Lumen Technologies, Inc. — Annual Report 1994

Mar 17, 1994

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, 1993 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission file number 1-7784 CENTURY TELEPHONE ENTERPRISES, INC. A Louisiana Corporation I.R.S. Employer Identification No. 72-0651161 100 Century Park Drive, Monroe, Louisiana 71203 Telephone number (318) 388-9500 Securities registered pursuant to Section 12(b) of the Act:Common Stock, par value $1.00 Exchange on which registered:New York 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. [ ] As of February 28, 1994, the aggregate market value of voting stock held by non-affiliates (affiliates being for this purpose only directors and executive officers) was approximately $1,378,192,000. As of February 28, 1994, there were 53,230,538 shares of common stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE: Portions of the Proxy Statement prepared in connection with the 1994 annual meeting of shareholders are incorporated in Part III of this Report. Appendix I of the Prospectus forming a part of Registration Statement No. 33-50791 filed January 12, 1994 pursuant to Rule 424(b)(5) is incorporated in Part IV of this Report. PART I Item 1. Business. Century Telephone Enterprises, Inc. ("Century") is a regional diversified telecommuni-cations company that is primarily engaged in providing traditional telephone services and mobile communications services. For the year ended December 31, 1993, telephone operations and mobile communications operations provided 80% and 20%, respectively, of the consolidated revenues of Century and its subsidiaries (the "Company"). All of the Company's operations are conducted within the continental United States. At December 31, 1993 the Company's telephone subsidiaries operated over 434,000 telephone access lines, primarily in rural, suburban and small urban areas in 14 states, with the largest customer bases located in Wisconsin, Louisiana, Michigan, Ohio and Arkansas. Based on the number of access lines served, the Company is the fifteenth largest local exchange telephone company in the United States. Whenever used herein with respect to the Company, (i) the term "pops" means the population of licensed cellular telephone markets (based on 1993 population estimates of Donnelly Marketing Information Services) multiplied by the Company's proportionate equity interests in the licensed operators thereof, (ii) the term "MSA" means any Metropolitan Statistical Area for which the Federal Communications Commission (the "FCC") has granted a cellular operating license and (iii) the term "RSA" means any Rural Service Area for which the FCC has granted a cellular operating license. Through its cellular operations, including those operations acquired in February 1994, the Company controls approximately 7.1 million pops in 27 MSAs, primarily concentrated in Michigan, Louisiana, Mississippi and Texas, and 32 RSAs, most of which are in Michigan, Louisiana, Arkansas and Wisconsin. The Company is the majority owner and operator in 18 of the MSAs and 13 of the RSAs, which collectively represent 5.5 million pops, and has minority interests in nine other MSAs and 19 other RSAs, which collectively represent 1.6 million pops. Of the Company's 7.1 million pops, approximately 73% are attributable to the Company's MSA interests, with the balance attributable to its RSA interests. Based on the population of the Company's majority-owned and operated MSAs and RSAs, the Company is the fifteenth largest operator of cellular telephone systems in the United States. At December 31, 1993, the Company's majority-owned cellular systems had more than 116,000 cellular subscribers, not 1 including approximately 28,000 subscribers acquired by the Company in connection with its February 1994 acquisition of Celutel, Inc. described further below. The Company also provides paging services to customers residing in Louisiana and Michigan in conjunction with the operation of its cellular systems. The FCC has awarded only two licenses to provide cellular service in each market. During its licensing process, the FCC reserved one license for companies offering local telephone service in the market (the wireline carrier) and one license for entities unaffiliated with the local telephone company (the non- wireline carrier). Each of the MSAs that the Company operated as of December 31, 1993 and all but one of the RSAs operated by the Company are wireline markets. In April 1993 the Company acquired San Marcos Telephone Company, Inc. ("SMTC") and SM Telecorp, Inc., an affiliate of SMTC. As a result of these acquisitions, the Company acquired approximately 22,500 telephone access lines in and around San Marcos, Texas, along with a 35% ownership interest in the Austin, Texas MSA wireline cellular market and a 9.6% interest in the Texas RSA #16 wireline cellular market, together representing approximately 327,000 pops. In September 1993 the Company signed a definitive merger agreement to acquire a local exchange telephone company in Michigan which serves approximately 2,400 access lines and owns approximately 11% (representing approximately 33,000 pops) of a Michigan cellular partnership which holds the wireline licenses for two RSA cellular markets operated by the Company. This transaction is expected to be completed in March 1994. In February 1994 the Company acquired Celutel, Inc. ("Celutel"), which provides cellular mobile telephone services to approximately 28,000 customers in three MSA non-wireline cellular markets in Mississippi and two MSA non-wireline cellular markets in Texas which have a combined population of 1.4 million. Celutel's share of the pops is approximately 1.1 million. The Company is continually evaluating the possibility of acquiring additional telephone access lines and cellular interests in exchange for either cash, securities or both. Although the Company's primary focus will continue to be on acquiring telephone and cellular 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. 2 Partially as a result of 1993 acquisitions, the Company also provides long distance, operator and interactive services in certain local and regional markets, as well as certain printing and related services. The results of these operations, which are not material individually or in the aggregate, are recorded for financial reporting purposes as other income, net. Century 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. Century's principal executive offices are located at 100 Century Park Drive, Monroe, Louisiana 71203 and its telephone number is (318) 388-9500. As of December 31, 1993, the Company employed approximately 2,800 persons, of which approximately 200 were covered by a collective bargaining agreement. TELEPHONE OPERATIONS The Company is the fifteenth largest local exchange telephone company in the United States, based on the more than 434,000 access lines it served at December 31, 1993. An access line is a single or multi-party circuit between a customer's business or residence and a central switching office. Through its operating telephone subsidiaries, Century provides services to predominately rural, suburban and small urban markets in 14 states, with Wisconsin, Louisiana, Michigan, Ohio and Arkansas accounting for the greatest share of access lines served. Future growth in telephone operations is expected to be derived from (i) acquiring additional telephone companies, (ii) providing service to new customers, (iii) upgrading existing customers to higher grades of service, (iv) increasing network usage and (v) providing additional services made possible by advances in technology. For information on developing competitive trends, see "-Regulation and Competition." The replacement of mechanical switches with digital switches is an important component of the Company's growth strategy because it allows the Company to offer new services (such as call forwarding, conference calling, caller identification, selective call ringing and call waiting) and to thereby increase utilization of existing access lines. In 1993 the Company expanded its list of premium services offered in certain service areas and plans to aggressively market these services in 1994. In addition, with digital switching the Company has been able to construct central electronic monitoring facilities that allow employees to detect operating malfunctions in digital switches and, in many cases, to correct the malfunctions without a site visit by the Company's personnel, thereby reducing maintenance costs. Progress toward increased digital switching of 3 the Company's telephone systems is demonstrated by the change in the number of digitally switched lines as a percentage of total lines, which increased from 19% in 1982 to 93% in 1993. In addition, the Company is installing fiber optic cable in certain areas in which it operates and has provided alternative routing of telephone service over fiber optic cable networks in two of its larger operating areas. Services The Company's telephone subsidiaries derive revenue from providing (i) local telephone services, (ii) network access and long distance services and (iii) other related services. The following table reflects the percentage of total telephone revenues derived from these respective services: 1993 1992 1991 ____ Local service 25.4% 26.3 24.9 Network access and long distance 62.3 61.4 61.6 Other 12.3 12.3 13.5 ____ 100.0% 100.0 100.0 ========================= Local service revenues are generated by the provision of local exchange telephone services in the Company's franchised service areas. Network access and long distance revenues primarily relate to services provided to interexchange carriers (long distance carriers) in connection with the origination and termination of long distance telephone calls. Substantially all of the Company's interstate network access revenues are derived through pooling arrangements administered by the National Exchange Carrier Association ("NECA"). NECA receives access charges billed by the Company and other participating local exchange carriers ("LECs") to interstate long distance carriers for their use of the participating LECs' local exchange networks to complete long distance calls and subsequently distributes these revenues to such LECs based on cost separations studies or average schedule settlement agreements. The charges billed to the long distance carriers are based on tariffed access rates filed with the FCC by NECA on behalf of the Company and other participating LECs. Interstate revenues as a percentage of total telephone revenues amounted to 32.1%, 31.4% and 31.0% in 1993, 1992 and 1991, respectively. 4 Certain of the Company's intrastate network access revenues are derived through access charges billed by the Company directly to intrastate long distance carriers. Such intrastate network access charges are based on access tariffs which are subject to state regulatory commission approval. Additionally, certain of the Company's telephone subsidiaries' intrastate network access revenues, along with intrastate long distance revenues, are derived through state pooling arrangements and are determined based on cost separation studies or special settlement arrangements. The various intrastate access charges and state pooling arrangements are intended to compensate LECs for the use of their facilities furnished in originating and terminating intrastate long distance telephone calls. Other revenues include revenues related to non-regulated telecommunications equipment and services, billing and collection services for interexchange carriers, network facilities leases and directory 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 Electrification Administration ("REA"), the Rural Telephone Bank ("RTB") and the Federal Financing Bank ("FFB"). The REA has made long-term loans to telephone companies since 1949 for the purpose of improving telephone service in rural areas. The REA continues to make new loans at interest rates that range from 5% to 7% based on borrower qualifications and the cost of money to the United States government. The RTB, established in 1971, makes long-term loans at an interest rate based on its average cost of funds as determined by statutory formula (6.35% for the fiscal year ended September 30, 1993), and in some cases makes loans concurrently with REA loans. In addition, the REA guarantees certain loans made to telephone companies by the FFB or other qualified lenders. A significant portion of the Company's telephone plant is pledged or is subject to mortgages to secure obligations of the Company's telephone subsidiaries to the REA, RTB and FFB. The amount of common stock dividends that may be paid by the Company's telephone subsidiaries is limited by certain financial requirements set forth in the mortgages. Certain of the Company's telephone subsidiaries have made applications for additional loans from the REA and RTB and intend to make further applications as needs arise. There is no assurance that these applications will be accepted or that the terms or interest rates of any future 5 loan commitments will remain favorable. Federal budget proposals which could significantly reduce the availability of new loan commitments to the Company's telephone subsidiaries under the REA and RTB programs in future fiscal years were considered in recent years and are expected to continue to be considered. If the Company's telephone subsidiaries are unable to borrow additional funds through the REA and RTB programs and are forced to borrow from conventional lenders at market rates, the Company's cost of new loans might increase. For additional information regarding the Company's financings, see the Company's consolidated financial statements included in Item 8 herein. Regulation and Competition Traditionally, LECs have operated as regulated monopolies. Consequently, the majority of the Company's telephone operations are regulated by various state regulatory agencies (generally called public service commissions or public utility commissions) and by the FCC. Although it is anticipated that regulation will continue for some time, the form or degree of such regulation is unknown. As discussed in greater detail below under "- Developments Affecting Competition," in recent years various aspects of federal and state regulation have been subject to reexamination and ongoing modification. As further indicated below, it is expected that regulation will decrease and competition will increase in the traditionally monopolistic portions of the industry. Regulation of Rates and Related Matters. The FCC regulates the interstate services provided by the Company's telephone subsidiaries. This regulation primarily consists of the regulation of interstate access charges that are billed to interexchange carriers by the Company for use of its local network in connection with the origination and termination of interstate telephone calls. Additionally, the FCC prescribes rules and regulations for telephone companies, including a uniform system of accounts and rules regarding the separation of costs between jurisdictions and, ultimately, between services. Effective January 1, 1991 the FCC adopted price-cap regulation relating to interstate access rates for the regional Bell operating companies and GTE. An annual opportunity to elect price-cap regulation is available for other LECs. Under price- cap regulation, limits imposed on a company's interstate rates will be adjusted periodically to reflect inflation, productivity improvement and changes in certain non-controllable costs. This alternative form of regulation took effect for AT&T's interstate rates on July 1, 1989. In May 1993 the FCC adopted an optional incentive regulatory plan for LECs not subject to price-cap regulation. A LEC electing 6 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 incentive regulatory plan, but will continue to reevaluate its options on a periodic basis. Consequently, the Company's telephone subsidiaries' authorized interstate access rate of return is 11.25%, which is the rate established by the FCC for LECs not governed by price-cap regulation or the optional incentive regulatory plan. The local service rates and intrastate access charges of substantially all of the Company's telephone subsidiaries are regulated by state public service commissions. Most of these commissions also (i) regulate the sale and acquisition of LECs, (ii) prescribe depreciation rates and certain accounting procedures and (iii) regulate various other matters, including certain service standards and operating procedures. In certain states, construction and/or financing plans are also subject to regulatory approval. In recent years, Ohio, Michigan, Wisconsin and a limited number of other state legislatures and regulatory commissions have begun to relax the regulation of LECs, including rates and earnings. Other states have announced their intention to study these issues and it is expected that several such states, including states in which the Company operates, may also relax their regulation of LECs. This relaxed regulatory oversight of certain of the Company's telephone operations may permit the Company to offer new and competitive services faster than under the traditional regulatory process. Coincident with these efforts is the introduction of competition into traditionally monopolistic segments of the industry. For a more detailed discussion of these developments, see "-Developments Affecting Competition". Substantially all of the state commissions that have regulatory jurisdiction over the Company's telephone operations have statutory authority to initiate and conduct earnings reviews of the LECs that they regulate. The specific limits of their authority vary depending upon the state and their particular statutory authority with respect to rate of return regulation and authorized returns. As indicated above, several states are moving away from traditional rate of return regulation, which reduces both the incentive and authority that the respective regulatory commissions have with respect to earnings reviews. Century does not currently have any operating telephone company subject to a formal earnings investigation. However, all independent LECs in Louisiana have been the subject of an informal earnings review by the Louisiana Public Service Commission during 1993. There is no assurance that this informal review (or any other future review in Louisiana or any other state) will not lead to future revenue reductions. Moreover, in light of the movement away from traditional rate of return regulation, 7 no assurance can be given that the Company's telephone subsidiaries will continue to earn the same rate of return that they achieved in 1993. Most of the Company's telephone subsidiaries concur with the common line and traffic sensitive tariffs filed by NECA and participate in the access revenue pools administered by NECA for interstate services. All of the Company's telephone subsidiaries' long distance and intrastate network access revenues are based on access charges, cost separation studies or special settlement arrangements. See "-Services." Recently, the FCC and certain state public utility commissions have explored or implemented initiatives to reduce the funding of certain support mechanisms that have traditionally benefited LECs serving small communities and rural areas. In 1993 the eight-year phase-in of the FCC's mandated Universal Service Fund ("USF") was completed. In December 1993 the FCC adopted a provision which places certain limitations, including a cap, on the USF growth rate during 1994 and 1995. The Company anticipates that, subsequent to 1993, revenues from the USF will continue to increase in the near term, but at a lesser percentage rate than that associated with recent prior periods. The FCC has announced that it intends to comprehensively study the USF during 1994 and 1995 to determine if permanent rule changes should be effected. In addition, the Public Service Commission of Wisconsin ("PSCW") has ordered the existing Wisconsin state support fund to be phased-out over one and one-half years beginning July 1, 1993. Certain of the Company's subsidiaries affected by the order have filed requests with the PSCW to receive increased rates and/or compensation which could potentially offset some or all of the amounts that those subsidiaries have been receiving from such support fund. All such additional revenue must be justified based on each subsidiary's financial need as demonstrated by an expedited rate case. Certain long distance carriers have requested the Company to reduce intrastate access tariffed rates for certain of its telephone subsidiaries. Although intrastate access tariffed rates are subject to state regulatory commission approval, there is no assurance that final resolution of these requests will not result in reduced intrastate access revenues. Developments Affecting Competition. Primarily as a result of regulatory and technological changes, competition has been introduced and encouraged in certain sectors of the telephone industry, including interstate and intrastate toll, special access services and customer premise equipment. In 1992 the FCC took a step toward introducing competition in the local exchange access business by ordering that competitive access providers, interexchange carriers and others 8 have the right to directly interconnect facilities to the central offices of certain larger (Tier One) telephone companies for the provision of interstate special transport access services. The intent of this order and other related FCC decisions is to allow interstate special access competition with telephone companies and provide telephone companies with limited pricing flexibility. In a related proceeding the FCC also issued proposals to expand competitive interconnection to LECs' switched access services in the future. Principally as a result of these and other regulatory actions, competition from competitive access providers and others has increased and is expected to continue to increase. Certain states are considering steps that would further introduce competition into the LEC business. Moreover, certain well-established interexchange carriers have publicly announced their desire to enter the LEC business. Although local exchange competition and competitive access are expected to initially affect large urban areas to a greater extent than rural, suburban and small urban areas such as those in which the Company's telephone operations are located, there is no assurance that these developments will not have an adverse effect on the Company in the future. Certain providers and users of toll service may seek to bypass LECs' switching services and local distribution facilities, particularly if services are not strategically priced. There are three primary ways which users of toll service may bypass the Company's switching services. First, users may construct and operate or lease facilities to transmit their traffic to an interexchange carrier. Second, certain interexchange carriers provide services which allow users to divert their traffic from LECs' usage-sensitive services to their flat-rate services. Third, users may choose to use mobile communications services to bypass LECs' switching services. Within the past two years, each of the three largest interexchange carriers in the United States has acquired, or has entered into preliminary or definitive agreements to acquire interests in mobile communications companies, presumably in part to obtain bypass capabilities. Although certain of the Company's telephone subsidiaries have experienced a loss of traffic to such bypass, the impact of such loss on revenues has not been significant. The Company and the exchange carrier industry are seeking to address bypass by adopting flexible pricing of access and toll services where appropriate, although no assurance can be given as to the ultimate outcome of these efforts. As the mobile communications industry matures, the Company anticipates that existing and emerging mobile communications technologies will increasingly compete with traditional LEC services. Technological and regulatory developments in cellular telephone, personal communications services, digital microwave, coaxial cable, fiber optics and other wired and wireless technologies are expected to further permit the development of alternatives to traditional 9 landline services . For further information on these developments, see "Mobile Communications Operations - Regulation and Competition." In connection with the well-publicized convergence of telecommunications, cable, video, computer and other technologies, several large companies have recently announced plans to offer products that would significantly enhance current communications and data transmission services and, in some instances, introduce new two-way video, entertainment, data, consumer and other multimedia services. In particular, several large cable television companies have announced plans that, if successfully implemented, could provide significant competition with LECs' traditional services. Other companies with wireline experience (including electric utilities) are expected to explore opportunities in this market, along with wireless companies and other emerging technology companies. Although the development of new multimedia services is expected to initially have a greater effect on larger urban areas, no assurance can be given as to how the offering of these products or services by others will affect the Company. For information on the effects of these developments on the Company's cellular operations, see "Mobile Communications Operations - Regulation and Competition." Several bills have been filed in the U. S. Congress that have the potential to significantly alter the telecommunications industry and its regulatory framework. Several of these bills are designed to promote local telephone competition and obligate LECs to provide competitors with universal access to their networks and facilities. Several others are designed to remove barriers of entry to several lines of telecommunications businesses, including current barriers that prohibit the regional Bell operating companies and others from providing interstate and intrastate services and that prohibit LECs from providing cable television services. In addition, the Clinton administration and Congress have proposed legislative and regulatory initiatives to promote wireless technologies as part of the development of a national information infrastructure. Although it is currently impossible to assess the ultimate effect of these initiatives, there can be no assurances that those bills, or others that may follow, will not materially affect the Company's telephone or cellular operations. The Company anticipates that the traditional operations of LECs will increasingly be affected by continued technological developments and continued legislative and regulatory initiatives affecting the ability of LECs to provide new services and the ability of cable companies, interexchange carriers, competitive access providers and others to provide competitive LEC services. The Company intends to actively monitor these developments, to observe the effect of emerging competitive trends in initial test markets (which are expected to be large urban 10 areas) and to continue to evaluate new business opportunities that may arise out of future technological, legislative and regulatory developments. MOBILE COMMUNICATIONS OPERATIONS The Company is the fifteenth largest operator of cellular telephone systems in the United States, based on the population of the Company's majority-owned and operated MSAs and RSAs. The number of pops owned by a cellular operator does not represent the number of users of cellular service and is not necessarily indicative of the number of potential subscribers. Rather, this term is frequently used as a basis for comparing the size of cellular system operators. At December 31, 1993, the Company's pops exceeded 5.9 million. Over 1.1 million additional pops were acquired in the February 1994 acquisition of Celutel. Of the approximately 7.1 million pops controlled by the Company, approximately 5.2 million (73%) are applicable to MSAs and approximately 1.9 million (27%) are RSA pops. Cellular Industry The cellular telephone industry has been in existence for just over ten years in the United States. Although the industry is relatively new, it has grown significantly during this period. According to the Cellular Telecommunications Industry Association, at December 31, 1993 there were estimated to be approximately 16 million cellular customers across the United States. Cellular service is now available to substantially all areas of the United States. Cellular mobile telephone technology was developed in response to certain limitations of conventional mobile telephone systems. Compared to such conventional systems, cellular mobile telephone service is capable of high-quality, high-capacity communications to and from vehicle-mounted and hand-held radio telephones. While conventional mobile systems limit the number of people who can utilize the service simultaneously, cellular systems, if properly designed and equipped, are capable of handling thousands of calls at any given time and are capable of providing service to tens of thousands of subscribers in a market. In a cellular telephone system, the licensed service area is subdivided into geographic areas or cells. Each cell has its own transmitter and receiver that communicates by radio signal with cellular telephones located within the cell. Each cell is connected by a telephone circuit or microwave to a Mobile Switching Center ("MSC"), which in turn is connected to the worldwide telephone network. 11 Communications within a cellular system are controlled by the MSC through a transfer process as a cellular telephone user moves from one cell to another. In this process, when the signal strength of a call declines to a predetermined level, the MSC determines if the signal strength from an adjacent cell is greater and, if so, transfers the call to the adjacent cell. Software which facilitates the transfer between adjacent cells of different cellular systems using equipment of different manufacturers has been implemented by the Company in certain markets. Cellular telephone systems have higher subscriber capacity than conventional mobile telephone systems because of the substantial frequency spectrum allocated to these systems by the FCC and because frequencies can be reused throughout the system. Frequency reuse is possible because the transmission power of cell site equipment and mobile units is relatively low. Therefore, signals on the same channel will not interfere with each other if they are transmitted in cells that are sufficiently far apart. Reuse multiplies the capacity of channels available to the system operator and thereby increases the telephone calling capacity. Until recently, substantially all of the radio transmissions of cellular systems were conducted on an analog basis. Technological developments involving the application of digital radio technology may offer certain advantages over analog technologies, including expanding the capacity of mobile communications systems, improving voice transmission quality, permitting the introduction of new services, and otherwise making such systems more efficient, more accessible, more private and eventually less expensive. Providers of certain competitive services are currently incorporating digital technology into their operations, and may be expected to continue to do so in the future. See "-Regulation and Competition-Developments Affecting Competition." In recent years certain cellular carriers have begun to install digital cellular voice transmission facilities in certain larger markets. During 1993 the Company upgraded certain portions of its cellular systems in Louisiana and Michigan to be capable of providing digital service in the future. The Company will continue to monitor the development and implementation of this technology to determine when it will become beneficial for the Company to install digital cellular voice transmission facilities. See "-Regulation and Competition-Developments Affecting Competition." 12 Strategy The Company's business development strategy for its cellular telephone operations is to secure operating control of service areas that are geographically clustered. Clustered cellular systems aid the Company's marketing efforts and provide various operating and service advantages. After giving effect to those operations acquired in February 1994, 51% of the Company's pops in markets operated by the Company were in a single, contiguous cluster of eight MSAs and six RSAs in Michigan; another 19% were in a cluster of four MSAs and seven RSAs in northern and central Louisiana, southern Arkansas and eastern Texas. Another component of the Company's strategy for cellular operations includes capturing revenues from roaming service. Roaming service revenues are derived from calls made in one cellular service area by subscribers from other service areas. Roaming service is made possible by technical standards requiring that cellular telephones be functionally compatible with the cellular systems in all United States market areas. The Company charges premium rates (compared to rates charged to the Company's customers) for roaming service provided to most non-Company customers. The Company's Michigan cellular properties include a significant portion of the interstate highway corridor between Chicago and Detroit, and its Louisiana properties include an east- west interstate highway and a north-south interstate highway which intersect in its Louisiana cellular service area. In connection with its February 1994 acquisition of Celutel, the Company acquired over 84 percent of the Biloxi/Gulfport, Mississippi MSA and over 82% the Pascagoula, Mississippi MSA. The interstate highway between New Orleans, Louisiana and Mobile, Alabama spans these markets. In connection with this acquisition, the Company also acquired over 86% interest in the Jackson, Mississippi MSA; over 77% in the Brownsville, Texas MSA; and over 67% in the McAllen, Texas MSA. Jackson is the state capital and is located in central Mississippi where two interstate highways intersect. The MSAs in Texas are adjacent to Mexico and consist of urban, resort, farm and ranch areas and include two Foreign Trade Zones. Marketing The Company coordinates the marketing strategy for each cellular system in which it has a majority interest. The Company's cellular sales force consists of approximately 60 sales employees and approximately 200 independent agents. Each sales employee and independent agent solicits cellular customers exclusively for the Company. Company sales employees are 13 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 Company is a founding partner and participant in a national alliance of 15 leading mobile communications companies which is marketing a national brand of cellular service under the name MobiLink. This cellular alliance offers a customer satisfaction guarantee and certain quality standards. 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 sells a full range of vehicle-mounted, transportable, and hand-held portable cellular telephones. Features offered in the cellular telephones sold by the Company include hands-free calling, repeat dialing, horn alert and others. The Company's customers are able to choose from a variety of packaged pricing plans which are designed to fit different calling patterns. The Company typically charges its customers separately for custom-calling features, air time in excess of the packaged amount, and toll calls. Custom-calling features provided by the Company include call-forwarding, call-waiting, three-way calling and no-answer transfer. The Company offers a voice message service in many of its markets. This service, which functions like a sophisticated answering machine, allows customers to receive messages from callers when they are not available to take calls. Cellular customers come from a wide range of occupations. They typically include a large proportion of individuals who work outside of their office, such as employees in the construction, real estate, wholesale and retail distribution businesses, and professionals. More customers are selecting portable and other transportable cellular telephones as these units become more compact and fully featured, as well as more attractively priced. It is anticipated that average revenue per customer will continue to decline as additional non-commercial customers who generate fewer local minutes of use are added as subscribers and as roaming revenues grow more slowly. An added service offered by the Company allows a customer to place or receive a call in a cellular service area away from the customer's home market area. The Company has entered into "roaming agreements" with operators of other cellular systems covering virtually all systems in 14 the United States. These agreements offer the Company's customers the opportunity to roam in these systems. These reciprocal agreements automatically pre-register the customers of the Company's system in the other carriers' systems. Also, a customer of a participating non-Company system traveling in a market operated by the Company where this arrangement is in effect is able to automatically make and receive calls on the Company's system. The charge to a non-Company customer for this service is typically at premium rates, and is billed by the Company to the customer's home system, which then bills the customer. Occasionally, the Company will enter into reciprocal agreements with other cellular carriers to settle roaming usage at a rate different from such premium rates. In some instances, based on competitive factors, the Company may charge a lower amount to its customers than the amount actually charged by another cellular carrier for roaming. The Company anticipates that competitive factors may place downward pressures on charging premium roaming rates. For additional information on roaming revenue, see"-Strategy." During 1993, the Company's cellular subsidiaries experienced strong subscriber growth in the fourth quarter, primarily due to increased holiday season sales. According to the Cellular Telecommunications Industry Association, industry-wide cellular sales have been seasonally strong in the fourth quarter for the past several years. The following table summarizes, among other things, certain information about the Company's customers and market penetration (without giving effect to the operations acquired in February 1994):

