UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1997
or
( )TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from________to________
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) 905-8000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock New York and Pacific
$2.06 No Par Cumulative Convertible
Preferred Stock New York and Pacific
Securities registered pursuant to Section 12(g) of the Act:
NONE
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. (X)
Aggregate market value of voting stock held by non-affiliates as of
January 31, 1998 - $7,863,187,862
Common shares outstanding, January 31, 1998 - 183,934,219
DOCUMENTS INCORPORATED BY REFERENCE
Document Incorporated Into
Portions of the annual report to stockholders
for the year ended December 31, 1997 Parts I, II and IV
Proxy statement for the 1998 Annual Meeting
of stockholders Part III
The Exhibit Index is located on pages 23 to 27.
<PAGE>
ALLTEL Corporation
Securities and Exchange Commission
Form 10-K, Part I
Item 1. Business
THE COMPANY
GENERAL
ALLTEL Corporation ("ALLTEL" or the "Company") is a customer-focused
information technology company that provides wireline and wireless
communications and information services. The Company owns subsidiaries that
provide wireline local, long-distance, network access and internet services,
wireless communications, wide-area paging service and information processing
management services and advanced applications software. Telecommunications
products are warehoused and sold by the Company's distribution subsidiary. A
subsidiary also publishes telephone directories for affiliates and other
independent telephone companies.
FORWARD LOOKING STATEMENTS
This Form 10-K and future filings by the Company on 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, Year 2000 compliance 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.
1
<PAGE>
ALLTEL Corporation
Securities and Exchange Commission
Form 10-K, Part I
Item 1. Business
THE COMPANY (continued)
ACQUISITIONS
In October 1997, the Company acquired Georgia Telephone Corporation, which
served more than 6,700 customer lines in southwest Georgia. The customer lines
acquired are in areas adjacent to the Company's wireline exchanges in Georgia
and are located within the Company's current wireless service area.
During 1997, ALLTEL Mobile Communications, Inc. ("ALLTEL Mobile") increased its
ownership to 100 percent in two Alabama Rural Service Areas ("RSAs"),
representing approximately 260,000 cellular "pops" or potential customers. In
addition, ALLTEL Mobile increased its ownership interest to 100 percent in the
Savannah, Georgia MSA, representing approximately 280,000 cellular "pops".
In 1996, ALLTEL Mobile increased its ownership interest in one North Carolina
RSA and purchased an interest in one Florida RSA.
During 1995, ALLTEL Mobile entered into a joint venture with BellSouth
Mobility, Inc. involving cellular properties in five states. As a result of
this joint venture, ALLTEL Mobile owns a 53.5 percent interest in the Columbia
and Florence, South Carolina market, an 11.1 percent interest in the
Greensboro, North Carolina Metropolitan Statistical Area ("MSA"), an
11.1 percent interest in a North Carolina RSA, and no longer owns a majority
interest in the Jackson, Mississippi market. In addition during 1995, ALLTEL
Mobile completed an exchange of certain assets in a West Virginia RSA and an
Oklahoma RSA for certain assets in a Georgia RSA and a North Carolina RSA owned
by United States Cellular Corp. ("U.S. Cellular"). The acquired properties are
contiguous to ALLTEL Mobile's Albany, Georgia and Charlotte, North Carolina
markets. In January 1995, ALLTEL Mobile purchased U.S. Cellular's 20 percent
interest in the Fort Smith, Arkansas MSA, thereby increasing ALLTEL Mobile's
ownership interest in the Fort Smith MSA to 100 percent.
In May 1995, ALLTEL Information Services, Inc. ("ALLTEL Information Services")
acquired Vertex Business Systems, Inc. ("Vertex"), a provider of international
banking software products and services. Vertex, headquartered in New York, has
clients located in Europe, Asia and the United States.
In November 1994, the Company completed its acquisition of Medical Data
Technology, Inc. ("MDT"). MDT provided information processing services to 14
hospitals in the northeastern United States. In October 1993, the Company
completed its acquisition of TDS Healthcare Systems Corporation ("TDS"). TDS
provided comprehensive patient care and healthcare enterprise information
systems to more than 200 hospitals in the United States, Canada and Europe. As
further discussed below, the Company sold its healthcare information services
business in January 1997.
Effective November 1, 1993, the Company and GTE Corporation ("GTE") completed
an exchange of telephone service areas in several states. ALLTEL exchanged
approximately 95,000 access lines in Illinois, Indiana and Michigan and
$443 million in cash for substantially all of the assets of the telephone
operations of GTE in the State of Georgia, which served approximately 320,000
access lines.
2
<PAGE>
ALLTEL Corporation
Securities and Exchange Commission
Form 10-K, Part I
Item 1. Business
THE COMPANY (continued)
ACQUISITIONS (continued)
In October 1993, ALLTEL Publishing Corporation ("ALLTEL Publishing") completed
its purchase of GTE Directories Service Corporation's ("GTE Directories")
independent publishing business, which included contracts with more than 125
independent telephone companies across the country.
During 1993, ALLTEL Mobile acquired a 100 percent interest in one Georgia RSA
which had a population of approximately 145,000. In addition, ALLTEL Mobile
acquired interests in two other Georgia RSAs and increased its ownership in
one Texas RSA and one Mississippi RSA. In January 1993, ALLTEL Mobile acquired
an additional 20 percent interest in the Ft. Smith, Arkansas MSA. This
transaction increased ALLTEL Mobile's interest in the Ft. Smith MSA to
80 percent.
DISPOSITIONS
In May 1997, the Company sold its wire and cable subsidiary, HWC Distribution
Corp. ("HWC") to Code, Hennessy & Simmons, Inc., an investment firm, for
approximately $45 million in cash. HWC was one of two companies that comprised
ALLTEL's product distribution operations.
In January 1997, the Company sold the healthcare portion of its information
services business to Integrated Healthcare Solutions, Inc. for approximately
$154 million consisting of cash and a continuing preferred stock interest. The
preferred stock is convertible into common stock representing a 15 percent
interest in a new privately held company, Ecilpsys Corporation.
In November 1994, the Company signed definitive agreements to sell certain
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 all properties except for those in Nevada
was completed during 1995, and the sale of the Nevada properties was completed
in March 1996.
In 1995, as part of its agreement to sell certain telephone properties, the
Company also completed the sale of certain of its cable television properties
to Citizens. These cable television properties served approximately 6,800
customers in Arizona, California, New Mexico and Utah. The Company also
completed in 1995 the sale of its cable television properties in Texas which
served approximately 7,200 customers. Upon completion of these property sales,
the Company provides cable television service to approximately 3,600 customers,
primarily to residents of Bolivar and Stockton, Missouri. These remaining cable
television properties are not significant to the ongoing operations of the
Company.
In 1995, ALLTEL Information Services sold all of the assets related to its
check processing operations, including substantially all of the customer
contracts.
3
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ALLTEL Corporation
Securities and Exchange Commission
Form 10-K, Part I
Item 1. Business
THE COMPANY (continued)
MANAGEMENT
The Company's staff at its headquarters and regional offices supervise,
coordinate and assist subsidiaries in management activities, investor
relations, acquisitions, corporate planning, insurance, and technical research.
They also coordinate the financing program for the entire corporation.
EMPLOYEES
At December 31, 1997, the Company had 16,393 employees. Some of the employees
of the Company's wireline subsidiaries are part of collective bargaining units.
The Company maintains good relations with all employee groups.
INDUSTRY SEGMENTS
Financial information about industry segments is included in the Company's
1997 Annual Report to Stockholders, which is incorporated herein by reference.
COMMUNICATIONS SERVICES
During the past three years, the Company has undertaken several strategic
initiatives designed to strengthen its communications business and to focus its
operations geographically in markets located in the southeastern portion of the
United States and the Great Lakes. Included in these initiatives were the
disposal of smaller wireline operations completed in 1995 and 1996, expansion
of the Company's service offerings to include long-distance and internet
services begun in 1996, the acquisition of Personal Communications Services
("PCS") licensing rights in 1997, and the convergence of the Company's wireline
and wireless businesses also completed in 1997. With convergence, the Company
combined its wireline and wireless businesses into a single operation capable
of delivering to customers one-stop shopping for a full range of communications
products and services including local wireline, long-distance, wireless, paging
and internet services. Additionally, the Company has added wireline products
to its wireless retail stores and has combined its wireline and wireless call
centers to better serve customers.
ALLTEL participated in the Federal Communications Commission's ("FCC") "D" and
"E" band PCS auctions, and in January 1997, the Company was awarded the PCS
licensing rights for 73 markets in 12 states. The PCS licenses acquired are in
markets which overlap the Company's existing wireline and wireless service
areas. In fact, the PCS licenses acquired increase the overlap of the
Company's system-wide wireline and wireless service areas within its southern
markets to 97 percent. In addition, the PCS licenses acquired increase the
size of the Company's potential wireless customer base to 34 million. The
Company expects to begin offering PCS in select markets during 1998.
In 1997, ALLTEL also constructed network facilities to provide communications
services in select areas within its geographically focused markets that are
located outside its traditional franchised service areas. To date, these local
competitive access service offerings have been marketed to business customers.
In 1998, the Company will expand its offering of these services to include
residential customers.
4
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ALLTEL Corporation
Securities and Exchange Commission
Form 10-K, Part I
Item 1. Business
WIRELINE OPERATIONS
LOCAL SERVICE
General
The Company's wireline subsidiaries provide local service to more than
1,789,000 customer lines through 576 exchanges in 14 states. The wireline
subsidiaries also offer facilities for private line, data transmission and
other communications services.
Regulation
Historically, the Company's wireline subsidiaries have provided local telephone
service under franchises granted by state regulatory commissions and have been
subject to regulation by those regulatory commissions. These regulatory
commissions have had primary jurisdiction over various matters including local
and intrastate toll rates, quality of service, the issuance of securities,
depreciation rates, the disposition of public utility property, the issuance
of debt, and the accounting systems used by those subsidiaries. The FCC has
historically had primary jurisdiction over the interstate toll and access rates
of these companies and issues related to interstate telephone service.
The Telecommunications Act of 1996 (the "96 Act"), which became effective on
February 8, 1996, has substantially modified certain aspects of the states'
and the FCC's jurisdictions in the regulation of local exchange telephone
companies. The 96 Act prohibits state legislative or regulatory restrictions
or barriers to entry regarding the provision of local telephone service. The
96 Act also requires incumbent local exchange carriers to interconnect with the
networks of other telecommunications carriers, unbundle services into network
elements, offer their telecommunications services at wholesale rates to allow
resale of those services, and allow other telecommunications carriers to locate
their equipment on the premises of the incumbent local exchange carriers. The
96 Act requires all local exchange telephone companies to compensate one
another for the transport and termination of calls on one anothers' networks.
The Company's wireline subsidiaries are rural telephone companies and are
exempt from certain of the foregoing obligations unless, in response to a bona
fide request, a state regulatory commission removes that exemption. The 96 Act
requires the FCC to develop rules necessary to implement certain aspects of the
96 Act, and to revise the current Universal Service Fund in response to the
recommendations of a federal-state joint board.
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, was challenged in federal court by various
ILECs and state regulatory commissions. On July 18, 1997, the U.S. Eighth
Circuit Court of Appeals (the "Eighth Circuit Court") 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. In
responding to petitions for rehearing of its earlier decision, the Eighth
Circuit Court ruled on October 14, 1997, that ILECs are not required by the 96
Act to recombine network elements
5
<PAGE>
ALLTEL Corporation
Securities and Exchange Commission
Form 10-K, Part I
Item 1. Business
WIRELINE OPERATIONS (continued)
LOCAL SERVICE (continued)
Regulation (continued)
that are purchased by requesting carriers on an unbundled basis. The FCC asked
the U.S. Supreme Court to review two interconnection decisions of the Eighth
Circuit Court. On January 26, 1998, the U.S. Supreme Court announced that it
will review these two decisions later in 1998.
On May 7, 1997, the FCC issued regulations relating to access charge reform and
universal service. The access charge reform regulations are discussed on page
7 within the section entitled "Network Access Services-Regulation". Based upon
ALLTEL's review of the FCC's regulations concerning the universal service
subsidy, it is unlikely that material changes in the universal service funding
for the Company's wireline subsidiaries will occur prior to 2001. In 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 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 Company's wireline subsidiaries received
approximately $48 million from the current federal universal service fund in
1997. The impact of the FCC's universal service order on ALLTEL's other
telecommunications operations is still being evaluated. Petitions for
reconsideration of various aspects 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.
Because resolution of the regulatory matters discussed above that are
currently under FCC and/or judicial review is uncertain and 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 will have on
its wireline subsidiaries.
Periodically, the Company's wireline subsidiaries receive requests from
wireless communications providers for renegotiation of existing transport and
termination agreements. The Company's wireline subsidiaries, as requested,
renegotiate the appropriate terms and conditions in compliance with the 96 Act.
The Company's wireline subsidiaries also receive requests for transport and
termination services from competitive local exchange carriers ("CLECs");
however, none of these requests have related to direct competition with the
Company's wireline subsidiaries.
On December 24, 1996, the FCC issued its order implementing the accounting
safeguards requirements of the 96 Act. These safeguards are designed to ensure
that subscribers of regulated non-competitive telecommunications services do
not subsidize incumbent local exchange carriers' provision of competitive
services. As part of this order, the FCC adopted certain modifications to its
affiliated transactions rules to provide greater protection against such
subsidization. These rules did not have a material impact on the operations of
the Company's wireline subsidiaries in 1997.
ALLTEL Oklahoma, Inc. applied for and was granted an across-the-board $2.00
local rate increase in 1997; otherwise, there were no local rate increases
requested by any of the Company's wireline subsidiaries in 1997, nor are there
any rate requests currently pending before regulatory commissions. During
1997, wireline operations were affected by certain regulatory commission orders
designed to reduce earnings levels. These orders did not materially affect the
results of operations of the Company's wireline subsidiaries.
6
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ALLTEL Corporation
Securities and Exchange Commission
Form 10-K, Part I
Item 1. Business
WIRELINE OPERATIONS (continued)
LOCAL SERVICE (continued)
Regulation (continued)
Certain states in which the Company's wireline subsidiaries operate have
adopted alternatives to rate-of-return regulation, either through legislative
or regulatory commission actions. On February 4, 1997, Arkansas enacted the
Telecommunications Regulatory Reform Act of 1997, that, among other matters,
authorizes telecommunications carriers in Arkansas to elect to be regulated
under forms of regulation that substantially reduce regulatory oversight,
establishes a universal service fund to compensate incumbent local exchange
carriers for, among other matters, reductions in federal universal service
support funds, and allows the local exchange company pricing flexibility. The
Company has elected to be regulated under alternative regulation in Arkansas
for its subsidiary, ALLTEL Arkansas, Inc. The Company has also elected
alternative regulation for its Georgia subsidiaries, Sugar Land Telephone
Company in Texas, ALLTEL Alabama, Inc., and has an Alternative Regulation
application pending in North Carolina. In March 1997, the Alternative
Regulation Plan in place for the Western Reserve Telephone Company expired. As
a result, the Western Reserve Telephone Company reverted to rate base rate-of-
return regulation. The Company continues to evaluate alternative regulation
for its other wireline subsidiaries.
The Company's competitive local exchange subsidiary, ALLTEL Communications,
Inc., ("ALLTEL Communications") has received approval to provide local exchange
service in the states of Arkansas, Florida and North Carolina. ALLTEL
Communications has negotiated interconnection agreements with the appropriate
incumbent local exchange carriers in each of these states, and is installing
state-of-the-art networks that will enable it to provide services on both a
facilities-based and resale basis. The Company anticipates filing applications
to provide service in other states in the near future. ALLTEL Communications
will provide local services in combination with other services provided by
subsidiaries of the Company, including long-distance, wireless and internet
services.
Competition
Historically, the Company's wireline subsidiaries have not experienced
significant competition in the service areas allocated to them by the state
regulatory commissions. As a result of the passage of the 96 Act, the
Company's local wireline subsidiaries may experience increased competition
from various sources, including, but not limited to, resellers of their local
exchange services, large end users installing their own networks, interexchange
carriers, satellite transmission services, cellular communications providers,
cable television companies, radio-based personal communications companies,
competitive access providers and other systems capable of completely or
partially bypassing the local telephone facilities. The Company cannot predict
the specific effects of competition on its local telephone business, but is
intent on taking advantage of the various opportunities that competition should
provide. The Company is currently addressing potential competition by focusing
on improved customer satisfaction, reducing its costs, increasing efficiency,
restructuring rates, offering new products, and examining new markets for
entry. To date, there has been no measurable effect on the Company's wireline
subsidiaries due to competition.
7
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ALLTEL Corporation
Securities and Exchange Commission
Form 10-K, Part I
Item 1. Business
WIRELINE OPERATIONS (continued)
LONG-DISTANCE SERVICES
General
The Company began offering long-distance telecommunications services during
1996. Long-distance services are provided on a resale basis by the Company's
subsidiary, ALLTEL Communications. ALLTEL Communications provides long-
distance service in all of the states in which the Company provides local
exchange service. In addition, ALLTEL Communications offers its services
outside of the Company's franchised, local exchange service areas. As of
December 31, 1997, ALLTEL Communications had more than 281,000 customers.
Regulation
As a long-distance reseller, ALLTEL Communications' intrastate business is
subject to limited regulation by state regulatory commissions and its
interstate business is subject to regulation by the FCC. State regulatory
commissions currently require long-distance resellers to obtain a certificate
of operating authority and the majority also require long-distance resellers to
file tariffs. The FCC issued an order which eliminated tariffing requirements.
The FCC and most state regulatory commissions also require such companies to
meet certain minimum service standards.
Competition
The long-distance marketplace is extremely competitive and continues to receive
relaxed regulation from both the FCC and state regulatory commissions. To meet
the competitive demands of the long-distance industry, ALLTEL Communications
has created several business and residential service offerings necessary to
attract potential customers, such as volume price discounts, calling cards and
simplified one rate plans, to set itself apart from other competitors within
the long-distance marketplace.
NETWORK ACCESS SERVICES
Long-distance companies pay access charges to the Company's wireline
subsidiaries for the use of their local networks to originate and terminate
their customers' long-distance calls.
Regulation
Access charges concerning interstate services are regulated by the FCC. As
previously discussed, on May 7, 1997, the FCC issued regulations relating to
access charge reform. The access charge reform regulations are applicable
mainly to price cap regulated local exchange companies. Since ALLTEL's
wireline subsidiaries are not price cap regulated companies, the access charge
regulations, with few exceptions, are not applicable to them. The FCC has
indicated that a further notice of proposed rulemaking will be issued during
1998 to address access charge reform for rate-of-return companies. As
previously noted, petitions for reconsideration of certain aspects of the
access charge reform order are pending at the FCC. In addition, petitions to
review parts of this order have also been filed with various federal courts of
appeal.
8
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ALLTEL Corporation
Securities and Exchange Commission
Form 10-K, Part I
Item 1. Business
WIRELINE OPERATIONS (continued)
NETWORK ACCESS SERVICES (continued)
Regulation (continued)
The Company's wireline subsidiaries have elected to remain under rate base
rate-of-return regulation with respect to interstate services. For companies
remaining under rate-of-return regulation, the FCC authorizes a rate-of-return
that telephone companies may earn on interstate services they provide. During
1997, the FCC did not represcribe the rate-of-return, which is currently
11.25 percent. The Company's wireline subsidiaries currently receive
compensation from long-distance companies for intrastate, intraLATA services
through access charges or toll settlements that are subject to state regulatory
commission approval.
Billing and collection
Interstate billing and collection services were previously detariffed as
ordered by the FCC. The Company's wireline subsidiaries continue to provide
interstate billing and collection services for interexchange carriers through
various agreements and also provide intrastate billing and collection services
under state tariff arrangements or under contract where these services are
detariffed.
Competition
One potential consequence of competition is the bypass of the Company's
wireline subsidiaries' facilities by local networks constructed by new
providers of local exchange telephone services. To date, there has been no
significant measurable effect on the Company's wireline subsidiaries due to
competition.
WIRELESS OPERATIONS
GENERAL
ALLTEL Mobile provides wireless telephone service to a wide array of customers
in various markets throughout the United States, primarily located in the
southeastern part of the United States. As wireless telephones have become
increasingly popular across broader segments of the population, ALLTEL Mobile
has, in addition to its traditional sales offices, opened retail outlets and
located retail centers in high traffic department stores, where customers can
purchase equipment and subscribe to ALLTEL Mobile services.
One measure of a wireless telephone market's potential is the market's
population times the percent of a company's ownership interest of the wireless
operation in that market ("pops"). ALLTEL Mobile owns a majority interest in
wireless operations in 13 MSAs and a minority interest in 14 other MSAs, which
total 5.2 million MSA wireless pops. ALLTEL Mobile also owns a majority
interest in wireless operations in 43 RSAs and a minority interest in 33 other
RSAs, which total 3.7 million wireless pops. ALLTEL Mobile operates systems in
Montgomery, Alabama; Ft. Smith, Arkansas; Fayetteville, Arkansas; Little Rock,
Arkansas; Ocala/Gainesville, Florida; Albany, Georgia; Aiken, South
Carolina/Augusta, Georgia; Savannah, Georgia; Springfield, Missouri; Charlotte,
North Carolina; Columbia, South Carolina and Florence, South Carolina.
9
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ALLTEL Corporation
Securities and Exchange Commission
Form 10-K, Part I
Item 1. Business
WIRELESS OPERATIONS (continued)
GENERAL (continued)
ALLTEL Mobile's subscriber fees are based upon the prevailing market and
competitive conditions which exist in each service area operated. During 1997,
in response to increased current and expected future competition, the Company
increased its offering of monthly service plans, which have lower base access
rates and include more packaged airtime minutes. As a result of this action
and continued penetration into lower-usage market segments, monthly revenue per
customer decreased to $52 for 1997, as compared to $59 for 1996. At
December 31, 1997, ALLTEL Mobile provided service to more than 941,000
customers, which, based on its 8.9 million total pops, represented a market
penetration rate of 10.6 percent. For the year ended December 31, 1997, ALLTEL
Mobile's churn rate averaged 2.3 percent in its wireless service areas, which
is comparable to the industry average.
