SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
[ ] TRANSITION 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
(Former name, former address and former fiscal year, if changed since last
report)
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
Number of common shares outstanding as of March 31, 1996:
189,440,201
The Exhibit Index is located at sequential page 13 .
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ALLTEL CORPORATION
FORM 10-Q
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The following consolidated financial statements of ALLTEL
Corporation and subsidiaries, included in the interim report of ALLTEL
Corporation to its stockholders for periods ended March 31, 1996, a copy of
which is attached hereto, are incorporated herein by reference:
Consolidated Statements of Income - for the three and
twelve months ended March 31, 1996 and 1995.
Consolidated Balance Sheets - March 31, 1996 and 1995 and
December 31, 1995.
Consolidated Statements of Cash Flows - for the three
and twelve months ended March 31, 1996 and 1995.
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ALLTEL CORPORATION
FORM 10-Q
PART I - FINANCIAL STATEMENTS
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company's total capital structure was $3.8 billion at March 31, 1996,
reflecting 54% common and preferred equity and 46% debt. This compares to a
capital structure of $3.7 billion at December 31, 1995, reflecting 52% common
and preferred equity and 48% debt. The Company has adequate internal and
external resources available to finance its ongoing operating requirements,
including capital expenditures, business development and the payment of
dividends.
Cash provided by operations, which is the Company's primary source of
liquidity, was $177.1 million and $698.2 million for the three and twelve
month periods in 1996, respectively, compared to $168.1 million and $623.5
million for the same periods in 1995. The increases in the 1996 periods
primarily reflect the growth in earnings of the Company, partially offset by
increases in working capital requirements. Cash from investing activities
for 1996 includes proceeds totaling $38.7 million and $251.6 million
for the three month and twelve month periods, respectively, which were
received principally from the sale of telephone properties, as discussed
below. Cash from investing activities also includes proceeds of $31.1 million
received from the disposition of investments. Of this amount, $30.4 million
relates to the withdrawal of the Company's investment in GO Communications
Corporation ("GOCC"). The Company's previously announced $32 million
investment in GOCC was subject to a number of conditions, including GOCC's
ability to secure "C" band licenses in the Personal Communications Services
("PCS") auctions conducted by the Federal Communications Commission.
Following GOCC's decision to exit the PCS auctions, the Company elected to
withdraw its investment.
The primary uses of capital resources continue to be for capital
expenditures and for the payment of dividends. Capital expenditures for the
three and twelve month periods in 1996 were $102.9 million and $485.8 million,
respectively, compared to $140.1 million and $626.7 million for the same
periods in 1995. The Company financed the majority of its capital
expenditures through the internal generation of funds in each of the past two
year periods. Capital expenditures are forecast at $456.7 million for
1996, which are expected to be financed primarily from internally generated
funds. During each of the past two year periods, the Company's capital
expenditures were directed toward telephone operations to continue to
modernize its network and invest in equipment to provide new telecommunications
services. In addition, capital expenditures were incurred for expansion into
existing cellular and information services markets, and to upgrade existing
cellular network facilities. Common and preferred dividend payments for the
three and twelve month periods in 1996 were $49.5 million and $186.3 million,
respectively, compared to $45.5 million and $173.8 million for the same periods
in 1995. The increases in dividend payments in the 1996 periods primarily
reflect the October 1995 action of the Board of Directors to increase the
quarterly common stock dividend rate from $.24 per share to $.26 per share.
The Company has a $500 million revolving credit agreement. There were no
borrowings outstanding under this agreement at March 31, 1996, compared to
$151.5 million that was outstanding at December 31, 1995, and $159.1 million
that was outstanding at March 31, 1995.
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In March 1996, the Company issued $300 million of 7.0 percent debentures
to refinance existing high-cost indebtedness consisting of $200 million of
9.5 percent debentures. The remaining proceeds were used to reduce borrowings
under the Company's revolving credit agreement. The Company was required to
pay $15.8 million in termination fees to complete the early retirement of the
$200 million of long-term debt. The retirement of the $200 million debentures
and the reduction in revolving credit agreement borrowings represent the
majority of long-term debt retired in the three month period ended
March 31, 1996. In September 1995, the Company issued $200 million of 6.75
percent debentures to retire $150 million of 10.375 percent debentures and $50
million of 8.875 percent debentures. In October 1995, the Company was
required to pay $14.0 million in termination fees to complete the early
retirement of these two debt issues. The retirement of $200 million of
debentures in March 1996, the retirement of $200 million of long-term debt in
October 1995 and the reduction in revolving credit agreement borrowings
represent the majority of long-term debt retired in the twelve month period
ended March 31, 1996. The two completed debt refinancings are expected to
produce approximately $10.5 million in annual pre-tax interest savings.