15 Notes: 1. Represents the number of systems in which the Company owned at least a 50% interest and which it operated. The revenues and expenses of these cellular markets are included in the Company's consolidated revenues and expenses. 2. Represents the approximate number of revenue-generating cellular telephones served by the cellular systems referred to in footnote 1. 3. Computed by dividing the number of customers at the end of the period by the total population of markets in service as estimated by Donnelly Marketing Information Services for the respective years. 4. Represents the total number of systems that the Company operated, including systems in which it does not own a controlling interest. 5. Represents the approximate number of revenue-generating cellular telephones served in all systems that the Company operated, including systems in which it does not own a controlling interest. The Company's Cellular Interests The table below sets forth certain information with respect to the interests in cellular systems that the Company owned or had the right to acquire pursuant to definitive agreements as of December 31, 1993:

16

17 (1) To the best of the Company's knowledge. (2) Markets not operated by the Company. (3) Represents a non-wireline interest. Certain Considerations Regarding Cellular Telephone Operations The cellular industry has a relatively limited operating history and there continues to be uncertainty regarding its future. Among other factors, there is uncertainty regarding (i) the continued growth in the number of customers, (ii) the usage and pricing of cellular services, particularly as market penetration increases and lower-usage customers subscribe for service, (iii) the number of customers who will terminate service each month, and (iv) the impact of changes in technology, regulation and competition, any of which could have a material adverse effect on the Company. See " - Regulation and Competition." Management believes that a significant portion of the aggregate market value of Century's common stock is represented by the current market value of its cellular interests. There can be no assurance that the market value of its cellular interests will remain at its current level. Management believes that decreases in the market value of such interests could materially decrease the trading price of Century common stock. The market value of cellular interests is frequently determined on the basis of the number of pops controlled by a cellular provider. The population of a particular cellular market, however, does not necessarily bear a direct relationship to the number of subscribers or the revenues that may be realized from the operation of the related cellular system. The future market value of the Company's cellular interests will depend on, among other things, the success of its cellular operations. Paging As part of the Company's strategy of focusing its resources in the cellular and telephone businesses, the Company's Florida paging operations were sold during 1991. The Company continues to provide paging services to customers in Michigan and Louisiana in conjunction with the operation of its majority-owned cellular systems. As of December 31, 1993, the Company had approximately 9,500 pagers in service. 18 Revenue The following table reflects the major revenue categories for the Company's mobile communications operations as a percentage of total mobile communications revenues in 1993, 1992 and 1991. 1993 1992 1991 ____ Cellular access fees, toll revenues and equipment sales 80.5% 78.6 72.4 Cellular roaming 14.5 14.3 16.4 Paging services 5.0 7.1 11.2 ___ 100.0% 100.0 100.0 ========================= For further information on these revenue categories, see"- Services, Customers and System Usage" and "- Paging." Regulation And Competition The FCC and various state public utility commissions regulate the licensing, construction, operation, interconnection arrangements, sale and acquisition of cellular telephone systems and certain state public utility commissions also regulate certain aspects of pricing by cellular operators. Cellular Licensing Process. The FCC awarded only two licenses to provide cellular service in each market. Each licensee is required to provide service to a designated portion of the area or population in its licensed area as a condition to maintaining that license. 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 completion of acquisitions 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. Acquisitions of minority interests generally do not require FCC approval. Whenever FCC 19 approval is required, any interested party may file a petition to dismiss or deny the application for approval of the proposed transfer. Initial operating licenses are granted for ten-year periods and are renewable upon application to the FCC for periods of ten years. Licenses may be revoked and license renewal applications denied for cause. There may be competition for licenses upon the expiration of the initial ten-year terms and there is no assurance that any license will be renewed, although 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. Five years after initial operating licenses are granted, unserved areas within markets previously granted to licensees may be applied for by both wireline and non-wireline entities and by third parties. The FCC has rules that govern the procedures for filing and granting such applications and has established requirements for constructing and operating systems in such areas. The Company has not lost, and does not expect to lose, any significant market areas as a result of not providing service to such areas. In addition to regulation by the FCC, cellular systems are subject to certain Federal Aviation Administration tower height regulations respecting the siting and construction of cellular transmitter towers and antennas. Competition between cellular providers in each market is conducted principally on the basis of services and enhancements offered, the technical quality and coverage of the system, quality and responsiveness of customer service, and price. Competition may be intense. For a listing of the Company's competitors in cellular markets operated by the Company, see "- The Company's Cellular Interests." 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 competition for agents. Some of the Company's competitors have greater assets and resources than the Company. Developments Affecting Mobile Communications Competition. Continued and rapid technological advances in the communications field, coupled with legislative and regulatory uncertainty, make it impossible to (i) predict the extent of future competition to cellular systems, (ii) determine which emerging technologies pose the most viable alternatives to the Company's cellular operations, or (iii) systematically list each development that may ultimately impact the 20 Company's cellular operations. No assurance can be given that current or future technological advances, or legislative or regulatory changes, will not impact the Company's cellular operations. Several recent FCC initiatives have resulted in the allocation of additional radio spectrum or the issuance of experimental licenses for emerging mobile communications technologies that will or may be competitive with the Company's cellular and telephone operations, including personal communication services ("PCS"). Due to PCS' next generation, high-capacity digital technology (which has been tested under experimental licenses since late 1989), PCS may be able to offer wireless data, image and other advanced wireless services. In late 1993, the FCC proposed rules for auctioning up to seven PCS licenses per market, two of which would entitle the licensees to use 30 megahertz ("MHz") of frequency band each, one of which would entitle the licensee to use 20 MHz, and four of which would entitle the licensees to use 10 MHz each. These rules would divide the United States into 540 licensed markets, none of which would be co-terminus with current cellular markets. Under these rules, the Company will be permitted to freely pursue PCS licenses outside its cellular markets, but will be limited to acquiring only one 10 MHz block in licensed areas where it controls more than a 20% interest in a cellular licensee and serves more than 10% of the population within the PCS licensed area. Auctioning of certain PCS licenses is anticipated to commence in 1994. Due to several pending petitions to reconsider these rules, it is possible that the final rules will be modified. In addition to PCS, users and potential users of cellular systems may find their communication needs satisfied by other current and developing technologies, several of which may enjoy potential operational and service advantages through their use of digital technology. The FCC has recently authorized the licensees of certain specialized mobile radio service ("SMR") systems (which currently are generally used by taxicabs and tow truck operators) to configure their systems so as to operate in a manner similar to cellular systems. The Company believes that SMR systems are operating in a majority of its cellular markets. Certain well- established SMR providers have announced their intention to create a nationwide digital mobile communications system to compete with cellular systems, and in connection therewith have sought and obtained financial and other assistance from various other well- established telecommunication companies. Other similar communication services which have the technical capability to handle mobile telephone calls may provide competition in certain markets, although these services currently lack the subscriber capacity of cellular systems. One-way paging or beeper services that feature voice message and data display as well as tones may be adequate for potential subscribers who do not need to transmit back to the caller. Other two-way mobile services may also be competitive with the Company's services. For example, the second 21 generation of cordless telephone technology ("CT-2") will permit the application of this technology to a public environment. The FCC has taken various actions to authorize mobile satellite systems in which transmissions from mobile units to satellites would augment or replace transmissions to land-based stations. It is anticipated that the first operational satellite- based mobile communications system will serve primarily rural customers in North America. However, other satellite-based systems are being studied and designed, including a worldwide- system backed by an international consortium, and no assurance can be given that such systems will not ultimately be successful in augmenting or replacing land-based cellular systems. As described further under "Telephone Operations - Regulation and Competition," in connection with the well-publicized convergence of telecommunications, cable, video, computer and other technologies, several large companies have recently announced plans to offer products that would significantly enhance current communications and data transmissions services and, in some instances, introduce new services. Although much of the resulting competition is expected to center on wireline services, it is anticipated that these developments may also increase competition in the mobile communications industry. Several wireless data and computer companies are currently developing and, in some instances, marketing small hand-held products that may ultimately provide an additional source of competition for cellular systems, and it is anticipated that this trend will continue. As also described further under "Telephone Operations - Regulation and Competition," several bills have been filed in the U.S. Congress that have the potential to significantly alter the telecommunications industry, including various bills that focus on the mobile communications industry. It is uncertain how PCS, SMR, CT-2, mobile satellites and other emerging technologies will ultimately affect the Company. However, PCS, SMR, CT-2 and mobile satellites are not anticipated to be significant sources of competition in the Company's markets in the near term. Moreover, management believes that equipping its current cellular networks with digital enhancements and applying new microcellular technologies may permit its cellular systems to provide services comparable with the emerging technologies described above, although no assurances can be given that this will happen or that future technological advances or legislative or regulatory changes will not create additional sources of competition. 22 Paging. There is vigorous competition for paging customers in most of the areas served by the Company. Some of the Company's competitors have greater assets and resources than the Company. The paging companies compete on the basis of price, the reliability and strength of their signals, the size of the area served and the customer service they provide. In recent months, certain other companies have reduced prices on nationwide paging services, a development which is not expected to have a substantial impact on the Company's consolidated operations. The FCC has authorized the use of cellular frequencies to provide paging service, creating the potential for new competitors. It is anticipated that all or substantially all of the developments described in the immediately preceding section will affect the Company's paging operations. It is too early to predict the extent to which these developments may affect the Company. OTHER The Company has certain obligations based on federal, state and local laws relating to the protection of the environment. Costs of compliance through 1993 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, 6, 7 and 12 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, telephone instruments and related equipment, and land and building related to telephone operations and (ii) switching and cell site equipment related to cellular telephone operations. As of December 31, 1993, the Company's gross property, plant and equipment of approximately $1.2 billion consisted of the following: 23 Telephone: General support 7.3% Central office equipment 24.0 Information origination/termination equipment 3.1 Cable and wire 43.8 Construction in progress 4.6 Other .9 _ 83.7 Mobile Communications 9.7 Other 6.6 100.0% ===== "General support" consists primarily of land, buildings, tools, furnishings, fixtures, motor vehicles and work equipment. "Central office equipment" consists primarily of switching equipment, circuit equipment, and related facilities. "Information origination/termination equipment" consists primarily of premise equipment (private branch exchanges and telephones) for official company use. "Cable and wire" facilities consist primarily of buried cable and aerial cable, poles, wire, conduit and drops. "Construction in progress" includes property of the foregoing categories that has not been placed in service because it is still under construction. The properties of the Company's telephone subsidiaries are subject to mortgages securing the funded 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 cellular 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 mobile communications 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, tort actions relating to employee claims and occasional grievance hearings before labor regulatory agencies. Currently, there are no material legal proceedings. Item 4. Submission of Matters to a Vote of Security Holders. Not applicable. 24 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. Century'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 _ ___ ___ 1992: First quarter $ 24-7/8 18-5/8 .0733 Second quarter $ 25-3/8 18-3/8 .0733 Third quarter $ 25 18-5/8 .0733 Fourth quarter $ 28-7/8 22-7/8 .0733 1993: First quarter $ 33-3/8 26 .0775 Second quarter $ 33-1/8 28 .0775 Third quarter $ 31-5/8 27-1/8 .0775 Fourth quarter $ 30-3/8 23-1/4 .0775 Common stock dividends during 1992 and 1993 were paid each quarter. As of February 28, 1994, there were approximately 5,900 stockholders of record of Century'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, 1993. 25 Selected Income Statement Data

26 Selected Balance Sheet Data

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, 1993.

