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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 2000
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission file number 1-7784
CENTURYTEL, INC.
(Exact name of Registrant as specified in its charter)
Louisiana 72-0651161
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
100 CenturyTel Drive, Monroe, Louisiana 71203
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code - (318) 388-9000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, par value $1.00 New York Stock Exchange
Berlin Stock Exchange
Preference Share Purchase Rights New York Stock Exchange
Berlin Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of February 28, 2001, the aggregate market value of voting stock held by
non-affiliates (affiliates being for these purposes only directors, executive
officers and holders of more than five percent of the Company's outstanding
voting securities) was $4.0 billion. As of February 28, 2001, there were
140,974,996 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Registrant's Proxy Statement prepared in connection with the
2001 annual meeting of shareholders are incorporated in Part III of this Report.
PART I
Item 1. Business
General. CenturyTel, Inc. ("CenturyTel") is a regional integrated
communications company engaged primarily in providing local exchange telephone
services and wireless communications services. For the year ended December 31,
2000, local exchange telephone operations and wireless operations provided 68%
and 24%, respectively, of the consolidated revenues of CenturyTel and its
subsidiaries (the "Company"). All of the Company's operations are conducted
within the continental United States.
At December 31, 2000, the Company's local exchange telephone subsidiaries
operated over 1.8 million telephone access lines, primarily in rural, suburban
and small urban areas in 21 states, with the largest customer bases located in
Wisconsin, Arkansas, Washington, Missouri, Michigan, Louisiana and Colorado.
According to published sources, the Company is the eighth largest local exchange
telephone company in the United States based on the number of access lines
served. For more information, see "Telephone Operations."
At December 31, 2000, the Company's majority-owned and operated cellular
systems (i) served approximately 751,000 customers in 19 Metropolitan
Statistical Areas ("MSAs") and 22 Rural Service Areas ("RSAs") in Michigan,
Louisiana, Arkansas, Mississippi, Wisconsin and Texas and (ii) had access to
approximately 7.6 million cellular pops (the estimated population of licensed
cellular telephone markets multiplied by the Company's proportionate equity
interest in the licensed operators thereof). At December 31, 2000, the Company
also owned minority equity interests in 10 MSAs and 16 RSAs, representing
approximately 1.9 million cellular pops. According to data derived from
published sources, the Company is the eighth largest cellular telephone company
in the United States based on the Company's 9.5 million aggregate pops. For more
information, see "Wireless Operations."
The Company also provides long distance, Internet access, competitive
local exchange carrier, broadband data, security monitoring, and other
communications and business information services in certain local and regional
markets. For more information, see "Other Operations."
Recent acquisitions and dispositions. On July 31, 2000 and September 29,
2000, affiliates of the Company acquired over 490,000 telephone access lines and
related assets from Verizon Communications, Inc. (successor to GTE Corporation)
("Verizon") in four separate transactions for approximately $1.5 billion in
cash. Under these transactions:
o On July 31, 2000, the Company purchased approximately 231,000 telephone
access lines and related local exchange assets comprising 106 exchanges
throughout Arkansas for approximately $842 million in cash.
o On July 31, 2000, Spectra Communications Group, LLC ("Spectra")
purchased approximately 127,000 telephone access lines and related local
exchange assets comprising 107 exchanges throughout Missouri for
approximately $297 million cash. As of December 31, 2000, the Company
owned 57.1% of Spectra, which was organized to acquire and operate these
Missouri properties. At closing, the Company made a preferred equity
investment in Spectra of approximately $55 million and financed
substantially all of the remainder of the purchase price.
o On September 29, 2000, the Company purchased approximately 70,500
telephone access lines and related local exchange assets comprising 42
exchanges throughout Wisconsin for approximately $197 million in cash.
o On September 29, 2000, Telephone USA of Wisconsin, LLC ("TelUSA")
purchased approximately 62,900 telephone access lines and related local
exchange assets comprising 35 exchanges throughout Wisconsin for
approximately $172 million in cash. The Company owns 89% of TelUSA,
which was organized to acquire and own these Wisconsin properties. At
closing, the Company made an equity investment in TelUSA of
approximately $37.8 million and financed substantially all of the
remainder of the purchase price.
In August 2000, the Company acquired the assets of CSW Net, Inc., a
regional Internet service provider that offers dial-up and dedicated Internet
access, and web site and domain hosting to more than 14,000 customers in 28
communities in Arkansas.
In November 1999, the Company acquired the assets of DigiSys, Inc., an
Internet service provider in Kalispell, Montana. DigiSys provides Internet
services to more than 8,600 customers in Montana and operates MontanaWeb, one of
the largest online business directories in the state.
In October 1999, the Company acquired the non-wireline cellular license to
serve Mississippi RSA #5, which covers 160,000 pops. Mississippi RSA #5
encompasses the Vicksburg and Greenville markets as well as portions of
Interstate Highway 20 between Jackson, Mississippi and Monroe, Louisiana.
On December 1, 1998, the Company acquired the assets of certain of
Ameritech's telephone operations and related telephone directories in 19
telephone exchanges covering 21 communities in northern and central Wisconsin
for approximately $221 million cash. The operations acquired by the Company
include the telephone property and equipment that serves nearly 69,000
customers, or approximately 86,000 access lines, as well as nine related
telephone directories.
In June 1999 the Company sold all of the operations of its Brownsville and
McAllen, Texas, cellular systems to Western Wireless Corporation for
approximately $96 million cash. The Company received a proportionate share of
the sale proceeds of approximately $45 million after-tax.
In May 1998, the Company sold the undersea cable operations acquired in
the December 1, 1997 Pacific Telecom, Inc. ("PTI") acquisition for approximately
$61.8 million cash. In May 1999, the Company sold substantially all of its
Alaska telephone and wireless operations that it had acquired from PTI for
approximately $300 million after-tax. In February 2000, the Company sold its
interest in Alaska RSA #1 which completed the Company's divestiture of its
Alaska operations.
In November 2000, the Company entered into a definitive agreement with
Leap Wireless International, Inc. to sell 30 PCS (Personal Communications
Service) operating licenses for an aggregate of $205 million. The transaction is
expected to close late in the first quarter of 2001, subject to (i) approval of
the Federal Communications Commission and (ii) certain other closing conditions.
Approximately $119 million of the purchase price will be delivered at closing.
The remaining $86 million will be payable in the form of a promissory note
bearing 10% interest per annum. $74 million will be payable within nine months
after the issuance of the note with the remainder payable in 2002 upon maturity
of the note.
The Company continually evaluates the possibility of acquiring additional
telecommunications assets in exchange for cash, securities or both, and at any
given time may be engaged in discussions or negotiations regarding additional
acquisitions. The Company generally does not announce its acquisitions until it
has entered into a preliminary or definitive agreement. Over the past few years,
the number and size of communications properties on the market has increased
substantially. Although the Company's primary focus will continue to be on
acquiring telephone and wireless interests that are proximate to its properties
or that serve a customer base large enough for the Company to operate
efficiently, other communications interests may also be acquired and these
acquisitions could have a material impact upon the Company.
Other. As of December 31, 2000, the Company had approximately 6,860
employees, approximately 1,270 of whom were members of 17 different bargaining
units represented by the International Brotherhood of Electrical Workers, the
Communications Workers of America, or the NTS Employee Committee. Relations with
employees continue to be generally good.
CenturyTel was incorporated under Louisiana law in 1968 to serve as a
holding company for several telephone companies acquired over the previous 15 to
20 years. CenturyTel's principal executive offices are located at 100 CenturyTel
Drive, Monroe, Louisiana 71203 and its telephone number is (318) 388-9000.
TELEPHONE OPERATIONS
According to published sources, the Company is the eighth largest local
exchange telephone company in the United States, based on the more than 1.8
million access lines it served at December 31, 2000. All of the Company's access
lines are digitally switched. Through its operating telephone subsidiaries, the
Company provides services to predominately rural, suburban and small urban
markets in 21 states. The table below sets forth certain information with
respect to the Company's access lines as of December 31, 2000 and 1999.
December 31, 2000 December 31, 1999
- --------------------------------------------------------------------------------
Number of Percent of Number of Percent of
State access lines access lines access lines access lines
- --------------------------------------------------------------------------------
Wisconsin 498,234 (1) 28% 358,768 28%
Arkansas 278,155 15 45,675 4
Washington 189,341 11 183,759 14
Missouri 129,944 (2) 7 - -
Michigan 114,325 6 112,468 9
Louisiana 103,091 6 100,967 8
Colorado 95,509 5 91,446 7
Ohio 85,308 5 83,287 7
Oregon 79,663 5 78,210 6
Montana 65,966 4 63,867 5
Texas 51,387 3 48,144 4
Minnesota 30,910 2 30,583 2
Tennessee 27,781 2 26,917 2
Mississippi 23,435 1 21,844 2
New Mexico 6,295 - 6,354 1
Idaho 6,197 - 6,040 1
Indiana 5,425 - 5,266 -
Wyoming 5,108 - 4,841 -
Iowa 2,048 - 1,997 -
Arizona 1,920 - 1,936 -
Nevada 523 - 498 -
- --------------------------------------------------------------------------------
1,800,565 100% 1,272,867 100%
================================================================================
(1) Approximately 61,750 of these lines are owned and operated by CenturyTel's
89%-owned affiliate.
(2) These lines are owned and operated by CenturyTel's majority-owned
affiliate, of which CenturyTel owned 57.1% at December 31, 2000 and 75.7%
as of the date of this Report.
As indicated in the following table, the Company has experienced growth in
its telephone operations over the past several years, a substantial portion of
which was attributable to the July and September 2000 acquisitions of telephone
properties from Verizon, the December 1997 acquisition of PTI, the acquisitions
of other telephone properties and the expansion of services. A portion of the
Company's access line growth was offset by the May 1999 sale of the Company's
Alaska telephone operations.
Year ended or as of December 31,
- -----------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
- -----------------------------------------------------------------------------------------------
(Dollars in thousands)
Access lines 1,800,565 1,272,867 1,346,567 1,203,650 503,562
% Residential 76% 75 74 74 77
% Business 24% 25 26 26 23
Operating revenues $ 1,253,969 1,126,112 1,077,343 526,428 450,082
Capital expenditures $ 275,523 233,512 233,190 115,854 110,147
- -----------------------------------------------------------------------------------------------
Future growth in telephone operations is expected to be derived from (i)
acquiring additional telephone properties, (ii) providing service to new
customers, (iii) increasing network usage and (iv) providing additional services
made possible by advances in technology, improvements in the Company's
infrastructure and changes in regulation. For information on developing
competitive trends, see "-Regulation and Competition."
Services
The Company's local exchange telephone subsidiaries derive revenue from
providing (i) local telephone services, (ii) network access services and (iii)
other related services. The following table reflects the percentage of telephone
operating revenues derived from these respective services:
2000 1999 1998
- --------------------------------------------------------------------------------
Local service 32.6% 31.4 30.8
Network access 58.0 58.1 58.4
Other 9.4 10.5 10.8
- --------------------------------------------------------------------------------
100.0% 100.0 100.0
================================================================================
Local service. Local service revenues are derived from the provision of
local exchange telephone services in the Company's service areas. Internal
access line growth during 2000, 1999 and 1998 was 2.8%, 4.8% and 4.7%,
respectively. The decrease in internal access line growth during 2000 was
partially due to disconnecting service to customers for non-payment and the
replacement of lines with high-speed data circuits.
The installation of digital switches, high-speed data circuits and related
software has been an important component of the Company's growth strategy
because it allows the Company to offer enhanced voice services (such as call
forwarding, conference calling, caller identification, selective call ringing
and call waiting) and data services and to thereby increase utilization of
existing access lines. In 2000 the Company continued to expand its list of
premium services (such as voice mail) offered in certain service areas and
aggressively marketed these services.
Network access. Network access revenues primarily relate to services
provided by the Company to long distance carriers, wireless carriers and other
customers in connection with the use of the Company's facilities to originate
and terminate interstate and intrastate long distance telephone calls. The
Company's access charges are based on tariffed access rates filed with the
Federal Communications Commission ("FCC") for interstate services and with the
respective state regulatory agency for intrastate services. Certain of the
Company's interstate network access revenues are based on access charges
prescribed by the FCC; the remainder of such revenues are derived under revenue
sharing arrangements with other local exchange carriers ("LECs") administered by
the National Exchange Carrier Association ("NECA"), a quasi-governmental
non-profit organization formed by the FCC in 1983 for such purposes.
Certain of the Company's intrastate network access revenues are derived
through access charges billed by the Company to intrastate long distance
carriers and other LEC customers. Such intrastate network access charges are
based on access tariffs, which are subject to state regulatory commission
approval. Additionally, certain of the Company's intrastate network access
revenues, along with intrastate and intra-LATA (Local Access and Transport
Areas) long distance revenues, are derived through revenue sharing arrangements
with other LECs.
The Company is installing fiber optic cable in certain of its high traffic
routes and provides alternative routing of telephone service over fiber optic
cable networks in several strategic operating areas. At December 31, 2000, the
Company's telephone subsidiaries had over 10,000 miles of fiber optic cable in
use.
Other. Other revenues include revenues related to (i) leasing, selling,
installing, maintaining and repairing customer premise telecommunications
equipment and wiring, (ii) providing billing and collection services for long
distance companies and (iii) participating in the publication of local
directories.
Certain large communications companies for which the Company currently
provides billing and collection services continue to indicate their desire to
reduce their billing and collection expenses, which has resulted and may
continue to result in future reductions of the Company's billing and collection
revenues.
For further information on the regulation of the Company's revenues, see
"-Regulation and Competition."
Federal Financing Programs
Certain of the Company's telephone subsidiaries receive long-term
financing from the Rural Utilities Service ("RUS") or the Rural Telephone Bank
("RTB"). The RUS has made long-term loans to telephone companies since 1949 for
the purpose of improving telephone service in rural areas. The RUS continues to
make new loans at interest rates that range from 5% to 7% based on borrower
qualifications and the cost of funds to the United States government. The RTB,
established in 1971, makes long-term loans at interest rates based on its
average cost of funds as determined by statutory formula (such rates ranged from
6.01% to 6.05% for the RTB's fiscal year ended September 30, 2000), and in some
cases makes loans concurrently with RUS loans. Much of the Company's telephone
plant is pledged or mortgaged to secure obligations of the Company's telephone
subsidiaries to the RUS and RTB. The Company's telephone subsidiaries that have
borrowed from government agencies generally may not loan or advance any funds to
CenturyTel, but may pay dividends if certain financial covenants are met.
For additional information regarding the Company's financing, see the
Company's consolidated financial statements included in Item 8 herein.
Regulation and Competition
Traditionally, LECs have operated as regulated monopolies. Consequently,
most of the Company's telephone operations have traditionally been regulated
extensively by various state regulatory agencies (generally called public
service commissions or public utility commissions) and by the FCC. As discussed
in greater detail below, passage of the Telecommunications Act of 1996 (the
"1996 Act"), coupled with state legislative and regulatory initiatives and
technological changes, has fundamentally altered the telephone industry by
reducing the regulation of LECs and permitting competition in each segment of
the telephone industry. Although CenturyTel anticipates that these trends
towards reduced regulation and increased competition will continue, it is
difficult to determine the form or degree of future regulation and competition
in the Company's service areas.
State regulation. The local service rates and intrastate access charges of
substantially all of the Company's telephone subsidiaries are regulated by state
regulatory commissions. Most of such commissions have traditionally regulated
pricing through "rate of return" regulation that focuses on authorized levels of
earnings by LECs. Most of these commissions also (i) regulate the purchase and
sale of LECs, (ii) prescribe depreciation rates and certain accounting
procedures and (iii) regulate various other matters, including certain service
standards and operating procedures.
In recent years, state legislatures and regulatory commissions in most of
the states in which the Company has substantial operations have either reduced
the regulation of LECs or have announced their intention to do so, and it is
expected that this trend will continue. Wisconsin, Louisiana and several other
states have passed legislation or issued regulatory rulings which permit LECs to
opt out of rate of return regulation in exchange for agreeing to alternative
forms of regulation which typically permit the LEC greater freedom to establish
local service rates in exchange for agreeing not to charge rates in excess of
specified caps. As discussed further below, most of the Company's Wisconsin
telephone subsidiaries, with the exception of the recently acquired properties,
have agreed to be governed by alternative regulation plans, and the Company
continues to explore its options for similar treatment in other states. Other
states have imposed new regulatory models that do not rely on "rate of return"
regulation. The Company believes that reduced regulatory oversight of certain of
the Company's telephone operations may allow the Company to offer new and
competitive services faster than under the traditional regulatory process. For a
discussion of legislative, regulatory and technological changes that have
introduced competition into the local exchange industry, see "-Developments
Affecting Competition."
A portion of the Company's telephone operations in Wisconsin have been
regulated under an alternative regulation plan since June 1996. In late 1999 and
early 2000, most of the Company's remaining Wisconsin telephone subsidiaries
agreed to be subject to alternative regulation plans. Each of these plans has a
five-year term and permits the Company to adjust local rates within specified
parameters if certain quality-of-service and infrastructure-development
commitments are met. These plans also include initiatives designed to promote
competition. Although the Company believes that these plans will be favorable in
the future as additional revenue streams are added and cost efficiencies are
obtained, these plans slowed revenue growth during 2000 because they are more
closely tied to access line growth rather than minutes of use growth, which has
traditionally grown at a faster rate than access lines. There can be no
assurance that current or future alternative regulation plans will not reduce
revenue growth in the future. For a discussion of the Company's pending rate
proceedings with the Wisconsin Public Service Commission, see Item 7 of this
Report.
In 1997 the Louisiana Public Service Commission ("LPSC") adopted a
Consumer Price Protection Plan (the "Louisiana Plan"), effective July 1997 and
renewed substantially in its same form during 2000, which impacts all of the
Company's LECs operating in Louisiana. This form of regulation focuses on price
and quality of service. Under the Louisiana Plan, the Company's Louisiana LECs'
local rates were frozen for a period of three years and access rates were frozen
for a period of two years. The Company's Louisiana LECs have the option to
propose a new plan at any time if the LPSC determines that (i) effective
competition exists or (ii) unforeseen events threaten the LEC's ability to
provide adequate service or impair its financial health. Although the Louisiana
Plan has no specified term, the LPSC is required to review it by mid-2003.
The Company's Arkansas LECs, excluding the newly-acquired Verizon
properties, are regulated under an alternative regulation plan adopted in 1997,
which initially froze access rates for three years, after which time such rates
can be adjusted based on an inflation-based factor. Local service rates can be
adjusted without commission approval; however, such rates are subject to
commission review if certain petition criteria are met. In addition, since 1995
the Company's Michigan LECs have been subject to a regulatory structure that
focuses on price and quality of service as opposed to traditional rate of return
regulation, and which relies more on existing federal and state law regarding
antitrust consumer protection and fair trade to provide safeguards for
competition and consumers.
Notwithstanding the movement towards deregulation, LECs operating
approximately 68% of the Company's total access lines continue to be subject
to "rate of return" regulation. These LECs remain subject to the powers of state
regulatory commissions to conduct earnings reviews and adjust service rates.
FCC regulation. The FCC regulates the interstate services provided by the
Company's telephone subsidiaries primarily by regulating the interstate access
charges that are billed to long distance companies and other LECs by the Company
for use of its local network in connection with the origination and termination
of interstate telephone calls. Additionally, the FCC has prescribed certain
rules and regulations for telephone companies, including regulations regarding
the use of radio frequencies; a uniform system of accounts; and rules regarding
the separation of costs between jurisdictions and, ultimately, between
interstate services.
Effective January 1, 1991, the FCC adopted price-cap regulation relating
to interstate access rates for the Regional Bell Operating Companies ("RBOCs")
and GTE Corporation. All other LECs may elect to be subject to price-cap
regulation. Under price-cap regulation, limits imposed on a company's interstate
rates are adjusted periodically to reflect inflation, productivity improvement
and changes in certain non-controllable costs. In May 1993 the FCC adopted an
optional incentive regulatory plan for LECs not subject to price-cap regulation.
A LEC electing the optional incentive regulatory plan would, among other things,
file tariffs based primarily on historical costs and not be allowed to
participate in the relevant NECA pooling arrangements. The Company has not
elected price-cap regulation or the optional incentive regulatory plan, but will
continue to evaluate its options on a periodic basis. Either election, if made
by the Company, would have to be applicable to all of the Company's telephone
subsidiaries. The authorized interstate access rate of return for the Company's
telephone subsidiaries is currently 11.25%, which is the authorized rate
established by the FCC for LECs not governed by price-cap regulation or the
optional incentive regulatory plan.
On October 20, 2000, a proposed comprehensive reform plan designed to
address access rates, universal service, rate of return and separations was
filed with the FCC by a Multi Association Group representing small and mid-sized
telephone companies that currently are regulated under traditional rate of
return mechanisms. The proposed plan attempts to mirror certain principles of
the access charge reform plan implemented by the FCC for price cap companies in
mid-1999. Under this plan, companies would have a five-year period to transition
from their existing forms of rate of return regulation to a new form of
incentive regulation. If adopted in its current form, the plan would not have a
material effect on the Company's operating revenues or results of operations;
however, until the plan is finalized under the rulemaking procedures of the FCC,
it is premature to assess the ultimate impact this proposal will have on the
Company. There can be no assurance that the plan, in its final form, will not
have a material effect on the Company's results of operations.
High-cost support funds, revenue sharing arrangements and related matters.
A significant number of the Company's telephone subsidiaries recover a portion
of their costs under federal and state cost recovery mechanisms that
traditionally have allowed LECs serving small communities and rural areas to
provide communications services reasonably comparable to those available in
urban areas and at reasonably comparable prices.
The 1996 Act authorized the establishment of new federal and state
universal service funds to provide continued support to eligible
telecommunications carriers. Substantially all of the Company's LECs has been
designated eligible to receive continued support by its respective state
regulatory agency. These new suppport funds are intended to replace existing
federal support mechanisms that are based on historical cost models. The FCC has
established a task force to recommend how universal service support should be
administered for rural LECs. This task force has recommended a modified embedded
cost model which, if adopted in its current form, would not have a material
effect on the Company's consolidated revenues or results of operations. However,
if the FCC implements new universal support mechanisms for rural carriers,
including substantially all of the Company's LECs, based on forward-looking cost
models (as it did for non-rural carriers in October 1999), the Company's
consolidated revenues could be negatively impacted. Until new support mechanisms
are finalized under the FCC's rulemaking procedures, there can be no assurance
that the universal service support mechanism ultimately adopted by the FCC will
not negatively affect the Company's operations. During 2000 and 1999 the
Company's telephone subsidiaries received $146.4 million (of which $8.3 million
related to the Company's recently-acquired Verizon operations) and $127.5
million (of which $5.2 million related to the Alaska based operations which were
disposed of in mid-1999), respectively, from the federal Universal Service Fund,
representing 7.9% and 7.6%, respectively, of the Company's consolidated revenues
for 2000 and 1999. In addition, the Company's telephone subsidiaries received
$30.7 million and $19.5 million in 2000 and 1999, respectively, from intrastate
support funds. For additional information, see Item 7 of this report.
In 1997, the FCC also established new programs to provide discounted
telecommunications services annually to schools, libraries and rural health care
providers. All communications carriers providing interstate telecommunications
services, including the Company's LECs and its cellular and long distance
operations, are required to contribute to these programs. The Company's LECs
recover their funding contributions in their rates for interstate services. The
Company's contribution by its cellular and long distance operations, which is
passed on to its customers, was approximately $3.7 million in 2000 and $3.9
million in 1999.
Some of the Company's telephone subsidiaries operate in states where
traditional cost recovery mechanisms, including rate structures, are under
evaluation or have been modified. See "-State Regulation." There can be no
assurance that these states will continue to provide for cost recovery at
current levels.
Substantially all of the Company's LECs concur with the common line
tariffs and certain of the Company's LECs concur with the traffic sensitive
tariffs filed by the NECA; such LECs participate in the access revenue sharing
arrangements administered by the NECA for interstate services. All of the
intrastate network access revenues of the Company's LECs are based on access
charges, cost separation studies or special settlement arrangements. See
"-Services."
Certain long distance carriers continue to request that certain of the
Company's LECs reduce intrastate access tariffed rates. Long distance carriers
have also aggressively pursued regulatory or legislative changes that would
reduce access rates. There is no assurance that these requests or initiatives
will not result in decreased access revenues.
Developments affecting competition. The communications industry continues
to undergo fundamental changes which are likely to significantly impact the
future operations and financial performance of all communications companies.
Primarily as a result of legislative and regulatory initiatives and
technological changes, competition has been introduced and encouraged in each
sector of the telephone industry, including, most recently, the local exchange
sector. As a result, the number of companies offering competitive services has
increased substantially.
As indicated above, in February 1996 Congress enacted the 1996 Act, which
obligates LECs to permit competitors to interconnect their facilities to the
LEC's network and to take various other steps that are designed to promote
competition. The 1996 Act imposes several duties on a LEC if it receives a
specific request from another entity which seeks to connect with or provide
services using the LEC's network. In addition, each incumbent LEC is obligated
to (i) negotiate interconnection agreements in good faith, (ii) provide
"unbundled" access to all aspects of the LEC's network, (iii) offer resale of
its telecommunications services at wholesale rates and (iv) permit competitors
to collocate their physical plant on the LEC's property, or provide virtual
collocation if physical collocation is not practicable. Under the 1996 Act's
rural telephone company exemption, substantially all of the Company's telephone
subsidiaries are exempt from certain of these interconnection requirements
unless and until the appropriate state regulatory commission overrides the
exemption upon receipt from a competitor of a request meeting certain criteria.
In mid-2000, a federal appellate court overturned portions of the FCC's 1996
interconnection order that sought to place the burden of proving the continuing
availability of this exemption on rural LECs. States are permitted to adopt laws
or regulations that provide for greater competition than is mandated under the
1996 Act. Although portions of the FCC's August 1996 interconnection order have
survived judicial challenge, the FCC has neither completed its interconnection
rulemaking nor issued rules on universal service or access reform for rural
carriers. Management believes that competition in its telephone service areas
has increased and will continue to increase as a result of the 1996 Act,
although the form and degree of competition cannot be ascertained until such
time as the FCC (and, in certain instances, state regulatory commissions) adopts
final and nonappealable implementing regulations.
In addition to these changes in federal regulation, all of the 21 states
in which the Company provides telephone services have taken legislative or
regulatory steps to further introduce competition into the LEC business. As a
result of these regulatory developments, incumbent LECs ("ILECs") increasingly
face competition from competitive local exchange carriers ("CLECs"),
particularly in high population areas. CLECs provide competing services through
reselling the ILECs' local services, through use of the ILECs' unbundled network
elements or through their own facilities.
The number of companies which have requested authorization to provide
local exchange service in the Company's service areas has increased
substantially, especially in the Company's newly-acquired Verizon markets, and
it is anticipated that similar action may be taken by others in the future.