The issuance of the $300 million of 7.0 percent debentures represent
substantially all of the long-term debt issued in the three month period ended
March 31, 1996. The $300 million debentures and the issuance of the $200
million of 6.75 percent debentures account for substantially all of the
long-term debt issued during the twelve months ended March 31, 1996.
RESULTS OF OPERATIONS
Telephone Operations
In November 1994, the Company signed definitive agreements to sell
telephone properties serving approximately 117,000 access lines in Arizona,
California, Nevada, New Mexico, Oregon, Tennessee, Utah and West Virginia to
Citizens Utilities Company ("Citizens") in exchange for approximately $250
million in cash, assumed debt and 3,600 access lines in Pennsylvania. The
sale of telephone properties represents a continuation of the Company's
ongoing efforts to achieve efficiencies and enhance the competitive position
of its telephone operations. The sale of properties in Oregon and West
Virginia was completed at the end of the second quarter of 1995, the sale of
all remaining properties except for those in Nevada was completed during the
fourth quarter of 1995, and the sale of properties in Nevada was completed
during March 1996. The sale of properties resulted in a pre-tax gains of
$15.3 million and $65.1 million for the three and twelve month periods ended
March 31, 1996, respectively. Additionally, the sale of properties resulted
in decreases in revenues and sales of $24.8 million and $48.8 million and
decreases in operating income of $8.7 million and $15.9 million for
the three and twelve month periods ended March 31, 1996, respectively.
Telephone operations revenues and sales decreased $12.7 million or 4% and
$1.6 million or less than 1% for the three and twelve months ended
March 31, 1996, respectively. Telephone operating income decreased $2.5
million or 2% and increased $13.5 million or 3% for the three and twelve month
periods, respectively. Excluding the impact of the sale of properties to
Citizens, telephone's revenues and sales would have increased $12.1 million
and $47.2 million or 4% and operating income would have increased $6.2 million
or 6% and $29.4 million or 7% for the three and twelve month periods ended
March 31, 1996, respectively.
Local service revenue increased $2.7 million or 3% and $18.6 million or
5% in the three and twelve month periods, respectively. Customer access lines,
net of lines sold to Citizens, increased nearly 5% during the past twelve month
period, reflecting increased sales of higher-margin second access lines and
growth in the number of residential lines in Ohio and Georgia. Growth in
custom calling feature revenues also contributed to the increase in
4
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revenues for both the three and twelve month periods. The increases in local
service revenues due to growth in customer access lines and custom calling
feature revenues were partially offset by the sale of properties to Citizens,
which reduced revenues $6.2 million and $12.8 million for the three and twelve
month periods, respectively. There have been no local rate increases granted
to any of the Company's telephone operating subsidiaries during 1996, and
management does not anticipate filing for any local rate increases during the
remainder of 1996.
Network access and long-distance revenues decreased $13.7 million or 8%
and $21.4 million or 3% for the three and twelve month periods, respectively.
The decreases for both periods reflect the sale of properties to Citizens
which accounted for $15.7 million and $30.3 million of the decrease in revenues
for three and twelve month periods, respectively. The decreases in revenues
for both periods were partially offset by higher volumes of access usage.
Miscellaneous revenues decreased $1.7 million or 5% and increased $1.3
million or 1% for the three and twelve month periods, respectively. The
decrease in the three month period reflects the sale of properties to Citizens
which reduced revenues by $2.9 million. This decrease was partially offset by
increases in directory advertising revenues, direct sales of telephone
equipment, rental revenues, and sales of telephone equipment maintenance and
protection plans. The sale of properties to Citizens resulted in a decrease
in miscellaneous revenues of $5.7 million for the twelve method. This
decrease was offset by increases in direct sales of telephone equipment,
directory advertising revenues and sales of telephone equipment maintenance
and protection plans.
Total telephone operating expenses decreased $10.3 million or 5% and
$15.1 million or 2% for the three and twelve month periods, respectively. The
sale of properties to Citizens accounted for $16.1 million and $32.9 million
of the decreases in operating expenses for the three and twelve month periods,
respectively. The decreases in operating expenses for both periods resulting
from the sale of properties to Citizens were partially offset by increased
expense for maintenance and repair of cable, digital electronic switching and
circuit equipment, an increase in cost of products sold related to sales of
telephone equipment and maintenance and protection plans and increased
depreciation expense.
The decrease in telephone operating income for the three month period
reflects the decrease in revenues and sales previously noted. Although
revenues and sales decreased in the twelve month period, growth in operating
income occurred primarily due to the increase in sales of higher-margin second
access lines and a reduction in accounting, financial management and other
general administrative expenses, reflecting the Company's ongoing cost-control
efforts.
