<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File No. 0-10516
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Aliant Communications Inc.
(Exact name of registrant as specified in its charter)
Nebraska 47-0632436
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1440 M Street, Lincoln, Nebraska 68508
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 402-436-3737
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
($.25 par value)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
The aggregate market value of the Registrant's voting stock held by non-
affiliates, based on the closing price of such stock as of February 26,
1999, was $1,421,180,768.
<PAGE>
Number of shares of common stock outstanding
on
February 26, 1999 -- 35,640,897
The Registrant's Annual Report to Shareholders for the calendar year 1998
is incorporated by reference in Parts I, II, III, and IV of this Form 10-K
to the extent stated herein. The Registrant's definitive Proxy Statement
for the Annual Meeting of Shareholders to be held on April 27, 1999, is
incorporated by reference in Parts III & IV of this Form 10-K to the extent
stated herein.
<PAGE>
ALIANT COMMUNICATIONS INC.
FORM 10-K
ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION
FOR THE YEAR ENDED DECEMBER 31, 1998
TABLE OF CONTENTS
Item Page
- ---- ----
PART I
Description
1. Business *
2. Properties *
3. Legal Proceedings *
4. Submission of Matters to a Vote of Security Holders *
4a. Executive Officers of the Registrant *
PART II
Description
5. Market for Registrant's Common Equity and Related Stockholder
Matters *
6. Selected Financial Data *
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations *
8. Financial Statements and Supplementary Data *
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure *
PART III
Description
10. Directors and Executive Officers of the Registrant *
11. Executive Compensation *
12. Security Ownership of Certain Beneficial Owners and Management *
13. Certain Relationships and Related Transactions *
PART IV
Description
14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K *
<PAGE>
PART I
Item 1. Business
GENERAL
Aliant Communications Inc. (the Company) is a holding company with
subsidiaries operating primarily in the communications industry. The
Company's wholly-owned and controlled subsidiaries include Aliant
Communications Co. (Telco); Prairie Communications, Inc. (Prairie); Aliant
Cellular Inc. (Cellular); Aliant Systems Inc. (Systems); Aliant Midwest
Inc. (Midwest); Aliant Network Services Inc. (Network); and Aliant Wireless
Holdings Inc. (Wireless Holdings). Effective January 1, 1999, the Company
owns 100% of the Omaha Cellular Limited Partnership (OCLP).
STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This document may contain "forward-looking" statements, as defined in the
Private Securities Litigation Reform Act of 1995. All statements, other
than historical facts, that address activities, events, or developments
that the Company expects or anticipates will or may occur in the future,
including such things as expansion and growth of the Company's business,
acquisitions, capital expenditures and the Company's business strategy are
forward-looking statements. These statements contain potential risks and
uncertainties; therefore, actual results may differ materially. The
Company undertakes no obligation to update publicly any forward-looking
statements whether as a result of new information, future events or
otherwise.
Important assumptions and other important factors that could cause actual
results to differ from those set forth in the forward-looking information
include, but are not limited to: changes in the national and local economic
and market conditions; demographic changes; the size and growth of the
overall telecommunications market; changes in competition in markets in
which the Company operates; advances in telecommunications technology;
changes in the telecommunications regulatory environment; the need for
regulatory approval to make acquisitions or undertake certain other
activities, including rate re-balancing; changes in business strategy or
development plans; pending and future litigation; availability of future
financing; start-up of Personal Communications Services operations; new
product and service development and introductions; changes in consumer
preferences; and unanticipated changes in growth in cellular customers,
penetration rates, churn rates and the mix of products and services offered
in the Company's markets.
ACQUISITION AND INVESTMENT
Effective February 27, 1998, the Company completed the acquisition of 360
Communications Company of Nebraska's interest in Omaha Cellular General
Partnership (OCGP). This acquisition doubled the Company's ownership in
OCLP to 55.82%. The purchase price was approximately $15 million plus the
retirement of debt, and the transaction was accounted for as a purchase.
Beginning March 1, 1998, OCLP's operating revenues and expenses were
consolidated with those of the Company's other activities. OCLP, doing
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business as Aliant Cellular-Omaha, provides cellular communication services
in the Omaha Metropolitan Statistical Area (MSA).
On April 28, 1998, OCGP purchased an additional 25.93% of OCLP from several
limited partners for approximately $24.4 million, bringing the Company's
ownership of OCLP to 81.75%. This transaction was also accounted for as a
purchase. The excess of the purchase price over the fair value of the net
acquired identifiable assets of approximately $9.5 million has been
recorded as goodwill.
On February 5, 1999, OCLP completed the purchase of the remaining 18.25%
ownership interest of OCLP for approximately $15 million, thereby
increasing the Company's ownership of OCLP to 100% effective as of January
1, 1999. This transaction was also accounted for as a purchase.
LONG-TERM DEBT STRUCTURE
On February 23, 1998, the Company filed a $250.0 million debt shelf
registration statement with the Securities and Exchange Commission. This
allows the Company to offer and sell, from time to time, debentures, notes,
and other unsecured evidences of indebtedness at an aggregate initial
offering price not to exceed $250.0 million. Under that shelf
registration, the Company sold $100.0 million of senior unsecured 6.75%
notes (the Notes) in a public debt offering. The Notes are dated April 1,
1998 and mature on April 1, 2028.
The Company also has an $18.0 million variable rate five-year amortizing
term loan. An amortizing interest rate swap agreement, with a notional
amount of $18.0 million, effectively converted its variable interest rate
exposure to a fixed rate of 6.37%. At December 31, 1998, the current
interest rate payable to the Company was 5.52% under the swap agreement.
The swap agreement expires at the time the loan matures on July 6, 2000.
The term loan contains various restrictions, including those relating to
payment of dividends by the Company. Quarterly dividends are limited to
$15.0 million plus 65.0% of consolidated net income for each respective
quarter. In management's opinion, the Company has complied with all
requirements of the Notes and term loan covenants.
The Company maintains two revolving credit agreements providing for
unrestricted and unsecured borrowings aggregating up to $75.0 million, both
of which are scheduled to expire, unless renewed or extended, on July 1,
1999. Borrowings bear interest computed on a LIBOR-based pricing formula
(5.89% and 5.79% at December 31, 1998). The Company had $36.0 million of
unused borrowings under these agreements at December 31, 1998.
MERGER
On December 18, 1998, the Company and ALLTEL Corporation entered into a
definitive merger agreement. Under terms of the agreement, each share of
Aliant stock will be exchanged for $39.13 worth of ALLTEL common stock,
subject to certain adjustments depending on the average price of ALLTEL's
stock during ten randomly selected days over a 20-day period prior to
closing. If ALLTEL's stock price is $52.17 or less, each share of Aliant
will be exchanged for 0.75 of a share of ALLTEL. If ALLTEL's stock price
is $58.40 or more, the exchange ratio will be 0.67 per share. The
transaction will be accounted for as a pooling of interests. Subject to
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approval by Aliant stockholders and regulatory agencies, the merger is
expected to close by mid-1999.
EMPLOYEES
The Company had 1,687 employees at the end of 1998. As of December 1998,
approximately 59% of Telco's employees and 23% of Systems' employees
(constituting 42% of the Company's overall employees) were represented by
the Communications Workers of America (CWA), which is affiliated with the
AFL-CIO. A three-year labor contract with the CWA was signed in October
1998 affecting Telco bargaining unit employees. Key elements of the Telco
agreement include: (1) an 11.5 percent wage increase spread over the next
three years with annual increases of 4 percent the first two years and 3.5
percent the final year; (2) increased pension benefits for employees
retiring after January 1, 1999; and (3) a Company match to bargaining unit
employees who contribute to the 401(k) Savings Plan. A four-year contract
with the CWA was also signed in May 1998 affecting Systems bargaining unit
employees. The Systems agreement included a 15 percent wage increase
spread over the next four years with annual increases of 4.5 percent the
first two years and 3 percent the final two years.
INDUSTRY SEGMENTS
Financial information about industry segments is included in the Company's
1998 Annual Report to Stockholders, which is incorporated herein by
reference.
LANDLINE OPERATIONS
LOCAL NETWORK SERVICE
General
Telco provides local exchange and intraLATA interexchange services to
approximately 205,000 customers in the contiguous geographical area
consisting of the southeastern 22 counties of Nebraska, having in service
283,089 landline customer access lines as of December 31, 1998. There are
a total of 137 exchanges and 146 central offices in the service area of
Telco. Telco's fully digital local exchange network supports SS7
technology and includes over 1,400 miles of fiber optic cable, much of it
in a ring configuration. Enhanced services include Voice Mail, Custom
Calling, Centrex, and Integrated Services Digital Network (ISDN). Telco
had 192,017 residential and 91,072 business lines in service at December
31, 1998, compared with 188,312 residential and 84,696 business lines in
service at December 31, 1997 (excluding Company access lines in service).
Midwest, the Company's Competitive Local Exchange Carrier (CLEC), began
offering facilities-based service outside the Company's traditional
southeast Nebraska service area in June 1997. Midwest began offering
service in Omaha, Nebraska in 1997, and in Grand Island, Nebraska in 1998.
Midwest intends to enter other markets in Nebraska.
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Competition and Regulatory Environment
See Competition and Regulatory Environment section of Management's
Discussion and Analysis in the Company's 1998 Annual Report to
Stockholders, which is incorporated herein by reference.
ACCESS AND WHOLESALE SERVICE
General
Telco provides access services by connecting the communications networks of
interexchange and cellular carriers with the equipment and facilities of
end users by use of its public switch networks or through private lines.
Access minutes reached a total of 1,087.0 million minutes in 1998, an
increase of 62.2 million minutes from the 1997 total of 1,024.8 million
minutes. Network owns and operates fiber optic transmission facilities
being constructed within and outside Telco's traditional service area.
Capacity on the network is leased to long distance and wireless carriers.
Competition and Regulatory Environment
See Competition and Regulatory Environment section of Management's
Discussion and Analysis in the Company's 1998 Annual Report to
Stockholders, which is incorporated herein by reference.
LONG DISTANCE SERVICE
General
The Company, through Systems, is a reseller of long distance services, both
within and beyond Telco's traditional service area. Long distance revenues
are received primarily from message toll, private line services, and
operator services. During 1998, Systems had 160.1 million minutes of long
distance traffic, an increase of 22.2 million minutes from 137.9 million
minutes of long distance traffic in 1997. Midwest also provides long
distance services.
Competition and Regulatory Environment
The Company has a variety of calling programs for both residential and
business customers, and it is involved in an ongoing effort to gain market
share from larger business and residential long distance users.
OTHER WIRELINE COMMUNICATIONS SERVICE
General
Other wireline communications include directory advertising and sales,
carrier billing and collections, data communications revenues, public
paystations, and miscellaneous items. Data communications revenues include
Navix, the Company's Internet access service, which continues to experience
strong growth.
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WIRELESS OPERATIONS
GENERAL
The Company owns and manages cellular markets providing service in the
Omaha MSA, the Lincoln MSA, and 89 of the other 90 counties in Nebraska
(Nebraska RSAs). These markets contain approximately 634,000, 231,000, and
848,000 POPs (potential customers), respectively.
As of December 31, 1998, there were 302,740 customer lines in service in
these three markets, compared to 263,411 in 1997. Penetration rates
(subscribers compared to POPs) achieved were 24.8% in Lincoln, 18.0% in the
rural areas of Nebraska, and 14.6% in Omaha.
In addition, the Company at September 30, 1998, had a 20.3% interest in,
and manages, cellular operations in Iowa Rural Service Area 1 (RSA 1),
which is contiguous to Omaha and to the Company's telephone operating area
in Nebraska. Part of this ownership was held by OCLP, and that part was
sold during the fourth quarter of 1998 to the other Iowa RSA 1 partners as
a result of first rights of refusal relating to the Company's purchase of
OCGP in February 1998. After such sale the Company held a 9.2% interest in
RSA 1.
The licensing, ownership, construction, operation, and sale of controlling
interests in cellular telephone systems are subject to regulation by the
FCC. The FCC license for the Company's Lincoln MSA expired in October
1996, and it was subsequently renewed by the FCC for an additional 10 years
on November 29, 1996. The Omaha MSA license expires May 2005, while FCC
licenses for the Company's Iowa RSA and Nebraska RSA cellular operations
expire between November 1999 and August 2000. All renewal applications for
these licenses must be received by the FCC not later than 30 and not more
than 60 days in advance of their respective expiration dates and must be
approved by the FCC. It is possible that there may be competition for
these FCC licenses upon expiration, and any such competitors may apply for
such licenses within the same time frame as the Company. However,
incumbent cellular providers generally retain their FCC licenses upon a
demonstration of substantial compliance with FCC regulations and
substantial service to the public. Although the Company has no reason to
believe that the FCC renewal applications will not be granted by the FCC,
no assurance can be given.
Due to changes in technology, customer growth and usage demand, Cellular
entered into a contract with Motorola in 1997 to replace the existing
analog cellular equipment in the Lincoln and Omaha MSAs with digital
equipment requiring a $22,000,000 cash outlay. The new digital switching
platforms increased network capacity and made additional services, such as
Caller ID, available to customers. The network was upgraded in two phases.
In early spring 1998, Narrowband Advanced Mobile Phone Service (NAMPS) was
in place, which nearly doubled the capacity on the network. In early 1999,
Code Division Multiple Access (CDMA) was deployed which will further
improve capacity, coverage and voice quality.
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COMPETITION
See Competition and Regulatory Environment section of Management's
Discussion and Analysis in the Company's 1998 Annual Report to
Stockholders, which is incorporated herein by reference.
Item 2. Properties
Telco's telephone system consists of digital switching and transmission
equipment, cellular radio facilities, fiber optic systems, and distribution
plant, operating through 137 communities within the State of Nebraska.
Among the larger exchanges served are Lincoln, Hastings, Beatrice, York,
Nebraska City, Plattsmouth, and Seward.
Telco owns the equipment, plant, and facilities that are utilized in its
telephone system. Telco leases six locations where business offices are
located. The total annual rentals for such leased offices were
approximately $159,000 in 1998, and the duration of such leases ranges from
one to six years. Telco owns its remaining business office locations.
Additionally, Telco leases the majority of the locations on which the sites
of towers for its Lincoln MSA cellular system and wide-area paging system
are located. Total rentals on the sites were approximately $100,000 in
1998, and the duration of the unexpired portions of such leases ranges from
four months to five years, with options to renew thereafter.
Cellular and OCLP have numerous operating lease agreements for various
building space, towers, and land sites. Lease terms are between one and
ten years, with various renewal clauses. Rentals for cellular sites are
$628,000 per year, retail site rentals for locations around the state of
Nebraska total $321,000 per year, and office space in Lincoln is leased
from other Company operations for $169,000 per year.
Systems leases transmission facilities and switching facilities in
connection with its Aliant Communications Long Distance Division. All of
its office locations are leased. Annual rentals are approximately
$179,000, and the duration of the unexpired portions of such leases ranges
from 6 months to 54 months.
Midwest and Network participate in various right-of-way agreements for
expansion of their networks. Midwest right-of-way leases were $36,000 in
1998, and Network right-of-way leases totaled $65,000.
It is the opinion of Company management, including the Vice President-
Technology of Telco, that the properties of Telco are suitable and adequate
to provide modern and effective telecommunications services within its
service area, including both local and long distance service. The capacity
for furnishing these services, both currently and for forecast growth, is
under constant surveillance by the Vice President-Technology and his staff.
Facilities are put to full utilization after installation and appropriate
testing, according to two-, three-, and five-year construction plans.
Telco's continuing construction programs are divided between meeting growth
demands (population and service) and upgrading its telephone equipment and
plant. Competition, customer needs, and market conditions drive network
technology deployment.
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Item 3. Legal Proceedings
Effective October 1, 1998, the Company settled a federal trademark
infringement lawsuit it filed against a Wisconsin company, known as
Interstate Energy Corporation, which intended to change its name to Alliant
Corp. Under the terms of the settlement agreement, Interstate has agreed
to change its name to Alliant Energy Corporation. Interstate has also
agreed to certain restrictions respecting the future use of its Alliant
Energy marks. The Company recognized other non-operating income of
approximately $3.3 million, net of legal fees and related expenses, in the
fourth quarter of 1998.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year.