In addition to facing direct competition from CLECs, ILECs increasingly
face competition from alternate communication systems constructed by long
distance carriers, large customers or alternative access vendors. These systems,
which have become more prevalent as a result of the 1996 Act, are capable of
originating or terminating calls without use of the ILECs' networks. Customers
may also use wireless or Internet voice service to bypass ILECs' switching
services. In addition, technological and regulatory developments have increased
the feasibility of competing services offered by cable television companies,
several of whom are pursuing these opportunities. Other potential sources of
competition include noncarrier systems that are capable of bypassing ILECs'
local networks, either partially or completely, through substitution of special
access for switched access or through concentration of telecommunications
traffic on few of the ILECs' access lines. The Company anticipates that all
these trends will continue and lead to increased competition with the Company's
LECs.
Historically, cellular telephone services have complemented traditional
LEC services. However, existing and emerging wireless technologies increasingly
compete with LEC services. The Company anticipates this trend will continue,
particularly if wireless service rates continue to drop. Technological and
regulatory developments in cellular telephone, personal communications services,
digital microwave, coaxial cable, fiber optics, local multipoint distribution
services and other wired and wireless technologies are expected to further
permit the development of alternatives to traditional landline services. For
further information on certain of these developments, see "Wireless Operations -
Regulation and Competition."
Historically, ILECs earned all or substantially all of the toll revenues
associated with intra-LATA long distance calls. Principally as a result of
recent state regulatory changes, companies offering competing toll services have
emerged in the Company's local exchange markets.
To the extent that the telephone industry increasingly experiences
competition, the size and resources of each respective competitor may
increasingly influence its prospects. Many companies currently providing or
planning to provide competitive communication services have substantially
greater financial and marketing resources than the Company, and several are not
subject to the same regulatory constraints as the Company.
The Company anticipates that the traditional operations of LECs will
continue to be impacted by continued technological developments as well as
legislative and regulatory initiatives affecting the ability of LECs to provide
new services and the capability of long distance companies, CLECs, wireless
companies, cable television companies and others to provide competitive LEC
services. Competition relating to services traditionally provided solely by LECs
has thus far affected large urban areas to a greater extent than rural, suburban
and small urban areas such as those in which the Company operates. The Company
intends to actively monitor these developments, to observe the effect of
emerging competitive trends in initial competitive markets and to continue to
evaluate new business opportunities that may arise out of future technological,
legislative and regulatory developments.
The Company anticipates that regulatory changes and competitive pressures
may result in future revenue reductions in its telephone operations. However,
the Company anticipates that such reductions may be minimized by increases in
revenues attributable to the continued demand for enhanced services and new
product offerings. While the Company expects its telephone revenues to continue
to grow, its internal telephone revenue growth rate may slow during upcoming
periods.
WIRELESS OPERATIONS
At December 31, 2000, the Company had access to approximately 9.5 million
cellular pops, of which 65% were applicable to MSAs and 35% were RSA pops.
According to data derived from published sources, the Company is the eighth
largest cellular telephone company in the United States based on the Company's
9.5 million pops.
Cellular Industry
The cellular telephone industry has been in existence for over 16 years in
the United States. The industry has grown significantly during this period and
cellular service is now available in substantially all areas of the United
States. According to the Cellular Telecommunications Industry Association, at
June 2000 there were estimated to be over 97 million wireless customers across
the United States.
Initially, all radio transmissions of cellular systems were conducted on
an analog basis. Technological developments involving the application of digital
radio technology offer certain advantages over analog technologies, including
expanding the capacity of mobile communications systems, improving voice
clarity, permitting the introduction of new services, and making such systems
more secure. Digital service is now available in 100% of the Company's MSA
markets and approximately 65% of its RSA markets. Approximately 19% of the
Company's cellular customers currently subscribe to digital services. As
discussed further below, several large wireless carriers have taken initial
steps to develop "next generation" technologies capable of providing enhanced
digital wireless services. For additional information, see "-Regulation and
Competition-Developments Affecting Wireless Competition."
Construction and Maintenance
The construction and maintenance of cellular systems is capital intensive.
Although the Company's MSA and RSA systems have been operational for many years,
the Company has continued to add cell sites to increase coverage, provide
additional capacity, and improve the quality of these systems. In 2000 the
Company completed construction of 47 cell sites in its majority-owned markets.
At December 31, 2000, the Company operated 743 cell sites in its majority-owned
markets.
Over the past several years the Company has upgraded most of its wireless
systems to be capable of providing digital service under the Time Division
Multiple Access ("TDMA") standard, which is one of the four primary digital
cellular standards currently used worldwide. The Company intends to continue
installing digital voice transmission facilities in other markets in 2001. See
"-Regulation and Competition-Developments Affecting Wireless Competition."
Capital expenditures related to majority-owned and operated wireless systems
totaled approximately $58.5 million in 2000. Such capital expenditures for 2001
are anticipated to be approximately $70 million.
Strategy
The Company's business development strategy for its wireless operations is
to secure operating control of service areas that are geographically clustered.
Clustered systems aid the Company's marketing efforts and provide various
operating and service advantages. Approximately 46% of the Company's customers
are in a single, contiguous cluster of eight MSAs and nine RSAs in Michigan;
another 25% are in a cluster of five MSAs and seven RSAs in northern and central
Louisiana, southern Arkansas and eastern Texas. See "-The Company's Cellular
Interests."
The Company has also traditionally targeted roaming service revenues,
which are derived from calls made in one of the Company's service areas by
customers of other cellular carriers from other service areas. In exchange for
providing roaming service to customers of other carriers, the Company has
traditionally charged premium rates to most of these other carriers, who then
frequently pass on some or all of these premium rates to their own customers.
The Company's Michigan, Louisiana and Mississippi cellular properties provide
service to various interstate highway corridors. As indicated elsewhere in Items
1 and 7 of this Report, the Company has increasingly received pressure from
other cellular operators to reduce substantially its roaming rates. See
"-Services, Customers and System Usage."
Marketing
The Company markets its wireless services through several distribution
channels, including its direct sales force, retail outlets owned by the Company
and independent agents. All sales employees and certain independent agents
solicit customers exclusively for the Company. Company sales employees are
compensated by salary and commission and independent sales agents are paid
commissions. The Company advertises its services through various means,
including direct mail, billboard, magazine, radio, television and newspaper
advertisements.
The sales and marketing costs of obtaining new subscribers include
advertising and a direct expense applicable to most new subscribers, either in
the form of a commission payment to an agent or an incentive payment to a direct
sales employee. In addition, the Company discounts the cost of cellular
telephone equipment sold to its customers, and periodically runs promotions
which waive certain fees or provide some amount of free service to new
subscribers. The average cost of acquiring each new customer ($289 in 2000)
remains one of the larger expenses in conducting the Company's wireless
operations. In recent years, the Company has sought to lower this average cost
by focusing more on its direct distribution channels. The Company opened its
first retail outlet in 1994, and currently operates 143 such outlets. During
2000, approximately 65% of new cellular customers were added through direct
distribution channels, up from 37% during 1996.
Because most of the Company's cellular markets are located in rural,
suburban or small urban areas, the Company believes that most of its customers
typically require only local or regional services. The Company lacks the
facilities and national brand name necessary to compete effectively for business
customers requiring nationwide services, and the Company does not actively
target these customers in its marketing campaigns. See "-Regulation and
Competition."
Services, Customers and System Usage
There are a number of different types of cellular telephones, all of which
are currently compatible with cellular systems nationwide. The Company offers a
full range of vehicle-mounted, transportable, and hand-held portable cellular
telephones. The Company typically purchases cellular phones in bulk, and
typically resells them at a loss to meet competition or to stimulate sales by
reducing the cost of becoming a cellular customer.
The Company charges its subscribers for access to its systems, for minutes
of use and for enhanced services, such as voice mail. A subscriber may purchase
certain of these services separately or may purchase rate plans which bundle
these services in different ways and are designed to fit different customer
requirements. While the Company historically has typically charged its customers
separately for custom-calling features, air time in excess of the packaged
amount, and toll calls, it currently offers plans which include features such as
unlimited toll calls and unlimited weekend calling in certain calling areas.
Custom-calling features provided by the Company include call-forwarding,
call-waiting, three-way calling and no- answer transfer. The Company also offers
voice message service in its markets.
Cellular customers come from a wide range of occupations and typically
include a large proportion of individuals who work outside of their office. In
recent years, the individual consumer market has generated a majority of new
customer additions. The Company's average monthly cellular revenue per customer
declined to $49 in 2000 from $53 in 1999 and $57 in 1998. Such average revenue
per customer is expected to further decline (i) as market penetration increases
and additional lower usage customers are activated, (ii) as the Company
continues to receive pressure from other cellular operators to reduce roaming
rates and (iii) as competitive pressures from current and future wireless
communications providers intensify. See "-Regulation and Competition."
The Company has entered into "roaming agreements" nationwide with
operators of other cellular systems that permit each company's respective
customers to place or receive calls outside of their home market area. The
charge to a non-Company customer for this service has traditionally been at
premium rates, and is billed by the Company to the customer's service provider,
which then bills the customer. In most instances, based on competitive factors
and financial considerations, the Company charges an amount to its customers
that is equal to or lower than the amount actually charged by the cellular
carrier providing the roaming service. Within the past two years, several large
nationwide cellular providers have introduced rate plans that offer roaming
coverage (provided through other carriers) at the same rate as service within
the customer's home market area. To defray the cost of these plans, these
providers have exerted substantial pressure on other cellular providers,
including the Company, to reduce their roaming fees. The Company anticipates
that competitive factors and industry consolidation will continue to place
further pressure on charging premium roaming rates. For additional information
on roaming revenue, see "-Strategy."
Churn rate (the average percentage of cellular customers that terminate
service each month) is an industry-wide concern. A significant portion of the
churn in the Company's markets is due to the Company disconnecting service to
cellular customers for nonpayment of their bills. In addition, the Company faces
substantial competition from the other wireless providers, including PCS
providers. The Company's average monthly churn rate, excluding prepaid
customers, in its majority-owned and operated markets was 1.95% in 2000 and
2.02% in 1999. The Company is attempting to lower its churn rate by increasing
its proactive customer service efforts and implementing additional customer
retention programs.
During recent years, the Company's cellular subsidiaries experienced
strong subscriber growth in the fourth quarter, primarily due to holiday season
sales.
The following table summarizes, among other things, certain information
about the Company's customers and market penetration:
Year ended or at December 31,
- --------------------------------------------------------------------------------------------------------
2000 1999 1998
- --------------------------------------------------------------------------------------------------------
Majority-owned and operated MSA and RSA systems (Note 1):
Cellular systems operated 41 42 44
Cell sites 743 711 644
Population of systems operated (Note 2) 8,219,411 8,267,140 9,026,150
Customers (Note 3):
At beginning of period 707,486 624,290 569,983
Gross units added internally 339,247 240,084 214,767
Disconnects 284,880 146,325 160,460
Net units added internally 54,367 93,759 54,307
Effect of property dispositions (10,653) (10,563) -
At end of period 751,200 707,486 624,290
Market penetration at end of period (Note 4) 9.1% 8.6 6.9
Churn rate (Note 5) 1.95% 2.02 2.23
Average monthly service revenue
per customer $ 49 53 57
Construction expenditures (in thousands) $ 58,468 58,760 57,326
- --------------------------------------------------------------------------------------------------------
For additional information, see "- The Company's Wireless Interests."
Notes:
1. Represents the number of systems in which the Company owned at least a 50%
interest. The revenues and expenses of these markets, all of which are
operated by the Company, are included in the Company's consolidated
operating revenues and operating expenses.
2. Based on independent third-party population estimates for each respective
year.
3. Represents the approximate number of revenue-generating cellular telephones
served by the cellular systems referred to in note 1.
4. Computed by dividing the number of customers at the end of the period by
the total population of systems referred to in note 1.
5. Represents the average percentage of customers, excluding prepaid customers,
that were disconnected per month.
The Company's Wireless Interests
Cellular interests. The Company obtained the right to provide cellular
service through (i) the FCC's licensing process described below, under which it
received interests in wireline licenses, and (ii) its acquisition program, under
which it has acquired interests in both wireline and non-wireline licenses. The
table below sets forth certain information with respect to the interests in
cellular systems that the Company owned as of December 31, 2000:
The Other
2000 Company's cellular
population Ownership pops at operator
(Note 1) percentage 12/31/00 (Note 2)
- ---------------------------------------------------------------------------------------------
Majority-owned and operated MSAs
- --------------------------------
Pine Bluff, AR 80,281 100.00% 80,281 Cingular
Texarkana, AR/TX 135,898 89.00 120,949 AT&T
Alexandria, LA 146,312 100.00 146,312 Centennial
Monroe, LA 146,578 87.00 127,523 AT&T
Shreveport, LA 377,761 87.00 328,652 AT&T
Battle Creek, MI 196,796 97.00 190,892 Centennial
Benton Harbor, MI 159,535 97.00 154,749 Centennial
Grand Rapids, MI 787,798 97.00 764,164 Verizon
Jackson, MI 157,913 97.00 153,176 Centennial
Kalamazoo, MI 306,384 97.00 297,192 Centennial
Lansing-E. Lansing, MI 519,292 97.00 503,713 Verizon
Muskegon, MI 193,840 97.00 188,025 Verizon
Saginaw-Bay City-
Midland, MI 400,325 91.70 367,098 Verizon
Biloxi-Gulfport, MS (Note 4) 235,582 96.45 227,222 Cellular South
Jackson, MS (Note 4) 435,366 90.22 392,779 MCTA
Pascagoula, MS (Note 4) 134,358 89.20 119,851 Cellular South
Appleton-Oshkosh-
Neenah, WI 502,946 98.85 497,151 U.S. Cellular
Eau Claire, WI 144,884 55.50 80,411 American Cellular
LaCrosse, WI 102,624 95.00 97,493 U. S. Cellular
- ---------------------------------------------------------------------
5,164,473 4,837,633
- ---------------------------------------------------------------------
Minority-owned MSAs (Note 3)
- -----------------------------
Little Rock, AR 562,766 36.00% 202,596
Lafayette, LA 268,286 49.00 131,460
Detroit, MI 4,803,771 3.20 153,625
Flint, MI 510,354 3.20 16,321
Rochester, MN 120,080 2.93 3,518
Austin, TX 1,085,641 35.00 379,974
Dallas-Ft. Worth, TX 4,893,547 0.50 24,468
Sherman-Denison, TX 104,843 0.50 524
Madison, WI 731,747 9.78 71,558
Milwaukee, WI 1,982,586 17.96 356,132
- ---------------------------------------------------------------------
15,063,621 1,340,176
- ---------------------------------------------------------------------
Total MSAs 20,228,094 6,177,809
- ---------------------------------------------------------------------
The Other
2000 Company's cellular
population Ownership pops at operator
(Note 1) percentage 12/31/00 (Note 2)
- -----------------------------------------------------------------------------------------------
Operated RSAs
- -------------
Arkansas 2 87,754 82.00 71,958 Cingular
Arkansas 3 103,195 82.00 84,620 Cingular
Arkansas 11 65,468 89.00 58,267 Cingular
Arkansas 12 183,300 80.00 146,640 Cingular
Louisiana 1 111,200 87.00 96,744 AT&T
Louisiana 2 114,514 87.00 99,627 AT&T
Louisiana 3 B2 95,821 87.00 83,364 Centennial
Louisiana 4 73,021 100.00 73,021 Centennial
Michigan 1 196,868 100.00 196,868 American Cellular
Michigan 2 113,791 100.00 113,791 RFB
Michigan 3 169,125 48.63 82,244 Unitel
Michigan 4 137,452 100.00 137,452 RFB
Michigan 5 164,253 48.63 79,875 Unitel
Michigan 6 144,166 98.00 141,283 Centennial
Michigan 7 249,579 56.07 139,940 Centennial
Michigan 8 104,503 97.00 101,368 Allegan Cellular
Michigan 9 303,549 43.38 131,680 Centennial
Mississippi 2 (Note 4) 253,145 100.00 253,145 Cingular
Mississippi 5 (Note 4) 157,526 100.00 157,526 Cingular
Mississippi 6 (Note 4) 182,880 100.00 182,880 Cellular South
Mississippi 7 (Note 4) 180,620 100.00 180,620 MCTA
Texas 7 B6 57,433 89.00 51,115 AT&T
Wisconsin 1 115,077 42.21 48,571 American Cellular
Wisconsin 2 85,070 99.00 84,219 American Cellular
Wisconsin 6 118,257 57.14 67,575 U.S. Cellular
Wisconsin 7 293,085 22.70 66,536 U.S. Cellular
Wisconsin 8 239,375 84.00 201,075 U.S. Cellular
- ---------------------------------------------------------------------
4,100,027 3,132,004
- ---------------------------------------------------------------------
Non-operated RSAs (Note 3)
- ----------------------------
Michigan 10 137,416 26.00 35,728
Minnesota 7 171,133 2.93 5,014
Minnesota 8 65,841 2.93 1,929
Minnesota 9 131,183 2.93 3,844
Minnesota 10 233,392 2.93 6,839
Minnesota 11 207,482 2.93 6,079
Washington 5 61,860 8.47 5,241
Washington 8 137,121 7.36 10,086
Wisconsin 3 143,138 42.86 61,345
Wisconsin 4 122,361 25.00 30,590
Wisconsin 10 130,092 22.50 29,271
- ---------------------------------------------------------------------
1,541,019 195,966
- ---------------------------------------------------------------------
Total RSAs 5,641,046 3,327,970
- ---------------------------------------------------------------------
25,869,140 9,505,779
=====================================================================
Notes:
1. Based on 2000 independent third-party population estimates.
2. Information provided to the best of the Company's knowledge. There is also
at least one PCS competitor in each of the operated MSAs and certain of
the operated RSAs.
3. Markets not operated by the Company.
4. Represents a non-wireline interest. See "Regulation and Competition
- Cellular licensing and regulation."
Other wireless interests - Excluding licenses that it is committed to
sell, the Company owned at December 31, 2000 (i) licenses to provide personal
communications services ("PCS") representing approximately 3.0 million pops
and (ii) 36 local multi-point distribution system ("LMDS") licenses representing
approximately 12.2 million pops. The Company intends to use a portion of its
LMDS licenses in connection with its new competitive local exchange business
described below under "Other Operations." The Company is currently evaluating
its options with respect to the remainder of these licenses, some of which will
lapse if not used by the Company by certain specified dates.
Operations
A substantial number of the cellular systems in MSAs operated by the
Company are owned by limited partnerships in which the Company is a general
partner ("MSA Partnerships"). Most of these partnerships are governed by
partnership agreements with similar terms, including, among other things,
customary provisions concerning capital contributions, sharing of profits and
losses, and dissolution and termination of the partnership. Most of these
partnership agreements vest complete operational control of the partnership with
the general partner. The general partner typically has the power to manage,
supervise and conduct the affairs of the partnership, make all decisions
appropriate in connection with the business purposes of the partnership, and
incur obligations and execute agreements on behalf of the partnership. The
general partner also may make decisions regarding the time and amount of cash
contributions and distributions, and the nature, timing and extent of
construction, without the consent of the other partners. The Company owns more
than 50% of all of the MSA Partnerships.
A substantial number of the cellular systems in RSAs operated by the
Company are also owned by limited or general partnerships in which the Company
is either the general or managing partner (the "RSA Partnerships"). These
partnerships are governed by partnership agreements with varying terms and
provisions. In many of these partnerships, the noncontrolling partners have the
right to vote on major issues such as the annual budget and system design. In a
few of these partnerships, the Company's management position is for a limited
term (similar to a management contract) and the other partners in the
partnership have the right to change managers, with or without cause. The
Company owns less than 50% of some of the RSA Partnerships.
The partnership agreements for both the MSA Partnerships and RSA
Partnerships generally contain provisions granting all partners a right of first
refusal in the event a partner desires to transfer a partnership interest. This
restriction on transfer can under certain circumstances make these partnership
interests more difficult to sell to a third party.
Revenue
The following table reflects the major revenue categories for the
Company's wireless operations as a percentage of wireless operating revenues in
2000, 1999 and 1998. Virtually all of these revenues were derived from cellular
operations.
2000 1999 1998
- --------------------------------------------------------------------------------
Access fees and toll revenues 74.2% 72.2 74.2
Roaming 22.5 25.2 23.6
Equipment sales 3.3 2.6 2.2
- --------------------------------------------------------------------------------
100.0% 100.0 100.0
================================================================================
For further information on these revenue categories, see "-Services,
Customers and System Usage."
Regulation and Competition
As discussed below, the FCC and various state public utility commissions
regulate, among other things, the licensing, construction, operation, safety,
interconnection arrangements, sale and acquisition of cellular telephone
systems.
Competition between providers of wireless communications service in each
market is conducted principally on the basis of price, services and enhancements
offered, the technical quality and coverage of the system, and the quality and
responsiveness of customer service. As discussed below, competition has
intensified in recent years in a substantial number of the Company's markets.
Under applicable law, the Company is required to permit the reselling of its
services. In certain larger markets and in certain market segments, competition
from resellers may be significant. There is also substantial competition for
sales agents. Certain of the Company's competitors have substantially greater
assets and resources than the Company.
Cellular licensing and regulation. The term "MSA" means a Metropolitan
Statistical Area for which the FCC has granted a cellular operating license. The
term "RSA" means a Rural Service Area for which the FCC has granted a cellular
operating license. During the 1980's and early 1990's, the FCC awarded two
10-year licenses to provide cellular service in each MSA and RSA market.
Initially, one license was reserved for companies offering local telephone
service in the market (the wireline carrier) and one license was available for
firms unaffiliated with the local telephone company (the non-wireline carrier).
Since mid-1986, the FCC has permitted telephone companies or their affiliates to
acquire control of non-wireline licenses in markets in which they do not hold
interests in the wireline license. The FCC has issued a decision that grants a
renewal expectancy during the license renewal period to incumbent licensees that
substantially comply with the terms and conditions of their cellular
authorizations and the FCC's regulations. The licenses for the MSA markets
operated by the Company were initially granted between 1984 and 1987, and
licenses for operated RSAs were initially granted between 1989 and 1991. Thus
far, the Company has received 10-year extensions of all of its licenses that
have become subject to renewal since their original grant dates.
The completion of an acquisition involving the transfer of control of a
cellular system requires prior FCC approval and, in certain cases, receipt of
other federal and state regulatory approvals. The acquisition of a minority
interest generally does not require FCC approval. Whenever FCC approval is
required, any interested party may file a petition to dismiss or deny the
application for approval of the proposed transfer.
In recent years, the FCC has also taken steps to (i) require certain
cellular towers and antennas to comply with radio frequency radiation
guidelines, (ii) require cellular carriers to work with public safety or law
enforcement officials to process 911 calls and conduct electronic surveillance,
(iii) enable cellular subscribers to retain, subject to certain limitations,
their existing telephone numbers when they change service providers and (iv)
implement portions of the 1996 Act. These initiatives may increase the cost of
providing cellular service.
In addition to regulation of these and other matters by the FCC, cellular
systems are subject to certain Federal Aviation Administration tower height
regulations concerning the siting and construction of cellular transmitter
towers and antennas.
Cellular operators are also subject to state and local regulation in some
instances. Although the FCC has pre-empted the states from exercising
jurisdiction in the areas of licensing, technical standards and market
structure, certain states require cellular operators to be certified. In
addition, some state authorities regulate certain aspects of a cellular
operator's business, including certain aspects of pricing, the resale of long
distance service to its customers, the technical arrangements and charges for
interconnection with the local wireline network, and the transfer of interests
in cellular systems. The siting and construction of the cellular facilities may
also be subject to state or local zoning, land use and other local regulations,
as well as the increasing possibility of local community opposition to new
towers.
Media and other reports have from time to time suggested that radio
frequency emissions from wireless handsets and base stations can cause various
health problems, and may interefere with electronic medical devices. These
concerns received increased scrutiny in 2000 following (i) the June 2000
announcement that the U.S. Food and Drug Administration had agreed to oversee a
$1 million industry-funded long-term study of handset emissions and had
recommended that users of handsets limit the length of their calls pending
completion of the study and (ii) the July 2000 adoption of a policy by the
leading industry trade group requiring handset manufacturers to disclose
emission levels. No assurance can be given that future research and studies will
not demonstrate a link between the radio frequency emissions of wireless handset
and base stations and health problems. If such a link is demonstrated, the
Company cannot provide assurances that government authorities will not increase
regulation of wireless handsets and base stations or that wireless companies
will not be held liable for cost or damages associated with these concerns.
Moreover, these concerns could materially reduce demand for wireless services,
including those offered by the Company.
A small number of local communities have enacted ordinances restricting or
prohibiting the use of wireless phones while driving motor vehicles, and several
state and local legislative bodies have proposed legislation to adopt similar
laws. In addition, some studies have indicated that using wireless phones while
driving may impair drivers' attention. Laws prohibiting or restricting the use
of wireless phones while driving could reduce subscriber usage. Additionally,
concerns over the use of wireless phones while driving could lead to potential
litigation against wireless carriers.
Developments affecting wireless competition. Competition in the wireless
communications industry has increased substantially in recent years due to
continued and rapid technological advances in the communications field, coupled
with legislative and regulatory changes.
Several FCC initiatives over the past decade have resulted in the
allocation of additional radio spectrum or the issuance of licenses for emerging
mobile communications technologies that are competitive with the Company's
cellular and telephone operations, including PCS. Although there is no
universally recognized definition of PCS, the term is generally used to refer to
wireless services to be provided by licensees operating in the 1850 MHz to 1990
MHz radio frequency band using microcells and high-capacity digital technology.
In 1996 and early 1997 the FCC auctioned up to six PCS licenses per market. Two
30MHz frequency blocks were awarded for each of the 51 Rand McNally Major
Trading Areas ("MTAs"), while one 30MHz and three 10MHz frequency blocks were
awarded for each of the 493 Rand McNally Basic Trading Areas ("BTAs").
Additional future auctions of radio spectrum will further intensify competition.
PCS technology permits PCS operators to offer wireless voice, data, image
and multimedia services. The largest PCS providers commenced initial operations
in late 1996 and since then have aggressively expanded their operations. These
providers have initially focused on larger markets, and have generally marketed
PCS as being a competitive service to cellular. Many of these companies have
aggressively competed for customers on the basis of price, which has placed
downward pressure on cellular prices. There is at least one PCS competitor in
each of the Company's operated MSAs and some of its operated RSAs.
In addition to PCS, current and prospective users of cellular systems may
find their communication needs satisfied by other current and developing
technologies. Several years ago the FCC authorized the licensees of certain
specialized mobile radio service ("SMR") systems (which historically have
generally been used by taxicabs and tow truck operators) to configure their
systems into digital networks that operate in a manner similar to cellular
systems. Such systems are commonly referred to as enhanced specialized mobile
radio service ("ESMR") systems. FCC regulations allow up to two ESMR carriers
per market. The Company believes that ESMR systems are operating in a few of its
cellular markets. One well-established ESMR provider has constructed a
nationwide digital mobile communications system to compete with cellular
systems. Other similar communication services that have the technical capability
to handle wireless telephone calls may provide competition in certain markets,
although these services currently lack the subscriber capacity of cellular
systems. Paging or beeper services that feature text message and data display as
well as tones may be adequate for potential subscribers who do not need to
converse directly with the caller. Mobile satellite systems, in which
transmissions are between mobile units and satellites, may ultimately be
successful in obtaining market share from cellular systems that communicate
directly to land-based stations. Other future technological advances or
regulatory changes (including additional spectrum auctions) may result in other
alternatives to cellular service, thereby creating additional sources of
competition.
