Lumen Technologies Inc (LUMN) 2002 Q4 法說會逐字稿

Good morning.

My name is Mandy, and I will be your conference facilitator today.

At this time, I would like to welcome everyone to CenturyTel's fourth quarter earnings conference call.

All lines have been placed on mute to prevent any background noise.

After the speakers' remarks, there will be a question-and-answer period.

If you would like to ask a question during that time, simply press star, then the number one on your telephone keypad.

If you would like to withdraw your question, press star two.

Thank you.

I would now like to turn the call over to Tony Davis, vice president of investor relations.

Please go ahead, sir.

Thank you, Mandy.

Good morning, everyone.

And welcome to our conference call to discuss CenturyTel's fourth quarter 2002 earnings results released earlier today.

During today's call, we will be referring to certain non-GAAP none measures.

We have reckon reconciled these measures to GAAP figures in our earnings release, which is available on our website at www.centuryTel.com.

Your host for today is Glen Post, chairman and chief executive officer of CenturyTel.

Joining Glen on the call today is Stewart Ewing, executive vice president and chief financial officer.

Also on the call today is Karen Puckett, president and chief operating officer.

We do ask that you please review our safe harbor language found in our press release and in our SEC filings as we will be making certain forward-looking statements during our call today, particularly as they pertain to guidance or first-quarter and full-year 2003 and other outlooks in our business.

At this time, I'd like to turn the call over to your host today, Glen Post.

Glen?

Thank you, Tony.

Appreciate you joining our conference call today to discuss the fourth-quarter 2002 financial results.

We will also review our guidance for the first quarter and full year of 2003.

Our fourth quarter 2002 results reflect CenturyTel's first full quarter of operations as a pure play RLEC following the acquisition and integration of Verizon wireline properties in Alabama, Missouri, and, of course, the divestiture of our wireless properties, both of which occurred during the third quarter of 2002.

We're pleased to report that CenturyTel's fourth quarter results exceeded the revenue operating cash flow and earnings per share ranges of guidance that we provided you in our third quarter, 2002 earnings call.

We achieved strong revenue, cash flow and earnings growth during the quarter, which were led by the results from our Alabama and Missouri properties.

CenturyTel's long distance data and internet businesses continued to experience excellent growth.

Our early success in long distance penetration in the Alabama and Missouri properties has exceeded our expectations reaching 15.9 percent at the end of the quarter.

Revenue from recurring operations increased 34.8 percent to $585.9 million due primarily to the contribution from recently acquired properties.

EBITDA from recurring operations for the quarter increased by 39.5 percent to $306.2 million.

CenturyTel's earnings per share for the fourth quarter of 2002 excluding non-recurring items was 59 cents per share.

We experienced higher access line losses in the fourth quarter due to the economy as well as competitive pressures and the cleanup of records in the newly acquired properties in Alabama and Missouri.

Our revenues were negatively impacted during the quarter primarily by the declines in access lines and declines intrastate minutes of use.

These were somewhat offset by higher long distance and internet service revenues during the quarter.

For the full year 2002, CenturyTel weathered a difficult economic environment well.

We completed the repositioning of the company while at the same time achieving solid financial results.

Revenues from recurring operations for the full year 2002 was $1.98 billion, an increase of17.9 percent over the full year 2001.

EBITDA from recurring operations from the full year 2002 was $1.012 billion, a 20 percent increase over 2001.

CenturyTel's revenue and EBIT a from continuing operations have more than tripled over the past five years.

Earnings per share for full year 2002 excluding non-recurring items of $2.27, a 14.6 percent increase over the full year of 2001.

During 2002, we experienced strong subscriber growth in our long distance business, adding nearly 183,000 long distance customers ending 2002 with over 648,000 customers, an annual increase of 39.3 percent in long distance subscribers.

We achieved steady growth in our DSL service offering into 2002 with almost 53,000 DSL customers, more than double the roughly 25,000 customers we had at year-end of 2001.

We continue to generate strong free cash flows, achieving free cash flow of nearly $80 million during the fourth quarter.

We also achieved a record $305.8 million of free cash flow after dividends for the full year of 2002, our free cash flow yield of about 8 percent for the year.

At this time I'll ask Stewart Ewing to review our results for the fourth quarter on a segment level and update you on our financial guidance for the first quarter and the full year of 2003.

Thank you, Glen.

Let me begin with the telephone segment.

Telephone revenues increased 33.6 percent to $519.4 million during the fourth quarter.

The Alabama and Missouri properties recently acquired from Verizon contributed approximately $130 million of the increase.

