SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K/A
AMENDMENT NO. 3 TO ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-4996
ALLTEL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 34-0868285
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Allied Drive, Little Rock, Arkansas 72202
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (501) 661-8000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock New York and Pacific
$2.06 No Par Cumulative Convertible
Preferred Stock New York and Pacific
Securities registered pursuant to Section 12(g) of the Act:
NONE
(Title of Class)
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)
Aggregate market value of voting stock held by non-affiliates as of
January 31, 1995 - $ 5,341,217,327
Common shares outstanding, January 31, 1995 - 188,236,734
DOCUMENTS INCORPORATED BY REFERENCE
Document Incorporated Into
Portions of the annual report to stockholders
for the year ended December 31, 1994 Parts I, II and IV
Proxy statement for the 1995 annual meeting
of stockholders Part III
<PAGE>
SIGNATURE
The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of its 1994 Annual Report on Form 10-K
as set forth in the pages attached hereto;
(list all such items, financial statements, exhibits
or other portions amended)
Part I
Item 1 Business.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
ALLTEL CORPORATION
(Registrant)
/s/ Dennis J. Ferra
Dennis J. Ferra
Senior Vice-President - Accounting and Administration
August 28, 1995
<PAGE>
ALLTEL Corporation
Securities and Exchange Commission
Form 10-K, Part I
Item 1. Business
THE COMPANY
GENERAL
ALLTEL Corporation ("ALLTEL" or the "Company"), incorporated in June 1960
under the laws of Ohio as Mid-Continent Telephone Corporation, changed its
name to ALLTEL Corporation in October 1983. During 1990, the Company
changed its state of incorporation to Delaware. ALLTEL is a diversified
telecommunications and information services company. The Company provides
local and network access services to customers throughout 22 states. The
Company also owns subsidiaries or investments that provide cellular
telephone, wide-area paging and fiber optic-based long-distance telephone
service. Information processing management services and advanced
applications software are provided to the financial, healthcare and
telecommunications industries by the Company's information services
subsidiaries. Telecommunications products and electronic and electric wire
and cable are warehoused and sold by the Company's distribution
subsidiaries. In addition, the Company publishes telephone directories and
provides cable television service.
ACQUISITIONS
In November 1994, the Company completed its acquisition of Medical Data
Technology, Inc. ("MDT"). MDT provides information processing services to
14 hospitals in the northeastern United States utilizing comprehensive
application software developed by ALLTEL's healthcare information services
subsidiary.
Effective November 1, 1993, the Company and GTE Corporation completed an
exchange of telephone service areas in several states. ALLTEL exchanged
approximately 95,000 access lines in Illinois, Indiana and Michigan and
$443 million in cash for GTE's Georgia telephone operations, which serve
approximately 320,000 access lines.
In October 1993, the Company completed its merger with TDS Healthcare
Systems Corporation ("TDS"). TDS is a leading provider of comprehensive
patient care and healthcare enterprise information systems serving more
than 200 hospitals in the United States, Canada and Europe.
In October 1993, ALLTEL Publishing Corporation ("ALLTEL Publishing")
completed its purchase of GTE Directories Service Corporation's ("GTE
Directories") independent publishing business which includes contracts with
more than 125 independent telephone companies across the country.
During 1993, ALLTEL Mobile Communications, Inc. ("ALLTEL Mobile") acquired
a 100% interest in one Georgia Rural Service Area ("RSA") which has a
population of approximately 145,000. In addition, ALLTEL Mobile acquired
interests in two other Georgia RSAs and increased its ownership in one
Texas RSA and one Mississippi RSA.
In January 1993, ALLTEL Mobile acquired an additional 20% interest in the
Ft. Smith, Arkansas Metropolitan Statistical Area ("MSA"). This
transaction increased ALLTEL Mobile's interest in the Ft. Smith MSA to 80%.
1
<PAGE>
ALLTEL Corporation
Securities and Exchange Commission
Form 10-K, Part I
Item 1. Business
THE COMPANY (continued)
ACQUISITIONS (continued)
On December 31, 1992, ALLTEL Mobile acquired a 60% interest and a 90%
interest in the Ft. Smith, Arkansas and Fayetteville, Arkansas MSAs,
respectively.
In December 1992, the Company acquired SLT Communications, Inc. ("SLT").
SLT serves approximately 49,000 telephone customers primarily in suburban
Houston. It also has approximately 328,000 cellular "pops", including
2.34% ownership in the Houston, Galveston and Beaumont, Texas MSA, a 1%
interest in the Little Rock, Arkansas MSA, and has interest in four Texas
RSA markets. In addition, SLT serves approximately 6,900 cable television
subscribers and owns one-third of Metropolitan Houston Paging Services, one
of the largest paging networks in Texas.