Several large wireless carriers have recently taken one or more of the
following steps that could impact the Company's competitive position:
o First, several large wireless carriers have merged with other companies
or formed marketing alliances or joint ventures in order to enhance their
ability to provide nationwide cellular or PCS service under a single brand
name. Although the Company believes that most of the customers in its
smaller markets require only local or regional services, the Company's
wireless operations could be negatively impacted if competitors are
successful in marketing their nationwide services in the Company's
markets.
o Second, several large wireless carriers have taken initial steps to
provide wireless data, short messaging and other enhanced "next
generation" digital wireless services. In connection therewith, several
large domestic carriers that currently use the TDMA standard have either
announced their intention to abandon the TDMA standard or have begun to
overlay their TDMA systems with additional network elements permitting
packet data transmissions. The Company is evaluating whether the
opportunity to derive additional revenues from these enhanced services
justify the capital costs necessary to provide these services. If the
Company elects to continue to use the TDMA standard or to forego
implementation of "next generation" technology or services, there can be
no assurance that the Company will be able to receive support from vendors
or to compete effectively against companies using different technologies
or offering more services.
Although it is uncertain how competing services and emerging "next
generation" technologies will ultimately affect the Company, the Company
anticipates that it will continue to face increased competition in its wireless
markets.
OTHER OPERATIONS
The Company provides long distance, Internet access, competitive local
exchange services, broadband data, security monitoring, cable television and
interactive services in certain local and regional markets, as well as certain
printing and related services. The results of these operations, which accounted
for 8.1% and 6.0%, respectively, of the Company's consolidated revenues and
operating income during 2000, are reflected for financial reporting purposes in
the "Other operations" section.
Long distance. In 1996 the Company began marketing long distance service
in all of its equal access telephone operating areas. At December 31, 2000, the
Company provided long distance services to approximately 363,000 customers.
Approximately 75% of the Company's long distance revenues are derived from
service provided to residential customers. Although the Company owns and
operates a long distance switch in LaCrosse, Wisconsin, it anticipates that most
of its future long distance service revenues will be provided by reselling
service purchased from other facilities-based long distance providers. The
Company intends to continue to expand its long distance business, principally
through reselling arrangements.
Internet access. The Company began offering traditional Internet access
services to its telephone customers in 1995. At December 31, 2000 the Company
provided Internet access services to approximately 108,700 customers in 500
markets in 13 states. These 500 markets represent 64% of the access lines served
by the Company's LECs.
In late 1999, the Company began offering in select markets digital
subscriber line ("DSL") Internet access services, a high-speed premium-priced
data service. At December 31, 2000 the Company provided DSL service to
approximately 6,000 customers in markets that cover approximately 45% of the
access lines served by the Company's LECs (exclusive of those lines acquired in
mid-2000 in the Verizon acquisitions).
Competitive local exchange services. In late 2000, the Company began
offering competitive local exchange telephone services, coupled with long
distance, wireless, Internet access and other Company services, to small to
medium-sized businesses in two Louisiana wireless markets. The Company currently
plans to target a total of ten new markets by year end 2001, and has budgeted
$20 million of capital expenditures for 2001 to enter these markets. The Company
expects to incur an operating loss in 2001 of approximately $15 million in
connection with providing these services.
Broadband data. In connection with its long-range plans to sell capacity
to other carriers in or near certain of its select markets, the Company expects
to complete construction and testing by the second quarter of 2001 of a 650-
to 700-mile fiber optic ring connecting several communities in southern and
central Michigan.
Security monitoring. The Company offers 24-hour burglary and fire
monitoring services to approximately 7,400 customers in select markets in
Louisiana, Arkansas, Mississippi, Texas and Ohio.
Other. The Company also provides audiotext services; printing, database
management and direct mail services; and cable television services. The Company
is also in the process of developing an integrated billing and customer care
system which will enable the Company to offer customers value packaging and
produce a single bill for multiple services such as local telephone, wireless,
Internet access and long distance. From time to time the Company also makes
investments in other domestic or foreign communications companies, the most
significant of which to date is a minority investment in a start-up Internet
service provider in India.
Certain service subsidiaries of the Company provide installation and
maintenance services, materials and supplies, and managerial, technical,
accounting and administrative services to the telephone and wireless operating
subsidiaries. In addition, the Company provides and bills management services to
subsidiaries and in certain instances makes interest-bearing advances to finance
construction of plant, purchases of equipment or acquisitions of other
businesses. These transactions are recorded by the Company's regulated telephone
subsidiaries at their cost to the extent permitted by regulatory authorities.
Intercompany profit on transactions with regulated affiliates is limited to a
reasonable return on investment and has not been eliminated in connection with
consolidating the results of operations of CenturyTel and its subsidiaries. Such
intercompany profit is reflected in operating income in "Other operations".
FORWARD-LOOKING STATEMENTS
This report on Form 10-K and other documents filed by the Company under
the federal securities laws include, and future oral or written statements or
press releases of the Company and its management may include, certain
forward-looking statements, including without limitation statements with respect
to the Company's anticipated future operating and financial performance
(including the impact of pending acquisitions), financial position and
liquidity, growth opportunities and growth rates, business prospects, regulatory
and competitive outlook, investment and expenditure plans, investment results,
financing opportunities and sources (including the impact of financings on the
Company's financial position, financial performance or credit ratings), pricing
plans, strategic alternatives, business strategies, and other similar statements
of expectations or objectives that are highlighted by words such as "expects,"
"anticipates," "intends," "plans," "believes," "projects," "seeks," "estimates,"
"hopes," "should," and "may," and variations thereof and similar expressions.
Such forward-looking statements are inherently speculative and are based upon
several assumptions concerning future events, many of which are outside of the
Company's control. The Company's forward-looking statements, and the assumptions
upon which such statements are based, are subject to uncertainties that could
cause the Company's actual results to differ materially from such statements.
These uncertainties include but are not limited to those set forth below:
o the Company's ability to timely consummate acquisitions and effectively
manage its growth, including without limitation the Company's ability to
(i) integrate newly-acquired operations into the Company's operations,
(ii) attract and retain technological, managerial and other key personnel
to work at the Company's Monroe, Louisiana headquarters or regional
offices, (iii) achieve projected economies of scale and cost savings, (iv)
achieve projected growth and revenue targets developed by management in
valuing newly-acquired businesses, (v) upgrade its billing and other
information systems and (vi) otherwise monitor its operations, costs,
regulatory compliance, and service quality and maintain other necessary
internal controls.
o the risks inherent in rapid technological change, including without
limitation (i) the lack of assurance that the Company's ongoing wireless
network improvements will be sufficient to meet or exceed the capabilities
and quality of competing networks, (ii) technological developments that
could make the Company's analog and digital wireless networks
uncompetitive or obsolete, such as the risk that the TDMA digital
technology used by the Company will be uncompetitive with existing or
future "next generation" technologies, and (iii) the risk that
technologies will not be developed or embraced by the Company on a timely
or cost-effective basis or perform according to expectations.
o the effects of ongoing changes in the regulation of the communications
industry, including without limitation (i) changes as a result of the 1996
Act and other similar federal and state legislation and federal and state
regulations enacted thereunder, (ii) greater than anticipated
interconnection requests or competition in the Company's predominately
rural local exchange telephone markets resulting therefrom, (iii) greater
than anticipated reductions in revenues received from the Universal
Service Fund or other current or future federal and state support funds
designed to compensate LECs that provide services in high-cost markets,
(iv) the final outcome of regulatory and judicial proceedings with respect
to interconnection agreements and access charge reforms, (v) future
judicial or regulatory actions taken in response to the 1996 Act and (vi)
future legislation or regulations addressing potential concerns about
radio frequency emissions from wireless handsets and base stations, or the
potential hazards of using wireless phones while driving motor vehicles.
o the effects of greater than anticipated competition, including (i)
competition from competitive local exchange companies or wireless carriers
in the Company's local exchange markets and (ii) the inability of the
Company's wireless operations to compete against larger nationwide
wireless carriers on the basis of price, service coverage area or product
offerings, or due to other factors, including technological obsolescence
or the lack of marketing or other resources.
o possible changes in the demand for the Company's products and services,
including without limitation (i) lower than anticipated demand for
traditional or premium telephone services or for additional access lines
per household, (ii) lower than anticipated demand for wireless telephone
services, whether caused by changes in economic conditions, technology,
competition, health concerns or otherwise, (iii) lower than anticipated
demand for the Company's DSL Internet access services and (iv) reduced
demand for the Company's access or billing and collection services.
o the Company's ability to successfully introduce new offerings on a timely
and cost-effective basis, including without limitation the Company's
ability to (i) expand successfully its long distance and Internet
offerings to new markets (including those to be acquired in connection
with future acquisitions), (ii) offer bundled service packages on terms
attractive to its customers and (iii) successfully initiate competitive
local exchange and data services in its targeted markets.
o regulatory limits on the Company's ability to change its prices for
telephone services in response to competitive pressures.
o any difficulties in the Company's ability to expand through attractively
priced acquisitions, whether caused by financing constraints, a decrease
in the pool of attractive target companies, or competition for
acquisitions from other interested buyers.
o the possibility of the need to make abrupt and potentially disruptive
changes in the Company's business strategies due to changes in
competition, regulation, technology, product acceptance or other factors.
o higher than anticipated wireless operating costs due to churn or to
fraudulent uses of the Company's networks, or lower than anticipated
wireless revenues due to reduced roaming fees.
o the lack of assurance that the Company can compete effectively against
better-capitalized competitors.
o the future unavailability of SFAS 71 to the Company's telephone
subsidiaries.
o the effects of more general factors, including without limitation:
- changes in general industry and market conditions and growth rates
- changes in interest rates or other general national, regional or
local economic conditions
- changes in legislation, regulation or public policy, including
changes in federal rural financing programs
- unanticipated increases in capital, operating or administrative
costs, or the impact of new business opportunities requiring significant
up-front investments
- the continued availability of financing in amounts, and on terms and
conditions, necessary to support the Company's operations
- changes in the Company's relationships with vendors, or the failure
of these vendors to provide competitive products on a timely basis
- changes in the Company's senior debt ratings
- unfavorable outcomes of regulatory or legal proceedings, including
rate proceedings and environmental proceedings
- losses or unfavorable returns on the Company's investments in other
communications companies
- delays in the construction of the Company's networks
- changes in accounting policies or practices adopted voluntarily or as
required by generally accepted accounting principles.
For additional information, see the description of the Company's business
included above, as well as Item 7 of this report. Due to these uncertainties,
you are cautioned not to place undue reliance upon the Company's forward-looking
statements, which speak only as of the date made. The Company undertakes no
obligation to update or revise any of its forward-looking statements for any
reason.
OTHER MATTERS
The Company has certain obligations based on federal, state and local laws
relating to the protection of the environment. Costs of compliance through 2000
have not been material and the Company currently has no reason to believe that
such costs will become material.
For additional information concerning the business and properties of the
Company, see notes 2, 4, 5, 12, and 18 of Notes to Consolidated Financial
Statements set forth in Item 8 elsewhere herein.
Item 2. Properties.
The Company's properties consist principally of (i) telephone lines,
central office equipment, and land and buildings related to telephone
operations, and (ii) switching and cell site equipment related to cellular
telephone operations. As of December 31, 2000 and 1999, the Company's gross
property, plant and equipment of approximately $5.9 billion and $4.2 billion,
respectively, consisted of the following:
December 31,
- --------------------------------------------------------------------------------
2000 1999
- --------------------------------------------------------------------------------
Telephone operations
Cable and wire 47.7% 45.4
Central office equipment 28.0 27.4
General support 5.5 5.9
Information origination/termination equipment .9 1.4
Construction in progress 2.3 1.9
Other .1 .2
- --------------------------------------------------------------------------------
84.5 82.2
- --------------------------------------------------------------------------------
Wireless operations
Cell sites 6.2 8.4
General support 1.8 2.3
Construction in progress .9 .4
Other - .1
- --------------------------------------------------------------------------------
8.9 11.2
- --------------------------------------------------------------------------------
Other 6.6 6.6
- --------------------------------------------------------------------------------
100.0% 100.0
================================================================================
"Cable and wire" facilities consist primarily of buried cable and aerial
cable, poles, wire, conduit and drops. "Central office equipment" consists
primarily of switching equipment, circuit equipment and related facilities.
"General support" consists primarily of land, buildings, tools, furnishings,
fixtures, motor vehicles and work equipment. "Information
origination/termination equipment" consists primarily of premise equipment
(private branch exchanges and telephones) for official company use. "Cell sites"
consist primarily of radio frequency channel equipment, switching equipment and
towers. "Construction in progress" includes property of the foregoing categories
that has not been placed in service because it is still under construction.
Most of the properties of the Company's telephone subsidiaries are subject
to mortgages securing the debt of such companies. The Company owns substantially
all of the central office buildings, local administrative buildings, warehouses,
and storage facilities used in its telephone operations. The Company leases most
of the offices used in its wireless operations; certain of its transmitter sites
are leased while others are owned by the Company. For further information on the
location and type of the Company's properties, see the descriptions of the
Company's telephone and wireless operations in Item 1.
Item 3. Legal Proceedings.
From time to time, the Company is involved in litigation incidental to its
business, including administrative hearings of state public utility commissions
relating primarily to rate making, actions relating to employee claims,
occasional grievance hearings before labor regulatory agencies and miscellaneous
third party tort actions. Currently, there are no material legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Executive Officers of the Registrant
Information concerning Executive Officers, set forth at Item 10 in Part
III hereof, is incorporated in Part I of this Report by reference.
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.
CenturyTel's common stock is listed on the New York Stock Exchange and is
traded under the symbol CTL. The following table sets forth the high and low
sale prices, along with the quarterly dividends, for each of the quarters
indicated:
Sale prices
---------------------- Dividend per
High Low common share
---- --- ------------
2000:
First quarter $ 47.31 32.31 .0475
Second quarter $ 40.38 24.44 .0475
Third quarter $ 32.38 25.25 .0475
Fourth quarter $ 38.50 26.81 .0475
1999:
First quarter $ 49.00 40.06 .0450
Second quarter $ 47.63 35.13 .0450
Third quarter $ 43.88 38.25 .0450
Fourth quarter $ 48.75 37.56 .0450
Common stock dividends during 2000 and 1999 were paid each quarter. As of
February 28, 2001, there were approximately 5,550 stockholders of record of
CenturyTel's common stock.
Item 6. Selected Financial Data.
The following table presents certain selected consolidated financial data
as of and for each of the years ended in the five-year period ended December 31,
2000:
Selected Income Statement Data
Year ended December 31,
------------------------------------------------------------------
2000 1999 1998 1997 1996
------------------------------------------------------------------
(Dollars, except per share amounts, and shares expressed in thousands)
Operating revenues
Telephone $ 1,253,969 1,126,112 1,077,343 526,428 450,082
Wireless 443,569 422,269 407,827 307,742 250,243
Other 148,388 128,288 91,915 67,351 49,352
------------------------------------------------------------------
Total operating revenues $ 1,845,926 1,676,669 1,577,085 901,521 749,677
==================================================================
Operating income (loss)
Telephone $ 376,290 351,559 334,604 177,782 156,565
Wireless 117,865 133,930 129,124 87,772 67,914
Other 31,258 22,580 16,083 2,216 (1,183)
-------------------------------------------------------------------
Total operating income $ 525,413 508,069 479,811 267,770 223,296
===================================================================
Gain on sale or exchange
of assets, net (pre-tax) $ 20,593 62,808 49,859 169,640 815
==================================================================
Net income $ 231,474 239,769 228,757 255,978 129,077
==================================================================
Basic earnings per share $ 1.65 1.72 1.67 1.89 .96
==================================================================
Diluted earnings per share $ 1.63 1.70 1.64 1.87 .95
==================================================================
Dividends per common share $ .190 .180 .173 .164 .160
==================================================================
Average basic shares outstanding 140,069 138,848 137,010 134,984 133,400
==================================================================
Average diluted shares
outstanding 141,864 141,432 140,105 137,412 135,980
==================================================================
Selected Balance Sheet Data
December 31,
------------------------------------------------------------------------
2000 1999 1998 1997 1996
------------------------------------------------------------------------
(Dollars in thousands)
Net property, plant and
equipment $ 2,959,293 2,256,458 2,351,453 2,258,563 1,149,012
Excess cost of net assets
acquired, net $ 2,509,033 1,644,884 1,956,701 1,767,352 532,410
Total assets $ 6,393,290 4,705,407 4,935,455 4,709,401 2,028,505
Long-term debt $ 3,050,292 2,078,311 2,558,000 2,609,541 625,930
Stockholders' equity $ 2,032,079 1,847,992 1,531,482 1,300,272 1,028,153
-------------------------------------------------------------------------
The following table presents certain selected consolidated operating data
as of the end of each of the years in the five-year period ended December 31,
2000:
Year ended December 31,
------------------------------------------------------------------------
2000 1999 1998 1997 1996
------------------------------------------------------------------------
Telephone access lines 1,800,565 1,272,867 1,346,567 1,203,650 503,562
Wireless units in service in majority-
owned markets 751,200 707,486 624,290 569,983 368,233
Long distance customers 363,307 303,722 226,730 171,962 110,560
------------------------------------------------------------------------
See Items 1 and 2 in Part I, Item 7 in Part II and notes 1, 2 and 5 of
Notes to Consolidated Financial Statements set forth in Item 8 elsewhere herein
for additional information.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
Overview
CenturyTel, Inc. and its subsidiaries (the "Company") is a regional
integrated communications company engaged primarily in providing local exchange,
wireless, long distance, Internet access and data services to customers in 21
states.
On July 31, 2000 and September 29, 2000, affiliates of the Company acquired
over 490,000 telephone access lines and related local exchange assets in
Arkansas, Missouri and Wisconsin from affiliates of Verizon Communications, Inc.
("Verizon") for an aggregate of approximately $1.5 billion cash. On December 1,
1998, the Company acquired from affiliates of Ameritech Corporation
("Ameritech") telephone and directory operations serving approximately 86,000
access lines in northern and central Wisconsin for approximately $221 million
cash. The operations of these acquired properties are included in the Company's
results of operations beginning on the respective dates of acquisition. See
Acquisitions and Note 2 of Notes to Consolidated Financial Statements for
additional information.
On May 14, 1999, the Company sold substantially all of its Alaska-based
operations serving approximately 134,900 telephone access lines and 3,000
cellular subscribers. On June 1, 1999, the Company sold the assets of its
Brownsville and McAllen, Texas cellular operations serving approximately 7,500
cellular subscribers. In February 2000, the Company sold the assets of its
remaining Alaska cellular operations serving approximately 10,600 cellular
subscribers. The operations of these disposed properties are included in the
Company's results of operations up to the respective dates of disposition.
During the three years ended December 31, 2000, the Company has acquired
and sold various other operations, the impact of which has not been material to
the financial position or results of operations of the Company.
The net income of the Company for 2000 was $231.5 million, compared to
$239.8 million during 1999 and $228.8 million during 1998. Diluted earnings per
share for 2000 were $1.63 compared to $1.70 in 1999 and $1.64 in 1998.
Year ended December 31, 2000 1999 1998
- --------------------------------------------------------------------------------
(Dollars, except per share amounts,
and shares in thousands)
Operating income
Telephone $ 376,290 351,559 334,604
Wireless 117,865 133,930 129,124
Other 31,258 22,580 16,083
- --------------------------------------------------------------------------------
525,413 508,069 479,811
Gain on sale or exchange
of assets, net 20,593 62,808 49,859
Interest expense (183,302) (150,557) (167,552)
Income from unconsolidated
cellular entities 26,986 27,675 32,869
Minority interest (10,201) (27,913) (12,797)
Other income and expense 6,696 9,190 5,268
Income tax expense (154,711) (189,503) (158,701)
- --------------------------------------------------------------------------------
Net income $ 231,474 239,769 228,757
================================================================================
Basic earnings per share $ 1.65 1.72 1.67
================================================================================
Diluted earnings per share $ 1.63 1.70 1.64
================================================================================
Average basic shares outstanding 140,069 138,848 137,010
================================================================================
Average diluted shares outstanding 141,864 141,432 140,105
================================================================================
Contributions to operating revenues and operating income by the Company's
telephone, wireless and other operations for each of the years in the three-year
period ended December 31, 2000 were as follows:
Year ended December 31, 2000 1999 1998
- --------------------------------------------------------------------------------
Operating revenues
Telephone operations 67.9% 67.2 68.3
Wireless operations 24.0% 25.2 25.9
Other operations 8.1% 7.6 5.8
Operating income
Telephone operations 71.6% 69.2 69.7
Wireless operations 22.4% 26.4 26.9
Other operations 6.0% 4.4 3.4
- --------------------------------------------------------------------------------
In addition to historical information, management's discussion and analysis
includes certain forward-looking statements regarding events and financial
trends that may affect the Company's future operating results and financial
position. Such forward-looking statements are subject to uncertainties that
could cause the Company's actual results to differ materially from such
statements. Such uncertainties include but are not limited to: the Company's
ability to effectively manage its growth, including integrating newly-acquired
businesses into the Company's operations, hiring adequate numbers of qualified
staff and successfully upgrading its billing and other information systems; the
risks inherent in rapid technological change; the effects of ongoing changes in
the regulation of the telecommunications industry; the effects of greater than
anticipated competition in the Company's markets; possible changes in the demand
for, or pricing of, the Company's products and services; the Company's ability
to successfully introduce new product or service offerings on a timely and
cost-effective basis; and the effects of more general factors such as changes in
general market or economic conditions or in legislation, regulation or public
policy. These and other uncertainties related to the business are described in
greater detail in Item 1 to the Company's Annual Report on Form 10-K for the
year ended December 31, 2000. You are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date of this
report. The Company undertakes no obligation to update any of its
forward-looking statements for any reason.
TELEPHONE OPERATIONS
The Company conducts its telephone operations in rural, suburban and small
urban communities in 21 states. As of December 31, 2000, approximately 87% of
the Company's 1.8 million access lines were in Wisconsin, Arkansas, Washington,
Missouri, Michigan, Louisiana, Colorado, Ohio, and Oregon. The operating
revenues, expenses and income of the Company's telephone operations for 2000,
1999 and 1998 are summarized below.
Year ended December 31, 2000 1999 1998
- --------------------------------------------------------------------------------
(Dollars in thousands)
Operating revenues
Local service $ 408,538 353,534 331,736
Network access 727,797 654,003 629,583
Other 117,634 118,575 116,024
- --------------------------------------------------------------------------------
1,253,969 1,126,112 1,077,343
- --------------------------------------------------------------------------------
Operating expenses
Plant operations 290,062 251,704 233,896
Customer operations 105,950 88,552 90,331
Corporate and other 163,761 160,631 157,142
Depreciation and amortization 317,906 273,666 261,370
- --------------------------------------------------------------------------------
877,679 774,553 742,739
- --------------------------------------------------------------------------------
Operating income $ 376,290 351,559 334,604
================================================================================
Local service revenues - Local service revenues are derived from the
provision of local exchange telephone services in the Company's service areas.
Of the $55.0 million (15.6%) increase in local service revenues in 2000, $46.5
million was due to the acquisition of the Verizon properties, which was
partially offset by a $14.4 million decrease attributable to the sale of the
Company's Alaska-based operations in the second quarter of 1999. The remaining
$22.9 million increase was due to a $16.4 million increase due to internal
growth in the number of customer access lines and a $5.4 million increase due to
the increased provision of custom calling features. Of the $21.8 million (6.6%)
increase in local service revenues in 1999, $21.1 million was due to the
acquisition of the Ameritech properties, which was more than offset by a $22.8
million decrease attributable to the sale of the Company's Alaska-based
operations. The remaining $23.5 million increase was due to a $15.6 million
increase due to internal growth in the number of customer access lines and a
$4.1 million increase due to the increased provision of custom calling features.
Internal access line growth during 2000, 1999 and 1998 was 2.8%, 4.8% and 4.7%,
respectively. The decrease in internal access line growth during 2000 was
partially due to disconnecting service to customers for non-payment and the
replacement of lines with high-speed data circuits.
Network access revenues - Network access revenues are primarily derived
from charges to long distance companies and other customers for access to the
Company's local exchange carrier ("LEC") networks in connection with the
completion of long distance telephone calls. These access charges are based on
tariffed access rates filed with the Federal Communications Commission ("FCC")
for interstate services and with the respective state regulatory agency for
intrastate services. Certain of the Company's interstate network access revenues
are based on access charges filed directly with the FCC; the remainder of such
revenues are derived under revenue sharing arrangements with other LECs
administered by the National Exchange Carrier Association. Intrastate network
access revenues are based on access charges or are derived under revenue sharing
arrangements with other LECs.
Network access revenues increased $73.8 million (11.3%) in 2000 and $24.4
million (3.9%) in 1999 due to the following factors:
2000 1999
increase increase
(decrease) (decrease)
- --------------------------------------------------------------------------------
(Dollars in thousands)
Acquisitions $ 75,938 17,645
Increased recovery from the federal
Universal Service Fund ("USF") 15,753 8,193
Disposition of Alaska properties (23,348) (39,985)
Partial recovery of increased operating
costs through revenue sharing arrangements
with other telephone companies, increased
minutes of use, increased recovery from
state support funds and return on rate base 3,637 19,524
Revision of prior year revenue settlement agreements 4,228 15,944
Other, net (2,414) 3,099
- --------------------------------------------------------------------------------
$ 73,794 24,420
================================================================================
Other revenues - Other revenues include revenues related to (i) leasing,
selling, installing, maintaining and repairing customer premise
telecommunications equipment and wiring ("CPE services"), (ii) providing billing
and collection services for long distance carriers and (iii) participating in
the publication of local directories. Other revenues decreased $941,000 in 2000,
primarily due to a $6.3 million decrease due to the sale of the Alaska
properties and a $5.4 million decrease from the provision of CPE services, which
benefited in 1999 from sales to customers readying their equipment for the Year
2000. Such decreases were substantially offset by a $10.8 million increase
attributable to revenues contributed by the Verizon properties. Other revenues
increased $2.6 million in 1999, primarily due to a $5.0 million increase
attributable to revenues contributed by the Ameritech properties and a $6.4
million increase from the provision of CPE services. Such increases were
partially offset by a $9.2 million decrease due to the sale of the Alaska
properties.
Operating expenses - Plant operations expenses during 2000 and 1999
increased $38.4 million (15.2%) and $17.8 million (7.6%), respectively. Of the
$38.4 million increase in 2000, $44.8 million was attributable to the properties
acquired from Verizon, which was partially offset by a $13.0 million decrease
due to the sale of the Alaska properties. The remaining $6.6 million increase
was primarily due to a $4.7 million increase in salaries and benefits and a $2.4
million increase in network operations and engineering expenses. Of the $17.8
million increase in 1999, $13.2 million was attributable to the properties
acquired from Ameritech, which was more than offset by a $23.7 million decrease
due to the sale of the Alaska properties. The remaining $28.3 million increase
was primarily due to a $7.4 million increase in access expenses primarily due to
changes in revenue settlement methods of certain telephone subsidiaries in a
limited number of states; a $5.6 million increase in repair and maintenance
expenses and a $5.6 million increase in network operations and engineering
expenses.