Our internal revenue growth rate in our telephone segment was negative .6 percent fourth quarter 2002 to fourth quarter 2001.

However, on a consolidated basis, including our other operations segment, which includes our long distance and internet, our internal growth rate quarter to quarter was a positive 3.49 percent.

We, again, still continue to believe that the economy had a significant impact and reduced our revenue growth.

Data revenue growth was up 19 percent compared with fourth quarter a year ago, including our internet business.

If you exclude the internet business, our data revenue growth was up 9 percent during the quarter.

CenturyTel ended the quarter with 2,414,000 total access lines and 2,665,000 voice grade equivalents.

CenturyTel experienced the loss of a little over 23,000 access lines during the quarter.

The access lines resulted primarily from a cleanup of non-pay accounts approximating 5,000 access lines in a recently acquired properties in the Alabama and Missouri markets.

We --from a competitive standpoint, we lost about 3,000 access lines during the quarter, and most of those were in the newly acquired Verizon markets.

We continue to believe that in this environment, the economic reasons or the primary result of the loss in access lines and we expect one and have reflected in our guidance one to 2 percent access lines going forward as long as we continue in the current environment.

I would remind you as well that the fourth quarter is historically been the highest quarter in terms of the access lines losses that we've experienced.

Our operating cash flow for CenturyTel's telephone operations increased 33.3 percent to $289.8 million for fourth quarter 2001.

Our telephone operating cash flow margin was 55.8 percent compared with 55.9 percent in the fourth quarter of 2001.

Operating income for our wireline operations increased 35.8 percent to $176.8 million from $130.2 million as adjusted in the fourth quarter of 2001.

Our operating income margin was 34 percent, up a half a percent from the fourth quarter of 2001 when it was 33.5 percent.

Bottom line, the integration of the Verizon properties has gone real well.

We're on target to meet our revenue and EBITDA objectives and the acquisition was slightly accretive to the fourth quarter.

Turning to the other operations segment, our other operations revenues increased 45 percent to $66.5 million.

Our operating cash flow in this segment excluding non-recurring items increased 140 percent or more than doubled to $19.1 million from $8 million in the same quarter a year ago.

Operating income from other operations increased to $14.2 million, primarily due to the improved profitability in our long distance operations along with decreased losses in our internet and CLEC businesses.

Long distance revenue increased to 40.7 million a 34.7 percent increase.

Our long distance operating income for the quarter was $9.6 million compared with $5.9 million in the fourth quarter a year ago - a 64.2 percent increase.

As Glen indicated, we added approximately 63,900 long distance customers during the fourth quarter.

The highest number of quarterly long distance net ads that the company has had in its history. 56,500 of these were in the recently acquired properties in Alabama and Missouri.

Our long distance penetration and local exchanges as a percentage of total access lines reached 26.5 percent versus 25.3 percent a year ago.

We're now penetrated 30.4 percent excluding the markets that we acquired from VERZ Verizon in 2002.

Internet revenues, which include both dial-up and DSL, increased 44.1 percent to $16.4 million for the quarter.

On an annual basis internet revenues reached $58.7 million, a 50 percent increase over 2001.

During the quarter we added approximately 6,300 DSL customers and ended the quarter with 52,800 DSL subscribers.

Our penetration rate of 3.7 percent of total DSL enabled lines.

Our internet business operating losses were $1.1 million compared with operating losses of $2.2 million a year ago, reflecting improved metrics in this business, some of the increase --the -- we spent more money on sales and marketing in the fourth quarter than we did in the third quarter in internet business.

Our CLEC operating losses were $2.1 million for the quarter versus 3.3 -- $3.3 million a year ago primarily reflecting the contribution of the assets we acquired from KMC in early 2002.

Talk just a little bit about where we ended the year from the standpoint of our debt.

We ended the year with $3.65 billion of debt, or if you exclude the mandatory convertible preferred that we issued in 2002, $3.15 billion of debt.

Our consolidated EBITDA including EBITDA that came from our kiss discontinued operations in 2002 was $1.15 billion, which resulted in debt to EBITDA ratio for the year -- or at the end of the year of 2.74 times, which is a little bit ahead of the targets that we had.

Again, from a liquidity standpoint, we only have $70 million in current maturities in 2003, and expect somewhere between 325 and $350 million of free cash flow in 2003.

I'll now talk a little bit about our 2003 guidance provided in the earnings release.

As always, the guidance excludes non-recurring items, and there's several items that I'd like to point out in discussing guidance.

If you're trying to reconcile from our 2002 earnings, on a consolidated basis, you have to recall that in 2002 we benefited by discontinuing the depreciation expense on our wireless properties --when we decided to sell those.

