UNITED STATES
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 June 30, 1997
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 June 30, 1997:
186,870,443
The Exhibit Index is located at sequential page 16 .
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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 June 30, 1997, a copy of
which is attached hereto, are incorporated herein by reference:
Consolidated Statements of Income - for the three, six and twelve
months ended June 30, 1997 and 1996.
Consolidated Balance Sheets - June 30, 1997 and 1996 and
December 31, 1996.
Consolidated Statements of Cash Flows - for the six and twelve
months ended June 30, 1997 and 1996.
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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 $4.0 billion at June 30, 1997,
reflecting 55 percent common and preferred equity and 45 percent debt. This
compares to a capital structure of $3.9 billion at December 31, 1996,
reflecting 54 percent common and preferred equity and 46 percent 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 $306.3 million and $746.7 million for the six and twelve month
periods of 1997, respectively, compared to $365.8 million and $749.8 million
for the same periods of 1996. The decreases in the six and twelve month
periods of 1997 primarily reflect increased working capital requirements,
partially offset by growth in the earnings of the Company, excluding the impact
of certain non-cash, non-extraordinary charges further discussed below.
Cash flows from investing activities for the six and twelve month periods
of 1997 include net proceeds of $152.0 million received from the sale of
property, principally consisting of two non-strategic operations. In May 1997,
the Company completed the sale of its wire and cable subsidiary, HWC
Distribution Corp. ("HWC") for approximately $45.0 million in cash; and in
January 1997, the Company received net proceeds of $104.9 million in connection
with the sale of its healthcare operations. Cash from investing activities for
the six and twelve month periods of 1997 also include proceeds of $185.9
million related to the sale of a portion of the Company's investment in
WorldCom, Inc. common stock. The proceeds from these asset sales were used
primarily to reduce borrowings under the Company's revolving credit agreement.
In addition, cash flows from investing activities for the six and twelve
month periods of 1997 include a cash outlay of $146.5 million related to the
acquisition of Personal Communications Services ("PCS") licensing rights. The
Company participated in the Federal Communications Commission's ("FCC") "D" and
"E" band PCS auctions, and on January 14, 1997, the Company was awarded the PCS
licensing rights for 73 markets in 12 states. The PCS licenses will enable the
Company to increase the size of its potential wireless customer base to 34
million. The Company is currently developing its PCS network deployment plans.
Cash flows from investing activities for the six and twelve month periods of
1997 also include a cash outlay of $40.4 million related to the acquisition of
two wireless properties in Alabama and the purchase of an additional ownership
interest in a Georgia wireless property.
Capital expenditures for the six and twelve month periods of 1997 were
$248.3 million and $489.1 million, respectively, compared to $222.9 million and
$466.5 million for the same periods of 1996. The Company financed the majority
of its capital expenditures through the internal generation of funds in each of
the past two-year periods. During each of the past two-year periods, the
Company's capital expenditures were incurred to continue to modernize and
upgrade its telecommunications network, to invest in equipment to provide new
telecommunications services and to expand into existing information services
markets. Capital expenditures, including approximately $100 million related to
the construction of the PCS network, are forecast at $596.5 million for 1997,
which are expected to be financed primarily from internally generated funds.
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Included in cash flows from financing activities are dividend payments and
the repurchase by the Company of its common stock. Common and preferred
dividend payments for the six and twelve month periods of 1997 were $103.2
million and $202.3 million, respectively, compared to $99.0 million and $190.2
million for the same periods of 1996. The increases in dividend payments in
the 1997 periods primarily reflect the October 1996 action of the Board of
Directors to increase the quarterly common stock dividend rate from $.26 per
share to $.275 per share. On October 21, 1996, the Company announced its plans
to repurchase up to 3.5 million shares of its common stock. On April 24, 1997,
the Company announced expansion of its share repurchase program to include an
additional 3.5 million shares, for a total of 7.0 million shares. Through
June 30, 1997, the Company had repurchased 3,619,400 shares at a total cost of
$113.9 million. Of this total, $38.3 million was expended during the first six
months of 1997. The stock repurchase program expires at the end of 1997.
The Company has a $750 million revolving credit agreement. Borrowings
outstanding under this agreement at June 30, 1997 were $108.8 million, compared
to $83.7 million that were outstanding at December 31, 1996. There were no
borrowings outstanding under this agreement at June 30, 1996. The weighted
average interest rate on borrowings outstanding under this agreement at
June 30, 1997, was 6.3 percent. Borrowings under this agreement in 1997 were
incurred primarily to fund the stock repurchase program, to acquire the PCS
licensing rights and to fund general corporate requirements. As previously
noted, the proceeds from the sales of the healthcare operations, wire and cable
subsidiary and WorldCom, Inc. common stock were used primarily to reduce
borrowings under the revolving credit agreement. The net increase in revolving
credit agreement borrowings from December 31, 1996, represent all of the
long-term debt issued in the six month period ended June 30, 1997. The net
increase in revolving credit agreement borrowings from June 30, 1996, represent
substantially all of the long-term debt issued in the twelve month period ended
June 30, 1997. Scheduled long-term debt retirements amounted to $18.9 million
and $43.1 million for the six and twelve month periods of 1997, respectively.
RESULTS OF OPERATIONS
Wireline Operations
In November 1994, the Company signed definitive agreements to sell
wireline 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 a wireline property serving 3,600 access
lines in Pennsylvania. 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.
Wireline revenues and sales increased $21.5 million or 7 percent, $32.8
million or 6 percent and $29.7 million or 3 percent for the three, six and
twelve month periods ended June 30, 1997, respectively. Wireline operating
income increased $6.1 million or 6 percent and $6.6 million or 3 percent for
the three and six month periods of 1997, respectively. Operating income
decreased $1.0 million or less than 1 percent for the twelve month period of
1997. Excluding the impact of the sale of properties to Citizens, wireline's
revenues and sales would have increased $37.7 million or 7 percent and $69.8
million or 6 percent and operating income would have increased $8.7 million and
$14.8 million or 4 percent for the six and twelve month periods ended June 30,
1997, respectively.
Local service revenues increased $10.9 million or 10 percent, $19.4
million or 9 percent and $33.6 million or 8 percent in the three, six and
twelve month periods ended June 30, 1997, respectively. Customer access lines
increased more than 5 percent during the past twelve month period, reflecting
increased sales of residential and second access lines. Local service revenues
also increased by $1.8 million, $6.4 million and $13.3 million in the three,
six and twelve months of 1997, respectively, due to the expansion of local
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calling areas in North Carolina and Georgia, which reclassified certain
revenues from network access and long-distance revenues to local service.