COMPETITION
Wireless carriers today face competition from a second carrier licensed to
provide wireless telephone services in the same geographic area, from wireless
resellers who buy bulk wireless services from one of the two licensees and
resell it to their customers, and from providers of PCS and other enhanced
mobile services. During 1997, several PCS providers began operations in ALLTEL
Mobile's markets. The Company expects more PCS providers to begin operations
in its markets during 1998. The Company is addressing competition by focusing
on improved customer satisfaction, restructuring rates, increasing network
capacity, expanding local calling areas, and offering new products and
services.
The 96 Act provides wireless carriers numerous opportunities to emerge as full
competitors to traditional telephone companies, including the opportunity to
provide local telephone services and to be compensated by other
telecommunications carriers for calls terminated on the wireless carriers'
networks. Wireless carriers are not subject to the enhanced interconnection,
resale, unbundling and other obligations that the 96 Act imposed on the local
exchange companies. The FCC has found that wireless carriers should not be
classified as local exchange carriers unless the FCC makes a finding that such
treatment is warranted. The 96 Act limits the imposition on wireless carriers
of equal access requirements without a detailed FCC rulemaking. The 1993
Omnibus Budget Reconciliation Act preempted most state regulation of wireless
carriers, therefore, wireless carriers' services are likely to continue to be
minimally regulated for the foreseeable future.
PAGING
ALLTEL Mobile also operates wide-area computer-driven paging networks as a
complementary service to its wireless service in Arkansas and Florida. At
December 31, 1997, ALLTEL Mobile provided paging service to more than 32,000
customers, which, based on the total pops in its service areas of 2.0 million,
represented a market penetration rate of 1.6 percent. For the year ended
December 31, 1997, revenues per subscriber averaged $10 per month, and ALLTEL
Mobile's churn rate averaged 2.6 percent in its paging service areas. The
Company also resells paging services in other ALLTEL Mobile wireless service
areas.
10
<PAGE>
ALLTEL Corporation
Securities and Exchange Commission
Form 10-K, Part I
Item 1. Business
INFORMATION SERVICES
GENERAL
ALLTEL Information Services provides a wide range of information processing
services primarily to the financial services and telecommunications industries
through information processing centers that it staffs, equips and operates.
Information processing contracts are generally for a multi-year period.
ALLTEL Information Services also develops and markets software worldwide to
financial services and telecommunications companies operating their own
information processing departments. The principal operating units of the
Company's information services business consist of the Financial Services
Division and the Telecommunications Division.
The Financial Services Division markets software and services that have been
developed and improved continuously over the last three decades and are
designed to fulfill substantially all of the retail and wholesale information
processing and management information requirements of financial institutions.
In addition, the Financial Services Division also provides data processing and
related computer software and systems to financial institutions originating
and/or servicing single family mortgage loans. This division's software
products and processing services, combined with its team of consultants, are
intended to offer a cost-effective alternative to the extensive technical
support staff and the enlarged group of mortgage bankers which would otherwise
have to be assembled in-house by each customer. The Financial Services
Division's on-line systems automate processing functions required in the
origination of mortgage loans, the management of such loans while in inventory
before they are sold in the secondary market, and their subsequent servicing.
The Telecommunications Division is primarily engaged in the development and
marketing of billing services and customer care software, including its
state-of-the-art Virtuoso II billing and customer care product, to local
telephone, wireless and PCS companies. In addition, the Telecommunications
Division provides data processing and outsourcing services to both wireline
and wireless telecommunications service providers.
CUSTOMERS
The Financial Services Division's primary markets for its financial products
and services are the nation's commercial banks and savings institutions and
financial institutions throughout the world. Financial software and services
are also marketed to credit unions and to financial institutions originating or
servicing single family mortgage loans. These financial institutions, which
include many of the largest servicers of residential mortgages, are located
throughout the United States. In total, more than 18 million mortgage loans
representing over $1.6 trillion are processed using the Financial Services
Division's software.
The Telecommunications Division's primary markets for its telecommunications
products and services consist of the top 40 telephone companies and the top 50
cellular companies in the United States, and certain PCS companies in the
United States, and approximately 100 international telecommunications
companies. The roll out of the wireless companies that will operate within
the PCS spectrum bandwidths in the United States has significantly increased
the potential customer base of the Telecommunications Division.
11
<PAGE>
ALLTEL Corporation
Securities and Exchange Commission
Form 10-K, Part I
Item 1. Business
INFORMATION SERVICES (continued)
COMPETITION
The Financial Services Division's competition primarily comes from "in-house"
bank information processing departments and other companies engaged in active
competition for financial institution outsourcing contracts. Numerous large
financial institutions provide information processing for smaller institutions
in their respective geographic areas, along with other companies that perform
such services for small institutions. The Telecommunications Division also
faces strong competition from internal information technology departments. In
addition, there are also other information services' companies that provide
information processing and management services to the telecommunications
industry.
ALLTEL Information Services competes in each of its markets by providing a high
level of service and support. ALLTEL Information Services substantially relies
upon and vigorously enforces contract and trade secret laws and internal
non-disclosure safeguards to protect the proprietary nature of its computer
software and service methodologies.
REGULATION AND EXAMINATION
The Financial Services Division is regulated by the federal agencies that have
supervisory authority over banking, thrift, and credit union operations. The
Financial Services Division is also classified as one of 12 national vendors
that, as a result of their market share, process a significant portion of the
financial industry's assets. These industry leaders are also examined by the
federal Financial Institutions Examination Council on an ongoing basis. ALLTEL
Information Services' management practices, policies, procedures, standards,
and overall financial condition are components of these reviews.
In addition to these corporate examinations, individual processing sites are
subject to examination, as if they were departments of their respective
clients, by federal and state regulators, as well as the clients' internal
audit departments and their independent auditing firms. The same standards of
performance are applied to those information processing centers as are applied
to the client financial institutions. Reports of the individual data center
performance are furnished to the Board of Directors of ALLTEL Information
Services and to the Board of Directors of the examined client. The supervisory
agencies include applicable state banking departments, the Federal Deposit
Insurance Corporation, the Office of Thrift Supervision, the Office of the
Comptroller of the Currency, the Board of Governors of the Federal Reserve
System, and the National Credit Union Administration. ALLTEL Information
Services' processing contracts include a commitment to install all necessary
changes in its computer software that are required by changes in regulations.
The Company operates transmitters at the network's information processing
facility hub and operates very small aperture technology ("VSAT") earth
stations at numerous customer locations. Prior to initiation, construction or
operation of the transmitters used in a VSAT satellite network, operators of
these transmitters are required by the Communications Act of 1934 to be
authorized by the FCC. The FCC grants licenses to VSAT operators for a
predetermined number of earth stations that may be placed at unspecified
locations in the United States. The Company holds five VSAT licenses to
operate its domestic earth station satellite network, consisting of one 8.1m
license for its VSAT hub located in Jacksonville, Florida and four other VSAT
licenses ranging from 1.0m to 2.4m. Three of the VSAT licenses, including the
8.1m license, were renewed during 1997 and will expire in 2007, while the
remaining two VSAT licenses will expire in 2003.
12
<PAGE>
ALLTEL Corporation
Securities and Exchange Commission
Form 10-K, Part I
Item 1. Business
INFORMATION SERVICES (continued)
PRODUCT DEVELOPMENT AND SUPPORT
In the past five years, ALLTEL Information Services has spent approximately
$503 million ($114 million in 1997) on mainframe and client/server software
design and development. ALLTEL Information Services is also developing
products that are utilized in a UNIX based environment, including the
Telecommunications Division's Virtuoso II billing and customer care product,
which became operational in 1996. Changes in regulatory requirements of both
state and federal authorities, increasing competition, and the development of
new products and markets create the need to continually update or modify
existing software and systems offered to customers. ALLTEL Information
Services intends to continue to maintain, improve, and expand the functions and
capabilities of its software products over the next several years.
PRODUCT DISTRIBUTION OPERATIONS
GENERAL
ALLTEL Supply, Inc. ("ALLTEL Supply"), with 8 warehouses and 24 counter-sales
showrooms across the United States, is a major distributor of
telecommunications equipment and materials. It supplies equipment to
affiliated and non-affiliated telephone companies, business systems suppliers,
railroads, governments, and retail and industrial companies. As previously
noted, in May 1997, the Company sold its wire and cable subsidiary, HWC.
COMPETITION
ALLTEL Supply experiences substantial competition throughout its sales
territories from other distribution companies and from direct sales by
manufacturers. Competition is based primarily on quality, product
availability, service, price, and technical assistance. Since the products
distributed by ALLTEL Supply are also offered by other competitors, ALLTEL
Supply differentiates itself from competitors by providing value-added services
such as offering expert technical assistance, maintaining extensive inventories
in strategically located warehouses and counter-sales showrooms to facilitate
single supplier sourcing and "just-in-time" delivery, maintaining a full range
of alternative product lines, and by providing staging, assembly and other
services. The Company is continually evaluating and implementing policies and
strategies which will meet customer expectations and position ALLTEL Supply in
the market as a quality customer-focused distributor.
PRODUCTS
ALLTEL Supply offers more than 50,000 products for sale. Of these, ALLTEL
Supply inventories single and multi-line telephone sets, local area networks
("LANs"), switching equipment modules, interior cable, pole line hardware, and
various other telecommunications supply items. ALLTEL Supply has not
encountered any material shortages or delays in delivery of products from their
suppliers.
13
<PAGE>
ALLTEL Corporation
Securities and Exchange Commission
Form 10-K, Part I
Item 1. Business
DIRECTORY PUBLISHING
ALLTEL Publishing coordinates advertising, sales, printing, and distribution
for 317 telephone directories in 36 states. Under terms of an agreement with
GTE Directories, ALLTEL Publishing provides all directory publishing services
including contract management, production and marketing. As subcontractor, GTE
Directories provides directory sales and printing services through a separate
contract with ALLTEL Publishing.
INVESTMENTS
WORLDCOM, INC.
The Company currently owns approximately a 2 percent interest in WorldCom,
Inc., a publicly-held company. WorldCom, Inc. is a large long-distance company
in the United States and is a full service provider of international
telecommunications and specialized broadcasting services. During 1997, the
Company sold a portion of its investment in WorldCom, Inc.
APEX GLOBAL INFORMATION SERVICES, INC.
During 1996, the Company made an approximate $5 million investment in Apex
Global Information Services, Inc. ("AGIS"), one of only six global providers
of Internet access services. During 1997, the Company invested an additional
$10 million in AGIS. As a result, the Company owns approximately a 12 percent
interest in AGIS.
HORIZON TELECOM, INC.
The Company owns a 19.8 percent interest in Horizon Telecom, Inc., which serves
approximately 27,000 telephone access lines in Ohio. Frederick G. Griech,
President of ALLTEL Communications Service Corporation's Northeast Region, and
Dennis Mervis, President of ALLTEL Ohio, Inc. and The Western Reserve Telephone
Company, are members of Horizon Telecom, Inc.'s Board of Directors.
HUGHES ISPAT LIMITED
During 1997, the Company made an approximate $21 million investment in Hughes
Ispat Limited ("HIL"), a start-up, limited liability company in India. HIL has
received a license to provide basic telephone and other enhanced communications
services in the state of Maharashtra, India. Currently, HIL is constructing
network facilities and expects to begin operations in late 1998. As a result
of its investment, the Company owns approximately a 13 percent interest in HIL.
Francis X. Frantz, Senior Vice President-External Affairs, General Counsel and
Secretary is a member of HIL's Board of Directors.
OTHER
During 1996, the Company sold all of its remaining shares of stock in Comdial
Corporation, a producer of telephone sets and key systems. During 1995, the
Company made an approximate $32 million investment in GO Communications
Corporation ("GOCC"). The Company's investment in GOCC was subject to a number
of conditions, including GOCC's ability to secure "C" band licenses in the PCS
auctions conducted by the FCC. Following GOCC's decision to exit the PCS
auctions, the Company elected to withdraw its investment.
14
<PAGE>
ALLTEL Corporation
Securities and Exchange Commission
Form 10-K, Part I
Item 2. Properties
WIRELINE PROPERTY
The Company's wireline subsidiaries own property in their respective operating
territories which consists primarily of land and buildings, central office
equipment, telephone lines, and related equipment. The telephone lines include
aerial and underground cable, conduit, poles and wires. Central office
equipment includes digital switches and peripheral equipment. The gross
investment by category in wireline property as of December 31, 1997, was as
follows:
(Thousands)
-----------
Wireline-
Land, buildings and leasehold improvements $ 284,907
Central office equipment 1,361,989
Outside plant 2,126,615
Furniture, fixtures, vehicles and other 294,991
----------
Total $4,068,502
==========
Certain properties of the Company and its wireline subsidiaries are pledged as
collateral for long-term debt.
OTHER PROPERTY
Other properties of the Company in service consist primarily of property, plant
and equipment used in providing wireless communications services, information
services and product distribution operations. The total investment by category
for the non-wireline operations of the Company as of December 31, 1997, was
as follows:
(Thousands)
-----------
Land, buildings and leasehold improvements $ 237,905
Data processing equipment 411,267
Wireless telephone plant and equipment 503,225
Furniture, fixtures and miscellaneous 90,844
----------
Total $1,243,241
==========
All of the Company's property is considered to be in reasonably sound operating
condition.
15
<PAGE>
ALLTEL Corporation
Securities and Exchange Commission
Form 10-K, Part II
Item 3. Legal Proceedings
On July 12, 1996, the Georgia Public Service Commission ("Georgia PSC")
issued an order requiring that ALLTEL's wireline subsidiaries which
operate within its jurisdiction reduce their annual network access
charges by $24 million, prospectively, effective July 1, 1996. As
further discussed in Management's Discussion and Analysis of Financial
Condition and Results of Operations (see "Results of Operations by
Business Segment: Communications-Wireline Operations"), the Company
appealed the Georgia PSC order and received a favorable decision from
the Superior Court of Fulton County, Georgia (the "Superior Court").
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 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. On February 5,
1998, the Georgia Supreme Court announced that it will review the
Company's petition. The Company has not implemented any revenue
reductions or established any reserves for refunds related to this
matter.
The Company is not currently involved in any other material pending
legal proceedings, other than routine litigation incidental to its
business, and, to the knowledge of the Company's management, no
material legal proceedings, either private or governmental, are
contemplated or threatened.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to the security holders for a vote during
the fourth quarter of 1997.
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
As of January 31, 1998, the approximate number of stockholders of
common stock including an estimate for those holding shares in brokers'
accounts was 91,000. For additional information pertaining to Markets
for ALLTEL Corporation's Common Stock and Related Stockholder Matters,
refer to pages 29, 31, 35, 36 and 41 of ALLTEL's 1997 Annual Report to
Stockholders, which is incorporated herein by reference.
Item 6. Selected Financial Data
For information pertaining to Selected Financial Data of ALLTEL
Corporation, refer to page 26 of ALLTEL's 1997 Annual Report to
Stockholders, which is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
For information pertaining to Management's Discussion and Analysis of
Financial Condition and Results of Operations of ALLTEL Corporation,
refer to pages 19-24 of ALLTEL's 1997 Annual Report to Stockholders,
which is incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risk from changes in marketable equity
security prices and from changes in interest rates on long-term debt
obligations that impact the fair value of these obligations, as further
discussed below.
16
<PAGE>
ALLTEL Corporation
Securities and Exchange Commission
Form 10-K, Part II
Item 7A. Quantitative and Qualitative Disclosures About Market Risk (continued)
At December 31, 1997, investments of the Company are recorded at fair
value of $775.6 million. The fair value of investments is based on
quoted market prices and the carrying value of investments for which
there is no quoted market price. Of the total investments, marketable
equity securities, consisting principally of the Company's investment
in WorldCom, Inc. common stock, amounted to $575.5 million and included
unrealized holding gains of $300.7 million. The marketable equity
securities held by the Company have exposure to price risk, which is
estimated as the potential loss in fair value due to a hypothetical
10 percent adverse change in quoted market prices, and would amount to
a decrease in the recorded value of investments of approximately
$57.6 million.
The Company has no material future earnings or cash flow exposures from
changes in interest rates on its long-term debt obligations, as
substantially all of the Company's long-term debt obligations are
fixed rate obligations. At December 31, 1997, the fair value of the
Company's long-term debt was estimated to be $1.930 billion based on
the overall weighted rate of the Company's long-term debt of 7.0
percent and an overall weighted maturity of 12 years compared to terms
and rates currently available in the long-term financing markets.
Such fair value exceeded the carrying value of long-term debt by
approximately $56 million. Market risk is estimated as the potential
decrease in fair value of the Company's long-term debt resulting, from
a hypothetical increase of 70 basis points in interest rates (10
percent of the Company's overall weighted average borrowing rate).
Such an increase in interest rates would result in approximately a
$70 million decrease in the fair value of the Company's long-term debt.
Although the Company conducts business in foreign countries, the
international operations are not material to the Company's consolidated
financial position, results of operations or cash flows. Additionally,
foreign currency translation gains and losses were not material to the
Company's results of operations for the year ended December 31, 1997.
Accordingly, the Company is not currently subject to material foreign
currency exchange rate risk from the effects that exchange rate
movements of foreign currencies would have on the Company's future
costs or on future cash flows it would receive from its foreign
subsidiaries. To date, the Company has not entered into any
significant foreign currency forward exchange contracts or other
derivative financial instruments to hedge the effects of adverse
fluctuations in foreign currency exchange rates. The Company is
evaluating the future use of such financial instruments.
Item 8. Financial Statements and Supplementary Data
For information pertaining to Financial Statements and Supplementary
Data of ALLTEL Corporation, refer to pages 25 and 27-39 of ALLTEL's
1997 Annual Report to Stockholders, which is incorporated herein by
reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
During the two most recent fiscal years or the subsequent interim
period up to the date of this Form 10-K, there were no disagreements
with the Company's independent certified public accountants on any
matter of accounting principles or practices, financial statement
disclosures or auditing scope or procedures. In addition, none of the
"kinds of events" described in item 304(a)(1)(v)(A), (B), (C) and (D)
of Regulation S-K have occurred.
17
<PAGE>
ALLTEL Corporation
Securities and Exchange Commission
Form 10-K, Part III
Item 10. Directors and Executive Officers of the Registrant
For information pertaining to Directors of ALLTEL Corporation refer to
"Election of Directors" in ALLTEL's Proxy Statement for its 1998
Annual Meeting of Stockholders, which is incorporated herein by
reference. Executive officers of the Company are as follows:
Name Age Position
----------------- --- -----------------------------------------
Joe T. Ford 60 Chairman and Chief Executive Officer
Scott T. Ford 35 President
Tom T. Orsini 47 Executive Vice President
Dennis J. Ferra 44 Senior Vice President and Chief Financial
Officer
Francis X. Frantz 44 Senior Vice President - External Affairs,
General Counsel and Secretary
John L. Comparin 45 Vice President - Human Resources and
Administration
Ronald D. Payne 51 Vice President - Business Development
Jerry M. Green 50 Treasurer
John M. Mueller 47 Controller
There are no arrangements between any officer and any other person
pursuant to which he was selected as an officer. Except for Scott T.
Ford, each of the officers named above has been employed by ALLTEL or
a subsidiary for the last five years. Prior to joining ALLTEL, Scott
T. Ford served as Assistant to the Chairman of Stephens Group, Inc. of
Little Rock, Arkansas. Scott T. Ford is the son of Joe T. Ford.
Item 11. Executive Compensation
For information pertaining to Executive Compensation, refer to
"Management Compensation" in ALLTEL's Proxy Statement for its 1998
Annual Meeting of Stockholders, which is incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
For information pertaining to beneficial ownership of ALLTEL
securities, refer to "Security Ownership of Certain Beneficial Owners
and Management" in ALLTEL's Proxy Statement for its 1998 Annual
Meeting of Stockholders, which is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
For information pertaining to Certain Relationships and Related
Transactions, refer to "Certain Transactions" in ALLTEL's Proxy
Statement for its 1998 Annual Meeting of Stockholders, which is
incorporated herein by reference.
18
<PAGE>
ALLTEL Corporation
Securities and Exchange Commission
Form 10-K, Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as a part of this report:
1. Financial Statements:
The following Consolidated Financial Statements of ALLTEL
Corporation and subsidiaries, included in the annual report
of ALLTEL Corporation to its stockholders for the year ended
December 31, 1997, are incorporated herein by reference:
Annual Report
Page Number
-------------
Report of Independent Public Accountants 25
Consolidated Statements of Income -
for the years ended December 31, 1997, 1996 and 1995 27
Consolidated Balance Sheets -
December 31, 1997 and 1996 28-29
Consolidated Statements of Cash Flows -
for the years ended December 31, 1997, 1996
and 1995 30
Consolidated Statements of Shareholders' Equity -
for the years ended December 31, 1997, 1996
and 1995 31
Notes to Consolidated Financial Statements 33-39
Supplementary Information-Business
Segment Information 32-33
The Consolidated Financial Statements and Supplementary Financial
Information listed in the above index which are included in the
1997 Annual Report to Stockholders of ALLTEL Corporation are
hereby incorporated by reference.
Form 10-K
2. Financial Statement Schedules: Page Number
-----------
Report of Independent Public Accountants 21
Schedule II. Valuation and Qualifying Accounts 22
3. Exhibits:
See "Exhibit Index" located on page 23-27 of this document.
(b) No reports on Form 8-K were filed during the last quarter of 1997.