During 1992, ALLTEL Mobile increased its ownership to 100% in the
Springfield, Missouri and Charlotte, North Carolina MSAs, to 80% in the
Savannah, Georgia MSA and to 64% in the Little Rock, Arkansas MSA.
In February 1992, the Company acquired Computer Power, Inc. ("CPI"), the
nation's largest provider of software and processing services to the
mortgage industry. CPI has a comprehensive set of proprietary software
systems which includes the Mortgage Servicing Package, Residential Loan
Inventory Control Package, the Residential Loan Production Control Package,
and a number of related systems as well as consulting, training, portfolio
conversion and other services.
During 1992, ALLTEL Mobile purchased an additional 42% interest in the
Savannah, Georgia, MSA, increasing its total interest to 80%, purchased
operating control of the Ft. Smith and Fayetteville, Arkansas, MSAs, as
well as additional interests in three Arkansas and Oklahoma RSAs, one
Missouri RSA, and three Alabama RSAs.
In 1991, the Company acquired Missouri Telephone Company. Missouri
Telephone Company serves approximately 20,000 customer access lines and
2,600 cable television customers in Missouri. It also has 320,000 cellular
"pops" including 48% ownership in the Springfield, Mo. MSA cellular market
where together with ALLTEL Mobile, the Company now owns a 98% interest.
In early 1991, Systematics Information Services, Inc. ("Systematics") (now
known as ALLTEL Information Services, Inc.) acquired Systems Limited, an
international banking software firm headquartered in Hong Kong. Systems
Limited is a provider of wholesale banking software.
In January 1991, Systematics (now known as ALLTEL Information Services,
Inc.) completed its acquisition of the cellular telephone billing and
information system software of C-TEC Corporation ("C-TEC"), an independent
telecommunications company.
2
<PAGE>
ALLTEL Corporation
Securities and Exchange Commission
Form 10-K, Part I
Item 1. Business
THE COMPANY (continued)
ACQUISITIONS (continued)
In October 1990, Systematics (now known as ALLTEL Information Services,
Inc.) acquired Computer Dynamics, Inc.("CDI"), a mortgage data processor
that services 200,000 loans for financial institutions in six states.
During 1993, these mortgages were transferred to the CPI system.
In July 1990, Systematics (now known as ALLTEL Information Services, Inc.)
acquired HORIZON Financial Software Corporation ("Horizon") of Orlando,
Florida. HORIZON develops and markets software for mid-sized community
financial institutions using the IBM AS/400 computer technology.
In May 1990, the Company acquired Systematics (now known as ALLTEL
Information Services, Inc.) headquartered in Little Rock, Arkansas.
Systematics is one of the nation's leading providers of information
processing management services and advanced application software for the
financial services, healthcare and telecommunications industries.
In 1990, ALLTEL Mobile acquired the remaining 55% of the Aiken, South
Carolina / Augusta, Georgia system, where ALLTEL Mobile already held a 45%
interest thereby increasing its ownership to 100%.
DISPOSITIONS
In 1992, the Company sold substantially all of the assets of Ocean
Technology, Inc. ("OTI"). OTI designed, developed, and manufactured
command, control, and communication systems primarily for military use. In
September 1991, the Company completed the sale of all of its natural gas
operations. During 1990, the Company sold Denro, Inc., a manufacturing
subsidiary.
MANAGEMENT
The Company's headquarters and regional offices staff supervise, coordinate
and assist subsidiaries in management activities, investor relations,
acquisitions, corporate planning, insurance, and technical research. They
also coordinate the financing program for the entire corporate system.
EMPLOYEES
At January 31, 1995, the Company had 16,363 employees. Some of the
employees of the Company's telephone subsidiaries are part of collective
bargaining units. The Company maintains good relations with all employee
groups.
INDUSTRY SEGMENTS
Financial information about industry segments is included in the Company's
1994 Annual Report to Stockholders, which is incorporated herein by
reference.
3
<PAGE>
ALLTEL Corporation
Securities and Exchange Commission
Form 10-K, Part I
Item 1. Business
TELEPHONE OPERATIONS
LOCAL SERVICE
General
The Company's telephone operating subsidiaries provide local service to
over 1,643,000 customer lines through 667 exchanges. The telephone
operating subsidiaries also offer facilities for private line, data
transmission and other communications services. In addition, these
subsidiaries sell and lease end user telephone equipment (terminal
equipment) as well as maintenance and protection plans for customer-owned
equipment.
Regulation
The Company's telephone operating subsidiaries are subject to regulation by
the utility commissions of the states in which they operate. These
commissions have jurisdiction over various matters including local and
intrastate toll rates, conditions of service, securities issues,
depreciation rates, the encumbering or disposition of public utility
properties and the prescription of a uniform system of accounts. There
were no local rate increases granted to any of the Company's telephone
operating subsidiaries in 1994, nor are there any rate requests currently
pending before regulatory commissions. During 1994, telephone operations
were affected by certain regulatory commission orders designed to reduce
earnings levels. These orders did not materially impact the results of
operations of the Company.