That contributed about 8 cents a share to 2002.

But in reconciling from diluted EPS from continuing operations last year, you need to consider that we do expect, as we indicated in our 10-Q in the third quarter, 15 to $25 million in higher pension expense and post retirement medical costs over the 2002 levels.

And additionally, we'll begin sometime this year amortizing our new building and customer care system.

With those items in mind, for the first quarter of 2003,we anticipate total revenues will range from 568 to $583 million.

We believe that first-quarter 2003 operating cash flow will fall within the range of 285 to $295 million.

And for first-quarter 2003, we believe EPS before one-time items will be in the range of 49 to 53 cents.

And if you're looking at our fourth quarter amounts and trying to reconcile down to the guidance that we're giving in first quarter, we did have about $7.5 million of revenue true- ups, positive revenue true-ups in the fourth quarter and about $2.5 million of favorable expense adjustments that related primarily to property tax adjustments and then again we expect to incur the - about $5 million a quarter of additional pension and post-retirement expenses starting the first of this year.

So that basically reconciles you from fourth quarter to first quarter -- actual to first quarter guidance.

For full year 2003, we believe diluted EPS will be in the range of$2.05 to $2.15.

That does conclude the comments that we had.

We'll now be happy to try to entertain questions you might have.

At this time, I would like to remind everyone, if you would like to ask a question, press star , then the number one on your telephone keypad.

We'll pause for just a moment to compile the Q&A roster.

Your first question comes from Mike Balhoff with Legg Mason.

Good quarter, gentlemen.

Could you give us a little more color on the line decrease?

So you're saying about 15,000 lines are due to the economy or some other factors where, by guess, in the previous quarter it must have been 4600 lines that you lost.

And then secondly, could you give us some sort of sense on the universal service contribution in the quarter?

Was it in line with your expectations?

Obviously, that fluctuated over the --over a period of time.

And then finally, if you could give us some sort of sense as far as the regulatory issues, any rate cases or processes that are going on?

I saw you made a filing early January in Arkansas.

So could you bring us up to date on those?

Thank you.

Mike, this is Glen: I'll start.

Karen can add a little more color.

But normally, the fourth quarter has been the largest line loss for CenturyTel.

If you go back to the last fourth quarter legacy properties, it's pretty much the same loss as we had this year.

The larger losses are were in the new Verizon properties.

We do -- (inaudible) we talked about the -- you know, we still think probably three-fourths of the losses are economic-related.

And it's impossible to tell how much wireless displacement is there, how much broadband displacement is there.

But we believe that it's primarily the economy with some competition, a little more in the competition, of course, in the new Verizon properties in the larger towns there.

Karen, you want to add to that?

I would add, truly, when you look at the --set aside Verizon and look at legacy, the clear issue is inwards, and the clear issue there is demand of second lines.

We've decreased nearly 40 percent of that kind of demand over the last year.

And this may be confusing for some, but when you look at your ins and outs, our ins have dramatically decreased in second lines.

You just look at a ratio for inward versus outward for probably year 2001 for every out of second lines, I had 1.05 inwards, and in total 2002, that ratio is .73.

So an index of 1 for every out I get an inward replacement.

Clearly, we have an inward issue, and it is all around the second line.

Stewart, you want to talk about USF?

Okay.

Mike, the universal service fund receipts that we -- revenue that we received in the fourth quarter were $53.6 million.

That's up from $51.1 million in the third quarter of '02.

The primary difference there was related to -- well, first of all, some of the USF that we're receiving on the properties that we acquired from Verizon didn't -- that we didn't own during the full third quarter of this past year as well as we completed some of our study for the Arkansas properties but for really all the properties that were acquired from GTE in the year 2000.

And we had some positive true-ups basically or positive results.

Primarily in the Arkansas properties that we acquired from GTE back in the year 2000.

So that's really what impacted that.

On the state side, we received universal service of about $8 million in the fourth quarter versus about $7.9 million in the third quarter of this past year.

From a regulatory perspective, we did file a notice of intent to file a rate case in Arkansas on the properties that we purchased in 2000 from Verizon or GTE.

And we do expect to file a rate case in early March, but, we'd expect the process there to play out really over the remainder of this year.

Another item in Arkansas of note, and when we bought the properties from GTE in 2000, we had an issue with the access rates that we were charging or other companies up in that area did.

And basically, we went back through the commission process and received another order from the commission basically approving the acquisition and approving the access rates, and they used a mirroring concept.