Separate condensed financial statements of ALLTEL Corporation have been
omitted since the Company meets the tests set forth in Regulation S-X
Rule 4-08(e)(3). All other schedules are omitted since the required
information is not present or is not present in amounts sufficient to
require submission of the schedule, or because the information required
is included in the consolidated financial statements and notes thereto.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
ALLTEL Corporation
Registrant
By /s/ Joe T. Ford
Joe T. Ford, Chairman and Date: February 11, 1998
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By /s/ Dennis J. Ferra Date: February 11, 1998
Dennis J. Ferra, Senior Vice President and
Chief Financial Officer
* Joe T. Ford, Chairman, Chief Executive Officer
and Director
* Scott T. Ford, President and Director
* Dennis J. Ferra, Senior Vice President and
Chief Financial Officer
* John M. Mueller, Controller
By /s/ Dennis J. Ferra
* Michael D. Andreas, Director * (Dennis J. Ferra,
Attorney-in-fact)
* John R. Belk, Director
Date: February 11, 1998
* Lawrence L. Gellerstedt III, Director
* W. W. Johnson, Director
* Emon A. Mahony, Jr., Director
* John P. McConnell, Director
* Josie C. Natori, Director
* Ronald Townsend, Director
* William H. Zimmer, Jr., Director
20
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
ALLTEL Corporation:
We have audited in accordance with generally accepted auditing standards, the
financial statements included in ALLTEL Corporation's Annual Report to
stockholders incorporated by reference in this Form 10-K, and have issued our
report thereon dated January 29, 1998. Our audit was made for the purpose of
forming an opinion on those statements taken as a whole. The schedule on page
22 is the responsibility of the company's management and is presented for
purposes of complying with the Securities and Exchange Commission's rules and
is not part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in the audit of the basic
financial statements and, in our opinion, fairly states in all material
respects the financial data required to be set forth therein in relation to the
basic financial statements taken as a whole.
/S/ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Little Rock, Arkansas,
January 29, 1998.
21
<PAGE>
<TABLE>
<CAPTION>
ALLTEL CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(Dollars in Thousands)
Column A Column B Column C Column D Column E
<S> <C> <C> <C> <C> <C>
Additions
Balance at Charged to Charged Balance at
Beginning Cost and to Other Deductions End of
Description of Period Expenses Accounts Describe Period
Allowance for doubtful accounts,
subscribers and others:
For the years ended
December 31, 1997 $21,271 $27,238 $ - $29,947 (A) $18,562
December 31, 1996 $18,439 $38,771 $ - $35,939 (A) $21,271
December 31, 1995 $21,510 $35,860 $ - $38,931 (A) $18,439
</TABLE>
Notes:
(A) Accounts charged off less recoveries of amounts previously charged off.
22
<PAGE>
EXHIBIT INDEX
Number and Name Page
(3)(a) Amended and Restated Certificate of Incorporation of ALLTEL *
Corporation (incorporated herein by reference to Exhibit B
to Proxy Statement, dated March 9, l990).
(b) By-Laws of ALLTEL Corporation (As amended as of 67
January 29, 1998).
(4)(a) Rights Agreement dated as of January 30, l997, between ALLTEL *
Corporation and First Union National Bank of North Carolina
(incorporated herein by reference to Form 8-K dated
February 3, l997, filed with the Commission on February 4, l997).
(b) The Company agrees to provide to the Commission, upon request, --
copies of any agreement defining rights of long-term debt
holders.
(10)(a)(1) Executive Compensation Agreement and amendments thereto by and *
between the Corporation and Joe T. Ford (incorporated herein by
reference to Exhibit 10(b) to Form 10-K for the fiscal year
ended December 31, 1983).
(a)(2) Modification to Executive Compensation Agreement by and between *
the Corporation and Joe T. Ford effective as of January 1, 1987
(incorporated herein by reference to Exhibit 10(b)(2) to Form
10-K for the fiscal year ended December 31, 1986).
(a)(3) Modification to Executive Compensation Agreement by and between *
ALLTEL Corporation and Joe T. Ford, effective as of
January 1, 1991 (incorporated herein by reference to Exhibit 10
of ALLTEL Corporation Registration Statement (No. 33-44736) on
Form S-4 dated December 23, 1991).
(a)(4) Split-dollar Life Insurance Agreement by and between the *
Corporation and Joe T. Ford effective as of March 1, 1994
(incorporated herein by reference to Exhibit 10(a)(4) to
Form 10-K for the fiscal year ended December 31, 1994).
(b) Change in Control Agreement by and between the Company and *
Scott T. Ford effective as of April 25, 1996 (incorporated
herein by reference to Exhibit 10(c)(6) to Form 10-Q for the
period ended June 30, 1996).
(c)(1) Change in Control Agreement by and between the Company and *
John L. Comparin effective as of October 24, 1994 (incorporated
herein by reference to Exhibit 10(c)(2) to Form 10-K for the
fiscal year ended December 31, 1994).
(c)(2) Change in Control Agreement by and between the Company and *
Dennis J. Ferra effective as of October 24, 1994 (incorporated
herein by reference to Exhibit 10(c)(3) to Form 10-K for the
fiscal year ended December 31, 1994).
* Incorporated herein by reference as indicated.
23
<PAGE>
EXHIBIT INDEX, Continued
Number and Name Page
(10)(c)(3) Change in Control Agreement by and between the Company and *
Francis X. Frantz effective as of October 24, 1994
(incorporated herein by reference to Exhibit 10(c)(4) to
Form 10-K for the fiscal year ended December 31, 1994).
(c)(4) Change in Control Agreement by and between the Company and *
Tom T. Orsini effective as of October 24, 1994 (incorporated
herein by reference to Exhibit 10(c)(5) to Form 10-K for the
fiscal year ended December 31, 1994).
(c)(5) Change in Control Agreement by and between the Company and *
Ronald D. Payne effective as of October 24, 1994 (incorporated
herein by reference to Exhibit 10(c)(6) to Form 10-K for the
fiscal year ended December 31, 1994).
(d)(1) Split-dollar Life Insurance Agreement by and between the *
Corporation and Dennis J. Ferra effective as of March 1, 1994
(incorporated herein by reference to Exhibit 10(d)(1) to
Form 10-K for the fiscal year ended December 31, 1994).
(d)(2) Split-dollar Life Insurance Agreement by and between the *
Corporation and Francis X. Frantz effective as of March 1, 1994
(incorporated herein by reference to Exhibit 10(d)(2) to
Form 10-K for the fiscal year ended December 31, 1994).
(d)(3) Split-dollar Life Insurance Agreement by and between the *
Corporation and Tom T. Orsini effective as of March 1, 1994
(incorporated herein by reference to Exhibit 10(d)(3) to
Form 10-K for the fiscal year ended December 31, 1994).
(e)(1) ALLTEL Corporation Supplemental Executive Retirement Plan, *
effective October 24, 1994 (incorporated herein by reference
to Exhibit 10(e)(1) to Form 10-K for the fiscal year ended
December 31, 1994).
(f)(1) Executive Deferred Compensation Plan of ALLTEL Corporation, as *
amended and restated effective October 1, 1993 (incorporated
herein by reference to Exhibit 10(e) to Form 10-K for the
fiscal year ended December 31, 1993).
(f)(2) Amendment No. 1 to Executive Deferred Compensation Plan of 75
ALLTEL Corporation (October 1, 1993 Restatement), amendment
effective January 29, 1998.
(f)(3) Deferred Compensation Plan for Directors of ALLTEL Corporation, *
as amended and restated effective October 1, 1993 (incorporated
herein by reference to Exhibit 10(f) to Form 10-K for the fiscal
year ended December 31, 1993).
(f)(4) Amendment to Deferred Compensation Plan for Directors of ALLTEL *
Corporation (October 1, 1993 Restatement) (incorporated herein
by reference to Exhibit 10(f)(3) to Form 10-K for the fiscal
year ended December 31, 1996).
(g)(l) ALLTEL Corporation 1975 Incentive Stock Option Plan (as amended *
and restated effective July 26, 1988) (incorporated herein by
reference to Exhibit 10(i) to Form 10-K for the fiscal year
ended December 31, 1988).
* Incorporated herein by reference as indicated.
24
<PAGE>
EXHIBIT INDEX, Continued
Number and Name Page
(10)(g)(2) ALLTEL Corporation 1991 Stock Option Plan (incorporated herein *
by reference to Exhibit A to Proxy Statement, dated
March 8, 1991).
(g)(3) ALLTEL Corporation l994 Stock Option Plan for Employees *
(incorporated herein by reference to Exhibit A to Proxy
Statement dated March 4, l994).
(g)(4) ALLTEL Corporation l994 Stock Option Plan for Nonemployee *
Directors (incorporated herein by reference to Exhibit B to
Proxy Statement dated March 4, l994).
(g)(5) First Amendment to ALLTEL Corporation l994 Stock Option Plan *
for Nonemployee Directors (incorporated herein by reference to
Exhibit 10(g)(5) to Form 10-K for the fiscal year ended
December 31, 1996).
(h) Systematics, Inc. 1981 Incentive Stock Option Plan and *
Amendment No. 1 thereto (incorporated herein by reference to
Form S-8 (No. 33-35343) of ALLTEL Corporation filed with the
Commission on June 11, 1990).
(i) ALLTEL Corporation Performance Incentive Compensation Plan as *
amended, effective January 1, 1993 (Exhibit 10(i) to Form SE
dated February 17, 1993).
(i)(1) Amendment No. 1 to ALLTEL Corporation Performance Incentive 76
Compensation Plan, (January 1, 1993 Restatement), amendment
effective January 29, 1998.
(j) ALLTEL Corporation Long-Term Performance Incentive *
Compensation Plan, as amended and restated effective
January 1, 1993 (Exhibit 10(j) to Form SE dated
February 17, 1993).
(j)(1) Amendment No. 1 to ALLTEL Corporation Long-Term Performance *
Incentive Compensation Plan as amended and restated effective
January 1, 1993, (incorporated herein by reference to
Exhibit 10(j)(1) to Amendment No. 1 to Form 10-K for the
fiscal year ended December 31, 1993).
(j)(2) Amendment No. 2 to ALLTEL Corporation Long-Term Performance 77
Incentive Compensation Plan (January 1, 1993 Restatement),
amendment effective January 29, 1998.
(k) ALLTEL Corporation Pension Plan (January 1, 1994 Restatement) *
(incorporated herein by reference to Exhibit 10(k) to
Form 10-K for the fiscal year ended December 31, 1994).
(k)(1) Amendment No. 1 to ALLTEL Corporation Pension Plan *
(January 1, 1994 Restatement) (incorporated herein by
reference to Exhibit 10(k)(1) to Form 10-Q for the period
ended March 31, 1995).
(k)(2) Amendments No. 2 and 3 to ALLTEL Corporation Pension Plan *
(January 1, 1994 Restatement) (incorporated herein by
reference to Exhibit 10(k)(2) to Form 10-Q for the period
ended June 30, 1995).
* Incorporated herein by reference as indicated.
25
<PAGE>
EXHIBIT INDEX, Continued
Number and Name Page
(10)(k)(3) Amendments No. 4 and 5 to ALLTEL Corporation Pension Plan *
(January 1, 1994 Restatement) (incorporated herein by reference
to Exhibit 10(k)(3) to Form 10-K for the fiscal year ended
December 31, 1995).
(k)(4) Amendments No. 6 and 7 to ALLTEL Corporation Pension Plan *
(January 1, 1994 Restatement) (incorporated herein by reference
to Exhibit 10(k)(4) to Form 10-Q for the period ended
September 30, 1996).
(k)(5) Amendments No. 8 and 9 to ALLTEL Corporation Pension Plan *
(January 1, 1994 Restatement) (incorporated herein by reference
to Exhibit 10(k)(5) to Form 10-Q for the period ended
March 31, 1997).
(k)(6) Amendment No. 10 to ALLTEL Corporation Pension Plan 78
(January 1, 1994 Restatement).
(l) ALLTEL Corporation Profit-Sharing Plan (January 1, 1994 *
Restatement) (incorporated herein by reference to Exhibit 10(l)
to Form 10-K for the fiscal year ended December 31, 1994).
(l)(1) Amendments No. 1 and 2 to ALLTEL Corporation Profit-Sharing *
Plan (January 1, 1994 Restatement) (incorporated herein by
reference to Exhibit 10(l)(1) to Form 10-Q for the period
ended June 30, 1995).
(l)(2) Amendments No. 3 and 4 to ALLTEL Corporation Profit-Sharing *
Plan (January 1, 1994 Restatement) (incorporated herein by
reference to Exhibit 10(l)(2) to Form 10-K for the fiscal year
ended December 31, 1995).
(l)(3) Amendment No. 5 to ALLTEL Corporation Profit-Sharing Plan *
(January 1, 1994 Restatement) (incorporated herein by
reference to Exhibit 10(l)(3) to Form 10-Q for the period
ended September 30, 1996).
(l)(4) Amendment No. 6 to ALLTEL Corporation Profit-Sharing Plan *
(January 1, 1994 Restatement) (incorporated herein by
reference to Exhibit 10(l)(4) to Form 10-Q for the period
ended March 31, 1997).
(l)(5) Amendment No. 7 to ALLTEL Corporation Profit-Sharing Plan 84
(January 1, 1994 Restatement).
(m) ALLTEL Corporation Benefit Restoration Plan (January 1, 1996 *
Restatement). (incorporated herein by reference to
Exhibit 10(m) to Form 10-K for the fiscal year ended
December 31, 1995).
(n) Amended and Restated ALLTEL Corporation Supplemental Medical *
Expense Reimbursement Plan (incorporated herein by reference
to Exhibit 10(p) to Form 10-K for the fiscal year ended
December 31, 1990).
* Incorporated herein by reference as indicated.
26
<PAGE>
EXHIBIT INDEX, Continued
Number and Name Page
(10)(o) ALLTEL Corporation Thrift Plan (January 1, 1994 Restatement) *
(incorporated herein by reference to Exhibit 10(p) to Form 10-K
for the fiscal year ended December 31, 1994).
(o)(1) Amendments No. 1 and 2 to ALLTEL Corporation Thrift Plan *
(January 1, 1994 Restatement) (incorporated herein by reference
to Exhibit 10(p)(1) to Form 10-Q for the period ended
June 30, 1995).
(o)(2) Amendment No. 3 ALLTEL Corporation Thrift Plan *
(January 1, 1994 Restatement) (incorporated herein by reference
to Exhibit 10(o)(2) to Form 10-K for the fiscal year ended
December 31, 1995).
(o)(3) Amended and Restated Amendment No. 4 and Amendment No. 5 to *
ALLTEL Corporation Thrift Plan (January 1, 1994 Restatement)
(incorporated herein by reference to Exhibit 10(o)(3) to
Form 10-K for the fiscal year ended December 31, 1996).
(o)(4) Amendment No. 6 to ALLTEL Corporation Thrift Plan *
(January 1, 1994 Restatement) (incorporated herein by reference
to Exhibit 10(o)(4) to Form 10-Q for the period ende
March 31, 1997).
(o)(5) Amendment No. 7 to ALLTEL Corporation Thrift Plan 88
(January 1, 1994 Restatement)
(11) Statement re computation of per share earnings. 28
(13) Annual report to stockholders for the year ended 32
December 31, 1997. Such report, except for the portions
incorporated by reference herein, is furnished for the
information of the Securities and Exchange Commission
and is not "filed" as part of this report.
(21) Subsidiaries of the registrant. 29
(23) Consents of experts and counsel. 31
(27) Financial Data Schedule for the year ended December 31, 1997. 91
(99)(a) Annual report on Form 11-K for the ALLTEL Corporation Thrift --
Plan for the year ended December 31, 1997, will be filed by
amendment.
* Incorporated herein by reference as indicated.
27
<TABLE>
<CAPTION>
EXHIBIT 11
ALLTEL CORPORATION
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(Dollars and Shares in Thousands, except per share amounts)
- -----------------------------------------------------------------------------------------------------------------------------------
For the Years Ended December 31, 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net income applicable to
common shares $506,878 $290,666 $353,458 $270,521 $260,439
Adjustments for convertible securities:
preferred stocks 206 220 236 258 293
-------- -------- -------- -------- --------
Net income applicable to common
shares, assuming conversion
of above securities $507,084 $290,886 $353,694 $270,779 $260,732
======== ======== ======== ======== ========
Average common shares outstanding
for the year 186,059 189,378 188,870 187,758 185,634
Increase in shares which would
result from:
exercise of stock options 1,107 1,089 1,202 1,696 2,031
conversion of convertible preferred stocks 523 559 603 670 755
-------- -------- -------- -------- --------
Average common shares, assuming
conversion of the above securities 187,689 191,026 190,675 190,124 188,420
======== ======== ======== ======== ========
Earnings per share of common stock:
Basic $2.72 $1.53 $1.87 $1.44 $1.40
===== ===== ===== ===== =====
Diluted $2.70 $1.52 $1.85 $1.42 $1.38
===== ===== ===== ===== =====
- --------------------------------------------------------------------------------------------------------------------------------
<FN>
Note: In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128,
"Earnings per Share" ("SFAS 128"), which established new standards for computing earnings per share information. As
required, the Company adopted the provisions of SFAS 128 in its year-end financial statements and has restated all
prior-year earnings per share information.
</FN>
28
</TABLE>
EXHIBIT 21
ALLTEL Corporation
Subsidiaries of the Registrant
State of
Incorporation
COMMUNICATIONS COMPANIES:
ALLTEL Alabama, Inc. Alabama
ALLTEL Arkansas, Inc. Arkansas
ALLTEL Carolina, Inc. North Carolina
ALLTEL Florida, Inc. Florida
ALLTEL Georgia, Inc. Georgia
ALLTEL Georgia Communications Corp. Georgia
ALLTEL Kentucky, Inc. Kentucky
ALLTEL Mississippi, Inc. Mississippi
ALLTEL Missouri, Inc. Missouri
ALLTEL New York, Inc. New York
ALLTEL Ohio, Inc. Ohio
ALLTEL Oklahoma, Inc. Arkansas
ALLTEL Pennsylvania, Inc. Pennsylvania
ALLTEL South Carolina, Inc. South Carolina
Georgia ALLTEL Communicon Co. Illinois
Georgia ALLTELCOM Co. Indiana
Georgia ALLTEL Telecom Inc. Michigan
Georgia Telephone Corporation Georgia
Missouri Telephone Cellular Systems, Inc. Missouri
Oklahoma ALLTEL, Inc. Oklahoma
Sugar Land Telephone Company Texas
Texas ALLTEL, Inc. Texas
The Western Reserve Telephone Company Ohio
ALLTEL Communications, Inc. Delaware
ALLTEL Communications Group, Inc. Delaware
ALLTEL Communications Services Corporation Ohio
ALLTEL Mobile Communications, Inc. Delaware
ALLTEL Mobile Communications of the Carolinas, Inc. North Carolina
29
<PAGE>
EXHIBIT 21
ALLTEL Corporation
Subsidiaries of the Registrant, continued
Country or
State of
Incorporation
OTHER COMPANIES:
ALLTEL Business Services, Inc. Delaware
ALLTEL Corporate Services, Inc. Delaware
ALLTEL Distribution, Inc. Delaware
ALLTEL Holding, Inc. Delaware
ALLTEL International Holdings, Inc. Delaware
ALLTEL Mauritius Holdings, Inc. Delaware
ALLTEL Publishing Corporation Ohio
ALLTEL Publishing Listing Management Corporation Pennsylvania
ALLTEL Supply, Inc. Ohio
ALLTEL Supply International, Inc. Ohio
CP National Corporation California
Control Communications Industries, Inc. Delaware
Dynalex, Inc. California
FC Paramount, Inc. Arkansas
Ocean Technology, Inc. California
OTI International, Inc. California
Sygnis, Inc. Arkansas
ALLTEL Information Services, Inc. Arkansas
ALLTEL Information Services International, Ltd. Delaware
ALLTEL Information Services International Holdings, Inc. Delaware
ALLTEL Information Services, Limited United Kingdom
ALLTEL Information Services Canada Limited Canada
ALLTEL Information Services (France) SARL France
ALLTEL Information Services (Germany) GmbH Germany
ALLTEL Information Services (Greece) S.A. Greece
ALLTEL Information Services (Hong Kong) Limited Hong Kong
ALLTEL Information (Mauritius) Inc. Mauritius
ALLTEL Information Services (Netherlands) B.V. Amsterdam
ALLTEL Information Services (Thailand) Limited Thailand
ALLTEL International, Limited Jamaica
ALLTEL International Resource Management, Inc. Delaware
ALLTEL Servicios de Informacion (Costa Rica) S.A. Costa Rica
ALLTEL Wholesale Banking Solutions, Inc. New York
Computer Power, Inc. Florida
Vertex Banking Systems, Limited United Kingdom
30
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
ALLTEL Corporation:
As independent public accountants, we hereby consent to the incorporation
of our report incorporated by reference in this Form 10-K, into the
Company's previously filed Registration Statements, File Nos. 2-99523,
33-35343, 33-48476, 33-54175, 33-56291 and 33-65199.
/s/ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Little Rock, Arkansas,
February 11, 1998.
31
EXHIBIT 13
PORTIONS OF ANNUAL REPORT TO STOCKHOLDERS
FOR THE YEAR ENDED DECEMBER 31, 1997
(incorporated by reference into this filing)
Form 10-K
Page Number
Management's Discussion and Analysis of Financial 33-44
Condition and Results of Operations
Report of Independent Public Accountants 45
Selected Financial Data 46
Consolidated Statements of Income 47
Consolidated Balance Sheets 48-49
Consolidated Statements of Cash Flows 50
Consolidated Statements of Shareholders' Equity 51
Business Segments 52
Notes to Consolidated Financial Statements 53-65
Investor Information 66
32
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Financial Condition, Liquidity and Capital Resources
- -------------------------------------------------------------------------------
(Dollars in millions, except per share amounts) 1997 1996 1995
- -------------------------------------------------------------------------------
Cash provided from operations $ 798.2 $ 806.2 $ 689.2
Capital expenditures $ 545.6 $ 463.7 $ 523.1
Long-term debt issued $ 164.2 $ 316.0 $ 218.2
Total capital structure $4,136.3 $3,897.5 $3,741.1
Percent equity to total capital 54% 54% 52%
Interest coverage ratio 5.78x 4.54x 4.72x
Book value per share $11.97 $11.15 $10.18
- -------------------------------------------------------------------------------
Cash provided from operations continues to be ALLTEL's primary source of
liquidity. The increase in cash provided from operations for 1996 primarily
reflects a reduction in working capital requirements and growth in earnings of
the Company, excluding the impact of certain non-cash, non-extraordinary
charges, as further discussed below. The increase in 1995 primarily reflects
the growth in earnings of the Company, partially offset by an increase in
working capital requirements.