Competition
The Company's telephone subsidiaries provide local telephone service in
their service areas without significant competition from other regulated
carriers. However, the Company may experience future competition in its
territories from alternative telecommunication systems which include
facilities constructed by large end users or by interexchange carriers,
satellite transmission services, cellular communications, cable television
systems, radio-based personal communications services, competitive access
providers and other systems which are capable of completely or partially
bypassing the local telephone facilities. The method of that competition
would consist primarily of providing alternative local services which may
be based on price or availability of additional services. This type of
competition is becoming more prevalent in urban areas with a large
concentrated customer base, but has not materially affected the Company's
more rural territories to date.
As legislation and state regulation relax the regulatory environment for
local service and technology continues to advance, the Company likely will
experience additional competitive situations and opportunities in the
future. The Company cannot predict the specific effects of such
competition on its business but is intent on meeting and taking advantage
of the various opportunities which competition provides. The Company is
addressing potential competition by focusing on improved customer
satisfaction, reducing its cost structure, and becoming more efficient.
ALLTEL's subsidiaries are also competing for the sale and leasing of
terminal equipment to business and residential customers as well as for the
installation and maintenance of inside wire and terminal equipment. The
method of competition for the sale and leasing of terminal equipment and
the installation and the
4
<PAGE>
ALLTEL Corporation
Securities and Exchange Commission
Form 10-K, Part I
Item 1. Business
TELEPHONE OPERATIONS (continued)
LOCAL SERVICE (continued)
maintenance of inside wire relates primarily to price and the availability
of various alternatives in the customer premise equipment ("CPE") market.
The Company has responded to this competition by offering a full range of
market priced products and services. These offerings position the Company
as a one-stop provider for the telecommunications needs of its customers.
The Company markets business and residential terminal equipment for sale or
lease. The inside wire maintenance service includes a loaner phone option
to ensure service while the customer's terminal equipment is repaired.
ACCESS SERVICES
General
The Company's customers have access to message and private line toll
services through the local exchanges of the Company's telephone operating
subsidiaries. Local exchanges provide toll service and network access for
interexchange telephone traffic to locations outside of the Company's
service areas through connections with other local exchange and
interexchange carriers. These connections permit communications from any
telephone in the ALLTEL system to nationwide locations and to points in
most foreign countries.
Regulation
The Federal Communications Commission ("FCC") authorizes a rate-of-return
("ROR") that telephone companies may earn on interstate services they
provide. Effective January 1, 1991, the FCC replaced rate-of-return
regulation with price cap regulation for the Bell Operating Companies and
GTE Corporation with an optional election for all other companies not
remaining in the National Exchange Carrier Association ("NECA") Common Line
and Traffic Sensitive Pools. The FCC reduced the ROR from 12.0% to 11.25%
for companies remaining under ROR regulation. This 11.25% ROR continued
through 1994. As of December 31, 1994, certain of the Company's telephone
operating subsidiaries have exited the NECA traffic sensitive and end user
tariffs.
Price cap regulation for holding companies, such as ALLTEL, requires all
affiliated operating telephone companies settling on a cost basis to choose
price cap regulation at the same time or all remain under ROR regulation
(with the exception of average schedule affiliates). Price cap regulation
allows for different earnings potential than ROR depending on the
"productivity offset" the company chooses. In addition, companies electing
price cap regulation may make adjustments for the rate of inflation and
exogenous (non-controllable) costs. Price cap regulation is designed to
allow greater pricing flexibility and includes the risk of earnings lower
than under ROR regulation. The FCC undertook a comprehensive review of the
LEC price cap plan in 1994. An order mandating any changes for price cap
companies is expected in early 1995. In 1992, the FCC initiated a
rulemaking proceeding (CC Docket No. 92-135) to address regulatory
alternatives for mid-size and small local exchange carriers. This
proceeding resulted in a set of rules, adopted in September of 1993, that
provide for a non price cap form of incentive regulation for which ALLTEL
would be eligible.
5
<PAGE>
ALLTEL Corporation
Securities and Exchange Commission
Form 10-K, Part I
Item 1. Business
TELEPHONE OPERATIONS (continued)
ACCESS SERVICES (continued)
Regulation (continued)
Certain states in which the Company operates, either through legislative
changes or by commission actions, have adopted various forms of
alternatives to rate-of-return regulation. However, most of these plans
have been adopted for the Bell Operating Companies and have not been widely
used by commissions in dealing with other telephone companies including the
Company's telephone operating subsidiaries.
To date, the Company has not elected price cap (incentive) regulation, but
is monitoring the activity of the FCC and the states in which the Company
operates telephone companies and will determine the appropriate action
required as these activities develop.