Customer operations, corporate and other expenses increased $20.5 million
(8.2%) in 2000 and $1.7 million (.7%) in 1999. Of the $20.5 million increase in
2000, $34.0 million related to the Verizon properties which was partially offset
by an $11.4 million decrease due to the sale of the Alaska properties in 1999.
The remaining $2.1 million decrease in 2000 was primarily due to a $5.6 million
decrease in contract labor expenses primarily associated with costs incurred in
1999 attributable to readying the Company's system to be Year 2000 compliant and
an $8.2 million decrease in operating taxes. Such decreases were partially
offset by a $7.7 million increase in the provision for doubtful accounts and a
$2.4 million increase in information technology expenses. The Ameritech
properties contributed $12.5 million of the 1999 increase. Such increase was
more than offset by a $19.8 million decrease due to the sale of the Alaska
properties. The remaining $9.0 million increase in 1999 was primarily due to a
$6.5 million increase in contract labor expenses attributable to readying the
Company's systems to be Year 2000 compliant; a $2.8 million increase in expenses
associated with the provision of CPE services and a $3.0 million increase in the
provision for doubtful accounts. Such increases in 1999 were partially offset by
a $5.9 million decrease in salaries and benefits primarily due to a decrease in
the number of administrative personnel.
Depreciation and amortization increased $44.2 million (16.2%) and $12.3
million (4.7%) in 2000 and 1999, respectively. Of the $44.2 million increase in
2000, $44.6 million was attributable to the properties acquired from Verizon
(which included $8.5 million of amortization of goodwill) and $11.8 million was
primarily due to higher levels of plant in service. Such increases were
partially offset by a $10.6 million reduction resulting from the sale of the
Company's Alaska properties. Of the 1999 increase of $12.3 million, $17.1
million was attributable to the properties acquired from Ameritech, which was
more than offset by a $17.8 million decrease due to the sale of the Alaska
properties. The remainder of the increase in depreciation and amortization in
1999 was due to higher levels of plant in service. Exclusive of acquisitions,
depreciation expense included nonrecurring additional depreciation charges
approved by regulators in certain jurisdictions which aggregated $4.1 million in
2000 and $10.7 million in 1999. In addition, the Company increased depreciation
rates in certain jurisdictions which increased depreciation expense by $2.7
million in 2000 and $2.2 million in 1999. The composite depreciation rate for
the Company's regulated telephone properties, including the additional
depreciation charges, was 7.2% for 2000, 7.0% for 1999 and 6.9% for 1998.
Other - For additional information regarding certain matters that have
impacted or may impact the Company's telephone operations, see Regulation and
Competition.
WIRELESS OPERATIONS AND INCOME FROM UNCONSOLIDATED CELLULAR ENTITIES
Year ended December 31, 2000 1999 1998
- --------------------------------------------------------------------------------
(Dollars in thousands)
Operating income - wireless operations $ 117,865 133,930 129,124
Minority interest - wireless operations,
exclusive of the effect of asset sales in 1999 (11,598) (12,911) (12,635)
Income from unconsolidated cellular entities 26,986 27,675 32,869
- --------------------------------------------------------------------------------
$ 133,253 148,694 149,358
================================================================================
The Company's wireless operations (discussed below) reflect 100% of the
results of operations of the cellular entities in which the Company has a
majority ownership interest. The minority interest owners' share of the income
of such entities is reflected in the Company's Consolidated Statements of Income
as an expense in "Minority interest." See Minority Interest for additional
information. The Company's share of earnings from the cellular entities in which
it has less than a majority interest is accounted for using the equity method
and is reflected in the Company's Consolidated Statements of Income in "Income
from unconsolidated cellular entities." See Income from Unconsolidated Cellular
Entities for additional information.
WIRELESS OPERATIONS
All of the Company's wireless customers, which totaled more than 751,000
at December 31, 2000, are located in Michigan, Louisiana, Wisconsin,
Mississippi, Texas and Arkansas. The operating revenues, expenses and income of
the Company's wireless operations for 2000, 1999 and 1998 are summarized below.
Year ended December 31, 2000 1999 1998
- --------------------------------------------------------------------------------
(Dollars in thousands)
Operating revenues
Service $ 328,956 305,006 302,468
Roaming 99,791 106,486 96,271
Equipment sales 14,822 10,777 9,088
- --------------------------------------------------------------------------------
443,569 422,269 407,827
- --------------------------------------------------------------------------------
Operating expenses
Cost of equipment sold 30,064 21,408 16,992
System operations 69,641 56,866 60,049
General, administrative and
customer service 78,087 79,569 81,350
Sales and marketing 82,673 61,903 57,967
Depreciation and amortization 65,239 68,593 62,345
- --------------------------------------------------------------------------------
325,704 288,339 278,703
- --------------------------------------------------------------------------------
Operating income $ 117,865 133,930 129,124
================================================================================
Operating revenues - Service revenues include monthly service fees for
providing access and airtime to customers and toll revenue. Roaming revenues
include service fees for providing airtime to other carriers' customers roaming
through the Company's service areas.
Of the $24.0 million increase in service revenues in 2000, $31.6 million
was due to an increase in local service revenues primarily due to growth in the
number of customers and increased minutes of use per customer, both of which
were partially offset by reduced rates. Such increase was partially offset by an
$8.0 million decrease due to the sale of the Texas and Alaska cellular
properties. Of the $6.7 million decrease in roaming revenues in 2000, $3.2
million was due to a reduction in roaming rates (which was partially offset by
an increase in roaming minutes of use), a downward trend in rates that the
Company anticipates will continue in the near future. The remainder of the
decrease in roaming revenues in 2000 was due to the sale of the Texas and Alaska
cellular properties in mid-1999. Of the $2.5 million increase in service
revenues in 1999, $5.9 million was due to growth in the number of customers and
increased minutes of use, both of which were partially offset by reduced rates.
Such increase was partially offset by a $3.6 million decrease due to the sale of
the Texas and Alaska cellular properties in mid-1999. The $10.2 million increase
in roaming revenues in 1999 was primarily due to an increase in roaming minutes
of use which was partially offset by reduced rates.
The following table illustrates the growth in the Company's wireless
customer base in its majority-owned markets:
Year ended December 31, 2000 1999 1998
- --------------------------------------------------------------------------------
Customers at beginning of period 707,486 624,290 569,983
Gross units added internally 339,247 240,084 214,767
Disconnects 284,880 146,325 160,460
Net units added internally 54,367 93,759 54,307
Effect of property dispositions (10,653) (10,563) -
Customers at end of period 751,200 707,486 624,290
Average monthly churn rate
(excluding prepaid customers) 1.95% 2.02% 2.23%
- --------------------------------------------------------------------------------
The average monthly revenue per customer declined to $49 during 2000 from
$53 in 1999 and $57 in 1998 primarily due to reductions in service rates charged
to the Company's customers, reductions in roaming rates charged to other
cellular operators, and the continued trend that a higher percentage of new
customers tend to be lower usage customers. The average monthly revenue per
customer is expected to further decline (i) as market penetration increases and
additional lower usage customers are activated; (ii) as the Company continues to
receive pressure from other cellular operators to reduce roaming rates and (iii)
as competitive pressures from current and future wireless communications
providers intensify. The Company is responding to such competitive pressures by,
among other things, modifying certain of its price plans and implementing
certain other plans and promotions, some of which may result in lower average
revenue per customer.
During 2000 the Company added approximately 82,500 net contract customers
while the prepaid customer base declined by 28,100 customers. The Company will
continue to focus on adding contract customers while decreasing its focus on
prepaid plans for future customer growth. At December 31, 2000, over 90% of the
Company's wireless customers were contract customers.
Operating expenses - Cost of equipment sold increased $8.7 million (40.4%)
in 2000 and $4.4 million (26.0%) in 1999 primarily due to an increase in the
number of phones sold and an increase in average cost per unit primarily due to
a higher percentage of digital phones sold.
System operations expenses increased $12.8 million (22.5%) in 2000
primarily due to a $5.9 million increase associated with operating a greater
number of cell sites and a $4.5 million increase in the net amounts paid to
other carriers for service provided to the Company's customers who roam in the
other carriers' service areas. System operations expenses decreased $3.2 million
(5.3%) in 1999 primarily due to a $3.8 million decrease in the net amounts paid
to other carriers for service provided to the Company's customers who roam in
the other carriers' service areas primarily due to a decrease in roaming rates;
a $1.7 million decrease in toll costs; and a $1.9 million decrease in expenses
attributable to operations sold during 1999. Such decreases were partially
offset by a $4.3 million increase in expenses associated with operating a
greater number of cell sites.
The Company operated 743 cell sites at December 31, 2000 in entities in
which it had a majority interest, compared to 711 at December 31, 1999 and 644
at December 31, 1998.
General, administrative and customer service expenses decreased $1.5
million (1.9%) in 2000, of which $3.3 million was attributable to a decrease in
operating taxes and $1.5 million was due to the sale of the Alaska and Texas
properties. Such decreases were partially offset by a $2.2 million increase in
the provision for doubtful accounts. General, administrative and customer
service expenses decreased $1.8 million (2.2%) in 1999, of which $9.0 million
was attributable to a decrease in the provision for doubtful accounts. Such
decrease was substantially offset by a $2.9 million increase in customer service
expenses; a $2.1 million increase in contract labor expenses associated with
readying the Company's systems to be Year 2000 compliant; and a $3.4 million
increase in general office expenses.
Sales and marketing expenses increased $20.8 million (33.6%) due primarily
to a $5.2 million increase in sales commissions paid to agents due to an
increase in the number of units sold; an $8.6 million increase in advertising
and sales promotion expenses; and a $4.2 million increase in costs incurred in
selling products and services in retail locations primarily due to an increase
in the number of retail locations. Sales and marketing expenses increased $3.9
million (6.8%) in 1999 primarily due to a $4.0 million increase in costs
incurred in selling products and services in retail locations and a $2.0 million
increase in advertising expenses. Such increases were partially offset by a $2.1
million reduction in commissions paid to agents for selling services to new
customers primarily as a result of fewer cellular units being added through this
distribution channel during 1999 as compared to 1998 and a $1.2 million decrease
in expenses due to the Company's sale of its Texas and Alaska properties.
Depreciation and amortization decreased $3.4 million (4.9%) in 2000,
primarily due to the sale of the Alaska and Texas properties. Depreciation and
amortization increased $6.2 million (10.0%) in 1999, of which $4.0 million was
due to an increase in amortization of intangibles and $2.5 million was
attributable to a higher level of plant in service.
Other - For additional information regarding certain matters that have
impacted or may impact the Company's wireless operations, see Regulation and
Competition.
OTHER OPERATIONS
Other operations includes the results of operations of subsidiaries of the
Company which are not included in the telephone or wireless segments including,
but not limited to, the Company's long distance operations, Internet operations,
call center operations (which ceased operations in the third quarter of 2000),
competitive local exchange carrier operations, and security monitoring
operations. The operating revenues, expenses and income of the Company's other
operations for 2000, 1999 and 1998 are summarized below.
Year ended December 31, 2000 1999 1998
- --------------------------------------------------------------------------------
(Dollars in thousands)
Operating revenues
Long distance $ 104,435 83,087 53,027
Internet 23,491 16,818 14,267
Call center 3,765 11,749 9,701
Other 16,697 16,634 14,920
- --------------------------------------------------------------------------------
148,388 128,288 91,915
- --------------------------------------------------------------------------------
Operating expenses
Cost of sales and operating expenses 112,219 99,151 70,993
Depreciation and amortization 4,911 6,557 4,839
- --------------------------------------------------------------------------------
117,130 105,708 75,832
- --------------------------------------------------------------------------------
Operating income $ 31,258 22,580 16,083
================================================================================
Long distance revenues increased $21.3 million (25.7%) and $30.1 million
(56.7%) in 2000 and 1999, respectively, due primarily to the growth in the
number of customers. The number of long distance customers as of December 31,
2000, 1999, and 1998 was 363,300, 303,700, and 226,700, respectively. Internet
revenues increased $6.7 million (39.7%) in 2000 primarily due to a $6.9 million
increase due to growth in the number of customers and a $1.4 million increase
due to Internet operations acquired in late 1999 and mid-2000. Such increases
were partially offset by a $2.3 million decrease due to the sale of the
Company's Alaska Internet operation in mid-1999. Internet revenues increased
$2.6 million (17.9%) in 1999 primarily due to an increase in the number of
customers. The $8.0 million decrease in call center revenues in 2000 was due to
the planned phase-out of the Company's third party call center operations during
2000.
Operating expenses during 2000 increased $11.4 million (10.8%) primarily
due to an increase of $12.3 million in expenses of the Company's long distance
operations primarily due to increased minutes of use due to an increase in the
number of customers which was partially offset by reduced rates; a $9.8 million
increase in expenses associated with expanding the Company's Internet operations
and a $3.4 million increase in expenses primarily due to start-up costs of the
Company's competitive local exchange carrier business. Such increases were
partially offset by a $9.0 million reduction in expenses due to the winding down
of the Company's third party call center operations during 2000 and a $2.4
million decrease due to the 1999 sale of the Company's Alaska Internet
operations.
Operating expenses in 1999 increased $29.9 million (39.4%) primarily due
to (i) an increase of $17.8 million in expenses of the Company's long distance
operations primarily due to the increased minutes of use due to an increase in
the number of long distance customers, (ii) a $6.7 million increase associated
with the Company's call center operations and (iii) a $3.8 million increase in
expenses due to the expansion of the Company's security monitoring and fiber
network businesses. In January 2000, the Company announced that it would close
its third party call center operations during 2000. Included in total operating
expenses for 1999 is a $2.7 million charge to write down the assets of the call
center to estimated net realizable value.
The Company anticipates that the growth of operating income for its other
operations will slow in future periods as it incurs increasingly larger expenses
in connection with expanding its fiber network and competitive local exchange
carrier businesses. The Company expects to incur a combined operating loss
ranging from $15 to $20 million in 2001 in its fiber network and competitive
local exchange carrier businesses.
Certain of the Company's service subsidiaries provide managerial,
operational, technical, accounting and administrative services, along with
materials and supplies, to the Company's telephone subsidiaries. In accordance
with regulatory accounting, intercompany profit on transactions with regulated
affiliates has not been eliminated in connection with consolidating the results
of operations of the Company. When the regulated operations of the Company no
longer qualify for the application of Statement of Financial Accounting
Standards No. 71 ("SFAS 71"), "Accounting for the Effects of Certain Types of
Regulation," such intercompany profit will be eliminated in subsequent financial
statements, the primary result of which will be a decrease in operating expenses
applicable to the Company's telephone operations and an increase in operating
expenses applicable to the Company's other operations. The amount of
intercompany profit with regulated affiliates which was not eliminated was
approximately $17.1 million, $14.0 million and $14.4 million in 2000, 1999 and
1998, respectively. For additional information applicable to SFAS 71, see
Regulation and Competition -- Other Matters and Note 11 of Notes to Consolidated
Financial Statements.
GAIN ON SALE OR EXCHANGE OF ASSETS, NET
In 2000, the Company recorded pre-tax gains aggregating $20.6 million.
Approximately $9.9 million ($5.2 million after tax; $.04 per diluted share) was
due to the sale of the assets of the Company's remaining Alaska cellular
operations and approximately $10.7 million ($6.4 million after tax; $.05 per
diluted share) was due to the sale of the Company's minority interest in a
non-strategic cellular partnership.
In 1999, the Company recorded pre-tax gains aggregating $62.8 million.
Approximately $10.4 million of the pre-tax gains ($6.7 million after tax; $.04
per diluted share) was due to the sale of the Company's remaining common shares
of MCIWorldCom, Inc. ("WorldCom"). Approximately $39.6 million of the pre-tax
gains ($7.8 million after-tax loss; $.05 per diluted share) was due to the sale
of the Company's Brownsville and McAllen, Texas cellular properties. The
remainder of the gains in 1999 was primarily due to an $11.6 million pre-tax
gain ($7.6 million after tax; $.05 per diluted share) due to the sale of the
Company's shares of common stock of Telephone and Data Systems, Inc. See Note 12
of Notes to Consolidated Financial Statements for additional information.
In 1998 the Company recorded net pre-tax gains aggregating $49.9 million
($30.5 million after tax; $.22 per diluted share) primarily due to the
conversion of its investment in the common stock of Brooks Fiber Properties,
Inc. into common stock of WorldCom, the subsequent sale of 750,000 shares of
WorldCom stock, and the sale of minority interests in two non-strategic cellular
entities.
INTEREST EXPENSE
Interest expense increased $32.7 million in 2000 primarily due to $41.5
million in interest expense related to the Verizon acquisition indebtedness and
a $6.8 million increase caused by higher interest rates. Such increases were
partially offset by interest expense reductions primarily due to a decrease in
outstanding indebtedness exclusive of debt associated with the Verizon
acquisitions.
Interest expense decreased $17.0 million in 1999 primarily due to a
reduction in outstanding indebtedness. Income From Unconsolidated Cellular
Entities Earnings from unconsolidated cellular entities, net of the amortization
of associated goodwill, decreased $689,000 (2.5%) in 2000 and $5.2 million
(15.8%) in 1999. During both 2000 and 1999, the Company recorded its
proportionate share ($5.3 million in 2000 and $6.9 million in 1999) of non-cash,
non-recurring charges that were recorded by cellular entities in which the
Company owns a minority interest.
MINORITY INTEREST
Minority interest is the expense recorded by the Company to reflect the
minority interest owners' share of the earnings of the Company's majority-owned
subsidiaries. Minority interest decreased $17.7 million during 2000 compared to
1999 primarily due to the minority partners' share of the gain on sale of assets
of the Brownsville and McAllen, Texas cellular properties recorded in 1999.
Excluding the effect of this gain, minority interest decreased $2.8 million
primarily due to the decreased profitability of the Company's majority-owned and
operated cellular entities ($1.3 million) and due to the minority partners'
share of the loss incurred by certain of the operations acquired from Verizon by
CenturyTel's majority-owned affiliates ($1.6 million). Minority interest
increased $15.1 million during 1999, substantially all of which relates to the
minority partners' share of the gain on sale of assets of the Brownsville and
McAllen, Texas cellular properties.
OTHER INCOME AND EXPENSE
Other income and expense decreased $2.5 million in 2000 primarily due to a
$7.9 million charge related to the settlement of certain interest rate hedge
contracts entered into in connection with financing the Verizon acquisitions.
Such decrease was partially offset by a $4.1 million increase in interest
income.
Other income and expense increased $3.9 million in 1999, substantially all
of which relates to favorable non-recurring items recorded in 1999.
INCOME TAX EXPENSE
The Company's effective income tax rate was 40.1%, 44.1% and 41.0% in 2000,
1999 and 1998, respectively. Exclusive of the effect of income tax expense on
asset sales, the effective income tax rate was 39.9%, 39.0% and 41.3% in 2000,
1999 and 1998, respectively.
ACQUISITIONS
On July 31, 2000 and September 29, 2000, affiliates of the Company
acquired over 490,000 telephone access lines and related assets from Verizon in
four separate transactions for approximately $1.5 billion in cash. The Company
has made preliminary estimates of the fair value and useful lives of Verizon's
noncurrent assets and liabilities. Such estimates are subject to change upon
completion of the purchase price allocation. Under these transactions:
o On July 31, 2000, the Company purchased approximately 231,000 telephone
access lines and related local exchange assets comprising 106 exchanges
throughout Arkansas for approximately $842 million in cash.
o On July 31, 2000, Spectra Communications Group, LLC ("Spectra") purchased
approximately 127,000 telephone access lines and related local exchange
assets comprising 107 exchanges throughout Missouri for approximately $297
million cash. At December 31, 2000, the Company owned 57.1% of Spectra, which
was organized to acquire and operate these Missouri properties. At closing,
the Company made a preferred equity investment in Spectra of approximately
$55 million and financed substantially all of the remainder of the purchase
price.
o On September 29, 2000, the Company purchased approximately 70,500 telephone
access lines and related local exchange assets comprising 42 exchanges
throughout Wisconsin for approximately $197 million in cash.
o On September 29, 2000, Telephone USA of Wisconsin, LLC ("TelUSA") purchased
approximately 62,900 telephone access lines and related local exchange assets
comprising 35 exchanges throughout Wisconsin for approximately $172 million
in cash. The Company owns 89% of TelUSA, which was organized to acquire and
own these Wisconsin properties. At closing, the Company made an equity
investment in TelUSA of approximately $37.8 million and financed
substantially all of the remainder of the purchase price.
The purchase prices discussed above reflect various post-closing
adjustments made to date. Any remaining adjustments are not expected to be
material.
To finance these acquisitions on a short-term basis, the Company borrowed
$1.157 billion on a floating-rate basis under its new $1.5 billion credit
facility with Bank of America, N.A. and Citibank, N.A., as lenders, and Banc of
America Securities LLC and Salomon Smith Barney Inc., as arrangers, and borrowed
$300 million on a floating-rate basis under its existing credit facility with
Bank of America, N.A.
On October 19, 2000, the Company issued $500 million of 8.375% Senior
Notes, Series H, due 2010, and $400 million of 7.75% Remarketable Senior Notes,
Series I, due 2012 (with a remarketing date of October 15, 2002) under its $2.0
billion shelf registration statement filed in May 2000. The net proceeds of
approximately $908 million (excluding the Company's payments of approximately
$12.3 million associated with related interest rate hedging) were used to repay
a portion of the $1.457 billion of aggregate indebtedness the Company incurred
under its credit facilities in connection with the Verizon acquisitions.
On December 1, 1998, the Company acquired the assets of certain of
Ameritech's telephone and directory operations in 19 telephone exchanges
covering 21 communities in northern and central Wisconsin for approximately $221
million cash. The operations acquired by the Company include the telephone
property and equipment serving approximately 86,000 access lines, as well as the
related nine telephone directories.
ACCOUNTING PRONOUNCEMENTS
In June 1998 the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting
for Derivative Instruments and Hedging Activities." In June 1999, the FASB
deferred the effective date of SFAS 133 to fiscal years beginning after June 15,
2000. SFAS 133 established accounting and reporting standards for derivative
instruments and for hedging activities by requiring that entities recognize all
derivatives as either assets or liabilities at fair value on the balance sheet.
The Company's use of derivative financial instruments to date has been limited
to entering interest rate hedge contracts to reduce interest rate risk with
respect to anticipated public debt issuances. Based on the Company's current use
of derivatives and the limited number of embedded derivatives in existing
agreements, SFAS 133 is not expected to materially impact the Company's
financial position or results of operations.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." SAB 101 summarizes certain of the staff's views in applying
generally accepted accounting principles to revenue recognition and deferred
costs in financial statements. SAB 101 was effective beginning in the fourth
quarter of 2000 and did not materially impact the Company's financial position
or results of operations.
In the fourth quarter of 2000, in connection with finalizing the new
accounting standard for business combinations, the FASB announced its tentative
conclusion that goodwill arising from business combinations, including prior
business combinations, would no longer be required to be amortized. Goodwill
would instead be reviewed for impairment and would be written down only in
periods in which the recorded amount of goodwill exceeds its fair value. The
final standard on business combinations is expected to be issued by the FASB by
the third quarter of 2001.
INFLATION
The effects of increased costs historically have been mitigated by the
Company's ability to recover certain costs applicable to its regulated telephone
operations through the rate-making process. While the rate-making process does
not permit the Company to immediately recover the costs of replacing its
physical plant, the Company has historically been able to recapture these costs
over time. Possible future regulatory changes may alter the Company's ability to
recover increased costs in its regulated operations. For additional information
regarding the current regulatory environment, see Regulation and Competition. As
operating expenses in the Company's non-regulated lines of business increase as
a result of inflation, the Company, to the extent permitted by competition,
recovers the costs by increasing prices for its services and equipment.
MARKET RISK
The majority of the Company's long-term debt obligations are fixed rate. At
December 31, 2000, the fair value of the Company's long-term debt was estimated
to be $3.1 billion based on the overall weighted average rate of the Company's
long-term debt of 7.3% and an overall weighted maturity of 12 years compared to
terms and rates currently available in long-term financing markets. For purposes
hereof, market risk is estimated as the potential decrease in fair value of the
Company's long-term debt resulting from a hypothetical increase of 73 basis
points in interest rates (which represents ten percent of the Company's overall
weighted average borrowing rate). Such an increase in interest rates would
result in approximately a $112.2 million decrease in fair value of the Company's
long-term debt. As of December 31, 2000, the Company owed $826.6 million of debt
on a floating-rate basis.
In the first quarter of 2000, the Company entered into interest rate hedge
contracts designed to reduce its interest rate risk with respect to $500 million
of long-term public debt that it ultimately expected to incur in connection with
providing long-term financing for its Verizon acquisitions. The Company recorded
a $7.9 million charge to earnings in 2000 related to the settlement of certain
of these hedge contracts.
LIQUIDITY AND CAPITAL RESOURCES
Excluding cash used for acquisitions, the Company relies on cash provided
by operations to provide for its cash needs. The Company's operations have
historically provided a stable source of cash flow which has helped the Company
continue its long-term program of capital improvements.
Operating activities - Net cash provided by operating activities was $562.5
million, $408.7 million and $467.8 million in 2000, 1999 and 1998, respectively.
The Company's accompanying consolidated statements of cash flows identify major
differences between net income and net cash provided by operating activities for
each of those years. For additional information relating to the telephone
operations, wireless operations and other operations of the Company, see Results
of Operations.
Investing activities - Net cash provided by (used in) investing activities
was ($1.914) billion, $69.8 million and ($375.6) million in 2000, 1999 and 1998,
respectively. Cash used for acquisitions was $1.541 billion in 2000
(substantially all of which relates to the Verizon acquisitions), $21.0 million
in 1999 and $225.6 million in 1998. Proceeds from the sales of assets were $29.5
million in 2000 compared to $484.5 million in 1999 and $132.3 million in 1998.
Capital expenditures for 2000 were $275.5 million for telephone operations,
$58.5 million for wireless operations and $115.5 million for other operations.
Capital expenditures during 1999 and 1998 were $390.0 million and $310.9
million, respectively.
Financing activities - Net cash provided by financing activities was $1.314
billion in 2000. Net cash used in financing activities was $427.6 million in
1999 and $112.4 million in 1998. Net proceeds from the issuance of debt were
$1.763 billion more during 2000 compared to 1999 primarily due to an increase in
borrowings due to the purchase of assets from Verizon.
On July 31, 2000 and September 29, 2000, affiliates of the Company acquired
over 490,000 telephone access lines and related assets from Verizon in four
separate transactions for approximately $1.5 billion in cash. See Acquisitions
and Note 2 of Notes to Consolidated Financial Statements for additional
information. To finance these acquisitions on a short-term basis, the Company
borrowed $1.157 billion on a floating-rate basis under its new $1.5 billion
credit facility with Bank of America, N.A. and Citibank, N.A., as lenders, and
Banc of America Securities LLC and Salomon Smith Barney Inc., as arrangers, and
borrowed $300 million on a floating-rate basis under its existing credit
facility with Bank of America, N.A.