The increases in revenues for the six and twelve month periods resulting from
growth in customer access lines and expansion of local calling areas were
partially offset by the sale of properties to Citizens, which reduced local
service revenues $1.3 million and $9.8 million for the six and twelve month
periods ended June 30, 1997, respectively. There have been no local rate
increases granted to any of the Company's wireline subsidiaries during 1997,
nor are there any rate requests currently pending before regulatory
commissions.
Network access and long-distance revenues increased $6.2 million or 4
percent, $8.7 million or 3 percent and decreased $8.7 million or 1 percent for
the three, six and twelve month periods ended June 30, 1997, respectively. The
increases in the three and six month periods primarily reflect growth in the
Company's long-distance operations, which began serving customers during the
second quarter of 1996. The long-distance operations, which currently serve
nearly 189,000 customers, generated growth in operating revenues of $7.0
million, $13.3 million and $21.9 million during the three, six and twelve month
periods ended June 30, 1997, respectively, as compared to the corresponding
periods of 1996. For the six and twelve month periods of 1997, the growth in
revenues attributable to the long-distance operations was partially offset by
the sale of properties to Citizens, which reduced revenues by $2.8 million and
$24.8 million, respectively. For all periods of 1997, growth in network access
and long-distance revenues was also impacted by the reclassification of certain
revenues to local service, as previously discussed.
On July 12, 1996, the Georgia Public Service Commission ("Georgia PSC")
issued an order requiring that the Company's wireline subsidiaries which
operate within its jurisdiction reduce their annual network access charges by
$24 million, prospectively, effective July 1, 1996. The Georgia PSC's action
was in response to the Company's election to move from a rate-of-return method
of pricing to an incentive rate structure, as provided by a 1995 Georgia
telecommunications law. The Company appealed the Georgia PSC order. On
November 6, 1996, the Superior Court of Fulton County, Georgia, (the "Superior
Court") rendered its decision and reversed the Georgia PSC order, finding,
among other matters, that the Georgia PSC had exceeded its authority by
conducting a rate proceeding after the Company's election of alternative
regulation. The Superior Court did not rule on a number of other assertions
made by the Company as grounds for reversal of the Georgia PSC order. The
Georgia PSC appealed the Superior Court's decision, and on July 3, 1997, the
Georgia Court of Appeals reversed the Superior Court's decision. On July 16,
1997, the Georgia Court of Appeals denied the Company's request to reconsider
its decision. On August 5, 1997, the Company filed with the Georgia Supreme
Court a petition for writ of certiorari requesting that the Georgia Court of
Appeals' decision be reversed. The Company has not implemented any revenue
reductions nor established any reserves for refund at this time.
Miscellaneous revenues increased $4.3 million or 13 percent, $4.7 million
or 7 percent and $4.8 million or 3 percent for the three, six and twelve month
periods of 1997, respectively. The increases in all periods primarily reflect
growth in directory advertising revenues, direct sales of wireline equipment,
rental revenues, and sales of wireline equipment protection plans. The growth
in miscellaneous revenues for the six and twelve month periods of 1997 was
partially offset by the sale of properties to Citizens, which reduced revenues
by $0.8 million and $5.5 million in the six and twelve month periods,
respectively.
Total wireline operating expenses increased $15.3 million or 8 percent,
$26.2 million or 7 percent and $30.6 million or 4 percent for the three, six
and twelve month periods of 1997, respectively. Excluding the impact of the
sale of properties to Citizens, wireline's operating expenses would have
increased $29.0 million or 8 percent and $55.0 million or 7 percent for the six
and twelve month periods ended June 30, 1997, respectively. The long-distance
operations accounted for $7.9 million, $14.6 million and $25.5 million of the
increases in operating expenses for the three, six and twelve month periods of
1997, respectively. Operating expenses for all periods of 1997 also reflect
increases in depreciation and network-related expenses, increased data
processing charges and additional costs incurred as a result of the Company
consolidating its customer service operations. Until the new regional customer
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service centers become fully operational and replace all existing customer call
centers later this year, the Company will continue to incur some duplicate
costs in operating both the existing and new facilities.
The Company's wireline 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 wireline 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 could be material. Criteria that
would give rise to the discontinuance of SFAS 71 include (1) increasing
competition that restricts the wireline 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. As a result of the passage
of the Telecommunications Act of 1996 (the "96 Act") and state
telecommunications reform legislation, the Company's wireline subsidiaries
could begin to experience increased competition in their local service areas.
Presently, competition has not had a significant adverse effect on the
operations of the Company's wireline subsidiaries.
In August 1996, the FCC issued regulations implementing the local
competition provisions of the 96 Act. These regulations established pricing
rules for state regulatory commissions to follow with respect to entry by
competing carriers into the local, intrastate markets of incumbent local
exchange carriers ("ILECs"), and addressed interconnection, unbundled network
elements and resale rates. The FCC's authority to adopt such pricing rules,
including permitting new entrants to "pick and choose" among the terms and
conditions of approved interconnection agreements, were challenged in federal
court by various ILECs and state regulatory commissions. On July 17, 1997, the
U.S. Eighth Circuit Court of Appeals issued its decision and vacated the FCC's
pricing rules including the "pick and choose" provisions, finding, among other
matters, that the FCC had exceeded its jurisdiction in establishing pricing
rules for intrastate communication services. The FCC has indicated it will
appeal this decision to the U.S. Supreme Court.
On May 7, 1997, the FCC issued regulations relating to access charge
reform and universal service. The access charge reform regulations are
applicable mainly to price cap regulated local exchange companies. Since the
Company's wireline subsidiaries are all rate-of-return regulated companies, the
access charge regulations, with few exceptions, are not applicable. The FCC
has indicated that a further notice of proposed rulemaking will be issued later
this year to address access charge reform for rate-of-return companies. Based
upon its review of the FCC's regulations concerning the universal service
subsidy, the Company does not anticipate any material changes in the universal
service funding for its wireline subsidiaries in the foreseeable future. In
the year 2001, the universal service subsidy is scheduled to change from being
based on actual costs to being based on a proxy model. Since the FCC has not
yet defined the structure or content of any such proxy model, the impact of
this change, if any, in the universal service funding for the Company's
wireline subsidiaries cannot be determined at this time. The impact of the
FCC's universal service order on the Company's other telecommunications
operations is still being evaluated. However, all of the Company's
telecommunications operations will now be required to pay into the universal
service fund to support services for rural, insular and high cost areas and for
schools, libraries and rural health care providers. Petitions for
reconsideration of both the universal service and access charge reform orders
are pending at the FCC. In addition, petitions to review these orders have
also been filed with various federal courts of appeal.
