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., a predecessor entity).
Reporting Date: September 29, 2000.
Event: CenturyTel consummated the final two of four asset acquisitions from affiliates of Verizon Communications, Inc. (successor to GTE Corporation). These transactions, combined with two prior acquisitions in July 2000, totaled over 490,000 access lines for approximately $1.5 billion in cash.
Specific Transactions (Sept 29, 2000):
- CenturyTel purchased ~70,500 access lines in Wisconsin for ~$194 million.
- Telephone USA of Wisconsin, LLC (89% owned by CenturyTel) purchased ~62,900 access lines in Wisconsin for ~$170 million.
Key Financial Metrics
Acquisition Financing:
- Total cash consideration for all four Verizon acquisitions: ~$1.5 billion.
- Short-term financing for September acquisitions: $357 million borrowed under a new $1.5 billion credit facility.
- Pro forma financing assumptions: $1.0 billion senior long-term debt, $300 million bank indebtedness, $157 million commercial paper, and $47 million cash.
Pro Forma Financial Impact (Six Months Ended June 30, 2000):
- Total Operating Revenues: $1,003.8 million (CenturyTel reported: $836.1 million; Verizon acquired: $167.7 million).
- Operating Income: $267.3 million (CenturyTel reported: $236.3 million).
- Net Income: $90.4 million (CenturyTel reported: $107.1 million; reduced by pro forma interest and amortization).
- Diluted EPS: $0.64 (CenturyTel reported: $0.76).
- Total Assets: $6.24 billion (Pro forma consolidated).
- Long-Term Debt: $3.25 billion (Pro forma consolidated).
Third Quarter 2000 Guidance (Announced Sept 29):
- EPS (excluding one-time items): Expected to equal or exceed $0.42 per share.
- Revenues: Expected to range from $470 million to $480 million.
Material Changes vs. Prior Period
The filing details significant balance sheet expansion due to the acquisitions. Pro forma adjustments for the six months ended June 30, 2000, reflect:
- Revenue Increase: Addition of $167.7 million in operating revenues from acquired Verizon properties.
- Expense Increase: Significant increase in interest expense ($52.3 million pro forma adjustment) and depreciation/amortization ($19.8 million pro forma adjustment) due to the acquisition financing and asset write-ups.
- Debt Load: Long-term debt increased by $1.3 billion in pro forma figures to reflect the assumed financing structure.
Outlook, Risks, and Contingencies
Strategic Outlook: CenturyTel intends to expand service offerings in acquired markets to include long distance, Internet access, and high-speed DSL services.
Regulatory Risks:
- Orders approving Arkansas and Wisconsin purchases remain subject to appeal.
- The Wisconsin Public Service Commission indicated an intent to review regulating all of CenturyTel's Wisconsin local exchange carriers on a unitary basis, which could reduce revenues unless mitigated by rate adjustments.
Credit Ratings:
- Moody's: Lowered long-term debt rating to Baa2 (stable outlook) from Baa1 on September 19, 2000.
- Standard & Poor's: Affirmed BBB+ rating but changed outlook to negative on September 20, 2000.
Forward-Looking Statements: The company cautions that actual results may differ due to integration risks, financing terms, technological changes, and regulatory shifts.
Investor Verification Checklist
- Verify the final purchase price adjustments, as the $1.5 billion figure is subject to post-closing adjustments based on accounts receivable.
- Monitor the status of regulatory appeals in Arkansas and Wisconsin, specifically the potential for unitary regulation in Wisconsin which could impact revenue.
- Review the company's ability to refinance the $1.5 billion in short-term acquisition debt into long-term instruments at favorable rates.
- Assess the integration progress of the 490,000 new access lines and the rollout of new services (DSL, long distance) in the acquired markets.
- Track the impact of the negative credit outlook from S&P on future borrowing costs.