Cash flows from investing activities for 1997 include capital expenditures
of $545.6 million. Capital expenditures increased in 1997 primarily due to the
start-up construction of ALLTEL's Personal Communications Services ("PCS")
network and due to construction of additional network facilities. The Company
expects to begin offering PCS in select markets during 1998. Capital
expenditures decreased in 1996 and 1995 primarily as a result of the sale of
wireline properties and a reduction in capital expenditures by the remaining
wireline subsidiaries. The Company financed the majority of its capital
expenditures through the internal generation of funds in each of the past three
years. During each of the past three years, 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
are forecast at approximately $600 million for 1998, which are expected to be
primarily internally financed.
Cash flows from investing activities for 1997 also include total cash
outlays of $50.6 million for three acquisitions, consisting of a wireline
property in Georgia, two wireless properties in Alabama and an additional
ownership interest in a Georgia wireless property. In addition, cash flows from
investing activities for 1997 include a cash outlay of $146.5 million related
to the acquisition of PCS licensing rights. ALLTEL participated in the Federal
Communications Commission's ("FCC") "D" and "E" band PCS auctions, and in
January 1997, the Company was awarded the PCS licensing rights for 73 markets
in 12 states. The PCS licenses increase the size of ALLTEL's potential wireless
customer base to 34 million.
Cash flows from investing activities for 1997 also include proceeds of
$185.9 million from the sale of a portion of ALLTEL's investment in
WorldCom, Inc. common stock. Additionally, cash flows from investing
activities for 1997 include net proceeds of $200.6 million received from the
sale of property, principally consisting of three non-strategic operations. In
September 1997, the Company received cash proceeds of $48.7 million in
connection with the sale of an investment in a software company. In May 1997,
ALLTEL 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 cash proceeds of $104.9 million in connection with the
sale of its healthcare operations. The proceeds from the sale of assets were
used primarily to reduce borrowings under the Company's revolving credit
agreement. Cash flows from investing activities for both 1996 and 1995 include
proceeds totaling $38.7 million and $212.9 million, respectively, which were
received principally from the sale of certain wireline properties, as discussed
below. Cash flows from investing activities for 1996 also include proceeds of
$30.4 million related to the withdrawal of ALLTEL's investment in GO
Communications Corporation ("GOCC").
Cash flows from financing activities include dividend payments and the
repurchase by ALLTEL of its common stock. Common and preferred dividend
33
<PAGE>
payments amounted to $206.3 million in 1997, $198.1 million in 1996 and $182.3
million in 1995. The increases in each year primarily reflect growth in the
annual dividend rates on ALLTEL's common stock. In October 1997, the Board of
Directors approved a 5.5 percent increase in the quarterly dividend from 27.5
cents to 29 cents per share, raising the annualized dividend to $1.16 per
share. Under a share repurchase program initiated by ALLTEL in 1996 and
expanded in 1997, the Company repurchased 5.1 million and 2.4 million of its
shares at a total cost of $175.6 million and $75.6 million in 1997 and 1996,
respectively. The Company believes it has adequate internal and external
capital resources available to finance its ongoing operating requirements
including the construction of its PCS network, other capital expenditures,
business development and the payment of dividends.
ALLTEL has a $750 million revolving credit agreement. Borrowings
outstanding under this agreement at December 31, 1997, 1996 and 1995 were
$247.9 million, $83.7 million and $151.5 million, respectively. The weighted
average interest rate on borrowings outstanding under this agreement at
December 31, 1997, was 6.5 percent. Borrowings under this agreement in 1997
were incurred primarily to fund the stock repurchase program and to acquire
the PCS licensing rights. As previously noted, proceeds from the sales of the
wire and cable and healthcare operations and from the sale of investments in a
software company and WorldCom, Inc. common stock were used primarily to reduce
borrowings under the revolving credit agreement.
Long-term debt issued was $164.2 million in 1997, $316.0 million in 1996
and $218.2 million in 1995, while retirements of long-term debt amounted to
$42.6 million in 1997, $310.3 million in 1996 and $277.6 million in 1995.
The net increase in revolving credit agreement borrowings from December 31,
1996, represents all of the long-term debt issued in 1997. In 1996, the
Company issued $300 million of 7.0 percent debentures to refinance $200 million
of 9.5 percent debentures and to reduce borrowings under the Company's
revolving credit agreement. In 1995, the Company issued $200 million of
6.75 percent debentures to refinance two existing high-cost debt issues. The
refinanced debt issues represent the majority of long-term debt retired in
1996 and 1995. In connection with the debt refinancings completed in 1996 and
1995, the Company was required to pay termination fees in the amount of $15.8
million and $14.0 million, respectively. The remaining borrowings for 1996 and
1995 were used for investments, acquisitions and other general corporate
requirements. The loans were obtained through the private placement market,
public issuance and the Rural Utilities Service financing programs for
wireline companies. The Company and its subsidiaries expect these sources to
continue to be available for future borrowings. There were no changes in
ALLTEL's bond ratings during 1997. Moody's Investors Service and Standard &
Poor's Corporation senior debt ratings for ALLTEL are A2 and A+, respectively.
(See Note 3 to the Consolidated Financial Statements for additional information
regarding the Company's long-term debt.)
Results of Operations
Overview
In 1997, ALLTEL continued to focus on its strategic priorities and undertook
several initiatives designed to strengthen its communications business and to
expand its position as an information technology provider to the financial
services and communications industries. ALLTEL also provided new or enhanced
services to its customers and pursued new growth opportunities. During 1997,
the Company converged its wireline and wireless businesses into a single
operation capable of delivering to customers one-stop shopping for a full
range of communications products and services. ALLTEL also constructed network
facilities to provide communications services in select areas within its
geographically focused communications markets that are located outside its
traditional franchised service areas. In addition, information services
invested in new businesses in order to expand its service offerings into
existing markets. Finally, ALLTEL completed the sale of certain non-strategic
operations and investments within its information services and product
distribution segments. Operating results for 1997 reflect the impact of these
19
34
<PAGE>
initiatives. Wireline's operating results remained solid, reflecting steady
access line growth and the expansion of its long-distance operations. Wireless
operating results reflect continued growth in its customer base. Information
services' operating results, adjusted for the impact of the asset disposals,
reflect increased revenues and sales and operating income primarily due to
growth in existing data processing contracts and the addition of new
outsourcing agreements. Product distribution's operating results reflect the
disposal of the wire and cable operations completed in May 1997.
Revenues and sales increased $71.1 million or 2 percent in 1997,
$82.7 million or 3 percent in 1996 and $182.0 million or 6 percent in 1995.
Operating income increased $155.4 million or 26 percent in 1997, decreased
$92.4 million or 14 percent in 1996 and increased $50.1 million or 8 percent
in 1995. Growth in revenues and sales in 1997 was impacted by the sales of HWC
and information services' healthcare operations, while revenues and sales for
1996 and 1995 were impacted by the sale of certain wireline properties.
Operating income for 1997 and 1996 also includes non-recurring charges to
write down the carrying value of certain assets, as further discussed below.
Adjusted for these asset dispositions and write-downs, revenues and sales
would have increased $299.4 million or 10 percent in 1997, $193.0 million or 7
percent in 1996 and $202.4 million or 8 percent in 1995, and operating income
would have increased $62.2 million or 9 percent in 1997, $69.1 million or 11
percent in 1996 and $38.5 million or 6 percent in 1995.
Net income increased $216.1 million or 74 percent in 1997, decreased
$62.9 million or 18 percent in 1996 and increased $82.9 million or 30 percent
in 1995. Basic and diluted earnings per share both increased 78 percent in
1997, decreased 18 percent in 1996 and increased 30 percent in 1995. In
addition to the asset write-downs and dispositions, reported net income and
basic and diluted earnings per share were impacted by several
non-extraordinary, non-recurring items discussed below. Excluding the impact
in each year of the asset dispositions, write-downs and non-recurring items,
net income would have increased $39.4 million or 11 percent in 1997, $56.6
million or 19 percent in 1996 and $21.7 million or 8 percent in 1995. Basic
earnings per share would have increased 13 percent in 1997, 18 percent in
1996 and 7 percent in 1995, while diluted earnings per share would have
increased 13 percent in 1997, 19 percent in 1996 and 7 percent in 1995.
Net income and earnings per share adjusted for the asset dispositions,
write-downs and non-extraordinary, non-recurring items are summarized in the
following tables:
- -------------------------------------------------------------------------------
(Dollars in thousands) 1997 1996 1995
- -------------------------------------------------------------------------------
Net income, as reported $507,886 $291,737 $354,616
Disposition of healthcare, wire and cable
and wireline operations (838) (6,429) (31,881)
Non-recurring items, net of tax:
Provision to reduce carrying value
of certain assets 11,744 72,716 -
Gain on disposal of assets (119,895) (8,465) (28,793)
Termination fees on early retirement
of long-term debt - 9,946 8,944
-------- -------- --------
Net income, as adjusted $398,897 $359,505 $302,886
======== ======== ========
- -------------------------------------------------------------------------------
35
<PAGE>
- -------------------------------------------------------------------------------
Basic Diluted
---------------- ------------------
1997 1996 1995 1997 1996 1995
- -------------------------------------------------------------------------------
Earnings per share, as reported $2.72 $1.53 $1.87 $2.70 $1.52 $1.85
Disposition of healthcare, wire and
cable and wireline operations - (.03) (.17) - (.03) (.17)
Non-recurring items:
Provision to reduce carrying value
of certain assets .06 .38 - .06 .38 -
Gain on disposal of assets (.64) (.04) (.15) (.64) (.04) (.15)
Termination fees on early retirement
of long-term debt - .05 .05 - .05 .05
----- ----- ----- ----- ----- -----
Earnings per share, as adjusted $2.14 $1.89 $1.60 $2.12 $1.88 $1.58
===== ===== ===== ===== ===== =====
- ------------------------------------------------------------------------------
The net income and earnings per share impact of the asset dispositions,
write-downs and the non-extraordinary, non-recurring items has been presented
as supplemental information only. The non-recurring items reflected in the
above tables are discussed below in reference to the caption in the
consolidated statements of income in which they are reported.
Provision to Reduce Carrying Value of Certain Assets
During 1997, ALLTEL 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 net
income impact of this write-down resulted in a decrease in net income of
$11.7 million or $.06 per share.
During 1996, the Company incurred non-cash, pretax charges of $120.3
million to write down the carrying value of certain assets. In accordance with
ALLTEL'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 net income impact of these write-downs
resulted in a decrease in net income of $72.7 million or $.38 per share.
Gain on Disposal of Assets, Write-down of Assets and Other
During 1997, the Company recorded a pretax gain of $34.4 million primarily
related to the sale of its investment in a software company. ALLTEL also
recorded a pretax gain of $156.0 million from the sale of a portion of its
investment in WorldCom, Inc. common stock. In addition, the Company recorded a
pretax gain of $16.2 million from the sale of information services' healthcare
operations. The net income impact from these transactions resulted in an
increase in net income of $119.9 million or $.64 per share.
In 1996, the Company recorded a pretax gain of $15.3 million from the sale
of wireline properties in Nevada to Citizens Utilities Company ("Citizens").
ALLTEL also incurred $15.8 million of termination fees related to the early
retirement of $200 million of long-term debt. Additionally, ALLTEL realized
a pretax 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 or $.01 per share.
In 1995, the Company recorded pretax gains totaling $49.8 million from the
disposal of certain wireline properties in Arizona, California, New Mexico,
Oregon, Tennessee, Utah and West Virginia to Citizens. The Company also
recorded an additional pretax write-down of $5.0 million to reflect the net
realizable value of information services' check processing operations.
Additionally, ALLTEL incurred $14.0 million of termination fees related to the
20
36
<PAGE>
early retirement of $200 million of long-term debt. The net income impact from
these transactions resulted in an increase of $19.8 million in net income or
$.10 per share.
Results of Operations by Business Segment
Communications - Wireline Operations
- -------------------------------------------------------------------------------
(Dollars in millions) 1997 1996 1995
- -------------------------------------------------------------------------------
Local service $ 466.1 $ 429.3 $ 411.4
Network access and long-distance 647.6 595.6 637.8
Miscellaneous 155.2 144.2 148.5
-------- -------- --------
Total revenues and sales $1,268 $1,169.1 $1,197.7
======== ======== ========
Operating income $ 446.5 $ 408.4 $ 422.5
Access lines in service 1,789,317 1,681,395 1,623,440
- -------------------------------------------------------------------------------
Wireline's revenues and sales increased $99.8 million or 9 percent in 1997,
decreased $28.6 million or 2 percent in 1996 and increased $19.4 million or
2 percent in 1995. Operating income increased $38.1 million or 9 percent in
1997, decreased $14.1 million or 3 percent in 1996 and increased $22.3 million
or 6 percent in 1995. As previously discussed, ALLTEL sold certain wireline
properties in eight states to Citizens during 1996 and 1995. The sale of
properties to Citizens resulted in decreases in revenues and sales and
operating income in 1996 of $88.5 million and $31.7 million, respectively,
while in 1995, the disposition of properties resulted in decreases in revenues
and sales and operating income of $24.0 million and $7.2 million, respectively.
Excluding the impact of the sale of properties to Citizens, wireline's revenues
and sales would have increased $59.9 million or 5 percent in 1996 and
$43.4 million or 4 percent in 1995, and operating income would have increased
$17.6 million or 4 percent in 1996 and $29.5 million or 7 percent in 1995.
Local service revenues increased $36.8 million or 9 percent in 1997,
$17.9 million or 4 percent in 1996 and $21.7 million or 6 percent in 1995. The
increases in local service revenues in all periods reflect growth in customer
access lines and growth in enhanced services and other special feature
revenues. Customer access lines increased 6 percent in 1997, primarily
reflecting increased sales of residential and second access lines. Local
service revenues for 1997 also reflect the expansion of local calling areas in
North Carolina and Georgia, which reclassified certain revenues from network
access and long-distance revenues to local service revenues. The increases in
local service revenues in 1996 and 1995 resulting from growth in both customer
access lines and enhanced services and other special feature revenues were
partially offset by the property sales to Citizens. Future access line growth
is expected to result from population growth in the Company's service areas,
from sales of second access lines and through strategic acquisitions.
Network access and long-distance revenues increased $52.0 million or
9 percent in 1997, compared to decreases of $42.2 million or 7 percent in 1996
and $6.3 million or 1 percent in 1995. The increase in 1997 primarily reflects
growth in ALLTEL's long-distance operations and higher volumes of access
usage, partially offset by the reclassification of certain revenues to local
service revenues, as previously discussed. The long-distance operations, which
began service in 1996 and currently serve more than 281,000 customers,
generated growth in operating revenues of $28.6 million in 1997. The decrease
in network access and long-distance revenues in 1996 primarily reflects the
sale of properties to Citizens, partially offset by higher volumes of access
usage and additional revenues derived from the long-distance operations.
Network access and long-distance revenues decreased in 1995 primarily due to
the impact of certain regulatory commission actions designed to reduce
earnings levels in California and Ohio and due to the sale of wireline
properties to Citizens.
On July 12, 1996, the Georgia Public Service Commission ("Georgia PSC")
issued an order requiring that ALLTEL'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
37
<PAGE>
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 Georgia Supreme Court has not yet
ruled on this petition. The Company has not implemented any revenue reductions
or established any reserves for refunds related to this matter.
Miscellaneous revenues increased $11.0 million or 8 percent in 1997,
decreased $4.3 million or 3 percent in 1996 and increased $4.0 million or 3
percent in 1995. The increase in 1997 primarily reflects growth in sales of
wireline equipment and wireline equipment protection plans. The decrease in
miscellaneous revenues in 1996 primarily reflects the sale of properties to
Citizens, partially offset by increases in directory advertising revenues and
sales of wireline equipment and wireline equipment maintenance and protection
plans. The increase in miscellaneous revenues in 1995 was primarily due to
increases in direct sales of wireline equipment and protection plans and
directory advertising revenues, partially offset by the sale of properties to
Citizens.
Total wireline operating expenses increased $61.7 million or 8 percent in
1997, compared to decreases of $14.5 million or 2 percent in 1996 and
$2.9 million or 1 percent for 1995. The long-distance operations accounted
for $23.5 million of the increase in operating expenses for 1997. Operating
expenses for 1997 also reflect increases in depreciation, network-related
expenses, increased data processing charges and additional costs incurred by
ALLTEL in consolidating its customer service operations. Operating expenses
decreased in 1996 and 1995 by approximately $56.8 million and $16.8 million,
respectively, as a result of the sale of properties to Citizens. The decrease
in operating expenses in 1996 attributable to the sale of properties to
Citizens was partially offset by start-up costs associated with the long-
distance operations and by increased expense for maintenance and repair of
cable, digital electronic switching and circuit equipment and an increase
in depreciation expense. Operating expenses decreased in 1995 primarily due to
the sale of properties to Citizens, lower maintenance costs for buildings and
electro-mechanical switching equipment and decreases in call completion and
other general and administrative expenses. These decreases were partially
offset by increases in depreciation, maintenance and repair expenses and
information services and engineering charges.
ALLTEL'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
ALLTEL'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, ALLTEL's wireline subsidiaries could begin to experience
increased competition in their local service areas. To date, competition has
not had a significant adverse effect on the operations of ALLTEL's wireline
subsidiaries.
21
38
<PAGE>
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, was challenged in federal
court by various ILECs and state regulatory commissions. On July 18, 1997, the
U.S. Eighth Circuit Court of Appeals (the "Eighth Circuit Court") 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 communications
services. In responding to petitions for rehearing of its earlier decision,
the Eighth Circuit Court ruled on October 14, 1997, that ILECs are not
required by the 96 Act to recombine network elements purchased by requesting
carriers on an unbundled basis. The FCC asked the U.S. Supreme Court to review
two interconnection decisions of the Eighth Circuit Court. The U.S. Supreme
Court has agreed to review these decisions.
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 ALLTEL's wireline
subsidiaries are not price cap regulated companies, the access charge
regulations, with few exceptions, are not applicable to them. The FCC has
indicated that a further notice of proposed rulemaking will be issued during
1998 to address access charge reform for rate-of-return companies. Based upon
ALLTEL's review of the FCC's regulations concerning the universal service
subsidy, it is unlikely that material changes in the universal service funding
for ALLTEL's wireline subsidiaries will occur prior to 2001. In 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, if any, of this
change in the universal service funding for ALLTEL's wireline subsidiaries
cannot be determined at this time. The impact of the FCC's universal service
order on ALLTEL's other telecommunications operations is still being evaluated.
Petitions for reconsideration of certain aspects of both the universal service
and access charge reform orders are pending at the FCC. In addition, petitions
to review parts of these orders have also been filed with various federal
courts of appeal.
Because resolution of the regulatory matters discussed above that are
currently under FCC and/or judicial review is uncertain and 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, ALLTEL is intent
on taking advantage of the various opportunities that competition should
provide.
Communications - Wireless Operations
- -------------------------------------------------------------------------------
(Dollars in millions) 1997 1996 1995
- -------------------------------------------------------------------------------
Revenues and sales $542.7 $475.1 $398.1
Operating income $178.4 $151.7 $121.5
Total customers 941,226 795,136 624,542
Market penetration rate 10.6% 9.4% 7.6%
- -------------------------------------------------------------------------------
Wireless revenues and sales increased $67.6 million or 14 percent in 1997,
$77.0 million or 19 percent in 1996 and $110.8 million or 39 percent in 1995.
Operating income increased $26.7 million or 18 percent in 1997, $30.2 million
or 25 percent in 1996 and $36.8 million or 44 percent in 1995.
Customer growth continued, as the number of customers increased 18 percent
over 1996, compared to annual growth rates in customers of 27 percent in 1996
and 33 percent in 1995. While the rate of customer growth has declined, the
overall market penetration rate (number of customers as a percentage of the
total population in ALLTEL's service areas) has increased.
39
<PAGE>
Wireless revenues and sales increased in all periods primarily due to the
significant growth in ALLTEL's customer base. The acquisition of new wireless
properties and increased ownership interest in existing wireless properties
also contributed to the growth in revenues and sales in all periods. Partially
offsetting the increases in revenues resulting from customer growth and
acquisitions were declines in the average monthly revenue per customer.
Average monthly revenue per customer was $52 for 1997, $59 for 1996 and $63
for 1995. The decline in average monthly revenue per customer in 1997 reflects
the migration of existing customers to lower rate plans, increased penetration
into lower-usage market segments and a reduction in roaming revenue rates. As
a result of increased current and expected future competition in its service
areas, ALLTEL 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,
and accordingly, this trend could impact future revenue growth. The declines
in average monthly revenue per customer in 1996 and 1995 primarily reflect
increased penetration into lower-usage market segments and reductions in
roaming revenue rates. Growth in revenues and sales in 1997 was favorably
impacted by a reduction in uncollectible revenues, while revenue growth for
1996 was adversely impacted by increased write-offs from bad debts.
Operating income increased in all periods primarily due to the growth in
revenues and sales. Improved profit margins realized on the sale of wireless
equipment also contributed to the growth in operating income in 1997 and 1996.