See Items 1 and 2 in Part I and notes 4, 8 and 12 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 The 1993 net income of Century Telephone Enterprises, Inc. and subsidiaries (the "Company") increased to $69,004,000 from $44,305,000 during 1992 and $37,419,000 during 1991. Income before the cumulative effect of changes in accounting principles during 1992 was $59,973,000. Fully diluted earnings per share for 1993 increased to $1.32 from $.91 during 1992 and $.79 during 1991. Fully diluted earnings per share in 1992 before the cumulative effect of changes in accounting principles was $1.22. 27 As of January 1, 1992, the Company adopted Statement of Financial Accounting Standards No. 106 ("SFAS 106"), "Employers' Accounting for Postretirement Benefits Other than Pensions," and Statement of Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes." The cumulative effect of the changes in accounting principles related to SFAS 106 and SFAS 109 reduced 1992 net income by $14,755,000 ($.30 per share) and $913,000 ($.01 per share), respectively. The Company is a regional diversified telecommunications company that is primarily engaged in providing traditional telephone services and cellular mobile telephone services. The Company's 1993 operating income was $124,808,000, an increase of $15,180,000 (13.8%) over 1992 operating income of $109,628,000. During 1993 the operating income of the telephone operations and the mobile communications operations increased $11,230,000 (10.8%) and $3,950,000 (66.3%), respectively, compared to the 1992 results of operations. The Company's net operating income during 1991 was $75,087,000. Year ended December 31, 1993 1992 1991 ================================================================== (expressed in thousands, except per share amounts) Operating income (loss) Telephone $ 114,902 103,672 80,039 Mobile Communications 9,906 5,956 (4,952) _________ 124,808 109,628 75,087 Interest expense (30,149) (27,166) (22,504) Earnings from unconsolidated cellular partnerships 6,626 1,692 697 Gain on sales of assets 1,661 3,985 - Other income, net 3,310 4,433 4,209 Income tax expense (37,252) (32,599) (20,070) _________ Income before cumulative effect of changes in accounting principles 69,004 59,973 37,419 Cumulative effect of changes in accounting principles - (15,668) - _________ Net income $ 69,004 44,305 37,419 ================================================================== Fully diluted earnings per share: Income before cumulative effect of changes in accounting principles $ 1.32 1.22 .79 Cumulative effect of changes in accounting principles - (.31) - _________ Fully diluted earnings per share $ 1.32 .91 .79 ================================================================== The operating income of the telephone segment includes the operations, subsequent to each respective acquisition, of Century Telephone of San Marcos, Inc. ("San Marcos"), acquired 28 in April 1993; Century Telephone of Ohio, Inc. ("Ohio"), acquired in April 1992; and two other local exchange telephone companies collectively with Ohio the "1992 Acquisitions") acquired during the first quarter of 1992. See note 12 for additional information applicable to these acquisitions. The mobile communications operating income (loss) reflects the operations of the cellular partnerships in which the Company has a majority interest. The minority interest partners' share of the income or loss of such partnerships is reflected in other income, net. The Company's share of income or loss from the cellular partnerships in which it has less than a majority interest is reflected in earnings from unconsolidated cellular partnerships. The operating income of the mobile communications segment during 1993 includes the operations of the Alexandria, Louisiana Metropolitan Statistical Area ("MSA") cellular system ("Alexandria"), which was acquired in December 1992. According to published sources, the Company has the second highest ratio of cellular subscribers to telephone access lines among the 20 largest telephone companies in the United States. Accordingly, the Company anticipates that its mobile communications operations will continue to increasingly influence the Company's overall operations as the cellular industry matures. The following chart illustrates this trend: Year ended December 31, 1993 1992 1991 ================================================================== Telephone Operations: Revenues (% of total revenues) 80.4% 82.7 83.5 Operating income (% of total operating income) 92.1% 94.6 106.6 Mobile Communications Operations: Revenues (% of total revenues) 19.6% 17.3 16.5 Operating income (% of total operating income) 7.9% 5.4 (6.6) ================================================================== 29 TELEPHONE OPERATIONS 1993 1992 1991 ================================================================== (expressed in thousands) Revenues Local service $ 88,704 78,108 58,653 Network access and long distance 217,055 182,711 145,279 Other 42,726 36,691 31,864 _________ 348,485 297,510 235,796 _________ Expenses Plant operations 80,578 66,878 52,546 Customer operations 32,225 26,242 19,502 Corporate and other 55,605 46,791 39,227 Depreciation and amortization 65,175 53,927 44,482 _________ 233,583 193,838 155,757 _________ Operating income $ 114,902 103,672 80,039 ================================================================== Telephone revenues increased $50,975,000 (17.1%) in 1993 and $61,714,000 (26.2%) in 1992. Revenues applicable to San Marcos and Ohio accounted for $15,681,000 and $14,833,000, respectively, of the 1993 increase and revenues applicable to the 1992 Acquisitions accounted for $34,891,000 of the 1992 increase. Amounts recorded as a result of revisions of prior years' revenue settlements were $8,380,000 (exclusive of Ohio), $8,181,000 and $8,206,000 in 1993, 1992 and 1991, respectively. Local Revenues Local service revenues are derived from the provision of local exchange telephone services in the Company's franchised service areas. During 1993 local service revenues increased $2,219,000 and $5,252,000 due to San Marcos and Ohio, respectively. During 1992 such revenues increased $15,670,000 due to the 1992 Acquisitions. Internal access line growth during 1993, 1992 and 1991 was 3.6%, 3.8% and 3.2%, respectively. Network Access and Long Distance Revenues Network access and long distance revenues increased $34,344,000 (18.8%) in 1993 and $37,432,000 (25.8%) in 1992 due to the following factors: 30 1993 1992 ================================================================== (expressed in thousands) San Marcos acquisition $ 11,279 - 1992 Acquisitions 8,458 13,687 Partial recovery of increased operating expenses through revenue pools in which the Company participates with other telephone companies and return on rate base 7,326 9,931 Increased recovery as a result of additional investment and phase-in of the Federal Communications Commission ("FCC") mandated Universal Service Fund 6,161 7,040 Increased minutes of use 3,444 3,607 Other (2,324) 3,167 _________ $ 34,344 37,432 ================================================================== Network access and long distance revenues primarily relate to services provided to interexchange carriers (long distance carriers) in connection with the completion of long distance telephone calls. Substantially all of the Company's interstate network access revenues are received through pooling arrangements administered by the National Exchange Carrier Association ("NECA") based on cost separations studies and average schedule settlement agreements. The NECA receives access charges billed by the Company and other participating local exchange carriers to interstate long distance carriers for their use of the local exchange network to complete long distance calls. These charges to the long distance carriers are based on tariffed access rates filed with the FCC by the NECA on behalf of the Company and other participating local exchange telephone companies. Long distance and intrastate network access revenues are based on access rates, cost separations studies or special settlement arrangements with intrastate long distance carriers. In December 1993 the eight-year phase-in of the FCC Universal Service Fund ("USF") was completed. Revenues from the USF increased approximately $6,161,000 during 1993, of which approximately $3,200,000 was the effect of the phase-in. Revenues were unfavorably impacted in the amount of $1,000,000 during 1993 by reductions (which will aggregate 31 approximately $3,500,000 annually upon final phase-in 1994) in the level of certain settlements received from South Central Bell by the Company's Louisiana subsidiaries. Other Revenues Other revenues include revenues related to nonregulated telecommunications equipment and services, billing and collection services for interexchange long distance carriers, network facilities leases and directories. The increases in other revenues during 1993 and 1992 were primarily due to the 1992 Acquisitions and, during 1993, to San Marcos. Expenses Plant operations expenses during 1993 and 1992 increased $13,700,000 (20.5%) and $14,332,000 (27.3%), respectively. Approximately $3,650,000 and $3,455,000 of the 1993 increase were due to San Marcos and Ohio, respectively. Increases in salaries, wages and benefits during 1993 accounted for approximately $2,192,000. The remainder of the 1993 increase was due to increases in other general operating expenses. Approximately $10,269,000 and $1,105,000 of the 1992 increase were due to the 1992 Acquisitions and the SFAS 106 postretirement benefit costs, respectively. The remainder of the 1992 increase was due to increases in salaries and wages and other general operating expenses. Customer operations, corporate expenses and other expenses increased $14,797,000 (20.3%) in 1993 and $14,304,000 (24.4%) in 1992. The operations of San Marcos and Ohio contributed $6,467,000 and $4,532,000, respectively, to the 1993 increase. The 1992 Acquisitions and the SFAS 106 postretirement benefit costs accounted for approximately $11,186,000 and $806,000, respectively, of the 1992 increase. The remainder of the 1993 and 1992 increases included increased operating costs, such as salaries and wages, employee benefits, insurance and operating taxes. Depreciation and amortization increased $11,248,000 (20.9%) and $9,445,000 (21.2%) in 1993 and 1992, respectively. Approximately $5,447,000 of the 1993 increase was due to San Marcos and Ohio. The 1992 Acquisitions accounted for $6,939,000 of the 1992 increase. Depreciation expense included one-time depreciation charges in certain jurisdictions which aggregated $3,336,000 in 1993 (exclusive of San Marcos), $2,938,000 in 1992 (exclusive of the 1992 Acquisitions) and $1,784,000 in 1991. In addition, the Company obtained higher depreciation rates for certain subsidiaries during the last three years. The first-year effects of the 32 higher rates were approximately $1,650,000 in 1993 (exclusive of San Marcos), $700,000 in 1992 (exclusive of the 1992 Acquisitions) and $3,100,000 in 1991. The remaining increases in depreciation and amortization are due to higher levels of plant in service. The composite depreciation rate for telephone properties, including the one-time additional depreciation, was 7.1%, 6.6% and 6.7% for 1993, 1992 and 1991, respectively. See Other Matters for additional information. MOBILE COMMUNICATIONS OPERATIONS 1993 1992 1991 ================================================================== (expressed in thousands) Revenues Cellular Service $ 76,583 54,489 38,923 Equipment 3,930 3,194 2,592 Paging 4,199 4,409 5,216 _________ 84,712 62,092 46,731 _________ Expenses General, administrative and customer service 23,872 19,685 18,144 Sales and marketing 19,894 13,167 13,403 Cost of sales and other operating expenses 19,681 14,313 12,378 Depreciation and amortization 11,359 8,971 7,758 _________ 74,806 56,136 51,683 _________ Operating income (loss) $ 9,906 5,956 (4,952) ================================================================== Revenues Revenues from cellular operations during 1993 increased to $80,513,000 from $57,683,000 in 1992 and $41,515,000 in 1991. Service revenues include monthly service fees for providing access and airtime to customers, service fees for providing airtime to users roaming through the Company's service areas and toll revenue. Service revenues increased $22,094,000 (40.5%) in 1993 and $15,566,000 (40.0%) in 1992. Increases in access and usage revenues, exclusive of Alexandria, accounted for $14,585,000 of the 1993 increase in service revenues, compared to $12,871,000 during 1992. The increases in access and usage revenues in both years were primarily attributable to increases in the number of cellular customers. Roaming and toll revenues increased $4,120,000 in 1993, exclusive of Alexandria, after increasing $2,281,000 during 1992. The remainder of the 1993 increase in cellular revenues was due substantially to the Alexandria acquisition. 33 Cellular units in service increased to 116,484 as of December 31, 1993 from 73,084 as of December 31, 1992 (which included the December 1992 acquisition of Alexandria) and 51,083 at December 31, 1991. The average monthly service revenue per subscriber declined to $71 in 1993 from $75 in 1992 and 1991, primarily due to the trend that a higher percentage of new subscribers tend to be lower usage customers. The decline in average monthly service revenue per subscriber was also affected by the growth rate of cellular units in service exceeding the growth rate of roaming revenues. The average monthly service revenue per subscriber may further decline as market penetration increases and additional lower usage customers are activated. The Company will continue to attempt to stimulate cellular usage by promoting the availability of certain enhanced services and by increasing coverage areas through the construction of additional cell sites. Expenses General, administrative and customer service expenses increased $4,187,000 (21.3%) and $1,541,000 (8.5%) during 1993 and 1992, respectively. The increases were primarily due to higher billing and other costs due to the increased number of customers and, in 1993, to Alexandria. During 1993 mobile communications sales and marketing expenses increased $6,727,000 (51.1%) primarily due to an increase in commissions paid to agents for selling cellular services to the large volume of new customers. The remaining increase during 1993 was primarily due to an increase in advertising costs and to Alexandria. The Company implemented a new cellular sales commission structure during 1992 which, notwithstanding an increase in agent sales, contributed to the 1.8% decrease in mobile communications sales and marketing expenses in 1992. The increases in cost of sales and other operating expenses in 1993 and 1992 were primarily due to growth in the business, to the development and operation of the Company's Rural Service Area ("RSA") cellular systems and, in 1993, to Alexandria. Sixty-two cell sites were placed in service during 1993 (compared to 21 during 1992 and 24 during 1991) in partnerships in which the Company has a majority interest. In addition, as a result of the December 1992 acquisition of Alexandria, the Company acquired five additional cell sites. The Company operated 158 cell sites at December 31, 1993 in partnerships in which it has a majority interest. 34 Depreciation and amortization increased $2,388,000 (26.6%) in 1993 and $1,213,000 (15.6%) in 1992 primarily due to higher levels of cellular plant in service. See Other Matters for additional information. INTEREST EXPENSE Interest expense increased $2,983,000 (11.0%) during 1993 and $4,662,000 (20.7%) during 1992. Interest expense incurred during 1993 due to an increase in average debt outstanding was substantially offset by the effect of lower average interest rates. Interest expense during 1992 increased primarily due to the issuance of $115,000,000 of 6% convertible debentures during the first quarter of 1992. The debenture interest of approximately $6,200,000 during 1992 was partially offset by reduced interest expense due to lower average interest rates. EARNINGS FROM UNCONSOLIDATED CELLULAR PARTNERSHIPS Earnings from unconsolidated cellular partnerships increased $4,934,000 in 1993 and $995,000 in 1992. The Company's share of income from the partnership interests acquired in the San Marcos acquisition contributed substantially to the 1993 increase. SALES OF ASSETS During 1993 the Company sold a minority investment in a telephone company which resulted in a pre-tax gain of $1,661,000 ($1,080,000 after-tax). During 1992 the Company consummated the sales of two telephone subsidiaries which served approximately 2,000 access lines; its minority interests in an MSA cellular partnership and an RSA cellular partnership; and its 100% interest in an RSA cellular market. The sales prices totaled $12,212,000 and the aggregate pre-tax gain was $3,985,000 ($2,630,000 after-tax). OTHER INCOME, NET Other income, net decreased $1,123,000 (25.3%) primarily because interest income earned during 1993 was less than interest income during 1992. 