge was significantly influenced by nonrecurring gains of $200.0 million, primarily from the sale of 30 PCS licenses to Leap Wireless International, Inc. ($185.1 million pre-tax gain) and the sale of Illuminet Holdings stock ($54.6 million pre-tax gain).
- Wireless Trends: While wireless customer count grew to 797,340, average monthly revenue per customer declined to $46 (from $49 in 2000) due to competitive pressure on service rates and roaming fees.
- Debt Reduction: Long-term debt decreased by approximately $963 million compared to 2000, as proceeds from asset sales were used to repay indebtedness incurred for the 2000 Verizon acquisitions.
Guidance, Outlook, and Risks
Strategic Initiatives:
- Pending Acquisitions: In October 2001, the Company entered into definitive agreements to purchase Verizon's local telephone operations in Missouri and Alabama for approximately $2.159 billion. Closing is subject to regulatory approvals and financing.
- Wireless Separation: In August 2001, management announced it is exploring the separation of its wireless business from other operations.
- Capital Expenditures: Budgeted for 2002 is $315 million for telephone, $65 million for wireless, and $45 million for other operations.
Risks and Contingencies:
- Regulatory Changes: The Company faces risks from the Telecommunications Act of 1996, including increased competition from Competitive Local Exchange Carriers (CLECs) and potential reductions in access charges. The applicability of SFAS 71 (regulated accounting) is being monitored; loss of this status could result in a material non-cash charge.
- Competition: Intense competition in wireless markets is driving down roaming rates and average revenue per user. The Company relies on TDMA technology, while competitors are adopting "next generation" technologies.
- Financing: The pending $2.16 billion Verizon acquisition requires significant financing. Failure to secure financing or regulatory waivers (specifically regarding price-cap regulation) could adversely impact financial benefits.
- Legal Proceedings: The Company is involved in litigation regarding the rejection of an Alltel acquisition proposal and regulatory challenges in Arkansas regarding access rates.
Investor Verification Checklist
- Nonrecurring Items: Verify the sustainability of earnings by excluding the $200 million in nonrecurring gains; adjusted net income was $225.7 million.
- Pending Acquisition Financing: Confirm the Company's ability to secure the $2.159 billion required for the Missouri/Alabama Verizon acquisition and the status of FCC regulatory waivers.
- Wireless Strategy: Monitor progress on the potential separation of the wireless unit and the impact of declining roaming revenues on the segment's profitability.
- Regulatory Accounting (SFAS 71): Assess the risk of losing regulated accounting status, which could trigger a significant one-time charge to earnings.
- Debt Maturities: Review the $955.8 million in debt maturing in 2002 and the Company's refinancing plans.