Due to the uncertain resolution of the regulatory matters discussed above
that are currently under FCC and/or judicial review, and since regulations to
implement other provisions of the 96 Act have yet to be issued, the Company
cannot predict at this time the specific effects that the 96 Act and future
competition will have on its wireline subsidiaries. However, the Company is
intent on taking advantage of the various opportunities that competition should
provide.
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Wireless Operations
Wireless operations contributed significantly to the Company's overall
earnings growth. Revenues and sales reflect increases of $18.9 million or 16
percent, $34.9 million or 15 percent and $77.0 million or 18 percent for the
three, six and twelve month periods ended June 30, 1997, respectively.
Operating income increased $5.2 million or 13 percent, $12.3 million or 17
percent and $25.2 million or 18 percent for the three, six and twelve month
periods of 1997, respectively. During the twelve month period ended June 30,
1997, customer growth remained strong as the number of wireless customers grew
to 890,017 from 707,643, an increase of 182,374 customers or 26 percent. The
acquisition of two wireless properties in Alabama, completed in February 1997,
added approximately 22,000 customers, and accounted for a 3 percent increase
in customers.
Wireless revenues and sales increased in all periods primarily due to the
significant growth in its customer base and due to the acquisition of two
wireless properties in Alabama. Growth in revenues and sales for all periods
was also favorably impacted by a reduction in uncollectible revenues,
reflecting decreased write-offs from bad debts. Partially offsetting the
increases in revenues and sales resulting from subscriber growth, acquisitions
and lower uncollectible revenues were declines in the average monthly revenue
per subscriber. Average revenue per subscriber per month was $53, $53 and $56
for the three, six and twelve months ended June 30, 1997, compared to $61, $60
and $61 for the same periods in 1996. The declines in average revenue per
subscriber primarily reflect the migration of existing customers to lower rate
plans, reductions in roaming revenue rates and the industry-wide trend of
continued penetration into lower-usage market segments. As a result of
increased current and expected future competition in its service areas, the
Company has increased its offering of monthly service plans which have lower
base access rates and include more packaged airtime minutes. Migration of
existing customers to the newly offered rate plans is expected to continue
throughout the remainder of 1997, and accordingly, this trend could continue to
impact future revenue growth.
The growth in operating income for all periods of 1997 primarily reflects
the increases in revenues and sales, previously noted. The increases in
operating income attributable to growth in revenues and sales were partially
offset by higher expenses for selling and advertising, depreciation and other
operating expenses. In addition, operating income for all periods was
favorably impacted by a reduction in losses incurred from fraud and bad debts.
During the third quarter of 1996, the Company implemented new technologies and
enhanced its credit and collection procedures. For each of the past three
consecutive calendar quarters, the Company has experienced a decline in losses
sustained from fraud and bad debts.
Information Services
Information services' revenues and sales reflect increases of $14.1
million or 6 percent, $4.6 million or 1 percent and $23.4 million or 2 percent
for the three, six and twelve month periods ended June 30, 1997, respectively.
Growth in revenues and sales for all periods of 1997 was impacted by the sale
of the healthcare operations completed in January 1997. In addition to the
sale of the healthcare operations, revenues and sales for the twelve month
period of 1997 also reflect the sale of the check processing operations
completed in September 1995. Excluding the impact of these sales, information
services' revenues and sales would have increased $38.7 million or 18 percent,
$51.2 million or 12 percent and $73.4 million or 9 percent in the three, six
and twelve month periods of 1997, respectively.
Excluding the impact of the sales of the healthcare and check processing
operations, revenues and sales increased in all periods primarily due to growth
in the financial services outsourcing business, reflecting volume growth in
existing data processing contracts and the addition of new outsourcing
agreements. Additional software maintenance and service revenues also
contributed to the increase in revenues and sales for all periods.
Telecommunications revenues and sales increased in all periods primarily due to
volume growth and additional services provided under existing data processing
contracts. The increases in revenues and sales in the six and twelve month
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periods were partially offset by a reduction in revenues earned on an
outsourcing agreement accounted for under the percentage-of-completion method.
In addition, growth in revenues and sales for all periods of 1997 were
adversely impacted by 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 domestic financial services industry
continues to experience consolidation due to mergers.
Operating income increased $0.7 million or 2 percent, increased $4.4
million or 7 percent and decreased $69.1 million or 49 percent for the three,
six and twelve month periods of 1997, respectively. Operating income for the
twelve month period includes the impact of a $75.0 million write-down in the
carrying value of software and certain other assets during the third quarter of
1996, as further discussed below. Excluding the impact of these asset write-
downs, operating income would have increased $5.9 million or 4 percent for the
twelve months ended June 30, 1997. Information services' operating income for
all periods of 1997 reflect the growth in revenues and sales noted above, as
well as, improved margins realized on its international software business.
Operating income for the three and six month periods also increased due to the
sale of the healthcare business, as these operations had incurred operating
losses during each of the first two calendar quarters of 1996. Growth in
operating income for all periods of 1997 was adversely impacted by start-up and
product development costs associated with several new business initiatives
designed to expand the Company's service offerings into existing markets.
Included in these initiatives are the Enterprise Network Services, Professional
Services and Call Center business units. Additionally, growth in operating
income in all periods of 1997 was adversely impacted 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 corresponding with the growth in revenues and sales.
During the third quarter of 1996, information services recorded a pretax
write-down of $53.0 million in the carrying value of certain assets primarily
consisting of capitalized software development costs. The write-down of
software resulted from a net realizability evaluation of software-related
products that have been impacted by changes in software and hardware
technologies, including a shift from mainframe to client server-based
applications. In addition, due to current and projected future operating
losses sustained by the community banking operations, information services also
recorded a pretax write-down of $22.0 million to adjust the carrying value of
these operations to their estimated fair value based upon projections of future
cash flows. The Company plans to dispose of or discontinue these operations by
the end of 1997. The effects of these asset write-downs are included in the
twelve months ended June 30, 1997.