And one of the things that helped get that resolved, I'm sure, is with mag proposal, the interstate rates came down so that resulted in lower access rates.

But that is final and has not -- was not appealed again.

So that's behind us.

Additionally, in Wisconsin, in the fourth quarter, we received the finalization of a rate case that we've been working on the GTE properties that we bought in 2000,and in 2003 will reflect somewhere between 8 to$10 million of incremental revenue associated with the finalization of that rate case.

Just one other question that relates to loss of lines.

Obviously, Charter's been a factor in Missouri.

Is that the primary reason for competition?

Are you seeing an increased competition anywhere else?

Thank you.

They have been the primary competitive issue we've faced.

Mike, we have a couple of competitors in Alabama, take a few lines, Texas, company there.

But primarily, it's been charter.

Good.

Thank you.

Your next question comes from Simon Flannery with Morgan Stanley.

Thanks a lot.

Good morning.

Wanted to touch on free cash flow if I could.

You had strong free cash flow performance this year and expect one in 2003.

We have dividend legislation pending.

Your payout's about 10 percent right now.

You had a 5 percent increase this year.

Can you help us think about what your upcoming debt maturity needs are in 2003 and what your thoughts are in terms of dividends and buy-backs given the pending legislation changes and -- or whether you want to continue to look for acquisitions?

Thanks.

I'll let Glen talk about dividend policy.

But with respect to debt maturities, there's only $70 million of current matures in 2003 and again we expect free cash flow after the dividends that we're paying currently of somewhere between 325 to $350 million in 2003.

If you look out to 2004, I think we only have 60 to in $80 million of current maturities as well.

We ended the year with about $400 million or so drawn on the credit facility we have, and it's a -- two-thirds of it is a three-year facility.

The other third of it is 364 day which we'll address this July.

So no real issues from liquidity perspective.

Regarding the dividends or stock buy-back, there's several issues there.

First of all, as legislation passes, it certainly would impact our thinking.

However, the decisions that we have to make, the board has to make, is what we think our funds are best invested and best used our free cash flow.

And there are several (inaudible) one of course is dividends and, stock buy-back but also the debt reduction.

With interest rates low, that makes it a little tougher call because of the lower interest cost today and what is the best return for shareholders there.

And we're continually looking at those issues.

But we would certainly consider, our board would consider, the possibility of increasing the dividends and/or stock buy-backs if we felt that was the best place to put our money.

The other alternative, of course, is what's available on the acquisition front and what kind of returns we think that can provide for shareholders.

So it's a dynamic process, dynamic decision-making process but we're constantly looking at those alternatives.

Great.

Do you actually expect a lot of deals in this space this year or do you think the number of properties available has gone down quite a bit?

Well, it's hard to tell.

We expect over the next 24 months there will be deals available.

We hear a lot of rumors and hear there are -- folks are considering the possibility of selling additional properties.

When that will happen, we can't tell or if it will happen.

But we really believe we will have those opportunities in the months ahead.

Thank you.

Your next question comes from Richard Klugman with Jefferies and company.

Thank you very much.

First of all, you gave revenue and EPS guidance for the first quarter but just EPS guidance for the full year.

I was wonder if anything you had kind of back of the envelope thoughts of full-year revenue?

And second of all, could you just give us a little bit more clarity either quantifying or qualifying all the billing and customer care issues that you expect 2003 to be impacted?

Rich we do have ideas about revenues for the year but we have decided not to disclose that at this point in time.

And, Stewart, you want to talk about customer care?

Yes, we are in the process of converting over to -- converting over to the billing and customer care system that we've been working on for a couple of years.

And do have about 100,000 access lines that we're billing on that system today plus our CLEC business and just during the course of this year we'll start converting our other systems to this new system and then be on our way.

And we think it will be really good for us from a customer care standpoint and from a marketing standpoint to provide us with information and -- you know, that we've not had access to in the past and also help from us a billing perspective as well.

I mean, it sounds like if it's been something you've been working on for a couple of years and you've already been testing it, it strikes me maybe as coming from someone who doesn't have to do this every day, it strikes me as something that would be a major expense make-or break item.

Is there a way to kind of bracket how much of this you expect to be in incremental costs in 2003?

Yeah, we included in our -- in the third quarter 10Qthe amounts that we have incurred with respect to the billing system and deferred.

And I think those amounts were somewhere around in the neighborhood of $180 million or so.

And the current billing system that we're using, you know, we've been using it for 30 years.

So we anticipate amortizing this system over a 20-year period.

So basically, you can look at that and work the numbers and --

So the $180 million is all incremental over what period?

Over 20 years.