On October 19, 2000, the Company issued $500 million of 8.375% Senior
Notes, Series H, due 2010, and $400 million of 7.75% Remarketable Senior Notes,
Series I, due 2012 (with a remarketing date of October 15, 2002) under its $2.0
billion shelf registration statement filed in May 2000. The net proceeds of
approximately $908 million (excluding the Company's payments of approximately
$12.3 million associated with related interest rate hedging) were used to repay
a portion of the $1.457 billion of aggregate indebtedness the Company incurred
under its credit facilities in connection with the Verizon acquisitions.
Other - Budgeted capital expenditures for 2001 total $400 million for
telephone operations, $70 million for wireless operations and $80 million for
other operations. The Company anticipates that capital expenditures in its
telephone operations will continue to include the installation of fiber optic
cable and the upgrading of its plant and equipment, including its digital
switches, to provide enhanced services, particularly in its newly acquired
markets. Capital expenditures in the wireless operations are expected to
continue to focus on constructing additional cell sites (which will provide
additional capacity and expanded areas where cellular phones may be used) and
providing digital service. Budgeted capital expenditures for other operations
include $20 million for construction of competitive local exchange networks.
The Company continually evaluates the possibility of acquiring additional
telecommunications operations and expects to continue its long-term strategy of
pursuing the acquisition of attractive communications properties in exchange for
cash, securities or both. The Company generally does not announce its
acquisitions until it has entered into a preliminary or definitive agreement.
Over the past few years, the amount and size of communications properties
available to be purchased by the Company has increased substantially. The
Company may require additional financing in connection with any such
acquisitions, the consummation of which could have a material impact on the
Company's financial condition or operations. Approximately 4.6 million shares of
CenturyTel common stock and 200,000 shares of CenturyTel preferred stock remain
available for future issuance in connection with acquisitions under an
acquisition shelf registration statement.
As of December 31, 2000, the Company's telephone subsidiaries had available
for use $129.5 million of commitments for long-term financing from the Rural
Utilities Service and the Company had $400.1 million of undrawn committed bank
lines of credit. In October 2000 the Company implemented a commercial paper
program that authorizes the Company to have outstanding up to $1.5 billion in
commercial paper at any one time. The Company also has access to debt and equity
capital markets, including its shelf registration statements.
In November 2000, the Company entered into a definitive agreement with Leap
Wireless International, Inc. to sell 30 PCS (Personal Communications Service)
operating licenses for an aggregate of $205 million. The transaction is expected
to close in the first quarter of 2001, subject to (i) approval of the Federal
Communications Commission and (ii) certain other closing conditions.
Approximately $119 million of the purchase price will be delivered at closing.
The remaining $86 million will be payable in the form of a promissory note
bearing 10% interest per annum. $74 million will be payable within nine months
after the issuance of the note with the remainder payable in 2002 upon maturity
of the note. These receipts will be used to pay down indebtedness incurred in
connection with the Company's recent acquisitions of properties from Verizon.
On September 19, 2000, Moody's Investors Service ("Moody's") lowered
CenturyTel's long-term debt rating to Baa2 (with a stable outlook) from Baa1 and
on September 20, 2000, Standard & Poor's ("S&P") affirmed its rating of
CenturyTel's long-term debt of BBB+ (with a negative outlook). The Company's
commercial paper program initiated in October 2000 is rated P2 by Moody's and A2
by S&P.
The following table reflects the Company's debt to total capitalization
percentage and ratio of earnings to fixed charges as of and for the years ended
December 31:
2000 1999 1998
- --------------------------------------------------------------------------------
Debt to total capitalization percentage 63.1% 53.7 63.0
Ratio of earnings to fixed charges 3.08 3.76 3.25
Ratio of earnings to fixed charges
excluding gain on sale or
exchange of assets 2.97 3.44 2.96
- --------------------------------------------------------------------------------
REGULATION AND COMPETITION
The communications industry continues to undergo various fundamental
regulatory, legislative, competitive and technological changes that make it
difficult to determine the form or degree of future regulation and competition
affecting the Company's operations. These changes may have a significant impact
on the future financial performance of all communications companies.
Events affecting the communications industry - In 1996 the United States
Congress enacted the Telecommunications Act of 1996 (the "1996 Act"), which
obligates LECs to permit competitors to interconnect their facilities to the
LEC's network and to take various other steps that are designed to promote
competition. The 1996 Act provides certain exemptions for rural LECs such as
those operated by the Company. Under the FCC's August 1996 order implementing
most of the 1996 Act's interconnection provisions, rural LECs have the burden of
proving the availability of these exemptions.
Prior to and since the enactment of the 1996 Act, the FCC and a number of
state legislative and regulatory bodies have also taken steps to foster local
exchange competition. Coincident with this recent movement toward increased
competition has been the gradual reduction of regulatory oversight of LECs.
These cumulative changes have led to the continued growth of various companies
providing services that compete with LECs' services. Wireless services entities
are also expected to increasingly compete with LECs.
The 1996 Act authorized the establishment of new federal and state
universal service funds to provide support to eligible telecommunications
carriers. These new funds are intended to replace existing federal support
mechanisms that are based on historical cost models and that currently provide
approximately 8% of the Company's consolidated revenues. The FCC has established
a task force to recommend how universal service support should be administered
for rural LECs. This task force has recommended a modified embedded cost model
which, if adopted in its current form, would not have a material effect on the
Company's consolidated revenues or results of operations. However, if the FCC
implements new universal service support mechanisms for rural carriers based on
forward-looking cost models (as it did for non-rural carriers in October 1999),
the Company's consolidated revenues could be negatively impacted. Until new
support mechanisms are finalized under the FCC's rulemaking procedures, there
can be no assurance that the universal service support mechanism ultimately
adopted by the FCC will not negatively affect the Company's operations.
On October 20, 2000, a proposed comprehensive reform plan designed to
address access rates, universal service, rate of return and separations was
filed with the FCC by a Multi Association Group representing small and mid-sized
telephone companies that currently are regulated under traditional rate of
return mechanisms. The proposed plan attempts to mirror certain principles of
the access charge reform plan implemented by the FCC for price cap companies in
mid-1999. Under this plan, companies would have a five-year period to transition
from their existing forms of rate of return regulation to a new form of
incentive regulation. If adopted in its current form, the plan would not have a
material effect on the Company's operating revenues or results of operations;
however, until the plan is finalized under the rulemaking procedures of the FCC,
it is premature to assess the ultimate impact this proposal will have on the
Company. There can be no assurance that the plan, in its final form, will not
have a material effect on the Company's results of operations.
Competition to provide traditional telephone or wireless services has thus
far affected large urban areas to a greater extent than rural, suburban and
small urban areas such as those in which the Company's operations are located.
Although the Company has increasingly experienced competition in its markets,
the Company does not believe such competition is likely to materially affect it
in the near term. The Company will continue to monitor ongoing changes in
regulation, competition and technology and consider which developments provide
the most favorable opportunities for the Company to pursue.
The Company's wireless operations are subject to increased competition from
large wireless carriers offering nationwide calling plans. The Company does not
offer a nationwide calling plan at this time and may be hindered in its ability
to compete for customers seeking nationwide calling plans. Additionally, several
wireless carriers have taken initial steps to abandon the TDMA standard used by
the Company and to provide enhanced "next generation" wireless services
utilizing different technologies. If the Company elects to continue to use the
TDMA standard or to forego implementation of enhanced wireless services, there
can be no assurance that the Company will be able to receive support from
vendors or to compete effectively against competitors using different
technologies or offering more services.
Recent events affecting the Company - During 2000 the Company's revenues
from the USF totaled approximately $146.4 million (which includes $8.3 million
related to the newly-acquired Verizon properties). During 1999, such revenues
totaled $127.5 million (of which $5.2 million related to the Alaska based
operations.) Although the Company may experience a reduction in its federal
support revenues at some point in the future, management believes it is
premature to assess or estimate the ultimate impact thereof. There can be no
assurance, however, that such impact will not be material.
During the last few years, several states in which the Company has
substantial operations took legislative or regulatory steps to further introduce
competition into the LEC business. The number of companies which have requested
authorization to provide local exchange service in the Company's service areas
has increased in recent years, especially in the newly-acquired Verizon markets,
and it is anticipated that similar action may be taken by others in the future.
State alternative regulation plans recently adopted by certain of the
Company's LECs have also affected revenue growth recently. Although the Company
believes that these plans will be favorable in the future as additional revenue
streams are added and cost efficiencies are obtained, these plans slowed revenue
growth during 2000 because they are more closely tied to access line growth
rather than minutes of use growth, which has traditionally grown at a faster
rate than access lines. There can be no assurance that current or future
alternative regulation plans will not reduce revenue growth in the future.
Certain long distance carriers continue to request that the Company reduce
intrastate access tariffed rates for certain of its LECs. There is no assurance
that these requests will not result in reduced intrastate access revenues in the
future. In addition, the Company continues to receive pressure from other
cellular operators to reduce roaming rates in the Company's cellular markets. In
response, the Company anticipates that it will enter into agreements that will
reduce its roaming rates from current levels. The Company further anticipates
that the adverse impact of reduced roaming rates may be partially offset by
increased roaming traffic.
In connection with authorizing the Company's acquisition from Verizon of
telephone properties in Wisconsin, the Wisconsin Public Service Commission
("WPSC") indicated its intent to review the possibility of regulating all of the
Company's Wisconsin local exchange carriers on a unitary basis, which would
reduce the Company's revenues in Wisconsin (unless and to the extent the Company
could mitigate these reductions through rate adjustments or other revenue
enhancements approved by the WPSC).
In connection with this authorization, the WPSC also rejected CenturyTel's
request to increase the access rates previously charged by Verizon. If the
Company's appeal of this ruling is unsuccessful, the Verizon acquisitions will
dilute the Company's 2001 earnings more than initially anticipated.
In the fourth quarter of 2000, an administrative law judge in Wisconsin
issued a ruling, which was accepted by the WPSC, declaring that the Company had
inappropriately increased access rates it charges to interexchange carriers
following the Company's acquisition of properties from Ameritech on December 1,
1998. Such ruling ordered the Company to prospectively reduce its access rates
and to refund interexchange carriers the difference between the access rates
billed by the Company and the previous access rates billed by Ameritech
retroactive to the December 1, 1998 acquisition date. The Company has filed an
appeal to the ruling. If its appeal is unsuccessful, the Company anticipates
that it will be required to incur a future pre-tax charge to earnings of between
$6.0 - $8.0 million.
The Company anticipates that regulatory changes and competitive pressures
may result in future revenue reductions in its operations. However, the Company
anticipates that such reductions may be minimized by increases in revenues
attributable to the continued demand for enhanced services and new product
offerings. While the Company expects its telephone revenues to continue to grow,
its internal telephone revenue growth rate may slow during upcoming periods.
Other matters - The Company's regulated telephone operations are subject to
the provisions of SFAS 71, under which the Company is required to account for
the economic effects of the rate-making process, including the recognition of
depreciation of plant and equipment over lives approved by regulators. The
ongoing applicability of SFAS 71 to the Company's regulated telephone operations
is being monitored due to the changing regulatory, competitive and legislative
environments. When the regulated operations of the Company no longer qualify for
the application of SFAS 71, the net adjustments required will result in a
material, extraordinary, noncash charge against earnings. While the amount of
such charge cannot be precisely estimated at this time, management believes that
the noncash, after-tax, extraordinary charge would be between $400 million and
$450 million. See Note 11 of Notes to Consolidated Financial Statements for
additional information.
The Company has certain obligations based on federal, state and local laws
relating to the protection of the environment. Costs of compliance through 2000
have not been material, and the Company currently has no reason to believe that
such costs will become material.
Item 7a. Quantitative and Qualitative Disclosure About Market Risk
The majority of the Company's long-term debt obligations are fixed rate. At
December 31, 2000, the fair value of the Company's long-term debt was estimated
to be $3.1 billion based on the overall weighted average rate of the Company's
long-term debt of 7.3% and an overall weighted maturity of 12 years compared to
terms and rates currently available in long-term financing markets. For purposes
hereof, market risk is estimated as the potential decrease in fair value of the
Company's long-term debt resulting from a hypothetical increase of 73 basis
points in interest rates (which represents ten percent of the Company's overall
weighted average borrowing rate). Such an increase in interest rates would
result in approximately a $112.2 million decrease in fair value of the Company's
long-term debt. As of December 31, 2000, the Company owed $826.6 million of debt
on a floating-rate basis.
In the first quarter of 2000, the Company entered into interest rate hedge
contracts designed to reduce its interest rate risk with respect to $500 million
of long-term public debt that it ultimately expected to incur in connection with
providing long-term financing for its Verizon acquisitions. The Company recorded
a $7.9 million charge to earnings in 2000 related to the settlement of certain
of these hedge contracts.
Item 8. Financial Statements and Supplementary Data
Report of Management
The Shareholders
CenturyTel, Inc.:
Management has prepared and is responsible for the Company's consolidated
financial statements. The consolidated financial statements have been prepared
in accordance with generally accepted accounting principles and necessarily
include amounts determined using our best judgments and estimates with
consideration given to materiality.
The Company maintains internal control systems and related policies and
procedures designed to provide reasonable assurance that the accounting records
accurately reflect business transactions and that the transactions are in
accordance with management's authorization. The design, monitoring and revision
of the systems of internal control involve, among other things, our judgment
with respect to the relative cost and expected benefits of specific control
measures. Additionally, the Company maintains an internal auditing function
which independently evaluates the effectiveness of internal controls, policies
and procedures and formally reports on the adequacy and effectiveness thereof.
The Company's consolidated financial statements have been audited by KPMG
LLP, independent certified public accountants, who have expressed their opinion
with respect to the fairness of the consolidated financial statements. Their
audit was conducted in accordance with generally accepted auditing standards,
which includes the consideration of the Company's internal controls to the
extent necessary to form an independent opinion on the consolidated financial
statements prepared by management.
The Audit Committee of the Board of Directors is composed of independent
directors who are not officers or employees of the Company. The Committee meets
periodically with the independent certified public accountants, internal
auditors and management. The Committee considers the independence of the
external auditors and the audit scope and discusses internal control, financial
and reporting matters. Both the independent and internal auditors have free
access to the Committee.
/s/ R. Stewart Ewing, Jr.
R. Stewart Ewing, Jr.
Executive Vice President and Chief Financial Officer
Independent Auditors' Report
The Board of Directors
CenturyTel, Inc.:
We have audited the consolidated financial statements of CenturyTel, Inc.
and subsidiaries as listed in Item 14a(i). In connection with our audits of the
consolidated financial statements, we also have audited the financial statement
schedules as listed in Item 14a(ii). These consolidated financial statements and
financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of CenturyTel,
Inc. and subsidiaries as of December 31, 2000 and 1999, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2000, in conformity with accounting principles generally
accepted in the United States of America. Also in our opinion, the related
financial statement schedules, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly, in all
material respects, the information set forth therein.
/s/ KPMG LLP
KPMG LLP
Shreveport, Louisiana
January 26, 2001
CENTURYTEL, INC.
Consolidated Statements of Income
Year ended December 31,
- -------------------------------------------------------------------------------------------------------
2000 1999 1998
- -------------------------------------------------------------------------------------------------------
(Dollars, except per share amounts,
and shares in thousands)
OPERATING REVENUES
Telephone $ 1,253,969 1,126,112 1,077,343
Wireless 443,569 422,269 407,827
Other 148,388 128,288 91,915
- -------------------------------------------------------------------------------------------------------
Total operating revenues 1,845,926 1,676,669 1,577,085
- -------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Cost of sales and operating expenses 932,457 819,784 768,720
Depreciation and amortization 388,056 348,816 328,554
- -------------------------------------------------------------------------------------------------------
Total operating expenses 1,320,513 1,168,600 1,097,274
- -------------------------------------------------------------------------------------------------------
OPERATING INCOME 525,413 508,069 479,811
- -------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE)
Gain on sale or exchange of assets, net 20,593 62,808 49,859
Interest expense (183,302) (150,557) (167,552)
Income from unconsolidated cellular entities 26,986 27,675 32,869
Minority interest (10,201) (27,913) (12,797)
Other income and expense 6,696 9,190 5,268
- -------------------------------------------------------------------------------------------------------
Total other income (expense) (139,228) (78,797) (92,353)
- -------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAX EXPENSE 386,185 429,272 387,458
Income tax expense 154,711 189,503 158,701
- -------------------------------------------------------------------------------------------------------
NET INCOME $ 231,474 239,769 228,757
=======================================================================================================
BASIC EARNINGS PER SHARE $ 1.65 1.72 1.67
=======================================================================================================
DILUTED EARNINGS PER SHARE $ 1.63 1.70 1.64
=======================================================================================================
DIVIDENDS PER COMMON SHARE $ .190 .180 .173
=======================================================================================================
AVERAGE BASIC SHARES OUTSTANDING 140,069 138,848 137,010
=======================================================================================================
AVERAGE DILUTED SHARES OUTSTANDING 141,864 141,432 140,105
=======================================================================================================
See accompanying notes to consolidated financial statements.
CENTURYTEL, INC.
Consolidated Statements of Comprehensive Income
Year ended December 31,
- -------------------------------------------------------------------------------------------------------
2000 1999 1998
- -------------------------------------------------------------------------------------------------------
(Dollars in thousands)
NET INCOME $ 231,474 239,769 228,757
- -------------------------------------------------------------------------------------------------------
OTHER COMPREHENSIVE INCOME, NET OF TAXES
Unrealized holding gains (losses) arising during period,
net of ($20,941), $38,473 and $8,509 taxes (38,891) 71,449 15,802
Reclassification adjustment for gains included
in net income, net of $7,702 and $11,027 taxes - (14,304) (20,478)
- -------------------------------------------------------------------------------------------------------
Other comprehensive income, net of ($20,941),
$30,771 and ($2,518) taxes (38,891) 57,145 (4,676)
- -------------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME $ 192,583 296,914 224,081
=======================================================================================================
See accompanying notes to consolidated financial statements.
CENTURYTEL, INC.
Consolidated Balance Sheets
December 31,
- ---------------------------------------------------------------------------------------------------------
2000 1999
- ---------------------------------------------------------------------------------------------------------
(Dollars in thousands)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 19,039 56,640
Accounts receivable
Customers, less allowance of $12,857 and $4,150 182,454 128,338
Other 124,711 64,719
Materials and supplies, at average cost 38,532 28,769
Other 11,768 7,607
- ---------------------------------------------------------------------------------------------------------
Total current assets 376,504 286,073
- ---------------------------------------------------------------------------------------------------------
NET PROPERTY, PLANT AND EQUIPMENT 2,959,293 2,256,458
- ---------------------------------------------------------------------------------------------------------
INVESTMENTS AND OTHER ASSETS
Excess cost of net assets acquired, less accumulated
amortization of $219,809 and $165,327 2,509,033 1,644,884
Other 548,460 517,992
- ---------------------------------------------------------------------------------------------------------
Total investments and other assets 3,057,493 2,162,876
- ---------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 6,393,290 4,705,407
=========================================================================================================
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 149,962 62,098
Short-term debt 276,000 -
Accounts payable 127,287 78,450
Accrued expenses and other current liabilities
Salaries and benefits 33,859 34,570
Taxes 40,023 40,999
Interest 52,011 37,232
Other 23,349 22,172
Advance billings and customer deposits 40,879 33,656
- ---------------------------------------------------------------------------------------------------------
Total current liabilities 743,370 309,177
- ---------------------------------------------------------------------------------------------------------
LONG-TERM DEBT 3,050,292 2,078,311
- ---------------------------------------------------------------------------------------------------------
DEFERRED CREDITS AND OTHER LIABILITIES 567,549 469,927
- ---------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Common stock, $1.00 par value, authorized 350,000,000 shares,
issued and outstanding 140,667,251 and 139,945,920 shares 140,667 139,946
Paid-in capital 509,840 493,432
Unrealized holding gain on investments, net of taxes 25,471 64,362
Retained earnings 1,351,626 1,146,967
Unearned ESOP shares (3,500) (4,690)
Preferred stock - non-redeemable 7,975 7,975
- ---------------------------------------------------------------------------------------------------------
Total stockholders' equity 2,032,079 1,847,992
- ---------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND EQUITY $ 6,393,290 4,705,407
=========================================================================================================
See accompanying notes to consolidated financial statements.
CENTURYTEL, INC.
Consolidated Statements of Cash Flows
Year ended December 31,
- ----------------------------------------------------------------------------------------------------------
2000 1999 1998
- ----------------------------------------------------------------------------------------------------------
(Dollars in thousands)
OPERATING ACTIVITIES
Net income $ 231,474 239,769 228,757
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization 388,056 348,816 328,554
Income from unconsolidated cellular entities (26,986) (27,675) (32,869)
Minority interest 10,201 27,913 12,797
Deferred income taxes 41,820 (17,139) 16,196
Gain on sale of assets, net (20,593) (62,808) (49,859)
Changes in current assets and current liabilities
Accounts receivable (82,252) (15,181) (15,227)
Accounts payable 48,653 (11,469) 4,249
Accrued taxes (967) (59,571) (34,908)
Other current assets and other current
liabilities, net 3,605 (1,354) 15,033
Increase in noncurrent assets (46,026) (30,375) (10,067)
Increase (decrease) in other noncurrent liabilities 4,087 (5,311) (1,706)
Other, net 11,394 23,087 6,824
- ----------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 562,466 408,702 467,774
- ----------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Acquisitions, net of cash acquired (1,540,856) (20,972) (225,569)
Payments for property, plant and equipment (449,537) (389,980) (310,919)
Proceeds from sale of assets 29,495 484,467 132,307
Distributions from unconsolidated cellular entities 35,842 22,219 26,515
Contribution from minority investor 20,000 - -
Purchase of life insurance investment, net (5,753) (2,545) (2,786)
Other, net (3,267) (23,416) 4,807
- ----------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (1,914,076) 69,773 (375,645)
- ----------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from issuance of debt 2,715,852 15,533 957,668
Payments of debt (1,375,895) (438,399) (1,015,015)
Payment of deferred hedge contracts (4,345) - (40,237)
Proceeds from issuance of common stock 7,996 19,182 15,033
Payment of debt issuance costs (4,274) - (6,625)
Cash dividends (26,815) (25,413) (24,179)
Other, net 1,490 1,520 951
- ----------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 1,314,009 (427,577) (112,404)
- ----------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (37,601) 50,898 (20,275)
Cash and cash equivalents at beginning of year 56,640 5,742 26,017
- ----------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 19,039 56,640 5,742
=========================================================================================================
See accompanying notes to consolidated financial statements.
CENTURYTEL, INC.
Consolidated Statements of Stockholders' Equity
Year ended December 31,
- ----------------------------------------------------------------------------------------------------------
2000 1999 1998
- ----------------------------------------------------------------------------------------------------------
(Dollars and shares in thousands)
COMMON STOCK
Balance at beginning of year $ 139,946 138,083 91,104
Issuance of common stock for acquisitions - - 28
Conversion of convertible securities into common stock 254 330 169
Issuance of common stock through dividend
reinvestment, incentive and benefit plans 467 1,533 754
Three-for-two stock split - - 46,028
- ----------------------------------------------------------------------------------------------------------
Balance at end of year 140,667 139,946 138,083
- ----------------------------------------------------------------------------------------------------------
PAID-IN CAPITAL
Balance at beginning of year 493,432 451,535 469,586
Issuance of common stock for acquisitions - - 1,059
Conversion of convertible securities into common stock 3,046 3,101 3,131
Issuance of common stock through dividend
reinvestment, incentive and benefit plans 7,529 17,649 14,279
Amortization of unearned compensation and other 5,833 21,147 9,508
Three-for-two stock split - - (46,028)
- -----------------------------------------------------------------------------------------------------------
Balance at end of year 509,840 493,432 451,535
- ----------------------------------------------------------------------------------------------------------
UNREALIZED HOLDING GAIN ON INVESTMENTS, NET OF TAXES
Balance at beginning of year 64,362 7,217 11,893
Change in unrealized holding gain on investments, net of taxes (38,891) 57,145 (4,676)
- ----------------------------------------------------------------------------------------------------------
Balance at end of year 25,471 64,362 7,217
- ----------------------------------------------------------------------------------------------------------
RETAINED EARNINGS
Balance at beginning of year 1,146,967 932,611 728,033
Net income 231,474 239,769 228,757
Cash dividends declared
Common stock - $.19, $.18 and $.173 per share (26,416) (25,010) (23,771)
Preferred stock (399) (403) (408)
- ----------------------------------------------------------------------------------------------------------
Balance at end of year 1,351,626 1,146,967 932,611
- ----------------------------------------------------------------------------------------------------------
UNEARNED ESOP SHARES
Balance at beginning of year (4,690) (6,070) (8,450)
Release of ESOP shares 1,190 1,380 2,380
- ----------------------------------------------------------------------------------------------------------
Balance at end of year (3,500) (4,690) (6,070)
- ----------------------------------------------------------------------------------------------------------
PREFERRED STOCK - NON-REDEEMABLE
Balance at beginning of year 7,975 8,106 8,106
Conversion of preferred stock into common stock - (131) -
- ----------------------------------------------------------------------------------------------------------
Balance at end of year 7,975 7,975 8,106
- ----------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY $ 2,032,079 1,847,992 1,531,482
==========================================================================================================
COMMON SHARES OUTSTANDING
Balance at beginning of year 139,946 138,083 91,104
Issuance of common stock for acquisitions - - 28
Conversion of convertible securities into common stock 254 330 169
Issuance of common stock through dividend
reinvestment, incentive and benefit plans 467 1,533 754
Three-for-two stock split - - 46,028
- ----------------------------------------------------------------------------------------------------------
Balance at end of year 140,667 139,946 138,083
==========================================================================================================
See accompanying notes to consolidated financial statements.
CenturyTel, Inc.
Notes to Consolidated Financial Statements
December 31, 2000
(1) Summary of Significant Accounting Policies
Principles of consolidation - The consolidated financial statements of
CenturyTel, Inc. and its subsidiaries (the "Company") include the accounts of
CenturyTel, Inc. ("CenturyTel") and its majority-owned subsidiaries and
partnerships. The Company's regulated telephone operations are subject to the
provisions of Statement of Financial Accounting Standards No. 71, "Accounting
for the Effects of Certain Types of Regulation." Investments in cellular
entities where the Company does not own a majority interest are accounted for
using the equity method of accounting.
Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results may differ from those estimates.
Revenue recognition - Revenues are generally recognized and earned when
evidence of an arrangement exists, service has been rendered, the selling price
is determinable and collectibility is reasonably assured. Certain of the
Company's telephone subsidiaries participate in revenue sharing arrangements
with other telephone companies for interstate revenue and for certain intrastate
revenue. Such sharing arrangements are funded by toll revenue and/or access
charges within state jurisdictions and by access charges in the interstate
market. Revenues earned through the various sharing arrangements are initially
recorded based on the Company's estimates.