The Company's telephone subsidiaries follow the accounting for regulated
enterprises prescribed by Statement of Financial Accounting Standards No. 71,
"Accounting for the Effects of Certain Types of Regulation" ("SFAS 71"). If
the Company's telephone subsidiaries no longer qualified for the provisions of
SFAS 71, the accounting impact to the Company would be an extraordinary
non-cash charge to operations of an amount that would be material. Criteria
that would give rise to the discontinuance of SFAS 71 include (1) increasing
competition that restricts the telephone subsidiaries' ability to establish
prices to recover specific costs, and (2) a significant change in the manner
in which rates are set by regulators from cost-based regulation to another
form of regulation. The Company periodically reviews these criteria to ensure
the continuing application of SFAS 71 is appropriate.
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Information Services
Revenues and sales for the information services segment reflect increases
of $8.3 million or 4% and $54.7 million or 6% for the three and twelve month
periods, respectively. Operating income increased $2.4 million or 9% and $6.5
million or 5% for the three and twelve month period, respectively. Growth in
revenues and sales and operating income for the information services segment
continues to be affected by the number of mergers and consolidations taking
place in the domestic financial services and mortgage industries.
Information services revenues and sales increased in both periods
primarily due to growth in the telecommunications portion of its outsourcing
business, reflecting volume growth in existing data processing contracts and
the addition of an outsourcing contract with Citizens. Additional software
maintenance revenues, an increase in the number of mortgage loans processed,
increased usage of specialized programming service offerings, and the purchase
in May 1995 of Vertex Business Systems, Inc. also contributed to the increase
in revenues and sales for all periods. The increase for the twelve month
period also reflects the expansion of this segment's international and
healthcare operations. Healthcare services revenues and sales increased
primarily due to an acquisition completed in November 1994 accounted for as a
purchase. The increases in revenues and sales for all periods were partially
offset by the sale of this segment's check processing operations completed in
September 1995, lost operations from contract terminations due primarily to the
merger and consolidation activity in the domestic financial services market,
and by a reduction in revenues collected for early termination of facilities
management contracts.
The increases in operating income for the three and twelve month periods
reflect the increases in revenues and sales previously discussed, partially
offset by the loss of higher margin operations due to contract terminations,
reductions in fees collected on the early termination of facilities management
contracts, and an increase in operating costs including depreciation and
amortization expense. Operating income for both periods of 1996 was also
impacted by lower margins realized on international software sales due to
increased costs to procure and support these sales. Depreciation and
amortization expense increased in both periods primarily due to the
acquisition of additional data processing equipment and due to an increase in
amortization of internally developed software.
As a result of the declining contributions from this segment's check
processing and community banking operations, the Company recorded a pre-tax
write-down of approximately $54.2 million to the estimated net realizable
value of these operations in December 1994. The effect of this write-down is
included in the twelve months ended March 31, 1995. In accordance with the
Company's plan for the disposal of the check processing operations, the
Company recorded an additional $5.0 million pre-tax write-down in June 1995 to
reflect the net realizable value of these operations. The effect of this
write-down is included in the twelve months ended March 31, 1996. As
previously noted, the sale of the check processing operations was completed at
the end of the third quarter of 1995.
Product Distribution Operations
Revenues and sales for the product distribution segment reflect decreases
of $1.9 million or 2% and $1.2 million or less than 1% for the three and twelve
month periods, respectively. Operating income decreased $0.7 million or 9%
for the three month period and increased $1.0 million or 4% for the twelve
month period.
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The decreases in revenues and sales for both periods were primarily due
to a reduction in sales of telecommunications and data products to affiliates
and other independent telephone companies. Compared to the prior-year
periods, sales to affiliates decreased $6.4 million and $13.5 million and
sales to other independent telephone companies decreased $2.5 million and
$3.1 million for the three and twelve month periods, respectively. The
decreases in sales to affiliates reflects the sale of properties to Citizens
as previously discussed. The decreases in sales to affiliates and other
independent telephone companies for both periods were partially offset by
increased retail sales of telecommunications and data products at this
segment's counter-showrooms, which increased $4.1 million and $14.4 million
for the three and twelve month periods of 1996, respectively. Sales of
electrical wire and cable products also increased in both periods reflecting a
slightly higher demand for these products.
Operating income decreased in the three month period primarily due to the
decrease in revenues and sales noted above and due to lower profit margins
realized on the sale of electrical wire and cable products resulting from a
decrease in copper prices. Although revenues and sales decreased in the
twelve month period, growth in operating income occurred primarily due to the
increase in higher-margin retail sales of telecommunications and data
products and due to a decrease in selling-related expenses and other operating
costs.