Product Distribution Operations
Product distribution's revenues and sales reflect decreases of $34.5
million or 27 percent, $38.6 million or 16 percent and $43.1 million or 9
percent for the three, six and twelve month periods ended June 30, 1997,
respectively. Operating income decreased $2.4 million or 37 percent, $4.5
million or 34 percent and $6.9 million or 27 percent for the three, six and
twelve month periods of 1997, respectively.
The decreases in revenues and sales for all periods of 1997 primarily
reflect the sale of HWC completed in May, which resulted in decreases in sales
of electrical wire and cable products of $32.7 million, $42.5 million and $52.6
million for the three, six and twelve month periods of 1997, respectively.
Sales of telecommunications and data products decreased $1.8 million and
increased $3.9 million and $9.5 million for the three, six and twelve month
periods of 1997, respectively. Sales of telecommunications and data products
for all periods of 1997 reflect increased retail sales of these products at the
Company's counter showrooms, partially offset by a reduction in sales to
affiliates. The decreases in sales to affiliates in all periods of 1997
primarily resulted from a reduction in materials and supplies inventory levels
maintained by the wireline subsidiaries. Sales to affiliates also decreased in
the twelve month period due to the sale of properties to Citizens.
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Operating income decreased in all periods primarily due to the decreases
in revenues and sales noted above. Operating income for all periods of 1997
has also been adversely impacted by lower gross profit margins realized on the
sale of telecommunications and data products and electrical wire and cable
products, reflecting the effects of increased competition and a reduction in
product cost rebates received from vendors. In addition, increased selling-
related expenses also impacted operating income growth in all periods of 1997.
During the second quarter of 1997, the Company recorded a pretax write-
down of $16.9 million to reflect the fair value of HWC's operations, net of
selling-related costs. The impact of this write-down has been included in
corporate expenses for the three, six and twelve months ended June 30, 1997.
In accordance with the Company's plan for the disposal of HWC, the Company
recorded in September 1996, a pretax write-down of $45.3 million in the
carrying value of goodwill related to HWC. The impact of this write-down has
been included in corporate expenses for the twelve months ended June 30, 1997.
Other Operations
Other operations revenues and sales decreased $7.5 million or 21 percent,
$11.3 million or 15 percent and $10.3 million or 8 percent for the three, six
and twelve month periods ended June 30, 1997, respectively. Operating income
decreased $1.3 million or 42 percent and $0.8 million or 15 percent for the
three and six month periods of 1997, respectively. Operating income increased
$2.0 million or 23 percent for the twelve month period of 1997.
Revenues and sales for other operations decreased in all periods primarily
due to a decrease in directory publishing revenues attributable to a reduction
in the number of directories published. Compared to the corresponding periods
of 1996, eight, nineteen and twenty-two fewer directories were published in the
three, six and twelve month periods ended June 30, 1997, respectively.
The decreases in operating income for the three and six month periods of
1997 primarily reflect the decrease in directory publishing revenues. The
increase in operating income for the twelve month period of 1997 reflects a
reduction in directory publishing expenses resulting from the elimination of
certain amounts paid to GTE Directories Corporation. The Company's publishing
subsidiary had contracted with GTE Directories Corporation to receive directory
advertising sales support, printing and other services. Beginning in the
second quarter of 1996, these sales and service functions were performed at a
lower cost internally by the Company's publishing subsidiary. Operating income
for the twelve month period also reflects lower expenses for advertising,
market research and new product development.
Corporate Expenses
Corporate expenses increased $16.9 million or 296 percent, $16.6 million
or 145 percent and $61.9 million or 247 percent for the three, six and twelve
month periods ended June 30, 1997, respectively. The increases in all periods
primarily reflect the $16.9 million write-down to reflect the fair value less
cost to sell the HWC operations recorded in the second quarter of 1997, as
previously discussed. In addition, corporate expenses for the twelve month
period of 1997 include the $45.3 million write-down in the carrying value of
goodwill related to HWC recorded in the third quarter of 1996, as previously
discussed. Excluding the impact of these write-downs, corporate expenses would
have increased slightly in the three month period, and would have decreased
$0.3 million or 3 percent and $0.3 million or 1 percent for the six and twelve
month periods of 1997, respectively.
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Interest Expense
Interest expense decreased slightly in the three month period of 1997 and
decreased $2.3 million or 4 percent and $8.1 million or 6 percent for the six
and twelve month periods of 1997, respectively. The decreases in interest
expense in the six and twelve month periods reflect the issuance of $300
million of 7.0 percent debentures in March 1996 to retire $200 million of 9.5
percent debentures and to reduce borrowings under the Company's revolving
credit agreement. The decrease in interest expense in the six month period
resulting from the March 1996 debt refinancing was partially offset by an
increase in borrowings outstanding under the Company's revolving credit
agreement. In addition to the March 1996 debt refinancing, the decrease in
interest expense for the twelve month period also reflects the issuance of $200
million of 6.75 percent debentures issued in September 1995 to retire two
high-cost debt issues, consisting of $150 million of 10.375 percent debentures
and $50 million of 8.875 percent debentures. This debt refinancing was
completed in October 1995. In connection with the debt refinancings completed
in March 1996 and October 1995, the Company was required to pay termination
fees in the amount of $15.8 million and $14.0 million, respectively; however,
the two debt refinancings are expected to produce approximately $10.5 million
in annual pretax interest savings. The decrease in interest expense for the
twelve month period also reflects a reduction in the average borrowing rates
for amounts outstanding under the Company's revolving credit agreement.
Provision to Reduce Carrying Value of Certain Assets
As previously discussed, during the second quarter of 1997, the Company
recorded a pretax write-down of $16.9 million to reflect the fair value less
cost to sell its wire and cable subsidiary, HWC. The sale of HWC was completed
in May. The net income impact of this write-down resulted in a decrease in net
income of $11.7 million or $.06 per share for the three, six and twelve months
ended June 30, 1997.
During the third quarter of 1996, the Company incurred non-cash, pretax
charges of $120.3 million to writedown the carrying value of certain assets.