Item 4a. Executive Officers of the Registrant
Current Position and Business Effective
Officer Age Experience During Past Five Years Date
- ------- --- --------------------------------- ----
Frank H. Hilsabeck 54 President and Chief Executive Officer 1993
James W. Strand 52 President-Diversified Operations 1990
Robert L. Tyler 63 Senior Vice President-Chief Financial
Officer 1991
Bryan C. Rickertsen 51 Vice President-Technology 1995
Information and Technology Services
Director 1994
Michael J. Tavlin 52 Vice President-Treasurer and Secretary 1986
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PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
(a) Market Information
Company Common Stock is traded on the NASDAQ National Market under
the symbol "ALNT." The following table sets forth the high and
low bid quotations for the periods indicated. These quotations
represent prices between dealers without adjustments for markups,
markdowns, or commissions and may not represent actual transactions.
Dividends Declared
High Low Per Share
1997
First Quarter 19.500 16.000 .16
Second Quarter 20.500 15.000 .16
Third Quarter 24.875 18.250 .17
Fourth Quarter 33.188 23.750 .17
1998
First Quarter 34.188 25.570 .18
Second Quarter 34.000 22.500 .18
Third Quarter 29.875 22.000 .18
Fourth Quarter 40.688 23.250 .18
(b) Holders
As of December 31, 1998, there were approximately 8,000 holders of
record of the Company's Common Stock. In addition, the Company
believes it has approximately 15,000 beneficial owners of the
Company's Common Stock, whose shares are held in the names of broker
dealers and clearing agencies. Since Telco's reorganization in 1981,
all outstanding shares of Telco's Common Stock have been owned by the
Company.
(c) Dividends
The long-term debt agreements and notes payable of the Company contain
various restrictions, including those relating to payment of dividends
by the Company to holders of Company Common Stock. At December 31,
1998, approximately $20,000,000 of the Company's retained earnings
were available for payment of cash dividends. The Company has paid a
dividend every quarter since 1936 and attempts to maintain an
approximate 50% payout ratio.
Item 6. Selected Financial Data
See Selected Financial Data, 1998 Annual Report to Stockholders, page *.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
See Management's Discussion and Analysis of Financial Condition and Results
of Operations, 1998 Annual Report to Stockholders, pages *-*.
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Item 8. Financial Statements and Supplementary Data
See 1998 Annual Report to Stockholders, pages *-* for consolidated
financial statements and notes to consolidated financial statements.
See pages * through * herein for other required financial statement
schedules.
Item 9. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure
None
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PART III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 13. Certain Relationships and Related Transactions
Information required under Items 10, 11, 12, and 13 is included in the
Registrant's Proxy Statement dated March 25, 1999, on pages * (commencing
under the caption "Outstanding Shares and Voting Rights") through *, and
page * (the first paragraph commencing under the caption "Section 16(a)
Beneficial Ownership Reporting Compliance"). Such information is
incorporated herein by reference.
Certain information regarding Executive Officers of the Registrant required
by Item 401 of Regulation S-K is included in Part I of this Annual Report
on Form 10-K in Item 4a.
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PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following documents are filed as part of this report:
Page(s)
in 1998 Annual
Report to
Stockholders
------------
1. Financial Statements:
Management's Discussion and Analysis of Financial
Condition and Results of Operations *
Independent Auditors' Report *
Consolidated Balance Sheets, December 31, 1998 and 1997 *
Consolidated Statements of Earnings,
Years ended December 31, 1998, 1997, and 1996 *
Consolidated Statements of Stockholders' Equity,
Years ended December 31, 1998, 1997, and 1996 *
Consolidated Statements of Cash Flows,
Years ended December 31, 1998, 1997, and 1996 *
Notes to Consolidated Financial Statements,
December 31, 1998, 1997 and 1996 *
2. Financial Statement schedules required by Item 8 of this form.
Page(s)
in this Annual
Report Form 10-K
----------------
Independent Auditors' Report *
Schedule II - Valuation and Qualifying Accounts -
Years ended December 31, 1998, 1997, and 1996 *
All other schedules are omitted because they are not applicable or the
information required is immaterial or is presented within the consolidated
financial statements and notes thereto.
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the quarter ended December
31, 1998.
(c) Exhibits
Exhibit 3: Articles of Incorporation and By-Laws
(3.1) Company's Articles of Incorporation as amended effective September
3, 1996 (incorporated by reference to Exhibit 3(i) of the
Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1996).
Telco's Certificate of Incorporation as amended effective
September 3, 1996 (incorporated by reference to Exhibit 3(i) of
Telco's Quarterly Report on Form 10-Q for the quarter ended June
30, 1996).
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<PAGE>
(3.2) Company By-Laws as amended November 19, 1997, (incorporated by
reference to Exhibit 4.3 to the Company's Registration Statement
on Form S-3, filed February 23, 1998 [Reg. No. 333-46751]).
Telco By-Laws as amended November 19, 1997.
Exhibit 4: Instruments defining the rights of security holders, including
indentures
(4.1) Rights Agreement, dated as of June 21, 1989, between the Company
and Harris Trust and Savings Bank (incorporated by reference to
Exhibit 4.1 of the Company's Current Report on Form 8-K dated June
21, 1989).
(4.2) Amendment to Rights Agreement, dated as of September 7, 1989,
between the Company and Harris Trust and Savings Bank
(incorporated by reference to Exhibit 4.2 to the Company's Current
Report on Form 8-K dated September 7, 1989).
(4.3) Amendment No. 2 to Rights Agreement dated June 15, 1993, between
the Company and Mellon Securities Trust Company (incorporated by
reference to Exhibit 4.5 of the Company's Form S-3 Registration
Statement No. 33-52117).
(4.4) Credit agreement dated August 8, 1995, between the Company and The
Bank of Tokyo-Mitsubishi, Ltd. filed herewith. The Registrant has
in place other credit facilities which, pursuant to Item
601(4)(iii)(A) of Regulation S-K, the Registrant is not required
to file. The Registrant undertakes and agrees to furnish a copy
of the agreements relating to these credit facilities to the
Securities and Exchange Commission upon request.
(4.5) Form of Indenture between the Company and U.S. Bank National
Association (incorporated by reference to Exhibit 4.1 to the
Company's Registration Statement on Form S-3, filed February 23,
1998 [Reg. No. 333-46751]).
Exhibit 10: Material Contracts
(10.1) The 1989 Stock and Incentive Plan, incorporated by reference to
Exhibit - Form S-8, File 33-39551, effective March 22, 1991, and
is incorporated herein by this reference.
(10.2) A form of the Executive Benefit Plan agreement, as amended through
January 1, 1993, provided to the executive officers and director-
level managers of the Company and its affiliates, and a form of
the Key Executive Employment and Severance Agreement provided to
the executive officers of the Corporation and its affiliates on
December 23, 1987, was filed as an exhibit to the Company's Form
10-K for the year ending December 31, 1992, and is incorporated
herein by reference.
Exhibit 13: Annual Report to Stockholders
Filed as an exhibit to this Report on Form 10-K and incorporated as
indicated herein by reference.
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Exhibit 21: Subsidiaries of the Registrant.
The Company owns and controls all the outstanding common stock of Telco,
Cellular, Systems, Prairie, Midwest, Network, and Wireless Holdings. See
pages *-*, 1998 Annual Report to Stockholders, (Exhibit 13, filed with
this report).
Exhibit 23: Accountants' Consent.
Exhibit 24: Powers of Attorney.
Exhibit 27: Financial Data Schedule.
(d) The required schedules are filed as part of Item 14 (a) 2 of this
report.
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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.
ALIANT COMMUNICATIONS INC.
By /s/ Robert L. Tyler Date March 24, 1999
------------------------------- --------------
Robert L. Tyler, Senior Vice
President and Chief Financial
Officer
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 dates indicated.
Signature Title Date
--------- ----- ----
Duane W. Acklie Director
William W. Cook, Jr. Director
John Haessler Director
Charles R. Hermes Director March 24, 1999
Paul C. Schorr, III Director
William C. Smith Director
James W. Strand Director By /s/ Michael J. Tavlin
Charles N. Wheatley Director ---------------------
Thomas C. Woods, III Director Michael J. Tavlin,
Lyn Wallin Ziegenbein Director Attorney-in-Fact
/s/ Frank H. Hilsabeck Principal Executive
---------------------- Officer and Director
Frank H. Hilsabeck
/s/ Robert L. Tyler Principal Financial
------------------- Officer
Robert L. Tyler
/s/ Michael J. Tavlin Officer
---------------------
Michael J. Tavlin
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Aliant Communications Inc.
Independent Auditors' Report and Schedule
Form 10-K Securities and Exchange Commission
December 31, 1998, 1997 and 1996
(With Independent Auditors' Report Thereon)
<PAGE>
ALIANT COMMUNICATIONS INC. AND SUBSIDIARIES
Index to Schedules Filed
Schedule
Independent Auditors' Report
Valuation and Qualifying Accounts - Years ended December 31,
1998, 1997 and 1996 II
All other schedules are omitted because they are not applicable or the
information required is immaterial or is presented within the consolidated
financial statements and notes thereto.
<PAGE>
KPMG Peat Marwick LLP
233 South 13th Street, Suite 1600
Lincoln, NE 68508-2041
Two Central Park Plaza
Suite 1501
Omaha, NE 68102
Independent Auditors' Report
The Board of Directors and Stockholders
Aliant Communications Inc.:
Under date of February 5, 1999, we reported on the consolidated balance
sheets of Aliant Communications Inc. and subsidiaries as of December 31,
1998 and 1997, and the related consolidated statements of earnings,
stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1998, as contained in the 1998 annual report to
stockholders. These consolidated financial statements and our report
thereon are incorporated by reference in the annual report on Form 10-K for
the year ended December 31, 1998. In connection with our audits of the
aforementioned consolidated financial statements, we also audited the
related financial statement schedule as listed in the accompanying index.
This schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on the schedule based on our
audits.
In our opinion, such schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
/s/ KPMG Peat Marwick LLP
Lincoln, Nebraska
February 5, 1999
S-1
<PAGE>
<TABLE>
Schedule II
ALIANT COMMUNICATIONS INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
Years ended December 31, 1998, 1997 and 1996
<CAPTION>
Addition
Additions due to Deductions
Balance at charged to purchases from Balance
beginning costs and of OCGP allowance at end
Description of year expenses and OCLP (note) of year
---------- -------- -------- --------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1998,
Allowance deducted from
asset accounts, allowance
for doubtful receivables $ 627 1,718 72 1,678 739
===== ===== === ===== =====
Year ended December 31, 1997,
Allowance deducted from
asset accounts, allowance
for doubtful receivables $1,015 960 - 1,348 627
===== ===== === ===== =====
Year ended December 31, 1996,
Allowance deducted from
asset accounts, allowance
for doubtful receivables $ 754 1,175 - 914 1,015
===== ===== === ===== =====
Note: Customers' accounts written-off, net of recoveries.
See accompanying independent auditors' report.
</TABLE>
S-2
<PAGE>
ALIANT COMMUNICATIONS INC.
EMPLOYEE AND SHAREHOLDER DIVIDEND
REINVESTMENT AND STOCK PURCHASE PLAN
Financial Statements Form 11-K
Securities and Exchange Commission
December 31, 1998, 1997 and 1996
(With Independent Auditors' Report Thereon)
<PAGE>
ALIANT COMMUNICATIONS INC.
EMPLOYEE AND SHAREHOLDER DIVIDEND
REINVESTMENT AND STOCK PURCHASE PLAN
Index to Financial Statements
Page
Independent Auditors' Report 1
Statements of Financial Condition - December 31, 1998 and 1997 2
Statements of Revenues and Common Stock Purchases - Years ended
December 31, 1998, 1997 and 1996 3
Notes to Financial Statements - December 31, 1998, 1997 and 1996 4
All other schedules are omitted because they are not applicable.
<PAGE>
KPMG Peat Marwick LLP
233 South 13th Street, Suite 1600
Lincoln, NE 68508-2041
Two Central Park Plaza
Suite 1501
Omaha, NE 68102
Independent Auditors' Report
The Board of Directors and Shareholders
Aliant Communications Inc.:
We have audited the financial statements of the Aliant Communications Inc.
Employee and Shareholder Dividend Reinvestment and Stock Purchase Plan as
listed in the accompanying index. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements 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 financial statements referred to above present fairly,
in all material respects, the financial position of the Aliant
Communications Inc. Employee and Shareholder Dividend Reinvestment and
Stock Purchase Plan at December 31, 1998 and 1997, and its revenues and
common stock purchases for each of the years in the three-year period ended
December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
Lincoln, Nebraska
February 26, 1999
<PAGE>
ALIANT COMMUNICATIONS INC.
EMPLOYEE AND STOCKHOLDER DIVIDEND
REINVESTMENT AND STOCK PURCHASE PLAN
Statements of Financial Condition
December 31, 1998 and 1997
Assets 1998 1997
---- ----
Due from Aliant Communications Inc. (note 2):
Contributions $ 28,371 74,054
Dividends 264,842 288,440
------- -------
$ 293,213 362,494
======= =======
Liabilities
Balance to be invested in common stock for
participants (notes 1 and 2) $ 293,213 362,494
======= =======
See accompanying notes to financial statements.
<PAGE>
ALIANT COMMUNICATIONS INC.
EMPLOYEE AND STOCKHOLDER DIVIDEND
REINVESTMENT AND STOCK PURCHASE PLAN
Statements of Revenues and Common Stock Purchases
Years ended December 31, 1998, 1997 and 1996
1998 1997 1996
---- ---- ----
Revenues:
Cash dividends $ 1,082,494 1,163,946 1,146,525
Contributions 308,927 435,856 659,238
--------- --------- ---------
1,391,421 1,599,802 1,805,763
--------- --------- ---------
Assets held for purchases of common
stock (note 2):
Beginning of year 362,494 444,220 500,011
Less, end of year (293,213) (362,494) (444,220)
--------- --------- ---------
69,281 81,726 55,791
--------- --------- ---------
Common stock purchases $ 1,460,702 1,681,528 1,861,554
========= ========= =========
See accompanying notes to financial statements.
<PAGE>
ALIANT COMMUNICATIONS INC.
EMPLOYEE AND SHAREHOLDER DIVIDEND
REINVESTMENT AND STOCK PURCHASE PLAN
Notes to Financial Statements
December 31, 1998, 1997 and 1996
(1) Statement of Purpose and Summary of Significant Accounting Policies
The Aliant Communications Inc. Employee and Shareholder Dividend
Reinvestment and Stock Purchase Plan (Plan) provides shareholders and
eligible employees of Aliant Communications Inc. (Company), and its
subsidiaries with a convenient and economical way to invest cash dividends
and optional cash contributions to purchase additional shares of common
stock of the Company.
Shares are offered for purchase to all shareholders and all regular full-
time and regular part-time employees of the Company with not less than six
months of service. Any individual who owns 5% or more of the total
combined voting power of value of all classes of stock of the Company is
not eligible to participate in the Plan.
The accompanying financial statements have been prepared on an accrual
basis and present the financial condition of the Plan and its revenues and
common stock purchases. All assets are held for the purchase of common
shares of the Company.
ChaseMellon Shareholder Services, L.L.C. is the transfer agent, registrar,
rights agent and Plan administrator.
(2) Participation
Shares for the Plan are purchased on a monthly basis on the open market.
The basis for the purchase price of the shares allocated to the Plan
participants is the average between the daily high and the daily low sales
prices of Aliant Common Stock as reported on the NASDAQ National Market on
the date the shares are purchased. Employee purchases are at 95% of such
price while purchases by non-employee participants are at 100% of such
price.
Participants in the Plan may use cash dividends declared on shares owned
and optional cash contributions to purchase additional shares. Any
contributions received less than 72 hours before each investment date will
be used to purchase shares as of the next investment date.
Shares purchased in the open market for the Plan aggregated 51,345, 86,250
and 100,494 during 1998, 1997 and 1996, respectively. At December 31,
1998, the agent for the Plan held 994,425 shares registered for
participants.
(3) Income Taxes
No provision is made for income taxes relating to the operations of the
Plan. Any income tax consequences of participation in the Plan are borne
by the participants.
<PAGE>
EXHIBIT 13
ALIANT COMMUNICATIONS
1998 ANNUAL REPORT
ABOUT THE COMPANY
Aliant Communications, with headquarters in Lincoln, Nebraska, is a
diversified communications company. We provide retail services and
products to consumers, businesses, educational institutions and
governmental agencies. We also offer wholesale network services to other
communications companies. The company employs more than 1,600 people in
its landline and wireless operations.
www.aliant.com
Table of Contents
- -----------------
Operations and Earnings Highlights
Selected Financial Data
Report to Shareholders
Management's Discussion and Analysis
Independent Auditors' Report
Consolidated Financial Statements
Corporate Officers and Directors
Investor Information
Our 1998 annual report has been streamlined to provide concise financial
results to our shareholders in a cost-effective format. It is printed on
non-glossy, recycled paper.