Cellular Operations
Cellular operations provided strong operating results which contributed
significantly to the Company's overall earnings growth. Revenues and sales
reflect increases of $19.4 million or 22% and $101.6 million or 32% for the
three and twelve month periods, respectively. Operating income increased
$11.1 million or 52% and $41.6 million or 46% for the three and twelve month
periods, respectively. During the twelve month period ended March 31, 1996,
subscriber growth remained strong as the number of cellular customers grew to
663,406 from 520,480, an increase of 142,926 customers or 27%.
Cellular operations revenues and sales increased in all periods primarily
due to the significant growth in its customer base. Partially offsetting the
increases in revenues resulting from subscriber growth were declines in the
average monthly revenue per subscriber. Average revenue per subscriber per
month was $58 and $62 for the three and twelve months ended March 31, 1996,
compared to $62 and $66 for the same periods in 1995. The declines in revenue
per subscriber reflect the industry-wide trend of increased penetration into
lower-usage market segments. The acquisition of new cellular properties and
increased ownership interest in existing cellular properties also contributed
to the growth in revenues and sales in the twelve month period. The growth in
operating income for both periods primarily reflects the increases in revenues
and sales. In addition, operating income for the three month period also
reflects improved margins realized on the sale of cellular equipment. The
increases in operating income for both periods were partially offset by higher
expenses for selling and advertising, depreciation and other operating
expenses.
Other Operations
Other operations revenues and sales decreased $2.6 million or 6% and
$21.9 million or 14% for the three and twelve month periods, respectively.
Operating income increased $0.1 million or 4% for the three month period and
decreased $5.9 million or 45% for the twelve month period, respectively.
Revenues and sales for other operations decreased in the three month
period primarily due to a decrease in directory publishing revenues
attributable to change in the mix of directories published. Although the
number of directories published during the first quarter of 1996 increased
slightly from the prior year period, the average revenues realized per
published directory declined by 6%. Revenues and sales for the twelve month
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period decreased due to a reduction in the number of directories published
and a decrease in the average revenues realized per published directory, which
declined by 11% from the prior year twelve month period. The declines in
average revenues realized per published directory for both periods reflect the
loss of several large independent directory contracts. Revenues and sales for
the twelve month period also decreased due to a change in accounting
in late 1993 related to the publication of directories. Concurrent with the
purchase of the independent telephone directory operations of GTE Directories
Corporation ("GTE Directories") in October 1993, the Company began recognizing
all revenues and expenses related to a published directory in the month of
publication, instead of recognizing the revenues and expenses ratably over a
twelve month period. As a result of this change, revenues and sales for the
twelve month period ended March 31, 1995 include approximately $7.9 million of
additional revenues related to directories accounted for under the previous
method. The decreases in revenues and sales for both periods were partially
offset by the receipt of a one-time settlement from GTE Directories for
reimbursement of certain computer software conversion costs incurred by the
Company subsequent to its purchase of the independent telephone directory
business.
The increase in operating income for the three month period primarily
reflects the impact of the one-time settlement received from GTE Directories
which helped to increase the gross profit margin on published directories to
15% from 13% for the prior-year period. The decrease in operating income for
the twelve month period reflects the decrease in revenues and sales previously
noted. Operating income for the twelve month period also reflects lower
margins realized on directories published for affiliates. The lower margins
resulted from increased fees paid to affiliates for publishing rights under the
terms of a new contract that became effective on January 1, 1995.
Corporate Operating Expenses
Corporate operating expenses increased $0.8 million or 17% and $8.3
million or 43% for the three month and twelve month periods, respectively.
The increases for both periods reflect the reclassification of the amortization
of telephone plant acquisition adjustments related to the Company's purchase
of certain telephone properties of GTE Corporation in the state of Georgia
("GTE Georgia"). Prior to April 1995, this amortization expense had been
classified as non-operating expense. Accordingly, corporate operating expenses
for the three and twelve months ended March 31, 1995, do not include
approximately $1.0 million and $4.9 million, respectively, of amortization
expense related to the GTE Georgia acquisition. The increase in corporate
operating expenses for the twelve month period also includes approximately
$2.0 million related to the amortization of excess cost of entities purchased
subsequent to April 1995. Finally, increased employee benefit costs also
contributed to the increase in corporate operating expenses for the twelve
month period.