Now, there will be some costs that will be -- we have costs to maintain the current system.

We'll have costs to maintain the new system as well, and we'll just have to see if those washout or if we get some benefit associated with the new system.

For a while we'll have duplicate costs this year, early next year.

But those should go away.

And also as we grow, we expect this system to , the synergies in this system more than make up for the additional costs, additional costs we incur here.

It seems like the right thing to do, but it sounds like it is a smaller impact to your 2003 relative to all the benefit costs incrementally you've also disclosed.

Yes, it's probably $5 million on the duplicate costs side of ongoing support that we'll have during the year.

So it's probably like a $10 million item or so.

Associated with this year whereas the benefit costs are 20 to $25 million.

That's great.

Thanks a lot.

Your next question comes from Sal Muleio () with S Muleio () and Company.

Are you going to talk about cap ex for '03?

We didn't pick up all of your -- what did you ask?

Capital expenditures for '03 and how much did you invest in CLEC in '02 and '03?

Sal, our budget for 2003 on the capital side is about $400 million, and if you break that down, about $340 million or so is on the telephone network side.

And then there's probably another 25 to $30 million that we'll spend on furniture equipment vehicles, mostly vehicles and internal SS7 networks.

So you get close to $370 million on the telephone side, about 10 to $11 million on the primarily the IT side.

CLEC, about $6 million to $7 million this year.

But most of that is really driven by customer growth.

So, you know, if you don't get the customer growth, you don't spend the capital in most cases there.

And then last year was 5 million.

And then another 10 to $12 million just elsewhere, internet, long distance, things like that.

Okay.

Can you review your pension, post-retirement assumption, what are your thoughts there?

Sal, we couldn't hear you.

Can you review your pension and post retirement assumptions, your thoughts regarding changing, anything?

On the pension post retirement, in 2002, we used a discount rate of 7 percent.

The assumptions that we're using in 2003 are 6.75 percent of the discount rate.

The expected return on plan assets we used between 8 percent and 10 percent last year.

The largest plan that we had had, we used 10 percent.

We have several plans, most of which have been inherited from Verizon or GTE.

This year, though, we expect to use 8.25 percent, and that's where a lot of the expense increases coming from.

If you want to talk about the funding status, basically our accumulated benefit obligations about $233 million, and the value of our planned assets is about $220 million.

So at the end of the year we're about $12 million under-funded.

Are you going to do any extra funding this year?

We made about $15 million of contributions in 2002.

And you know, in terms of 2003, contributions, we'll wait till later in the year and just kind of see where the market goes and determine whether we want to make any additional contributions.

Okay.

Can I ask a couple more or should I go back in line?

Okay.

Yes?

You never talk about the directories business.

I'm not even sure if you have directories.

Sal, our directories, it's good business for us.

We don't talk about it much.

It's been a part of our total operations for a long time.

Cash flows are good.

And we never break it out.

Any numbers you can share?

We haven't in the past.

I guess we could, but we haven't disclosed that really in the past.

We'd rather not break that down separately today.

Okay.

One more if possible.

Any thoughts on your option plans going into '03?

We have -- the board and committee is looking at the option plans as we speak.

We have not made a decision to begin expensing options at this point.

We're still looking at that.

The board will make those decisions in the weeks ahead.

The biggest issue we're looking at is just what the expensing does to the P&L and how that should impact the total compensation package going forward.

So those are all things the board's looking at.

(inaudible) expense options?

Pardon?

Expense options?

We can't hear you, Sal.

Sorry.

Have you decided to expense options?

No, we have not.

We have not made that decision.

We're considering it.

We have not made that decision.

For last year we had an impact of about 6 cents per share if we had expensed the options.

Okay.

Thanks, guys.

Thank you.

Your next question comes from Kevin Fogerty with Citigroup Asset Management.

Hi, guys.

Thanks.

Couple questions.

Can you give us a little bit more color on the access line losses, if you can break the 23 down.

I know you counted for 8 so far, but can you decompose that into second line versus primary line and also biz versus residential?

And then secondly, on long distance, it looked like your subscribers grew 10 percent sequentially, but your revenues grew only 3 percent sequentially and profitability looks like it was done.

Wondering if you can give any more color on the drivers behind that.

Is it pricing?

Is it MOU's?

Volumes?

Can you just give a little more color on what's going on the LD, the penetration looks good, but the financials, you know, don't seem to follow.

On access lines, the numbers I'm going to give you breaking down are legacy, not Verizon, just because of all the cleanup there.

So quarter to quarter, quarter 4 to quarter 4 in terms of the number that we had,18 percent was business, 50 percent was primary, 30 percent was second line.