Property, plant and equipment - Telephone plant is stated substantially at
original cost. Normal retirements of telephone plant are charged against
accumulated depreciation, along with the costs of removal, less salvage, with no
gain or loss recognized. Renewals and betterments of plant and equipment are
capitalized while repairs, as well as renewals of minor items, are charged to
operating expense. Depreciation of telephone plant is provided on the straight
line method using class or overall group rates acceptable to regulatory
authorities; such rates range from 1.8% to 25%.
Non-telephone property is stated at cost and, when sold or retired, a gain
or loss is recognized. Depreciation of such property is provided on the straight
line method over estimated service lives ranging from three to 30 years.
Long-lived assets and excess cost of net assets acquired (goodwill) - The
carrying value of long-lived assets, including allocated goodwill, is reviewed
for impairment at least annually, or whenever events or changes in circumstances
indicate that such carrying value may not be recoverable, by assessing the
recoverability of such carrying value through estimated undiscounted future net
cash flows expected to be generated by the assets or the acquired business.
Substantially all of the Company's goodwill is being amortized over 40 years.
Affiliated transactions - Certain service subsidiaries of CenturyTel
provide installation and maintenance services, materials and supplies, and
managerial, operational, technical, accounting and administrative services to
subsidiaries. In addition, CenturyTel provides and bills management services to
subsidiaries and in certain instances makes interest bearing advances to finance
construction of plant and purchases of equipment. These transactions are
recorded by the Company's telephone subsidiaries at their cost to the extent
permitted by regulatory authorities. Intercompany profit on transactions with
regulated affiliates is limited to a reasonable return on investment and has not
been eliminated in connection with consolidating the results of operations of
CenturyTel and its subsidiaries. Intercompany profit on transactions with
nonregulated affiliates has been eliminated.
Income taxes - CenturyTel files a consolidated federal income tax return
with its eligible subsidiaries. The Company uses the asset and liability method
of accounting for income taxes under which deferred tax assets and liabilities
are established for the future tax consequences attributable to differences
between the financial statement carrying amounts of assets and liabilities and
their respective tax bases. Investment tax credits related to telephone plant
have been deferred and are being amortized as a reduction of federal income tax
expense over the estimated useful lives of the assets giving rise to the
credits.
Derivative financial instruments - The Company has from time to time
entered into interest rate hedge contracts in anticipation of certain debt
issuances to manage interest rate exposure. If a hedge of an anticipated
issuance is deemed effective under current accounting rules, net amounts paid or
received by the Company are reflected as adjustments to interest expense over
the life of the debt issuance. If a hedge is deemed not to be effective, such
amounts paid or received are reflected in earnings in the period the hedge is
settled. The Company had no outstanding interest rate hedge contracts as of
December 31, 2000. The Company does not utilize derivative financial instruments
for trading or other speculative purposes.
Earnings per share - Basic earnings per share amounts are determined on the
basis of the weighted average number of common shares outstanding during the
year. Diluted earnings per share gives effect to all potential dilutive common
shares that were outstanding during the period.
Stock compensation - The Company accounts for employee stock compensation
plans in accordance with Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," as allowed by Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation."
Cash equivalents - The Company considers short-term investments with a
maturity at date of purchase of three months or less to be cash equivalents.
Reclassifications - Certain amounts previously reported for prior years
have been reclassified to conform with the 2000 presentation, including the
reclassification of the Company's Internet operations from the telephone segment
to other operations.
(2) Acquisitions
On July 31, 2000 and September 29, 2000, affiliates of the Company
acquired over 490,000 telephone access lines and related assets from Verizon
Communications, Inc. (successor to GTE Corporation) ("Verizon") in four separate
transactions for approximately $1.5 billion in cash. The Company has made
preliminary estimates of the fair value and useful lives of Verizon's noncurrent
assets and liabilities. Such estimates are subject to change upon completion of
the purchase price allocation. Under these transactions:
o On July 31, 2000, the Company purchased approximately 231,000 telephone
access lines and related local exchange assets comprising 106 exchanges
throughout Arkansas for approximately $842 million in cash.
o On July 31, 2000, Spectra Communications Group, LLC ("Spectra") purchased
approximately 127,000 telephone access lines and related local exchange assets
comprising 107 exchanges throughout Missouri for approximately $297 million
cash. As of December 31, 2000, the Company owned 57.1% of Spectra, which was
organized to acquire and operate these Missouri properties. At closing, the
Company made a preferred equity investment in Spectra of approximately $55
million and financed substantially all of the remainder of the purchase price.
o On September 29, 2000, the Company purchased approximately 70,500
telephone access lines and related local exchange assets comprising 42 exchanges
throughout Wisconsin for approximately $197 million in cash.
o On September 29, 2000, Telephone USA of Wisconsin, LLC ("TelUSA")
purchased approximately 62,900 telephone access lines and related local exchange
assets comprising 35 exchanges throughout Wisconsin for approximately $172
million in cash. The Company owns 89% of TelUSA, which was organized to acquire
and own these Wisconsin properties. At closing, the Company made an equity
investment in TelUSA of approximately $37.8 million and financed substantially
all of the remainder of the purchase price.
The purchase prices discussed above reflect various post-closing
adjustments made to date. Any remaining adjustments are not expected to be
material.
To finance these acquisitions on a short-term basis, the Company borrowed
$1.157 billion on a floating-rate basis under its new $1.5 billion credit
facility with Bank of America, N.A. and Citibank, N.A., as lenders, and Banc of
America Securities LLC and Salomon Smith Barney Inc., as arrangers, and borrowed
$300 million on a floating-rate basis under its existing credit facility with
Bank of America, N.A.
On October 19, 2000, the Company issued $500 million of 8.375% Senior
Notes, Series H, due 2010, and $400 million of 7.75% Remarketable Senior Notes,
Series I, due 2012 (with a remarketing date of October 15, 2002) under its $2.0
billion shelf registration statement filed in May 2000. The net proceeds of
approximately $908 million (excluding the Company's payments of approximately
$12.3 million associated with related interest rate hedging) were used to repay
a portion of the $1.457 billion of aggregate indebtedness the Company incurred
under its credit facilities in connection with the Verizon acquisitions.
The following pro forma information represents the consolidated results of
operations of the Company as if the Verizon acquisitions had been consummated as
of January 1, 2000 and 1999.
Year ended December 31, 2000 1999
- --------------------------------------------------------------------------------
(Dollars, except per share
amounts, in thousands)
(unaudited)
Operating revenues $ 2,054,198 2,015,992
Net income $ 210,336 198,659
Basic earnings per share $ 1.50 1.43
Diluted earnings per share $ 1.48 1.41
- --------------------------------------------------------------------------------
The pro forma information is not necessarily indicative of the operating
results that would have occurred if the Verizon acquisitions had been
consummated as of January 1 of each respective period, nor is it necessarily
indicative of future operating results. The pro forma information does not give
effect to any potential revenue enhancements or cost synergies or other
operating efficiencies that could result from the acquisitions. The actual
results of operations of the Verizon properties are included in the Company's
consolidated financial statements only from the date of acquisition.
On December 1, 1998, the Company acquired the assets of certain local
telephone and directory operations in parts of northern and central Wisconsin
from affiliates of Ameritech Corporation ("Ameritech"), in exchange for
approximately $221 million cash. The assets included (i) access lines and
related property and equipment in 21 predominantly rural communities in
Wisconsin and (ii) Ameritech's directory publishing operations that relate to
nine telephone directories.
(3) Investments in Unconsolidated Cellular Entities
The Company's share of earnings from cellular entities in which it does not
own a majority interest was $28.1 million, $28.8 million and $34.1 million in
2000, 1999 and 1998, respectively, and is included, net of $1.1 million, $1.1
million and $1.2 million of amortization of goodwill attributable to such
investments, in "Income from unconsolidated cellular entities" in the Company's
Consolidated Statements of Income. Over 73% of the 2000 income from
unconsolidated cellular entities was attributable to the following investments.
Ownership interest
- --------------------------------------------------------------------------------
GTE Mobilnet of Austin Limited Partnership 35%
Alltel Cellular Associates of Arkansas Limited Partnership 36%
Detroit SMSA Limited Partnership 3%
Michigan RSA #9 Limited Partnership 43%
Cellular North Michigan Network General Partnership 49%
Lafayette MSA Limited Partnership 49%
Dallas SMSA Limited Partnership .5%
- --------------------------------------------------------------------------------
Based primarily on data furnished to the Company by third parties, the
following summarizes the unaudited combined assets, liabilities and equity, and
the unaudited combined results of operations, of the cellular entities in which
the Company's investments (as of December 31, 2000 and 1999) were accounted for
by the equity method.
December 31, 2000 1999
- --------------------------------------------------------------------------------
(Dollars in thousands)
(unaudited)
Assets
Current assets $ 305,366 289,355
Property and other noncurrent assets 996,702 822,771
- --------------------------------------------------------------------------------
$ 1,302,068 1,112,126
================================================================================
Liabilities and equity
Current liabilities $ 153,797 130,161
Noncurrent liabilities 138,642 43,423
Equity 1,009,629 938,542
- --------------------------------------------------------------------------------
$ 1,302,068 1,112,126
================================================================================
Year ended December 31, 2000 1999 1998
- --------------------------------------------------------------------------------
(Dollars in thousands)
(unaudited)
Results of operations
Revenues $ 1,538,459 1,398,314 1,281,803
Operating income $ 495,971 427,274 430,859
Net income $ 481,923 416,740 435,744
- --------------------------------------------------------------------------------
At December 31, 2000, $56.7 million of the Company's consolidated retained
earnings represented undistributed earnings of unconsolidated cellular entities.
(4) Property, Plant and Equipment
Net property, plant and equipment at December 31, 2000 and 1999 was
composed of the following:
December 31, 2000 1999
- ----------------------------------------------------------------------------------------
(Dollars in thousands)
Telephone, at original cost
Cable and wire $ 2,817,797 1,904,957
Central office 1,656,898 1,149,095
General support 327,766 247,605
Information origination/termination 53,344 58,380
Construction in progress 136,755 74,219
Other 7,248 5,213
- ----------------------------------------------------------------------------------------
4,999,808 3,439,469
Accumulated depreciation (2,552,648) (1,605,553)
- ----------------------------------------------------------------------------------------
2,447,160 1,833,916
- ----------------------------------------------------------------------------------------
Wireless, at cost
Cell site 366,855 353,705
General support 105,951 96,774
Construction in progress 49,799 17,303
Other 79 4,943
- ----------------------------------------------------------------------------------------
522,684 472,725
Accumulated depreciation (261,401) (217,056)
- ----------------------------------------------------------------------------------------
261,283 255,669
- ----------------------------------------------------------------------------------------
Other, at cost
General support 272,286 242,780
Fiber network 60,649 24,722
Other 59,089 14,211
- ----------------------------------------------------------------------------------------
392,024 281,713
Accumulated depreciation (141,174) (114,840)
- ----------------------------------------------------------------------------------------
250,850 166,873
- ----------------------------------------------------------------------------------------
Net property, plant and equipment $ 2,959,293 2,256,458
========================================================================================
Depreciation expense was $328.0 million, $296.8 million and $280.5 million
in 2000, 1999 and 1998, respectively. The composite depreciation rate for
telephone properties was 7.2% for 2000, 7.0% for 1999 and 6.9% for 1998.
(5) Long-term and Short-term Debt
The Company's long-term debt as of December 31, 2000 and 1999 is as
follows:
December 31, 2000 1999
- ---------------------------------------------------------------------------------------------------
(Dollars in thousands)
CenturyTel
6.92% senior credit facility, due through 2002 $ 300,000 57,000
6.92% note, due through 2002 250,625 282,813
Senior notes and debentures:
7.75% Series A, due 2004 50,000 50,000
8.25% Series B, due 2024 100,000 100,000
6.55% Series C, due 2005 50,000 50,000
7.20% Series D, due 2025 100,000 100,000
6.15% Series E, due 2005 100,000 100,000
6.30% Series F, due 2008 240,000 240,000
6.875% Series G, due 2028 425,000 425,000
8.375% Series H, due 2010 500,000 -
7.75% Series I, remarketable 2002 400,000 -
9.38% notes, due through 2003 12,000 16,025
Notes to banks - 40,000
6.86%* Employee Stock Ownership
Plan commitment, due in installments through 2004 3,500 4,690
Net unamortized premium and discounts 12,012 -
Other 201 225
- ---------------------------------------------------------------------------------------------------
Total CenturyTel 2,543,338 1,465,753
- ---------------------------------------------------------------------------------------------------
Subsidiaries
First mortgage debt
5.90%* notes, payable to agencies of the U. S. government
and cooperative lending associations, due in
installments through 2025 278,079 290,715
7.98% notes, due through 2002 5,582 5,732
Other debt
7.48%* unsecured medium-term notes, due through 2008 333,158 333,657
8.12%* notes, due in installments through 2020 23,365 25,520
6.50% note, due in installments through 2001 3,300 6,399
7.06%* capital lease obligations, due through 2003 13,432 12,633
- ---------------------------------------------------------------------------------------------------
Total subsidiaries 656,916 674,656
- ---------------------------------------------------------------------------------------------------
Total long-term debt 3,200,254 2,140,409
Less current maturities 149,962 62,098
- ---------------------------------------------------------------------------------------------------
Long-term debt, excluding current maturities $ 3,050,292 2,078,311
===================================================================================================
* weighted average interest rate at December 31, 2000
The approximate annual debt maturities for the five years subsequent to
December 31, 2000 are as follows: 2001 - $150.0 million; 2002 - $960.2 million
(assuming the Company's Series I notes are redeemed by the Company in 2002);
2003 - $68.9 million; 2004 - $72.1 million; and 2005 - $245.9 million.
Short-term borrowings of $40.0 million at December 31, 1999 were classified
as long-term debt on the accompanying balance sheets because the Company had
adequate committed borrowing capacity available under long-term revolving
facilities.
Certain of the loan agreements of CenturyTel and its subsidiaries contain
various restrictions, among which are limitations regarding issuance of
additional debt, payment of cash dividends, reacquisition of capital stock and
other matters. In addition, the transfer of funds from certain consolidated
subsidiaries to CenturyTel is restricted by various loan agreements.
Subsidiaries which have loans from government agencies and cooperative lending
associations, or have issued first mortgage bonds, generally may not loan or
advance any funds to CenturyTel, but may pay dividends if certain financial
ratios are met. At December 31, 2000, restricted net assets of subsidiaries were
$638.7 million. Subsidiaries' retained earnings in excess of amounts restricted
by debt covenants totaled $1.6 billion. At December 31, 2000, all of the
consolidated retained earnings reflected on the balance sheet was available
under CenturyTel's loan agreements for the declaration of dividends.
Most of the Company's telephone property, plant and equipment is pledged to
secure the long-term debt of subsidiaries.
During 2000, the Company borrowed $1.157 billion on a floating-rate basis
under its new 364-day, $1.5 billion credit facility with Bank of America, N.A.
and Citibank, N.A., as lenders, and Banc of America Securities LLC and Salomon
Smith Barney Inc., as arrangers, and borrowed $300 million on a floating-rate
basis under its existing $300 million credit facility with Bank of America, N.A.
The proceeds were utilized to finance a substantial portion of the Verizon
acquisition on a short-term basis. See Note 2 for additional information.
On October 19, 2000, the Company issued $500 million of 8.375% Senior
Notes, Series H, due 2010, and $400 million of 7.75% Remarketable Senior Notes,
Series I, due 2012 (with a remarketing date of October 15, 2002) under its $2.0
billion shelf registration statement filed in May 2000. The Series I notes will
bear interest at the rate of 7.75% per year through October 15, 2002 (which is
the first remarketing date), and then at a fixed or floating rate. On the
remarketing date, the Series I notes will be purchased and remarketed by the
Company's remarketing dealer or mandatorily redeemed by the Company. The net
proceeds from the sale of the Series H and I notes of approximately $908 million
(including the payment made to the Company for the remarketing option granted to
the remarketing dealer, but excluding the Company's payments associated with
related interest rate hedging) were used to repay a portion of the $1.457
billion of aggregate indebtedness the Company incurred under its credit
facilities in connection with the Verizon acquisition.
Subsequent to the issuance of permanent financing, the committed amount
under the Company's 364-day, $1.5 billion credit facility was reduced to $500
million in accordance with its terms. The Company also has outstanding
indebtedness under other short-term revolving credit facilities and through its
newly initiated commercial paper program. The total amount outstanding under
these short-term facilities aggregated $276.0 million at December 31, 2000. The
weighted average interest rate of the Company's short-term debt at December 31,
2000 was 7.3%.
At December 31, 2000, CenturyTel's telephone subsidiaries had approximately
$129.5 million in commitments for long-term financing from the Rural Utilities
Service available and approximately $400.1 million of additional borrowings were
available to the Company through committed lines of credit with various banks.
(6) Postretirement Benefits
The Company sponsors health care plans that provide postretirement benefits
to all qualified retired employees.
The following is a reconciliation for the benefit obligation and the plan
assets.
December 31, 2000 1999 1998
- ------------------------------------------------------------------------------------------------------
(Dollars in thousands)
Change in benefit obligation
Benefit obligation at beginning of year $ 156,724 172,323 152,632
Service cost 4,727 4,850 5,519
Interest cost 10,907 10,089 10,744
Plan amendments - (2,492) -
Participant contributions 677 419 298
Actuarial (gain) loss 957 (23,855) 9,720
Benefits paid (8,726) (4,610) (6,590)
- ------------------------------------------------------------------------------------------------------
Benefit obligation at end of year $ 165,266 156,724 172,323
======================================================================================================
Change in plan assets (primarily listed stocks and bonds)
Fair value of plan assets at beginning of year $ 41,781 35,799 34,618
Return on assets (270) 2,961 4,080
Employer contributions 6,411 7,212 3,393
Participant contributions 677 419 298
Benefits paid (8,726) (4,610) (6,590)
- ------------------------------------------------------------------------------------------------------
Fair value of plan assets at end of year $ 39,873 41,781 35,799
======================================================================================================
Net periodic postretirement benefit cost for 2000, 1999 and 1998 included
the following components:
Year ended December 31, 2000 1999 1998
- ---------------------------------------------------------------------------------------------
(Dollars in thousands)
Service cost $ 4,727 4,850 5,519
Interest cost 10,907 10,089 10,744
Expected return on plan assets (4,178) (3,580) (3,250)
Amortization of unrecognized actuarial (gains) losses 26 54 430
Amortization of unrecognized prior service cost (129) (129) 121
- ---------------------------------------------------------------------------------------------
Net periodic postretirement benefit cost $ 11,353 11,284 13,564
=============================================================================================
The following table sets forth the amounts recognized as liabilities for
postretirement benefits at December 31, 2000, 1999 and 1998.
December 31, 2000 1999 1998
- ---------------------------------------------------------------------------------------------
(Dollars in thousands)
Benefit obligation $ (165,266) (156,724) (172,323)
Fair value of plan assets 39,873 41,781 35,799
Unamortized prior service cost (1,175) (1,303) 1,060
Unrecognized net actuarial loss 6,109 707 23,972
- ---------------------------------------------------------------------------------------------
Accrued benefit cost $ (120,459) (115,539) (111,492)
=============================================================================================
Assumptions used in accounting for postretirement benefits as of December
31, 2000 and 1999 were:
2000 1999
- --------------------------------------------------------------------------------
Weighted average assumptions
Discount rate 7.25% 7.25
Expected return on plan assets 10.0% 10.0
- --------------------------------------------------------------------------------
For measurement purposes, a 6.8% annual rate in the per capita cost of
covered health care benefits was assumed for 2001 and beyond. A
one-percentage-point change in assumed health care cost rates would have the
following effects:
1-Percentage 1-Percentage
Point Increase Point Decrease
- ----------------------------------------------------------------------------------------------
(Dollars in thousands)
Effect on total of service and interest cost components $ 989 (964)
Effect on postretirement benefit obligation $ 9,028 (8,334)
- ----------------------------------------------------------------------------------------------
(7) Investments and Other Assets
Investments and other assets at December 31, 2000 and 1999 were composed of
the following:
December 31, 2000 1999
- ---------------------------------------------------------------------------------------------
(Dollars in thousands)
Excess cost of net assets acquired, less accumulated amortization $ 2,509,033 1,644,884
Investments in unconsolidated cellular entities 117,942 125,901
Cash surrender value of life insurance contracts 96,065 90,313
Marketable equity securities 42,801 102,633
Other 291,652 199,145
- ---------------------------------------------------------------------------------------------
$ 3,057,493 2,162,876
=============================================================================================
Amortization of goodwill and other intangibles of $60.1 million, $52.0
million and $47.8 million for 2000, 1999 and 1998, respectively, is included in
"Depreciation and amortization" in the Company's Consolidated Statements of
Income.
The Company's investments in marketable equity securities are classified as
available for sale and are reported at fair value with unrealized holding gains
and losses reported, net of taxes, as a separate component of stockholders'
equity. Gross unrealized holding gains of the Company's marketable equity
securities were $39.2 million as of December 31, 2000 and $99.0 million as of
December 31, 1999.
(8) Deferred Credits and Other Liabilities
Deferred credits and other liabilities at December 31, 2000 and 1999 were
composed of the following:
December 31, 2000 1999
- ------------------------------------------------------------------------------------------------------
(Dollars in thousands)
Deferred federal and state income taxes $ 298,451 269,988
Accrued postretirement benefit costs 118,614 112,876
Minority interest 88,295 43,204
Regulatory liability - income taxes 8,528 12,469
Deferred investment tax credits 1,053 1,724
Other 52,608 29,666
- ------------------------------------------------------------------------------------------------------
$ 567,549 469,927
======================================================================================================
(9) Stockholders' Equity
Common stock - At December 31, 2000, unissued shares of CenturyTel common
stock were reserved as follows:
December 31, 2000
- --------------------------------------------------------------------------------
(In thousands)
Incentive compensation programs 9,973
Acquisitions 4,572
Employee stock purchase plan 976
Dividend reinvestment plan 633
Conversion of convertible preferred stock 435
Other employee benefit plans 2,213
- --------------------------------------------------------------------------------
18,802
================================================================================
Under CenturyTel's Articles of Incorporation each share of common stock
beneficially owned continuously by the same person since May 30, 1987 generally
entitles the holder thereof to ten votes per share. All other shares entitle the
holder to one vote per share. At December 31, 2000, the holders of 10.6 million
shares of common stock were entitled to ten votes per share.
Preferred stock - As of December 31, 2000, CenturyTel had 2.0 million shares of
convertible preferred stock, $25 par value per share, authorized. At December
31, 2000 and 1999, there were 319,000 shares of outstanding preferred stock.
Holders of outstanding CenturyTel preferred stock are entitled to receive
cumulative dividends, receive preferential distributions equal to $25 per share
plus unpaid dividends upon CenturyTel's liquidation and vote as a single class
with the holders of common stock.
Shareholders' Rights Plan - In 1996 the Board of Directors declared a dividend
of one preference share purchase right for each common share outstanding. Such
rights become exercisable if and when a potential acquiror takes certain steps
to acquire 15% or more of CenturyTel's common stock. Upon the occurrence of such
an acquisition, each right held by shareholders other than the acquiror may be
exercised to receive that number of shares of common stock or other securities
of CenturyTel (or, in certain situations, the acquiring company) which at the
time of such transaction will have a market value of two times the exercise
price of the right.
Stock split - On February 23, 1999, CenturyTel's Board of Directors declared a
three-for-two common stock split effected as a 50% stock dividend in March 1999.
All per share data included in this report for periods prior to March 1999 have
been restated to reflect this stock split. An amount equal to the par value of
the additional common shares issued pursuant to the stock split was reflected as
a transfer from paid-in capital to common stock in the consolidated financial
statements for 1998.
(10) Stock Option Program
CenturyTel has a 2000 incentive compensation program which allows the Board
of Directors, through the Compensation Committee, to grant incentives to certain
employees in any one or a combination of several forms, including incentive and
non-qualified stock options; stock appreciation rights; restricted stock; and
performance shares. As of December 31, 2000, CenturyTel had reserved 10.0
million shares of common stock which may be issued under CenturyTel's current
and predecessor incentive compensation programs.
Under the Company's programs, options have been granted to employees at a
price either equal to or exceeding the then-current market price. All of the
options expire ten years after the date of grant and the vesting period ranges
from immediate to three years.
During 2000 the Company granted 1,565,750 options (the "2000 Options") at
market price. The weighted average fair value of each of the 2000 Options was
estimated as of the date of grant to be $12.46 using an option-pricing model
with the following assumptions: dividend yield - .5%; expected volatility - 25%;
risk-free interest rate - 5.3%; and expected option life - seven years.
During 1999 the Company granted 83,743 options (the "1999 Options") at
market price. The weighted average fair value of each of the 1999 Options was
estimated as of the date of grant to be $15.90 using an option-pricing model
with the following assumptions: dividend yield - .4%; expected volatility - 20%;
risk-free interest rate - 6.6%; and expected option life - seven years.
During 1998 the Company granted 121,667 options (the "1998 Options") at
market price. The weighted average fair value of each of the 1998 Options was
estimated as of the date of grant to be $8.88 using an option-pricing model with
the following assumptions: dividend yield - .5%; expected volatility - 20%;
risk-free interest rate - 4.8%; and expected option life - seven years.
Stock option transactions during 2000, 1999 and 1998 were as follows:
Number Average
of options price
- -------------------------------------------------------------------------------
Outstanding December 31, 1997 5,608,931 $ 12.73
Exercised (937,985) 11.41
Granted 121,667 26.25
Forfeited (12,000) 13.33
- -----------------------------------------------------------------
Outstanding December 31, 1998 4,780,613 13.35
Exercised (1,369,459) 10.90
Granted 83,743 40.88
Forfeited (9,055) 37.07
- -----------------------------------------------------------------
Outstanding December 31, 1999 3,485,842 14.92
Exercised (369,308) 12.46
Granted 1,565,750 33.00
Forfeited (1,125) 13.33
- -----------------------------------------------------------------
Outstanding December 31, 2000 4,681,159 21.16
=================================================================
Exercisable December 31, 1999 3,317,004 14.32
=================================================================
Exercisable December 31, 2000 3,113,496 15.21
=================================================================
The following tables summarize certain information about CenturyTel's stock
options at December 31, 2000.