The increases in operating income for all periods were partially offset by
higher expenses for selling and advertising, depreciation and other operating
expenses. Growth in operating income in 1997 was favorably impacted by a
reduction in losses incurred from fraud and bad debts, while operating income
for 1996 was adversely impacted by increased losses sustained from fraud and
bad debts. During the third quarter of 1996, the Company implemented new
technologies to control fraud and enhanced its credit and collection
procedures. For each of the past five calendar quarters, the Company has
experienced a decline in losses sustained from both fraud and bad debts.
Information Services Operations
- ------------------------------------------------------------------------------
(Dollars in millions) 1997 1996 1995
- ------------------------------------------------------------------------------
Revenues and sales $973.4 $959.1 $926.3
Operating income $145.2 $ 67.0 $132.0
- ------------------------------------------------------------------------------
Information services' revenues and sales reflect increases of $14.3 million or
1 percent in 1997, $32.8 million or 4 percent in 1996 and $64.8 million or
8 percent in 1995. Growth in revenues and sales for 1997 was impacted by the
sale of healthcare operations completed in January 1997. Excluding the sold
healthcare operations, information services' revenues and sales would have
increased $123.9 million or 15 percent in 1997.
Excluding the impact of the sold healthcare operations, revenues and sales
increased in 1997 primarily due to growth in the financial services and
telecommunications businesses, while revenues and sales increased in 1996 and
1995 primarily due to growth in the telecommunications operations. The
increases in revenues and sales for all periods reflect volume growth in
existing contracts, the addition of new outsourcing agreements and additional
software maintenance and service revenues. Growth in revenues and sales for
1996 was also impacted by a reduction in revenues earned on an outsourcing
agreement accounted for under the percentage-of-completion method, while
revenue growth for 1996 and 1995 was impacted by the sale of the check
processing operations completed in September 1995. Additionally, the increases
in revenues and sales in all periods were partially offset by lost operations
from contract terminations due 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.
22
40
<PAGE>
Although the number of mortgage loans serviced increased in all periods,
growth in the related processing revenues has occurred at a slower rate due to
consolidations in the mortgage industry, which have resulted in lower
incremental revenues realized on a per-loan basis. The domestic financial
services industry continues to experience consolidation due to mergers.
Operating income increased $78.2 million or 117 percent in 1997, decreased
$65.0 million or 49 percent in 1996 and increased $2.2 million or 2 percent in
1995. Operating income for 1996 includes the impact of the $75.0 million
write-down in the carrying value of software and certain other assets, as
previously discussed. Excluding the impact of these write-downs and the sold
healthcare operations, operating income would have increased $4.9 million
or 3 percent in 1997 and $16.3 million or 13 percent in 1996. Operating income
for 1997 reflects the growth in revenues and sales noted above, as well as
improved profit margins realized from the international financial services
business, partially offset by the loss of operations due to the sale of the
healthcare business. Growth in operating income for 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 in
existing markets. Included in these initiatives are the Enterprise Network
Services, Professional Services and Call Center Solutions business units.
Excluding the impact of the asset write-downs and dispositions, the increase
in operating income in 1996 reflects the increase in revenues and sales.
Operating income in 1996 was also impacted by start-up costs associated with
the Enterprise Network Services business unit. The increase in operating
income in 1995 reflects the growth in revenues and sales, partially offset by
lower margins realized on international software sales due to increased costs
to procure and support these sales. Growth in operating income for all periods
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. Depreciation and
amortization expense increased in 1996 and 1995 due to the acquisition of
additional data processing equipment and an increase in the amortization of
internally developed software.
Product Distribution Operations
- ------------------------------------------------------------------------------
(Dollars in millions) 1997 1996 1995
- ------------------------------------------------------------------------------
Revenues and sales $359.7 $452.4 $448.1
Operating income $ 14.0 $ 23.7 $ 27.3
- ------------------------------------------------------------------------------
Product distribution's revenues and sales decreased $92.7 million or 20 percent
in 1997, compared to increases of $4.3 million or 1 percent in 1996 and
$11.5 million or 3 percent in 1995. Operating income decreased $9.7 million
or 41 percent in 1997 and $3.6 million or 13 percent in 1996 and increased
$3.4 million or 14 percent in 1995.
The decrease in revenues and sales for 1997 primarily reflects the sale
of HWC. Sales of telecommunications and data products increased $21.0 million
in 1997, primarily reflecting increased sales to affiliated and non-affiliated
customers and additional retail sales of these products at the Company's
counter showrooms. Revenues and sales increased in 1996 primarily due to
growth in sales of telecommunications and data products to non-affiliated
customers, including increased retail sales of these products at counter
showrooms. Sales of telecommunications and data products to affiliates
decreased $18.1 million in 1996, primarily reflecting the sale of properties
to Citizens and an overall reduction in capital expenditures by the remaining
wireline subsidiaries, as compared to 1995. Sales of electrical wire and cable
products also decreased slightly in 1996. The increase in revenues and sales
in 1995 was primarily due to growth in the sale of telecommunications and data
products.
Operating income decreased in 1997 primarily due to the decrease in
revenues and sales noted above. Lower gross profit margins realized on the
sale of telecommunications and data products due to increased competition and
41
<PAGE>
a reduction in product cost rebates received from vendors also impacted
operating income growth in 1997. In addition, increased selling expenses also
impacted operating income growth in 1997. The decrease in operating income in
1996 primarily reflects lower profit margins realized on the sale of
electrical wire and cable products. During 1996, gross profit margins for
electrical wire and cable products were adversely impacted by sharp declines
in copper prices, as compared to the prior year. Gross profit margins were
also impacted by increased competition, primarily from direct sales by
manufacturers. Operating income increased in 1995 primarily due to the
increase in revenues and sales previously noted, partially offset by an
increase in selling-related expenses. Increased profit margins on electrical
wire and cable products, primarily resulting from an increase in copper
prices, also contributed to the growth in operating income in 1995.
Other Operations
- -------------------------------------------------------------------------------
(Dollars in millions) 1997 1996 1995
- -------------------------------------------------------------------------------
Revenues and sales $118.9 $136.8 $139.5
Operating income $ 8.8 $ 11.3 $ 7.0
- -------------------------------------------------------------------------------
Other operations' revenues and sales decreased $17.9 million or 13 percent in
1997, $2.7 million or 2 percent in 1996 and $24.4 million or 15 percent in
1995. Operating income decreased $2.5 million or 22 percent in 1997, increased
$4.3 million or 60 percent in 1996 and decreased $8.3 million or 54 percent in
1995.
Revenues and sales decreased in 1997 due to a reduction in the number of
directories published. Compared to 1996, 43 fewer directories were published
in 1997. Revenues and sales decreased in 1996 due to a reduction in directory
publishing revenues, primarily resulting from the loss of several large
independent directory contracts. The decrease in revenues and sales in 1996 was
partially offset by the receipt of a one-time settlement from GTE Directories
Corporation ("GTE Directories") for reimbursement of certain computer software
conversion costs incurred by the Company subsequent to its purchase of GTE
Directories' independent directory operations. Revenues and sales decreased in
1995 as a result of a reduction in the number of directories published and due
to a prospective change in accounting in late 1993, whereby the Company began
recognizing all revenues and expenses related to a directory in the month of
publication, instead of recognizing the revenues and expenses ratably over a
12-month period. As a result of this change, revenues and sales in 1994
included additional revenues from directories accounted for under the previous
method adding to the decrease in 1995.
The decrease in operating income in 1997 primarily reflects the decrease
in directory publishing revenues noted above. The increase in operating income
in 1996 reflects the impact of the one-time settlement received from GTE
Directories, elimination of certain amounts paid to GTE Directories and
improved collection experience related to directory advertising revenues. The
Company's publishing subsidiary had previously contracted with GTE Directories
to receive directory advertising sales support, printing and other services.
In 1996, these sales and service functions were performed at a lower cost
internally by the Company's publishing subsidiary. Operating income decreased
in 1995 primarily due to the decrease in revenues and sales previously noted.
Operating income for 1995 also reflects lower margins realized on affiliate
directories due to increased fees for publishing rights paid to affiliates
under terms of a new contract.
Interest Expense
Interest expense decreased $0.7 million or less than 1 percent in 1997,
decreased $14.6 million or 10 percent in 1996 and increased $8.3 million or
6 percent in 1995. The decrease in interest expense in 1996 primarily reflects
the two debt refinancings completed in March 1996 and October 1995, which
resulted in the retirement of three high-cost debt issues and reduced
borrowings under the Company's revolving credit agreement, as previously
discussed. Interest expense in 1996 also reflects lower average borrowing
23
42
<PAGE>
rates for amounts outstanding during the year under the Company's revolving
credit agreement. The increase in interest expense in 1995 reflects the
issuance of $250 million of debentures in April 1994 to reduce borrowings
under the Company's revolving credit agreement, partially offset by the
reduction in interest expense resulting from the refinancing of $200 million
of debentures completed in October 1995.
Income Taxes
Income tax expense increased $151.1 million or 89 percent in 1997, decreased
$47.5 million or 22 percent in 1996 and increased $52.4 million or 32 percent
in 1995. The changes in income tax expense for all periods primarily reflect
the tax-related impact of the various one-time, non-recurring items, as
previously discussed. Excluding the impact on tax expense of these transactions
in each year, income tax expense would have increased $21.2 million or
10 percent in 1997, $11.8 million or 6 percent in 1996 and $19.6 million or
10 percent in 1995, consistent with the overall growth in ALLTEL's earnings
from continuing operations before one-time, non-recurring items.
Average Common Shares Outstanding
The average number of common shares outstanding decreased 2 percent in 1997.
During 1997, 872,000 shares were issued in connection with acquisitions,
common shares issued through stock option plans amounted to 618,000 shares,
and preferred stock and debentures were converted into 67,000 shares. These
increases were offset by ALLTEL's repurchase on the open market of 5,084,000
of its common shares. The average number of common shares outstanding
increased slightly in 1996. During 1996, common shares issued through stock
option plans amounted to 344,000 shares, and preferred stock and debentures
were converted into 28,000 shares. These increases were offset by ALLTEL's
repurchase on the open market of 2,440,000 of its common shares. The average
number of common shares outstanding increased slightly in 1995. During 1995,
common shares issued through stock option plans amounted to 1,227,000 shares,
and preferred stock and debentures were converted into 60,000 shares.
Other Financial Information
Management is currently not aware of any environmental matters which in the
aggregate would have a material adverse effect on the financial condition or
results of operations of the Company.
The Year 2000 compliance issue concerns the inability of computerized
information systems to properly recognize and process date-sensitive
information as the year 2000 approaches. The Company has taken actions to
understand the nature and extent of the work required to make its systems,
products and infrastructure, in those situations in which ALLTEL is required
to do so, Year 2000 compliant. ALLTEL has established a Year 2000 Program
Office to coordinate and monitor the Company's Year 2000 compliance efforts
and has prepared and is in the process of implementing a company-wide Year
2000 compliance plan. ALLTEL continues to evaluate the estimated costs
associated with these efforts based on actual experience. While these efforts
involve additional costs, the Company believes, based on available
information, that these costs will not have a material adverse effect on its
results of operations.
Recently Issued Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income," ("SFAS 130"). This pronouncement, effective for calendar year 1998
financial statements, requires comprehensive income and its components to 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. Comprehensive income equals the total of net income and all other
non-owner changes in equity. For ALLTEL, comprehensive income will equal its
reported consolidated net income plus the change from the previously reported
period in the unrealized holding gain on its investment in WorldCom, Inc.
43
<PAGE>
common stock. Currently, this unrealized holding gain, net of tax, is reported
in the Company's consolidated balance sheets as a separate component of
stockholders' equity. Accordingly, the adoption of SFAS 130 will require the
Company to modify the presentation of information already disclosed in the
consolidated financial statements.
Also, in June 1997, the FASB 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, requires reporting segment information
consistent with the way executive management of an entity disaggregates its
operations internally to assess performance and make decisions regarding
resource allocations. Among information to be disclosed, 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. 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.
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, Year 2000 compliance 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.
24
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<PAGE>
Report of Independent Public Accountants
To the Shareholders of ALLTEL Corporation:
We have audited the accompanying consolidated balance sheets of ALLTEL
Corporation (a Delaware corporation) and subsidiaries as of December 31, 1997
and 1996, and the related consolidated statements of income, shareholders'
equity and cash flows for each of the three years in the period ended
December 31, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of ALLTEL Corporation and
subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
/S/Arthur Anderson LLP
Little Rock, Arkansas,
January 29, 1998
25
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<PAGE>
<TABLE>
<CAPTION>
Selected Financial Data
- --------------------------------------------------------------------------------------------------------------------------------
For the years ended December 31,
(Dollars in thousands, except per share amounts) 1997 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues and Sales:
Service revenues $2,700,907 $2,524,845 $2,441,826 $2,249,933 $1,811,808 $1,565,544
Product sales 562,656 667,573 667,899 677,743 510,082 501,865
---------- ---------- ---------- ---------- ---------- ----------
Total revenues and sales 3,263,563 3,192,418 3,109,725 2,927,676 2,321,890 2,067,409
---------- ---------- ---------- ---------- ---------- ----------
Costs and Expenses:
Operating expenses 2,137,501 2,032,057 1,976,628 1,871,732 1,469,921 1,280,591
Cost of products sold 362,164 448,456 449,119 422,078 332,923 344,076
Provision to reduce carrying
value of certain assets 16,874 120,280 - - - -
---------- ---------- ---------- ---------- ---------- ----------
Total costs and expenses 2,516,539 2,600,793 2,425,747 2,293,810 1,802,844 1,624,667
---------- ---------- ---------- ---------- ---------- ----------
Operating Income 747,024 591,625 683,978 633,866 519,046 442,742
Other income, net 5,236 2,925 2,481 (6,064) 2,230 13,364
Interest expense (130,181) (130,832) (145,428) (137,120) (98,746) (93,245)
Gain on disposal or exchange of assets,
write-down of assets and other 206,622 (2,278) 30,775 (54,157) 27,390 (5,512)
---------- ----------- ---------- ---------- ---------- ----------
Income before income taxes 828,701 461,440 571,806 436,525 449,920 357,349
Income taxes 320,815 169,703 217,190 164,772 187,903 128,713
---------- ---------- ---------- ---------- ---------- ----------
Net income 507,886 291,737 354,616 271,753 262,017 228,636
Preferred dividends 1,008 1,071 1,158 1,232 1,578 1,742
---------- ---------- ---------- ---------- ---------- ----------
Net income applicable
to common shares $ 506,878 $ 290,666 $ 353,458 $ 270,521 $ 260,439 $ 226,894
========== ========== ========== ========== ========== ==========
Earnings per Share:
Basic $2.72 $1.53 $1.87 $1.44 $1.40 $1.24
Diluted $2.70 $1.52 $1.85 $1.42 $1.38 $1.22
Dividends per common share $1.115 $1.055 $ .98 $ .90 $ .82 $ .77
Common shares:
weighted average for the year 186,059,000 189,378,000 188,870,000 187,758,000 185,634,000 183,740,000
at year end 183,673,000 187,200,000 189,268,000 187,981,000 187,458,000 184,678,000
Total assets $5,633,445 $5,359,183 $5,073,105 $4,713,878 $4,270,458 $3,125,976
Total shareholders' equity $2,208,506 $2,097,107 $1,935,565 $1,625,369 $1,554,708 $1,304,454
Total redeemable preferred stock
and long-term debt $1,879,797 $1,762,597 $1,768,682 $1,853,979 $1,604,659 $1,027,803
- --------------------------------------------------------------------------------------------------------------------------------
<FN>
Note: A. Net income for 1997 includes pretax gains of $206.6 million from the sale of certain investments and the sale of the
Company's healthcare operations. These gains increased net income by $119.9 million or $.64 per share. Net income for
1997 also includes a pretax write-down of $16.9 million to reflect the fair value less cost to sell the Company's wire
and cable operations. This write-down decreased net income $11.7 million or $.06 per share. (See Notes 8 and 9.)
B. Net income for 1996 includes pretax write-downs of $120.3 million to adjust the carrying value of certain software and
other assets. The write-downs decreased net income $72.7 million or $.38 per share. (See Note 8.)
C. Net income for 1995 includes a net pretax gain of $30.8 million primarily from the sale of certain wireline properties.
The net gain increased net income by $19.8 million or $.10 per share. (See Note 9.)
D. Net income for 1994 includes a pretax write-down of $54.2 million to reflect the estimated net realizable value of the
Company's community banking and check processing operations. The write-down decreased net income by $32.2 million or
$.17 per share.
E. On November 1, 1993, the Company purchased substantially all of the assets of the wireline operations of GTE Corporation
in the State of Georgia ("GTE Georgia"). This acquisition was accounted for as a purchase, and accordingly, GTE
Georgia's results have been included in the consolidated financial statements from the date of acquisition.
</FN>
</TABLE>
26
46
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Income
- ------------------------------------------------------------------------------------------------
For the years ended December 31,
(Dollars in thousands, except per share amounts) 1997 1996 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues and Sales:
Service revenues $2,700,907 $2,524,845 $2,441,826
Product sales 562,656 667,573 667,899
---------- ---------- ----------
Total revenues and sales 3,263,563 3,192,418 3,109,725
---------- ---------- ----------
Costs and Expenses:
Operations 1,686,739 1,607,942 1,566,829
Cost of products sold 362,164 448,456 449,119
Depreciation and amortization 450,762 424,115 409,799
Provision to reduce carrying value of certain assets 16,874 120,280 -
---------- ---------- ----------
Total costs and expenses 2,516,539 2,600,793 2,425,747
---------- ---------- ----------
Operating Income 747,024 591,625 683,978
Other income, net 5,236 2,925 2,481
Interest expense (130,181) (130,832) (145,428)
Gain on disposal of assets, write-down of assets and other 206,622 (2,278) 30,775
---------- ---------- ----------
Income before income taxes 828,701 461,440 571,806
Income taxes 320,815 169,703 217,190
---------- ---------- ----------
Net income 507,886 291,737 354,616
Preferred dividends 1,008 1,071 1,158
---------- ---------- ----------
Net income applicable to common shares $ 506,878 $ 290,666 $ 353,458
========== ========== ==========
Earnings per Share:
Basic $2.72 $1.53 $1.87
Diluted $2.70 $1.52 $1.85
- ------------------------------------------------------------------------------------------------
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</FN>
</TABLE>
27
47
<PAGE>
Consolidated Balance Sheets
- ---------------------------------------------------------------------------
December 31,
(Dollars in thousands)
- ---------------------------------------------------------------------------
Assets 1997 1996
- ---------------------------------------------------------------------------
Current Assets:
Cash and short-term investments $ 16,212 $ 13,874
Accounts receivable (less allowance for doubtful
accounts of $18,562 and $21,271, respectively) 560,928 554,316
Materials and supplies 14,237 17,152
Inventories 51,277 85,970
Prepaid expenses 23,190 38,156
---------- ----------
Total current assets 665,844 709,468
---------- ----------
Investments 775,647 838,651
Goodwill and other intangibles 606,484 425,823
Property, Plant and Equipment:
Wireline 4,068,502 3,827,659
Wireless 692,490 582,707
Information services 539,743 506,905
Other 11,008 27,618
Under construction 218,951 169,439
---------- ----------
Total property, plant and equipment 5,530,694 5,114,328
Less accumulated depreciation 2,340,242 2,072,789
---------- ----------
Net property, plant and equipment 3,190,452 3,041,539
---------- ----------
Other assets 395,018 343,702
---------- ----------
Total Assets $5,633,445 $5,359,183
========== ==========
- ---------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated balance
sheets.