<PAGE>
OPERATIONS AND EARNINGS HIGHLIGHTS
December 31 1998 1997 % Change
($ in thousands, except per share data)
Operating Data
- --------------
Operating Revenues $338,007 $286,328 18.0%
Net Income
Before One-time Charges* $60,156 $53,039 13.4%
After One-time Charges $58,059 $53,039 9.5%
Per Share Data
- --------------
Earnings
Before One-time Charges* $1.67 $1.46 14.4%
After One-time Charges $1.61 $1.46 10.3%
Dividends Declared $0.72 $0.66 9.1%
Book Value $9.00 $8.37 7.5%
Key Ratios
- ----------
Return on Common Equity 18.8% 17.5% 7.4%
Debt Ratio 24.8% 24.5% 1.2%
Other Data
- ----------
Total Assets $624,668 $547,642 14.1%
Shareholders' Equity $320,758 $302,998 5.9%
Capital Expenditures $75,895 $50,067 68.9%
Telephone Access Lines in Service 287,721 273,560 5.2%
Consolidated Cellular Customers 302,740 263,411 14.9%
[CHARTS]
Revenues Net Income*
(in millions) (in millions) Earnings Per Share*
1994 $ 197 1994 $ 37 1994 $ 1.14
1995 $ 226 Net $ 34 Net $ 1.03
1996 $ 264 One-time charge $ 3 One-time charge $ .11
1997 $ 286 1995 $ 42 1995 $ 1.22
1998 $ 338 Net $ 12 Net $ .36
One-time charge $ 30 One-time charge $ .86
1996 $ 45 1996 $ 1.22
1997 $ 53 1997 1.46
1998 $ 60 1998 $ 1.67
Net $ 58 Net $ 1.61
One-time charge $ 2 One-time charge $ .06
* Before one-time accounting charge: one-time depreciation charge in 1994;
the 1995 accounting charge relates to restructuring as well as
discontinuance of FAS 71 Accounting; 1998 is before premiums for early
retirement of debt.
-1-
<PAGE>
SELECTED FINANCIAL DATA
(Not covered by Independent Auditors' Report)
(Dollars in thousands, except for per share data)
1998 1987 1996 1995 1994
Results of Operations
- ---------------------
Total revenue and sales $338,007 $286,328 $264,225 $225,692 $196,646
Income before special and
non-recurring charges $60,156 $53,039 $44,954 $42,059 $37,186
Net Income $58,059 $53,039 $44,954 $12,513 $33,605
Earnings per share before
special and non-recurring
charges $1.67 $1.46 $1.22 $1.22 $1.14
Dividends declared per
common share $0.72 $0.66 $0.61 $0.57 $0.53
Financial Position
- ------------------
Total assets $624,668 $547,642 $521,402 $520,321 $393,184
Long-term debt and
redeemable preferred
stock $108,000 $98,499 $107,579 $122,207 $48,499
Stockholders' equity $320,758 $302,998 $278,567 $259,545 $196,435
-2-
<PAGE>
REPORT TO SHAREHOLDERS
Steady growth, strong financial results and a strategic alliance that is
expected to secure a promising future for our shareholders, customers and
employees distinguish 1998 as an historic year for Aliant Communications.
The ALLTEL-Aliant merger, announced on December 18, 1998, tops our list for
the year. Together, Aliant and ALLTEL will have more assets, more
customers, a greater breadth and depth of services, more resources and a
greater opportunity for growth.
For our shareholders, customers, employees, and the communities we serve,
this was the right decision - to become part of a larger, stronger,
national organization so we may continue to prosper in the increasingly
competitive communications environment. What makes this a winning
combination, we believe, is that ALLTEL's and Aliant's operations and
business philosophies complement one another. We share a vision of what it
takes to succeed in the communications industry: integrated communications
services, quality customer care, technologically advanced networks and
services, and a commitment to the communities we serve.
With the support of our shareholders and the approval of state and federal
regulators, ALLTEL and Aliant hope to complete the merger by the end of the
second quarter of 1999.
1998 ACCOMPLISHMENTS
- --------------------
In addition to the proposed merger with ALLTEL, here are some of Aliant's
significant accomplishments in 1998.
Agreements were reached in 1998 to purchase the remaining interests in our
Omaha cellular market. As of January 1, 1999 Aliant became the sole owner
of our Omaha cellular operation. We began rolling-out our digital cellular
service in Lincoln near the end of 1998 and introduced it to the Omaha
market in February of 1999.
Our Competitive Local Exchange Carrier (CLEC) business, first launched in
1997, accounted for 1.6 percent of all landline access lines at the end of
1998. Our CLEC provides customers with a competitive choice for local
service combined with a complete range of long distance, data, systems and
wireless products and services in Omaha, Council Bluffs and Grand Island.
Our plans call for establishing CLEC operations in five other Nebraska
communities in 1999.
An agreement was reached with the Omaha Public Power District (OPPD) for
Aliant to build and own a fiber optic network along OPPD rights-of-way to
facilitate our CLEC efforts in the Omaha market. When the network is
completed in mid-1999, OPPD and Aliant will participate in a joint effort
to offer the latest in telecommunications services to customers in OPPD's
service area. The 60-mile network will connect to Omaha's major downtown
businesses.
Aliant was instrumental in helping defeat a statewide ballot initiative
aimed at abruptly reducing long distance access charges. At the same time,
we worked constructively with the Public Service Commission on their
"SuperDocket" approach for lowering access charges while establishing a
-3-
<PAGE>
state Universal Service Fund to support the provision of affordable phone
service to high-cost areas.
Work began on a five-year program to upgrade our landline switching network
to a single platform that will make it easier for Aliant to offer customers
full-service packages in all of our markets.
A major rate rebalancing was completed in 1998 that adjusted business,
residential and intraLATA toll rates. This represented a key first step in
reducing subsidies in our pricing structures by moving service prices
closer to service costs.
Our Internet access service showed impressive gains in both customers and
revenues in 1998. Demand for high-speed services, such as ISDN and frame
relay, continued to be strong in 1998. In the first half of 1999, we plan
to introduce ADSL (Asymmetric Digital Subscriber Line) - another high
bandwidth service that uses our existing network to offer high-speed
connections.
FINANCIAL RESULTS
- -----------------
These key operational highlights contributed to our strong financial
results.
Total revenues were $338.0 million, an 18 percent increase over 1997.
Earnings per share were $1.62 before one-time charges and credits, compared
to $1.46 in 1997.
Other financial measures remained strong.
Cellular Operations: The number of subscribers in our consolidated markets
in Nebraska and Iowa increased 14.9 percent to 302,740 by the end of 1998.
Cellular revenues in our consolidated markets rose 13.2 percent to $122.6
million.
Access Line Growth: Telephone access lines for landline operations
increased 5.2 percent in 1998 to 287,721. Total business and Centrex lines
grew by 11.3 percent in 1998.
Enhanced Services: Landline enhanced services, such as Navix, Voice Mail,
Caller ID and Call Waiting, increased 48.2 percent over 1997, generating
$11.4 million in revenues in 1998. Navix, our Internet access service,
continued to show strong growth in both subscribers and revenues.
THE YEAR AHEAD
- --------------
Our five key strategic objectives - growth, customer service, organization
and culture, public policy, and technology - will continue to be our
primary focus as we move forward with our proposed merger with ALLTEL.
Important areas include:
CLEC. Our expanding CLEC operation, along with our wholesale business unit,
offer opportunities for long-term growth.
-4-
<PAGE>
Customer Service. High-quality customer service continues to be a
cornerstone of our success and for increasing customer loyalty. In
addition, the commitment of our employees to our corporate values is
expected to ensure a smooth transition in our merger with ALLTEL..
Networks. Efforts to improve and upgrade our networks will continue as
part of a five-year program announced in 1997 to bring advanced, innovative
services to our customers.
For 95 years, Aliant has been a respected leader in the communications
industry. We have introduced customers to the latest in technology and
services. We have supported the communities we serve and have been
recognized for our corporate citizenship. We have delivered an excellent
return to our shareholders. These fundamental values will continue as we
begin an exciting new chapter in our history.
Thank you for your support. We look forward to the new opportunities
awaiting us.
/s/ Frank Hilsabeck
Frank H. Hilsabeck
President and Chief Executive Officer
[CHARTS]
Consolidation EBITDA Market Capitalization
(In millions) (In millions)
1994 $ 110 1994 $ 550
1995 $ 117 1995 $ 774
1996 $ 130 1996 $ 619
1997 $ 146 1997 $ 1,135
1998 $ 166* 1998 $ 1,450
1998 includes effects of early retirement of bonds and net effect of trade
name litigation.
-5-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Aliant Communications Inc. (the Company) is a holding company with
subsidiaries operating primarily in the telecommunications industry. The
Company's wholly-owned and controlled subsidiaries include Aliant
Communications Co. (Telco); Aliant Cellular Inc. (Aliant Cellular); Aliant
Systems Inc. (Aliant Systems); Prairie Communications, Inc. (Prairie);
Aliant Midwest Inc. (Aliant Midwest); Aliant Network Services Inc. (Aliant
Network) and Aliant Wireless Holdings Inc., which is a subsidiary of Telco.
Effective January 1, 1999, the Company owns 100% of Omaha Cellular Limited
Partnership (OCLP), through their ownership in Omaha Cellular General
Partnership (OCGP), up from ownership of 81.75% as of April 1, 1998.
RESULTS OF OPERATIONS
Net Earnings
- ------------
Net income was $58,059,000 in 1998 after an extraordinary charge of
$2,097,000, net of taxes. Net income in 1997 and 1996 was $53,039,000 and
$44,954,000, respectively. Before the extraordinary charge in 1998 paid as
a premium to retire Telco's First Mortgage Bonds, net income was
$60,156,000. In addition, Telco retired its Preferred Stock and paid a
premium of $225,000.
Earnings per common share were $1.61 after the extraordinary charge in
1998, $1.46 in 1997 and $1.22 in 1996. Before the extraordinary charge,
earnings per common share were $1.67 in 1998.
1998 results also include a nonrecurring gain of $2,004,000 net of taxes
($0.05 per share) from the settlement of a federal trademark infringement
lawsuit.
Operating Revenues
- ------------------
Total operating revenues grew by $51,679,000 to $338,007,000 in 1998, an
increase of 18.0% over 1997. In 1996, total operating revenues were
$264,225,000. Leading the growth in both 1998 and 1997 were revenues from
wireless communications services. Also contributing to increased growth
was the Company's increased ownership in OCLP. Beginning March 1, 1998,
OCLP's operating revenues became a part of the Company's consolidated
revenues. The components of operating revenues are telephone revenues,
wireless communications services, and telephone equipment sales and
services.
Telephone Revenues
- ------------------
Telephone operating revenues increased by $16,796,000 or 8.4% over 1997, to
a total of $216,669,000. Growth in 1997 was $10,447,000 or 5.5% over 1996,
to a total of $199,873,000.
Local network service revenues in 1998 were $89,034,000, an increase of
$8,117,000 or 10.0% over the 1997 total of $80,917,000. In 1997, local
network service revenues increased $6,039,000 or 8.1% over the 1996 total
of $74,878,000. These revenues reflect amounts billed to customers for
local exchange services, local private line and enhanced services such as
-6-
<PAGE>
Call Waiting, Caller ID and Call Return. The 1998 and 1997 increases
resulted, in part, from an increase in access lines and the higher usage of
our network for enhanced services. The 1997 increase was also due to a 10%
increase to residential basic local exchange rates, which became effective
near the end of the first quarter, which impacted both 1998 and 1997.
There were 287,721 telephone access lines in service on December 31, 1998,
an increase of 5.2% over the prior year. The 1997 growth in access lines
was 3.7%. In each year, business and Centrex line growth led the increase.
Access and wholesale service revenues received primarily from interexchange
carriers for their use of local exchange and fiber facilities in providing
usage to their customers were $60,703,000 in 1998, an increase of $747,000
or 1.2% over the 1997 total of $59,956,000. In 1997, access and wholesale
service revenues increased $847,000 or 1.4% from the 1996 total of
$59,109,000. These increases were due primarily to increased volume of
access minutes reaching a total of 1,087.0 million minutes in 1998.
Minutes of use increased by 6.1% in 1998 and by 5.8% in 1997. In each of
these two years, increased volumes were offset in part by incremental
reductions in access rates. Fiber routes were expanded, resulting in an
increase of $451,000 in wholesale revenues.
Long distance service revenues in 1998 were $32,611,000, an increase of
$1,236,000 or 3.9% from the 1997 total of $31,375,000. In 1997, long
distance revenues decreased $866,000 or 2.7% from the 1996 total of
$32,241,000. Long distance revenues are received from providing services
both within and beyond Telco's traditional service area, and are primarily
message toll, private line services, and operator services. The 1998
increase was due to an ongoing marketing effort to gain market share from
larger business and residential long distance users, offset by a rate
reduction of intraLATA long distance. The 1997 decrease was due, in part,
to a first quarter reduction in long distance rates of 8% to 10% for calls
within the Company's service area in southeast Nebraska.
On November 18, 1997, the Company filed a rate rebalancing application with
the Nebraska Public Service Commission (NPSC) in order to bring rates
closer to the costs of providing various services. Rate changes were
implemented in May 1998. This action is intended to be revenue-neutral.
Rebalancing included higher rates for basic residential service and reduced
rates for basic business, intrastate access, long distance and touch
calling service.
Other wireline communications service revenues, which include directory
advertising and sales, carrier billing and collections, data communications
revenues, public paystations and miscellaneous items, were $34,321,000 in
1998, an increase of $6,696,000 or 24.2% from the 1997 total of
$27,625,000. The increase was largely attributable to an increase in data
communications revenue of $2,902,000 mainly due to the growth of Navix, the
Company's Internet access service, and increased directory advertising and
sales revenues of $1,271,000. In 1997, other wireline communications
service revenues increased $4,427,000 or 19.1% from the 1996 total of
$23,198,000. The 1997 growth was attributable to greater directory
advertising and sales revenues as well as increased data communications
revenues and public paystation revenues.
-7-
<PAGE>
Wireless Communications Services
- --------------------------------
Wireless communications service revenues in 1998 were $119,067,000, an
increase of $42,357,000 from the 1997 total of $76,710,000. The
consolidation of OCLP's operating revenues contributed $30,000,000 of the
1998 increase. Prior to March 1, 1998, the net results from OCLP were
reported as nonoperating income. The balance of the 1998 growth and the
1997 growth was attributed to the steady addition of subscribers and
resulting revenue generated from the larger subscriber base. This 1997
increase was offset by a June 1, 1997 reduction in service rates offered to
a majority of our subscribers, approximating $2,500,000. In 1997, wireless
communications service revenues increased $13,014,000 from the 1996 total
of $63,696,000. Cellular subscriber lines in the Company's consolidated
markets grew by 39,329, or 14.9%, to a total of 302,740 at December 31,
1998. In 1997, subscriber lines grew by 36,285. Further information on
this subject is provided under the heading of "Managed Cellular Markets."
Telephone Equipment Sales and Services
- --------------------------------------
Telephone equipment sales and service revenues in 1998 were $20,354,000, an
increase of $1,178,000 or 6.1% from the $19,176,000 recorded in 1997. The
1997 amount of such revenues reflected an increase of $246,000 or 1.3% from
the $18,930,000 recorded in 1996.
Operating Expenses
- ------------------
Total operating expenses were $232,651,000 in 1998, an increase of
$35,695,000 or 18.1% from 1997. Total operating expenses increased
$10,533,000 in 1997 to a total of $196,956,000. The primary reason for
this increase in 1998 was the consolidation of OCLP's operating expenses of
$21,500,000 with those of the Company's other activities.
Depreciation and amortization expense was $56,633,000 in 1998, a 14.4%
increase over the $49,525,000 recorded in 1997. The 1998 increase over
1997 is attributable to the inclusion of $4,944,000 for depreciation of
OCLP's assets in the expenses after March 1, 1998, as well as amortization
associated with the acquisition of additional ownership interest in OCLP.