In accordance with the Company's plan to dispose of its wire and cable
subsidiary, the Company recorded a pretax write-down of goodwill in the amount
of $45.3 million. In addition, information services recorded a pretax
write-down of $53.0 million in the carrying value of certain assets primarily
consisting of capitalized software development costs. The write-down of
software resulted from performing a net realizability evaluation of software-
related products that have been impacted by changes in software and hardware
technologies. Information services also recorded a pretax write-down of $22.0
million to adjust the carrying value of its community banking operations to
their estimated fair value based upon projections of future cash flows. The
Company plans to dispose of or discontinue these operations by the end of 1997.
The net income impact of these write-downs resulted in a decrease in net income
of $72.7 million or $.38 per share for the twelve months ended June 30, 1997.
Gain on Disposal of Assets and Other
During the second quarter of 1997, the Company recorded a pre-tax gain of
$156.0 million from the sale of a portion of its investment in WorldCom, Inc.
common stock. The net income impact from this transaction resulted in an
increase of $88.1 million in net income and $.46 in earnings per share for the
three, six and twelve month periods ended June 30, 1997. During the first
quarter of 1997, the Company recorded a pre-tax gain of $16.2 million from the
sale of information services' healthcare operations. The net income impact
from this transaction resulted in an increase of $9.2 million in net income
and $.05 in earnings per share for the six and twelve month periods ended
June 30, 1997.
10
<PAGE>
During the first quarter of 1996, the Company recorded a pre-tax gain of
$15.3 million from the sale of wireline 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 GO
Communications Corporation ("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 six month period ended June 30, 1996.
Net income for the twelve month period of 1996 includes pre-tax gains of
$34.2 million from the disposal of certain wireline properties to Citizens,
termination fees of $29.8 million related to the refinancing of long-term debt
completed in October 1995 and March 1996 and the $1.8 million loss incurred on
the withdrawal of the Company's investment in GOCC. The net income impact from
these transactions resulted in an increase of $1.8 million in net income and
$.01 in earnings per share for the twelve month period ended June 30, 1996.
Income Taxes
Income tax expense increased $65.7 million or 115 percent, $77.8 million
or 72 percent and $28.8 million or 13 percent for the three, six and twelve
month periods of 1997, respectively. The increases in income tax expense in
all periods primarily reflect the tax-related impact of the various one-time,
non-extraordinary items, as previously discussed. Income tax expense for the
three month period of 1997 includes net additional tax expense of $62.7 million
related to the gain on the sale of the WorldCom, Inc. stock, partially offset
by the write-down of HWC to its fair value less cost to sell. In addition to
including the tax effects of these two transactions, income tax expense for the
six and twelve month periods of 1997 include additional tax expense of $7.0
million related to the gain on the sale of the healthcare operations. Income
tax expense for the twelve month period of 1997 also reflects a net tax benefit
of $47.6 million resulting from the third quarter 1996 write-downs of the wire
and cable subsidiary, community banking operations and other assets primarily
consisting of capitalized software development costs. Income tax expense for
the six month period of 1996 includes a net tax benefit of $0.8 million
resulting from the payment of termination fees related to a debt refinancing
and a loss incurred on the withdrawal of an investment, partially offset by the
gain on the sale of wireline properties in Nevada to Citizens. Income tax
expense for the twelve month period of 1996 includes net tax expense of $0.8
million resulting from gains on the sale of wireline properties to Citizens,
partially offset by the payment of termination fees related to two debt
refinancings and a loss incurred on the withdrawal of the Company's investment
in GOCC. Excluding the impact on tax expense of these transactions, income tax
expense would have increased $3.0 million or 5 percent, $7.3 million or 7
percent and $7.5 million or 3 percent in the three, six and twelve month
periods of 1997, respectively, consistent with the overall growth in the
Company's earnings from continuing operations before one-time,
non-extraordinary items.
Net Income Applicable to Common Shares
Net income applicable to common shares increased $82.0 million or 89
percent, $99.7 million or 57 percent and $37.6 million or 11 percent for the
three, six and twelve month periods of 1997, respectively. Primary earnings
per common share increased 92 percent, 59 percent and 12 percent for the three,
six and twelve month periods of 1997, respectively. Excluding the net income
impact in each period of the one-time, non-extraordinary items detailed in the
sections entitled "Provision to Reduce Carrying Value of Certain Assets" and
"Gain on Disposal of Assets and Other", net income would have increased $5.6
million or 6 percent, $12.6 million or 7 percent and $26.4 million or 7 percent
and primary earnings per share would have increased 8 percent, 9 percent and 9
percent in the three, six and twelve month periods ended June 30, 1997,
respectively.
11
<PAGE>
Average Common Shares Outstanding
The average number of common shares outstanding decreased 2 percent in
the three month period of 1997 and decreased 1 percent in both the six and
twelve month periods of 1997. The decreases in all periods were primarily
due to the Company's repurchase of its common stock on the open market,
partially offset by shares issued in connection with the acquisition of a
wireless property in Georgia and by shares issued under the Company's stock
option plans.
Other Financial Information
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income",
("SFAS 130"). This pronouncement, effective for calendar year 1998 financial
statements, establishes new standards for reporting and presenting
comprehensive income and its components in a full set of general purpose
financial statements. Comprehensive income is defined as the change during an
accounting period in the net assets of an entity that results from
transactions and other economic events, except those changes resulting from
additional capital investments by owners or distributions paid to owners.
Comprehensive income is the total of net income and all other nonowner changes
in equity. SFAS 130 requires that comprehensive income be reported either in
a separate financial statement, combined and included with the statement of
income or included in a statement of changes in stockholders' equity. With
either presentation, a total for comprehensive income must be reported.
Currently, the only other comprehensive income item that applies to the
Company is the unrealized holding gain on its investment in WorldCom, Inc.
common stock. This unrealized holding gain, net of tax, is currently reported
in the Company's consolidated balance sheets as a separate component of
stockholders' equity. For the Company, comprehensive income will equal its
reported consolidated net income plus the change in the unrealized holding
gain balance from the previously reported period. Accordingly, the adoption
of SFAS 130 will only require the Company to modify its presentation of
information that is already separately disclosed in its consolidated financial
statements.