35 INCOME TAX EXPENSE The effective income tax rate was 35.1%, 35.2% and 34.9% in 1993, 1992 and 1991, respectively. The additional federal income taxes incurred during 1993 as a result of the 1% increase in the statutory federal income tax rate in accordance with the provisions of the Omnibus Budget Reconciliation Act of 1993 (the "Act") was more than offset by the tax benefit applicable to the deductibility of certain intangible assets also provided by the Act. CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES The Company adopted SFAS 106 as of January 1, 1992. SFAS 106 requires that the expected cost of providing postretirement health care and life insurance benefits be accrued during the years an employee renders service to the Company. During 1991 the Company had recognized $1,475,000 of postretirement benefits on the pay-as-you-go basis. The unrecognized obligation existing at the date of initial application of SFAS 106 (the "Transition Obligation") was $27,390,000. In accordance with the provisions of Statement of Financial Accounting Standards No. 71 ("SFAS 71"), "Accounting for the Effects of Certain Types of Regulation," the Company deferred approximately $3,450,000 of the Transition Obligation; such costs are being expensed in connection with recovery through the rate-making process. The remaining $23,940,000, net of tax benefits which aggregated $9,185,000, was reported as the cumulative effect of a change in accounting principle and reduced 1992 fully diluted earnings per share by $.30. The accrual of postretirement benefits during 1992, net of the related toll revenue and 1992 pay-as-you-go costs, decreased income before income taxes and cumulative effect of changes in accounting principles for 1992 by $2,023,000. The Company also adopted SFAS 109 as of January 1, 1992, under which the accounting for income taxes is based on an asset and liability approach rather than the deferred method. The cumulative effect of the change in accounting principle related to SFAS 109 decreased net income for 1992 by $913,000 ($.01 per fully diluted share). In accordance with the provisions of SFAS 71, the Company established a regulatory liability of approximately $47,000,000 relative to the excess deferred income taxes and the regulatory impact thereof. INFLATION The effects of increased costs are mitigated by the ability to recover costs applicable to the Company's regulated telephone operations through the rate-making process. As operating 36 expenses increase in the nonregulated areas, the Company, to the extent permitted by competition, recovers the costs by increasing prices for its services and equipment. While the regulatory process does not consider replacement cost of physical plant, the Company has historically been able to earn a return on any increased cost of its net investment when facilities are replaced. Possible future regulatory changes may alter the Company's ability to recover increased costs in its regulated operations. LIQUIDITY AND CAPITAL RESOURCES The Company relies on cash provided by operations to provide a substantial portion of its cash needs. The Company's telephone operations have historically provided a stable source of cash flow which has helped the Company continue its program of capital improvements. Cash provided by mobile communications operations has increased each year since that segment became cash-flow positive in 1991. Net cash provided by operating activities was $166,754,000, $146,324,000 and $92,884,000 in 1993, 1992 and 1991, respectively. For additional information relative to the telephone operations and mobile communications operations of the Company, see Results of Operations. Although payments for property, plant and equipment during 1993 increased by $64,172,000, net cash used in investing activities during 1993 was approximately the same as 1992 primarily because the amount of cash used in acquisitions during 1993 was approximately $80,083,000 less than in the previous year. Net cash used in investing activities increased $147,910,000 in 1992, primarily due to the 1992 Acquisitions and to an increase of $44,335,000 in payments for property, plant and equipment. Cash provided by financing activities in 1993 was $23,247,000 less than in 1992 primarily because net borrowings, including long-term debt and notes payable, were $20,582,000 less than in 1992. The $36,785,000 increase in notes payable outstanding at December 31, 1993 compared to December 31, 1992 reflects the Company's utilization of borrowings under its short- term credit facilities to take advantage of declining short-term interest rates during 1993. The Company intends to eventually refinance such short-term borrowings with long-term debt. Proceeds from the issuance of debt during 1992 ($100,655,000 more than during 1991) included 37 $115,000,000 from the issuance of 6% convertible debentures in February 1992 to provide the major portion of the purchase price of Ohio. In October 1993 the Company executed a merger agreement with Celutel, Inc., under which Century acquired Celutel for approximately $102,000,000 during the first quarter of 1994. Approximately $51,400,000 of the purchase price was paid in cash, with the remainder being paid through the issuance of 1,900,000 shares of Century common stock. In connection with the acquisition, Century refinanced approximately $41,700,000 of Celutel's debt. Century funded the cash portion of the merger consideration and the debt prepayment from proceeds received from a committed bridge term loan. It is currently anticipated that the bridge term loan will be repaid prior to September 30, 1994 with proceeds from the issuance of long-term debt, the terms and conditions of which have not yet been determined. Based on a review of its financing alternatives, Century does not anticipate any problems in obtaining such financing. Budgeted capital expenditures for 1994 total $142,000,000 for telephone operations, $50,000,000 for mobile communications operations (of which $10,000,000 will be funded by minority interest owners in cellular partnerships operated by the Company) and $4,000,000 for other operations. As of December 31, 1993, Century's telephone subsidiaries had available for use $84,000,000 of commitments for long-term financing from the Rural Electrification Administration ("REA") and the Company had $23,600,000 of undrawn committed bank lines of credit. In addition, approximately $7,000,000 of uncommitted credit facilities were available to the Company at December 31, 1993. Applications for additional long-term financing for Century's telephone subsidiaries have been filed with the REA and are in various stages of processing. The Company has experienced no significant problems in obtaining funds for capital expenditures or other purposes. Stockholders' equity as a percentage of total capitalization was 48.5% and 47.0% at December 31, 1993 and 1992, respectively. ACCOUNTING PRONOUNCEMENT The Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 112 ("SFAS 112"), "Employers' Accounting for Postemployment Benefits," in November 1992. SFAS 112 requires the adoption of accrual accounting for 38 workers compensation, disability and other benefits provided after employment but before retirement by requiring accrual of the expected cost when it is probable that a benefit obligation has been incurred and the amount can be reasonably estimated. The Company will be required to adopt SFAS 112 in the first quarter of 1994. Liabilities for postemployment benefits included in the consolidated balance sheet as of December 31, 1993 are not materially different than those required by SFAS 112. OTHER MATTERS In December 1993 the eight-year phase-in of the USF was completed. Revenues from the USF increased approximately $6,161,000 during 1993, of which approximately $3,200,000 reflected the effect of the phase-in. The Company anticipates that, subsequent to 1993, revenues from the USF will continue to increase in the near term, but at a lesser percentage rate than that associated with recent prior periods. In addition, the Public Service Commission of Wisconsin ("PSCW") has ordered that the existing Wisconsin state support fund, from which certain of the Company's subsidiaries received approximately $3,575,000 during 1993 and $3,755,000 during 1992, will be phased-out over one and one-half years beginning July 1, 1993. Certain of the Company's subsidiaries affected by the order have filed requests with the PSCW to receive increased rates and/or compensation which could potentially offset some or all of the amounts that those subsidiaries have been receiving from the existing support fund. All such additional revenue must be justified based on each subsidiary's financial need as demonstrated by an expedited rate case. The Wisconsin State Telephone Association has, among other things, appealed the PSCW's planned phase-out of the support fund. Also, the Louisiana Public Service Commission ("LPSC") is conducting an informal review of the earnings of all independent local exchange telephone companies in Louisiana. It is possible that reviews by state regulatory authorities, such as the informal review being conducted by the LPSC, may result in refunds and/or future reductions in revenues. Revenues are being impacted by reductions (which will aggregate approximately $3,500,000 annually upon completion in the second quarter of 1994 of a one-year phase-in period) in the level of certain settlements received from South Central Bell by the Company's Louisiana subsidiaries. For information on the effect of these reductions on the Company's 1993 operations, see Results of Operations. The telecommunications industry is currently undergoing various regulatory, competitive and technological changes, including the following. First, the FCC and a limited number of state 39 public utility commissions have begun to reduce the regulatory oversight of the earnings and return rates of local exchange carriers ("LEC's"). Coincident with this movement toward reduced regulation is the introduction and encouragement of local exchange competition by the FCC and various state public utility commissions, along with the emergence of certain companies providing competitive access and other services that compete with LEC's services and the announcement by certain well- established interexchange carriers of their desire to enter the LEC business. Second, several recent FCC initiatives have resulted in the allocation of additional frequency spectrum or the issuance of experimental licenses for mobile communications technologies that will or may be competitive with cellular, including personal communications services (for which the FCC intends to begin auctioning operating licenses in 1994) and mobile satellite services. The FCC has also authorized certain specialized mobile radio service licensees to configure their systems so as to operate in a manner similar to cellular systems, and certain of these licensees recently announced their intention to create a nationwide mobile communications system to compete with cellular systems. Third, in connection with the well- publicized convergence of telecommunications, cable, video, computer and other technologies, several large companies have recently announced plans to offer products that would significantly enhance current communications and data transmission services and, in some instances, introduce new two- way video, entertainment, data, consumer and other multimedia services. Local exchange competition and competitive access are expected to initially affect large urban areas to a greater extent than rural, suburban and small urban areas such as those in which the Company's telephone operations are located. The same expectation holds true for emerging competitive wireless technologies and the development of new multimedia services. Therefore, the Company does not believe these developments are likely to materially affect it in the near term. The Company further believes that it may benefit from having the opportunity to observe the effects of these developments in large urban markets in the near term, thereby better preparing it for competition. The Company will continue to monitor the ongoing changes in regulation, competition and technology and consider which developments provide the most favorable opportunities for the Company to pursue. The Company has certain obligations based on federal, state and local laws relating to the protection of the environment. Costs of compliance through 1993 have not been material and the Company currently has no reason to believe that such costs will become material. 40 Item 8. Financial Statements and Supplementary Data. Report of Management __ To the Shareholders of Century Telephone Enterprises, 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 Peat Marwick, 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 directors who are not officers or employees of the Company. The Committee meets periodically with the independent certified public accountants, internal auditors and management. This Committee considers the audit scope and discusses internal control, financial and reporting matters. Both the independent and internal auditors have free access to the Committee. R. Stewart Ewing, Jr. Senior Vice President and Chief Financial Officer 41 Independent Auditors' Report ____ The Board of Directors Century Telephone Enterprises, Inc.: We have audited the consolidated financial statements of Century Telephone Enterprises, 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 generally accepted auditing standards. 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 Century Telephone Enterprises, Inc. and subsidiaries as of December 31, 1993 and 1992, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1993, in conformity with generally accepted accounting principles. 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. As discussed in notes 4 and 8 to the consolidated financial statements, the Company adopted the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," and Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," in 1992. KPMG PEAT MARWICK Shreveport, Louisiana February 4, 1994 42 CENTURY TELEPHONE ENTERPRISES, INC. Consolidated Statements of Income Year ended December 31, ================================================================== 1993 1992 1991 _________ (expressed in thousands, except per share amounts) REVENUES Telephone $348,485 297,510 235,796 Mobile Communications Cellular 80,513 57,683 41,515 Paging 4,199 4,409 5,216 _________ Total revenues 433,197 359,602 282,527 _________ EXPENSES Cost of sales and operating expenses 231,855 187,076 155,200 Depreciation and amortization 76,534 62,898 52,240 _________ Total expenses 308,389 249,974 207,440 _________ OPERATING INCOME 124,808 109,628 75,087 _________ OTHER INCOME (EXPENSE) Interest expense (30,149) (27,166) (22,504) Earnings from unconsolidated cellular partnerships 6,626 1,692 697 Gain on sales of assets 1,661 3,985 - Other income, net 3,310 4,433 4,209 _________ Total other income (expense) (18,552) (17,056) (17,598) _________ INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES 106,256 92,572 57,489 INCOME TAXES 37,252 32,599 20,070 _________ INCOME BEFORE CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES 69,004 59,973 37,419 CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES - (15,668) - _________ NET INCOME $69,004 44,305 37,419 ================================================================== PRIMARY EARNINGS PER SHARE : Income before cumulative effect of changes in accounting principles $ 1.35 1.23 .79 Cumulative effect of changes in accounting principles - (.32) - _________ PRIMARY EARNINGS PER SHARE $ 1.35 .91 .79 ================================================================== FULLY DILUTED EARNINGS PER SHARE : Income before cumulative effect of changes in accounting principles $ 1.32 1.22 .79 Cumulative effect of changes in accounting principles - (.31) - _________ FULLY DILUTED EARNINGS PER SHARE $ 1.32 .91 .79 ================================================================== DIVIDENDS PER COMMON SHARE $ .310 .293 .287 ================================================================== See accompanying notes to consolidated financial statements. 43 CENTURY TELEPHONE ENTERPRISES, INC. Consolidated Balance Sheets December 31, =================================================================== 1993 1992 _________ (expressed in thousands) ASSETS CURRENT ASSETS Cash and cash equivalents $ 9,777 9,771 Accounts receivable Customers, less allowance for doubtful accounts of $1,473,000 and $960,000 34,438 28,436 Other 21,771 14,111 Materials and supplies, at cost 4,418 4,512 Other 2,068 3,226 __________ Total current assets 72,472 60,056 _________ PROPERTY, PLANT AND EQUIPMENT Telephone, at original cost 979,449 871,383 Accumulated depreciation (288,479) (280,242) __________ 690,970 591,141 _________ Mobile Communications, at cost 113,252 71,926 Accumulated depreciation (27,736) (27,613) __________ 85,516 44,313 _________ Other, at cost 77,737 61,110 Accumulated depreciation (26,447) (20,686) __________ 51,290 40,424 _________ Net property, plant and equipment 827,776 675,878 __________ INVESTMENTS AND OTHER ASSETS Excess cost of net assets acquired, less accumulated amortization of $29,253,000 and $21,975,000 297,158 217,688 Other investments 98,142 67,478 Deferred charges 23,842 19,387 _________ Total investments and other assets 419,142 304,553 __________ TOTAL ASSETS $1,319,390 1,040,487 =================================================================== See accompanying notes to consolidated financial statements. 44 CENTURY TELEPHONE ENTERPRISES, INC. Consolidated Balance Sheets (continued) December 31, =================================================================== 1993 1992 _________ (expressed in thousands) LIABILITIES AND EQUITY CURRENT LIABILITIES Current maturities of long-term debt $ 14,233 9,709 Notes payable to banks 69,200 32,415 Accounts payable 49,506 34,605 Accrued expenses and other current liabilities Taxes 9,327 10,343 Interest 6,476 6,412 Other 21,152 17,012 Advance billings and customer deposits 9,312 10,169 __________ Total current liabilities 179,206 120,665 _________ LONG-TERM DEBT 460,933 391,944 __________ DEFERRED CREDITS AND OTHER LIABILITIES Deferred income taxes 60,122 39,064 Deferred investment tax credits 10,431 11,833 Other 94,930 91,532 _________ Total deferred credits and other liabilities 165,483 142,429 __________ STOCKHOLDERS' EQUITY Common stock, $1.00 par value, authorized 100,000,000 shares, issued and outstanding 51,294,705 and 48,896,876 shares 51,295 48,897 Paid-in capital 262,294 191,522 Retained earnings 208,945 155,676 Employee Stock Ownership Plan commitment (9,220) (11,100) Preferred stock - non-redeemable 454 454 _________ Total stockholders' equity 513,768 385,449 __________ TOTAL LIABILITIES AND EQUITY $1,319,390 1,040,487 =================================================================== See accompanying notes to consolidated financial statements. 45 CENTURY TELEPHONE ENTERPRISES, INC. Consolidated Statements of Cash Flows Year ended December 31, ==================================================================== 1993 1992 1991 _________ (expressed in thousands) OPERATING ACTIVITIES Net income $69,004 44,305 37,419 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 86,175 70,762 57,306 Cumulative effect of changes in accounting principles - 15,668 - Equity in income of cellular partnerships (7,592) (2,087) (984) Deferred income taxes 6,781 (1,427) (335) Gain on sales of assets (1,661) (3,985) - Changes in current assets and current liabilities: Increase in accounts receivable (7,026) (2,307) (6,440) Increase in accounts payable 11,024 11,694 4,581 Decrease in other current assets and other current liabilities, net 659 10,549 32 Other, net 9,390 3,152 1,305 __________ Net cash provided by operating activities 166,754 146,324 92,884 _________ INVESTING ACTIVITIES Acquisitions, net of cash acquired (54,916) (134,999) (4,600) Payments for property, plant and equipment (204,229) (140,057) (95,722) Investments in unconsolidated cellular partnerships (3,605) (2,161) (9,098) Proceeds from sales of assets - 5,049 - Purchase of life insurance investment (7,670) (6,160) (6,080) Other, net 3,948 7,166 (7,752) _________ Net cash used in investing activities (266,472) (271,162)(123,252) __________ FINANCING ACTIVITIES Proceeds from issuance of long-term debt 82,347 157,087 56,432 Payments of long-term debt (9,764) (44,552) (48,685) Notes payable, net 36,785 17,415 6,000 Proceeds from issuance of common stock 3,529 8,776 6,388 Cash dividends paid (15,735) (14,119) (13,388) Other, net 2,562 (1,636) 2,668 _________ Net cash provided by financing activities 99,724 122,971 9,415 ___________ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 6 (1,867) (20,953) __________ CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 9,771 11,638 32,591 ____________ CASH AND CASH EQUIVALENTS AT END OF YEAR $9,777 9,771 11,638 ==================================================================== See accompanying notes to consolidated financial statements. 46 CENTURY TELEPHONE ENTERPRISES, INC. Consolidated Statements of Stockholders' Equity