Options outstanding
- --------------------------------------------------------------------------------------
Weighted average
Range of remaining contractual Weighted average
exercise prices Number of options life outstanding exercise price
- --------------------------------------------------------------------------------------
$ 9.63-12.30 899,481 1.6 $ 12.29
13.33-17.64 2,038,690 5.2 14.94
23.03-26.05 305,713 7.4 24.74
26.98-31.54 46,264 8.0 29.08
33.13-34.63 1,315,198 9.2 34.62
39.00-46.19 75,813 8.7 40.92
---------
9.63-46.19 4,681,159 6.7 21.16
=========
Options exercisable
- --------------------------------------------------------------------------------------
Range of Number of Weighted average
exercise prices options exercisable exercise price
- --------------------------------------------------------------------------------------
$ 9.63-12.30 899,481 $ 12.29
13.33-17.64 2,038,690 14.94
23.03-26.05 53,248 25.95
26.98-31.54 46,264 29.08
39.00-46.19 75,813 40.92
---------
9.63-46.19 3,113,496 15.21
=========
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," in accounting for its program. Accordingly, the
Company has not recognized compensation cost in connection with issuing stock
options. If compensation cost for CenturyTel's options had been determined
consistent with SFAS 123, the Company's net income and earnings per share on a
pro forma basis for 2000, 1999 and 1998 would have been as follows:
Year ended December 31, 2000 1999 1998
- --------------------------------------------------------------------------------
(Dollars in thousands,
except per share amounts)
Net income
As reported $ 231,474 239,769 228,757
Pro forma $ 225,164 239,033 227,113
Basic earnings per share
As reported $ 1.65 1.72 1.67
Pro forma $ 1.60 1.72 1.66
Diluted earnings per share
As reported $ 1.63 1.70 1.64
Pro forma $ 1.59 1.69 1.62
- --------------------------------------------------------------------------------
(11) Accounting for the Effects of Regulation
The Company's regulated telephone operations are subject to the provisions
of Statement of Financial Accounting Standards No. 71 ("SFAS 71"), "Accounting
for the Effects of Certain Types of Regulation." Actions of regulators can
provide reasonable assurance of the existence of an asset, reduce or eliminate
the value of an asset and impose a liability on a regulated enterprise. Such
regulatory assets and liabilities are required to be recorded and, accordingly,
reflected in the balance sheet of an entity subject to SFAS 71.
The Company's consolidated balance sheet as of December 31, 2000 included
regulatory assets of approximately $735.4 million and regulatory liabilities of
approximately $4.8 million. The $735.4 million of regulatory assets included
amounts related to accumulated depreciation ($732.1 million), assets established
in connection with postretirement benefits ($345,000), income taxes ($38,000)
and deferred financing costs ($2.9 million). The $4.8 million of regulatory
liabilities was established in connection with the adoption of Statement of
Financial Accounting Standards No. 109, "Accounting For Income Taxes." Net
deferred income tax liabilities related to the regulatory assets and liabilities
quantified above were $294.6 million.
Property, plant and equipment of the Company's regulated telephone
operations has been depreciated using generally the straight line method over
lives approved by regulators. Such depreciable lives have generally exceeded the
depreciable lives used by nonregulated entities. In addition, in accordance with
regulatory accounting, retirements of regulated telephone property have been
charged to accumulated depreciation, along with the costs of removal, less
salvage, with no gain or loss recognized. These accounting policies have
resulted in accumulated depreciation being significantly less than if the
Company's telephone operations had not been regulated.
Statement of Financial Accounting Standards No. 101 ("SFAS 101"),
"Regulated Enterprises - Accounting for the Discontinuance of Application of
FASB Statement No. 71," specifies the accounting required when an enterprise
ceases to meet the criteria for application of SFAS 71. SFAS 101 requires the
elimination of the effects of any actions of regulators that have been
recognized as assets and liabilities in accordance with SFAS 71 but would not
have been recognized as assets and liabilities by non-regulated enterprises,
along with an adjustment of certain accumulated depreciation accounts to reflect
the difference between recorded depreciation and the amount of depreciation that
would have been recorded had the Company's telephone operations not been subject
to rate regulation. SFAS 101 further provides that the carrying amounts of
property, plant and equipment are to be adjusted only to the extent the assets
are impaired and that impairment shall be judged in the same manner as for
non-regulated enterprises. Deferred tax liabilities and deferred investment tax
credits will be impacted based on the change in the temporary differences for
property, plant and equipment and accumulated depreciation.
The Company is monitoring the ongoing applicability of SFAS 71 to its
regulated telephone operations due to the changing regulatory, competitive and
legislative environments, and it is possible that changes in regulation,
legislation or competition or in the demand for regulated services or products
could result in the Company's telephone operations no longer being subject to
SFAS 71 in the near future. When the regulated operations of the Company no
longer qualify for the application of SFAS 71, the net adjustments required will
result in a material, noncash charge against earnings which will be reported as
an extraordinary item. While the effect of implementing SFAS 101 cannot be
precisely estimated at this time, management believes that the noncash,
after-tax, extraordinary charge would be between $400 million and $450 million.
For regulatory purposes, the accounting and reporting of the Company's telephone
subsidiaries will not be affected by the discontinued application of SFAS 71.
(12) Sale or Exchange of Assets
In the first quarter of 2000 the Company recorded a pre-tax gain
aggregating $9.9 million ($5.2 million after tax) due to the sale of its
remaining Alaska cellular operations.
In the third quarter of 2000 the Company recorded a pre-tax gain
aggregating $10.7 million ($6.4 million after tax) due to the sale of its
minority interest in a non-strategic cellular partnership.
In the first quarter of 1999 the Company recorded a pre-tax gain
aggregating $10.4 million ($6.7 million after tax) due to the sale of its
remaining common shares of MCIWorldCom, Inc. ("WorldCom").
In May 1999, the Company sold substantially all of its Alaska-based
operations that were acquired in the acquisition of Pacific Telecom, Inc. on
December 1, 1997. The Company received approximately $300 million in after-tax
cash as a result of the transaction. In accordance with purchase accounting, no
gain or loss was recorded upon the disposition of these properties.
In June 1999, the Company sold the assets of its cellular operations in
Brownsville and McAllen, Texas for approximately $96 million cash. In connection
therewith, the Company recorded a pre-tax gain of approximately $39.6 million,
and an after-tax loss of approximately $7.8 million.
In the fourth quarter of 1999 the Company recorded a pre-tax gain
aggregating $11.6 million ($7.6 million after tax) due to the sale of its
Telephone and Data Systems, Inc. common stock.
In connection with the first quarter 1998 acquisition of Brooks Fiber
Properties, Inc. ("Brooks") by WorldCom, the Company's 551,000 shares of Brooks'
common stock were converted into approximately 1.0 million shares of WorldCom
common stock. The Company recorded such conversion at fair value which resulted
in a pre-tax gain of approximately $22.8 million ($14.8 million after tax). In
the second quarter of 1998, the Company sold 750,000 shares of WorldCom common
stock for $35.6 million cash and recorded a pre-tax gain of $8.7 million ($5.7
million after tax).
In the second quarter of 1998, the Company sold its minority interests in
two non-strategic cellular entities for approximately $31.0 million cash which
resulted in a pre-tax gain of $21.8 million ($12.3 million after tax).
Additionally, in the second quarter the Company wrote off its minority
investment in a start-up company.
(13) Earnings Per Share
The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share computations:
Year ended December 31, 2000 1999 1998
- ----------------------------------------------------------------------------------------------
(Dollars, except per share
amounts, and shares in thousands)
Income (Numerator):
Net income $ 231,474 239,769 228,757
Dividends applicable to preferred stock (399) (403) (408)
- ----------------------------------------------------------------------------------------------
Net income applicable to common stock for
computing basic earnings per share 231,075 239,366 228,349
Dividends applicable to preferred stock 399 403 408
Interest on convertible securities, net of taxes 132 252 372
- ----------------------------------------------------------------------------------------------
Net income as adjusted for purposes of computing
diluted earnings per share $ 231,606 240,021 229,129
==============================================================================================
Shares (Denominator):
Weighted average number of shares outstanding
during period 140,440 139,313 137,568
Employee Stock Ownership Plan shares not
committed to be released (371) (465) (558)
- ----------------------------------------------------------------------------------------------
Weighted average number of shares outstanding during
period for computing basic earnings per share 140,069 138,848 137,010
Incremental common shares attributable to
dilutive securities:
Conversion of convertible securities 707 981 1,274
Shares issuable under outstanding stock options 1,088 1,603 1,821
- ----------------------------------------------------------------------------------------------
Number of shares as adjusted for purposes of
computing diluted earnings per share 141,864 141,432 140,105
==============================================================================================
Basic earnings per share $ 1.65 1.72 1.67
==============================================================================================
Diluted earnings per share $ 1.63 1.70 1.64
==============================================================================================
The weighted average number of options to purchase shares of common stock
that were excluded from the computation of diluted earnings per share because
the exercise price of the option was greater than the average market price of
the common stock was 969,000, 20,000 and 3,000 for 2000, 1999 and 1998,
respectively.
(14) Income Taxes
The tax effects of temporary differences that gave rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
2000 and 1999 were as follows:
December 31, 2000 1999
- --------------------------------------------------------------------------------
(Dollars in thousands)
Deferred tax assets
Postretirement benefit costs $ 30,834 36,851
Regulatory support 13,504 13,504
Net operating loss carryforwards 8,302 2,593
Regulatory liability 3,191 4,907
Long-term debt 7,765 2,805
Other employee benefits 7,335 8,367
Other 11,055 10,466
- --------------------------------------------------------------------------------
Gross deferred tax assets 81,986 79,493
Less valuation allowance (8,302) (2,593)
- --------------------------------------------------------------------------------
Net deferred tax assets 73,684 76,900
- --------------------------------------------------------------------------------
Deferred tax liabilities
Property, plant and equipment, primarily due to
depreciation differences (283,008) (239,583)
Excess cost of net assets acquired (55,819) (49,183)
Deferred debt costs (2,764) (3,128)
Customer base (5,742) (7,868)
Marketable equity securities (13,715) (34,656)
Intercompany profits (3,283) (3,259)
Other (7,804) (9,211)
- --------------------------------------------------------------------------------
Gross deferred tax liabilities (372,135) (346,888)
- --------------------------------------------------------------------------------
Net deferred tax liability $(298,451) (269,988)
================================================================================
The following is a reconciliation from the statutory federal income tax
rate to the Company's effective income tax rate:
Year ended December 31, 2000 1999 1998
- ------------------------------------------------------------------------------------------------
(Percentage of pre-tax income)
Statutory federal income tax rate 35.0% 35.0 35.0
State income taxes, net of federal income tax benefit 2.8 2.5 3.9
Amortization of nondeductible excess cost of net assets acquired 2.9 2.7 3.3
Basis difference of assets sold .3 3.9 .2
Amortization of investment tax credits (.2) (.4) (.6)
Amortization of regulatory liability (.4) (.4) (.6)
Other, net (.3) .8 (.2)
- ------------------------------------------------------------------------------------------------
Effective income tax rate 40.1% 44.1 41.0
================================================================================================
Income tax expense included in the Consolidated Statements of Income for
the years ended December 31, 2000, 1999 and 1998 was as follows:
Year ended December 31, 2000 1999 1998
- --------------------------------------------------------------------------------
(Dollars in thousands)
Federal
Current $ 98,271 184,872 117,490
Deferred 39,651 (11,600) 18,048
State
Current 14,620 21,770 25,015
Deferred 2,169 (5,539) (1,852)
- --------------------------------------------------------------------------------
$ 154,711 189,503 158,701
================================================================================
Income tax expense was allocated as follows:
Year ended December 31, 2000 1999 1998
- -----------------------------------------------------------------------------------------------
(Dollars in thousands)
Net tax expense in the consolidated statements of income $ 154,711 189,503 158,701
Stockholders' equity
Compensation expense for tax purposes
in excess of amounts recognized for
financial reporting purposes (2,702) (16,836) (6,579)
Tax effect of the change in unrealized holding
gain on investments (20,941) 30,771 (2,518)
- -----------------------------------------------------------------------------------------------
$ 131,068 203,438 149,604
===============================================================================================
(15) Retirement and Savings Plans
CenturyTel and certain subsidiaries sponsor defined benefit pension plans
for substantially all employees. CenturyTel also sponsors an Outside Directors'
Retirement Plan and a Supplemental Executive Retirement Plan to provide
directors and officers, respectively, with supplemental retirement, death and
disability benefits.
The following is a reconciliation of the beginning and ending balances for
the benefit obligation and the plan assets for the retirement and savings plans.
December 31, 2000 1999 1998
- ------------------------------------------------------------------------------------------------
(Dollars in thousands)
Change in benefit obligation
Benefit obligation at beginning of year $ 205,455 217,747 200,554
Service cost 5,928 5,226 5,361
Interest cost 15,381 13,817 13,225
Plan amendments 3,387 - 227
Acquisition 35,824 - -
Actuarial (gain) loss (3,726) (19,844) 8,683
Benefits paid (12,414) (11,491) (10,303)
- ------------------------------------------------------------------------------------------------
Benefit obligation at end of year $ 249,835 205,455 217,747
================================================================================================
Change in plan assets (primarily listed stocks and bonds)
Fair value of plan assets at beginning of year $ 319,901 278,678 237,618
Return on plan assets (14,991) 52,183 50,720
Employer contributions 572 531 643
Acquisition 36,391 - -
Benefits paid (12,414) (11,491) (10,303)
- ------------------------------------------------------------------------------------------------
Fair value of plan assets at end of year $ 329,459 319,901 278,678
================================================================================================
Net periodic pension benefit for 2000, 1999 and 1998 included the following
components:
Year ended December 31, 2000 1999 1998
- --------------------------------------------------------------------------------
(Dollars in thousands)
Service cost $ 5,928 5,226 5,361
Interest cost 15,381 13,817 13,225
Expected return on plan assets (31,586) (26,824) (22,925)
Recognized net gains (7,107) (3,176) (2,688)
Net amortization and deferral (602) (235) (300)
- --------------------------------------------------------------------------------
Net periodic pension benefit $ (17,986) (11,192) (7,327)
================================================================================
The following table sets forth the combined plans' funded status and
amounts recognized in the Company's consolidated balance sheet at December 31,
2000, 1999 and 1998.
December 31, 2000 1999 1998
- --------------------------------------------------------------------------------
(Dollars in thousands)
Benefit obligation $ (249,835) (205,455) (217,747)
Fair value of plan assets 329,459 319,901 278,678
Unrecognized transition asset (1,648) (1,892) (2,136)
Unamortized prior service cost 4,126 1,031 1,053
Unrecognized net actuarial gain (49,336) (100,052) (57,981)
- --------------------------------------------------------------------------------
Prepaid benefit cost $ 32,766 13,533 1,867
================================================================================
Assumptions used in accounting for the pension plans as of December 2000
and 1999 were:
2000 1999
- --------------------------------------------------------------------------------
Discount rates 7.25% 7.25
Expected long-term rate of return on assets 8.0-10.0% 8.0-10.0
- --------------------------------------------------------------------------------
CenturyTel sponsors an Employee Stock Bonus Plan ("ESBP") and an Employee
Stock Ownership Plan ("ESOP"). These plans cover most employees with one year of
service with the Company and are funded by Company contributions determined
annually by the Board of Directors.
The Company contributed $6.0 million, $5.2 million and $3.7 million to the
ESBP during 2000, 1999 and 1998, respectively. The Company's expense related to
the ESOP during 2000, 1999 and 1998 was $3.5 million, $4.4 million, and $4.4
million, respectively. At December 31, 2000, the ESBP and the ESOP owned an
aggregate of 8.6 million shares of CenturyTel common stock.
CenturyTel and certain subsidiaries also sponsor qualified profit sharing
plans pursuant to Section 401(k) of the Internal Revenue Code (the "401(k)
Plans") which are available to substantially all employees of the Company. The
Company's matching contributions to the 401(k) Plans were $6.1 million in 2000,
$6.1 million in 1999 and $8.5 million in 1998.
(16) Supplemental Cash Flow Disclosures
The Company paid interest, net of amounts capitalized, of $164.0 million,
$148.3 million and $150.8 million during 2000, 1999 and 1998, respectively.
Income taxes paid were $142.3 million in 2000, $270.9 million in 1999 and $185.9
million in 1998.
CenturyTel has consummated the acquisitions of various telephone and
cellular operations, along with certain other assets, during the three years
ended December 31, 2000. In connection with these acquisitions, the following
assets were acquired and liabilities assumed:
Year ended December 31, 2000 1999 1998
- --------------------------------------------------------------------------------
(Dollars in thousands)
Property, plant and equipment, net $ 607,415 830 75,043
Excess cost of net assets acquired 917,468 20,194 145,880
Other investments 7,145 - 5,028
Long-term debt (378) - -
Deferred credits and other liabilities (44,465) - -
Other assets and liabilities, excluding
cash and cash equivalents 53,671 (52) (382)
- --------------------------------------------------------------------------------
Decrease in cash due to acquisitions $ 1,540,856 20,972 225,569
================================================================================
CenturyTel has disposed of various telephone and cellular operations, along
with certain other assets, during the three years ended December 31, 2000. In
connection with these dispositions, the following assets were sold, liabilities
eliminated, assets received and gain recognized:
Year ended December 31, 2000 1999 1998
- ---------------------------------------------------------------------------------------
(Dollars in thousands)
Property, plant and equipment, net $ (4,062) (165,286) -
Excess cost of net assets acquired, net (4,071) (296,605) -
Marketable equity securities - (18,363) (21,923)
Other assets and liabilities, excluding cash and
cash equivalents (769) 58,595 (60,525)
Gain on sale of assets (20,593) (62,808) (49,859)
- ---------------------------------------------------------------------------------------
Increase in cash due to dispositions $(29,495) (484,467) (132,307)
=======================================================================================
(17) Fair Value of Financial Instruments
The following table presents the carrying amounts and estimated fair
values of certain of the Company's financial instruments at December 31, 2000
and 1999.
Carrying Fair
amount value
- -----------------------------------------------------------------------------------
(Dollars in thousands)
December 31, 2000
Financial assets
Investments
Marketable equity securities $ 42,801 42,801 (1)
Other $ 36,514 36,514 (3)
Financial liabilities
Long-term debt (including current maturities) $ 3,200,254 3,107,899 (2)
Other $ 40,879 40,879 (3)
- -----------------------------------------------------------------------------------
December 31, 1999
Financial assets
Investments
Marketable equity securities $ 102,633 102,633 (1)
Other $ 23,773 23,773 (3)
Financial liabilities
Long-term debt (including current maturities) $ 2,140,409 2,092,744 (2)
Other $ 33,656 33,656 (3)
- -----------------------------------------------------------------------------------
(1) Fair value was based on quoted market prices.
(2) Fair value was estimated by discounting the scheduled payment streams to
present value based upon rates currently offered to the Company for
similar debt.
(3) Fair value was estimated by the Company to approximate carrying value.
(4) The carrying amount of cash and cash equivalents, accounts receivable,
short-term debt, accounts payable and accrued expenses approximates the
fair value due to the short maturity of these instruments.
(18) Business Segments
The Company has two reportable segments: telephone and wireless. The
Company's reportable segments are strategic business units that offer different
products and services. The operating income of these segments is reviewed by the
chief operating decision maker to assess performance and make business
decisions.
The Company's telephone operations are conducted in rural, suburban and
small urban communities in 21 states. Approximately 87% of the Company's
telephone access lines are in Wisconsin, Arkansas, Washington, Missouri,
Michigan, Louisiana, Colorado, Ohio and Oregon. The Company's wireless customers
are located in Michigan, Louisiana, Wisconsin, Mississippi, Texas, and Arkansas.
Depreciation
Operating and Operating
revenues amortization income
- -----------------------------------------------------------------------------------------------------
(Dollars in thousands)
Year ended December 31, 2000
- ----------------------------
Telephone $ 1,253,969 317,906 376,290
Wireless 443,569 65,239 117,865
Other operations 148,388 4,911 31,258
- -----------------------------------------------------------------------------------------------------
Total $ 1,845,926 388,056 525,413
=====================================================================================================
Year ended December 31, 1999
- ----------------------------
Telephone $ 1,126,112 273,666 351,559
Wireless 422,269 68,593 133,930
Other operations 128,288 6,557 22,580
- ----------------------------------------------------------------------------------------------------
Total $ 1,676,669 348,816 508,069
====================================================================================================
Year ended December 31, 1998
- ----------------------------
Telephone $ 1,077,343 261,370 334,604
Wireless 407,827 62,345 129,124
Other operations 91,915 4,839 16,083
- ----------------------------------------------------------------------------------------------------
Total $ 1,577,085 328,554 479,811
====================================================================================================
Year ended December 31, 2000 1999 1998
- ---------------------------------------------------------------------------------------------------
(Dollars in thousands)
Operating income $ 525,413 508,069 479,811
Gain on sale or exchange of assets, net 20,593 62,808 49,859
Interest expense (183,302) (150,557) (167,552)
Income from unconsolidated cellular entities 26,986 27,675 32,869
Minority interest (10,201) (27,913) (12,797)
Other income and expense 6,696 9,190 5,268
- ----------------------------------------------------------------------------------------------------
Income before income tax expense $ 386,185 429,272 387,458
====================================================================================================
Year ended December 31, 2000 1999 1998
- ---------------------------------------------------------------------------------------------------
(Dollars in thousands)
Capital expenditures
Telephone $ 275,523 233,512 233,190
Wireless 58,468 58,760 57,326
Other operations 115,546 97,708 20,403
- ----------------------------------------------------------------------------------------------------
Total $ 449,537 389,980 310,919
=====================================================================================================
Total assets
Telephone $ 4,779,812 3,246,290 3,674,148
Wireless 1,204,186 1,184,129 1,114,955
Other operations 409,292 274,988 146,352
- ----------------------------------------------------------------------------------------------------
Total assets $ 6,393,290 4,705,407 4,935,455
=====================================================================================================
Other accounts receivable are primarily amounts due from various long
distance carriers, principally AT&T, and several large local exchange operating
companies.
(19) Commitments and Contingencies
Construction expenditures and investments in vehicles, buildings and
equipment during 2001 are estimated to be $400 million for telephone operations,
$70 million for wireless operations and $80 million for other operations.
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's consolidated financial position or results of operations.
CENTURYTEL, INC.
Consolidated Quarterly Income Information
(Unaudited)
First Second Third Fourth
quarter quarter quarter quarter
- --------------------------------------------------------------------------------
(Dollars in thousands, except per share amounts)
2000 (unaudited)
- --------------------------------------------------------------------------------
Operating revenues $ 412,956 423,156 482,634 527,180
Operating income $ 111,422 124,892 147,059 142,040
Net income $ 49,284 57,845 67,224 57,121
Basic earnings per share $ .35 .41 .48 .41
Diluted earnings per share $ .35 .41 .47 .40
1999
- --------------------------------------------------------------------------------
Operating revenues $ 414,256 416,750 419,205 426,458
Operating income $ 130,623 130,625 130,059 116,762
Net income $ 61,105 53,462 64,529 60,673
Basic earnings per share $ .44 .38 .46 .43
Diluted earnings per share $ .43 .38 .46 .43
- --------------------------------------------------------------------------------
Diluted earnings per share for the first and third quarters of 2000
included $.04 and $.05 per share, respectively, of gain on sale of assets. See
Note 12 for additional information. On July 31, 2000 and September 29, 2000,
affiliates of the Company acquired over 490,000 telephone access lines and
related assets from Verizon. See Note 2 for additional information.
Diluted earnings per share for the first, second, third and fourth quarters
of 1999 included $.04, ($.05), $.01 and $.05 per share, respectively, of net
gain (loss) on sale of assets. See Note 12 for additional information.
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The name, age and office(s) held by each of the Registrant's executive
officers are shown below. Each of the executive officers listed below serves at
the pleasure of the Board of Directors, except Mr. Williams who has entered into
an employment agreement with the Registrant. The agreement's initial term has
lapsed, but the agreement remains in effect from year to year, subject to the
right of Mr. Williams or the Company to terminate such agreement.
Name Age Office(s) held with CenturyTel
- ---- --- ------------------------------
Clarke M. Williams 79 Chairman of the Board
of Directors
Glen F. Post, III 48 Vice Chairman of the Board of
Directors, President and
Chief Executive Officer
Karen A. Puckett 40 Executive Vice President and
Chief Operating Officer
R. Stewart Ewing, Jr. 49 Executive Vice President and
Chief Financial Officer
Harvey P. Perry 56 Executive Vice President,
Chief Administrative Officer,
General Counsel and Secretary
David D. Cole 43 Senior Vice President -
Operations Support
Michael Maslowski 53 Senior Vice President and
Chief Information Officer
Each of the Registrant's executive officers, except for Ms. Puckett and Mr.
Maslowski, has served as an officer of the Registrant and one or more of its
subsidiaries in varying capacities for more than the past five years. Mr. Cole
has served as Senior Vice President - Operational Support since November 1998,
as President - Wireless Group from October 1996 to October 1998 and as Vice
President from 1990 to 1996. Mr. Maslowski has served as Senior Vice President
and Chief Information Officer since March 1999 and as Senior Information Systems
Executive for Lucent Technologies and for a joint venture between Lucent
Technologies and Phillips Consumer Communications from 1996 to early 1999. Ms.
Puckett has served as Executive Vice President and Chief Operating Officer since
July 2000, as Sales and Marketing Senior Officer of BroadStream Communications
from July 1999 to July 2000 and as Texas Region President for GTE Wireless from
1996 to mid-1999.
Commco Technology LLC (formerly BroadStream Communications) filed for
bankruptcy on December 18, 2000 in the United States Bankruptcy Court, District
of Connecticut (Bridgeport). Ms. Puckett was an officer and employee of
BroadStream Communications from July 1999 through July 2000.
The balance of the information required by Item 10 is incorporated by
reference to the Registrant's definitive proxy statement relating to its 2001
annual meeting of stockholders (the "Proxy Statement"), which Proxy Statement
will be filed pursuant to Regulation 14A within 120 days after the end of the
last fiscal year.
Item 11. Executive Compensation.
The information required by Item 11 is incorporated by reference to the
Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by Item 12 is incorporated by reference to the
Proxy Statement.
Item 13. Certain Relationships and Related Transactions.
The information required by Item 13 is incorporated by reference to the
Proxy Statement.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
a. Financial Statements
(i) Consolidated Financial Statements:
Independent Auditors' Report on Consolidated Financial
Statements and Financial Statement Schedules
Consolidated Statements of Income for the years ended
December 31, 2000, 1999 and 1998
Consolidated Statements of Comprehensive Income for the
years ended December 31, 2000, 1999 and 1998
Consolidated Balance Sheets - December 31, 2000 and 1999
Consolidated Statements of Cash Flows for the years
ended December 31, 2000, 1999 and 1998
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 2000, 1999 and 1998
Notes to Consolidated Financial Statements
Consolidated Quarterly Income Information (unaudited)
(ii) Schedules:*
I Condensed Financial Information of Registrant
II Valuation and Qualifying Accounts
* Those schedules not listed above are
omitted as not applicable or not required.
b. Reports on Form 8-K.
The following items were reported in a Form 8-K filed October
5, 2000.
Item 2. Acquisition of properties in Wisconsin from Verizon.
Item 5. Expected Third Quarter 2000 operating results and
updated long-term debt ratings.
Item 7. Historical and pro forma financial information
related to Verizon acquisitions.
The following item was reported in a Form 8-K filed November
13, 2000.
Item 5. News release announcing third quarter results
of operations.
c. Exhibits:
3(i) Amended and Restated Articles of Incorporation of
Registrant, dated as of May 6, 1999,
(incorporated by reference to Exhibit 3(i) to
Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1999).
3(ii) Registrant's Bylaws, as amended through November
18, 1999 (incorporated by reference to Exhibit
3(ii) to Registrant's Annual Report on Form 10-K
for the year ended December 31, 1999).