Interexchange carrier charges
The FCC establishes access procedures by which interexchange carriers
reimburse the Company's telephone operating subsidiaries for the use of
their local networks to complete long-distance calls. With the exception
of ALLTEL Carolina, Inc., ALLTEL Florida, Inc., ALLTEL Georgia
Communications Corp., ALLTEL Pennsylvania, Inc., ALLTEL New York, Inc.,
ALLTEL Tennessee, Inc., Georgia ALLTEL Telecom Inc., Oklahoma ALLTEL, Inc.
and Sugar Land Telephone Company, all of the Company's telephone operating
subsidiaries participated in NECA's interstate traffic sensitive tariff and
settlements processes during 1994. All companies, with the exception of
ALLTEL Georgia Communications Corp. and Georgia ALLTEL Telecom Inc., also
participated in NECA's common line tariffs and pools during 1994. For
those companies remaining in the NECA common line and traffic sensitive
pools, participation in NECA's revenue distribution process was entirely
based on actual costs. Intrastate interlata services are reimbursed to the
Company's telephone operating subsidiaries under arrangements ordered by
state commissions. These arrangements are based on access and can be on a
bill-and-keep or pooled basis. The Company's telephone operating
subsidiaries receive reimbursement for intrastate intralata services
through access or toll based revenue arrangements, once again on either a
bill-and-keep or pooled basis.
Equal access
The Company's telephone operating subsidiaries offer equal access to nearly
94% of their customers. The availability of equal access provides
customers with the opportunity to choose the long-distance company they
want to use. The Company's telephone operating subsidiaries then program
their equipment to allow the customer to use the selected long-distance
company by dialing 1, the area code, and a seven-digit telephone number.
6
<PAGE>
ALLTEL Corporation
Securities and Exchange Commission
Form 10-K, Part I
Item 1. Business
TELEPHONE OPERATIONS (continued)
ACCESS SERVICES (continued)
Billing and collection
Interstate billing and collection services were previously detariffed as
ordered by the FCC. The Company's telephone operating subsidiaries
continue to provide interstate billing and collection services for
interexchange carriers through various agreements and also provide
intrastate billing and collection services under state tariff arrangements
or under contract where these services are detariffed.
Competition
Long-distance services are provided by several competing companies. One
aspect of competition is the potential bypass of the local exchange
carrier's facilities by large volume toll users. Certain states in which
the Company's telephone subsidiaries operate allow various forms of
intralata competition for select functions or complete intralata service.
There has been no significant measurable effect on the operations of the
Company's telephone subsidiaries as a result of this competition.
The long-range effect of competition on the provision and cost of
telecommunications services and equipment will depend on technological
advances, regulatory actions at both the state and federal levels, court
decisions, and possible future federal and state legislation. The continued
growth of competition may have an effect on the cost of telephone service
to customers and on the telephone revenues of the Company's telephone
operating subsidiaries. The FCC has ordered that the larger (Tier 1) local
exchange carriers provide switched and special transport interconnection as
well as tandem signaling to competitive providers. Local exchange carriers
are no longer required to provide physical collocation but are required to
tariff virtual interconnection arrangements.
OTHER
In November 1994, the Company signed definitive agreements to sell certain
telephone properties serving approximately 111,000 access lines in Arizona,
California, Nevada, New Mexico, Oregon, Tennessee, Utah and West Virginia
to Citizens Utilities Company in exchange for approximately $290 million in
cash, assumed debt and 3,600 access lines in Pennsylvania. This sale will
be completed on a state-by-state basis as necessary regulatory approvals
are obtained. Once completed, this transaction will result in the
Company's telephone operating subsidiaries serving approximately 1.5 million
access lines in 14 states.
7
<PAGE>
ALLTEL Corporation
Securities and Exchange Commission
Form 10-K, Part I
Item 1. Business
INFORMATION SERVICES
GENERAL
Effective February 15, 1995, the Company changed the names of its principal
information services subsidiaries. Systematics Information Services, Inc.
was changed to ALLTEL Information Services, Inc., Systematics Financial
Services, Inc. was changed to ALLTEL Financial Information Services, Inc.,
Computer Power, Inc. was changed to ALLTEL Mortgage Information Services
Inc., Systematics Healthcare Services, Inc. was changed to ALLTEL
Healthcare Information Services, Inc. and Systematics Telecommunications
Services, Inc. was changed to ALLTEL Telecom Information Services, Inc.
ALLTEL Information Services, Inc. ("ALLTEL Information Services") provides
a wide range of information processing services to the financial services,
healthcare and telecommunications industries through information processing
centers that it staffs, equips and operates. Information processing
contracts are generally for a multi-year period. ALLTEL Financial
Information Services Inc.'s software and services have been developed and
improved continuously over the last 26 years and are designed to fulfill
substantially all of the retail information processing and management
information requirements of financial institutions. ALLTEL Information
Services also markets software worldwide to financial services, healthcare
and telecommunications companies operating their own information processing
departments.