Other Income, Net
Other income, net decreased $1.0 million or 65% for the three month
period, and increased $4.7 million or 145% for the twelve month period,
respectively. The decrease in the three month period was primarily due to an
increase in the minority interest in earnings of the Company's cellular
operations by others and a decrease in equity income recognized on investments
in cellular limited partnerships. The decrease in the twelve month period
primarily resulted from an increase in minority interest in earnings of the
Company's cellular operations by others, partially offset by an increase in
equity income recognized on investments in cellular limited partnerships and
an increase in capitalized interest costs related to long-term construction
projects. In addition, other income, net for the three and twelve month
periods ended March 31, 1995, include the amortization of telephone plant
acquisition adjustments related to the GTE Georgia acquisition that were
reclassified in April 1995 to corporate operating expenses, as previously
discussed.
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Interest Expense
Interest expense decreased $2.9 million or 8% and $0.3 million or less
than 1% for the three and twelve month periods, respectively. The decreases
in interest expense in all periods reflects the issuance of $200 million of
6.75 percent debentures in September 1995 to retire two existing high-cost
debt issues, as previously discussed. The decrease in interest expense for
the twelve month period related to the September 1995 debt refinancing was
partially offset by increases in the average borrowing rates for amounts
outstanding under the Company's revolving credit agreement.
Gain on Disposal or Exchange of Assets, Write-down of Assets and Other
As previously discussed, during the first quarter of 1996, the Company
recorded a pre-tax gain of $15.3 million from the sale of telephone properties
in Nevada to Citizens. The Company also incurred $15.8 million of termination
fees related to the early retirement of $200 million of long-term debt.
Finally, the Company realized a loss of $1.8 million related to the withdrawal
of its investment in GOCC. The net income impact from these transactions
resulted in a decrease of $1.5 million in net income and $.01 in earnings per
share for the three month period ended March 31, 1996.
Including the impact of the above transactions, net income for the twelve
month period includes pre-tax gains totaling $65.1 million from the disposal
of certain telephone properties to Citizens, termination fees totaling $29.8
million related to the refinancing of long-term debt completed in
September 1995 and March 1996, an additional pre-tax write-down of $5.0
million to reflect the net realizable value of the information services
segment's check processing operations, and the $1.8 million loss incurred on
the withdrawal of an investment. The net income impact from these
transactions resulted in an increase of $18.4 million in net income and $.10 in
earnings per share for the twelve month period ended March 31, 1996.
In December 1994, the Company recorded a pre-tax write-down of $54.2
million to reflect the estimated net realizable value of its information
services segment's community banking and check processing operations. This
write-down decreased net income by approximately $32 million and earnings per
share by $.17 per share for the twelve month period ended March 31, 1995.
Income Taxes
Income tax expense increased $3.8 million or 8% and $54.5 million or 33%
for the three and twelve month periods, respectively. The increase in the
both periods primarily resulted from an increase in taxable income for
financial reporting purposes. In addition, income tax expense for the twelve
months ended March 31, 1995 includes a tax benefit of approximately $22
million resulting from the write-down of the information services operations
recorded in December 1994.
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Net Income Applicable to Common Shares
Net income applicable to common shares increased $5.5 million or 7% and
$81.7 million or 29% for the three and twelve month period, respectively.
Primary earnings per common share for the three and twelve month periods ended
March 31, 1996 also increased 7% and 29%, respectively over the same periods
in 1995. As previously discussed, the three month period includes the gain
on the sale of certain telephone properties in Nevada, payment of termination
fees related to the refinancing of $200 million of long-term debt and a loss
incurred on the withdrawal of an investment. The net income impact of these
transactions resulted in a $.01 decrease in earnings per share. The twelve
month period includes gains on the sale of certain telephone properties,
termination fees related to two debt refinancings, an additional write-down of
information services segment's check processing operations, and the loss on
the withdrawal of an investment. The net income impact of these transactions
resulted in a $.10 increase in earnings per share. The twelve month period
for 1995 includes the effect of the write-down of the information services
segment's community banking and check processing operations. This write-down
decreased net income by approximately $32 million or $.17 per share.
Excluding the impact of these non-extraordinary items, net income would have
increased $6.9 million or 9% and $31.0 million or 10% and earnings per share
would have increased 9% and 10% for the three and twelve month periods
ended March 31, 1996, respectively.
Average Common Shares Outstanding
The average number of common shares outstanding increased slightly for
the three and twelve month periods ended March 31, 1996. The increases in
all periods were primarily due to additional shares issued under the Company's
stock option plans. The twelve month period also reflects the issuance of
approximately 0.3 million shares in November 1994 for an acquisition.