47 CENTURY TELEPHONE ENTERPRISES, INC. Notes to Consolidated Financial Statements December 31, 1993 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation - The consolidated financial statements of Century Telephone Enterprises, Inc. and subsidiaries (the "Company") include the accounts of Century Telephone Enterprises, Inc. ("Century") and its majority-owned subsidiaries and cellular partnerships. The Company's regulated 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." Unaffiliated parties' interests in cellular partnerships which have been consolidated are included in other liabilities at December 31, 1993 and 1992 in the amounts of $10,494,000 and $6,530,000, respectively. Investments in cellular partnerships where the Company does not have a majority partnership interest are accounted for using the equity method of accounting. The Company's share of income from these partnerships was $7,592,000, $2,087,000 and $984,000 in 1993, 1992 and 1991, respectively, and is included in earnings from unconsolidated cellular partnerships. Revenue Recognition - Revenues are recognized when earned. Certain of Century's telephone subsidiaries participate in revenue pools with other telephone companies for interstate revenue and for certain intrastate revenue. Such pools are funded by toll revenue and/or access charges within state jurisdictions and by access charges in the interstate market. Revenue earned through the various pooling processes is initially recorded based on estimates. The Company recorded adjustments, based upon settlements of prior years' revenues for certain subsidiaries, which increased revenues by $9,152,000, $8,181,000 and $8,206,000 in 1993, 1992 and 1991, respectively. Excess Cost of Net Assets Acquired - The excess cost over net assets acquired of substantially all acquisitions accounted for as purchases (goodwill) is being amortized over 40 years. Amortization of $6,215,000, $4,955,000 and $2,886,000 for 1993, 1992 and 1991, respectively, is included in depreciation and amortization. Amortization of goodwill attributable to 48 unconsolidated investments in cellular partnerships was $966,000, $395,000 and $287,000 for 1993, 1992 and 1991, respectively, and is included as a reduction in earnings from unconsolidated cellular partnerships. The carrying value of goodwill is reviewed for impairment whenever events or changes in circumstances indicate that such carrying value may not be recoverable by assessing the recoverability of such carrying value through projected undiscounted future results. Other Investments - The Company's other investments consist of the following: December 31, 1993 1992 ================================================================== (expressed in thousands) Cash surrender value of life insurance, partially pledged $ 38,642 30,446 Investments in unconsolidated cellular partnerships 41,983 23,895 Investments in marketable equity securities, at cost 8,478 7,008 Other 9,039 6,129 _________ $ 98,142 67,478 ================================================================== Affiliated Transactions - Certain service subsidiaries of Century provide installation and maintenance services, materials and supplies, and managerial, technical and accounting services to subsidiaries. In addition, Century provides and bills management services to all subsidiaries and in certain instances makes interest-bearing advances to finance construction of plant and purchases of equipment. These purchases are recorded in the telephone subsidiaries' accounts at their cost to the extent permitted by regulatory authorities. Intercompany profits on service subsidiaries' sales to regulated affiliates are limited to a reasonable return on investment and have not been eliminated. Intercompany profits on service subsidiaries' sales to nonregulated affiliates have been eliminated. Property, Plant and Equipment - Telephone plant is stated substantially at original cost of construction. Normal retirements of telephone property 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. 49 Depreciation of telephone properties is provided on the straight-line method, using class or overall composite rates acceptable to the regulatory authorities. Included in 1993, 1992 and 1991 depreciation expense were additional one-time depreciation charges of $3,621,000, $3,854,000 and $1,784,000, respectively. The composite depreciation rate for telephone properties was 7.1%, 6.6% and 6.7% for 1993, 1992 and 1991, respectively. When non-telephone property is sold or retired, a gain or loss is recognized. Depreciation is provided on the straight- line method over estimated service lives ranging from three to thirty years. Depreciation expense was $77,999,000, $64,340,000 and $53,197,000 in 1993, 1992 and 1991, respectively. Income Taxes - Century files a consolidated federal income tax return with its subsidiaries. In February 1992 the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting For Income Taxes." SFAS 109 requires the use of a method 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. Effective January 1, 1992, the Company adopted SFAS 109 and reported an unfavorable $913,000 cumulative effect of the change in the method of accounting for income taxes in the 1992 consolidated statement of income. Due to the reduction in corporate federal income tax rates as a result of the Tax Reform Act of 1986, there existed excess deferred income taxes. Pursuant to SFAS 71, a regulatory liability in the amount of approximately $47,000,000 and a corresponding reduction in net deferred income taxes payable were recorded in 1992 relative to the excess deferred income taxes and the regulatory impact thereof. The regulatory liability, net of the related tax impact (approximately $20,300,000 at adoption), is being amortized as a reduction of federal income tax expense over the estimated remaining lives of the assets which generated the deferred taxes. 50 Investment tax credits related to telephone plant have been deferred and amortized as a reduction of federal income tax expense over the estimated useful lives of the assets giving rise to the credits. In accordance with SFAS 109, unamortized deferred investment tax credits are treated as temporary differences. Earnings Per Share - Primary earnings per share amounts are determined on the basis of the weighted average number of common shares and common stock equivalents outstanding during the year. The number of shares used in computing primary earnings per share was 51,206,000 in 1993, 48,500,000 in 1992 and 47,305,000 in 1991. Fully diluted earnings per share amounts give further effect to convertible securities, primarily the debentures, which are not common stock equivalents. The number of shares used in computing fully diluted earnings per share before the cumulative effect of changes in accounting principles was 55,892,000 in 1993, 52,814,000 in 1992 and 47,432,000 in 1991. For the computation of fully diluted earnings per share for 1992, the debentures have been excluded as their inclusion would be anti- dilutive. The number of shares used in computing fully diluted earnings per share was 55,892,000, 48,653,000 and 47,432,000 in 1993, 1992 and 1991, respectively. 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 1993 presentation. 51 (2) LONG-TERM DEBT December 31, 1993 1992 ================================================================== (expressed in thousands) Century 6.0% convertible debentures, due 2007 $115,000 115,000 9.8% senior notes - 4,813 9.4% senior notes, due in installments through 2004 69,600 71,200 10.8% notes, due in installments through 2006 1,245 1,529 Notes payable to banks (at money market rates - 3.9%) 81,500 30,000 8.4% Employee Stock Ownership Plan commitment, due in installments through 2000 9,220 11,100 _________ Total Century 276,565 233,642 _________ Subsidiaries First mortgage debt 5.9% notes, payable to agencies of the United States government and cooperative lending associations, due in installments through 2026 158,998 126,670 7.2% bonds, due in installments through 2002 11,699 14,505 Other debt 9.0% notes, due in installments through 2020 8,633 8,334 7.6% capital lease obligations, due in installments through 1997 4,271 3,502 Notes payable to bank (at money market rates - 4.1%), due 1995 15,000 15,000 _________ Total subsidiaries 198,601 168,011 _________ Total long-term debt 475,166 401,653 _________ Less current maturities 14,233 9,709 _________ Long-term debt, excluding current maturities $460,933 391,944 ================================================================== Except for the 6% convertible debentures, each interest rate shown in the preceding table is a weighted average interest rate as of December 31, 1993. The approximate annual debt maturities (including sinking fund requirements) for the five years subsequent to December 31, 1993 are as follows: 1994 - $14,233,000; 1995 - $77,757,000; 1996 - $45,611,000; 1997 - $17,182,000; and 1998 - $16,077,000. In February 1992 Century issued $115,000,000 of 6% convertible debentures. Interest is payable semiannually in August and February. The debentures are convertible into common stock at a conversion price of $25.33 per share and will mature on February 1, 2007 unless previously converted or redeemed. The debentures may be redeemed by Century on or after February 1, 1995. Certain redemptions through a sinking fund are required from 2002 through 2006. Under certain circumstances the debentures are redeemable at the option of the holder. See note 12 for information applicable to the use of the proceeds. 52 The Company's loan agreements contain various restrictions, among which are limitations regarding issuance of additional debt, payment of cash dividends on common and preferred stock, reacquisition of the Company's capital stock and other matters. All of the Company's year-end consolidated retained earnings was available for the payment of cash dividends to stockholders. The transfer of funds from consolidated subsidiaries to Century is also 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 Century, but may pay dividends if certain financial ratios are met. Loan agreements of subsidiaries with other major lenders provide restrictions as to the payment of dividends, but do not formally limit loans and advances to Century. At December 31, 1993, restricted net assets of subsidiaries were $126,528,000 and subsidiaries' retained earnings in excess of amounts restricted by debt covenants were $286,340,000. Substantially all of the telephone property, plant and equipment is pledged to secure the long-term debt of subsidiaries. At December 31, 1993, Century had outstanding $30,500,000 under a $50,000,000 line of credit (two-year revolver, convertible to a five-year term loan) with interest at the rate chosen by the Company based on a number of interest rate options. In addition, Century had $51,000,000 outstanding under a $55,000,000 line of credit (three-year revolving credit facility) with similar interest rate options. Century's telephone subsidiaries had approximately $84,000,000 in commitments for long-term financing from the Rural Electrification Administration available at December 31, 1993. In addition to the $23,500,000 available under the two lines of credit mentioned above, approximately $7,100,000 of additional borrowings, some of which would be classified as current liabilities, were available at December 31, 1993 to the Company through lines of credit with various banks. Interest paid by the Company was $30,085,000, $24,035,000 and $23,407,000 during 1993, 1992 and 1991, respectively. Interest capitalized by the Company during 1993, 1992 and 1991 was $76,000, $547,000 and $91,000, respectively. 53 ESOP Commitment - The Employee Stock Ownership Plan ("ESOP") is partially funded by loans guaranteed by Century. Each loan is to be repaid over a 10-year period with level principal payments throughout its term. The weighted average interest rate of the loans is 8.4% per annum. The unpaid balances of the loans are included in long-term debt. An equivalent amount, representing unearned employee compensation, is reflected as a deduction in stockholders' equity. Both the debt and the amount in stockholders' equity are reduced in equal amounts as the ESOP repays the loans. (3) STOCKHOLDERS' EQUITY Common Stock - At December 31, 1993, unissued shares of Century's common stock were reserved as follows: ================================================================= Conversion of convertible debentures 4,540,000 Stock option plans 2,958,000 Employee stock purchase plan 506,000 Dividend reinvestment plan 409,000 Conversion of convertible preferred stock 122,000 Other employee benefit plans 1,243,000 __________ 9,778,000 ================================================================= As amended in 1991, Article III of Century's Articles of Incorporation eliminates prospectively the ability of holders to qualify for ten votes per share by providing that only voting shares beneficially owned continuously by the same person since May 30, 1987 will entitle the holder thereof to ten votes per share. All other shares are entitled to one vote per share. Preferred Stock - As of December 31, 1993, Century had authorized 2,000,000 shares of preferred stock, redeemable or non- redeemable. All outstanding non-redeemable preferred stock has a liquidation price equivalent to its par value of $25 per share and is cumulative as to dividends; each series has voting rights. At December 31, 1993 and 1992, there were 18,162 total shares of non-redeemable preferred stock outstanding that were convertible to a total of approximately 122,000 common shares. 54 Stock Split - In November 1992 Century's Board of Directors declared a three-for-two common stock split effected as a 50% stock dividend in December 1992. Per share data for periods prior to December 1992 which are included in this report 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 on the consolidated financial statements in 1992. Shareholders' Rights Plan - In 1986 the Board of Directors declared a dividend of one preferred stock purchase right for each common share outstanding or that shall become outstanding prior to November 26, 1996. With certain exceptions, if a person or group acquires ownership of 15% or more of Century's common shares or commences a tender or exchange offer which upon consummation would result in ownership of 30% or more of the common shares, each right held by shareholders, other than such person or group, may be exercised to buy at the then-current exercise price of the right (currently $85) the number of shares of Series AA Junior Participating Preferred Stock of Century having a market value equal to two times the exercise price. The rights, which do not have voting rights, expire on November 27, 1996 and may be redeemed by Century at a price of $.05 per right at any time before they become exercisable. If, at any time the rights are exercisable, Century is a party to a merger, reverse merger or other business combination or certain other transactions occur, each right will entitle its holder to purchase at the exercise price of the right a number of shares of common stock of the surviving company having a market value of two times the exercise price of the right. At December 31, 1993, 519,000 shares of Series AA Junior Participating Preferred Stock were reserved for issuance under the Rights Plan. (4) INCOME TAXES As discussed in note 1, the Company adopted SFAS 109 as of January 1, 1992. The cumulative effect of this change in accounting for income taxes resulted in a $913,000 decrease in net income and was included in cumulative effect of changes in accounting principles in the consolidated statement of income for the year ended December 31, 1992. 55 Total income tax expense (benefit) for the years ended December 31, 1993 and 1992 was allocated as follows: 1993 1992 ================================================================= (expressed in thousands) Income before cumulative effect of changes in accounting principles $ 37,252 32,599 Cumulative effect of changes in accounting principles - (8,272) __________ Net tax expense in the consolidated statement of income 37,252 24,327 Stockholders' equity, primarily for compensation expense for tax purposes in excess of amounts recognized for financial reporting purposes (800) (2,885) _________ $ 36,452 21,442 ================================================================= Income tax expense attributable to income before cumulative effect of changes in accounting principles is composed of the following: Year ended December 31, 1993 1992 1991 ================================================================= (expressed in thousands) Federal Current $ 26,409 29,100 16,227 Deferred 6,133 (1,742) (335) State Current 4,062 4,926 4,178 Deferred 648 315 - _________ $ 37,252 32,599 20,070 ================================================================= The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 1993 and 1992 were as follows: 56 December 31, 1993 1992 ================================================================= (expressed in thousands) Deferred tax assets: Postretirement benefit cost $ 10,809 10,194 Deferred compensation 2,522 2,246 Regulatory liability 12,011 14,705 Deferred investment tax credits 3,465 3,685 Other employee benefits 3,842 2,228 Other 630 4,817 _________ Total gross deferred tax assets 33,279 37,875 Less valuation allowance - - _________ Net deferred tax assets 33,279 37,875 _________ Deferred tax liabilities: Property, plant and equipment, primarily due to depreciation differences (84,159) (73,598) Deferred intercompany profits (3,236) (2,929) Other (6,006) (412) _________ Total gross deferred tax liabilities (93,401) (76,939) _________ Net deferred tax liability $ (60,122) (39,064) ================================================================= A $20,910,000 deferred tax asset and a valuation allowance of a like amount reported at December 31, 1992 have been netted during 1993 based on a refined purchase price allocation. For the year ended December 31, 1991, deferred tax expense resulted from timing differences in the recognition of revenue and expense for tax and financial accounting purposes. The sources of these timing differences and the tax effects of each were as follows: Year ended December 31, 1991 ================================================================= (expressed in thousands) Excess tax depreciation over book depreciation $ 1,636 Employee benefits (949) Removal costs 552 Amortization of investment tax credits (2,225) Amortization of excess deferred federal income taxes (1,147) Other 1,798 _________ $ (335) ================================================================= The following is a reconciliation from the statutory federal income tax rate to the Company's effective income tax rate: 57 Year ended December 31, 1993 1992 1991 ================================================================= (expressed as a percentage of pre-tax income) Statutory federal income tax rate 35.0% 34.0 34.0 State income taxes, net of federal income tax benefit 2.9 3.7 4.8 Amortization of nondeductible excess cost of net assets acquired 1.2 2.0 1.7 Amortization of investment tax credits (2.0) (2.3) (3.9) Amortization of excess deferred federal income taxes (1.8) (2.6) (2.0) Other, net (.2) .4 .3 _________ Effective income tax rate 35.1% 35.2 34.9 ================================================================= Income taxes paid by the Company were $37,092,000, $30,518,000 and $19,962,000 during 1993, 1992 and 1991, respectively. (5) STOCK OPTION AND INCENTIVE PROGRAMS Century's 1990 Incentive Compensation Program (the "1990 Program") allows the Board of Directors, through the Compensation Committee, to grant incentives to employees in any one or a combination of the following forms: incentive stock options and non-qualified stock options; stock awards; restricted stock; performance shares; and cash awards. During 1990, 836,904 stock options were granted under the terms of the 1990 Program with an average option price of $21.58 per share. During 1992, 960,639 stock options were granted with an option price of $27.67 per share. Century has reserved 1,873,000 shares of common stock which may be issued under the 1990 Program. One-seventh of the options granted in 1990 were exercisable on the date of grant. An additional one-seventh become exercisable on each of the first six anniversary dates of the date of grant. The dates on which some or all of the last two- sevenths become exercisable are accelerated if specified average market prices of Century's common stock are attained on one or more of the first four anniversary dates of the date of grant. The options granted in 1992 became exercisable in June 1993. The options expire ten years after the date of grant. The Company's 1988 Incentive Compensation Program (the "1988 Program") allows the Board, through the Compensation Committee, to grant incentives to employees in any one or a combination of the following forms: incentive stock options and non-qualified stock options; stock appreciation rights; stock awards; restricted stock; performance shares; and cash awards. 58 Century has reserved 1,085,000 shares of common stock which may be issued under the 1988 Program. The options under the 1988 Program expire ten years after the date of grant. Stock option transactions during 1991, 1992 and 1993 were as follows: Number of Options __ 1990 1988 Program Program ================================================================= Balance as of December 31, 1990 836,904 1,391,007 Exercised (average option price per share: $8.85) - (239,283) __________ Balance as of December 31, 1991 836,904 1,151,724 Exercised (average option price per share: $8.97) - (516,398) Granted (option price per share: $27.67) 960,639 - _________ Balance as of December 31, 1992 1,797,543 635,326 Exercised (average option price per share: $20.42 and $9.32, respectively) (2,658) (48,462) _________ Balance as of December 31, 1993 1,794,885 586,864 ================================================================= At December 31, 1993, 1,499,104 and 586,864 shares were issuable under exercisable options granted under the 1990 Program and the 1988 Program, respectively. Option prices range from $8.85 to $27.67. (6) SALES OF ASSETS During 1993 the Company sold a minority investment in a telephone company which resulted in a pre-tax gain of $1,661,000 ($1,080,000 after-tax). During 1992 the Company sold two telephone subsidiaries which served approximately 2,000 access lines; its minority interest in a Metropolitan Statistical Area ("MSA") cellular partnership and its minority interest in a Rural Service Area ("RSA") cellular partnership; and its 100% interest in an RSA cellular market. The sales prices totaled $12,212,000, and the transactions resulted in an aggregate pre-tax gain of $3,985,000 ($2,630,000 after-tax). (7) BUSINESS SEGMENTS The Company currently operates in two principal segments - traditional telephone services and mobile communications services. The Company's telephone customers are located in rural, suburban and small urban communities in 14 states. Approximately 82% of the Company's telephone access lines are in 59 Wisconsin, Ohio, Louisiana, Michigan and Arkansas. The Company's mobile communications customers are located primarily in Louisiana and Michigan. Other accounts receivable are primarily amounts due from various long distance carriers, principally AT&T. Year ended December 31, 1993 1992 1991 ================================================================= (expressed in thousands) Telephone Operations Revenues Local service $ 88,704 78,108 58,653 Network access, long distance and other 259,781 219,402 177,143 _________ 348,485 297,510 235,796 _________ Expenses Cost of sales and operating expenses 168,408 139,911 111,275 Depreciation and amortization 65,175 53,927 44,482 _________ 233,583 193,838 155,757 _________ Operating income $ 114,902 103,672 80,039 ================================================================= Capital expenditures $ 131,180 108,974 73,913 Identifiable assets $1,027,390 843,356 616,992 ================================================================= Mobile Communications Operations Revenues Cellular $ 80,513 57,683 41,515 Paging 4,199 4,409 5,216 _________ 84,712 62,092 46,731 _________ Expenses Cost of sales and operating expenses 63,447 47,165 43,925 Depreciation and amortization 11,359 8,971 7,758 _________ 74,806 56,136 51,683 _________ Operating income (loss) $ 9,906 5,956 (4,952) _________ Capital expenditures $ 56,092 10,904 12,702 Identifiable assets $240,634 148,485 116,293 ================================================================= The effect of the change in accounting principle related to accounting for postretirement benefits reduced 1992 operating income of the telephone operations and mobile communications operations by $1,773,000 and $250,000, respectively. 60 (8) POSTRETIREMENT BENEFITS The Company sponsors a defined benefit health care plan (the "Retiree Plan") that provides postretirement medical, life and dental benefits to substantially all retired full-time employees, exclusive of the bargaining unit employees of Century Telephone of Ohio, Inc. ("Ohio"). The acquisition of Ohio was consummated on April 1, 1992. The employees of Ohio who are covered under a collective bargaining agreement and who meet certain eligibility requirements are provided postretirement medical and life insurance benefits upon retirement under the provisions of a separate plan (the "Ohio Plan" and, together with the Retiree Plan, the "Benefit Plans"). The Company adopted Statement of Financial Accounting Standards No. 106 ("SFAS 106"), "Employers' Accounting for Postretirement Benefits Other Than Pensions," as of January 1, 1992 and elected immediate recognition of the transition obligation. In accordance with the provisions of SFAS 71 the Company deferred $3,450,000 of the $27,390,000 transition obligation as a regulatory asset; such costs are being expensed in connection with recovery through the rate-making process. The remaining $23,940,000, net of tax benefits which aggregated $9,185,000, was reported as the cumulative effect of a change in accounting principles. The effects of adopting SFAS 106 on net income and on income before cumulative effect of changes in accounting principles for the year ended December 31, 1992 were decreases of $16,009,000 and $1,254,000, respectively. Postretirement benefit costs of approximately $1,475,000 for the year ended December 31, 1991, which were recorded on a pay-as- you-go basis, were not restated. Net periodic postretirement benefit cost under the Benefit Plans for 1993 and 1992 included the following components: 61 Year ended December 31, 1993 1992 ================================================================= (expressed in thousands) Service cost $ 1,640 1,040 Interest cost 3,008 2,521 Amortization of unrecognized actuarial losses 365 - Amortization of unrecognized prior service cost 86 - _________ Net periodic postretirement benefit cost $ 5,099 3,561 ================================================================= The following table sets forth the amounts recognized as liabilities for postretirement benefits in the Company's consolidated balance sheets at December 31, 1993 and 1992. December 31, 1993 1992 ================================================================= (expressed in thousands) Accumulated postretirement benefit obligation: Retirees and retirees' dependents $ 20,451 15,796 Fully eligible active plan participants - 537 Other active plan participants 24,980 16,991 _________ Accumulated postretirement benefit obligation 45,431 33,324 Plan assets - - Unrecognized prior service cost (1,177) - Unrecognized net loss (6,302) - ___________ Accrued postretirement benefit costs included in other liabilities $ 37,952 33,324 ================================================================= For measurement purposes, an 8% health care cost rate was assumed for 1993 through 1996; the rate was assumed to decrease to 7% thereafter. If the assumed health care cost trend rate had been increased by one percentage point in each year, the accumulated postretirement benefit obligation as of December 31, 1993 would have increased $5,219,000 and the net periodic postretirement benefit cost for the year ended December 31, 1993 would have increased $756,000. The discount rate used in determining the accumulated postretirement benefit obligation as of December 31, 1993 was 7%. The average discount rate used in 1992 was 8.85%. 62 (9) PENSION PLANS Century sponsors an Outside Directors' Retirement Plan and a Supplemental Executive Retirement Plan to provide directors and officers, respectively, with supplemental retirement and disability benefits. In addition, the bargaining unit employees of Ohio, a wholly-owned subsidiary which was acquired April 1, 1992, are provided benefits under a defined benefit pension plan. At December 31, 1993 and 1992, the combined accumulated benefit obligation of the plans, substantially all of which was vested, aggregated $16,321,000 and $15,167,000, respectively. The projected benefit obligation in excess of plan assets was $7,390,000 and $7,229,000, of which $3,371,000 and $3,704,000 was accrued as of December 31, 1993 and 1992, respectively. The net periodic pension cost for 1993, 1992 and 1991 was $1,057,000, $930,000 and $965,000, respectively. Discount rates ranged from 7.0% - 7.25% for 1993 and from 7.0% - 8.3.% for 1992. Century 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 recorded contributions related to the ESBP in the amount of $1,800,000, $1,120,000 and $540,000 during 1993, 1992 and 1991, respectively. At December 31, 1993, the ESBP owned 4,454,403 shares of Century common stock. The ESOP held 1,882,935 common shares of Century and had outstanding debt of $9,220,000 at December 31, 1993. Interest incurred by the ESOP on its debt was $895,000, $1,052,000 and $1,205,000 in 1993, 1992 and 1991, respectively. As the Company makes annual contributions to the ESOP, these contributions, along with dividends earned on shares held by the ESOP, are used to repay the debt. The Company contributed $2,596,000, $2,427,000 and $2,728,000 during 1993, 1992 and 1991, respectively, to the ESOP. Dividends on ESOP shares used for debt service by the ESOP were $580,000, $560,000 and $554,000 in 1993, 1992 and 1991, respectively. (10) FAIR VALUE OF FINANCIAL INSTRUMENTS 63 Cash and Cash Equivalents, Accounts Receivable, Accounts Payable and Notes Payable to Banks - The carrying amount approximates the fair value due to the short maturity of these instruments. Other Investments - The fair value of the Company's investments in marketable equity securities, based on quoted market prices, was $11,444,000 and $7,230,000 at December 31, 1993 and 1992, respectively. The carrying amount of the cash surrender value of life insurance approximates the fair value. Long-Term Debt - The fair value ($502,826,000 and $399,783,000 at December 31, 1993 and 1992, respectively) of the Company's long- term debt is estimated by discounting the scheduled payment streams to present value based upon rates currently offered to the Company for debt of similar remaining maturities. (11) COMMITMENTS AND CONTINGENCIES Construction expenditures and investments in vehicles, buildings and other work equipment during 1994 are estimated to be $142,000,000 for telephone operations, $50,000,000 for mobile communications operations (of which $10,000,000 will be funded by minority interest owners in cellular partnerships operated by the Company) and $4,000,000 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. (12) ACQUISITIONS On April 8, 1993, the Company acquired San Marcos Telephone Company, Inc. ("SMTC") in a stock and cash transaction and SM Telecorp, Inc., an affiliate of SMTC, for cash. Subsequent to the acquisitions, the Company changed the names of San Marcos Telephone Company, Inc. and the principal operating subsidiary of SM Telecorp, Inc. to Century Telephone of San Marcos, Inc. and Century Telecommunications, Inc., respectively. The total acquisition price for both companies approximated $100,000,000, the stock portion (approximately $67,000,000) of which was represented by approximately 2,151,000 shares of Century's common stock. As a result of the acquisitions, which were accounted for as purchases, the 64 Company acquired approximately 22,500 telephone access lines in and around San Marcos, Texas, along with a 35% ownership interest in the Austin, Texas MSA wireline cellular market and a 9.6% interest in the Texas RSA #16 wireline cellular market. Approximately $87,000,000 of cost in excess of net assets acquired was recorded as a result of the acquisitions. On April 1, 1992 the Company acquired Central Telephone Company of Ohio ("Central") for $120,000,000 and changed Central's name to Century Telephone of Ohio, Inc. ("Ohio"). Ohio is a local exchange telephone company with approximately 68,100 access lines located in suburbs of Cleveland, Ohio. The net proceeds from the issuance of debentures were used to fund the major portion of the acquisition of Ohio. The acquisition was accounted for as a purchase and approximately $80,000,000 of cost in excess of net assets acquired was recorded. During the first quarter of 1992, the Company purchased Ooltewah-Collegedale Telephone Company ("Ooltewah") and Chatham Telephone Co., Inc. ("Chatham"). Ooltewah provides service to 6,200 customers in suburbs of Chattanooga, Tennessee. Chatham owns a minority interest in a cellular partnership operated by the Company and serves 1,500 telephone customers in north Louisiana. In December 1992 the Company acquired 100% of the Alexandria, Louisiana MSA wireline cellular market ("Alexandria"). The purchase prices of Ooltewah, Chatham and Alexandria aggregated approximately $37,000,000, of which approximately $21,475,000 was paid through the issuance of 978,115 shares of Century's common stock. The following pro forma information represents the consolidated results of operations of the Company as if each 1993 and 1992 acquisition had been combined with the Company as of January 1 of each respective period. Year ended December 31, 1993 1992 =============================================================== (expressed in thousands, except per share amounts) (unaudited) Revenues $438,418 395,033 Income before cumulative effect of changes in accounting principles $69,122 58,324 Net income $69,122 42,656 Fully diluted earnings per share before cumulative effect of changes in accounting principles $ 1.31 1.12 Fully diluted earnings per share $ 1.31 .85 =============================================================== 65 The pro forma information is not necessarily indicative of the operating results that would have occured if each 1993 and 1992 acquisition had been consummated as of January 1 of each respective period, nor is it necessarily indicative of future operating results. The actual results of operations of an acquired company are included in the Company's consolidated financial statements only from the date of acquisition. (13) SUBSEQUENT EVENTS (UNAUDITED) In September 1993 the Company signed a merger agreement whereby it will acquire a local exchange telephone company in Michigan which serves approximately 2,400 access lines and which owns a minority interest of approximately 11% in a cellular partnership operated by the Company. This transaction is expected to be completed in the first quarter of 1994. In October 1993 the Company executed a merger agreement with Celutel, Inc. under which Century acquired Celutel for approximately $102,000,000 during the first quarter of 1994. Approximately $51,400,000 of the purchase price was paid in cash, with the remainder being paid through the issuance of 1,900,000 shares of Century common stock. In connection with the acquisition, Century refinanced approximately $41,700,000 of Celutel's debt. The acquisition was accounted for as a purchase and approximately $138,000,000 of cost in excess of net assets acquired was recorded as a result of the acquisition. Celutel provides cellular service to approximately 28,000 customers in five non-wireline provider systems in MSAs in Mississippi and Texas. 66 CENTURY TELEPHONE ENTERPRISES, INC. Consolidated Quarterly Income Information (unaudited)

