Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended June 30, 2002, for CenturyTel, Inc. (Note: The request metadata lists "Lumen Technologies," but the filing text identifies the registrant as CenturyTel, Inc., a regional integrated communications company operating in 21 states). The reporting period is significantly impacted by the classification of the Company's wireless operations as discontinued operations following a definitive agreement signed in March 2002 to sell these assets to Alltel Corporation and others for approximately $1.58 billion.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2002 | Six Months Ended June 30, 2002 |
|---|---|---|
| Total Operating Revenues | $438.7 million | $861.6 million |
| Operating Income | $109.5 million | $228.6 million |
| Net Income | $78.8 million | $149.5 million |
| Diluted EPS (Total) | $0.55 | $1.05 |
| Diluted EPS (Continuing Ops) | $0.28 | $0.58 |
| Cash from Operating Activities (Continuing) | N/A | $379.1 million |
| Cash and Cash Equivalents (End of Period) | $302.1 million | $302.1 million |
| Total Debt (Long-term + Current) | $3.18 billion | $3.18 billion |
Note: Debt figures include $432.4 million in current maturities and $2.75 billion in long-term debt as of June 30, 2002.
Material Changes vs. Prior Period
- Revenue Growth: Total operating revenues increased 7.2% year-over-year for the quarter ($438.7M vs. $409.3M) and 5.0% for the six-month period ($861.6M vs. $820.9M). Telephone segment revenues grew 3.4% in the quarter, driven by network access and local service increases.
- Profitability: Income from continuing operations surged 90.9% in the quarter ($40.2M vs. $21.1M) and 73.4% for the six months ($83.1M vs. $47.9M). This improvement is largely attributed to the cessation of goodwill amortization effective January 1, 2002, under SFAS 142.
- Discontinued Operations: Net income includes $38.6 million from discontinued wireless operations for the quarter, compared to $133.2 million in the prior year. The prior year figure included a significant nonrecurring gain on the sale of PCS licenses.
- Nonrecurring Items: The current period includes a $15.0 million pre-tax charge for uncollectible receivables related to the WorldCom bankruptcy, partially offset by a $3.7 million gain on the sale of non-strategic assets.
- Access Lines: Telephone access lines declined 0.1% in the quarter and 0.3% for the six months, attributed to economic conditions and displacement by wireless services.
Guidance, Outlook, and Risks
- Strategic Transactions: The Company completed the acquisition of approximately 300,000 telephone access lines in Alabama from Verizon for $1.0 billion on July 1, 2002. It is also pending the acquisition of Missouri assets from Verizon for approximately $1.159 billion, expected to close by August 31, 2002.
- Liquidity and Financing: The Company issued $500 million in Equity Units in May 2002 and entered into $800 million in new credit facilities in July 2002. Proceeds from the wireless sale ($1.58 billion) are expected to fund the Missouri acquisition and reduce debt.
- Material Obligations: The Company faces a significant cash outflow of approximately $325 million in estimated income taxes in December 2002 related to the wireless sale. Additionally, $400 million in remarketable debt securities may need to be redeemed or remarketed in October 2002.
- Risks: Key risks include the ability to secure financing for the Missouri acquisition and tax payments, integration of new assets, and the potential discontinuance of SFAS 71 (regulated accounting) which could trigger a material noncash charge.
- IT Systems: The Company is developing a new integrated billing system with costs capitalized at $153.9 million. A portion ($30M-$50M) related to the wireless business will be written off in Q3 2002.
Investor Verification Checklist
- Wireless Sale Closing: Verify the final closing date and net proceeds of the wireless operations sale to Alltel (expected August 1, 2002).
- Missouri Acquisition: Confirm the closing of the $1.159 billion Verizon Missouri acquisition and the specific financing sources utilized.
- Tax Liability: Monitor the Company's ability to fund the estimated $325 million tax payment due in December 2002.
- Debt Refinancing: Track the status of the $400 million remarketable debt securities due in October 2002.
- WorldCom Exposure: Assess the final impact of the WorldCom bankruptcy on receivables beyond the $15.0 million provision already recorded.
- Billing System Costs: Verify the write-off amount for wireless-related billing system costs in the third quarter.