ALLTEL Healthcare Information Services, Inc. is primarily engaged in the
development and marketing of comprehensive patient centered healthcare
enterprise information systems to medium to large healthcare companies
throughout North America and Europe. These systems are designed to enhance
the quality of patient care, control processing costs and provide
substantially all of the information requirements of its users. Under
typical arrangements with hospitals, software is licensed under perpetual
license arrangements. Software and hardware maintenance are normally
contracted for periods of five to seven years. Contracts to install
software normally range over periods from twelve to eighteen months. Other
services provided include training, consulting and data processing services.
ALLTEL Mortgage Information Services, Inc. provides data processing and
related computer software and systems to financial institutions originating
and/or servicing single family mortgage loans. This subsidiary's software
products and processing services, combined with its team of mortgage
bankers, are intended to offer a cost-effective alternative to the
extensive technical support staff and the enlarged group of mortgage
bankers which would otherwise have to be assembled in-house by each
customer. ALLTEL Mortgage Information Services, Inc.'s on-line systems
automate processing functions required in the origination of mortgage
loans, the management of such loans while in inventory before they are sold
in the secondary market, and their subsequent servicing.
8
<PAGE>
ALLTEL Corporation
Securities and Exchange Commission
Form 10-K, Part I
Item 1. Business
INFORMATION SERVICES (continued)
CUSTOMERS
ALLTEL Financial Information Services, Inc.'s primary market for its
financial products and services are the nation's commercial banks and
savings institutions and financial institutions outside the United States,
primarily in Europe and Asia. Financial software and services are also
marketed to mortgage service companies, credit unions and healthcare
companies. ALLTEL Telecom Information Services, Inc.'s primary market for
its telecommunications products and services is the top 150 telephone
companies and top 50 cellular companies in the United States. ALLTEL
Healthcare Information Services, Inc.'s primary market for its healthcare
software products are hospitals with 400 or more beds. Many of these
customers are large, state funded hospitals which include a significant
number of university hospitals and other large healthcare providers.
ALLTEL Mortgage Information Services, Inc. provides its services primarily
to financial institutions originating and/or servicing single family
mortgage loans that have sold the loans in the secondary market while
continuing to service the loans. These institutions which include more
than one-half of the top 100 servicers of residential mortgages are located
throughout the United States. In total, nearly 15 million mortgage loans
representing over $1.1 trillion are processed by its software.
COMPETITION
ALLTEL Financial Information Services, Inc.'s competition primarily comes
from "in-house" bank information processing departments and other companies
engaged in active competition for financial institution outsourcing
contracts. Numerous large financial institutions provide information
processing for smaller institutions in their respective geographic areas,
along with other companies that perform such services for small
institutions. There are also other companies that provide information
processing services to the telecommunications industry. Competition in the
healthcare industry primarily comes from other companies that provide
comprehensive integrated hospital information systems and from companies
which offer solutions for individual departments within the respective
healthcare enterprises.
ALLTEL Mortgage Information Services, Inc.'s competition comes from
"in-house" information processing departments and from other companies that
offer information processing services to the mortgage banking industry.
This subsidiary competes in its business by providing a high level of
service and support.
The information services subsidiaries substantially rely upon and
vigorously enforce contract and trade secret laws and internal
non-disclosure safeguards to protect the proprietary nature of their
computer software.
9
<PAGE>
ALLTEL Corporation
Securities and Exchange Commission
Form 10-K, Part I
Item 1. Business
INFORMATION SERVICES (continued)
REGULATION AND EXAMINATION
Both ALLTEL Financial Information Services, Inc. and ALLTEL Mortgage
Information Services, Inc. are regulated by the federal agencies that have
supervisory authority over banking, thrift, and credit union operations.
ALLTEL Financial Information Services, Inc. is also classified as one of
twelve national vendors that, as a result of their market share, process a
significant portion of the financial industry assets. These industry
leaders are also examined by the federal Financial Institutions Examination
Council on an ongoing basis. The information services subsidiaries'
management practices, policies, procedures, standards, and overall
financial condition are components of these reviews. In addition to these
corporate examinations, the information services subsidiaries' individual
processing sites are examined, as if they were departments of their
respective clients, by federal and state regulators, as well as the
clients' internal audit departments and their independent auditing firms.
The same standards of performance are applied to those information
processing centers as are applied to the client financial institutions.
Reports of the information services subsidiaries' data center performance
are furnished to the Board of Directors of ALLTEL Information Services and
to the Board of Directors of the examined client. The supervisory agencies
include applicable state banking departments, the Federal Deposit Insurance
Corporation, the Office of Thrift Supervision, the Office of the
Comptroller of the Currency, the Board of Governors of the Federal Reserve
System, and the National Credit Union Administration. The information
services subsidiaries' processing contracts include a commitment to install
all necessary changes in its computer software that are required by changes
in regulations.