Other operating expenses, which include the cost of telephone equipment
sales and services and the net loss on sales of cellular equipment along
with other operating expenses, were $190,412,000 in 1998, $152,580,000 in
1997 and $143,646,000 in 1996. The increases amounted to 24.8% in 1998 and
6.2% in 1997. The consolidation with OCLP contributed $15,200,000 of the
increase in 1998. The 1997 increase was due in part for expenses incurred,
of approximately $1,600,000, for repairing damages resulting from a severe
October snowstorm. Costs of goods and services sold increased in both 1998
and 1997 resulting from increased product sales and discounts. Sales
commissions and other costs of acquiring wireless customers, including the
net loss on equipment sales, also increased each year.
As of December 31, 1997 all of the employees who elected early retirement
in late 1995 had left the Company's employ, with a large portion leaving in
the fourth quarter 1997. The Company has begun to recapture the cost of
this retirement program and will continue to benefit in the future from the
streamlined work processes, which facilitated this work force reduction.
Due to the greater than anticipated number of employees opting for early
-8-
<PAGE>
retirement, the Company has hired new employees in order to continue its
ability to provide high-quality service and maintain its aggressiveness in
the marketplace. At the end of the year, there were 1,687 employees
compared to 1,537 at the end of 1997. The Company believes that the number
of employees in the Company's wireless operations is expected to continue
to expand to meet the needs of additional subscribers. Employment growth
is also expected to continue in the Company's data communications area
where Navix requires support and in the information services area where
Year 2000 programming and other support is required.
Nonoperating Income and Expenses
- --------------------------------
Nonoperating income includes interest and net results from the Company's
minority ownership interest in the OCLP prior to acquiring a controlling
ownership interest in 1998. The increase in nonoperating income of
$790,000 in 1998 to $9,087,000 is partially the result of the settlement of
a federal trademark infringement lawsuit, offset by a reduction in interest
income. Investment income was reduced in 1998 due to use of funds to
acquire an additional interest in the OCLP and the discontinuance of
recognizing the equity earnings for OCLP on February 28, 1998. In 1997,
nonoperating income from OCLP and related interest income was approximately
$5 million.
Interest expense and other deductions were $11,415,000 in 1998 compared to
$10,313,000 in 1997 and $9,776,000 in 1996. The 1998 increase was
primarily the result of an increase in outstanding debt, offset in part by
an interest rate reduction resulting from refinancing debt.
Income Taxes
- ------------
Income tax expenses in 1998 were $40,773,000 compared to $34,317,000 in
1997 and $29,500,000 in 1996. Income tax expense has remained
proportionate to taxable income over the three-year period.
Extraordinary Item
- ------------------
Effective April 1, 1998, the Company sold $100 million in Senior Unsecured
6.75% 30-year Notes and used the proceeds to retire bank debt, $44,000,000
of Telco's 9.91% first mortgage bonds, including a premium of approximately
$3,500,000, and redeem $4.5 million of Telco's 5% preferred stock. This
premium resulted in an extraordinary after-tax charge to earnings of
$2,097,000.
Inflation
- ---------
Management believes that inflation affects the Company's business to no
greater extent than the general economy.
LIQUIDITY AND CAPITAL RESOURCES
Capitalization
- --------------
At December 31, 1998, the Company had consolidated long-term debt of
$118,000,000 compared to $102,000,000 at December 31, 1997, including
current installments due. The Company currently has $39,000,000 in
outstanding notes payable.
-9-
<PAGE>
Construction
- ------------
The Company is continuing to invest in new technology. Net cash
expenditures for capital additions to property and equipment were
$75,895,000 in 1998, $50,067,000 in 1997 and $42,704,000 in 1996. Cash
provided by operating activities, less dividends, exceeded capital
additions in each of those years. Gross additions to property and
equipment are expected to approximate $80,000,000 in 1999. The increase in
1998 was due in part to the expansion of the Company's fiber network,
adding and upgrading cellular equipment, expansion of Aliant Midwest's
operations and additions to electronic switching equipment. The Company
anticipates funding the 1999 construction from operating activities,
existing temporary investments and debt.
The Company entered into a contract with Northern Telecom Inc. in late 1997
to upgrade Telco's electronic switching equipment over five years beginning
in 1998 requiring a cash outlay of $20,900,000 over the five year period.
Among its many benefits, the equipment upgrade will provide the capability
to offer the same services throughout Telco's entire service area.
Software will only be needed in three host switches, which will be a
significant reduction from the fifteen switches previously operating. The
1998 additions covered by this contract amounted to approximately
$4,700,000.
Cash, Cash Equivalents and Temporary Investments
- ------------------------------------------------
The Company had cash, cash equivalents, and temporary investments of
$27,539,000 and $31,560,000 at December 31, 1998 and 1997, respectively.
Dividends
- ---------
Quarterly dividends on the Company's common stock were increased from 14
cents to 15 cents per share commencing January 10, 1996, to 16 cents per
share commencing January 10, 1997, to 17 cents per share commencing October
10, 1997, and to 18 cents per share commencing April 10, 1998. The total
cash dividend declared was 72 cents per share in 1998, 66 cents per share
in 1997, and 61 cents per share in 1996.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Aliant's exposure to market risk through derivative financial instruments
and other financial instruments, such as investments in marketable
securities and long-term debt, is not material.
ACQUISITION AND INVESTMENT
Effective February 27, 1998, the Company completed the acquisition of 360
Communications Company of Nebraska's interest in OCGP. This acquisition
doubled the Company's ownership in OCLP to 55.82%. The purchase price was
approximately $15 million plus the retirement of debt, and the transaction
was accounted for as a purchase. Beginning March 1, 1998, OCLP's operating
revenues and expenses were consolidated with those of the Company's other
activities. OCLP, doing business as Aliant Cellular-Omaha, provides
cellular communication services in the Omaha Metropolitan Statistical Area
(MSA). On April 28, 1998, OCGP purchased an additional 25.93% of OCLP from
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<PAGE>
the limited partners for approximately $24 million, bringing the Company's
ownership of OCLP to 81.75% effective March 31, 1998. This transaction was
also accounted for as a purchase. The excess of the purchase price over
the fair value of the net acquired identifiable assets of approximately
$9.5 million has been recorded as goodwill.
On February 5, 1999 OCLP completed the purchase of the remaining 18.25%
ownership interest of OCLP for approximately $15 million, increasing the
Company's ownership of OCLP to 100%. This transaction was also accounted
for as a purchase.
MERGER
On December 18, 1998, the Company and ALLTEL Corporation reached a
definitive merger agreement. Under terms of the agreement, each share of
Aliant stock will be exchanged for $39.13 worth of ALLTEL common stock,
subject to certain adjustments depending upon the average price of ALLTEL's
stock during ten randomly selected days over a 20-day period prior to
closing. If ALLTEL's stock price is $52.17 or less, each share of Aliant
will be exchanged for 0.75 of a share of ALLTEL. If ALLTEL's stock price
is $58.40 or more, the exchange ratio will be 0.67 per share. The
transaction will be accounted for as a pooling of interests. Subject to
approval by Aliant shareholders and regulatory agencies, the merger is
expected to close by mid-1999.
MANAGED CELLULAR MARKETS
The Company owns and manages cellular markets providing service in the
Omaha MSA, the Lincoln MSA and 89 of the other 90 counties in Nebraska.
These markets contain approximately 634,000, 231,000 and 848,000 POPs
(potential customers), respectively. The Company has an interest (50%
prior to February 27, 1998 and 100% thereafter) in OCGP which owned 55.82%
of OCLP at March 31, 1998, and manages that operation. On April 28, 1998,
OCGP completed the purchase of the interests of several of the limited
partners for approximately $24 million, increasing its interest in OCLP
from 55.82% to 81.75%. On February 5, 1999, the Company increased its
interest in OCLP to 100%. Beginning in March 1998, OCLP's operating
revenues and expenses were consolidated with those of the Company's other
activities, and the net results from OCLP attributable to other partners
are separately reported as minority interest. Prior to March 1998, the
Company's portion of OCLP's net results was included with income from
investments.
As of December 31, 1998, there were 302,740 customer lines in service in
these three markets, compared to 263,411 a year earlier and 212,222 in
1996. Penetration rates (subscribers compared to POPs) achieved were 24.8%
in Lincoln, 18.0% in the rural areas of Nebraska, and 14.6% in Omaha.
Earnings before interest, income taxes, depreciation and amortization
(EBITDA) totaled $60,590,000 in 1998, compared to $52,431,000 and
$39,296,000 in 1997 and 1996, respectively. Net operating income was
$44,191,000, compared to $38,458,000 and $27,642,000 in the previous two
years.
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<PAGE>
In addition, the Company at September 30, 1998 had a 20.3% interest in, and
manages, cellular operations in Iowa Rural Service Area 1 (RSA 1), which is
contiguous to Omaha and to the Company's telephone operating area in
Nebraska. Part of this ownership was held by OCLP, and that part was sold
during the fourth quarter of 1998 to the other Iowa RSA 1 partners as a
result of first rights of refusal relating to the Company's purchase of
OCGP in February 1998. After such sale the Company held a 9.2% interest in
RSA 1.
Due to changes in technology, customer growth and usage demand, Aliant
Cellular entered into a contract with Motorola in 1997 to replace the
existing analog cellular equipment in the Lincoln and Omaha MSAs with
digital equipment requiring a $22,000,000 cash outlay. The new digital
switching platforms increased network capacity and made additional
services, such as Caller ID, available to customers. The network was
upgraded in two phases. By early spring 1998, Narrowband Advanced Mobile
Phone Service (NAMPS) was in place, which nearly doubled the capacity on
the network. By early 1999, Code Division Multiple Access (CDMA) will be
deployed which will further improve capacity, coverage and voice quality.
COMPETITION AND REGULATORY ENVIRONMENT
Telecommunications Act of 1996 and Subsequent Litigation
The Telecommunications Act of 1996 (the Act) has now been in effect three
full years. While uncertainty regarding implementation of the Act still
exists, many of the regulatory concerns and questions raised by the Act are
being clarified.
The Act was designed to facilitate entry of new competitors into local
exchange markets. Competitors are allowed to resell Incumbent Local
Exchange Carrier (ILEC) services by purchasing elements of an ILEC's
network which are necessary to provide competitive services, or by
constructing their own network facilities in an ILEC's traditional service
territory. In order to create rules implementing this aspect of the Act,
the Federal Communications Commission (FCC) released a comprehensive
interconnection order in August 1996 (the Interconnection Order).
The Interconnection Order received immediate criticism from ILECs. Several
ILECs, including Telco, filed appeals for judicial review of the
Interconnection Order. These petitions were consolidated and assigned to
the Eighth Circuit Court of Appeals. In October 1996, the Eighth Circuit
entered an Order Granting Stay Pending Judicial Review which did stay the
effectiveness of the pricing and the so-called "pick and choose"
provisions of the Interconnection Order. The FCC and several other
telecommunications companies petitioned the United States Supreme Court for
review of the Eighth Circuit's decision. On January 23, 1998, the Supreme
Court agreed to hear the appeal and oral arguments were heard in the Fall
of 1998. On January 25, 1999, the Supreme Court substantially reversed the
Eighth Circuit's decision and ruled that the FCC has broad authority over
interconnection matters.
Competitive Local Exchange Carrier Activities
- ---------------------------------------------
Telco received a bona fide request for interconnection on January 9, 1998
from US West Communications, Inc. Telco had previously executed
interconnection agreements with two commercial mobile radio service
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<PAGE>
providers. Pursuant to the Act, Telco may apply to the NPSC for relief or
waiver of certain interconnection obligations imposed under the Act. Telco
has agreed with the NPSC not to use such a waiver provision for resale or
transport and termination elements. Telco signed an interconnection
agreement with US West in January 1999. The agreement was approved by the
NPSC in February 1999. Telco is also negotiating an interconnection
agreement with Nebraska Technology & Telecommunications, Inc.
The Company is exploring new business opportunities made possible by the
Act. Through Aliant Midwest, the Company was granted a certificate from
the NPSC to provide competitive local exchange service in areas of Nebraska
served by US West, GTE Midwest and Sprint/United. Aliant Midwest also has
been certified by the Iowa Utilities Board to provide service in Iowa. In
1997, Aliant Midwest, doing business as Aliant Communications, began
offering facilities-based local exchange service in Omaha, Nebraska in
1997, and in Grand Island, Nebraska in 1998. Aliant Midwest intends to
enter other markets in Nebraska.
Rate Rebalancing by Telco
- -------------------------
Telco is also taking measures to prepare for competition in its traditional
service territory. Upon passage of the Act, it became clear that ILECs
would need to adjust local exchange service rates to better reflect the
actual cost of providing service. Traditionally, residential local
exchange service has been priced below cost, and has been subsidized
through rates charged to businesses, rates charged on toll calls and rates
charged on other enhanced services. Competition will largely eliminate the
ability to cross-subsidize customers and services in this manner.
Telco filed an application with the NPSC to rebalance service rates
pursuant to legislation adopted in Nebraska in 1997. The application was
approved and became effective in May 1998. The plan raised all residential
local service rates to $16.35 per month, with business rates dropping to
$31.40 per month. IntraLATA toll rates were also reduced. While this plan
is fundamentally revenue-neutral, its implementation reduced Aliant's
cross-subsidization of customer costs and its competitive vulnerability.
Additional steps were needed, however, to achieve a competitively viable,
cost-based Nebraska intrastate access rate structure, and to establish a
Nebraska universal service fund.
Access Rate Reform and Nebraska Universal Service Funding
- ---------------------------------------------------------
A significant step was taken by the NPSC on January 13, 1999, to meet this
need to create a cost-based rate structure. The NPSC approved an order in
Application No. C-1628 (the Order) which is summarized as follows.
Transition Period
- -----------------
The NPSC has recognized the significance of rate re structuring and in the
Order has established a plan for local exchange carriers to transition
toward a cost-based rate structure. The transition period for non-rural
companies (including Telco) is three years, but all subsidies must be
removed from Telco's access charge rates within two years. For rural
companies, the transition period is four years. The Order requires all
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<PAGE>
companies seeking to receive Nebraska universal service fund (NUSF) support
to file a transition plan with the NPSC by March 31, 1999 that will detail
all rate adjustments. Annual tariff filings during the transition period
are required on or before July 1 of each year.
Funding Source
- --------------
As set forth in the Order, NUSF will be funded through a 5% surcharge on
all retail end-user telecommunications services billed within Nebraska.
However, on February 2, 1999, the NPSC granted a Motion for Rehearing filed
by AT&T and MCI WorldCom finding that, until further determination by the
NPSC, NUSF should be funded by a surcharge on retail end user revenues
solely from intrastate telecommunications services. The NPSC also stated
that it "will further consider those portions of the Order which define
the annual surcharge rate and the fund (NUSF) size in light of the
ruling." According to the Order, collection of the 5% surcharge is
targeted to begin on May 1, 1999, while distribution of funds from NUSF is
scheduled for July 1, 1999. However, this schedule may change based upon
the NPSC's February 2 ruling.
Eligibility
- -----------
Telco will be eligible to receive NUSF funds under the terms of the Order.
The Order minimizes the past problem of cost averaging between urban and
rural customers so that Telco will be able to largely eliminate the
practice of urban-to-rural subsidization.
Telco supports the NPSC's decision concerning services that are eligible
for NUSF support which are single-party service, touch tone, standard
directory listing, access to directory assistance, access to interexchange
service, access to emergency service, access to operator service, and toll-
blocking for qualifying low-income customers. While the NUSF will support
a network on which advanced services can be provided, customers will be
expected to pay the full retail cost of such service. This will help to
maintain a reasonable size of the NUSF.
The Order also establishes two important conditions to receive NUSF
support. The first requirement is that basic monthly service rates reach a
benchmark of $17.50 per month for residential lines, and $27.50 for
business lines, excluding surcharges. The second requirement is a rate of
return ceiling of 12% that serves as a means test to receive NUSF support.
A local exchange carrier earning greater than 12% will have its NUSF
support adjusted.
While Telco desires to avoid rate-of-return regulation to the greatest
degree possible, the foregoing means test is important to the proper
functioning of NUSF. Telco could receive less NUSF support than that which
would be required to completely offset other revenue reductions under the
Order. Details under the Order are not sufficiently available to quantify
the impact at this time.