Fully diluted earnings per share for the fourth quarter of 1993 reflect a decrease of $.04 per share (compared to the fourth quarter of 1992) related to cellular commissions incurred as a result of the significant increase in the number of cellular subscribers activated during December 1993; such decrease was offset by non-recurring favorable income tax adjustments of $.04 per share. Fully diluted earnings per share before cumulative effect of changes in accounting principles for the fourth quarter of 1992 reflect a $.06 per share impact of favorable adjustments to telephone revenues and a $.04 per share impact from gains on the sales of assets. Fully diluted earnings per share before cumulative effect of changes in accounting principles for 1992 have been adjusted to reflect the December 1992 stock split. See note 3 of Notes to Consolidated Financial Statements. Certain amounts previously reported for 1992 have been reclassified to conform with 1993 presentation. 67 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. Executive Officers 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 effective through May 1996 and from year to year thereafter subject to the right of Mr. Williams or the Company to terminate the employment agreement in accordance with the terms of such agreement. Name Age Office(s) held with Century _ ___ ___ Clarke M. Williams 72 Chairman of the Board of Directors Glen F. Post, III 41 Vice Chairman of the Board of Directors, President and Chief Executive Officer R. Stewart Ewing, Jr. 42 Senior Vice President and Chief Financial Officer W. Bruce Hanks 39 President - Telecommunications Services Harvey P. Perry 49 Senior Vice President, General Counsel and Secretary Jim D. Reppond 52 President - Telephone Group Each of the Registrant's executive officers has served as an officer of the Registrant or one or more of its subsidiaries in varying capacities for more than the past 5 years. 68 The balance of the information required by Item 10 is incorporated by reference to the Registrant's definitive proxy statement relating to its 1994 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, 1993, 1992 and 1991 Consolidated Balance Sheets - December 31, 1993 and 1992 Consolidated Statements of Cash Flows for the Years Ended December 31, 1993, 1992 and 1991 69 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1993, 1992 and 1991 Notes to Consolidated Financial Statements Consolidated Quarterly Income Information (unaudited) (ii) Schedules:* III Condensed Financial Information of Registrant V Property, Plant and Equipment VI Accumulated Depreciation and Amortization of Property, Plant and Equipment IX Short-Term Borrowings X Supplementary Income Statement Information * Those Schedules not listed above are omitted as not applicable or not required. b. Report on Form 8-K. The following Current Report on Form 8-K was filed during the fourth quarter of 1993: October 8, 1993 ______ Item 5. Other Events - Execution of definitive agreement and plan of merger pursuant to which Century Telephone Enterprises, Inc. proposes to acquire Celutel, Inc. c. Exhibits: 70 3(i) Amended and Restated Articles of Incorporation of Registrant, dated December 15, 1988 (incorporated by reference to Exhibit 3.1 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1988), as amended by the Articles of Amendment dated May 2, 1989 (incorporated by reference to Exhibit 4.1 to Registrant's Current Report on Form 8-K dated May 5, 1989), by the Articles of Amendment dated May 17, 1990 (incorporated by reference to Exhibit 4.1 of the Registrant's Post-Effective Amendment No. 2 on Form S-3 dated December 21, 1990, Registration No. 33-17114) and by the Articles of Amendment dated May 30, 1991 (incorporated by reference to Exhibit 3.1 of Registrant's Current Report on Form 8-K dated June 12, 1991). 3(ii) Registrant's Bylaws, as amended through February 22, 1994, included elsewhere herein. 4.1 Loan Agreement, dated January 3, 1990, between Registrant and National Bank of Detroit, First National Bank of Commerce and Bank One, Texas, National Association (incorporated by reference to Exhibit 4.1 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1989) and amendment thereto dated May 15, 1992 incorporated by reference to Exhibit 4.1 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1992) and the second amendment thereto dated March 31,1993 (incorporated by reference to Exhibit 19.1 to Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1993). 4.2 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). 4.3 Agreement, dated November 27, 1977, among Registrant, The Travelers Insurance Company and The Travelers Indemnity Company, and form of Warrant (incorporated by reference to Exhibits 4 and 5 to 71 Registrant's Annual Report on Form 10-K for the year ended December 31, 1977). 4.10 Form of Indenture dated May 1, 1940 among Century Telephone of Wisconsin, Inc. (formerly La Crosse Telephone Corporation) and the First National Bank of Chicago and William K. Stevens (incorporated by reference to Exhibit 4.12 to Registration No. 2-48478). 4.11 Supplemental Indenture No. 12 (incorporated by reference to Exhibit 5.12 to Registration No. 2- 62172) and Supplemental Indentures 13 and 14 (incorporated by reference to Exhibit 5.11 to Registration No. 2-68731), each of which are supplemental indentures to the Form of Indenture dated May 1, 1940 listed above as Exhibit 4.10. 4.12 Amended and Restated Rights Agreement dated as of November 17, 1986 between Century Telephone Enterprises, Inc. and the Rights Agent named therein (incorporated by reference to Exhibit 4.1 to Registrant's Current Report on Form 8-K dated December 20, 1988), the Amendment thereto dated March 26, 1990 (incorporated by reference to Exhibit 4.1 to Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1990) and the Second Amendment thereto dated February 23, 1993 (incorporated by reference to Exhibit 4.12 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1992). 4.16 Note Purchase Agreement, dated May 6, 1986, among Registrant, Teachers Insurance and Annuity Association of America, Aetna Life Insurance Company, the Aetna Casualty and Surety Company and Lincoln National Pension Insurance Company (incorporated by reference to Exhibit 4.23 to Registration No. 33-5836), Amendatory Agreement dated November 1, 1986 (incorporated by reference to Exhibit 4.2 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1986), amendment thereto dated November 1, 1987 (incorporated by reference to Exhibit 4.2 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1987) and Modification Letter dated September 1, 1989 (incorporated by 72 reference to Exhibit 19.6 to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1989). 4.21 * The Century Telephone Enterprises, Inc. Stock Bonus Plan, PAYSOP and Trust, as amended and restated September 10, 1987 and amendment thereto dated February 29, 1988 (incorporated by reference to Exhibit 4.21 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1987), amendments thereto dated March 21, 1991 and April 15, 1991, (incorporated by reference to Exhibit 4.21 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1991), amendment thereto dated March 31, 1992 (incorporated by reference to Exhibit 4.21 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1992) and amendments thereto dated June 1, 1993 and June 10, 1993, included elsewhere herein. 4.22 Form of common stock certificate of the Registrant (incorporated by reference to Exhibit 4.1 to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1993). 4.23 Indenture, dated February 1, 1992, between Registrant and First American Bank and Trust of Louisiana (incorporated by reference to Exhibit 4.23 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1991). 4.24 Revolving Credit Facility Agreement, dated February 7, 1992 between Registrant and NationsBank of Texas, N.A. (incorporated by reference to Exhibit 4.24 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1991), amendment thereto dated April 8, 1993 (incorporated by reference to Exhibit 19.2 to Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1993) and amendment thereto dated July 9, 1993, included elsewhere herein. 4.25 Credit Agreement, dated February 9, 1994 between Registrant, NationsBank of Texas, N.A., Bank One, Texas, N.A., The Bank of Nova Scotia, First National Bank of Commerce and Texas Commerce Bank National Association, included elsewhere herein. 73 10.1 * Employment Agreement, dated May 24, 1993, by and between Clarke M. Williams and Registrant (incorporated by reference to Exhibit 19.1 to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1993). 10.2 * Form of employment agreement that the registrant has entered into with each Executive Officer other than Mr. Williams (incorporated by reference to Exhibit 10.2 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1990). 10.3 * Registrant's Outside Directors' Retirement Plan, dated November 19, 1984 (incorporated by reference to Registrant's Annual Report on Form 10-K for the year ended December 31, 1985), amendment thereto dated February 21, 1989 (incorporated by reference to Registrant's Annual Report on Form 10-K for the year ended December 31, 1988) and amendment thereto dated May 17, 1991 (incorporated by reference to Exhibit 10.3 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1991). 10.4 * Registrant's Amended and Restated Supplemental Executive Retirement Plan, as amended and restated May 17, 1991 (incorporated by reference to Exhibit 10.4 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1991) and amendment thereto dated February 24, 1993 (incorporated by reference to Exhibit 10.4 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1992). 10.5 * Registrant's 1983 Restricted Stock Plan, dated February 21, 1984 (incorporated by reference to Registrant's Annual Report on Form 10-K for the year ended December 31, 1985). 10.6 * Registrant's Key Employee Incentive Compensation Plan, dated January 1, 1984 (incorporated by reference to Registrant's Annual Report on Form 10-K for the year ended December 31, 1985). 74 10.7 * The Century Telephone Enterprises, Inc. Dollars & Sense Plan and Trust, as amended and restated April 1, 1992 (incorporated by reference to Exhibit 10.7 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1992) and amendments thereto dated as of January 1, 1993, April 1, 1993, April 9, 1993 and July 1, 1993, included elsewhere herein. 10.8 * Century Telephone Enterprises, Inc. Employee Stock Ownership Plan and Trust, dated March 20, 1987 (incorporated by reference to Registrant's Annual Report on Form 10-K for the year ended December 31, 1986), amendment thereto dated February 29, 1988 (incorporated by reference to Exhibit 10.9 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1987), amendments thereto dated March 21, 1991 and April 15, 1991 (incorporated by reference to Exhibit 10.8 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1991), amendments thereto dated March 31, 1992 (incorporated by reference to Exhibit 10.8 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1992) and amendments thereto dated June 1, 1993 and June 10, 1993, included elsewhere herein. 10.9 * 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). 10.10 * Form of Stock Option Agreement entered into in 1988 by the Registrant, pursuant to 1988 Incentive Compensation Program, with certain of its officers (incorporated by reference to Exhibit 10.10 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1988) and amendment thereto (incorporated by reference to Exhibit 4.6 to Registrant's Registration No. 33-31314). 10.11 * 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). 75 10.12 * Form of Stock Option Agreement entered into in 1990 by the Registrant, pursuant to 1990 Incentive Compensation Program, with certain of its officers (incorporated by reference to Exhibit 19.3 to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1990). 10.13 * Disability Retirement Agreement, dated July 17, 1990, between Clarke M. Williams, Jr. and Century Telephone Enterprises, Inc. (incorporated by reference to Exhibit 19.2 to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1990). 10.15 Agreement and Plan of Merger dated as of September 24, 1992, as amended by Amendment No. 1 thereto, by and among Registrant, San Marcos Telephone Company, Incorporated, SM Telecorp, Inc., SMTC Acquisition Corp. and SMT Acquisition Corp. (incorporated by reference to Exhibit 2 of Registrant's Registration on Form S-4 dated February 3, 1993, Registration No. 33-57838). 10.16 * 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). 10.17 * 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). 10.18 * Form of Performance Share Agreement Under the 1990 Incentive Compensation Program, entered into in 1993 with certain of its officers and employees (incorporated by reference to Exhibit 28.1 to Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1993). 76 10.19 * Form of Restricted Stock Agreement and Performance Share Agreement Under the 1988 Incentive Compensation Program, entered into in 1993 with certain of its officers and employees (incorporated by reference to Exhibit 28.2 to Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1993). 10.20 Agreement and Plan of Merger dated October 8, 1993, as amended by Amendment No. 1 thereto dated January 5, 1994 by and among Registrant, Celutel Acquisition Corp., Celutel, Inc. and the Principal Stockholders of Celutel, Inc. (incorporated by reference to Appendix I of Registrant's Prospectus forming a part of its Registration Statement No. 33-50791 filed January 12, 1994 pursuant to Rule 424(b)(5)). 11 Computations of Earnings Per Share, included elsewhere herein. 21 Subsidiaries of the Registrant, included elsewhere herein. 23 Independent Auditors' Consent, included elsewhere herein. * Management contract or compensatory plan or arrangement. 77 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. CENTURY TELEPHONE ENTERPRISES,INC. Date: March 16, 1994 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 16, 1994 Vice Chairman of the Board of Directors, /s/ Glen F. Post, III President, and Chief Glen F. Post, III Executive Officer March 16, 1994 Senior Vice President /s/ R. Stewart Ewing, Jr. and Chief Financial R. Stewart Ewing, Jr. Officer March 16, 1994 Senior Vice President, /s/ Harvey P. Perry Secretary, General Harvey P. Perry Counsel and Director March 16, 1994 /s/ Jim D. Reppond President - Telephone Jim D. Reppond Group and Director March 16, 1994 78 Signatures (Continued) /s/ W. Bruce Hanks President - Telecommunications W. Bruce Hanks Services and Director March 16, 1994 /s/ Murray H. Greer Controller (Principal Murray H. Greer Accounting Officer) March 16, 1994 /s/ William R. Boles, Jr. Director William R. Boles, Jr. March 16, 1994 /s/ Ernest Butler, Jr. Director Ernest Butler, Jr. March 16, 1994 /s/ Calvin Czeschin Director Calvin Czeschin March 16, 1994 /s/ James B. Gardner Director James B. Gardner March 16, 1994 /s/ R. L. Hargrove, Jr. Director R. L. Hargrove, Jr. March 16, 1994 /s/ Johnny Hebert Director Johnny Hebert March 16, 1994 /s/ F. Earl Hogan Director F. Earl Hogan March 16, 1994 79 Signatures (Continued) /s/ Tom S. Lovett Director Tom S. Lovett March 16, 1994 /s/ C. G. Melville Director C. G. Melville March 16, 1994 80 SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT CENTURY TELEPHONE ENTERPRISES, INC. (Parent Company) STATEMENTS OF INCOME