The residential total was 82 percent.

If you go to the year-to-date number and make the same comparisons, 14 percent was business, primary was 36, second lines were 50 percent, so the total for residential is 86 percent versus the 14 percent on business.

And that does not include Verizon.

That's just our legacy.

Kevin, in terms of long distance, first of all, most of the customers that we entered during the quarter were added during the second and third month of the quarter.

So that accounts for some of the difference.

Additionally, in the third quarter, we had a true-up of our unbilled total accrual which was positive in the third quarter and -- so it has a negative effect on the comparison that you're trying to do.

If you exclude that accounting entry, basically revenues would have been up6 percent during the quarter.

So somewhere in the neighborhood of 6 percent to 8 percent probably.

Okay.

And volumes, pricing and profitability of LD?.

We're still seeing good margins in LD.

Over20 percent, 20 to 23 percent range.

And as far as we're not seeing any major issues with increased pricing pressures and our ability to buy the -- the we need continues to be very attractive.

So we feel really good about the margins at this point.

Okay.

Great.

Thank you.

Your next question comes from Frank Louthan with Raymond James.

Good morning.

Couple of quick questions, on the CLEC side, can you characterize how those properties are going?

Are you looking at expanding anymore and are there any of those properties that you're exiting or have exited recently?

And then one other clarification, you said the access lines 1 to 2 percent, I assume that was a decline that you're seeing going forward.

Thanks.

Frank, regarding the properties we're in [inaudible] in Monroe and Shreveport, Louisiana, we're seeing as far as our sales are concerned and some of the sales successes, it's going well there.

We have had a couple of issues with the -- related to Enron problems and MCI's problems, we've had reduced -- we had some lines canceled that we had in Shreveport specifically.

But we are seeing a good demand of these markets for our CLEC services.

As far as expansion is concerned, we are examining the practicality -- the economics of expanding through this edge out primarily, considering that this year, and in a couple of markets.

We also have pulled back -- you know, we had started to begun operations in Michigan.

Just begun operations up there in grand rapids and Lansing.

We decided to sell our wireless properties.

We have pulled back our local operations that we still are operating in partnership with our fiber optic network up there but we do not have the CLEC operations up there today.

Really working all of our fiber network in Michigan.

We really pulled back those operations in Grand Rapids and Lansing.

Okay.

Great.

And can you characterize any of the uptake in (inaudible) from the GT -- or the Verizon properties that you acquired?

What are you seeing as far as additional sales, and how is that mashing with your expectations?

Thanks.

When you look at revenue expectations, we are -- we're above our expectations on total revenue.

Our cash flow margins are on target, so what it reflects is we're selling more long distance and internet, which has taken the margins down some.

But total revenues are above our expectations, so we feel pretty good about that right now.

And the ARPUs a little higher than we expected.

Okay.

And one last thing.

How much of the upside in the margins and the quarter would you expect to continue forward I guess in other words how much was from the regulatory true-ups that you see?

Well, we had about $7.5 million in the quarter that were on the revenue side, prior year that won't be going forward in the first quarter.

And we had about $2.5 million of property expense charges primarily led by property tax reduction.

It was a prior period adjustment.

So a total of about $10 million pretax there.

The remainder of the IP crease is really just improvement in operations, our performance was about Bo what we expected in all lines of business really for the remainder of being over the guidance and over the street expectations.

So I guess you could say $10 million in total that won't be rolling forward.

Great.

Thanks a lot.

Your next question comes from Cannon Carr with CIBC.

Hey, guys.

Just a quick question.

Stewart, you mentioned something about access lines and I couldn't tell if there was a -- if you were talking about a forecast or a guidance there.

But just curious on the range of EPS you've given for next year for the full year.

What's kind of the low end and high end of your expectations for line growth?

Basically the EPS guidance that we've given, the 205 to 215 takes in a 1 percent to 2 percent decline in access lines pro-rata decline during 2003.

Okay.

So, you know, if we see some stability then, ultimately if you get even flat access line growth at some point, then obviously you can do a little bit better on revenue and EBITDA margins.

Yes, hopefully so.

One other thing, too, on the interest expense side -- maybe two other things.

Interest expense, chat what's a fair run rate (inaudible) it to look into '04?

We might look that up here.

Don't have it --

You can basically take the debt that we ended the year with and our weighted average interest rate is about6.25 percent including the amortization of deferred debt costs.

So basically just year-end debt times the6.25 percent.

Again, we wouldn't really expect to - we don't have any plans to add any debt for this year at least at this point.