ALLTEL Healthcare Information Services, Inc.'s operations are not
specifically regulated by any federal or state healthcare agency. However,
its software must meet all federal and state reporting requirements of its
customers, including Medicare, Medicaid and other state sponsored programs.
ALLTEL Mortgage Information Services, Inc. operates transmitters at the
network's information processing facility hub and operates very small
aperture technology ("VSAT") earth stations at numerous customer
locations. Prior to initiation, construction or operation of the
transmitters used in a VSAT satellite network, operators of these
transmitters are required by the Communications Act of 1934 to be
authorized by the FCC. The FCC grants licenses to VSAT operators for a
predetermined number of earth stations that may be placed at unspecified
locations in the domestic United States. ALLTEL Mortgage Information
Services, Inc. holds five VSAT licenses issued by the FCC to operate its
domestic earth station satellite network, consisting of one 8.1m license
for its VSAT hub located in Jacksonville, Florida and four other VSAT
licenses ranging from 1.0m to 2.4m. Three of the VSAT licenses, including
the 8.1m license, will expire in 1997, and the remaining two licenses will
expire in 2003.
10
<PAGE>
ALLTEL Corporation
Securities and Exchange Commission
Form 10-K, Part I
Item 1. Business
INFORMATION SERVICES (continued)
PRODUCT DEVELOPMENT AND SUPPORT
In the past five years, the information services subsidiaries have spent
approximately $134.1 million ($37.7 million in 1994) on IBM mainframe COBOL
software design and development, or an average of 4.6% of their total
information services operating revenues in those years. One of the
information services subsidiaries has also begun to develop products which
will be utilized in a UNIX based environment. Changes in regulatory
requirements of both state and federal authorities, increasing competition,
and the development of new products and markets create the need continually
to update or modify existing software and systems offered to customers.
The information services subsidiaries intend to continue to maintain,
improve, and expand the functions and capabilities of their software
products over the next several years.
OTHER
In 1994, ALLTEL Information Services signed a long-term agreement to
provide information processing services for the telephone operations of
Citizens Utilities Company. Under terms of the ten year contract, ALLTEL
Information Services will provide complete outsourcing services for
Citizens' 750,000 telephone access lines, including generating Citizens
billing, customer service information, engineering, and operational support.
In 1993, ALLTEL Information Services signed a long-term agreement with GTE
Telecommunications Products and Services Group to outsource GTE's cellular
billing operations.
Within three months of acquiring TDS, ALLTEL Information Services signed
its first hospital outsourcing contract with St. Joseph's Hospital in
Parkersburg, West Virginia. Under terms of the five-year contract,
Systematics assumed all healthcare information systems operations for this
375 bed hospital, including providing on-site and remote management,
software implementation and support, hardware and network management and
maintenance. TDS was merged with Systematics Healthcare Services, Inc.
during 1994. As discussed previously, Systematics Healthcare Services,
Inc.'s name was changed to ALLTEL Healthcare Information Services, Inc. on
February 15, 1995.
During 1991, ALLTEL Information Services signed a long-term facilities
management contract to handle all information processing activities for
ALLTEL's telephone and cellular operations.
PRODUCT DISTRIBUTION OPERATIONS
GENERAL
ALLTEL Supply, Inc. ("ALLTEL Supply"), with fourteen warehouses and
thirteen counter-sales showrooms across the United States, is a major
distributor of telecommunications equipment and materials. It supplies
equipment to affiliated and non-affiliated telephone companies, business
systems suppliers, railroads, governments, and retail and industrial
companies. HWC, with ten warehouses throughout the United States, is a
major supplier of specialty wire and cable products.
11
<PAGE>
ALLTEL Corporation
Securities and Exchange Commission
Form 10-K, Part I
Item 1. Business
PRODUCT DISTRIBUTION OPERATIONS (continued)
COMPETITION
ALLTEL Supply and HWC (the "Distribution companies") experience substantial
competition throughout their sales territories from other distribution
companies and direct sales by manufacturers. Competition is based
primarily on quality, product availability, service, price, and technical
assistance. Since the products distributed by the Distribution companies
are also offered by other competitors, the Distribution companies
differentiate themselves from competitors by providing value-added services
such as offering expert technical assistance, maintaining extensive
inventories in strategically located warehouses and counter-sales show
rooms to facilitate single supplier sourcing and "just-in-time" delivery,
maintaining a full range of alternative product lines, and by providing
staging, assembly and other services. The Company is continually
evaluating and implementing policies and strategies which will meet
customer expectations and position the Distribution companies in the market
as a quality customer-focused distributor. Examples of these policies and
strategies include the customer cable management program offered by HWC and
the "just-in-time" inventory trial conducted by ALLTEL Supply.
PRODUCTS
ALLTEL Supply offers more than 35,000 products for sale. In addition,
ALLTEL Supply inventories single and multi-line telephone sets, local area
networks ("LANs"), switching equipment modules, interior cable, pole line
hardware, and various other telecommunications supply items.