81 SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (continued) CENTURY TELEPHONE ENTERPRISES, INC. (Parent Company) BALANCE SHEETS December 31, ___________ 1993 1992 __________ (expressed in thousands) ASSETS CURRENT ASSETS Cash and cash equivalents $ 5,547 2,570 Receivables from subsidiaries 53,638 46,967 Other receivables 7,330 1,168 Prepayments and other 857 343 _________ Total current assets 67,372 51,048 _________ PROPERTY, PLANT AND EQUIPMENT Property and equipment 1,192 1,119 Accumulated depreciation (772) (681) _________ Net property, plant and equipment 420 438 _________ INVESTMENTS AND OTHER ASSETS Investments in subsidiaries (at equity) 771,062 579,579 Receivables from subsidiaries 130,568 124,215 Other investments, at cost 22,368 3,117 Deferred charges 3,788 3,920 _________ Total investments and other assets 927,786 710,831 _________ TOTAL ASSETS $995,578 762,317 ===================================================================== 82 SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (continued) CENTURY TELEPHONE ENTERPRISES, INC. (Parent Company) BALANCE SHEETS (continued) December 31, _________ 1993 1992 __________ (expressed in thousands) LIABILITIES AND EQUITY CURRENT LIABILITIES Current maturities of long-term debt $ 4,450 4,027 Notes payable to banks 69,000 32,000 Payables to subsidiaries 93,540 91,469 Accrued interest 5,431 5,098 Other accrued liabilities 3,656 3,500 _________ Total current liabilities 176,077 136,094 _________ LONG-TERM DEBT 272,115 229,615 __________ PAYABLES TO SUBSIDIARIES 25,696 3,919 _________ DEFERRED CREDITS AND OTHER LIABILITIES 7,922 7,240 ___________ STOCKHOLDERS' EQUITY Common stock, $1.00 par value, authorized 100,000,000 shares, issued and outstanding 51,294,705 and 48,896,876 shares 51,295 48,897 Paid-in capital 262,294 191,522 Retained earnings 208,945 155,676 Employee Stock Ownership Plan commitment (9,220) (11,100) Preferred stock - non-redeemable 454 454 __________ Total stockholders' equity 513,768 385,449 ____________ TOTAL LIABILITIES AND EQUITY $995,578 762,317 ==================================================================== 83 SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (continued) CENTURY TELEPHONE ENTERPRISES, INC. (Parent Company) STATEMENTS OF CASH FLOWS