28
48
<PAGE>
- --------------------------------------------------------------------
Liabilities and Shareholders' Equity 1997 1996
- --------------------------------------------------------------------
Current Liabilities:
Current maturities of long-term debt $ 48,028 $ 37,798
Accounts payable 237,865 240,570
Advance payments and customer deposits 84,215 78,080
Accrued taxes 74,681 41,932
Accrued dividends 55,012 52,440
Other current liabilities 137,480 139,876
---------- ----------
Total current liabilities 637,281 590,696
---------- ----------
Long-term debt 1,874,172 1,756,142
Deferred income taxes 665,473 674,887
Other liabilities 242,388 233,896
Preferred stock, redeemable 5,625 6,455
Shareholders' Equity:
Preferred stock 9,155 9,198
Common stock 183,673 187,200
Additional capital 152,936 285,779
Unrealized holding gain on investments 300,671 351,867
Retained earnings 1,562,071 1,263,063
---------- ----------
Total shareholders' equity 2,208,506 2,097,107
---------- ----------
Total Liabilities and Shareholders' Equity $5,633,445 $5,359,183
========== ==========
- --------------------------------------------------------------------
29
49
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
- ---------------------------------------------------------------------------------------------------
For the years ended December 31,
(Dollars in thousands) 1997 1996 1995
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Provided from Operations:
Net income $507,886 $291,737 $354,616
Adjustments to reconcile net income to net cash
provided from operations:
Depreciation and amortization 450,762 424,115 409,799
Provision to reduce carrying value of certain assets, gain
on disposal of assets, write-down of assets, and other (108,151) 74,197 (19,849)
Other, net 33,890 42,532 41,366
Increase in deferred income taxes 613 47,156 65,246
Changes in operating assets and liabilities:
Accounts receivable (102,896) (24,141) (71,541)
Inventories and materials and supplies 1,500 7,997 5,101
Accounts payable 17,596 28,043 (42,096)
Other current liabilities 13,348 (20,781) (5,051)
Other, net (16,323) (64,673) (48,405)
-------- -------- --------
Net cash provided from operations 798,225 806,182 689,186
-------- -------- --------
Cash Flows from Investing Activities:
Additions to property, plant and equipment (545,573) (463,701) (523,064)
Purchase of property, net of cash acquired (50,633) - -
Additions to capitalized software development costs (74,225) (78,319) (52,308)
Additions to other intangible assets (146,526) - -
Additions to investments (43,367) (29,241) (49,321)
Proceeds from the sale of/return on investments 199,749 47,025 15,592
Proceeds from the sale of assets 200,598 38,687 212,911
Other, net (86,707) (63,044) (72,019)
-------- -------- --------
Net cash used in investing activities (546,684) (548,593) (468,209)
-------- -------- --------
Cash Flows from Financing Activities:
Dividends on preferred and common stock (206,312) (198,095) (182,270)
Reductions in long-term debt (42,647) (310,258) (277,636)
Purchase of common stock (175,611) (75,604) -
Preferred stock redemptions and purchases (873) (704) (1,137)
Long-term debt issued 164,220 316,001 218,164
Common stock issued 12,020 3,524 17,225
-------- -------- --------
Net cash used in financing activities (249,203) (265,136) (225,654)
-------- -------- --------
Increase (decrease) in cash and short-term investments 2,338 (7,547) (4,677)
Cash and Short-term Investments:
Beginning of the year 13,874 21,421 26,098
-------- -------- --------
End of the year $ 16,212 $ 13,874 $ 21,421
======== ======== ========
Supplemental Cash Flow Disclosures:
Interest paid $125,562 $124,354 $141,751
Income taxes paid $243,243 $180,575 $112,690
- ---------------------------------------------------------------------------------------------------
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</FN>
</TABLE>
30
50
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Shareholders' Equity
- -----------------------------------------------------------------------------------------
For the years ended December 31,
(Dollars in thousands, except per share amounts) 1997 1996 1995
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Preferred Stock:
Balance at beginning of the year $ 9,198 $ 9,241 $ 9,320
Conversion of preferred stock (43) (43) (79)
---------- ---------- ----------
Balance at end of the year 9,155 9,198 9,241
---------- ---------- ----------
Common Stock:
Balance at beginning of the year 187,200 189,268 187,981
Acquisition of subsidiaries 872 - -
Employee plans, net 618 344 1,227
Conversion of preferred stock and debentures 67 28 60
Repurchase of stock (5,084) (2,440) -
---------- ---------- ----------
Balance at end of the year 183,673 187,200 189,268
---------- ---------- ----------
Additional Capital:
Balance at beginning of the year 285,779 355,663 339,436
Acquisition of subsidiaries 26,348 - -
Employee plans, net 11,070 3,180 15,998
Conversion of preferred stock and debentures 266 100 229
Repurchase of stock (170,527) (73,164) -
---------- ---------- ----------
Balance at end of the year 152,936 285,779 355,663
---------- ---------- ----------
Unrealized Holding Gain on Investments:
Balance at beginning of the year 351,867 208,681 84,275
Change in unrealized holding gain on investments (51,196) 143,186 124,406
---------- ---------- ----------
Balance at end of the year 300,671 351,867 208,681
---------- ---------- ----------
Retained Earnings:
Balance at beginning of the year 1,263,063 1,172,712 1,004,357
Net income for the year 507,886 291,737 354,616
Dividends:
Common per share, $1.115 in 1997,
$1.055 in 1996 and $.98 in 1995 (207,870) (200,315) (185,103)
Preferred (1,008) (1,071) (1,158)
---------- ---------- ----------
Balance at end of the year 1,562,071 1,263,063 1,172,712
---------- ---------- ----------
Total shareholders' equity $2,208,506 $2,097,107 $1,935,565
========== ========== ==========
- -----------------------------------------------------------------------------------------
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</FN>
</TABLE>
31
51
<PAGE>
Business Segments
- -----------------------------------------------------------------------------
For the years ended December 31,
(Dollars in thousands) 1997 1996 1995
- -----------------------------------------------------------------------------
Revenues and Sales:
Wireline $1,268,882 $1,169,076 $1,197,673
Wireless 542,726 475,109 398,122
---------- ---------- ----------
Total communications 1,811,608 1,644,185 1,595,795
Information services 973,373 959,071 926,345
Product distribution 359,702 452,380 448,119
Other operations 118,880 136,782 139,466
---------- ---------- ----------
Total $3,263,563 $3,192,418 $3,109,725
========== ========== ==========
Operating Income:
Wireline $ 446,450 $ 408,382 $ 422,542
Wireless 178,401 151,720 121,507
---------- ---------- ----------
Total communications 624,851 560,102 544,049
Information services 145,222 67,035 132,043
Product distribution 13,957 23,660 27,338
Other operations 8,788 11,281 7,040
Corporate expenses (45,794) (70,453) (26,492)
---------- ---------- ----------
Total $ 747,024 $ 591,625 $ 683,978
========== ========== ==========
Identifiable Assets:
Wireline $2,872,029 $2,759,683 $2,782,471
Wireless 1,080,088 793,133 694,890
---------- ---------- ----------
Total communications 3,952,117 3,552,816 3,477,361
Information services 806,015 783,738 745,451
Product distribution 66,900 127,830 168,578
Other operations 46,979 56,091 58,243
Corporate 761,434 838,708 623,472
---------- ---------- ----------
Total $5,633,445 $5,359,183 $5,073,105
========== ========== ==========
Capital Expenditures:
Wireline $ 302,491 $ 279,622 $ 308,468
Wireless 127,391 94,932 121,274
---------- ---------- ----------
Total communications 429,882 374,554 429,742
Information services 87,937 83,530 77,871
Product distribution 1,465 974 2,034
Other operations and corporate 26,289 4,643 13,417
---------- --------- ----------
Total $ 545,573 $ 463,701 $ 523,064
========== ========== ==========
Depreciation and Amortization Expense:
Wireline $ 251,243 $ 235,543 $ 243,975
Wireless 82,421 68,603 54,856
---------- ---------- ----------
Total communications 333,664 304,146 298,831
Information services 112,316 112,911 102,033
Product distribution 800 1,409 1,277
Other operations and corporate 3,982 5,649 7,658
---------- ---------- ----------
Total $ 450,762 $ 424,115 $ 409,799
========== ========== ==========
- -----------------------------------------------------------------------------
Note: A. Corporate expenses for 1997 and 1996 include pretax write-downs to
reduce the carrying value of the Company's wire and cable subsidiary
of $16.9 million and $45.3 million, respectively. (See Note 8.)
B. Information services' operating income for 1996 includes pretax
write-downs of $75.0 million to reduce the carrying value of certain
assets. (See Note 8.)
C. Refer to page 33 for additional information concerning business
segments.
32
52
<PAGE>
Notes to Consolidated Financial Statements
1. Accounting Policies:
Consolidation - The consolidated financial statements include the accounts of
ALLTEL Corporation, its subsidiary companies and majority-owned partnerships
("ALLTEL" or the "Company"). Investments in 20% to 50% owned entities and all
unconsolidated partnerships are accounted for using the equity method. Other
investments are recorded in accordance with Statement of Financial Accounting
Standards No. 115. (See Note 2.) All intercompany transactions, except those
with certain affiliates described below, have been eliminated in the
consolidated financial statements.
Business Segments - The Company's wireline operating subsidiaries provide
local service, network access and long-distance communications services in 14
states. Wireless communications services are provided in a number of major
domestic markets - primarily located in the southeast portion of the United
States. Information services provides information processing management,
outsourcing services and application software, primarily to financial and
telecommunications clients. The principal markets for information services'
products and services are commercial banks and financial institutions and
telecommunications companies in the United States and major international
markets. Product distribution sells communications and data products to
affiliated and non-affiliated telephone companies and related industries in the
United States. Prior to May 1997, product distribution also included the
wire and cable operations which were sold in 1997. (See Note 8.) Other
operations primarily consist of directory publishing operations. Corporate
identifiable assets consist principally of cash, investments and headquarters
facilities and equipment. Corporate items represent general corporate expenses
and assets not allocated to segments. (Refer to Page 32 for a schedule of
business segment information.)
Financial Statement Presentation - The preparation of the consolidated
financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect
the reported amounts of assets, liabilities, revenues and expenses and
disclosure of contingent assets and liabilities. The estimates and assumptions
used in the accompanying consolidated financial statements are based upon
management's evaluation of the relevant facts and circumstances as of the date
of the financial statements. Actual results may differ from the estimates and
assumptions used in preparing the accompanying consolidated financial
statements.
Service revenues consist of local service, network access and miscellaneous
wireline operating revenues, wireless access and network usage revenues,
information services' data processing, software licensing and maintenance
revenues. Product sales revenues consist of the product distribution and
directory publishing operations and wireline and information services'
equipment sales. Certain prior-year amounts have been reclassified to conform
with the 1997 financial statement presentation.
Transactions with Certain Affiliates - ALLTEL Supply, Inc. sells equipment
and materials to wireline subsidiaries of the Company ($123.3 million in 1997,
$119.9 million in 1996 and $138.0 million in 1995) as well as to other
non-affiliated telephone companies and related industries. The cost of
equipment and materials sold to such subsidiaries is included, principally,
in wireline plant in the consolidated financial statements. ALLTEL Information
Services, Inc. provides the data processing services for the Company's wireline
operations ($81.2 million in 1997, $77.2 million in 1996 and $85.1 million in
1995) in addition to other non-affiliated companies. Intercompany profit, to
the extent not offset by depreciation on the capitalized cost of equipment
and materials, has not been eliminated because prices charged by the supply
and information services subsidiaries are recovered through the regulatory
process.
53
<PAGE>
Regulatory Accounting - 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"). This accounting recognizes the economic effects of
rate regulation by recording costs and a return on investment as such amounts
are recovered through rates authorized by regulatory authorities. Accordingly,
SFAS 71 requires the Company's wireline subsidiaries to depreciate wireline
plant over useful lives as approved by regulators, which could be longer than
the useful lives that would otherwise be determined by management. SFAS 71
also requires deferral of certain costs and obligations based upon approvals
received from regulators to permit recovery of such amounts in future years.
The Company's wireline subsidiaries periodically review the applicability of
SFAS 71 based on the developments in their current regulatory and competitive
environments.
Cash and Short-term Investments - Cash and short-term investments consist
of highly liquid investments with original maturities of less than three
months.
Inventories - Inventories are stated at the lower of cost or market value.
Cost is determined using the first-in, first-out method of valuation.
Goodwill and Other Intangibles - Goodwill represents the excess of cost
over the fair value of net assets acquired and is amortized on a straight-line
basis for periods up to 40 years. At December 31, 1997 and 1996, goodwill, net
of amortization, was $452.5 million and $425.8 million, respectively.
Amortization expense amounted to $15.1 million in 1997, $16.8 million in 1996
and $17.9 million in 1995. Other intangibles consist of the cost of Personal
Communications Services ("PCS") licenses acquired in 1997. The PCS licenses
will be amortized upon commencement of operations on a straight-line basis
over 40 years. The carrying value of goodwill and other intangibles is
periodically evaluated by the Company for the existence of impairment on the
basis of whether the intangible assets are fully recoverable from projected,
undiscounted net cash flows of the related business unit.
Property, Plant and Equipment - Property, plant and equipment are stated at
original cost. The Company capitalizes interest during periods of construction.
Depreciation is computed using the straight-line method for financial reporting
purposes. Depreciation expense amounted to $410.5 million in 1997, $379.2
million in 1996 and $362.4 million in 1995. The composite depreciation rates
by class of property as a percent of average depreciable plant and equipment
were:
- ------------------------------------------------------------------------------
1997 1996 1995
- ------------------------------------------------------------------------------
Wireline 6.3% 6.2% 6.4%
Wireless 12.0 12.1 12.7
Information services 17.0 16.8 15.7
Other 8.8 10.3 9.6
- ------------------------------------------------------------------------------
33
54
<PAGE>
Revenue Recognition - Communications revenues are recognized when earned
and are primarily derived from usage of the Company's networks and facilities
or under revenue-sharing arrangements with other telecommunications carriers.
Information services revenues consist of data processing revenue recognized as
services are performed, software licensing revenue recognized when delivery of
the software occurs, and software maintenance revenue recognized ratably over
the maintenance period. Certain long-term contracts are accounted for using the
percentage-of-completion method. Under this method, revenue and profit are
recognized throughout the term of the contract, based upon estimates of the
total costs to be incurred and revenues to be generated throughout the term of
the contract. Changes in estimates for revenues, costs and profits are
recognized in the period in which they are determinable. Due to the uncertainty
of these estimates, it is reasonably possible that these estimates could change
in the near term and the change could be material to the accompanying
consolidated financial statements. For all other operations, revenue is
recognized when products are delivered or services are rendered to customers.
Included in accounts receivable and other assets are unbilled receivables
related to the information services segment totaling $150.3 million and $141.2
million at December 31, 1997 and 1996, respectively. Included in these unbilled
receivables are amounts totaling $94.5 million and $82.1 million at
December 31, 1997 and 1996, respectively, which represent costs and estimated
earnings in excess of billings related to long-term contracts accounted for
under the percentage-of-completion method.
Computer Software Development Costs - For the Company's information
services operations, research and development expenditures related to
internally developed computer software are charged to expense as incurred. The
development costs of software to be marketed are charged to expense until
technological feasibility is established. After that time, the remaining
software development costs are capitalized and recorded in other assets in the
accompanying consolidated balance sheets. As of December 31, 1997 and 1996,
capitalized software development costs, net of amortization, were $206.6
million and $197.9 million, respectively. Amortization of the capitalized
amounts is computed on a product-by-product basis using the straight-line
method over the remaining estimated economic life of the product, not exceeding
six years. Amortization expense amounted to $25.1 million in 1997, $28.1
million in 1996 and $29.5 million in 1995.
The net realizable value of capitalized software development costs is
periodically evaluated by the Company. This evaluation requires considerable
judgment by management with respect to certain external factors, including,
but not limited to, anticipated future revenues generated by the software,
estimated economic life of the software and changes in software and hardware
technologies. Accordingly, it is reasonably possible that estimates of
anticipated future revenues generated by the software, the remaining economic
life of the software, or both, could be reduced in the near term, materially
impacting the carrying value of capitalized software development costs. As a
result of this periodic evaluation, the Company recorded a write-down of
software in 1996. (See Note 8.)
Earnings Per Share - In February 1997, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 128, "Earnings per
Share" ("SFAS 128"), which established new standards for computing and
presenting earnings per share information. As required, the Company adopted
the provisions of SFAS 128 in its year-end 1997 financial statements and has
restated all prior-year earnings per share information. Basic earnings per
share of common stock was determined by dividing net income applicable to
common shares by the weighted average number of common shares outstanding
during each year. Diluted earnings per share reflects the potential dilution
that could occur assuming conversion or exercise of all outstanding preferred
55
<PAGE>
stocks and issued and unexercised stock options. A reconciliation of the net
income and numbers of shares used in computing basic and diluted earnings per
share was as follows:
- -----------------------------------------------------------------------------
(Thousands, except per share amounts)
-------------------------------------
1997 1996 1995
- -----------------------------------------------------------------------------
Basic earnings per share:
Net income applicable to common shares $506,878 $290,666 $353,458
Weighted average common shares
outstanding for the year 186,059 189,378 188,870
- -----------------------------------------------------------------------------
Basic earnings per share of common stock $2.72 $1.53 $1.87
- -----------------------------------------------------------------------------
Diluted earnings per share:
Net income applicable to common shares $506,878 $290,666 $353,458
Adjustments for convertible securities:
Preferred stocks 206 220 236
-------- -------- --------
Net income applicable to common shares
assuming conversion of above securities $507,084 $290,886 $353,694
======== ======== ========
Weighted average common shares
outstanding for the year 186,059 189,378 188,870
Increase in shares which would result from:
Exercise of stock options 1,107 1,089 1,202
Conversion of convertible preferred stocks 523 559 603
-------- -------- --------
Weighted average common shares, assuming
conversion of the above securities 187,689 191,026 190,675
======== ======== ========
- -----------------------------------------------------------------------------
Diluted earnings per share of common stock $2.70 $1.52 $1.85
- -----------------------------------------------------------------------------
2. Financial Instruments and Investment Securities:
The carrying amount of cash and short-term investments approximates fair value
due to the short maturity of the instruments. The fair value of investments is
$775.6 million in 1997 and $838.7 million in 1996 based on quoted market prices
and the carrying value of investments for which there is no quoted market
price. The fair value of the Company's long-term debt, after deducting current
maturities, is estimated to be $1.930 billion in 1997 and $1.772 billion in
1996 compared to a carrying value of $1.874 billion in 1997 and $1.756 billion
in 1996. The fair value estimates are based on the overall weighted rates and
maturity compared to rates and terms currently available in the long-term
financing markets. The fair value of the Company's redeemable preferred stock
is estimated to be $17.5 million in 1997 and $16.6 million in 1996 compared to
a carrying amount of $5.6 million in 1997 and $6.5 million in 1996. The fair
value estimates are based on the conversion of the Series D convertible
redeemable preferred stock to common stock of the Company and the carrying
value of the Series A redeemable preferred stock for which there is no quoted
market price. The fair value of all other financial instruments is estimated by
management to approximate the carrying value.
Equity securities owned by the Company have been classified as available-
for-sale and are reported at fair value, with unrealized gains and losses
reported, net of tax, in a separate component of shareholders' equity. The
Company had unrealized gains, net of tax, on its investment in WorldCom, Inc.
of $300.7 million, $351.9 million and $208.7 million at December 31, 1997, 1996
and 1995, respectively. The unrealized gains, including the related tax impact,
are non-cash items and accordingly have been excluded from the accompanying
consolidated statements of cash flows. All other unrealized gains and losses on
investments in equity securities are not material to the Company's financial
position or results of operations. During 1997, the Company sold a portion of
its investment in WorldCom, Inc. (See Note 9.)
34
56
<PAGE>
3. Debt:
Long-term debt, after deducting current maturities, was as follows at
December 31:
- --------------------------------------- ---------------------------------------
(Thousands)
----------------------
1997 1996
- -------------------------------------------------------------------------------
Debentures and notes, without collateral,
Weighted rate 7.1% in 1997 and 1996
Weighted maturity 13 years in 1997 and 1996 $1,286,965 $1,320,141
Rural Telephone Bank and Federal Financing Bank notes,
Weighted rate 7.7% in 1997 and 1996
Weighted maturity 16 years in 1997 and 17 years in 1996 255,006 262,547
Revolving credit agreement,
Weighted rate 6.5% in 1997 and 7.1% in 1996
Weighted maturity 5 years in 1997 and 1996 247,920 83,700
Rural Utilities Service notes,
Weighted rate 4.5% in 1997 and 4.4% in 1996
Weighted maturity 16 years in 1997 and 1996 61,917 66,911
First mortgage bonds and collateralized notes,
Weighted rate 8.4% in 1997 and 8.7% in 1996
Weighted maturity 4 years in 1997 and 5 years in 1996 15,864 14,485
Industrial revenue bonds and collateralized notes,
Weighted rate 5.4% in 1997 and 6.0% in 1996
Weighted maturity 10 years in 1997 and 1996 6,500 8,358
---------- ----------
Total long-term debt $1,874,172 $1,756,142
========== ==========
Weighted rate 7.0% 7.1%
Weighted maturity 12 years 13 years
- -------------------------------------------------------------------------------
The Company has a $750 million revolving credit agreement which has a
termination date of October 1, 2002, with provision for annual extensions. It
is the Company's intention to continue to renew the agreement. The revolving
credit agreement provides for a variety of pricing options.
The indentures and agreements, as amended, provide, among other things, for
various restrictions on the payment of dividends by the Company. Retained
earnings unrestricted as to payment of dividends by the Company amounted to
$1,323.4 million at December 31, 1997. Certain properties have been pledged
as collateral on $339.3 million of obligations.
Interest expense on long-term debt amounted to $129.0 million in 1997,
$129.4 million in 1996 and $144.4 million in 1995.
Maturities and sinking fund requirements for the four years after 1998 for
long-term debt outstanding, excluding the revolving credit agreement, as of
December 31, 1997, were $54.3 million, $44.9 million, $48.1 million and
$48.8 million for the years 1999 through 2002, respectively.
4. Common Stock:
There are 500,000,000 shares of $1 par value common stock authorized of which
183,672,880 and 187,199,811 shares were outstanding at December 31, 1997 and
1996, respectively. At December 31, 1997, the Company had 16,660,454 common
shares reserved for issuance in connection with convertible preferred stock
(851,495) and stock options (15,808,959).
The Company has stock-based compensation plans. Under stock option plans
implemented prior to 1994 (the "Pre-1994 Plans") and the 1994 Stock Option Plan
for Employees (the "1994 Plan"), the Company may grant fixed and performance-
based incentive and non-qualified stock options to officers and other key
employees. The maximum number of shares of the Company's common stock that may
be issued under the Pre-1994 Plans and the 1994 Plan are 5,698,980 and
10,000,000, respectively. Fixed options granted under the Pre-1994 Plans and
57
<PAGE>
the 1994 Plan generally become exercisable in equal increments over a five-year
period beginning one year from the date of grant. Certain fixed options granted
in 1997 become exercisable in equal increments over a six-year period beginning
three years from the date of grant. Performance-based options were granted for
the first time in 1997 under the 1994 Plan, and such options become exercisable
one year from the date in which certain performance goals related to operating
income growth and return on invested capital are achieved for the four most
recent consecutive calendar quarters. Four separate levels of performance goal
targets have been established, each specifying different minimum growth and
return rates. Depending upon which of the four performance goal target levels
is attained, 25%, 50%, 75% or 100% of the option award will vest and become
exercisable.
Under the 1994 Stock Option Plan for Non-employee Directors (the
"Directors' Plan"), the Company grants fixed, non-qualified stock options to
directors for up to 1,000,000 shares of common stock. Under the Directors'
Plan, directors receive a one-time grant to purchase 10,000 shares of common
stock. Directors are also granted each year, on the date of the annual meeting
of stockholders, an option to purchase a specified number of shares of common
stock (currently 3,500 shares). Options granted under the Directors' Plan
become exercisable the day immediately preceding the date of the first
annual meeting of stockholders following the date of grant.