Other Financial Information
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Stock-Based
Compensation", ("SFAS 123"). This new standard, effective for calendar year
1996 financial statements, encourages entities to adopt a fair value method of
measuring compensation cost for employee stock option plans. Under the
prescribed method, compensation cost would be measured at the grant date
based on the fair value of the award and would be recognized over the related
service period. An entity that does not adopt the fair value method of
accounting will be required to include in its financial statements pro forma
disclosures of net income and earnings per share as if the fair value method
of accounting had been applied. The Company has not adopted the fair value
method of accounting for stock options in its consolidated financial
statements. Management does not expect the pro forma net income and earnings
per share disclosures that will be included in the Company's 1996 Annual
Report to Stockholders will be materially different from the actual 1996
operating results reported by the Company.
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ALLTEL CORPORATION
FORM 10-Q
Part II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) See the exhibits specified on the Index of Exhibits located at
Sequential Page 13.
(b) Reports on Form 8-K:
No reports on Form 8-K have been filed during the quarter for
which this report is filed.
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SIGNATURE
Pursuant to the requirements 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.
ALLTEL CORPORATION
(Registrant)
/S/ Dennis J. Ferra
Dennis J. Ferra
Senior Vice President and
Chief Financial Officer
May 13, 1996
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ALLTEL CORPORATION
FORM 10-Q
INDEX OF EXHIBITS
Form 10-Q Sequential
Exhibit No. Description Page No.
(19) Interim Report to Stockholders and
Notes to Consolidated Financial Statements
for the periods ended March 31, 1996 14-22
(27) Financial Data Schedule
for the three months ended March 31, 1996 23
13
EXHIBIT 19
<TABLE>
<CAPTION>
Highlights (unaudited)
(Dollars in thousands, except per share amounts)
Three Months Ended March 31, Twelve Months Ended March 31,
% Increase % Increase
1996 1995 (Decrease) 1996 1995 (Decrease)
<S> <C> <C> <C> <C> <C> <C>
Revenues and sales $774,266 $763,615 1 $3,120,376 $2,988,867 4
Net income $ 84,073 $ 78,623 7 $ 360,066 $ 278,490 29
Primary earnings per average
common share outstanding $.44 $.41 7 $1.89 $1.46 29
Excluding gain on disposal or exchange of
assets, write-down of assets and other:
Net income $ 85,554 $ 78,623 9 $ 341,698 $ 310,713 10
Earnings per share $.45 $.41 10 $1.79 $1.63 10
Average common shares
including equivalents 190,610,000 190,009,000 - 190,218,000 189,530,000 -
Annual dividend rate per common share $1.04 $.96 8
Total assets $5,246,250 $4,828,974 9
Telephone access lines 1,622,499 1,663,758 (2)
Cellular customers 663,406 520,480 27
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</TABLE>
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<TABLE>
<CAPTION>
Business Segments (unaudited)
(Dollars in thousands)
Three Months Ended March 31, Twelve Months Ended March 31,
% Increase % Increase
1996 1995 (Decrease) 1996 1995 (Decrease)
<S> <C> <C> <C> <C> <C> <C>
Revenues and Sales:
Telephone $289,808 $302,526 (4) $1,184,955 $1,186,511 -
Information services 226,659 218,313 4 934,691 880,021 6
Product distribution 111,634 113,490 (2) 446,263 447,498 -
Cellular 108,153 88,719 22 417,556 315,991 32
Other operations 38,012 40,567 (6) 136,911 158,846 (14)
Total $774,266 $763,615 1 $3,120,376 $2,988,867 4
Operating Income:
Telephone $105,435 $107,898 (2) $ 420,079 $ 406,546 3
Information services 29,966 27,545 9 134,464 127,981 5
Product distribution 6,459 7,135 (9) 26,662 25,666 4
Cellular 32,547 21,464 52 132,590 90,995 46
Other operations 2,454 2,368 4 7,126 12,989 (45)
Corporate expenses (5,696) (4,872) 17 (27,316) (19,050) 43
Total $171,165 $161,538 6 $ 693,605 $ 645,127 8
15
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Income (unaudited)
(Dollars in thousands, except per share amounts)
Three Months Twelve Months
Ended March 31, Ended March 31,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenues and Sales:
Service revenues $607,046 $590,766 $2,458,106 $2,305,619
Product sales 167,220 172,849 662,270 683,248
Total revenues and sales 774,266 763,615 3,120,376 2,988,867
Costs and Expenses:
Cost of products sold 108,467 115,069 442,517 439,741
Operations 336,417 335,790 1,353,188 1,308,408
Maintenance 36,699 37,158 147,439 153,164
Depreciation and amortization 105,992 96,474 419,317 375,509
Taxes, other than income taxes 15,526 17,586 64,310 66,918