HWC inventories more than 44,000 reels of specialty wire and cable. These
include shielded and unshielded power cables, flame resistant cables, and
high temperature precision engineered cables.
The Distribution companies have not encountered any material shortages or
delays in delivery of products from their suppliers.
CELLULAR OPERATIONS
GENERAL
ALLTEL Mobile provides cellular mobile telephone service in various major
markets throughout the United States. Cellular telephone service combines
the latest advances in telephone, radio and computer technology and is
being marketed to business executives, on-the-move professional people and
individual consumers. As cellular has become increasing more popular with
broader segments of the population, ALLTEL Mobile has opened several retail
stores, in addition to its traditional sales offices, where customers can
purchase equipment and learn more about wireless services.
BUSINESS
One potential of a cellular telephone market's investment is quantified by
the market's population times the percent of a company's ownership interest
of the cellular operation in that market ("pops"). ALLTEL Mobile owns a
majority interest in cellular operations in 12 MSAs and a minority interest
in 13 other MSAs. This represents 4.6 million cellular pops. ALLTEL Mobile
also owns a majority interest in cellular operations in 47 RSAs and a
minority interest in 23 other RSAs. This represents 3.3 million cellular
pops.
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<PAGE>
ALLTEL Corporation
Securities and Exchange Commission
Form 10-K, Part I
Item 1. Business
CELLULAR OPERATIONS (continued)
BUSINESS (continued)
ALLTEL Mobile operates systems in Charlotte, North Carolina; Little Rock,
Arkansas, Jackson, Mississippi; Montgomery, Alabama; Springfield, Missouri;
Ocala/Gainesville, Florida; Albany, Georgia; Aiken, South Carolina/Augusta,
Georgia; Savannah, Georgia; Ft. Smith, Arkansas; and Fayetteville, Arkansas.
ALLTEL Mobile's subscriber fees are based upon the prevailing market and
competitive conditions which exist in each service area operated. The
churn rates experienced by ALLTEL Mobile are comparable with industry
averages. At December 31, 1994, ALLTEL Mobile provided service to 468,542
customers, which, based on the total pops in its service areas of 7.9
million, represented a market penetration rate of 5.9 percent. For the
year ended December 31, 1994, revenues per subscriber averaged $67 per
month, and ALLTEL Mobile's churn rate averaged 1.8 in its cellular service
areas.
COMPETITION
Direct competition in the cellular telephone market consists of a
non-wireline carrier licensed to provide cellular telephone service in the
same area. Additionally, non-cellular mobile telephone service may be
available in the licensed area but is not currently considered a direct
competitor within the cellular market.
ALLTEL Mobile expects to face additional new competitors in its markets as
a result of the licensing of personal communication services ("PCS")
providers currently under way by the FCC. It is expected that these new
competitors will begin operations in 1996 or 1997. ALLTEL Mobile has and
continues to take actions in its markets to minimize the impact of these
new competitors; however, the long-term impacts of new competition can not
be determined at this time.
OTHER
In January 1995, ALLTEL Mobile and BellSouth Mobility signed a definitive
agreement involving cellular transactions impacting markets in five states.
The agreement, which is contingent on BellSouth's success in winning a PCS
license to provide services in North and South Carolina, would create a
limited partnership comprising cellular properties owned by the two
companies in five markets. The limited partnership would consist of
BellSouth's interest in cellular properties in Columbia, South Carolina
(85.5%) and Florence, South Carolina (100%) and ALLTEL Mobile's cellular
interests in Columbia, South Carolina (14.5%), Jackson, Mississippi and
eight contiguous RSAs (49.9%), Chattanooga, Tennessee (15.5%) and
Pittsburgh, Pennsylvania (3.6%). ALLTEL Mobile and BellSouth Mobility would
share ownership of the partnership 53.5% and 46.5%, respectively, with
ALLTEL Mobile serving as managing partner. In addition, under terms of the
agreement, BellSouth Mobility will purchase 0.1% of ALLTEL Mobile's
ownership interest in its Jackson, Mississippi and eight contiguous RSA
cellular properties. ALLTEL Mobile will purchase BellSouth Mobility's
interest in six cellular properties in North and South Carolina. Purchase
of the properties is subject to rights of first refusal by BellSouth's
partners in these six cellular properties.
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<PAGE>
ALLTEL Corporation
Securities and Exchange Commission
Form 10-K, Part I
Item 1. Business
CELLULAR OPERATIONS (continued)
BUSINESS (continued)
In November 1994, ALLTEL Mobile signed a definitive agreement to exchange
several of its cellular telephone properties for several cellular properties
owned by United States Cellular Corp. ("U.S. Cellular"). Under terms of the
agreement, ALLTEL Mobile will exchange certain assets in a West Virginia RSA
and an Oklahoma RSA for U.S. Cellular's certain assets in a Georgia RSA and
a North Carolina RSA. The acquired properties are contiguous to ALLTEL
Mobile's Albany, Georgia and Charlotte, North Carolina markets. In January
1995, ALLTEL Mobile purchased U.S. Cellular's 20 percent interest in the
Fort Smith, Arkansas, MSA, thereby increasing ALLTEL Mobile's ownership
interest in the Fort Smith MSA to 100 percent.