4.1 Note Purchase Agreement, dated September 1, 1989,
between Registrant, Teachers Insurance and
Annuity Association of America and the Lincoln
National Life Insurance Company (incorporated by
reference to Exhibit 4.23 to Registrant's
Quarterly Report on Form 10-Q for the quarter
ended September 30, 1989).
4.2 Rights Agreement, dated as of August 27, 1996,
between Registrant and Society National Bank, as
Rights Agent, including the form of Rights
Certificate (incorporated by reference to Exhibit
1 of Registrant's Current Report on Form 8-K
filed August 30, 1996) and Amendment No.1
thereto, dated May 25, 1999 (incorporated by
reference to Exhibit 4.2(ii) to Registrant's
Report on Form 8-K dated May 25, 1999) and
Amendment No. 2 thereto, dated and effective as
of June 30, 2000, by and between the Registrant
and Computershare Investor Services, LLC, as
rights agent (incorporated by reference to
Exhibit 4.1 of Registrant's Quarterly report on
10-Q for the quarter ended September 30, 2000).
4.3 Form of common stock certificate of the Registrant,
included elsewhere herein.
4.4 Instruments relating to the Company's public senior debt
(a) Indenture dated as of March 31, 1994
between the Company and Regions Bank
(formerly First American Bank & Trust of
Louisiana), as Trustee (incorporated by
reference to Exhibit 4.1 of the Company's
Registration Statement on Form S-3,
Registration No. 33-52915).
(b) Resolutions designating the terms and conditions
of the Company's 7-3/4% Senior Notes, Series A,
due 2004 and 8-1/4% Senior Notes, Series B, due
2024 (incorporated by reference to Exhibit 4.1
to Registrant's Quarterly Report on Form
10-Q for the quarter ended March 31, 1994).
(c) Resolutions designating the terms and
conditions of the Company's 6.55% Senior
Notes, Series C, due 2005 and 7.2% Senior
Notes, Series D, due 2025 (incorporated by
reference to Exhibit 4.27 to Registrant's
Annual Report on Form 10-K for the year
ended December 31, 1995).
(d) Resolutions designating the terms and
conditions of the Company's 6.15% Senior
Notes, Series E, due 2005; 6.30% Senior
Notes, Series F, due 2008; and 6.875%
Debentures, Series G, due 2028,
(incorporated by reference to Exhibit 4.9
to Registrant's Annual Report on Form 10-K
for the year ended December 31, 1997).
(e) Form of Registrant's 8.375% Senior Notes,
Series H, Due 2010, issued October 19, 2000
(incorporated by reference to Exhibit 4.2
of Registrant's Quarterly Report on Form
10-Q for the Quarter ended September 30,
2000).
(f) Form of the Registrant's 7.750%
Remarketable Senior Notes, Series I, due
2012, issued October 19, 2000 (the
"Remarketable Notes") (incorporated by
reference to Exhibit 4.3 of Registrant's
Quarterly Report on Form 10-Q for the
quarter ended September 30, 2000).
(g) Remarketing Agreement, dated as of October
19, 2000, between the Registrant and Banc
of America Securities LLC, as remarketing
agent for the Remarketable Notes
(incorporated by reference to Exhibit 4.4
of Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30,
2000).
4.5 Competitive Advance and Revolving Credit Facility
Agreement, dated as of August 28, 1997, among
Registrant, the lenders named therein, and
NationsBank of Texas, N.A. (incorporated by
reference to Exhibit 4.1 to Registrant's
Quarterly Report on Form 10-Q for the quarter
ended September 30, 1997).
4.6 Revolving Credit Facility Agreement, dated July 31,
2000, among Registrant, Bank of America, N.A.,
Citibank, N.A., Banc of America Securities, LLC and
Salomon Smith Barney, Inc. (incorporated by reference
to Registrant's Current Report on Form 8-K dated
July 31, 2000).
4.7 First Supplemental Indenture, dated as of November 2,
1998, to Indenture between CenturyTel of the Northwest,
Inc. and The First National Bank of Chicago (incor-
porated by reference to Exhibit 10.2 to Registrant's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998).
10.1 Qualified Employee Benefit Plans
(a) Registrant's Employee Stock Ownership Plan and
Trust, as amended and restated December 30, 1994
(incorporated by reference to Exhibit 10.1 to
Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1995), amendment thereto
dated January 26, 1996 (incorporated by reference
to Exhibit 10.1(a) to Registrant's Annual Report
on Form 10-K for the year ended December 31,
1995), amendment thereto dated July 15, 1996
(incorporated by reference to Exhibit 10.2 to
Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30,1996), amendment thereto
dated December 31, 1996 (incorporated by reference
to Exhibit 10.5 to Registrant's Quarterly Report
on Form 10-Q for the quarter ended March 31,
1997), amendment thereto dated March 18, 1997
(incorporated by reference to Exhibit 10.6 to
Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1997), amendments thereto
dated January 1, 1997 (incorporated by reference
to Exhibit 10.3 to Registrant's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1997),
and amendment thereto dated December 29, 1998
(incorporated by reference to Exhibit 10.1
(a) to Registrant's Annual Report on Form 10-K
for the year ended December 31, 1998).
(b) Registrant's Stock Bonus Plan, PAYSOP and Trust,
as amended and restated December 30, 1994
(incorporated by reference to Exhibit 10.2 to
Registrant's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1995), amendment
thereto dated July 11, 1995 (incorporated by
reference to Exhibit 10.4 to Registrant's
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1995), amendment thereto dated
January 26, 1996 (incorporated by reference to
Exhibit 10.1(b) to Registrant's Annual Report on
Form 10-K for the year ended December 31, 1995),
amendment thereto dated July 15, 1996(incorporated
by reference to Exhibit 10.1 to Registrant's
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996), and amendment thereto dated
December 31, 1996 (incorporated by reference to
Exhibit 10.4 to Registrant's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1997),
amendments thereto dated January 1, 1997
(incorporated by reference to Exhibit 10.2 to
Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997), and amendment
thereto dated December 29, 1998 (incorporated by
reference to Exhibit 10.1(b) to Registrant's
Annual Report on Form 10-K for the year ended
December 31, 1998).
(c) Registrant's Dollars & Sense Plan and
Trust, as amended and restated, effective
January 1, 1998 and amendment thereto dated
December 29, 1998 (incorporated by
reference to Exhibit 10.1 (c) to
Registrant's Annual Report on Form 10-K for
the year ended December 31, 1998).
(d) Registrant's Amended and Restated Retirement
Plan, effective as of January 1, 1999 (incor-
porated by reference to Exhibit 10.1 (z) to
Registrant's Annual Report on Form 10-K for the
year ended December 31, 1998).
10.2 Stock-based Incentive Plans
(a) Registrant's 1983 Restricted Stock Plan,
dated February 21, 1984, as amended and
restated as of November 16, 1995
(incorporated by reference to Exhibit
10.1(e) to Registrant's Annual Report on
Form 10-K for the year ended December 31,
1995) and amendment thereto dated November
21, 1996, (incorporated by reference to
Exhibit 10.1(e) to Registrant's Annual
Report on Form 10-K for the year ended
December 31, 1996), and amendment thereto
dated February 25, 1997 (incorporated by
reference to Exhibit 10.3 to Registrant's
Quarterly Report on Form 10-Q for the
quarter ended March 31, 1997).
(b) Registrant's 1988 Incentive Compensation
Program as amended and restated August 22,
1989 (incorporated by reference to Exhibit
19.8 to Registrant's Quarterly Report on
Form 10-Q for the quarter ended September
30, 1989) and amendment thereto dated
November 21, 1996 (incorporated by
reference to Exhibit 10.1(g) to
Registrant's Annual Report on Form 10-K for
the year ended December 31, 1996).
(c) Registrant's 1990 Incentive Compensation
Program, dated March 15, 1990 (incorporated
by reference to Exhibit 19.1 to
Registrant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1990) and
amendment thereto dated November 21, 1996
(incorporated by reference to Exhibit
10.1(i) to Registrant's Annual Report on
Form 10-K for the year ended December 31,
1996).
(i) Form of Stock Option Agreement entered
into in 1992 by the Registrant, pursuant to
1990 Incentive Compensation Program, with
certain of its officers and employees
(incorporated by reference to Exhibit 10.17
to Registrant's Annual Report on Form 10-K
for the year ended December 31, 1992) and
amendment thereto dated as of May 22, 1995
(incorporated by reference to Exhibit 10.2
to Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30,
1995).
(d) Registrant's 1995 Incentive Compensation
Plan approved by Registrant's shareholders
on May 11, 1995 (incorporated by reference
to Exhibit 4.4 to Registration No.
33-60061) and amendment thereto dated
November 21, 1996 (incorporated by
Reference to Exhibit 10.1 (l) to
Registrant's Annual Report on Form 10-K for
the year ended December 31, 1996), and
amendment thereto dated February 25, 1997
(incorporated by reference to Exhibit 10.1
to Registrant's Quarterly Report on Form
10-Q for the quarter ended March 31, 1997).
(i) Form of Stock Option Agreement,
pursuant to 1995 Incentive Compensation
Plan and dated as of May 22, 1995, entered
into by Registrant and its officers
(incorporated by reference to Exhibit 10.5
to Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1995).
(ii) Form of Stock Option Agreement,
pursuant to 1995 Incentive Compensation
Plan and dated as of June 23, 1995, entered
into by Registrant and certain key employees
(incorporated by reference to Exhibit 10.6
to Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1995).
(iii) Form of Stock Option Agreement,
pursuant to 1995 Incentive Compensation Plan
and dated as of February 24, 1997, entered
into by Registrant and its officers (incor-
porated by reference to Exhibit 10.4 to
Registrant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1997).
(iv) Form of Stock Option Agreement,
pursuant to 1995 Incentive Compensation
Plan and dated as of February 21, 2000,
entered into by Registrant and its officers
(incorporated by reference to Exhibit 10.1
(t) to Registrant's Annual Report on Form
10-K for the year ended December 31, 1999).
(v) Form of Amended and Restated Restricted
Stock and Performance Share Agreement dated
as of March 16, 1998, relating to equity
incentive awards granted in 1997 pursuant
to Registrant's 1995 Incentive Compensation
Plan (incorporated by reference to Exhibit
10.2 to Registrant's Quarterly Report on
Form 10-Q for the quarter ended March 31,1998).
(vi) Form of Restricted Stock and Performance
Share Agreement, dated as of March 16, 1998,
relating to equity incentive awards granted
in 1998 pursuant to Registrant's 1995 Incentive
Compensation Plan (incorporated by reference to
Exhibit 10.3 to Registrant's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1998).
(vii) Form of Restricted Stock and Performance
Share Agreement, dated as of February 22,
1999, relating to equity incentive awards
granted in 1999 pursuant to the
Registrant's 1995 Incentive Compensation
Plan (incorporated by reference to Exhibit
10.1(x) to Registrant's Annual Report on
Form 10-K for the year ended December 31, 1999).
(e) Amended and Restated Registrant's 2000
Incentive Compensation Plan, as amended
through May 23, 2000 (incorporated by
reference to Exhibit 10.2 to Registrant's
Quarterly Report on Form 10-Q for the
quarter ended June 30, 2000).
10.3 Other Non-Qualified Employee Benefit Plans
(a) Registrant's Key Employee Incentive
Compensation Plan, dated January 1, 1984,
as amended and restated as of November 16,
1995 (incorporated by reference to Exhibit
10.1(f) to Registrant's Annual Report on
Form 10-K for the year ended December 31,
1995) and amendment thereto dated November
21, 1996 (incorporated by reference to
Exhibit 10.1 (f) to Registrant's Annual
Report on Form 10-K for the year ended
December 31, 1996), and amendment thereto
dated February 25, 1997 (incorporated by
reference to Exhibit 10.2 to Registrant's
Quarterly Report on Form 10-Q for the
quarter ended March 31, 1997).
(b) Registrant's Restated Supplemental
Executive Retirement Plan, dated April 3,
2000 (incorporated by reference to Exhibit
10.1(d) to Registrant's Quarterly Report on
Form 10-Q for the quarter ended March 31,
2000.)
(c) Registrant's Restated Supplemental Defined
Contribution Plan, dated as of November 16,
1995 (incorporated by reference to Exhibit
10.1(q) to Registrant's Annual Report on
Form 10-K for the year ended December 31,
1995), amendment thereto dated July 15,
1996 (incorporated by reference to Exhibit
10.4 to Registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30,
1996) and amendment thereto dated November
21, 1996 (incorporated by reference to
Exhibit 10.1 (p) to Registrant's Annual
Report on Form 10-K for the year ended
December 31, 1996).
(d) Registrant's Amended and Restated
Supplemental Dollars & Sense Plan,
effective as of January 1, 1999
(incorporated by reference to Exhibit 10.1
(q) to Registrant's Annual Report on Form
10-K for the year ended December 31, 1998).
(e) Registrant's Supplemental Defined Benefit
Plan, effective as of January 1, 1999
(incorporated by reference to Exhibit 10.1
(y) to Registrant's Annual Report on Form
10-K for the year ended December 31, 1998).
(f) Registrant's Amended and Restated Salary
Continuation (Disability) Plan for
Officers, dated November 26, 1991
(incorporated by reference to Exhibit 10.16
of Registrant's Annual Report on Form 10-K
for the year ended December 31, 1991).
(g) Registrant's Restated Outside Directors'
Retirement Plan, dated as of November 16,
1995 (incorporated by reference to Exhibit
10.1(t) to Registrant's Annual Report on
Form 10-K for the year ended December 31,
1995).
(h) Registrant's Restated Deferred Compensation
Plan for Outside Directors, dated as of
November 16, 1995 (incorporated by
reference to Exhibit 10.1(u) to
Registrant's Annual Report on Form 10-K for
the year ended December 31, 1995).
(i) Registrant's Chairman/Chief Executive
Officer Short-Term Incentive Program
(incorporated by reference to Exhibit 10.6
to Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1997).
10.4 Employment, Severance and Related Agreements
(a) Employment Agreement, originally dated May
24, 1993, as amended and restated through
February 22, 2000, by and between Clarke M.
Williams and Registrant (incorporated by
reference to Exhibit 10.1(a) to
Registrant's Quarterly Report on Form 10-Q
for the quarter ended March 31, 2000).
(b) Agreement, dated December 31, 1994, by and
between Jim D. Reppond and Registrant
(incorporated by reference to Exhibit 10.24
to Registrant's Annual Report on Form 10-K
for the year ended December 31, 1994).
(c) Consulting Agreement, dated as of July 2,
1996, by and between Registrant and Jim D.
Reppond (incorporated by reference to
Exhibit 10 to Registrant's Quarterly Report
on Form 10-Q for the quarter ended
September 30, 1996).
(d) Change of Control Agreement, dated February
22, 2000 by and between Glen F. Post, III
and Registrant (incorporated by reference
to Exhibit 10.1(b) to Registrant's
Quarterly Report on Form 10-Q for the
quarter ended March 31, 2000).
(e) Form of Change of Control Agreement, dated
February 22, 2000, by and between Registrant
and David D. Cole, R. Stewart Ewing, Michael
E. Maslowski and Harvey P. Perry (incorporated
by reference exhibit 10.1(c) to the Registrant's
Quarterly Report on Form 10-Q for the quarter
ended March 31, 2000).
(f) Form of Change of Control Agreement dated
July 24, 2000, by and between the
Registrant and Karen A. Puckett
(incorporated by reference to Exhibit
10.1(c) of Registrant's Quarterly Report on
Form 10-Q for the quarter ended March 31,
2000).
10.5 Other Agreements
(a) Amended and Restated Asset Purchase
Agreement by and among GTE Arkansas
Incorporated, GTE Midwest Incorporated, GTE
Southwest Incorporated and Registrant,
dated June 29, 1999 (incorporated by
reference to Exhibit 99 to Registrant's
Quarterly Report on Form 10-Q for the
quarter ended June 30, 1999).
(b) Asset Purchase Agreement by and between GTE
Midwest Incorporated and Spectra
Communications Group, LLC dated as of July
8, 1999 (incorporated by reference to
Exhibit 2.2 of Registrant's Current Report
on Form 8-K dated July 31, 2000).
(c) Asset Purchase Agreement by and between GTE
North Incorporated and Telephone USA of
Wisconsin, LLC dated as of August 19, 1999
(incorporated by reference to Exhibit 2.3
of Registrant's Current Report on Form 8-K
dated September 29, 2000).
(d) Asset Purchase Agreement by and between GTE
North Incorporated and Registrant dated as
of October 11, 1999 (incorporated by
reference to Exhibit 2.4 of Registrant's
Current Report on Form 8-K dated September
29, 2000).
21 Subsidiaries of the Registrant, included elsewhere
herein.
23 Independent Auditors' Consent, included elsewhere herein.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CenturyTel, Inc.,
Date: March 22, 2001 By: /s/ Clarke M. Williams
---------------------------
Clarke M. Williams
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
/s/ Clarke M. Williams
- ---------------------------- Chairman of the Board
Clarke M. Williams of Directors March 22, 2001
Vice Chairman of the
/s/ Glen F. Post, III Board of Directors,
- ---------------------------- President, and Chief
Glen F. Post, III Executive Officer March 22, 2001
/s/ R. Stewart Ewing, Jr. Executive Vice President and
- ---------------------------- Chief Financial Officer March 22, 2001
R. Stewart Ewing, Jr (Principal Accounting Officer)
/s/ Harvey P. Perry Executive Vice President,
- ---------------------------- Chief Administrative Officer
Harvey P. Perry and Director March 22, 2001
/s/ William R. Boles, Jr.
- ----------------------------
William R. Boles, Jr. Director March 22, 2001
/s/ Virginia Boulet
- ----------------------------
Virginia Boulet Director March 22, 2001
/s/ Ernest Butler, Jr.
- ----------------------------
Ernest Butler, Jr. Director March 22, 2001
/s/ Calvin Czeschin
- ----------------------------
Calvin Czeschin Director March 22, 2001
/s/ James B. Gardner
- ----------------------------
James B. Gardner Director March 22, 2001
/s/ W. Bruce Hanks
- ----------------------------
W. Bruce Hanks Director March 22, 2001
/s/ R. L. Hargrove, Jr.
- ----------------------------
R. L. Hargrove, Jr. Director March 22, 2001
/s/ Johnny Hebert
- ----------------------------
Johnny Hebert Director March 22, 2001
/s/ F. Earl Hogan
- ----------------------------
F. Earl Hogan Director March 22, 2001
/s/ C. G. Melville, Jr.
- ----------------------------
C. G. Melville, Jr. Director March 22, 2001
/s/ Jim D. Reppond
- ----------------------------
Jim D. Reppond Director March 22, 2001
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CENTURYTEL, INC.
(Parent Company)
STATEMENTS OF INCOME
Year ended December 31,
- --------------------------------------------------------------------------------------------
2000 1999 1998
- --------------------------------------------------------------------------------------------
(Dollars in thousands)
REVENUES $ 13,007 15,542 16,055
- --------------------------------------------------------------------------------------------
EXPENSES
Operating expenses 11,604 12,057 14,215
Depreciation and amortization 7,470 7,153 31,842
- --------------------------------------------------------------------------------------------
Total expenses 19,074 19,210 46,057
- --------------------------------------------------------------------------------------------
OPERATING LOSS (6,067) (3,668) (30,002)
- --------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE)
Gain on sales of assets - 1,931 28,085
Interest expense (214,140) (117,760) (131,309)
Interest income 84,307 48,078 40,005
Other expense (7,741) (697) (1,573)
- --------------------------------------------------------------------------------------------
Total other income (expense) (137,574) (68,448) (64,792)
- --------------------------------------------------------------------------------------------
LOSS BEFORE INCOME TAXES AND
EQUITY IN SUBSIDIARIES' EARNINGS (143,641) (72,116) (94,794)
Income tax benefit 52,259 33,179 21,857
- --------------------------------------------------------------------------------------------
LOSS BEFORE EQUITY IN
SUBSIDIARIES' EARNINGS (91,382) (38,937) (72,937)
Equity in subsidiaries' earnings 322,856 278,706 301,694
- --------------------------------------------------------------------------------------------
NET INCOME $ 231,474 239,769 228,757
============================================================================================
See accompanying notes to condensed financial information of registrant.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(continued)
CENTURYTEL, INC.
(Parent Company)
BALANCE SHEETS
December 31,
- ------------------------------------------------------------------------------------------
2000 1999
- ------------------------------------------------------------------------------------------
(Dollars in thousands)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 4,600 12,400
Receivables from subsidiaries 641,794 337,600
Other receivables 35,890 513
Prepayments and other 527 225
- ------------------------------------------------------------------------------------------
Total current assets 682,811 350,738
- ------------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT
Property and equipment 1,005 1,004
Accumulated depreciation (742) (683)
- -------------------------------------------------------------------------------------------
Net property, plant and equipment 263 321
- ------------------------------------------------------------------------------------------
INVESTMENTS AND OTHER ASSETS
Investments in subsidiaries (at equity) 4,825,386 3,422,022
Receivables from subsidiaries 224,753 343,169
Other investments 50,322 43,028
Deferred charges 85,253 54,776
- ------------------------------------------------------------------------------------------
Total investments and other assets 5,185,714 3,862,995
- ------------------------------------------------------------------------------------------
TOTAL ASSETS $ 5,868,788 4,214,054
==========================================================================================
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 57,527 37,427
Short-term debt 276,000 -
Payables to subsidiaries 886,249 837,645
Accrued interest 41,786 26,956
Other accrued liabilities 66,073 10,035
- ------------------------------------------------------------------------------------------
Total current liabilities 1,327,635 912,063
- ------------------------------------------------------------------------------------------
LONG-TERM DEBT 2,485,811 1,428,326
- ------------------------------------------------------------------------------------------
PAYABLES TO SUBSIDIARIES - 4,348
- ------------------------------------------------------------------------------------------
DEFERRED CREDITS AND OTHER LIABILITIES 23,263 21,325
- ------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Common stock, $1.00 par value, authorized
350,000,000 shares, issued and outstanding
140,667,251 and 139,945,920 shares 140,667 139,946
Paid-in capital 509,840 493,432
Unrealized holding gain on investments,
net of taxes 25,471 64,362
Retained earnings 1,351,626 1,146,967
Unearned ESOP shares (3,500) (4,690)
Preferred stock - non-redeemable 7,975 7,975
- ------------------------------------------------------------------------------------------
Total stockholders' equity 2,032,079 1,847,992
- ------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND EQUITY $ 5,868,788 4,214,054
==========================================================================================
See accompanying notes to condensed financial information of registrant.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(Continued)
CENTURYTEL, INC.
(Parent Company)
STATEMENTS OF CASH FLOWS
Year ended December 31,
- ------------------------------------------------------------------------------------------------------------
2000 1999 1998
- ------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
OPERATING ACTIVITIES
Net income $ 231,474 239,769 228,757
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 7,470 7,153 31,842
Deferred income taxes (6,999) (10,357) 12,902
Earnings of subsidiaries (322,856) (278,706) (301,694)
Gain on sale of assets - (1,931) (28,085)
Changes in current assets and current liabilities:
Other receivables (35,377) 23,393 (23,114)
Other accrued liabilities 56,037 (83,749) (40,535)
Other current assets and liabilities, net 14,528 (435) 37,754
Other, net 14,770 6,060 9,724
- ------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (40,953) (98,803) (72,449)
- ------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Acquisitions (22,952) - (225,569)
Capital contributions to subsidiaries (1,302,568) - -
Dividends received from subsidiaries 174,637 162,149 116,906
Receivables from subsidiaries (180,878) (22,607) 303,221
Payables to subsidiaries 44,256 380,505 (90,319)
Proceeds from sales of assets - 3,444 40,778
Other, net (6,680) 2,569 (28,046)
- ------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (1,294,185) 526,060 116,971
- ------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from issuance of debt 2,654,375 - 950,000
Payments of debt (1,299,599) (415,166) (960,274)
Payment of hedge contracts (4,345) - (40,237)
Proceeds from issuance of common stock 7,996 19,182 15,033
Payment of debt issuance costs (4,274) - (6,625)
Cash dividends paid (26,815) (25,413) (24,179)
- ------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 1,327,338 (421,397) (66,282)
- ------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (7,800) 5,860 (21,760)
Cash and cash equivalents at beginning of year 12,400 6,540 28,300
- ------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 4,600 12,400 6,540
============================================================================================================
See accompanying notes to condensed financial information of registrant.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(continued)
CENTURYTEL, INC.
(Parent Company)
NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(A) LONG-TERM DEBT
The approximate annual debt maturities for the five years subsequent to
December 31, 2000 are as follows:
2001 - $ 57.5 million
2002 - $ 906.3 million
2003 - $ 4.8 million
2004 - $ 51.5 million
2005 - $ 151.0 million
(B) GUARANTEES
As of December 31, 2000, CenturyTel has guaranteed debt of subsidiaries
totaling $325.6 million.
(C) DIVIDENDS FROM SUBSIDIARIES
Dividends paid to CenturyTel by consolidated subsidiaries were $174.6
million, $162.1 million and $116.9 million during 2000, 1999 and 1998,
respectively.
(D) INCOME TAXES AND INTEREST PAID
Income taxes paid by CenturyTel (including amounts reimbursed from
subsidiaries) were $124.0 million, $217.0 million and $162.0 million during
2000, 1999 and 1998, respectively.
Interest paid by CenturyTel was $199.3 million, $118.5 million and $114.7
million during 2000, 1999 and 1998, respectively.
(E) AFFILIATED TRANSACTIONS
CenturyTel provides and bills management services to subsidiaries and in
certain instances makes interest bearing advances to finance construction of
plant and purchases of equipment. CenturyTel recorded intercompany interest
income of $83.0 million, $47.8 million and $39.7 million in 2000, 1999 and 1998,
respectively.
CenturyTel recorded intercompany interest expense of $74.5 million, $13.4
million and $13.4 million in 2000, 1999 and 1998, respectively.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
CENTURYTEL, INC.
For the years ended December 31, 2000, 1999 and 1998
Additions
Balance at charged to Deductions Balance
beginning costs and from Other at end
Description of period expenses allowance (1) changes of period
- --------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
Year ended December 31, 2000
Allowance for doubtful accounts $ 4,150 17,904 (13,036) 3,839 (2) 12,857
Valuation allowance for
deferred tax assets $ 2,593 6,211 - (502) (3) 8,302
Year ended December 31, 1999
Allowance for doubtful accounts $ 4,155 7,680 (7,494) (191) (2) 4,150
Valuation allowance for
deferred tax assets $ 6,716 - - (4,123) (3) 2,593
Year ended December 31, 1998
Allowance for doubtful accounts $ 5,954 13,951 (15,775) 25 (2) 4,155
Valuation allowance for
deferred tax assets $ 8,013 - - (1,297) (3) 6,716
(1) Customers' accounts written-off, net of recoveries.
(2) Allowance for doubtful accounts at the date of acquisition of purchased
subsidiaries, net of allowance for doubtful accounts at the date of
disposition of subsidiaries sold.
(3) Adjust excess cost of net assets acquired upon utilization of net
operating loss carryforwards of acquired subsidiary.