Total costs and expenses 603,101 602,077 2,426,771 2,343,740
Operating Income 171,165 161,538 693,605 645,127
Other income, net 546 1,576 1,451 (3,206)
Interest expense (34,210) (37,132) (142,506) (142,767)
Gain on disposal or exchange of assets,
write-down of assets and other (2,278) -- 28,497 (54,157)
Income before income taxes 135,223 125,982 581,047 444,997
Income taxes 51,150 47,359 220,981 166,507
Net income 84,073 78,623 360,066 278,490
Preferred dividends 274 317 1,115 1,239
Net income applicable to common shares $ 83,799 $ 78,306 $ 358,951 $ 277,251
Primary Earnings per Share $.44 $.41 $1.89 $1.46
16
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows (unaudited)
(Dollars in thousands)
Three Months Twelve Months
Ended March 31, Ended March 31,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net Cash Provided by Operations $177,125 $168,126 $698,185 $623,467
Cash Flows from Investing Activities:
Additions to property, plant and equipment (102,866) (140,149) (485,781) (626,668)
Sale of property 38,687 -- 251,598 --
Additions to capitalized software development costs (12,930) (11,853) (53,385) (41,287)
Investments sold (acquired) 31,126 (9,097) 6,494 (22,141)
Other, net (6,916) 1,061 (79,996) (13,972)
Net cash used in investing activities (52,899) (160,038) (361,070) (704,068)
Cash Flows from Financing Activities:
Dividends on preferred and common stock (49,489) (45,502) (186,257) (173,765)
Reductions in long-term debt (357,203) (12,858) (621,981) (157,523)
Long-term debt issued 305,707 27,122 496,749 378,557
Common stock issued 1,630 5,980 12,875 20,579
Other, net (54) (3) (1,188) (11,459)
Net cash provided by (used in) financing activities (99,409) (25,261) (299,802) 56,389
Increase (decrease) in cash and short-term investments 24,817 (17,173) 37,313 (24,212)
Cash and Short-term Investments:
Beginning of period 21,421 26,098 8,925 33,137
End of period $ 46,238 $ 8,925 $ 46,238 $ 8,925
17
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Balance Sheets (unaudited)
Assets (Dollars in thousands)
March 31, Dec. 31, March 31,
1996 1995 1995
<S> <C> <C> <C>
Current Assets:
Cash and short-term investments $ 46,238 $ 21,421 $ 8,925
Accounts receivable (less allowance for
doubtful accounts of $18,431, $18,439
and $21,234 respectively) 589,345 582,797 528,430
Materials and supplies 21,676 22,191 29,232
Inventories 96,278 89,667 90,145
Prepaid expenses 27,211 15,165 24,218
Total current assets 780,748 731,241 680,950
Investments 728,447 611,706 395,830
Excess of cost over equity in
purchased entities 476,375 480,070 489,741
Property, Plant and Equipment:
Telephone 3,651,202 3,733,468 3,783,468
Information services 476,545 468,648 393,811
Cellular 494,220 462,397 371,285
Other 26,931 28,965 30,086
Under construction 166,052 148,349 238,794
Total property, plant and equipment 4,814,950 4,841,827 4,817,444
Less accumulated depreciation 1,865,806 1,869,075 1,792,925
Net property, plant and equipment 2,949,144 2,972,752 3,024,519
Other assets 311,536 277,336 237,934
Total Assets $5,246,250 $5,073,105 $4,828,974
18
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Liabilities and Shareholders' Equity
March 31, Dec. 31, March 31,
1996 1995 1995
<S> <C> <C> <C>
Current Liabilities:
Current maturities of long-term debt $ 37,039 $ 36,892 $ 46,705
Accounts payable 210,045 213,944 228,466
Advance payments and customers' deposits 80,516 73,660 63,164
Accrued taxes 73,888 58,341 50,047
Accrued dividends 49,166 49,149 45,252
Other current liabilities 139,584 137,298 149,528
Total current liabilities 590,238 569,284 583,162
Deferred Credits:
Investment tax 20,204 21,821 29,376
Income taxes 633,666 544,435 420,962
Total deferred credits 653,870 566,256 450,338
Long-term debt 1,699,719 1,761,604 1,865,445
Other liabilities 238,683 233,318 226,835
Preferred stock, redeemable 6,998 7,078 7,748
Shareholders' Equity:
Preferred stock 9,240 9,241 9,295
Common stock 189,440 189,268 188,787
Additional capital 357,183 355,663 344,715
Unrealized holding gain on investments 293,600 208,681 115,352
Retained earnings 1,207,279 1,172,712 1,037,297
Total shareholders' equity 2,056,742 1,935,565 1,695,446
Total Liabilities and Shareholders' Equity $5,246,250 $5,073,105 $4,828,974
19
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. FINANCIAL STATEMENT PRESENTATION:
The consolidated financial statements at March 31, 1996 and 1995 and for
the three and twelve month periods then ended are unaudited and reflect
all adjustments (consisting only of normal recurring adjustments) which
are, in the opinion of management, necessary for a fair presentation of
the financial position and operating results for the interim periods.