Also, in June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information", ("SFAS 131"). This
pronouncement, also effective for calendar year 1998 financial statements,
establishes new standards for reporting and presenting segment information
based on a management approach of identifying reportable segments. The
management approach is based on the way executive management of an entity
disaggregates its operations internally to assess performance and make
decisions regarding resource allocations. SFAS 131 requires an entity to
report a measure of segment profit or loss, certain specific revenue and
expense items and segment assets. SFAS 131 also requires reconciliations of
total segment revenues, total segment profit or loss and total segment assets
to the corresponding amounts shown in the entity's consolidated financial
statements. Additionally, an entity is required to report information about
the revenues derived from its products and services, about the countries in
which the entity earns revenues and holds assets, and about major customers.
Finally, the standard requires an entity to report descriptive information
about how its reportable segments were determined, the products and services
provided by the segments, differences between the measurements used in
reporting segment information and those used in the entity's consolidated
financial statements, and changes in the measurement of segment amounts from
period to period. The Company does not expect that the adoption of SFAS 131
will significantly change the number or designation of the reportable segments
currently disclosed in its consolidated financial statements.
12
<PAGE>
Forward-Looking Statements
This Management's Discussion and Analysis of Financial Condition and
Results of Operations includes, and future filings by the Company on Form
10-K, Form 10-Q and Form 8-K and future oral and written statements by the
Company and its management may include, certain forward-looking statements,
including (without limitation) statements with respect to anticipated future
operating and financial performance, growth opportunities and growth rates,
acquisition and divestitive opportunities and other similar forecasts and
statements of expectation. Words such as "expects," "anticipates,"
"intends," "plans," "believes," "seeks," "estimates," and "should", and
variations of these words and similar expressions, are intended to identify
these forward-looking statements. Forward-looking statements by the Company
and its management are based on estimates, projections, beliefs and
assumptions of management and are not guarantees of future performance. The
Company disclaims any obligation to update or revise any forward-looking
statement based on the occurrence of future events, the receipt of new
information, or otherwise.
Actual future performance, outcomes and results may differ materially
from those expressed in forward-looking statements made by the Company and
its management as a result of a number of important factors. Representative
examples of these factors include (without limitation) rapid technological
developments and changes in the telecommunications and information services
industries; ongoing deregulation (and the resulting likelihood of
significantly increased price and product/service competition) in the
telecommunications industry as a result of the Telecommunications Act of 1996
and other similar federal and state legislation and the federal and state
rules and regulations enacted pursuant to that legislation; regulatory
limitations on the Company's ability to change its pricing for communications
services; the possible future unavailability of SFAS 71 to the Company's
wireline subsidiaries; continuing consolidation in certain industries, such
as banking, served by the Company's information services business; and the
risks associated with relatively large, multi-year contracts in the Company's
information services business. In addition to these factors, actual future
performance, outcomes and results may differ materially because of other,
more general, factors including (without limitation) general industry and
market conditions and growth rates, domestic and international economic
conditions, governmental and public policy changes and the continued
availability of financing in the amounts, at the terms and on the conditions
necessary to support the Company's future business.
13
<PAGE>
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 16.
(b) Reports on Form 8-K:
No reports on Form 8-K have been filed during the quarter for
which this report is filed.
14
<PAGE>
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
August 13, 1997
15
<PAGE>
ALLTEL CORPORATION
FORM 10-Q
INDEX OF EXHIBITS
Form 10-Q Sequential
Exhibit No. Description Page No.
(19) Interim Report to Stockholders and 17 - 24
Notes to Consolidated Financial Statements
for the periods ended June 30, 1997
(27) Financial Data Schedule 25
for the six months ended June 30, 1997
16
EXHIBIT 19
<TABLE>
<CAPTION>
HIGHLIGHTS (UNAUDITED)
Three Months Ended June 30, Six Months Ended June 30, Twelve Months Ended June 30,
Dollars in thousands, % Increase % Increase % Increase
(except per share amounts) 1997 1996 (Decrease) 1997 1996 (Decrease) 1997 1996 (Decrease)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues and sales $816,880 $804,453 2 $1,601,185 $1,578,719 1 $3,214,884 $3,138,353 2
Net income $173,890 $ 91,908 89 $ 275,598 $ 175,981 57 $ 391,354 $ 353,870 11
Primary earnings per average
common share outstanding $.92 $.48 92 $1.46 $.92 59 $2.07 $1.85 12
Excluding provision to
reduce carrying value
of certain assets, gain
on disposal of assets
and other:
Operating income $189,033 $180,890 5 $ 370,258 $ 352,055 5 $ 730,108 $ 704,712 4
Net income $ 97,529 $ 91,908 6 $ 190,016 $ 177,462 7 $ 378,488 $ 352,109 7
Earnings per share $.52 $.48 8 $1.01 $.93 9 $2.00 $1.84 9
Average common shares
including equivalents 187,727,000 190,720,000 (2) 187,856,000 190,661,000 (1) 188,965,000 190,413,000 (1)
Annual dividend rate
per common share $1.10 $1.04 6
Total assets $5,411,387 $5,373,846 1
Wireline access lines 1,731,272 1,644,541 5
Wireless customers 890,017 707,643 26
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
BUSINESS SEGMENTS (UNAUDITED)
Three Months Ended June 30, Six Months Ended June 30, Twelve Months Ended June 30,
% Increase % Increase % Increase
(Dollars in thousands) 1997 1996 (Decrease) 1997 1996 (Decrease) 1997 1996 (Decrease)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues and Sales:
Wireline $311,294 $289,836 7 $ 612,470 $ 579,644 6 $1,201,902 $1,172,246 3
Wireless 137,711 118,815 16 261,828 226,968 15 509,969 433,005 18
Total communications 449,005 408,651 10 874,298 806,612 8 1,711,871 1,605,251 7