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<PAGE>
Determination of Costs
- ----------------------
The Order requires Telco to use a forward-looking cost model to measure
direct costs and a reasonable share of joint and common costs. The Order
selects the Benchmark Cost Proxy Model uncapped version 3.1 (BCPM 3.1) as
the proper tool for measuring support. This selection may be changed in
the future.
While Telco has supported the use of BCPM 3.1, the NPSC is expected to
select the inputs to be used in the model unless changed by the FCC as a
result of January 25, 1999 ruling of the United States Supreme Court. At
this time the impact of such ruling on the NPSC's jurisdiction to determine
costs of service for telecommunications carriers such as Telco is unclear.
Treatment of Federal Universal Service Support
- ----------------------------------------------
The Order basically treats federal universal service support as an
independent variable. Reductions are made in NUSF support in an amount
corresponding to federal support received. Telco supports proposals that
would increase the federal share of universal service funding
responsibility from the 25% tentatively approved by the FCC.
Extension of Legislative Authority is Essential
- -----------------------------------------------
Implementation of the Order depends upon the extension of the NPSC's
statutory authority to administer NUSF beyond the June 30, 1999 sunset
provided in Section 86-1411 of Nebraska law. Legislative Bill 514 was
introduced on January 15, 1999, and proposes to repeal this statute. LB
514 needs to receive early consideration and sufficient support by the
Legislature to pass with the emergency clause attached in order to become
effective before June 30, 1999. This requires an affirmative vote by 33 of
the 49 senators. While there is no guarantee of passage, Telco believes
such approval will occur on a timely basis.
Wireless Competition
- --------------------
Wireless telecommunications service continues to be an increasingly
important sector of the Company's business. The FCC has taken steps to
increase the number of wireless competitors by auctioning radio spectrum
for Personal Communications Services (PCS). As many as seven new wireless
competitors are allowed in each market.
The FCC has also imposed new requirements for the Company to separate
wireless operations from the Telco. The cellular license for the Lincoln
MSA was held by Telco until January 1999, when it transferred to Aliant
Wireless Holdings Inc.
YEAR 2000
The Company uses software and related technologies throughout its business
that could be affected by the date change in the year 2000 (Y2K). An
inventory of resources of both Information Technology (IT) and non-
Information Technology (non-IT) systems was initially made during 1997.
This inventory is maintained and updated as resources are found that may
have date functionality that could be affected by dates after December 31,
-15-
<PAGE>
1999. Included in the IT category would be mainframe, mini/micro,
workstation, data exchange, and telephone switch platforms. Non-IT systems
include items such as environmental, security, motor vehicle, and
elevators.
Awareness and assessment phases have been completed for all significant IT
issues. Renovation of all application coding updates and changes is
scheduled to be completed by June 30, 1999. Currently, there are no known
exceptions to meeting the targeted completion date. All mainframe
applications are in the process of being modified and tested, and
validated. All workstation platforms are being replaced with hardware and
software that is Y2K compliant before June 1999. All telephone switches
are being upgraded or replaced before year-end 1999, with the last switch
upgrade scheduled for November 1, 1999.
Most of the effort has been completed for non-IT systems. A review of
these items disclosed few items with date rollover issues. All identified
non-IT items have a contingency plan in place in the event a resolution is
not reached prior to January 1, 2000.
All major service providers have been solicited concerning their progress
in compliance with Y2K date issues. Service providers include utilities
and manufacturers of IT and non-IT equipment. Correspondence has been sent
to all customers who have Aliant telecommunication systems, along with
manufacturer information on the equipment's ability to handle date issues.
The Company has responded to customer and regulatory inquiries on the
status of its ability to handle Y2K issues.
The current estimate of total Y2K compliance costs is approximately 26,000
person hours at an approximate cost of $1.4 million with 21,900 hours of
labor (at a cost of $1.1 million) completed to date. Virtually all of the
Y2K compliance costs are due to reprogramming, since all switching
equipment will be Y2K compliant without additional significant cost to the
Company. The estimated costs are not expected to significantly affect
operating results or the financial condition of the Company.
The Company bears a significant risk if programming changes are either
overlooked or not completed by January 1, 2000. A significant risk is
random embedded chip failures throughout the Company's network, which may
be hard to find, troubleshoot, and replace. Additional test equipment,
replacement parts, and labor hours may be required to address this risk.
During the remainder of 1999, the Company will be evaluating, and
implementing as appropriate, cost-effective contingencies for identified
Y2K risks and exposures. Another concern is short-term power
interruptions. Existing and enhanced alternative power generation and
battery backup should minimize power concerns.
ACCOUNTING PRONOUNCEMENTS
FAS 133, "Accounting for Derivative Instruments and Hedging Activities",
was issued in June of 1998. FAS 133 establishes accounting and reporting
standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those
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<PAGE>
instruments at fair value. FAS 133 is effective for all fiscal quarters of
fiscal years beginning after June 15, 1999. The Company anticipates
adopting this accounting pronouncement in 2000; however, management
believes it will not have a significant impact on the Company's annual
consolidated financial statements.
LABOR CONTRACTS
Telco and Local 7470 of the Communications Workers of America (CWA) reached
agreement on a three-year contract concerning wages, benefits and working
conditions, effective in October 1998. The contract provides for wage
increases of 11.5% over the three-year term, increased retirement benefits
and changes in other benefits. Similarly, a four-year agreement between
Aliant Systems and the CWA was reached in May 1998. The Telco contract
with the CWA will expire on October 15, 2001, and the Aliant Systems
contract will expire on May 19, 2002.
-17-
<PAGE>
KPMG Peat Marwick LLP
233 South 13th Street, Suite 1600
Lincoln, NE 68508-2041
Two Central Park Plaza
Suite 1501
Omaha, NE 68102
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
Aliant Communications Inc.:
We have audited the accompanying consolidated balance sheets of Aliant
Communications Inc. and subsidiaries as of December 31, 1998 and 1997, and
the related consolidated statements of earnings, stockholders' equity and
cash flows for each of the years in the three-year period ended December
31, 1998. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion
on these consolidated financial statements 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 consolidated 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 Aliant
Communications Inc. and subsidiaries as of December 31, 1998 and 1997, and
the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1998, in conformity with
generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Lincoln, Nebraska
February 5, 1999
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<PAGE>
<TABLE>
ALIANT COMMUNICATIONS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997
<CAPTION>
Assets 1998 1997
---- ----
(Dollars in thousands)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 26,554 27,867
Temporary investments, at cost 985 3,693
Receivables, net of allowance for doubtful receivables
of $739 in 1998 and $627 in 1997 56,090 50,374
Materials, supplies and other assets 15,090 10,661
------- -------
Total current assets 98,719 92,595
------- -------
Property and equipment 687,711 589,314
Less accumulated depreciation and amortization 367,581 330,359
------- -------
Net property and equipment 320,130 258,955
------- -------
Investments and other assets 6,885 57,765
Deferred charges 19,695 20,040
Goodwill, and other intangible assets,
net of amortization 179,239 118,287
------- -------
Total assets $ 624,668 547,642
======= =======
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable $ 39,000 11,000
Current installments of long-term debt 10,000 8,000
Accounts payable and accrued expenses 53,729 48,829
Income taxes payable 2,354 89
Dividends payable 6,416 6,208
Advance billings and customer deposits 13,186 10,656
------- -------
Total current liabilities 124,685 84,782
------- -------
Deferred credits:
Unamortized investment tax credits 684 1,209
Deferred income taxes 7,715 6,110
Other 56,345 54,044
------- -------
Total deferred credits 64,744 61,363
------- -------
Long-term debt 108,000 94,000
Preferred stock, 5%, redeemable - 4,499
Minority interest 6,481 -
Stockholders' equity 320,758 302,998
------- -------
Total liabilities and stockholders' equity $ 624,668 547,642
======= =======
See accompanying notes to consolidated financial statements.
</TABLE>
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<TABLE>
CONSOLIDATED STATEMENTS OF EARNINGS
Years ended December 31, 1998, 1997 and 1996
<CAPTION>
1998 1997 1996
(Dollars in thousands except per share data)
<S> <C> <C> <C>
Operating revenues:
Telephone:
Local network services $ 89,034 80,917 74,878
Access and wholesale services 60,703 59,956 59,109
Long distance services 32,611 31,375 32,241
Other wireline communications services 34,321 27,625 23,198
------- ------- -------
Total telephone 216,669 199,873 189,426
Wireless communications services 119,067 76,710 63,696
Equipment sales and services 20,354 19,176 18,930
Intercompany (18,083) (9,431) (7,827)
------- ------- -------
Total operating revenues 338,007 286,328 264,225
------- ------- -------
Operating expenses:
Depreciation and amortization 56,633 49,525 46,404
Other operating 190,412 152,580 143,646
Taxes, other than payroll and income 3,689 4,282 4,200
Intercompany (18,083) (9,431) (7,827)
------- ------- -------
Total operating expenses 232,651 196,956 186,423
------- ------- -------
Operating income 105,356 89,372 77,802
------- ------- -------
Nonoperating income and expense:
Income from interest and other investments 9,087 8,297 6,428
Interest expense and other deductions 11,415 10,313 9,776
Minority interest in income of subsidiary 2,099 - -
------- ------- -------
Net nonoperating expense 4,427 2,016 3,348
------- ------- -------
Income before income taxes and
extraordinary item 100,929 87,356 74,454
Income taxes 40,773 34,317 29,500
------- ------- -------
Income before extraordinary item 60,156 53,039 44,954
Extraordinary item (2,097) - -
------- ------- -------
Net income 58,059 53,039 44,954
Preferred dividends 310 225 225
------- ------- -------
Earnings available for common shares $ 57,749 52,814 44,729
======= ======= =======
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<PAGE>
CONSOLIDATED STATEMENTS OF EARNINGS (CONTINUED)
Years ended December 31, 1998, 1997 and 1996
1998 1997 1996
(Dollars in thousands except per share data)
Basic and diluted earnings per common share:
Income before extraordinary item $ 1.67 1.46 1.22
Extraordinary item (.06) - -
---- --- ----
Basic and diluted earnings
per common share $ 1.61 1.46 1.22
==== ==== ====
Weighted average common shares outstanding
(in thousands) 35,880 36,260 36,602
====== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
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<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended December 31, 1998, 1997 and 1996
<CAPTION>
1998 1997 1996
(Dollars in thousands)
<S> <C> <C> <C>
Stockholders' equity:
Common stock of $.25 par value per share.
Authorized 100,000,000 shares:
Beginning of year, issued 36,574,967
shares in 1998; 36,958,122 shares in
1997; and 37,247,522 shares in 1996 $ 9,144 9,240 9,312
Purchase of 604,525 shares in 1998;
383,155 shares in 1997; and 289,400
shares in 1996 (151) (96) (72)
------- ------- -------
End of year, issued 35,970,442 shares in
1998, 36,574,967 shares in 1997; and
36,958,122 shares in 1996 8,993 9,144 9,240
------- ------- -------
Premium on common stock:
Beginning of year 95,748 102,257 106,822
Purchase of common stock (14,962) (6,509) (4,565)
------- ------- -------
End of year 80,786 95,748 102,257
------- ------- -------
Retained earnings:
Beginning of year 203,064 174,172 151,754
Net income 58,059 53,039 44,954
Dividends declared:
5% cumulative preferred - $5.00 per share (310) (225) (225)
Common - $.72 per share in 1998; $.66 per
share in 1997; and $.61 per share in 1996 (25,773) (23,922) (22,311)
------- ------- -------
End of year 235,040 203,064 174,172
------- ------- -------
Treasury stock, at cost:
Beginning of year, 388,387 shares in 1998;
543,382 shares in 1997; and 625,088 shares
in 1996 (4,958) (7,102) (8,343)
Sales of 56,952 shares in 1998; 154,995 shares
in 1997; and 81,706 shares in 1996 897 2,144 1,241
------- ------- -------
End of year, 331,435 shares in 1998; 388,387
shares in 1997; and 543,382 shares in 1996 (4,061) (4,958) (7,102)
------- ------- -------
Preferred stock, $.50 par value per share.
Authorized 20,000,000 shares; none issued - - -
------- ------- -------
Total stockholders' equity $ 320,758 302,998 278,567
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
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<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1998, 1997 and 1996
<CAPTION>
1998 1997 1996
(Dollars in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 58,059 53,039 44,954
------- ------ ------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 56,750 49,860 46,435
Net change in investments and other assets 206 (5,352) (3,638)
Deferred income taxes 1,605 (946) (1,056)
Minority interest in income of subsidiary 816 - -
Changes in assets and liabilities resulting
from operating activities:
Receivables (785) (10,447) (2,498)
Other assets (2,104) (7,935) (672)
Accounts payable and accrued expenses 8 742 (547)
Other liabilities 2,831 (951) 3,517
------- ------ ------
Total adjustments 59,327 24,971 41,541
------- ------ ------
Net cash provided by operating
activities 117,386 78,010 86,495
------- ------ ------
Cash flows from investing activities:
Expenditures for property and equipment (85,320) (49,733) (43,692)
Net salvage on retirements 9,425 (334) 988
------ ------ ------
Net capital additions (75,895) (50,067) (42,704)
Proceeds from sale of investments and other
assets 2,223 344 646
Purchases of investments and other assets (4,633) (3,059) (906)
Acquisition of cellular partnership interests (23,105) - -
Purchases of temporary investments (949) (1,331) (10,469)
Maturities and sales of temporary investments 3,657 4,325 16,863
------ ------ ------
Net cash used for investing activities (98,702) (49,788) (36,570)
------ ------ ------
Cash flows from financing activities:
Dividends to stockholders (25,875) (23,822) (22,203)
Proceeds from issuance of note payable 39,000 11,000 -
Proceeds from long-term debt 100,000 11,000 -
Debt issuance costs (907) - -
Retirement of notes payable (26,000) - (10,000)
Net purchases and sales of common and
treasury stock (14,216) (4,461) (3,396)
Retirement of preferred stock (4,499) - -
Payments of long-term debt (87,500) (19,362) (10,187)
------ ------ ------
Net cash used in financing activities (19,997) (25,645) (45,786)
------ ------ ------
(Continued)
-23-
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years ended December 31, 1998, 1997 and 1996
1998 1997 1996
(Dollars in thousands)
Net increase (decrease) in cash and cash
equivalents (1,313) 2,577 4,139
Cash and cash equivalents at beginning of year 27,867 25,290 21,151
------ ------ ------
Cash and cash equivalents at end of year $ 26,554 27,867 25,290
====== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
-24-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
(1) Summary of Significant Accounting Policies
Principles of Consolidation and Organization
The consolidated financial statements reflect the accounts of Aliant
Communications Inc. (the Company), a holding company, and its wholly-owned
and controlled subsidiaries: Aliant Communications Co. (Telco), Aliant
Cellular Inc. (Aliant Cellular), Aliant Systems Inc. (Aliant Systems),
Prairie Communications, Inc. (Prairie), Aliant Midwest Inc. (Aliant
Midwest), Aliant Network Services Inc. (Aliant Network), Omaha Cellular
General Partnership (OCGP) and Omaha Cellular Limited Partnership (OCLP).
Telco, the Company's principal subsidiary, provides local and long distance
telephone service in 22 southeastern counties of Nebraska and cellular
telecommunications services in the Lincoln, Nebraska Metropolitan
Statistical Area (MSA). The Company provides cellular telecommunications
services through Telco, Aliant Cellular and OCLP in 92 of the 93 counties
in Nebraska . Aliant Systems sells nonregulated telecommunications
products and services, long distance telephone services in and beyond
Telco's local service territory and provides telephone answering services.
Aliant Midwest operates as a competitive local exchange carrier (CLEC).
Aliant Midwest began limited operations outside Telco's traditional service
area in June 1997 and is providing service to certain residential and
business customers in the Omaha metropolitan area and in Grand Island,
Nebraska. Aliant Network was incorporated in February 1997 to build and
operate fiber optic transmission facilities outside of Telco's traditional
service area whereby capacity on the network will be leased to long
distance and wireless carriers.
Intercompany transactions between companies have been eliminated in
consolidation.
Property and Equipment
Property and equipment is stated at cost. Replacements and renewals of
items considered to be units of property are charged to the property and
equipment accounts. Maintenance and repairs of units of property and
replacements and renewals of items determined to be less than units of
property are charged to expense. Telephone property and equipment retired
or otherwise disposed of in the ordinary course of business, together with
the cost of removal, less salvage, is charged to accumulated depreciation.
