SEC Filing Summary: Century Telephone Enterprises, Inc. (10-K)
Business Context and Reporting Period
Company: Century Telephone Enterprises, Inc. (operating as CenturyTel)
Filing Type: Form 10-K Annual Report
Period Ended: December 31, 1998
Business Overview: A regional diversified communications company primarily providing local exchange telephone services and cellular telephone services. As of year-end 1998, the Company operated over 1.3 million telephone access lines in 21 states and served approximately 624,000 cellular customers in majority-owned markets. The Company is the ninth largest local exchange telephone company and tenth largest cellular company in the U.S. based on access lines and population served, respectively.
Key Financial Metrics
| Metric (in thousands, except per share) | 1998 | 1997 | 1996 |
|---|---|---|---|
| Total Operating Revenues | $1,577,085 | $901,521 | $749,677 |
| Operating Income | $479,811 | $267,770 | $223,296 |
| Net Income | $228,757 | $255,978 | $129,077 |
| Diluted Earnings Per Share | $1.64 | $1.87 | $0.95 |
| Net Cash Provided by Operating Activities | $467,774 | $297,319 | $264,652 |
| Total Assets | $4,935,455 | $4,709,401 | $2,028,505 |
| Long-Term Debt | $2,558,000 | $2,609,541 | $625,930 |
| Stockholders' Equity | $1,531,482 | $1,300,272 | $1,028,153 |
Note: Per share data is adjusted to reflect a three-for-two stock split in March 1999.
Material Changes vs. Prior Period
- Revenue Growth: Total operating revenues increased 75% to $1.58 billion, driven primarily by the December 1997 acquisition of Pacific Telecom, Inc. (PTI) and a December 1998 acquisition of Ameritech assets in Wisconsin.
- Operating Income: Increased 79% to $480 million. Telephone operating income rose 93% and Cellular operating income rose 48% compared to 1997.
- Net Income Decline: Despite higher operating income, Net Income decreased 11% to $229 million. This was primarily due to a significant reduction in "Gain on sale or exchange of assets" (dropping from $170 million in 1997 to $50 million in 1998) and a $111 million increase in interest expense related to acquisition financing.
- Debt Levels: Long-term debt remained elevated at $2.56 billion (excluding current maturities) to support the PTI acquisition, though the Company issued $758 million in senior debt in early 1998 to reduce bank indebtedness.
Guidance, Outlook, Risks, and Contingencies
- Strategic Outlook: The Company plans to continue acquiring telecommunications assets proximate to existing operations. It anticipates selling its Alaska operations for $415 million and Texas cellular markets for $95 million in 1999 to reduce debt.
- Capital Expenditures: Budgeted for 1999 is $345 million ($215M telephone, $70M cellular, $60M other), focusing on fiber optic installation, digital switches, and cell site expansion.
- Regulatory Risks: The Company faces ongoing deregulation under the Telecommunications Act of 1996, which may reduce access revenues and increase competition. There is uncertainty regarding future federal Universal Service Fund support levels.
- Accounting Contingency (SFAS 71): If the Company's regulated telephone operations no longer qualify for SFAS 71 (Accounting for the Effects of Certain Types of Regulation), it would result in a material, non-cash, extraordinary charge estimated between $350 million and $400 million (after-tax).
- Year 2000 Compliance: The Company is spending approximately $32.1 million in 1999 to remediate systems. Failure to remediate or failure of vendors/carriers to do so could materially impact operations.
Investor Verification Checklist
- Acquisition Integration: Verify the successful integration of PTI and Ameritech assets and the realization of projected synergies.
- Debt Reduction Strategy: Monitor the closing of the Alaska and Texas asset sales to confirm debt reduction proceeds as planned.
- Regulatory Impact: Track FCC and state commission rulings on access charges and the potential discontinuation of SFAS 71 applicability.
- Year 2000 Remediation: Confirm the completion of system testing and vendor compliance to avoid service disruptions.
- Competitive Pressures: Assess the impact of PCS and wireless competition on cellular churn rates and average revenue per customer.