Information services 247,613 233,499 6 464,777 460,158 1 963,690 940,286 2
Product distribution 92,414 126,926 (27) 200,004 238,560 (16) 413,824 456,973 (9)
Other operations 27,848 35,377 (21) 62,106 73,389 (15) 125,499 135,843 (8)
Total $816,880 $804,453 2 $1,601,185 $1,578,719 1 $3,214,884 $3,138,353 2
Operating Income:
Wireline $108,638 $102,519 6 $ 214,539 $ 207,954 3 $ 414,967 $ 415,926 -
Wireless 44,399 39,243 13 84,087 71,790 17 164,017 138,801 18
Total communications 153,037 141,762 8 298,626 279,744 7 578,984 554,727 4
Information services 35,739 35,081 2 69,403 65,047 7 71,391 140,505 (49)
Product distribution 4,213 6,662 (37) 8,630 13,121 (34) 19,169 26,116 (27)
Other operations 1,783 3,094 (42) 4,711 5,548 (15) 10,444 8,465 23
Corporate expenses (22,613) (5,709) 296 (27,986) (11,405) 145 (87,034) (25,101) 247
Total $172,159 $180,890 (5) $ 353,384 $ 352,055 - $ 592,954 $ 704,712 (16)
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Six Months Twelve Months
Ended June 30, Ended June 30, Ended June 30,
(Dollars in thousands, 1997 1996 1997 1996 1997 1996
except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Revenues and Sales:
Service revenues $673,957 $624,560 $1,299,771 $1,231,606 $2,593,010 $2,467,510
Product sales 142,923 179,893 301,414 347,113 621,874 670,843
Total revenues and sales 816,880 804,453 1,601,185 1,578,719 3,214,884 3,138,353
Costs and Expenses:
Cost of products sold 93,101 122,719 197,171 231,186 414,441 450,410
Operations 373,218 343,625 713,473 680,042 1,431,057 1,350,123
Maintenance 35,868 37,690 71,752 74,389 144,586 148,136
Depreciation and amortization 108,813 103,546 215,541 209,538 430,118 422,306
Taxes, other than income taxes 16,847 15,983 32,990 31,509 64,574 62,666
Provision to reduce carrying value
of certain assets 16,874 - 16,874 - 137,154 -
Total costs and expenses 644,721 623,563 1,247,801 1,226,664 2,621,930 2,433,641
Operating Income 172,159 180,890 353,384 352,055 592,954 704,712
Other income, net 590 231 17 777 2,165 1,860
Interest expense (31,884) (31,989) (63,886) (66,199) (128,519) (136,599)
Gain on disposal of assets and other 155,993 - 172,209 (2,278) 172,209 2,570
Income before income taxes 296,858 149,132 461,724 284,355 638,809 572,543
Income taxes 122,968 57,224 186,126 108,374 247,455 218,673
Net income 173,890 91,908 275,598 175,981 391,354 353,870
Preferred dividends 256 274 514 548 1,037 1,110
Net income applicable to common shares $173,634 $ 91,634 $ 275,084 $ 175,433 $ 390,317 $ 352,760
Primary Earnings per Share $.92 $.48 $1.46 $.92 $2.07 $1.85
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Twelve Months
Ended June 30, Ended June 30,
(Dollars in thousands) 1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net Cash Provided by Operations $306,349 $365,791 $746,740 $749,828
Cash Flows from Investing Activities:
Additions to property, plant and equipment (248,305) (222,911) (489,095) (466,524)
Sale of property 151,958 38,687 151,958 166,770
Purchase of property, net of cash acquired (40,447) - (40,447) -
Additions to capitalized software
development costs (32,822) (30,526) (80,615) (58,616)
Additions to other intangible assets (146,526) - (146,526) -
Investments sold (acquired) 185,827 20,102 183,509 3,649
Other, net (31,922) (9,931) (85,035) (78,591)
Net cash used in investing activities (162,237) (204,579) (506,251) (433,312)
Cash Flows from Financing Activities:
Dividends on preferred and common stock (103,234) (99,019) (202,310) (190,167)
Reductions in long-term debt (18,935) (369,795) (43,098) (614,557)
Preferred stock redemptions and purchases (493) (686) (511) (1,442)
Purchase of common stock (38,262) - (113,866) -
Long-term debt issued 25,070 313,682 111,089 495,461
Common stock issued 6,344 3,625 6,243 11,658
Net cash used in financing activities (129,510) (152,193) (242,453) (299,047)
Increase (decrease) in cash and
short-term investments 14,602 9,019 (1,964) 17,469
Cash and Short-term Investments:
Beginning of period 13,874 21,421 30,440 12,971
End of period $ 28,476 $ 30,440 $ 28,476 $ 30,440
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
June 30, Dec. 31, June 30,
Assets (Dollars in thousands) 1997 1996 1996
<S> <C> <C> <C>
Current Assets:
Cash and short-term investments $ 28,476 $ 13,874 $ 30,440
Accounts receivable (less allowance for
doubtful accounts of $21,363, $21,271
and $19,054, respectively) 513,071 554,316 552,811
Materials and supplies 16,883 17,152 21,040
Inventories 46,687 85,970 88,394
Prepaid expenses 41,251 38,156 24,806
Total current assets 646,368 709,468 717,491
Investments 764,948 838,651 859,391
Excess of cost over equity in purchased entities
and other intangibles 589,203 425,823 480,933
Property, Plant and Equipment:
Wireline 3,841,492 3,827,659 3,682,361
Wireless 630,020 582,707 506,953
Information services 504,131 506,905 491,286
Other 12,558 27,618 27,081
Under construction 257,410 169,439 213,456
Total property, plant and equipment 5,245,611 5,114,328 4,921,137
Less accumulated depreciation 2,163,254 2,072,789 1,939,946
Net property, plant and equipment 3,082,357 3,041,539 2,981,191
Other assets 328,511 343,702 334,840
Total Assets $5,411,387 $5,359,183 $5,373,846
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
June 30, Dec. 31, June 30,
Liabilities and Shareholders' Equity 1997 1996 1996
<S> <C> <C> <C>
Current Liabilities:
Current maturities of long-term debt $ 39,754 $ 37,798 $ 36,967
Accounts payable 195,030 240,570 204,870
Advance payments and customers' deposits 71,019 78,080 76,490
Accrued taxes 59,273 41,932 50,101
Accrued dividends 52,885 52,440 49,424
Other current liabilities 120,712 139,876 111,893
Total current liabilities 538,673 590,696 529,745
Deferred Credits:
Investment tax 10,414 12,915 18,742
Income taxes 637,071 661,972 702,084
Total deferred credits 647,485 674,887 720,826
Long-term debt 1,767,008 1,756,142 1,695,068
Other liabilities 230,120 233,896 247,186
Preferred stock, redeemable 5,974 6,455 6,508
Shareholders' Equity:
Preferred stock 9,186 9,198 9,223
Common stock 186,870 187,200 189,567
Additional capital 266,751 285,779 359,074
Unrealized holding gain on investments 324,334 351,867 367,242
Retained earnings 1,434,986 1,263,063 1,249,407
Total shareholders' equity 2,222,127 2,097,107 2,174,513
Total Liabilities and Shareholders' Equity $5,411,387 $5,359,183 $5,373,846
</TABLE>
22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
______
1. Financial Statement Presentation:
The consolidated financial statements at June 30, 1997 and 1996
and for the three, six 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. Certain prior year
amounts have been reclassified to conform with the 1997 financial
statement presentation.
