Business Context and Reporting Period
Company: CenturyTel, Inc. (Note: The filing metadata references "Lumen Technologies," but the document text identifies the registrant as CenturyTel, Inc.)
Filing Type: Form 8-K (Current Report)
Date of Report: March 19, 2002
Reporting Period: This report updates the Company's Annual Report on Form 10-K for the year ended December 31, 2001. It specifically addresses events occurring on March 19, 2002, and restates financial data to reflect the classification of wireless operations as discontinued operations.
Key Financial Metrics
Revenue (2001 Continuing Operations): $1.68 billion (Telephone: $1.51 billion; Other: $174 million).
Net Income (2001): $343.0 million ($2.41 diluted EPS).
- Income from Continuing Operations: $144.1 million ($1.01 diluted EPS).
- Income from Discontinued Operations (Wireless): $198.9 million ($1.40 diluted EPS).
Operating Income (2001 Continuing Operations): $425.3 million.
Cash Flow (2001 Continuing Operations):
- Operating Activities: $575.5 million provided.
- Investing Activities: $420.9 million used (primarily capital expenditures and acquisitions).
- Financing Activities: $395.4 million used (primarily debt repayments).
Debt and Liquidity (as of Dec 31, 2001):
- Total Long-Term Debt: $3.04 billion (including current maturities).
- Current Maturities: $955.8 million.
- Available Credit: $470.1 million in undrawn committed bank lines; $123.0 million in government financing commitments.
- Debt to Total Capitalization: 57.0%.
Material Changes and Restatements
Discontinued Operations: On March 19, 2002, CenturyTel entered into a definitive agreement to sell its wireless operations to an affiliate of Alltel Corporation for $1.65 billion in cash. Consequently, the Company's financial statements for 2001, 2000, and 1999 have been restated to classify wireless operations as discontinued operations in accordance with SFAS 144.
Accounting Adjustments:
- Restatement of Form 10-K Items 6, 7, and 8 to reflect discontinued operations.
- Adjustments to net income and EPS to comply with SFAS 142 (Goodwill and Other Intangible Assets).
- Line item "Cost of sales and operating expenses" renamed to exclude depreciation and amortization following an SEC comment letter.
Pending Acquisitions: The Company has agreed to purchase Verizon's local telephone operations in Missouri and Alabama for approximately $2.159 billion, subject to regulatory approvals.
Guidance, Outlook, and Risks
Outlook:
- Wireless Sale: Expected to close in the third quarter of 2002, with anticipated after-tax proceeds of approximately $1.3 billion.
- Capital Expenditures (2002): Budgeted at $315 million for telephone operations, $65 million for discontinued wireless operations, and $45 million for other operations.
- Revenue Growth: Internal telephone revenue growth has slowed due to economic conditions and competition, though growth is expected to continue via acquisitions and new services.
Risks and Contingencies:
- Regulatory: Pending Verizon acquisitions require FCC waivers regarding "all or nothing" price-cap regulation; failure to obtain waivers could adversely impact financial benefits.
- Competition: Increased competition from CLECs, wireless carriers, and cable companies may reduce access revenues and roaming rates.
- Accounting: Potential discontinuance of SFAS 71 (Regulated Accounting) could result in a material, non-cash charge against earnings.
- Technology: Risk that the Company's TDMA wireless technology may become obsolete compared to "next generation" technologies.
Investor Verification Checklist
- Verify the closing date and final purchase price of the wireless operations sale to Alltel.
- Confirm regulatory approvals (FCC, State Commissions) for the pending $2.159 billion Verizon acquisition in Missouri and Alabama.
- Monitor the status of the FCC waiver request regarding price-cap regulation for the acquired Verizon properties.
- Review the impact of the transition from SFAS 71 to non-regulated accounting on future earnings.
- Assess the Company's ability to refinance $955.8 million in debt maturing in 2002 and $400 million in remarketable notes due in October 2002.