When other property and equipment is sold or otherwise disposed of, the
gain or loss is recognized in operations. Telco capitalizes estimated
costs of debt and equity funds used for construction purposes. No
significant costs were capitalized during the three years ended December
31, 1998. Depreciation on property and equipment is determined by using
the straight-line method based on estimated service and remaining lives.
Goodwill and Other Intangible Assets
Goodwill and other intangible assets consist of franchise rights, customer
lists and goodwill recorded in connection with the Company's acquisitions.
Franchise rights, customer lists and goodwill are being amortized over
-25-
<PAGE>
estimated useful lives of 25 years, 13 years, and 40 years, respectively,
using the straight-line method.
The Company reviews its long-lived assets and other identifiable
intangibles for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of
the carrying amount of an asset to future net cash flows expected to be
generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair value
less costs to sell.
Income Taxes
The Company files a consolidated income tax return with its eligible
subsidiaries. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carry forwards.
Deferred tax assets and liabilities are measured using the enacted tax
rates expected to apply to taxable income in the years in which temporary
differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date.
Investment tax credits related to telephone property and equipment were
deferred and are being taken into income over the estimated useful lives of
such property and equipment.
Retirement Benefits
Telco has a noncontributory qualified defined benefit pension plan which
covers substantially all employees of the Company. The Company also has a
qualified defined contribution profit-sharing plan which covers
substantially all employees. Costs of the pension and profit-sharing plans
are funded as accrued.
Revenue Recognition
Telephone and wireless revenues are recognized when earned and are
primarily derived from usage of the Company's network and facilities. For
all other operations, revenue is recognized when products are delivered or
services are rendered to customers.
Earnings Per Common Share
Basic earnings per common share are computed by dividing the net income
less preferred dividends by the weighted average common shares outstanding
during the periods. The dilutive effect of the Company's potential common
shares outstanding, which are shares issuable under the Company's stock
option program, is insignificant. Therefore, the diluted earnings per
common share are the same as the basic earnings per common share in 1998,
1997 and 1996.
-26-
<PAGE>
Comprehensive Income
The Company adopted FAS No. 130, Reporting Comprehensive Income, effective
January 1, 1998, which establishes standards for the reporting and display
of comprehensive income and its components in a full set of general purpose
financial statements. Comprehensive income includes the reported net
income of a company adjusted for items that are currently accounted for as
direct entries to equity, such as the mark-to-market adjustment on
securities available for sale. The Company does not have any material
elements of comprehensive income other than the elements currently
recognized in the consolidated statements of earnings.
Statements of Cash Flows
For purposes of the consolidated statements of cash flows, the Company
considers all temporary investments with an original maturity of three
months or less when purchased to be cash equivalents. Cash equivalents of
approximately $15.9 million and $23.5 million at December 31, 1998 and
1997, respectively, consist of short-term fixed income securities.
Derivative Financial Instruments
The Company does not invest in any derivatives for trading purposes. From
time to time the Company enters into interest rate swap and collar
arrangements in order to manage its exposure to interest rate risk. The
difference paid or received on interest rate swap and collar arrangements
is recognized as an adjustment to interest expense in the period incurred
or earned.
Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these consolidated financial
statements in conformity with generally accepted accounting principles.
Actual results could differ from those estimates.
Reclassifications
Certain amounts previously reported in 1997 and 1996 for access and
wholesale services and other wireline communications services have been
reclassified to conform to the current period presentation in the
accompanying consolidated statements of earnings. The reclassifications
had no effect on operating income as previously reported.
(2) Acquisitions
Effective February 27, 1998, the Company completed the acquisition of the
remaining 50% of OCGP not previously owned. OCGP is the general partner of
OCLP and, as of the date of acquisition, held approximately 56% of the
partnership interests in OCLP, which provides cellular telecommunications
services in Douglas and Sarpy Counties in Nebraska and Pottawattamie
County, Iowa. OCLP conducts business under the trade name Aliant Cellular
- - Omaha. Additionally, effective March 31, 1998, OCGP purchased
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<PAGE>
approximately 26% of OCLP from other limited partners for $24.4 million,
bringing the Company's ownership of OCLP to approximately 82%.
The acquisitions were accounted for as purchases and, accordingly, the
results of operations of OCGP and OCLP have been included in the Company's
consolidated financial statements since March 1, 1998. Prior to March 1,
1998, the Company recognized its proportionate share of the partnerships'
earnings using the equity method and was included in nonoperating income.
The excess of the purchase price over the fair value of the net
identifiable assets acquired, of approximately $9.5 million, was recorded
as goodwill.
Under an agreement with North Central Cellular Communications, Inc. (NCCC),
OCLP has a call option to acquire the remaining outstanding limited
partnership interests of OCLP. OCLP exercised its call option to acquire
the remaining limited partnership interests held by NCCC on February 5,
1999. Upon exercise of this call option, OCLP obtained effective control
of all limited partnership interests held by NCCC at January 1, 1999.
The following unaudited pro forma financial information presents the
combined results of operations of the Company, OCGP and OCLP as if the
acquisitions had occurred on January 1, 1997, after giving effect to
certain adjustments, including amortization of goodwill and other
intangible assets, increased interest expense on debt related to the
acquisitions, and related income tax effects. The pro forma financial
information does not necessarily reflect the results of operations that
would have occurred had the Company, OCGP and OCLP constituted a single
entity during such period.
Pro forma
years ended December 31,
------------------------
1998 1997
---- ----
(unaudited)
(Dollars in thousands, except per share data)
Revenues $ 343,965 318,203
======= =======
Net income before extraordinary item $ 61,285 53,878
======= =======
Net income $ 59,188 53,878
======= =======
Basic and diluted earnings per common share 1.64 1.48
======= =======
The table on the following page summarizes the property and equipment at
December 31, 1998 and 1997.
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<PAGE>
(3) Property and Equipment
1998 1997
---------------------- ---------------------
Accumulated Accumulated
depreciation and depreciation and
Classifications Cost amortization Cost amortization
--------------- ---- ------------ ---- ------------
(Dollars in thousands)
Land $ 3,160 - 3,050 -
Buildings 41,761 16,740 37,831 15,064
Equipment 614,205 344,000 524,050 309,129
Motor vehicles and
other work equipment 16,839 6,841 13,531 6,166
------- ------- ------- -------
Total in service 675,965 367,581 578,462 330,359
Under construction 11,746 - 10,852 -
------- ------- ------- -------
Total property
and equipment $ 687,711 367,581 589,314 330,359
======= ======= ======= =======
The composite depreciation rate for property and equipment was 8.0% in
1998, 8.0% in 1997 and 8.3% in 1996.
Construction expenditures for 1999 are expected to approximate $80 million.
The Company anticipates funding construction from operating activities,
existing temporary investments, and debt financings.
(4) Goodwill and Other Intangible Assets
Goodwill and other intangible assets consist of the following at December
31, 1998:
1998 1997
-------- --------
(Dollars in thousands)
Customer lists $ 5,605 -
Franchise rights 66,455 -
Goodwill 147,410 125,000
------- -------
219,470 125,000
Accumulated amortization 40,231 6,713
------- -------
Total goodwill and other
intangible assets $ 179,239 118,287
======= =======
(5) Temporary Investments
All of the Company's investments in debt and equity securities are
classified as available for sale. The Company does not invest in
securities classified as held to maturity or trading securities. The
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<PAGE>
following table sets forth certain fair value information. At December 31,
1998, temporary investments consisted of U.S. government agency
obligations.
Gross unrealized Estimated
Amortized ---------------- market
1998 cost Gains Losses value
---- --------- ----- ------ -----
(Dollars in thousands)
Total temporary investments $ 985 14 (31) 968
===== == === =====
1997
----
U. S. government obligations 800 13 - 813
U. S. government agency obligations 2,467 36 (31) 2,472
Corporate debt securities 426 2 (19) 409
----- -- --- -----
Total temporary investments $ 3,693 51 (50) 3,694
===== == === =====
The net unrealized gain (loss) on investments available for sale is not
reported separately as a component of stockholders' equity due to its
insignificance to the consolidated balance sheets at December 31, 1998 and
1997.
The amortized cost and estimated market value of debt securities at
December 31, 1998 and 1997, by contractual maturity, are shown below.
Expected maturities will differ from the contractual maturities because
borrowers may have the right to call or prepay obligations with or without
call or prepayment penalties.
1998 1997
-------------------- -------------------
Estimated Estimated
Amortized market Amortized market
cost value cost value
---- ----- ---- -----
(Dollars in thousands)
Due after three months through
five years $ 765 736 1,356 1,379
Due after five years through
ten years - - 1,827 1,792
Thereafter 220 232 510 523
--- --- ----- -----
$ 985 968 3,693 3,694
=== === ===== =====
The gross realized gains and losses on the sale of securities were
insignificant to the consolidated financial statements for the years ended
December 31, 1998, 1997 and 1996.
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<PAGE>
(6) Redeemable Preferred Stock
During 1998, the Company redeemed all of the outstanding preferred stock of
Telco for approximately $4,499,000 plus accrued dividends and premium of
approximately $225,000. The preferred stock was 5% cumulative, nonvoting
and redeemable solely at Telco's option at $105 per share. The excess of
the redemption amount over the carrying value of the preferred stock was
recognized as dividends paid. There were 44,991 shares outstanding for the
year ended December 31, 1997.
(7) Dividend Reinvestment and Stock Purchase Plan
Stock for the Company's Employee and Stockholder Dividend Reinvestment and
Stock Purchase Plan (Plan) is purchased on the open market by the Plan's
Administrator. The basis for the purchase price of the stock allocated to
the Plan participants is the average price paid by the Administrator during
the 5-day trading period preceding and including the dividend payment date.
Employee purchases are at 95% of such price while purchases by nonemployee
participants are at 100% of such price. Participants in the Plan may use
cash dividends declared on stock owned and optional cash contributions to
purchase additional stock.
Shares purchased in the open market for the Plan aggregated 51,345 shares,
86,250 shares and 100,494 shares during 1998, 1997 and 1996, respectively.
Expenses incurred related to the Plan were approximately $20,600, $28,100
and $32,300 in 1998, 1997 and 1996, respectively. There are no shares
reserved for issuance under the Plan.
(8) Long-term Debt and Notes Payable
Long-term debt consists of the following at December 31:
1998 1997
---- ----
(Dollars in thousands)
6.75% Senior unsecured notes due April 1, 2028 with
interest payable semiannually $ 100,000 -
9.91% First Mortgage Bonds paid May 1, 1998
- 44,000
Variable rate term loan due in quarterly installments
until July 6, 2000. Interest accrues on a LIBOR-based
pricing formula (5.87% at December 31, 1998) and is
paid periodically, but at least semiannually 18,000 26,000
Variable rate revolving loan paid March 30, 1998 - 32,000
------- -------
Total long-term debt 118,000 102,000
Less current installments of long-term debt 10,000 8,000
------- -------
Long-term debt, excluding current installments $ 108,000 94,000
======= =======
-31-
<PAGE>
The annual aggregate debt maturities for the two years ending December 31,
1999 and 2000 are $10,000,000 and $8,000,000, respectively.
On February 23, 1998, the Company filed a $250.0 million debt shelf
registration statement with the Securities and Exchange Commission. This
will allow the Company to offer and sell, from time to time, debentures,
notes, and other unsecured evidences of indebtedness at an aggregate
initial offering price not to exceed $250.0 million. Under that shelf
registration, the Company sold $100.0 million of senior unsecured 6.75%
notes (the Notes) in a public debt offering. The Notes are dated April 1,
1998 and mature on April 1, 2028. The Notes contain various restrictions
and covenants. The term loan also contains various restrictions, including
those relating to payment of dividends by the Company. Quarterly dividends
are limited to $15.0 million plus 65.0% of consolidated net income for each
respective quarter. In management's opinion, the Company has complied with
all requirements of the Notes and term loan covenants.
During 1998, the Company extended two revolving credit agreements providing
for unrestricted and unsecured borrowings aggregating up to $75.0 million
expiring July 1, 1999. Borrowings bear interest computed on a LIBOR-based
pricing formula (5.89% and 5.79% at December 31, 1998). The Company has
$36.0 million of unused borrowings under these agreements at December 31,
1998.
As to the $18.0 million variable rate five-year amortizing term loan, the
Company has used an interest rate swap agreement, with a notional amount of
$18.0 million, to effectively convert its variable interest rate exposure
to a fixed rate of 6.37%. At December 31, 1998, the current interest rate
payable to the Company was 5.52% under the swap agreement. The swap
agreement expires at the time the loan matures, July 6, 2000.
The Company is exposed to credit losses in the event of nonperformance by
the counterparty to its interest rate swap agreement. The Company
anticipates, however, that the counterparties will be able to fully satisfy
their obligations under the contracts.
As a result of retiring the First mortgage bonds, the Company recognized an
extraordinary loss of approximately $2.1 million (net of taxes of $1.4
million), consisting of a prepayment penalty of approximately $3.5 million.
(9) Income Taxes
The components of income taxes from operations before the extraordinary
item are shown in the table on the following page.
-32-
<PAGE>
1998 1997 1996
---- ---- ----
(Dollars in thousands)
Current:
Federal $ 32,500 30,395 26,425
State 7,193 5,588 4,898
------ ------ ------
Total current income tax expense 39,693 35,983 31,323
------ ------ ------
Investment tax credits (525) (720) (767)
------ ------ ------
Deferred:
Federal 1,271 (774) (895)
State 334 (172) (161)
------ ------ ------
Total deferred income tax expense
(benefit) 1,605 (946) (1,056)
------ ------ ------
Total income tax expense $ 40,773 34,317 29,500
====== ====== ======
The Company also allocated a current income tax benefit of $1,381,000 to
the extraordinary item in 1998.
The following table is a reconciliation between the statutory federal
income tax rate and the Company's effective tax rate for each of the years
in the three-year period ended December 31, 1998:
<TABLE>
<CAPTION>
1998 1997 1996
-------------- --------------- ---------------
% of % of % of
pretax pretax pretax
Amount income Amount income Amount income
------ ------ ------ ------ ------ ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Computed "expected"
income tax expense $ 35,325 35.0% $ 30,575 35.0% $ 26,061 35.0%
State income tax expense,
net of federal income
tax benefit 4,892 4.9 3,521 4.0 3,079 4.1
Amortization of goodwill 918 0.8 1,085 1.2 1,109 1.5
Nontaxable interest income (55) - (146) (0.2) (65) (0.1)
Amortization of investment
tax credits (525) (0.5) (720) (0.8) (767) (1.0)
Other 218 0.2 2 - 83 0.1
------ ---- ------ ---- ------ ----
Actual income tax
expense $ 40,773 40.4% $ 34,317 39.2% $ 29,500 39.6%
====== ==== ====== ==== ====== ====
</TABLE>
-33-
<PAGE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1998 and 1997 are presented below:
1998 1997
---- ----
(Dollars in thousands)
Deferred tax assets:
Accumulated postretirement benefit cost $ 19,525 18,802
Voluntary early retirement liability 5,459 5,928
Other 2,169 2,308
------ ------
Total gross deferred tax assets 27,153 27,038
Less valuation allowance - -
------ ------
Net deferred tax assets 27,153 27,038
------ ------
Deferred tax liabilities:
Property and equipment, principally due to
depreciation differences 30,258 29,649
Other 4,610 3,499
------ ------
Total gross deferred tax liabilities 34,868 33,148
------ ------
Net deferred tax liabilities $ 7,715 6,110
====== ======
As a result of the nature and amount of the temporary differences which
give rise to the gross deferred tax liabilities and the Company's expected
taxable income in future years, no valuation allowance for deferred tax
assets as of December 31, 1998 and 1997 was necessary.
(10) Benefit Plans
Telco has a noncontributory defined benefit pension plan covering
substantially all employees of the Company with at least one year of
service. Annual contributions to the plan are designed to fund current and
past service costs as determined by independent actuarial valuations.
The Company also sponsors a health care plan that provides postretirement
medical benefits and other benefits to employees who meet minimum age and
service requirements upon retirement. Currently, substantially all of the
Company's employees may become eligible for those benefits if they have
fifteen years of service with normal or early retirement. The Company
accounts for these benefits during the active employment of the
participants.
The table on the following page illustrates the December 31, 1998 financial
statement disclosures for the Company's defined benefit pension and other
postretirement benefit plans. There is no additional minimum pension
liability required to be recognized.