PAGING
ALLTEL Mobile also operates wide-area computer-driven paging networks as a
complementary service to cellular telephones. In addition to paging
networks in Arkansas and Florida, the Company's acquisition of SLT in 1992
added a one-third ownership in one of the largest paging networks in Texas,
which serves more than 177,000 subscribers.
At December 31, 1994, ALLTEL Mobile provided paging service to 25,545
customers, which, based on the total pops in its service areas of 1.8
million, represented a market penetration rate of 1.4 percent. For the
year ended December 31, 1994, revenues per subscriber averaged $12 per
month, and ALLTEL Mobile's churn rate averaged 3.3 in its paging service
areas.
DIRECTORY PUBLISHING
ALLTEL Publishing currently coordinates advertising, sales, printing, and
distribution for 362 telephone directories in 39 states.
In October 1993, ALLTEL Publishing completed its purchase of GTE
Directories independent publishing business, which includes contracts with
more than 125 independent telephone companies across the country. Under
terms of the agreement, ALLTEL Publishing provides all directory publishing
services including contract management, production and marketing. As
subcontractor, GTE Directories provides directory sales and printing
services through a separate contract with ALLTEL Publishing.
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<PAGE>
ALLTEL Corporation
Securities and Exchange Commission
Form 10-K, Part I
Item 1. Business
CABLE TELEVISION SERVICE
The Company provides cable television service to more than 17,500 customers
in certain areas of the Navajo Indian Reservation (which covers an area
including parts of New Mexico, Arizona, and Utah), and to residents of
Needles, California, Springfield, Missouri, and central Texas. In total,
thirty-three cities and municipalities are served by the Company's cable
television operations. The number of broadcast channels provided by the
Company in these service areas range from 17 to 40 channels, with an
average of 25 channels provided per service area.
Neither the Company nor its cable television subsidiaries hold any spectrum
or other licenses issued by the FCC related to its cable television
operations. The Company's cable system receives signals by means of
special antennae, microwave relay systems and earth stations. The system
amplifies such signals and distributes programs to subscribers through a
coaxial cable system. The sources of the Company's cable television
programming consist of the signals received from national television
networks, local and other independent television stations that operate in
or near to the Company's service areas, satellite-delivered non-broadcast
channels, and public service announcements. Through contractual
arrangements, the Company has obtained the authority to re-transmit the
program offerings supplied by these providers.
In November 1994, as part of its agreement to sell certain telephone
properties, the Company also signed definitive agreements to sell certain
of its cable television properties to Citizens Utilities Company. These
cable television properties serve approximately 7,000 customers in Arizona,
California, New Mexico and Utah.
NATURAL GAS DISTRIBUTION
In 1991, the Company disposed of all natural gas distribution operations.
MANUFACTURING
During 1992, the Company sold substantially all of the assets of OTI, which
designed, developed, manufactured and marketed products for use in military
command, control and communications systems. During 1990, the Company sold
Denro, Inc., which designs and manufactures microprocessor-based air
traffic control voice switching and control systems. After the sale of
OTI, the Company did not have any manufacturing operations.
15
<PAGE>
ALLTEL Corporation
Securities and Exchange Commission
Form 10-K, Part I
Item 1. Business
INVESTMENTS
LDDS
ALLTEL owns approximately an 8% interest in LDDS Communications, Inc.
("LDDS"), a publicly-held company. The investment was acquired in exchange
for the Company's previous interest in Advanced Telecommunications
Corporation ("ATC"), which was acquired by LDDS during 1992.
LDDS is one of the largest regional long-distance companies in the United
States and provides long-distance telecommunications services to customers
located in 41 states.
COMDIAL
ALLTEL owns approximately a 6% interest in Comdial Corporation, a producer
of quality telephone sets and key systems.
CHILLICOTHE
ALLTEL owns a 19.8% interest in Chillicothe Telephone Company, which serves
approximately 27,000 telephone lines in Ohio. Frederick G. Griech,
President of ALLTEL Telephone Services Corporation's Northeast Region, and
Americo Cornacchione, Senior Vice President-Accounting and Finance of
ALLTEL Telephone Services Corporation's Northeast Region, are members of
Chillicothe's Board of Directors.
OTHER
During 1991, the Company sold its stock in Luz International Limited, a
provider of solar energy, to an investment group in a private transaction.
During 1990, the Company completed the sale of its 14.5% interest in TPI
Enterprises, Inc., which had been a supplier of business communications
systems.
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