84 SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (continued) CENTURY TELEPHONE ENTERPRISES, INC. (Parent Company) NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT (A) LONG-TERM DEBT The approximate annual debt maturities (including sinking fund requirements) for the five years subsequent to December 31, 1993 are as follows: 1994 - $ 4,450,000 1995 - $ 55,481,000 1996 - $ 37,566,000 1997 - $ 7,014,000 1998 - $ 9,817,000 (B) GUARANTEES As of December 31, 1993, Century has guaranteed a promissory note for a subsidiary of $2,889,000, as well as the applicable interest and premium. Century has also guaranteed $1,085,000 in Industrial Development Revenue Bonds originally issued by a subsidiary; such bonds were assumed by the purchaser of the subsidiary's assets. (C) DIVIDENDS FROM SUBSIDIARIES Dividends paid to Century by consolidated subsidiaries were $908,000, $12,030,000 and $28,612,000 during 1993, 1992 and 1991, respectively. (D) INCOME TAXES AND INTEREST PAID Income taxes paid by Century (including amounts reimbursed from subsidiaries) were $31,500,000, $26,500,000 and $16,000,000 during 1993, 1992 and 1991, respectively. Interest paid by Century was $20,870,000, $15,676,000 and $15,379,000 during 1993, 1992 and 1991, respectively. (E) CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES Century adopted Statement of Financial Accounting Standards No. 106 ("SFAS 106"), "Employer's Accounting for Postretirement Benefits Other than Pensions" and Statement of Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes", as of January 1, 1992. (F) SUPPLEMENTAL CASH FLOW INFORMATION Century issued common stock in connection with certain acquisitions during 1993, 1992 and 1991. The value at time of issuance of such common stock was approximately $67,000,000, $21,475,000 and $5,355,000, respectively. These amounts represent the non-cash portion of the purchase prices for the acquisitions and are not included on the Statement of Cash Flows. 85 CENTURY TELEPHONE ENTERPRISES, INC. AND SUBSIDIARIES SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT For the year ended December 31, 1993

86 CENTURY TELEPHONE ENTERPRISES, INC. AND SUBSIDIARIES SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT (continued) For the year ended December 31, 1992

(1) Includes $110,667,000 of assets at the date of acquisition of purchased subsidiaries, net of $5,064,000 of assets at the date of disposition of subsidiaries sold. For additional information see Note 1 of Notes to Consolidated Financial Statements included in Item 8 elsewhere herein. 87 CENTURY TELEPHONE ENTERPRISES, INC. AND SUBSIDIARIES SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT (continued) For the year ended December 31, 1991

(1) Includes $2,032,000 of assets related to the Florida paging operations which were sold in 1991. For additional information see note 1 of Notes to Consolidated Financial Statements included in Item 8 elsewhere herein. 88 CENTURY TELEPHONE ENTERPRISES, INC. AND SUBSIDIARIES SCHEDULE VI - ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT For the year ended December 31, 1993

Depreciation and amortization charged to income - Depreciation, as above $77,999 Amortization of cost of investment in subsidiaries in excess of net assets acquired 7,512 Amortization of extraordinary retirements 664 ______ $86,175 ====== (1) Includes $16,771,000 of accumulated depreciation and amortization at the date of acquisition of purchased subsidiaries. (2) Includes $6,277,000 of accumulated depreciation related to equipment removed from service to be refurbished and/or held for future use. (3) Includes $1,447,000 of accumulated depreciation and amortization at the date of acquisition of purchased subsidiaries. 89 CENTURY TELEPHONE ENTERPRISES, INC. AND SUBSIDIARIES SCHEDULE VI - ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT (continued) For the year ended December 31, 1992

Depreciation and amortization charged to income - Depreciation, as above $64,340 Amortization of cost of investment in subsidiaries in excess of net assets acquired 5,396 Amortization of extraordinary retirements 1,026 _ $70,762 ======= (1) Includes $43,154,000 of accumulated depreciation and amortization at the date of acquisition of purchased subsidiaries, net of $1,855,000 of accumulated depreciation and amortization at the date of disposition of subsidiaries sold. 90 CENTURY TELEPHONE ENTERPRISES, INC. AND SUBSIDIARIES SCHEDULE VI - ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT (continued) For the year ended December 31, 1991

Depreciation and amortization charged to income - Depreciation, as above $53,197 Amortization of cost of investment in subsidiaries in excess of net assets acquired 3,173 Amortization of extraordinary retirements 936 _ $57,306 ======= (1) Includes $1,300,000 of accumulated depreciation and amortization related to the Florida paging operations which were sold in 1991. 91 CENTURY TELEPHONE ENTERPRISES, INC. AND SUBSIDIARIES SCHEDULE IX - SHORT-TERM BORROWINGS For the years ended December 31, 1993, 1992 and 1991

Note 1 __ Notes payable to banks represent various promissory notes and revolving credit notes. Note 2 _ Notes payable to banks represent borrowings under promissory notes and a money market revolving credit note. (a) Maximum amount outstanding at any month-end during the period. (b) Average amount outstanding during the period is computed by dividing the total weighted daily balance outstanding by 360. (c) Average interest rate for the year is computed by dividing short-term interest expense by the average short-term debt outstanding. 92 CENTURY TELEPHONE ENTERPRISES, INC. AND SUBSIDIARIES SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION Year ended December 31, __________ 1993 1992 1991 _________ (expressed in thousands) Maintenance and repairs $ 64,401 52,820 43,561 ================================================================= Taxes, other than payroll and income taxes: Property taxes $ 11,629 9,805 6,906 Gross receipts taxes 4,570 4,473 3,326 All other operating taxes 2,525 1,455 1,263 ___________ Taxes charged to costs and expenses $ 18,724 15,733 11,495 ================================================================= Advertising costs $ 4,148 3,459 2,771 ================================================================= All other requirements of this schedule are either immaterial or disclosed in the consolidated financial statements or related notes. 93 CENTURY TELEPHONE ENTERPRISES, INC. INDEX TO EXHIBITS December 31, 1993 Exhibit Number _ 3(i) Amended and Restated Articles of Incorporation of Registrant, dated December 15, 1988 (incorporated by reference to Exhibit 3.1 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1988), as amended by the Articles of Amendment dated May 2, 1989 (incorporated by reference to Exhibit 4.1 to Registrant's Current Report on Form 8-K dated May 5, 1989), by the Articles of Amendment dated May 17, 1990 (incorporated by reference to Exhibit 4.1 of the Registrant's Post-Effective Amendment No. 2 on Form S-3 dated December 21, 1990, Registration No. 33-17114) and by the Articles of Amendment dated May 30, 1991 (incorporated by reference to Exhibit 3.1 of Registrant's Current Report on Form 8-K dated June 12, 1991). 3(ii) Registrant's Bylaws, as amended through February 22, 1994, included herein. 4.1 Loan Agreement, dated January 3, 1990, between Registrant and National Bank of Detroit, First National Bank of Commerce and Bank One, Texas, National Association (incorporated by reference to Exhibit 4.1 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1989) and amendment thereto dated May 15, 1992 incorporated by reference to Exhibit 4.1 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1992) and the second amendment thereto dated March 31,1993 (incorporated by reference to Exhibit 19.1 to Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1993). 4.2 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). 4.3 Agreement, dated November 27, 1977, among Registrant, The Travelers Insurance Company and The Travelers Indemnity Company, and form of Warrant (incorporated by reference to Exhibits 4 and 5 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1977). 4.10 Form of Indenture dated May 1, 1940 among Century Telephone of Wisconsin, Inc. (formerly La Crosse Telephone Corporation) and the First National Bank of Chicago and William K. Stevens (incorporated by reference to Exhibit 4.12 to Registration No. 2-48478). 4.11 Supplemental Indenture No. 12 (incorporated by reference to Exhibit 5.12 to Registration No. 2-62172) and Supplemental Indentures 13 and 14 (incorporated by reference to Exhibit 5.11 to Registration No. 2-68731), each of which are supplemental indentures to the Form of Indenture dated May 1, 1940 listed above as Exhibit 4.10. 4.12 Amended and Restated Rights Agreement dated as of November 17, 1986 between Century Telephone Enterprises, Inc. and the Rights Agent named therein (incorporated by reference to Exhibit 4.1 to Registrant's Current Report on Form 8-K dated December 20, 1988), the Amendment thereto dated March 26, 1990 (incorporated by reference to Exhibit 4.1 to Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1990) and the Second Amendment thereto dated February 23, 1993 (incorporated by reference to Exhibit 4.12 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1992). 4.16 Note Purchase Agreement, dated May 6, 1986, among Registrant, Teachers Insurance and Annuity Association of America, Aetna Life Insurance Company, the Aetna Casualty and Surety Company and Lincoln National Pension Insurance Company (incorporated by reference to Exhibit 4.23 to Registration No. 33-5836), Amendatory Agreement dated November 1, 1986 (incorporated by reference to Exhibit 4.2 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1986), amendment thereto dated November 1, 1987 (incorporated by reference to Exhibit 4.2 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1987) and Modification Letter dated September 1, 1989 (incorporated by reference to Exhibit 19.6 to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1989). 4.21 The Century Telephone Enterprises, Inc. Stock Bonus Plan, PAYSOP and Trust, as amended and restated September 10, 1987 and amendment thereto dated February 29, 1988 (incorporated by reference to Exhibit 4.21 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1987), amendments thereto dated March 21, 1991 and April 15, 1991, (incorporated by reference to Exhibit 4.21 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1991), amendment thereto dated March 31, 1992 (incorporated by reference to Exhibit 4.21 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1992) and amendments thereto dated June 1, 1993 and June 10, 1993, included herein. 4.22 Form of common stock certificate of the Registrant (incorporated by reference to Exhibit 4.1 to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1993). 4.23 Indenture, dated February 1, 1992, between Registrant and First American Bank and Trust of Louisiana (incorporated by reference to Exhibit 4.23 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1991). 4.24 Revolving Credit Facility Agreement, dated February 7, 1992 between Registrant and NationsBank of Texas, N.A. (incorporated by reference to Exhibit 4.24 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1991), amendment thereto dated April 8, 1993 (incorporated by reference to Exhibit 19.2 to Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1993) and amendment thereto dated July 9, 1993, included herein. 4.25 Credit Agreement, dated February 9, 1994 between Registrant, NationsBank of Texas, N.A., Bank One, Texas, N.A., The Bank of Nova Scotia, First National Bank of Commerce and Texas Commerce Bank National Association, included herein. 10.1 Employment Agreement, dated May 24, 1993, by and between Clarke M. Williams and Registrant (incorporated by reference to Exhibit 19.1 to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1993). 10.2 Form of employment agreement that the registrant has entered into with each Executive Officer other than Mr. Williams (incorporated by reference to Exhibit 10.2 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1990). 10.3 Registrant's Outside Directors' Retirement Plan, dated November 19, 1984 (incorporated by reference to Registrant's Annual Report on Form 10-K for the year ended December 31, 1985), amendment thereto dated February 21, 1989 (incorporated by reference to Registrant's Annual Report on Form 10-K for the year ended December 31, 1988) and amendment thereto dated May 17, 1991 (incorporated by reference to Exhibit 10.3 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1991). 10.4 Registrant's Amended and Restated Supplemental Executive Retirement Plan, as amended and restated May 17, 1991 (incorporated by reference to Exhibit 10.4 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1991) and amendment thereto dated February 24, 1993 (incorporated by reference to Exhibit 10.4 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1992). 10.5 Registrant's 1983 Restricted Stock Plan, dated February 21, 1984 (incorporated by reference to Registrant's Annual Report on Form 10-K for the year ended December 31, 1985). 10.6 Registrant's Key Employee Incentive Compensation Plan, dated January 1, 1984 (incorporated by reference to Registrant's Annual Report on Form 10-K for the year ended December 31, 1985). 10.7 The Century Telephone Enterprises, Inc. Dollars & Sense Plan and Trust, as amended and restated April 1, 1992 (incorporated by reference to Exhibit 10.7 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1992) and amendments thereto dated as of January 1, 1993, April 1, 1993, April 9, 1993 and July 1, 1993, included herein. 10.8 Century Telephone Enterprises, Inc. Employee Stock Ownership Plan and Trust, dated March 20, 1987 (incorporated by reference to Registrant's Annual Report on Form 10-K for the year ended December 31, 1986), amendment thereto dated February 29, 1988 (incorporated by reference to Exhibit 10.9 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1987), amendments thereto dated March 21, 1991 and April 15, 1991 (incorporated by reference to Exhibit 10.8 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1991), amendments thereto dated March 31, 1992 (incorporated by reference to Exhibit 10.8 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1992) and amendments thereto dated June 1, 1993 and June 10, 1993, included herein. 10.9 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). 10.10 Form of Stock Option Agreement entered into in 1988 by the Registrant, pursuant to 1988 Incentive Compensation Program, with certain of its officers (incorporated by reference to Exhibit 10.10 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1988) and amendment thereto (incorporated by reference to Exhibit 4.6 to Registrant's Registration No. 33-31314). 10.11 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). 10.12 Form of Stock Option Agreement entered into in 1990 by the Registrant, pursuant to 1990 Incentive Compensation Program, with certain of its officers (incorporated by reference to Exhibit 19.3 to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1990). 10.13 Disability Retirement Agreement, dated July 17, 1990, between Clarke M. Williams, Jr. and Century Telephone Enterprises, Inc. (incorporated by reference to Exhibit 19.2 to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1990). 10.15 Agreement and Plan of Merger dated as of September 24, 1992, as amended by Amendment No. 1 thereto, by and among Registrant, San Marcos Telephone Company, Incorporated, SM Telecorp, Inc., SMTC Acquisition Corp. and SMT Acquisition Corp. (incorporated by reference to Exhibit 2 of Registrant's Registration on Form S-4 dated February 3, 1993, Registration No. 33-57838). 10.16 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). 10.17 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). 10.18 Form of Performance Share Agreement Under the 1990 Incentive Compensation Program, entered into in 1993 with certain of its officers and employees (incorporated by reference to Exhibit 28.1 to Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1993). 10.19 Form of Restricted Stock Agreement and Performance Share Agreement Under the 1988 Incentive Compensation Program, entered into in 1993 with certain of its officers and employees (incorporated by reference to Exhibit 28.2 to Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1993). 10.20 Agreement and Plan of Merger dated October 8, 1993, as amended by Amendment No. 1 thereto dated January 5, 1994 by and among Registrant, Celutel Acquisition Corp., Celutel, Inc. and the Principal Stockholders of Celutel, Inc. (incorporated by reference to Appendix I of Registrant's Prospectus forming a part of its Registration Statement No. 33-50791 filed January 12, 1994 pursuant to Rule 424(b)(5)). 11 Computations of Earnings Per Share, included herein. 21 Subsidiaries of the Registrant, included herein. 23 Independent Auditors' Consent, included herein.