SEC Filing Summary: CenturyTel, Inc. (10-Q)
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended March 31, 2009. The registrant is CenturyTel, Inc., an integrated communications company providing local exchange, long-distance, Internet access, and broadband services across 25 states. The company is currently in the process of a definitive stock-for-stock merger with Embarq Corporation, anticipated to close in the second quarter of 2009.
Key Financial Metrics
| Metric | Q1 2009 | Q1 2008 |
|---|---|---|
| Operating Revenues | $636.4 million | $648.6 million |
| Operating Income | $164.3 million | $183.5 million |
| Net Income (Attributable to CenturyTel) | $67.2 million | $88.8 million |
| Diluted Earnings Per Share | $0.67 | $0.82 |
| Operating Cash Flow | $230.2 million | $230.2 million |
| Cash and Cash Equivalents (End of Period) | $61.2 million | $37.5 million |
| Long-Term Debt | $3.0 billion | $3.3 billion |
| Effective Tax Rate | 39.1% | 37.4% |
Material Changes vs. Prior Period
- Revenue Decline: Operating revenues decreased 1.9% ($12.2 million) primarily due to declines in voice and network access revenues driven by access line losses and competitive displacement. Conversely, data revenues increased 10.4% due to DSL growth.
- Profitability Pressure: Operating income fell 10.4% ($19.2 million) due to the revenue decline and a 19.9% increase in Selling, General, and Administrative (SG&A) expenses.
- Expense Drivers: SG&A expenses rose $18.2 million, driven by a $7.7 million settlement loss related to the Supplemental Executive Retirement Plan, $6.9 million in acquisition-related costs for the Embarq merger, and a $4.9 million increase in bad debt expense.
- Liquidity Shift: Cash and cash equivalents dropped from $243.3 million at year-end 2008 to $61.2 million at March 31, 2009. This was caused by significant debt repayments ($292.0 million) and a large quarterly dividend payment ($70.4 million), resulting in a negative working capital position.
Guidance, Outlook, and Risks
- Merger Status: The company anticipates closing the Embarq merger in Q2 2009, subject to regulatory approvals. Shareholders of both companies have approved the transaction.
- Capital Expenditures: Budgeted capital expenditures for 2009 are expected to be between $280 million and $300 million, excluding nonrecurring costs related to the Embarq integration.
- Dividends and Buybacks: The company plans to maintain its $2.80 annual dividend rate through the merger. The share repurchase program has been suspended pending the merger's completion.
- Regulatory Accounting: CenturyTel plans to discontinue SFAS 71 (regulated accounting) on July 1, 2009, following FCC approval to convert to price cap regulation. This will result in the write-off of regulatory assets/liabilities, potentially creating an extraordinary gain.
- Risks: Key risks include the timing and success of the Embarq merger, continued loss of access lines, pension plan funding requirements due to market losses, and the outcome of pending litigation regarding inside wire maintenance billing.
Investor Verification Checklist
- Merger Closing: Verify the status of regulatory approvals (FCC and state commissions) required to close the Embarq acquisition in Q2 2009.
- Access Line Trends: Monitor the rate of access line loss, which management estimates will be between 5.7% and 6.7% for the full year 2009.
- Liquidity Position: Confirm the company's ability to fund operations and the merger without additional debt issuance, given the significant reduction in cash reserves during Q1.
- Pension Funding: Assess future cash requirements for pension contributions, as actual returns on plan assets have been lower than the 8.25% expected return assumption.
- Legal Exposure: Review the potential financial impact of the class-action lawsuit regarding inside wire maintenance billing, where damages remain unquantified.