And we did end the year with$3.65 billion of debt.

Yeah.

Okay.

That helps.

And then one other thing, too, as you've gotten maybe 4 1/2 months, 4 months,5 months into the Verizon properties, what's -- what is kind of the long-term EBITDA margin assumption you think you can take those up to?

We think -- today we're in the -- probably the low 50 range.

We think we can get it close to our current levels, 54 percent range.

That's our target anyway.

It will take a little time to get there.

But we think we can move -- bring them up over time.

Okay.

Great.

Thanks.

Your next question comes from John Dorfman with Goldman Sachs.

Thank you.

Just following on the last question, can you compare the enhanced services penetration in the Verizon properties versus the legacy properties and then secondly, how robust is the DSL network right now on the Verizon properties and where do you envision taking that?

Thanks.

In terms of the penetration rate, we - when we acquired the properties in Verizon, we had 17 percent enabled for DSL.

I'm sorry this is enablement.

And we've now taken that to 31 percent.

And then on the penetration rates for DSL currently, we're at 3.7 total.

And for -- let's come back to you on that number on the totals.

We're right around high 1's,2 percent, I believe, enabled -- penetrated, excuse me. 2.4 percent.

In terms of just incremental revenue Run rates at this point, clearly we feel that we're on target for an annualized run rate in the Verizon properties,$26.7 million of incremental revenue.

That's based on services, mainly, you know, with our success with LD does include internet DSL, voice mail.

Okay.

Thanks much.

Your next question comes from Adam Quinten with Merrill Lynch.

Hi.

I know you haven't given us revenue guidance for the year.

But I wonder if you could just comment on how you expect to it to trend.

Obviously(inaudible) revenues expecting (inaudible) down sequentially and that matches what you experienced last year.

So I'm just wondering whether, as we go through this year, the subsequent quarters will match the sort of trend that we saw last year or whether there's any reason it might be different.

And a similar sort of question on expenses.

Obviously you've highlighted a number of things that will have an adverse effect on expenses, whether it's pension credits, the billing system cost, et cetera.

And similarly, the previous question, I wonder if you could comment on how those cost also trend through the year, by which I mean, will the impact of those costs be pretty evenly spread out through the year or back-end loaded or in some way not quite again even as they progress through the year?

Thanks.

I'm not sure I caught the first part of your question, but concerning the last part of your question, the expense items we're highlighting and how they're going to be spread throughout the year.

The pension and medical costs will probably increase about $5 million per quarter.

So that will really be -- should be pretty flat quarter to quarter throughout this year.

The amortization of the billing system cost and the other costs that we are incurring from ongoing support of that billing system we'll really start sometime late second quarter or early third quarter so most of that will be back-end loaded.

That $5 million of -- or $4.75 million of amortization and maybe $5 million of support will be back-end loaded to the third and fourth quarter.

And it will be pretty flat probably between the third and fourth.

And the first question was on revenues, that similar sort of question.

You know, you're pointing to revenues down sequentially first quarter versus fourth quarter as we about through the balance of the year.

There's a trend in revenues for is the next several quarters going to be similar or is there any reason why it might be different?

Again, they'll be down in first quarter somewhat because of the out of period adjustments that we had in the fourth quarter.

You know, quarter to quarter we really haven't given any guidance in terms of revenue, but you know, really wouldn't expect much differences than we incurred -- than you saw last year.

The rate increase that we talked about going into effect really is going into effect during the first quarter so, you know, all of that8 to $10 million annual effect may not get in the first quarter, but by the second quarter, it should be in.

So maybe a little ramp there.

And one last question.

On LD obviously you highlighted the progress you've made in getting LD penetration up and you're above 30 percent penetration for LD in the non-Verizon properties.

How long do you think it's going to take from here to get the Verizon LD penetration up to that (inaudible) level?

I don't know.

That's tough to tell.

I mean, we've done a whole lot better than we really have ever done before in terms of penetrating the market with -- with that LD product being up to about 15, almost16 percent at this point in those markets.

Karen, you might want to --

I was going to say our front rates are favorable, would probably be record history here in terms of just the response of that market.

Clearly, those customers have a propensity towards one bill, and I think that we found a program in terms of our approach and how we enter a market through all the acquisitions that we've done, it really is working for us and the success there is that we had a couple tracks of work going in with mainly welcome calls into those customers and understanding the importance of one bill positions that and getting out in front of it.

So it would be record level.

I wouldn't give an exact time.

But you know, shortly.

With these properties we expect to generate between 45 to $80 million within three to five years and(inaudible) $26 million run rate on incremental revenues.