-34-
<PAGE>
Pension Benefits Other Benefits
---------------- --------------
1998 1997 1998 1997
---- ---- ---- ----
(Dollars in thousands)
Benefit obligation at beginning
of year $ 174,077 169,759 62,312 52,563
Service cost 3,260 3,758 415 553
Interest cost 13,280 11,729 4,821 4,069
Amendments 2,488 - - -
Actuarial losses 19,212 310 1,373 8,597
Benefits paid (14,430) (11,479) (3,915) (3,470)
------- ------- ------ ------
Benefit obligation at end
of year $ 197,887 174,077 65,006 62,312
======= ======= ====== ======
The table below summarizes the change in fair value of plan assets and the
accrued benefit cost:
Pension Benefits Other Benefits
---------------- --------------
1998 1997 1998 1997
---- ---- ---- ----
(Dollars in thousands)
Fair value of plan assets at
beginning of year $ 243,685 218,507 - -
Actual return on plan assets 26,826 36,657 - -
Benefits paid (14,430) (11,479) - -
------- ------- ------ ------
Fair value of plan assets at
end of year $ 256,081 243,685 - -
======= ======= ====== ======
Funded status $ 58,195 69,608 (65,006) (62,312)
Unrecognized net actuarial gain (74,980) (84,233) 14,163 13,161
Unrecognized prior service cost 8,395 6,486 1,672 1,801
Unrecognized transition net assets (5,358) (6,790) - -
------- ------- ------ ------
Prepaid (accrued) benefit cost $ (13,748) (14,929) (49,171) (47,350)
======= ======= ====== ======
The assets of the pension plan are invested primarily in marketable equity
and fixed income securities and U. S. government obligations.
The weighted-average discount rate and rate of compensation increase used
in determining the funded status information and benefit expense for the
pension plan was 7.1% and 5.5%, respectively in 1998, 1997 and 1996. The
weighted-average return on plan assets for the pension plan as 8.5% in
1998, 8.0% for 1997 and 1996. The weighted average discount rate used in
determining the funded status information and benefit expense for the other
benefits was 8.0% in 1998, 1997 and 1996.
-35-
<PAGE>
For measurement purposes, a 10.0% annual rate of increase in the per capita
cost of covered health care benefits was assumed for 1998. The annual rate
of increase is assumed to decrease gradually to 5.5% by the year 2004.
The net periodic pension and other benefits credit for 1998, 1997 and 1996
is comprised of the following components:
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
---------------------- --------------------
1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 3,260 3,758 3,538 415 553 497
Interest cost 13,280 11,729 11,338 4,821 4,069 4,038
Expected return on plan assets (16,673) (14,698) (13,915) - - -
Amortization of prior service
cost 579 579 579 129 113 113
Recognized net actuarial loss (194) (964) (716) 371 (15) 32
Amortization of unrecognized
transition liability (1,433) (1,433) (1,433) - - -
------ ------ ------ ----- ----- -----
Net periodic benefit cost $ (1,181) (1,029) (609) 5,736 4,720 4,680
====== ====== ====== ===== ===== =====
</TABLE>
Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plans. A one-percentage-point change
in assumed health care cost trend rates would have the following effects on
other postretirement benefits costs:
1-Percentage- 1-Percentage-
Point Increase Point Decrease
-------------- --------------
(Dollars in thousands)
Effect on total service and
interest cost components $ 393 (318)
===== =====
Effect on postretirement benefit
obligation $ 3,536 (2,821)
===== =====
The Company has a defined contribution profit-sharing plan which covers its
employees who have completed one year of service. Union-eligible employees
became eligible to participate in the plan beginning January 1, 1997.
Through December 31, 1996, Aliant Cellular also had a separate defined
contribution plan for its eligible employees, however, the board of
directors approved the participation of eligible employees of Aliant
Cellular to become participants of the Company's plan effective January 1,
1997. The assets and liabilities of Aliant Cellular's plan were merged
into the Company's plan in 1997. Under the Company plan, participants may
elect to deposit a maximum of 15% of their wages up to certain limits. The
Company matches 25% of the nonunion-eligible participants' contributions up
to 5% of their wages. The Company's profit-sharing plan also has a
provision for an employee stock ownership fund, to which the Company has
-36-
<PAGE>
contributed an additional 1.75% of each nonunion-eligible participant's
wage. The Company's matching contributions and employee stock ownership
fund contributions are used to acquire common stock of the Company. The
combined contributions to these plans totaled $919,000, $931,000 and
$851,000 for 1998, 1997 and 1996, respectively.
(11) Stock and Incentive Plan
The Company has a stock and incentive plan which provides for the award of
short-term incentives (payable in cash or restricted stock), stock options,
stock appreciation rights or restricted stock to certain officers and key
employees conditioned upon the Company's attaining certain performance
goals.
Under the plan, options may be granted for a term not to exceed ten years
from date of grant. The weighted-average remaining contractual life of the
options outstanding at December 31, 1998 is 8.2 years. The option price is
the fair market value of the shares on the date of grant. Such exercise
price ranges from $16.50 to $27.00. The exercise price of a stock option
may be paid in cash, shares of Company common stock or a combination of
cash and shares.
Stock option activity under the plan is summarized as follows:
1998 1997 1996
---- ---- ----
Outstanding at January 1 148,087 195,337 146,412
Granted 70,000 46,750 58,400
Exercised (2,800) (90,237) (9,475)
Canceled - (3,763) -
------- ------- -------
Outstanding at December 31 215,287 148,087 195,337
======= ======= =======
Exercisable at December 31 9,887 12,687 92,237
======= ======= =======
The Company accounts for its stock options using the intrinsic value
method. Under that method, compensation expense is recorded on the date of
grant only if the current market price of the underlying stock exceeded the
exercise price. The Company has not recorded any compensation expense for
stock option grants in 1998, 1997 or 1996.
The per share weighted-average fair value of stock options granted during
1998, 1997 and 1996 was $18.56, $14.24 and $4.44, respectively, on the date
of grant using the Black Scholes option-pricing model with the following
weighted-average assumptions:
1998 1997 1996
---- ---- ----
Expected dividend yield 1.76% 2.17% 3.59%
Risk-free interest rate 4.68% 5.70% 6.41%
Expected volatility factor 33.10% 28.30% 27.00%
Expected life in years 4.90 4.90 5.75
-37-
<PAGE>
Had the Company recorded compensation cost based on the alternative fair
value at the grant date for its stock options, the Company's net income for
1998, 1997 and 1996 would have been reduced by approximately $293,000,
$145,000 and $72,000, respectively.
Pro forma net income reflects only options granted in 1998, 1997 and 1996.
Therefore, the full impact of calculating compensation cost for stock
options under FAS No. 123 is not reflected in the pro forma net income
amounts presented above because compensation cost is reflected over the
options' vesting period of 4 years for the 1998, 1997 and 1996 options.
Compensation cost for options granted prior to January 1, 1996 is not
considered.
The plan also provides for the granting of stock appreciation rights (SARs)
to holders of options, in lieu of stock options, upon lapse of stock
options or independent of stock options. Such rights offer optionees the
alternative of electing not to exercise the related stock option, but to
receive instead an amount in cash, stock or a combination of cash and stock
equivalent to the difference between the option price and the fair market
value of shares of Company stock on the date the SAR is exercised. No SARs
have been issued under the plan.
In addition, 7,452 shares, 7,974 shares, and 8,867 shares of restricted
stock were awarded by the Company during 1998, 1997 and 1996, respectively.
Recipients of the restricted stock are entitled to cash dividends and to
vote their respective shares. Restrictions limit the sale or transfer of
the shares for two years subsequent to issuance unless employment is
terminated earlier due to death, disability or retirement.
Amounts charged against 1998, 1997 and 1996 net income for cash and
restricted stock awards were approximately $586,260, $431,900 and $277,100,
respectively. Pursuant to the plan, 2,000,000 shares of common stock are
reserved for issuance under this plan.
-38-
<PAGE>
(12) Quarterly Financial Information (Unaudited)
First Second Third Fourth
1998 quarter quarter quarter quarter Total
- ----------------------- ------- ------- ------- ------- -----
(Dollars in thousands, except per share data)
Operating revenues:
Telephone $ 51,624 52,830 54,623 57,592 216,669
Wireless communications 21,826 32,373 32,813 32,055 119,067
Equipment sales and
services 4,755 4,692 5,422 5,485 20,354
Intercompany (3,095) (3,851) (3,752) (7,385) (18,083)
------ ------ ------ ------ ------
Total operating
revenues $ 75,110 86,044 89,106 87,747 338,007
====== ====== ====== ====== =======
Income (loss)before
extraordinary item and
minority interest $ 13,476 14,989 15,636 18,154 62,255
====== ====== ====== ====== =======
Net income (see note 18) $ 13,118 12,279 15,085 17,577 58,059
====== ====== ====== ====== =======
Basic and diluted earnings
per common share before
extraordinary item $ .36 .39 .43 .49 1.67
Extraordinary item - (.06) - - (.06)
------ ------ ------ ------ -------
Basic and diluted earnings
per common share $ .36 .33 .43 .49 1.61
====== ====== ====== ====== =======
First Second Third Fourth
1997 quarter quarter quarter quarter Total
- ----------------------- ------- ------- ------- ------- -----
(Dollars in thousands, except per share data)
Operating revenues:
Telephone $ 48,855 49,072 50,935 51,011 199,873
Wireless communications 16,746 19,631 19,969 20,364 76,710
Equipment sales and
services 4,540 4,193 4,985 5,458 19,176
Intercompany (1,953) (2,260) (2,323) (2,895) (9,431)
------ ------ ------ ------ -------
Total operating
revenues $ 68,188 70,636 73,566 73,938 286,328
====== ====== ====== ====== =======
Net income $ 11,978 13,188 13,995 13,878 53,039
====== ====== ====== ====== =======
Basic and diluted earnings
per common share $ .33 .36 .39 .38 1.46
====== ====== ====== ====== =======
(13) Common Stock Purchase Rights
The Board of Directors declared a dividend of one common stock purchase
right for each common share outstanding as of June 30, 1989. Under certain
conditions, each right may be exercised to purchase for $21.875 an amount
-39-
<PAGE>
of the Company's common stock, or an acquiring company's common stock,
having a market value of $43.75. The rights may only be exercised after a
person or group (except for certain stockholders) acquires ownership of 10%
or more of the Company's common shares or announces a tender or exchange
offer upon which consummation would result in ownership of 10% or more of
the common shares. The rights expire on June 30, 1999 and may be redeemed
by the Company at a price of $.0025 per right, at any time until ten days
after a public announcement of the acquisition of 10% of the Company's
common stock. At December 31, 1998, 38,574,967 shares of common stock were
reserved for issuance in connection with these stock purchase rights.
(14) Disclosures About the Fair Value of Financial Instruments
Cash and Cash Equivalents, Receivables, Accounts Payable and Note Payable
The carrying amount approximates fair value because of the short maturity
of these instruments.
Temporary Investments
The fair values of the Company's marketable investment securities are based
on quoted market prices. See note 5 for the estimated fair value of
temporary investments.
Long-term Debt
The fair values of the Company's long-term debt instruments are based on
the amount of future cash flows associated with the instruments discounted
using the Company's current borrowing rate on similar debt instruments of
comparable maturity.
Interest Rate Swap and Collar Agreements
The fair value is the estimated amount the Company would have to pay or
receive to terminate the swap agreements as of December 31, 1998 and 1997,
respectively, taking into account current interest rates and the credit
worthiness of the counterparty.
Estimated Fair Value
The estimated fair value of the Company's financial instruments are
summarized as follows:
At December 31, 1998 At December 31, 1997
-------------------- --------------------
Carrying Estimated Carrying Estimated
amount fair value amount fair value
------ ---------- ------ ----------
(Dollars in thousands)
Note receivable from OCGP $ - - 47,728 50,463
======= ======= ======= =======
Long-term debt $ 118,000 121,750 102,000 106,127
======= ======= ======= =======
Interest rate swap and
collar agreements
gain (loss) $ - (183) - (82)
======= ======= ======= =======
-40-
<PAGE>
Limitations
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument.
These estimates are subjective in nature and involve uncertainties and
matters of significant judgment and, therefore, cannot be determined with
precision. Changes in assumptions could significantly affect the
estimates.
(15) Supplemental Cash Flow Disclosures
The Company paid interest of $8.9 million, $8.8 million and $9.1 million
during 1998, 1997 and 1996, respectively. Income taxes paid were $36.7
million in 1998, $39.4 million in 1997 and $25.3 million in 1996.
The Company consummated the acquisitions of the remaining 50% interest of
OCGP and additional cellular partnership interests of various limited
partners during 1998. In connection with the acquisitions, the following
assets were acquired, liabilities assumed and long-term debt issued.
(Dollars in thousands)
Property and equipment $ 35,919
Customer lists and franchise rights 37,515
Excess cost of net assets acquired 9,456
Long-term debt assumed (3,500)
Other assets and liabilities, excluding cash
and cash equivalents 14,478
Note receivable from and prior investment
in OCGP (50,098)
Minority interest (5,665)
Issuance of long-term debt (15,000)
-------
Decrease in cash $ 23,105
=======
(16) Commitments
The Company entered into two separate agreements during 1997 for the
purchase of new landline and cellular equipment over five years commencing
the first quarter of 1998. The aggregate cash payments for each of the
four years subsequent to December 31, 1998 approximate $7.7 million; $2.0
million; $3.9 million; and $3.0 million, respectively. The Company
anticipates funding these purchase commitments from operations and debt
financings.
(17) Reportable Segments
The Company adopted the provisions of FAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information," effective December 31,
1998. The Company has significant operations principally in two industry
segments: landline operations and wireless operations. The landline
operations provide a full array of telecommunications services to both
retail customers (consumers, businesses, government, and education) and
wholesale customers (communications companies that may be competitors at
the retail level). The wireless operations consist of cellular and paging
services.
-41-
<PAGE>
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. The Company evaluates
performance based on income from operations. The Company accounts for
intersegment sales and transfers as of the sales or transfers were to third
parties, that is, at current market prices.
The Company's reportable segments are strategic business units that offer
different products and services. They are managed separately because each
business requires different technology and marketing strategies. The
Company utilizes the information on the following the page for purposes of
making decisions about allocating resources to a segment and assessing a
segment's performance.
Landline Wireless All
Operations Operations Other Total
---------- ---------- ----- -----
Year ended December 31, 1998
- ----------------------------
Revenues from external customers $ 222,058 $119,067 20,354 361,479
Intersegment revenues 23,114 358 - 23,472
Income from operations 66,024 38,085 (3,180) 100,929
Year ended December 31, 1997
- ----------------------------
Revenues from external customers $ 204,580 76,710 19,176 300,466
Intersegment revenues 14,021 117 - 14,138
Income from operations 65,019 27,189 (4,853) 87,355
Year ended December 31, 1996
- ----------------------------
Revenues from external customers $ 192,556 63,696 18,930 275,182
Intersegment revenues 10,849 108 - 10,957
Income from operations 61,492 18,443 (5,481) 74,454
As of December 31, 1998
- -----------------------
Segment assets $ 320,111 301,201 29,264 650,576
Investment in equity method
investees - - - -
Expenditures for segment assets 52,975 30,138 1,434 84,547
As of December 31, 1997
- -----------------------
Segment assets $ 307,109 233,987 18,208 559,304
Investment in equity method
investees - 1,770 - 1,770
Expenditures for segment assets 41,480 7,770 817 50,067
-42-
<PAGE>
A reconciliation of reportable segment amounts to the Company's
consolidated balances follows:
Year ended December 31,
Revenue 1998 1997 1996
---- ---- ----
Total revenue for reportable segments $ 341,125 281,290 256,252
Other revenue 20,354 19,176 18,930
Elimination of intersegment revenue (23,472) (14,138) (10,957)
------- ------- -------
Total consolidated revenue $ 338,007 286,328 264,225
======= ======= =======
As of December 31,
Assets 1998 1997
---- ----
Total assets for reportable segments $ 621,312 541,096
Other segment assets 29,264 18,208
Consolidating and eliminating adjustments (25,908) (11,662)
------- -------
Total consolidated assets $ 624,668 547,642
======= =======
The Company does not have a single external customer which represents 10
percent or more of its consolidated revenues.
(18) Legal Settlement
Effective October 1, 1998, the Company entered into a settlement agreement
related to a Federal trademark infringement lawsuit which resulted in other
nonoperating income of approximately $3.3 million, net of legal fees and
related expenses.