2. Excess of Cost Over Equity in Purchased Entities and Other Intangibles:
Other intangibles consist of the cost of the Personal
Communications Services ("PCS") licenses of approximately $146.5
million. The PCS licenses will be amortized on a straight-line
basis over 40 years.
3. Provision to Reduce Carrying Value of Certain Assets:
During the second quarter of 1997, the Company recorded a pre-tax
write-down of $16.9 million to reflect the fair value less cost
to sell its product distribution segment's wire and cable
subsidiary, HWC Distribution Corp., ("HWC"). The sale of HWC was
completed in May. The net income impact of this write-down resulted in
a decrease in net income of $11.7 million or $.06 per share for the
three, six and twelve months ended June 30, 1997.
Operating results of the wire and cable subsidiary included in the
Company's consolidated results of operations for the three, six and
twelve months ended June 30, 1997 and 1996, were as follows:
(Thousands)
Three Months Six Months Twelve Months
Ended Ended Ended
1997 1996 1997 1996 1997 1996
Revenues and sales $11,317 $44,014 $42,847 $85,331 $114,052 $166,622
Operating income $ 334 $ 1,706 $ 1,473 $ 4,137 $ 5,255 $ 10,023
4. Gain on Disposal of Assets and Other:
During the second quarter of 1997, the Company recorded a pre-tax gain
of $156.0 million from the sale of a portion of its investment in
WorldCom, Inc. common stock. The net income impact from this
transaction resulted in an increase of $88.1 million in net income and
$.46 in earnings per share for the three, six and twelve month periods
ended June 30, 1997. During the first quarter of 1997, the Company
recorded a pre-tax gain of $16.2 million from the sale of information
services' healthcare operations. The net income impact from this
transaction resulted in an increase of $9.2 million in net income and
$.05 in earnings per share for the six and twelve month periods ended
June 30, 1997.
23
<PAGE>
TO ALLTEL STOCKHOLDERS:
ALLTEL Corporation recently announced its financial results for the period
ended June 30, 1997.
Second quarter earnings per share from operations were 52 cents, compared
with 48 cents a year ago, an 8 percent increase. Net income from operations
for the second quarter of 1997 was $97,529,000, compared with $91,908,000 in
the second quarter of 1996, an increase of 6 percent. Revenues and sales were
$816,880,000, compared with $804,453,000 in the corresponding quarter of 1996.
Earnings per share from operations for the 12 months ended June 30, 1997
were $2.00, compared to $1.84 a year ago, while net income from operations
was $378,488,000, compared with $352,109,000 in 1996.
In the second quarter, ALLTEL recognized a one-time, net after-tax gain
of approximately $76 million from the disposition of certain assets.
Including these one-time items, second quarter earnings per share rose 92
percent to 92 cents, and net income rose 89 percent to $173,890,000. As
reported in previous quarters, latest 12-month net income for 1997 includes
one-time adjustments resulting in net gains after tax of approximately $13
million. Reported earnings per share and net income for the 12 months ended
June 30, 1997 were $2.07 and $391,354,000, respectively.
Wireline operations had strong revenue growth, driven by the success of
our new long-distance service as well as the sale of second line access. In
addition, we are actively promoting our new Internet access service and have
introduced bundled services in one of our major markets.
Wireless operations produced double-digit growth in revenues and
operating income. We had a particularly strong quarter in new customer
additions and were successful in maintaining lower levels of fraud, bad debt
and churn.
Information services showed solid growth in revenues due to the sale of
expanded services to existing customers and new contracts while the reported
growth rate was impacted by the first quarter disposition of our healthcare
operations. Operating income reflected continued investment in new market
opportunities such as network management and call center services.
ALLTEL Completes Sale Of HWC Subsidiary
ALLTEL announced in May completion of the sale of our HWC distribution
subsidiary to Code, Hennessy & Simmons, Inc., an investment firm in Chicago.
We previously announced our intention to dispose of HWC in October 1996.
HWC was one of two companies in ALLTEL's product distribution business.
ALLTEL Supply, which provides telecommunications equipment to the
communications industry, was unaffected by the sale of HWC.
ALLTEL Installs Virtuoso II In Three PCS Markets For GTE
ALLTEL's state-of-the-art billing and customer care system, Virtuoso II
(V-II), has been implemented by GTE in its first three Personal
Communications Service (PCS) markets - Greater Cincinnati, Seattle and
Spokane.
All three PCS markets became operational this spring and have
successfully completed billing cycles with ALLTEL's V-II.
V-II is a comprehensive and highly flexible client/server-based software
system that provides customer support, service activation, inventory and
billing functions in a point-of-sale, desktop format. With V-II in production
and operating at several sites, ALLTEL is actively marketing the system
domestically and in the international market.
Board Declares Dividends
ALLTEL's Board of Directors declared regular quarterly dividends on ALLTEL's
common stock. The 27.5 cent dividend is payable October 3, 1997 to
stockholders of record as of September 5, 1997.
Regular quarterly dividends were also declared on all series of the
Company's preferred stock. Preferred dividends are payable September 15, 1997
to stockholders of record as of August 22, 1997.
/s/ Joe T. Ford
Joe T. Ford,
Chairman and Chief Executive Officer
July 24, 1997
24
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SECOND 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 28,476
<SECURITIES> 0
<RECEIVABLES> 513,071
<ALLOWANCES> 21,363
<INVENTORY> 46,687
<CURRENT-ASSETS> 646,368
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<DEPRECIATION> 2,163,254
<TOTAL-ASSETS> 5,411,387
<CURRENT-LIABILITIES> 538,673
<BONDS> 1,767,008
5,974
9,186
<COMMON> 186,870
<OTHER-SE> 2,026,071
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<TOTAL-REVENUES> 1,601,185
<CGS> 197,171
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<INTEREST-EXPENSE> 63,886
<INCOME-PRETAX> 461,724
<INCOME-TAX> 186,126
<INCOME-CONTINUING> 275,598
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<EPS-PRIMARY> 1.46
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</TABLE>