For all plans, the exercise price of the option equals the market value of
the Company's common stock on the date of grant. For fixed stock options, the
maximum term for each option granted is 10 years. Any performance-based option
that remains unvested as of January 29, 2003, will expire.
For stock options granted subsequent to January 1, 1995, the fair value of
each option was estimated on the grant date using the Black-Scholes option-
pricing model and the following assumptions: dividend yield of 3.3% in 1997 and
1996 and 3.7% in 1995, expected volatility of 20.2% in 1997, 19.6% in 1996 and
21% in 1995, and expected option life of 5.7 years in 1997 and 5 years in 1996
and 1995. For options granted under the Directors' Plan, the risk-free interest
rates were 6.5% in 1997, 6% in 1996 and 6.7% in 1995. For options granted under
the 1994 Plan, the risk-free interest rates were 6.2% in 1997, 5.4% in 1996 and
6.4% in 1995. There were no options granted under the Pre-1994 Plans during
the three-year period ended December 31, 1997.
The following is a summary of stock options outstanding, granted,
exercised, forfeited and expired under the Company's stock-based compensation
plans:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Weighted
Average Price
Shares Per Share
--------------------------------- ------------------------
1997 1996 1995 1997 1996 1995
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of period 5,516,168 5,206,509 6,811,202 $24.30 $22.45 $20.32
Granted 3,886,701 855,000 126,000 33.55 31.37 26.15
Exercised (889,193) (419,729) (1,472,983) 20.30 14.74 12.45
Forfeited (314,700) (125,612) (257,710) 28.64 27.68 25.05
Expired (27,308) - - 22.54 - -
--------- --------- --------- ------ ------ ------
Outstanding at end
of period 8,171,668 5,516,168 5,206,509 $28.97 $24.30 $22.45
========= ========= ========= ====== ====== ======
Exercisable at end
of period 3,271,168 3,385,268 3,001,109 $23.39 $21.82 $19.84
Non-vested at end of period:
Fixed 4,614,000 2,130,900 2,205,400
Performance-based 286,500 - -
Weighted average fair
value of stock options
granted during the year $7.21 $5.95 $5.49
- -------------------------------------------------------------------------------------------
</TABLE>
35
58
<PAGE>
The following is a summary of stock options outstanding as of
December 31, 1997:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Options Outstanding Options Exercisable
- --------------------------------------------------------------- ----------------------
Weighted Weighted Weighted
Average Average Average
Range of Number of Remaining Exercise Price Number of Exercise Price
Exercise Prices Options Contractual Life Per Share Options Per Share
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$11.20-$16.12 528,332 2.4 years $13.32 528,332 $13.32
$20.00-$25.38 1,023,439 4.2 years 20.16 1,023,439 20.16
$26.12-$32.50 4,199,696 7.4 years 29.89 1,699,196 28.35
$33.88-$36.44 2,420,201 9.7 years 34.53 20,201 33.88
--------- --------- ------ --------- ------
8,171,668 7.4 years $28.97 3,271,168 $23.39
========= ========= ====== ========= ======
- ---------------------------------------------------------------------------------------
</TABLE>
The Company applies the provisions of Accounting Principles Board Opinion
No. 25 and related Interpretations in accounting for its stock-based
compensation plans. Accordingly, no compensation cost has been recognized by
the Company in the accompanying consolidated statements of income for any of
the fixed stock options granted. Compensation cost for performance-based
options is recognized as expense over the expected vesting period and is
adjusted for changes in the market value of the Company's common stock.
Compensation cost for the performance-based options amounted to $547,000 in
1997. Had compensation cost for options granted been determined on the basis
of the fair value of the awards at the date of grant, consistent with the
methodology prescribed by Statement of Financial Accounting Standards No. 123,
the Company's net income would have been reduced to the following pro forma
amounts for the years ended December 31:
- ------------------------------------------------------------------------------
Dollars in thousands) 1997 1996 1995
- ------------------------------------------------------------------------------
Net income:
As reported $507,886 $291,737 $354,616
Pro forma $505,601 $291,012 $354,502
- ------------------------------------------------------------------------------
Pro forma basic and diluted earnings per share amounts would have been
equal to the reported earnings per share amounts for both 1996 and 1995. For
1997, the pro forma basic and diluted earnings per share amounts would have
been $2.71 and $2.69, respectively. The pro forma net income and earnings per
share amounts reflect only the effect of stock options granted subsequent to
January 1, 1995. Accordingly, the pro forma amounts may not be representative
of the future effects on reported net income and earnings per share that will
result from the future granting of stock options, since the pro forma
compensation expense is allocated over the periods in which options become
exercisable and new option awards are granted each year.
5. Preferred Stock:
Cumulative preferred stock is issuable in series, and the Board of Directors is
authorized to designate the number of shares and fix the terms. There are
50,000,000 $25 par value voting shares and 50,000,000 no par value non-voting
shares authorized.
59
<PAGE>
The outstanding cumulative preferred stock, which is not redeemable at the
option of the holder, was as follows at December 31:
- -------------------------------------------------------------------------------
Quarterly Amount Outstanding
Dividend (Thousands)
Per Share 1997 1996 1995
- -------------------------------------------------------------------------------
$25 par value:
Series A, 5%
Shares - 39,853 in 1997, 1996 and 1995 $.31 1/4 $ 996 $ 996 $ 996
Series C, 5%
Shares - 5,000 in 1997, 1996 and 1995 .31 1/4 125 125 125
Series E, 6%
Shares - 32,000 in 1997, 1996 and 1995 .37 1/2 800 800 800
Series F, 5 1/2%
Shares - 245,955 in 1997, 1996 and 1995 .34 3/8 6,149 6,149 6,149
Series H, 6%
Shares - 12,184 in 1997, 1996 and 1995 .37 1/2 305 305 305
Series I, 5 1/2%
Shares - 4,000 in 1997, 1996 and 1995 .34 3/8 100 100 100
Series J, 6%
Shares - 1,800 in 1997, 1996 and 1995 .37 1/2 45 45 45
No par value:
Series C, $2.06 Convertible
Shares - 25,392 in 1997, 27,137 in 1996
and 28,855 in 1995 .51 1/2 635 678 721
------ ------ ------
$9,155 $9,198 $9,241
====== ====== ======
- -------------------------------------------------------------------------------
The $25 par value preferred stock may be redeemed at the option of the
Company at par value. The no par value Series C preferred shares are
convertible at any time prior to redemption into 5.963 shares of the Company's
common stock. The rate of conversion is subject to adjustment under certain
conditions.
The outstanding cumulative preferred stock, which is redeemable at the
option of the holder, was as follows at December 31:
- -------------------------------------------------------------------------------
Quarterly Amount Outstanding
Dividend (Thousands)
Per Share 1997 1996 1995
- -------------------------------------------------------------------------------
No par value:
Series A, 7 3/4%
Shares - 39,400 in 1997, 44,800
in 1996 and 50,200 in 1995 $1.93 3/4 $3,940 $4,480 $5,020
Series D, $2.25 Convertible
Shares - 60,188 in 1997, 70,535
in 1996 and 73,500 in 1995 .56 1/4 1,685 1,975 2,058
------ ------ ------
$5,625 $6,455 $7,078
====== ====== ======
- -------------------------------------------------------------------------------
The Company's Series A preferred stock is redeemed through required annual
sinking fund payments. The sinking fund requirements in each of the five years
ending December 31, 1998 through 2002 amount to $540,000.
In addition to redemption at the option of the holder and through required
sinking fund payments at the stated value per share, the Company may at its
option, under certain conditions, redeem outstanding cumulative preferred stock
at varying premiums above par or stated value.
The Company's Series D stock is convertible at any time prior to
redemption into 5.486 shares of the Company's common stock. The rate of
conversion is subject to adjustment under certain conditions. During 1997,
$290,000 of Series D stock was converted. The stock may be redeemed at the
option of the Company or the holder at the $28 per share stated value.
36
60
<PAGE>
6. Employee Benefit Plans:
The Company has a trusteed, non-contributory, defined benefit pension plan
which provides retirement benefits for eligible employees of the Company.
Pension benefits are based on an employee's years of service and compensation.
The Company's funding policy for the defined benefit contributions is to
satisfy the funding requirements of the Employees' Retirement Income Security
Act of 1974 ("ERISA"). Certain key officers have unfunded executive
compensation agreements that provide retirement benefits in lieu of payments
under the Company's pension plan.
Pension expense (credit), including provision for executive compensation
agreements, totaled $(5,327,000) in 1997, $577,000 in 1996 and $5,662,000 in
1995.
Pension expense (credit) includes the following components:
- ------------------------------------------------------------------------------
(Thousands)
------------------------------
1997 1996 1995
- ------------------------------------------------------------------------------
Benefits earned during the year $10,415 $12,589 $14,966
Interest cost on projected
benefit obligation 24,401 23,597 22,301
Actual return on plan assets (65,702) (40,660) (61,720)
Net amortization and deferral 25,559 5,051 30,115
------- ------- -------
Pension expense (credit) $(5,327) $ 577 $ 5,662
======= ======= =======
- ------------------------------------------------------------------------------
The following table presents the funded status of the plan at December 31:
- -------------------------------------------------------------------------------
(Thousands)
-------------------
1997 1996
- -------------------------------------------------------------------------------
Actuarial present value of accumulated benefit
obligation, including vested benefits
of $288,973 in 1997 and $257,236 in 1996 $299,075 $266,348
-------- --------
Actuarial present value of projected
benefit obligation 352,405 313,878
Plan assets at fair value 444,326 394,533
-------- --------
Plan assets in excess of projected benefit
obligation 91,921 80,655
Unrecognized net gain (50,665) (44,689)
Remaining unrecognized prior service cost (3,198) (4,315)
Unrecognized transition asset being
amortized over 16 years (7,100) (8,283)
-------- --------
Prepaid pension expense $ 30,958 $ 23,368
======== ========
- -------------------------------------------------------------------------------
Actuarial assumptions used to calculate the projected benefit obligations
were 7.25% for the settlement rate in 1997 and 7.75% in 1996, and 5% for future
compensation level increases in 1997 and 1996. The investment earnings rate was
9% in 1997 and 1996. The changes in the actuarial present value of the
accumulated benefit obligation and the projected benefit obligation for 1997
primarily resulted from the decrease in the settlement rate assumption. Assets
of the plan consist primarily of listed stocks, including common stock of the
Company amounting to $25.3 million and $19.2 million at December 31, 1997 and
1996, respectively, and corporate and government debt.
The Company has a non-contributory defined contribution plan in the form of
profit-sharing arrangements for eligible employees, except bargaining unit
employees. The amount of profit-sharing contributions to the plan is determined
61
<PAGE>
annually by the Company's Board of Directors. Profit-sharing expense amounted
to $22.8 million in 1997, $20.4 million in 1996 and $28.7 million in 1995.
The Company also sponsors an employee savings plan under section 401(k) of
the Internal Revenue Code. The plan covers substantially all full-time
employees, except bargaining unit employees. Employees may elect to contribute
to the plan a portion of their eligible pretax compensation up to certain
limits as specified by the plan. The Company also makes annual contributions
to the plan. Amounts contributed by the Company to the plan amounted to
$9.1 million in 1997, $9.4 million in 1996 and $3.4 million in 1995.
7. Postretirement Benefits Other Than Pensions:
The Company provides postretirement healthcare and life insurance benefits for
eligible employees. The healthcare benefit is based on comprehensive hospital,
medical and surgical benefit provisions, while the life insurance is based on
annual earnings at the time of retirement. The employees share in the cost of
these benefits. The Company is not currently funding these plans.
The postretirement expense includes the following components:
- ----------------------------------------------------------------------
(Thousands)
------------------------
1997 1996 1995
- ----------------------------------------------------------------------
Benefits earned $ 59 $ 102 $ 112
Amortization of transition obligation 976 976 976
Other amortization and deferral (115) 40 (918)
Interest cost on accumulated
postretirement benefit obligation 2,650 2,719 2,454
------ ------ ------
Postretirement expense $3,570 $3,837 $2,624
====== ====== ======
- ----------------------------------------------------------------------
The following table presents the plan status at December 31:
- ----------------------------------------------------------------------
(Thousands)
----------------
1997 1996
- ----------------------------------------------------------------------
Accumulated postretirement benefit obligation:
Retirees $41,522 $34,337
Fully eligible active plan participants 790 709
Other active plan participants 1,372 1,119
------- -------
Total accumulated postretirement benefit obligation 43,684 36,165
Unrecognized net gain (loss) (5,477) 5,162
Unrecognized prior service cost (673) (712)
Unrecognized transition obligation being amortized
over 20 years (14,638) (15,614)
-------- --------
Accrued postretirement benefit obligation $22,896 $25,001
======= =======
- ----------------------------------------------------------------------
Actuarial assumptions used to calculate the accumulated postretirement
benefit obligation were 7.25% for the weighted average discount rate in 1997
and 7.75% for 1996, and 9% for the healthcare cost trend rate in 1997 and 10%
for 1996, decreasing on a graduated basis to an ultimate rate of 6% in the
year 2000. A one percentage point change in the assumed healthcare cost trend
rate for each future year would change the postretirement benefit cost by
approximately $147,000 for the year ended December 31, 1997, and the
accumulated postretirement benefit obligation as of December 31, 1997, by
approximately $2.6 million.
37
62
<PAGE>
8. Provision to Reduce Carrying Value of Certain Assets:
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 product
distribution segment's wire and cable subsidiary, HWC Distribution Corp.
("HWC"). The sale of HWC was completed in May 1997. 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 year ended December 31, 1997.
During the third quarter of 1996, the Company incurred non-cash, pretax
charges of $120.3 million to write down 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 $45.3 million in the
carrying value of goodwill related to HWC. In addition, the information
services segment recorded a pretax write-down of $53.0 million, primarily
consisting of an adjustment to the carrying value of certain 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. Finally, due to
current and projected future operating losses sustained by its 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 net
income impact of these write-downs resulted in a decrease in net income of
$72.7 million or $.38 per share for the year ended December 31, 1996.
Operating results of the wire and cable subsidiary included in the
Company's consolidated results of operations were as follows:
- -------------------------------------------------------------------------------
(Thousands)
---------------------------------
1997 1996 1995
- -------------------------------------------------------------------------------
Revenues and sales $42,847 $156,536 $158,605
Operating income $ 1,473 $ 7,919 $ 11,039
- -------------------------------------------------------------------------------
9. Gain on Disposal of Assets, Write-down of Assets and Other:
During the third quarter of 1997, the Company recorded a pretax gain of
$34.4 million primarily related to the sale of its investment in a software
company. During the second quarter of 1997, the Company recorded a pretax gain
of $156.0 million from the sale of a portion of its investment in WorldCom,
Inc. common stock. Proceeds from the sale of this stock amounted to
$185.9 million. During the first quarter of 1997, the Company recorded a
pretax gain of $16.2 million from the sale of information services' healthcare
operations. The net income impact from these transactions resulted in an
increase of $119.9 million in net income or $.64 per share for the year ended
December 31, 1997.
During the first quarter of 1996, the Company recorded a pretax gain of
$15.3 million from the sale of wireline properties in Nevada to Citizens
Utilities Company ("Citizens"). The Company also incurred $15.8 million of
termination fees related to the early retirement of $200 million of long-term
debt, and the Company realized a pretax loss of $1.8 million related to the
withdrawal of its investment in GO Communications Corporation. The net income
impact from these transactions resulted in a decrease of $.01 per share for
the year ended December 31, 1996.
During 1995, the Company recorded pretax gains of $49.8 million on the
sale of its wireline properties in Arizona, California, New Mexico, Oregon,
Tennessee, Utah and West Virginia to Citizens. In addition, the Company
incurred $14.0 million of termination fees related to the early retirement of
$200 million of long-term debt. Finally, the Company recorded an additional
pretax write-down of $5.0 million to reflect the net realizable value of its
63
<PAGE>
information services segment's check processing operations. The net income
impact from these transactions resulted in an increase of $19.8 million in net
income or $.10 per share for the year ended December 31, 1995.
10. Income Taxes:
Income tax expense was as follows:
(Thousands)
----------------------------------
1997 1996 1995
- ------------------------------------------------------------------------------
Federal $276,171 $141,320 $181,947
State and other 44,644 28,383 35,243
-------- -------- --------
$320,815 $169,703 $217,190
======== ======== ========
- ------------------------------------------------------------------------------
The federal income tax expense consists of the following:
(Thousands)
----------------------------------
1997 1996 1995
- ------------------------------------------------------------------------------
Currently payable $214,204 $141,035 $128,589
Deferred 66,890 9,218 62,614
Investment tax credit amortized (4,923) (8,933) (9,256)
-------- -------- --------
$276,171 $141,320 $181,947
======== ======== ========
- ------------------------------------------------------------------------------
Deferred income tax expense results principally from temporary differences
between depreciation expense for income tax purposes and depreciation expense
recorded in the financial statements. Deferred tax balances are adjusted to
reflect tax rates, based on currently enacted tax laws, that will be in effect
in the years in which the temporary differences are expected to reverse. For
the Company's regulated operations, the adjustment in deferred tax balances for
the change in tax rates is reflected as a regulatory asset or liability. These
regulatory assets and liabilities are amortized over the lives of the related
depreciable asset or liability concurrent with recovery in rates.
Differences between the federal income tax statutory rates and effective
income tax rates, which include both federal and state income taxes, were as
follows:
1997 1996 1995
- ------------------------------------------------------------------------------
Statutory income tax rates 35.0% 35.0% 35.0%
Increase (decrease):
Investment tax credit (0.6) (1.9) (1.6)
State income taxes, net of
federal benefit 3.5 4.0 4.0
Other items 0.8 (0.3) 0.6
----- ----- -----
Effective income tax rates 38.7% 36.8% 38.0%
===== ===== =====
- ------------------------------------------------------------------------------
The significant components of the Company's net deferred income tax
liability were as follows at December 31:
(Thousands)
---------------------
1997 1996
- ------------------------------------------------------------------------------
Property, plant and equipment $426,705 $413,640
Capitalized computer software 80,466 71,609
Unrealized holding gain on investments 196,634 231,982
Other, net (38,332) (42,344)
-------- --------
Total $665,473 $674,887
======== ========
- ------------------------------------------------------------------------------
At December 31, 1997 and 1996, total deferred tax assets were
$176.0 million and $201.1 million, respectively, and total deferred tax
liabilities were $841.5 million and $876.0 million, respectively.
38
64
<PAGE>
11. Other Income, Net:
The components of other income, net were as follows:
- -----------------------------------------------------------------------------
(Thousands)
---------------------------
1997 1996 1995
- -----------------------------------------------------------------------------
Equity earnings in unconsolidated partnerships $35,557 $31,353 $20,282
Minority interest in consolidated partnerships (41,237) (37,538) (28,997)
Capitalized interest during construction 11,539 5,160 6,221
Interest and dividend income 524 500 1,052
Other non-operating income (expense) (1,147) 3,450 3,923
------- ------- -------
$ 5,236 $ 2,925 $ 2,481
======= ======= =======
- -----------------------------------------------------------------------------
12. QUARTERLY FINANCIAL INFORMATION - (Unaudited)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands,
except per share amounts) 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total 4th 3rd 2nd 1st Total 4th 3rd 2nd 1st
---------- -------- -------- -------- -------- ---------- -------- -------- -------- --------
Revenues and sales $3,263,563 $848,632 $813,746 $816,880 $784,305 $3,192,418 $806,301 $807,398 $804,453 $774,266
Operating income $ 747,024 $202,919 $190,721 $172,159 $181,225 $ 591,625 $183,735 $ 55,835 $180,890 $171,165
Net income $ 507,886 $110,224 $122,064 $173,890 $101,708 $ 291,737 $ 96,932 $ 18,824 $ 91,908 $ 84,073
Preferred dividends 1,008 243 251 256 258 1,071 258 265 274 274
---------- -------- -------- -------- -------- ---------- -------- -------- -------- --------
Net income applicable to
common shares $ 506,878 $109,981 $121,813 $173,634 $101,450 $ 290,666 $ 96,674 $ 18,559 $ 91,634 $ 83,799
========== ======== ======== ======== ======== ========== ======== ======== ======== ========
Earnings per share:
Basic $2.72 $.60 $.65 $.93 $.54 $1.53 $.51 $.10 $.48 $.44
Diluted $2.70 $.59 $.65 $.92 $.54 $1.52 $.51 $.10 $.47 $.44
From current businesses1:
Revenues and sales $3,220,716 $848,632 $813,746 $805,563 $752,775 $2,921,363 $739,755 $739,731 $735,897 $705,980
Operating income $ 762,425 $202,919 $190,721 $188,699 $180,086 $ 700,241 $176,548 $173,072 $181,824 $168,797
Net income $ 398,897 $110,224 $ 99,495 $ 97,348 $ 91,830 $ 359,505 $ 93,044 $ 89,842 $ 92,584 $ 84,035
Basic earnings per share $2.14 $.60 $.53 $.52 $.49 $1.89 $.49 $.47 $.49 $.44
Diluted earnings per share $2.12 $.59 $.53 $.51 $.49 $1.88 $.49 $.47 $.48 $.44
Dividends per common share $1.115 $.29 $.275 $.275 $.275 $1.055 $.275 $.26 $.26 $.26
- ---------------------------------------------------------------------------------------------------------------------------------
<FN>
1 Excludes the sold wireline, healthcare, wire and cable operations and the provision to reduce carrying value of certain assets,
gain on disposal of assets and other.
Note: A. Third quarter 1997 net income includes a pretax gain of $34.4 million primarily related to the sale of the Company's
investment in a software company. This gain increased net income by $22.6 million or $.12 per share. (See Note 9.)
B. Second quarter 1997 operating income includes a pretax write-down of $16.9 million to reflect the fair value less cost
to sell the Company's wire and cable operations. In addition, the Company recorded a pretax gain of $156.0 million from
the sale of a portion of its investment in WorldCom, Inc. common stock. These transactions increased net income by
$76.4 million or $.41 per share. (See Notes 8 and 9.)