(19) Merger with ALLTEL
On December 18, 1998, the Company and ALLTEL Corporation announced a
definitive merger agreement. Under the terms of the agreement, each share
of Aliant would be exchanged for $39.13 worth of ALLTEL stock within a
range of .67 to .75 shares of ALLTEL stock for each share of Aliant.
-43-
<PAGE>
CORPORATE OFFICERS
Thomas C. Woods III, Chairman of the Board
Frank H. Hilsabeck, President and Chief Executive Officer
James W. Strand, President-Diversified Operations
Robert L. Tyler, Senior Vice President-Chief Financial Officer
Bryan C. Rickertsen, Vice President-Technology
Michael J. Tavlin, Vice President-Treasurer and Secretary
CORPORATE INFORMATION
Corporate Headquarters
1440 M Street, Lincoln, NE 68508
402-436-3737
Mailing Address:
P. O. Box 81309
Lincoln, NE 68501-1309
STOCK LISTED
NASDAQ National Market
Symbol: ALNT
DIRECTORS
Duane W. Acklie, Chairman, Crete Carrier Corporation
William W. Cook Jr., Chairman of the Board and CEO, The Beatrice National
Bank and Trust Company
John Haessler, President and Chief Executive Officer, Woodmen Accident and
Life Company
Charles R. Hermes, President, Dutton-Lainson Company
Frank H. Hilsabeck, President and Chief Executive Officer, Aliant
Communications Inc.
Paul C. Schorr III, President and Chief Executive Officer, ComCor Holding
Inc.
William C. Smith, Retired Chairman, FirsTier Financial, Inc.
James W. Strand, President-Diversified Operations, Aliant Communications
Inc.
Charles N. Wheatley, President and Chief Executive Officer, Sahara
Enterprises, Inc.
Thomas C. Woods III, Chairman of the Board, Aliant Communications Inc.
Lyn Wallin Ziegenbein, Executive Director, Peter Kiewit Foundation
-44-
<PAGE>
COMMITTEES
Executive
- ---------
Frank H. Hilsabeck, Chairman
William W. Cook Jr.
Paul C. Schorr
William C. Smith
Audit
- -----
Charles R. Hermes, Chairman
John Haessler
Executive Compensation
- ----------------------
Duane W. Acklie, Chairman
Paul C. Schorr III
Charles N. Wheatley
Lyn Wallin Ziegenbein
AUDITORS
KPMG Peat Marwick LLP
233 South 13th Street
Suite 1600
Lincoln, NE 68508
MARKET AND DIVIDEND DATA
Market Price Dividend Declared
- ---------------------------------------------------- -----------------
Calendar 1998 1997
Quarter High Low High Low 1998 1997
- ---------------------------------------------------- -----------------
1st $34.19 $25.75 $19.50 $16.00 $ .18 $ .16
2nd 34.00 22.50 20.50 15.00 .18 .16
3rd 29.88 22.00 24.88 18.25 .18 .17
4th 40.69 23.25 33.19 23.75 .18 .17
12 Mos. 40.69 22.00 33.19 15.00 .72 .66
The company has paid a dividend on its common stock every quarter since
1936. The quarterly record dates are typically five days before the end of
the calendar quarter.
STOCKHOLDER INFORMATION
Investor Relations Center
- -------------------------
The Forms 10-K and 10-Q, annual report, a prospectus, and other stock
information may be obtained without charge by calling 800-550-ALNT (2568).
Requests may also be directed to:
Lincoln area: 402-436-5277
From anywhere in the continental U.S.: 800-829-5832
E-mail: [email protected]
-45-
<PAGE>
Annual Meeting of Stockholders
- ------------------------------
April 22, 1998
10:30 a.m.
The Cornhusker Hotel
333 South 13th Street
Lincoln, Nebraska
Stock Transfer Agent and Registrar
- ----------------------------------
ChaseMellon Shareholder Services is the Company's Stock Transfer Agent,
Registrar, Dividend Reinvestment Plan Administrator, and the Rights Agent
for the Stockholder Rights Plan. All questions about stockholder accounts,
stock certificates, the dividend reinvestment plan, or dividend checks
should be addressed to:
ChaseMellon Shareholder Services, L.L.C.
Overpeck Centre, 85 Challenger Road
Ridgefield Park, NJ 07660
800-642-7236
800-231-5469 (TDD)
SECURITY ANALYSTS AND PORTFOLIO MANAGERS
Direct inquiries to:
Michael J. Tavlin
Vice President-Treasurer
P. O. Box 81309
Lincoln, NE 68501-1309
402-436-5289
E-mail: [email protected]
DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
The company offers a dividend reinvestment and stock purchase plan.
Participants can make optional cash payments of at least $100 per payment
with a maximum of $3,000 per calendar quarter. The company pays all
administrative and investment costs.
-46-
<PAGE>
EXHIBIT 23
KPMG Peat Marwick LLP
233 South 13th Street, Suite 1600
Lincoln, NE 68508-2041
Two Central Park Plaza
Suite 1501
Omaha, NE 68102
Accountants' Consent
The Board of Directors
Aliant Communications Inc.:
We consent to incorporation by reference in the registration statement
(No. 333-46751) on Form S-3, the registration statement (No. 333-64223) on
Form S-3D, and the registration statement (No. 33-39551) on Form S-8 of
Aliant Communications Inc. of our reported dated February 5, 1999, relating
to the consolidated balance sheets of Aliant Communications Inc. and
subsidiaries as of December 31, 1998 and 1997, and the related statements
of earnings, stockholders' equity and cash flows for each of the years in
the three-year period ended December 31, 1998 and related schedule, which
reports appear in the December 31, 1998 annual report on Form 10-K of
Aliant Communications Inc.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Lincoln, Nebraska
March 22, 1999
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
WHEREAS, ALIANT COMMUNICATIONS INC., a Nebraska corporation
(hereinafter referred to as the "Corporation"), will file with the
Securities and Exchange Commission, under the provisions of the Securities
Exchange Act of 1934, on or before the due date of March 30, 1999, an
annual report on Form 10-K; and
WHEREAS, the undersigned is the Director of the Corporation.
NOW, THEREFORE, the undersigned hereby constitutes and appoints Frank
H. Hilsabeck, Robert L. Tyler and Michael J. Tavlin or any one of them, as
attorney-in-fact, with full power to act for the undersigned and in the
name, place and stead of the undersigned, to sign the name of the
undersigned as Director to the annual report on Form 10-K for the
Corporation and any and all amendments to such annual report, hereby
ratifying and confirming all that said attorney-in-fact may or shall
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this document this
16th day of February, 1999.
/s/ Connie L. Koleszar /s/ Duane W. Acklie
------------------ -------------------
Witness Director
<PAGE>
POWER OF ATTORNEY
WHEREAS, ALIANT COMMUNICATIONS INC., a Nebraska corporation
(hereinafter referred to as the "Corporation"), will file with the
Securities and Exchange Commission, under the provisions of the Securities
Exchange Act of 1934, on or before the due date of March 30, 1999, an
annual report on Form 10-K; and
WHEREAS, the undersigned is the Director of the Corporation.
NOW, THEREFORE, the undersigned hereby constitutes and appoints Frank
H. Hilsabeck, Robert L. Tyler and Michael J. Tavlin or any one of them, as
attorney-in-fact, with full power to act for the undersigned and in the
name, place and stead of the undersigned, to sign the name of the
undersigned as Director to the annual report on Form 10-K for the
Corporation and any and all amendments to such annual report, hereby
ratifying and confirming all that said attorney-in-fact may or shall
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this document this
9th day of February, 1999.
/s/ Susan K. Hartley /s/ William W. Cook, Jr.
------------------ --------------------
Witness Director
<PAGE>
POWER OF ATTORNEY
WHEREAS, ALIANT COMMUNICATIONS INC., a Nebraska corporation
(hereinafter referred to as the "Corporation"), will file with the
Securities and Exchange Commission, under the provisions of the Securities
Exchange Act of 1934, on or before the due date of March 30, 1999, an
annual report on Form 10-K; and
WHEREAS, the undersigned is the Director of the Corporation.
NOW, THEREFORE, the undersigned hereby constitutes and appoints Frank
H. Hilsabeck, Robert L. Tyler and Michael J. Tavlin or any one of them, as
attorney-in-fact, with full power to act for the undersigned and in the
name, place and stead of the undersigned, to sign the name of the
undersigned as Director to the annual report on Form 10-K for the
Corporation and any and all amendments to such annual report, hereby
ratifying and confirming all that said attorney-in-fact may or shall
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this document this
8th day of February, 1999.
/s/ Jeannine Zier /s/ John Haessler
------------------ -------------------
Witness Director
<PAGE>
POWER OF ATTORNEY
WHEREAS, ALIANT COMMUNICATIONS INC., a Nebraska corporation
(hereinafter referred to as the "Corporation"), will file with the
Securities and Exchange Commission, under the provisions of the Securities
Exchange Act of 1934, on or before the due date of March 30, 1999, an
annual report on Form 10-K; and
WHEREAS, the undersigned is the Director of the Corporation.
NOW, THEREFORE, the undersigned hereby constitutes and appoints Frank
H. Hilsabeck, Robert L. Tyler and Michael J. Tavlin or any one of them, as
attorney-in-fact, with full power to act for the undersigned and in the
name, place and stead of the undersigned, to sign the name of the
undersigned as Director to the annual report on Form 10-K for the
Corporation and any and all amendments to such annual report, hereby
ratifying and confirming all that said attorney-in-fact may or shall
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this document this
8th day of February, 1999.
/s/ Susan K. Abraham /s/ Charles R. Hermes
------------------ -------------------
Witness Director
<PAGE>
POWER OF ATTORNEY
WHEREAS, ALIANT COMMUNICATIONS INC., a Nebraska corporation
(hereinafter referred to as the "Corporation"), will file with the
Securities and Exchange Commission, under the provisions of the Securities
Exchange Act of 1934, on or before the due date of March 30, 1999, an
annual report on Form 10-K; and
WHEREAS, the undersigned is the Director of the Corporation.
NOW, THEREFORE, the undersigned hereby constitutes and appoints Frank
H. Hilsabeck, Robert L. Tyler and Michael J. Tavlin or any one of them, as
attorney-in-fact, with full power to act for the undersigned and in the
name, place and stead of the undersigned, to sign the name of the
undersigned as Director to the annual report on Form 10-K for the
Corporation and any and all amendments to such annual report, hereby
ratifying and confirming all that said attorney-in-fact may or shall
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this document this
19th day of March, 1999.
/s/ Kathy Dvorak /s/ Frank H. Hilsabeck
------------------ -------------------
Witness Director
<PAGE>
POWER OF ATTORNEY
WHEREAS, ALIANT COMMUNICATIONS INC., a Nebraska corporation
(hereinafter referred to as the "Corporation"), will file with the
Securities and Exchange Commission, under the provisions of the Securities
Exchange Act of 1934, on or before the due date of March 30, 1999, an
annual report on Form 10-K; and
WHEREAS, the undersigned is the Director of the Corporation.
NOW, THEREFORE, the undersigned hereby constitutes and appoints Frank
H. Hilsabeck, Robert L. Tyler and Michael J. Tavlin or any one of them, as
attorney-in-fact, with full power to act for the undersigned and in the
name, place and stead of the undersigned, to sign the name of the
undersigned as Director to the annual report on Form 10-K for the
Corporation and any and all amendments to such annual report, hereby
ratifying and confirming all that said attorney-in-fact may or shall
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this document this
9th day of February, 1999.
/s/ June Schorr /s/ Paul C. Schorr, III
------------------ -------------------
Witness Director
<PAGE>
POWER OF ATTORNEY
WHEREAS, ALIANT COMMUNICATIONS INC., a Nebraska corporation
(hereinafter referred to as the "Corporation"), will file with the
Securities and Exchange Commission, under the provisions of the Securities
Exchange Act of 1934, on or before the due date of March 30, 1999, an
annual report on Form 10-K; and
WHEREAS, the undersigned is the Director of the Corporation.
NOW, THEREFORE, the undersigned hereby constitutes and appoints Frank
H. Hilsabeck, Robert L. Tyler and Michael J. Tavlin or any one of them, as
attorney-in-fact, with full power to act for the undersigned and in the
name, place and stead of the undersigned, to sign the name of the
undersigned as Director to the annual report on Form 10-K for the
Corporation and any and all amendments to such annual report, hereby
ratifying and confirming all that said attorney-in-fact may or shall
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this document this
11th day of March, 1999.
/s/ (illegible) /s/ William C. Smith
------------------ -------------------
Witness Director
<PAGE>
POWER OF ATTORNEY
WHEREAS, ALIANT COMMUNICATIONS INC., a Nebraska corporation
(hereinafter referred to as the "Corporation"), will file with the
Securities and Exchange Commission, under the provisions of the Securities
Exchange Act of 1934, on or before the due date of March 30, 1999, an
annual report on Form 10-K; and
WHEREAS, the undersigned is the Director of the Corporation.
NOW, THEREFORE, the undersigned hereby constitutes and appoints Frank
H. Hilsabeck, Robert L. Tyler and Michael J. Tavlin or any one of them, as
attorney-in-fact, with full power to act for the undersigned and in the
name, place and stead of the undersigned, to sign the name of the
undersigned as Director to the annual report on Form 10-K for the
Corporation and any and all amendments to such annual report, hereby
ratifying and confirming all that said attorney-in-fact may or shall
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this document this
4th day of February, 1999.
/s/ Florence L. Berry /s/ James W. Strand
------------------ -------------------
Witness Director
<PAGE>
POWER OF ATTORNEY
WHEREAS, ALIANT COMMUNICATIONS INC., a Nebraska corporation
(hereinafter referred to as the "Corporation"), will file with the
Securities and Exchange Commission, under the provisions of the Securities
Exchange Act of 1934, on or before the due date of March 30, 1999, an
annual report on Form 10-K; and
WHEREAS, the undersigned is the Director of the Corporation.
NOW, THEREFORE, the undersigned hereby constitutes and appoints Frank
H. Hilsabeck, Robert L. Tyler and Michael J. Tavlin or any one of them, as
attorney-in-fact, with full power to act for the undersigned and in the
name, place and stead of the undersigned, to sign the name of the
undersigned as Director to the annual report on Form 10-K for the
Corporation and any and all amendments to such annual report, hereby
ratifying and confirming all that said attorney-in-fact may or shall
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this document this
19th day of February, 1999.
/s/ (illegible) /s/ C. N. Wheatley
------------------ -------------------
Witness Director
<PAGE>
POWER OF ATTORNEY
WHEREAS, ALIANT COMMUNICATIONS INC., a Nebraska corporation
(hereinafter referred to as the "Corporation"), will file with the
Securities and Exchange Commission, under the provisions of the Securities
Exchange Act of 1934, on or before the due date of March 30, 1999, an
annual report on Form 10-K; and
WHEREAS, the undersigned is the Director of the Corporation.
NOW, THEREFORE, the undersigned hereby constitutes and appoints Frank
H. Hilsabeck, Robert L. Tyler and Michael J. Tavlin or any one of them, as
attorney-in-fact, with full power to act for the undersigned and in the
name, place and stead of the undersigned, to sign the name of the
undersigned as Director to the annual report on Form 10-K for the
Corporation and any and all amendments to such annual report, hereby
ratifying and confirming all that said attorney-in-fact may or shall
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this document this
8th day of February, 1999.
/s/ Diane M. Dermann /s/ Thomas C. Woods, III
------------------ --------------------
Witness Director
<PAGE>
POWER OF ATTORNEY
WHEREAS, ALIANT COMMUNICATIONS INC., a Nebraska corporation
(hereinafter referred to as the "Corporation"), will file with the
Securities and Exchange Commission, under the provisions of the Securities
Exchange Act of 1934, on or before the due date of March 30, 1999, an
annual report on Form 10-K; and
WHEREAS, the undersigned is the Director of the Corporation.
NOW, THEREFORE, the undersigned hereby constitutes and appoints Frank
H. Hilsabeck, Robert L. Tyler and Michael J. Tavlin or any one of them, as
attorney-in-fact, with full power to act for the undersigned and in the
name, place and stead of the undersigned, to sign the name of the
undersigned as Director to the annual report on Form 10-K for the
Corporation and any and all amendments to such annual report, hereby
ratifying and confirming all that said attorney-in-fact may or shall
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this document this
2nd day of March, 1999.
/s/ Patricia A. Thraen /s/ Lyn Wallin Ziegenbein
------------------ ---------------------
Witness Director
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0
0
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