We're over halfway to our target for the three-year - the low side of the three-year target.

Great.

Thank you.

Your next question comes from Greg Gorbatenko with Loop Capital Markets.

Yes.

Thanks for taking the call.

The cap EK in the fourth quarter looked a little higher sequentially than I thought it would and I notice that there's - it was also high in 4Q '01.

Is that just a budgeting thing going on or was there something else that was spent in the4Q, especially in the wire line business?

Thanks.

Nothing really special.

It probably had more to do with the Verizon properties than we picked up.

You know, in the -- during the third quarter and we had them for a full fourth quarter and only part of the third quarter.

And we were also busy enabling our DSL expansion there, our dial-up expansion and our voice mail expansion.

So most of that is for the Verizon properties.

And as long as I got you here, 1 or 2 percent kind of baked in line loss, is that -- regardless of DSL additions, correct?

That's correct.

Super.

All right.

Well, good quarter, guys.

Thanks.

Thank you.

Your next question comes from Roger Sacks with [inaudible].

Thank you and good quarter, guys.

Most of my questions have been answered.

So one quick question I do have.

The decline in the intrastate access fees, is that primarily just from line loss or is there something else going on there?

And I also did not catch the total number of access lines in service at the end of the fourth quarter.

Thanks.

Roger (inaudible) for the period basically.

Okay.

And the access line count?

The access line count at the end of the quarter was 2,414,564.

Great.

Thank you very much.

Your next question comes from Travis McCourt with Morgan Keegan.

Hi, guys.

Good quarter.

Most of my questions have been answered.

But one things I found interesting, Karen, you mentioned in the legacy properties, I think the percentages you were given in ERMS t of line losses were 50 percent were primary.

Of those primary lines that are being lost, how much of that is simply bad debt related, assuming the other part I presume would be either population moving or wireless substitution?

Do you have any data on that?

I don't have the exact percentages, but I can tell you that it's not out of the norm.

I mean, typically fourth quarter we do have an up spike but that's consistent year to year.

But I -- it's not out of the norm.

We're not seeing an increase necessarily in bad debt writeoff.

Got you.

And then, Stewart, the tax rate increase sequentially a ill little bit in Q4 was that a true-up for the year and what's the tax rate we should be looking up for next year?

For 2003, probably 35 1/2 to 36 percent.

And it was a small trueup in the fourth quarter.

Great.

Thanks and good quarter.

We'll have time for one more question, folks.

Your last question comes from Dimitri Kagan with Gabelli & Company

Thank it you, guys.

Save the best for last.

Actually, two quick questions.

The profitability for the various components of the other segment, the LD, the ISP and so on, is that the operating income or EBITDA?.

It's operating income.

Could you give the EBITDA numbers?

Like, I mean, I can get them offline probably but --

We don't have them right here.

Okay.

All right.

The real question is, there was some news flow out of the Washington was the --with the (inaudible) potential changes to the structure.

Could you just maybe explain a little bit the importance of it and how it works and what the potential changes are and implications for the company?

We're not familiar with changes in loan program.

We are --

It's part of the form bill, I think.

No, it would not substantially affect us at this point in time.

We have not had any new money through the loan program in a number of years.

Are you getting any subsidies for the broadband rollout?

No, we do have part of the DSL investment in our rate base, telephone rate base.

Okay.

All right.

Thank you.

Dimitri, let he give you the EBITDA numbers.

Sure.

In the long distance area, basically EBITDA was $10 million during the quarter, the operating income was about 9.6.

The internet segment, the operating income was actually a loss of a little less than $1.1 million.

It was $800,000 (inaudible).

In the CLEC business, the operating loss was like $2.1 million, and it was about$900,000 EBITDA negative.

Okay.

Great.

Thank you.

This concludes today's question-and-answer session.

I will now turn the call back over to Glen Post for closing remarks.

Thank you.

In closing, 2002 was a year of significant challenge and change for CenturyTel.

The economy, of course, has affected our company and really the entire telecommunications industry over the last couple of years and continue to challenge our industry. (inaudible) executed our strategy to acquire additional wire line properties, the wireless business and have repositioned CenturyTel as the leading peer play and RLEC industry.

Once again, we believe this proves the viability of our strategy to -- strategy to grow through acquisition.

The coming year presents many challenges.

Our management team, our employee team are focused on executing or growth strategies, operations plans for the days ahead.

And we believe these will drive value for shareholders over time.

Thank you for joining in our call today.

We appreciate your interest in CenturyTel.

Thank you for participating in CenturyTel's fourth quarter earnings conference call.

You may now disconnect.