20
<PAGE>
To ALLTEL Stockholders:
ALLTEL Corporation recently announced its financial results for the period
ended March 31, 1996.
First quarter earnings per share from operations were 45 cents per share,
compared with 41 cents per share a year ago, a 10 percent increase. Net income
from operations for the first quarter of 1996 was $85,554,000, compared with
$78,623,000 in the first quarter of 1995, an increase of 9 percent. Revenues
and sales were $774,266,000, compared with $763,615,000 in the corresponding
quarter of 1995.
Earnings per share from operations for the 12 months ended March 31, 1996
were $1.79, compared with $1.63 a year ago, while net income from operations
was $341,698,000, compared with $310,713,000 in the year-ago period. Revenues
and sales were $3,120,376,000 compared to $2,988,867,000 in 1995.
Including one-time items, first quarter earnings per share and net income
rose 7 percent to 44 cents and $84,073,000, respectively. Earnings per share
and net income for the 12 months ended March 31, 1996 rose 29 percent to $1.89
and $360,066,000, respectively.
The first quarter 1996 results include debt refinancing costs primarily
offset by a gain on the sale of telephone properties. The rolling 12-month
results for 1996 include a net after-tax gain of $18 million or 10 cents per
share primarily resulting from the sale of telephone properties partially
offset by debt refinancing costs.
ALLTEL's earnings per share from operations showed double-digit growth.
This is the result of strong operating income growth in cellular, solid
performance from telephone and modest gains in information services.
Results also included the effects of long-term repositioning efforts
executed in ALLTEL's three primary businesses.
As expected, telephone's reported results reflected the sale of several
properties. Internal growth rates, however, remained solid, and the Company
posted additional productivity gains.
Cellular was once again the primary driver of earnings growth -
generating strong increases in revenues, operating income and customers.
Cellular's results include the impact of a 1995 market repositioning
transaction with BellSouth, which produced a reduction in customers and
revenues but gave ALLTEL operating control of a larger area.
Results at information services reflected growth in its existing
customer base, as well as the addition of new customers. Results also
include the effects of the third quarter 1995 sale of information services'
check processing operations, which reduced the first quarter revenue growth
rate.
21
<PAGE>
1996 Stockholders Meeting Results
At ALLTEL's Annual Meeting of Stockholders held April 25 in Little Rock,
Arkansas, John R. Belk, W.W. Johnson and William H. Zimmer, Jr. were elected
directors to the class whose term will expire in 1999. Stockholders also
re-elected Arthur Andersen LLP independent auditors for the 1996 fiscal year.
In addition, Carl H. Tiedemann and John E. Steuri retired from the
Company's Board of Directors.
Tiedemann had been a director since 1980. Steuri joined ALLTEL's board
in 1990. In their years of service to the Company, the stockholders benefitted
greatly from their business counsel.
Board Declares Dividends
ALLTEL Corporation's Board of Directors declared regular quarterly dividends
on the Company's common stock. The 26 cent dividend is payable July 3, 1996 to
stockholders of record as of June 7, 1996.
Regular quarterly dividends were also declared on all series of the
Company's preferred stock. Preferred dividends are payable on June 15, 1996 to
stockholders of record as of May 24, 1996.
/s/ Joe Ford
Joe T. Ford,
Chairman, President and Chief Executive Officer
April 25, 1996
22
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FIRST
QUARTER REPORT TO STOCKHOLDERS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH REPORT.
</LEGEND>
<CIK> 0000065873
<NAME> ALLTEL CORPORATION
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 46,238
<SECURITIES> 0
<RECEIVABLES> 589,345
<ALLOWANCES> 18,431
<INVENTORY> 96,278
<CURRENT-ASSETS> 780,748
<PP&E> 4,814,950
<DEPRECIATION> 1,865,806
<TOTAL-ASSETS> 5,246,250
<CURRENT-LIABILITIES> 590,238
<BONDS> 1,699,719
6,998
9,240
<COMMON> 189,440
<OTHER-SE> 1,858,062
<TOTAL-LIABILITY-AND-EQUITY> 5,246,250
<SALES> 0
<TOTAL-REVENUES> 774,266
<CGS> 108,467
<TOTAL-COSTS> 603,101
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 34,210
<INCOME-PRETAX> 135,223
<INCOME-TAX> 51,150
<INCOME-CONTINUING> 84,073
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 84,073
<EPS-PRIMARY> .44
<EPS-DILUTED> 0
</TABLE>