C. First quarter 1997 net income includes a pretax gain of $16.2 million from the sale of information services' healthcare
operations. This transaction increased net income by $9.2 million or $.05 per share. (See Note 9.)
D. Third quarter 1996 operating income includes pretax write-downs of $45.3 million and $22.0 million in the carrying value
of the Company's wire and cable operations and the information services segment's community banking operations,
respectively. In addition, the information services segment recorded a pretax write-down of $53.0 million to reflect the
net realizable value of certain capitalized software development costs. These transactions decreased net income by
$72.7 million or $.38 per share. (See Note 8.)
E. First quarter 1996 net income includes a pretax gain of $15.3 million from the sale of certain wireline properties,
$15.8 million of termination fees related to the early retirement of long-term debt and a pretax loss of $1.8 million
from the withdrawal of an investment. These transactions decreased net income by $1.5 million or $.01 per share.
(See Note 9.)
F. All adjustments necessary for a fair presentation of results for each period have been included.
</FN>
</TABLE>
39
65
Investor Information
Corporate Headquarters Shareholder Services
ALLTEL Corporation General questions about accounts,
One Allied Drive stock certificates or dividends
Little Rock, Arkansas 72202 should be directed to the
501.905.8000 Shareholder Services Department
www.alltel.com 50 Executive Parkway, Hudson, Ohio 44236.
(toll-free) 888.838.4188
Annual Meeting Annual Report and Form 10-K Requests
The Annual Meeting of ALLTEL The 1997 Annual Report is available
Corporation stockholders will electronically from the Company's web
be held at 11 a.m. (CDT) on site at www.alltel.com. The report and
Thursday, April 23, 1998, a the Form 10-K Annual Report filed with
Arkansas' Excelsior Hotel the Securities and Exchange Commission
Ballroom Level, Three Statehouse are available without charge to
Plaza, Little Rock, Arkansas stockholders upon request to the
Shareholder Services Department,
50 Executive Parkway, Hudson, Ohio 44236.
Transfer Agent, Registrar and (toll-free) 888.838.4188
Dividend Disbursing Agent
First Union National Bank of
North Carolina Dividend Reinvestment and Stock
Customer Service Purchase Plan
1525 West W.T. Harris Blvd. 3C3 ALLTEL offers a Dividend Reinvestment and
Charlotte, North Carolina Stock Purchase Plan for registered common
28288-1153 stockholders. In addition to reinvesting
dividends, the plan allows participants
to invest cash toward the purchase of
Investor Relations ALLTEL common stock. Additional
Information requests from information about dividend reinvestment
investors, security analysts and may be obtained from the Shareholder
other members of the investment Services Department.
community should be addressed to
Shawne Leach, Vice President-
Investor Relations, One Allied Electronic Dividend Deposit
Drive, Little Rock, Arkansas ALLTEL offers Electronic Dividend Deposit
72202. to registered common stockholders.
501.905.8999 fax 501.905.5444 Electronic deposit allows dividend
payments to be automatically deposited
into a checking or savings account and
Common Stock Price and eliminates the inconvenience of delayed
Dividend Information or lost dividend checks. More information
Ticker Symbol AT about Electronic Dividend Deposit may
Newspaper Listings ALLTEL, ALTEL be obtained from the Shareholder Services
Department.
Market Price
- ---------------------------------------------------
Dividend
Year Qtr. High Low Close Declared
- ---------------------------------------------------
1997 4th 41 5/8 33 3/16 41 1/16 .29
3rd 35 1/2 30 15/16 34 1/2 .275
2nd 34 3/8 29 3/4 33 7/16 .275
1st 36 3/4 30 5/8 32 1/2 .275
1996 4th 32 3/4 27 1/2 31 3/8 .275
3rd 30 7/8 26 5/8 27 7/8 .26
2nd 33 1/8 29 1/4 30 3/4 .26
1st 35 5/8 28 1/4 30 7/8 .26
- ---------------------------------------------------
The common stock is listed and traded on the New York
and Pacific Stock exchanges. The above table reflects
the range of high, low and closing prices as reported
by Dow Jones & Company, Inc.
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BYLAWS OF
ALLTEL CORPORATION
(amended and restated as of January 29, 1998)
ARTICLE I
NAME
The name of the Corporation is ALLTEL Corporation.
ARTICLE II
STOCKHOLDERS' MEETING
Meetings of the stockholders may be held either within or without the
state of Delaware at such place and at such time as is stated in the call or
notice. The Board of Directors may adopt by resolution such rules and
regulations for the conduct of a meeting of stockholders as it shall deem
appropriate. Except to the extent inconsistent with any such rules and
regulations as adopted by the Board of Directors, the chairman of any meeting
of stockholders shall have the right and authority to prescribe such rules,
regulations and procedures as, in the judgment of such chairman, are
appropriate for the proper conduct of the meeting. Such rules, regulations or
procedures, whether adopted by the Board of Directors or prescribed by the
chairman of the meeting, may include, without limitation, the following (a)
the establishment of an agenda or order of business for the meeting; (b) rules
and procedures for maintaining order at the meeting and the safety of those
present; (c) limitations on attendance at or participation in the meeting to
stockholders of record of the Corporation, their duly authorized and
constituted proxies or such other persons as the chairman of the meeting shall
determine; (d) restrictions on the entry to the meeting after the time fixed
for the beginning of the meeting; and (e) limitations on the time allotted to
questions or comments by participants. Unless otherwise determined by the
Board of Directors or the chairman of the meeting, meetings of stockholders
shall not be required to be held in accordance with the rules of parliamentary
procedure.
ARTICLE III
The annual meeting of the stockholders of the Corporation shall be
held in each year on such day and at such time and place as is stated in the
notice of the meeting, for the election of Directors, the consideration of
reports, and the transaction of such other business as may be brought before
the meeting.
Nominations of persons for election to the Board of Directors and the
proposal of business to be considered by the stockholders may be made at an
annual meeting of stockholders (a) in accordance with the Corporation's notice
of annual meeting; (b) by or at the direction of the Board of Directors; or
(c) by any stockholder of the corporation who was a stockholder of record at
the time of giving of the notice by the stockholder provided for in this
Article III, who is entitled to vote at the meeting and who has complied with
the notice procedures set forth in this Article III. For nominations or other
business to be properly brought before a meeting by a stockholder in
accordance with the immediately preceding sentence, the stockholder must have
given timely notice thereof in writing to the Secretary of the Corporation.
To be timely, a stockholder's notice must be delivered to the Secretary at the
principal executive offices of the Corporation not fewer than ninety days nor
more than one hundred twenty days prior to the one year anniversary of the
annual meeting in the immediately preceding year. The stockholder's notice
shall set forth (a) as to each person the stockholder proposes to nominate for
election or reelection as a director, all information relating to that person
required to be disclosed in solicitations of proxies for election of
directors, or is otherwise required, in each case in accordance with
Regulation 14A under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), or any successor rule or regulation; (b) as to any other
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business that the stockholder proposes to bring before the meeting, a
description of the business desired to be brought before the meeting, the
reasons for bringing that business before the meeting and any material
interest in such business of such stockholder and the beneficial owner, if
any, on whose behalf the proposal is made; and (c) as to the stockholder
giving the notice and the beneficial owner, if any, on whose behalf the
nomination or proposal is made (i) the name and address of such stockholder,
as they appear on the Corporation's books, and of such beneficial owner and
(ii) the class and number of shares of the Corporation owned beneficially and
of record by such stockholder and such beneficial owner.
Only such persons who are nominated in accordance with the procedures
set forth in this Article III shall be eligible to serve as directors, and
only such business shall be conducted at an annual meeting of stockholders as
shall have been brought before the meeting in accordance with the procedures
set forth in this Article III. The Chairman of the meeting shall have the
power and duty to determine whether a nomination or any business proposed to
be brought before the meeting was made in accordance with the procedures set
forth in this Article III and, if any proposed nomination or business is not
in compliance with this Article III, to declare that such proposed business or
nomination shall be disregarded. The foregoing provisions of this Article III
shall not excuse a stockholder from complying with any applicable requirements
of the Exchange Act and the rules and regulations thereunder, nor shall they
affect any rights of a stockholder to request inclusion of proposals in the
Corporation's proxy statement in accordance with Rule 14a-8 under the Exchange
Act or any successor rule or regulation.
ARTICLE IV
Special meetings of the stockholders of the Corporation shall be held
whenever called by the Chairman, the President or the Secretary, by the
Directors acting at a meeting or a majority of the Directors acting without a
meeting. Only such matters as are stated in the notice of a special meeting
given in accordance with Article V may be brought before the meeting.
ARTICLE V
NOTICE OF STOCKHOLDERS' MEETINGS AND RECORD DATE
Written notice stating the time, place and purpose or purposes of any
meeting of the stockholders shall be given not less than ten nor more than
sixty days before the date of the meeting, either personally or by mail, by or
at the direction of the Chairman, the President or the Secretary to each
stockholder of record entitled to notice of and to vote at such meeting. Upon
written request delivered in person or by registered mail to the President or
the Secretary by any person or persons entitled to call a meeting of the
stockholders such officer shall give notice of a meeting of the stockholders
to be held not less than ten nor more than sixty days after receipt of such
request, and, if such notice is not given within fifteen days after delivery
or mailing of such request, then the person or persons calling the meeting may
fix the time of the meeting and give or cause to be given notice thereof as
herein provided. If mailed, notice shall be addressed to the stockholder at
his address as it appears on the records of the Corporation, with postage
thereon prepaid.
Notice of an adjournment of a stockholders' meeting need not be given
if the time and place to which it is adjourned are fixed and announced at such
meeting. If the adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
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In fixing a record date to be used in determining stockholders entitled
to notice of and to vote at any meeting of stockholders, the date to be
selected shall be not less than ten nor more than sixty days prior to such
meeting.
ARTICLE VI
WAIVER OF NOTICE
Notice of the time, place and purposes of any meeting of stockholders
or Directors, whether required by the laws of the State of Delaware, the
Certificate of Incorporation or these Bylaws, may be waived in writing by any
stockholder entitled to notice or by any Director, as the case may be, filed
with or entered upon the records of the meeting either before or after the
holding thereof. The attendance of any stockholder or any Director at any
meeting shall constitute a waiver of notice of the meeting, unless the
stockholder or Director attends the meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened.
ARTICLE VII
QUORUM AT STOCKHOLDERS' MEETINGS
A majority of the stock at the time outstanding and entitled to vote
is necessary to constitute a quorum for a meeting of stockholders, but no
action required by law, the Certificate of Incorporation or these Bylaws to be
authorized or taken by the holders of a designated proportion of the stock of
any particular class or of each class may be authorized or taken by a lesser
proportion. When a quorum is present at any meeting, a majority in interest of
the stock entitled to vote that is represented at such meeting shall decide
any question brought before such meeting, unless the question is one upon
which, by express provision of law, the Certificate of Incorporation or these
Bylaws, a larger or different vote is required, in which case such express
provision shall govern and control the decision of such question.
ARTICLE VIII
PROXY AND VOTING
Stockholders of record entitled to vote may vote at any meeting
either in person or by proxy in writing, which shall be filed with the
Secretary of the meeting before being voted. Such proxies shall entitle the
holders thereof to vote at any adjournment of such meeting, but if such proxy
shall be limited by its terms to a single meeting, it shall not be valid after
the final adjournment thereof. Stockholders entitled to vote may also be
represented by a general power of attorney produced at any meeting until it is
revoked. No proxy or power of attorney shall be valid after three years from
its date unless the writing specifies the date on which it is to expire or the
length of time it is to continue in force.
At any meeting of stockholders, each stockholder shall, except as
otherwise provided by law or the Certificate of Incorporation, be entitled to
one vote, either in person or by proxy, for each share of stock of the
Corporation entitled to vote that is registered in his name on the books of
the Corporation (a) on the date fixed by the Board of Directors as the record
date for the determination of stockholders entitled to vote at such meeting,
notwithstanding the prior or subsequent sale or other disposal of such stock
or transfer of the stock on the books of the Corporation after the date so
fixed, or (b) if no such record date has been fixed, then as of the day next
preceding the date on which notice is given or, if notice is waived, as of the
day next preceding the date of the meeting.
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Anything in these Bylaws to the contrary notwithstanding, whenever the
holders of the No Par Cumulative Preferred Stock of the Corporation become
entitled to elect Directors pursuant to the provisions of the Certificate of
Incorporation, the Board of Directors shall be elected and shall hold office,
and the vacancies among the Directors shall be filled, in accordance with the
applicable provisions of the Certificate of Incorporation.
ARTICLE IX
ACTION OF STOCKHOLDERS WITHOUT A MEETING
Any action that may be taken at a meeting of the stockholders may be
taken without a meeting, without prior notice and without a vote, but only if
a consent or consents in writing, setting forth the action so taken, is signed
by all of the stockholders entitled to vote on the action and is delivered to
the Corporation at its principal place of business or to the officer of the
Corporation having custody of the book in which proceedings of the meetings of
stockholders are recorded.
ARTICLE X
BOARD OF DIRECTORS
No person shall be elected a Director of the Corporation in or after
the calendar year in which he attains the age of 70, nor, effective from and
after January 1, 1994, shall a Director of the Corporation be qualified or
entitled to serve as a Director of the Corporation beyond the annual meeting
of stockholders next following his attainment of the age of 70. At the annual
meeting of stockholders, the Directors to be elected shall be chosen by
ballot. The Board of Directors shall be divided into three classes. The number
of Directors in each class may be fixed or changed (A) by the stockholders, at
any meeting of stockholders called to elect Directors at which a quorum is
present, by the vote of the holders of a majority of the stock represented at
the meeting and entitled to vote on the proposal, or (B) by the Directors at
any meeting of the Board of Directors by the vote of a majority of the
Directors then in office. No class of Directors shall consist of less than
three Directors. Unless and until otherwise so fixed or changed, each class
shall consist of five Directors. A separate election shall be held with
respect to each class of Directors at any meeting of stockholders at which a
member or members of more than one class of Directors is being elected. At
each annual meeting of stockholders, Directors shall be elected to the class
whose terms shall expire in that year and shall hold office for a term of
three years and until their respective successors are elected. Any Director's
office that is created by an increase in the number of Directors of any class
pursuant to action taken by the Directors may be filled for the remainder of
the term of such class by the vote of a majority of Directors then in office.
In case of any increase in the number of Directors of any class, any additional
Directors elected to such class shall hold office for a term which shall
coincide with the full term or the remainder of the term, as the case may be,
of such class. No reduction in the number of Directors shall, of itself,
shorten the term or result in the removal of any incumbent Director.
At a meeting of stockholders at which Directors are to be elected,
only persons nominated as candidates shall be eligible for election as
Directors. Directors need not be either residents of the State of Delaware or
stockholders of the Corporation.
ARTICLE XI
POWERS OF DIRECTORS
The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors, except as may be otherwise
provided by law or the Certificate of Incorporation.
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ARTICLE XII
COMPENSATION OF DIRECTORS AND OTHERS
Directors who are not salaried officers of the Corporation or of a
subsidiary corporation shall be entitled to receive such compensation as the
Board of Directors shall determine and shall be entitled to receive fees for
attendance at any meetings of the Board of Directors in such amounts as may be
fixed by resolution of the Board of Directors from time to time, together with
reimbursement of expenses incurred in connection with attendance at each such
meeting. Nothing herein contained shall be construed to preclude any Director
from serving the Corporation in any other capacity and receiving compensation
therefor.
ARTICLE XIII
EXECUTIVE AND OTHER COMMITTEES
The Board of Directors may designate by resolution, passed by a
majority of the whole Board, three or more of its number to constitute an
Executive Committee or any other committee, to serve at the pleasure of the
Board of Directors. The Executive Committee, when the Board of Directors is
not in session, shall have and may exercise, to the extent permitted by law,
any or all of the powers of the Board of Directors in the management of the
business and affairs of the Corporation, other than that of filling vacancies
among the Directors or in any committee of the Directors, and shall be subject
at all times to the control and direction of the Board of Directors. The
Executive Committee may make rules for the notice, holding and conduct of its
meetings and the keeping of the records thereof. Committees other than the
Executive Committee shall, to the extent permitted by law, have such powers as
conferred upon them by resolution of the Board of Directors.
Unless otherwise ordered by the Board of Directors, any committee may
act by a majority of its members at a meeting or by a writing or writings
signed by all its members, and shall report its actions to the Board of
Directors at the next meeting of the Board of Directors subsequent to such
actions. An act or authorization of an act by any committee within the
authority delegated to it shall be as effective for all purposes as the act or
authorization of the Directors.
ARTICLE XIV
DIRECTORS' MEETINGS
Regular meetings of the Board of Directors shall be held at such
places within or without the State of Delaware and at such times as the Board
by resolution may determine from time to time, and, if so determined, no
notice thereof need be given. Special meetings of the Board of Directors may
be called by the Chairman, the President or two or more Directors and shall be
held at any time or place, either within or without the State of Delaware, as
is stated in the notice of the meeting given to each Director by the Secretary
or the officer or Directors calling the meeting, or at any time or place
without formal notice if the Directors not present waive notice thereof as
provided in Article VI hereof. Notice of special meetings shall be given by
mail, telecopy, telephone, telegraph, cablegram, or personal delivery to each
Director at his residence or business address at least two days before the
meeting.
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ARTICLE XV
QUORUM AT DIRECTORS' MEETINGS
One half of the total number of members of the Board of Directors as
constituted from time to time shall constitute a quorum for the transaction of
business, but a lesser number may adjourn any meeting from time to time, and
the meeting may be held as adjourned if notice of such adjournment is given to
the Directors not present. When a quorum is present at any meeting, a majority
of the members present thereat shall decide any question brought before such
meeting, except as otherwise provided by law, by the Certificate of
Incorporation or by these Bylaws.
ARTICLE XVI
ACTION OF DIRECTORS WITHOUT A MEETING
Any action which may be authorized or taken at a meeting of the Board
of Directors may be authorized or taken without a meeting if all of the
Directors consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the Board.
ARTICLE XVII
OFFICERS
The officers of the Corporation shall be a Chairman, a President, a
Secretary and a Treasurer. The officers shall be elected by the Board of
Directors at the first meeting of the Board after the annual meeting of the
stockholders and shall hold office until their successors are elected and
shall qualify, except as provided in Article XIX hereof. The Board of
Directors, in its discretion, may appoint one or more Vice Presidents, one or
more Assistant Treasurers and one or more Assistant Secretaries and such other
officers or agents as may be deemed necessary. The officers or agents of the
Corporation shall have such duties and authority as generally pertain to their
respective offices and such as may be prescribed by the Board of Directors.
ARTICLE XVIII
ELIGIBILITY OF OFFICERS
The Chairman and the President may, but need not, be stockholders and
shall be Directors of the Corporation. The Secretary, the Treasurer and such
other officers as may be elected or appointed may, but need not, be
stockholders or Directors of the Corporation. Any person may hold more than
one office if the duties thereof can be consistently performed by the same
person, except that no officer shall execute, acknowledge or verify any
instrument in more than one capacity if such instrument is required by the
laws of Delaware or by these Bylaws to be executed, acknowledged or verified
by any two or more officers. The Directors may, by resolution, require any or
all of the officers to give a bond to the Corporation with good and sufficient
surety conditioned upon the faithful performance of their respective duties.
ARTICLE XIX
RESIGNATIONS AND REMOVALS
Any Director, officer or agent of the Corporation may resign at any
time by giving written notice to the Board of Directors or the Chairman, the
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President or the Secretary, and any member of any committee may resign by
giving written notice either as aforesaid or to the committee of which he is a
member or to the Chairman thereof. Any such resignation shall take effect at
the time specified in the notice or, if the time is not specified, upon
receipt thereof, and, unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective.
The Board of Directors, by vote of not less than a majority of the
entire Board, may remove from office any officer, agent or member of any
committee elected or appointed by it. Any Director may be removed from office
in the manner provided by law.
ARTICLE XX
VACANCIES
If the office of any Director, officer or agent becomes vacant by
reason of death, resignation, removal, disqualification or otherwise, the
Directors may, as to officers or agents, elect a successor or successors who
shall hold office for the unexpired term and, as to vacancies on the Board of
Directors, the remaining Director or Directors, though less than a quorum,
may, by a vote of a majority of their number, fill any vacancy in the Board
for the unexpired term.
ARTICLE XXI
CERTIFICATES FOR SHARES OF STOCK
Each stockholder shall be entitled to a certificate or certificates
signed by such officers of the Corporation as are required by law, which shall
certify the number and class of paid up shares of stock held by him in the
Corporation. The signatures of any such officers upon such certificate may be
facsimile, engraved, stamped or printed. Such certificate shall be in such
form, consistent with the Certificate of Incorporation and Delaware law, as
may be prescribed by the Board of Directors, duly numbered and sealed with the
corporate seal of the Corporation or a facsimile thereof. The Board of
Directors may by resolution or resolutions provide that some or all of any or
all classes or series of stock shall be uncertificated shares. The Board of
Directors may appoint one or more Transfer Agents or Registrars for its stock
of any class or classes and may require stock certificates to be countersigned
or registered by one or more of them.
ARTICLE XXII
TRANSFER OF STOCK
Stock represented by a certificate shall be transferable on the books
of the Corporation by delivery of the certificate accompanied either by an
assignment in writing on the back of the certificate or by a written power of
attorney to sell, assign and transfer the same on the books of the Corporation,
signed by the person appearing by the certificate to be the owner of the stock
represented thereby, provided, however, that the Board of Directors or the
Transfer Agent of the Corporation may require such identification as to the
person making such assignment or endorsement and the signature appearing
thereon, and such other instruments, not inconsistent with the provisions of
Delaware law existing at the time of transfer, as they may deem desirable, and
shall be transferable on the books of the Corporation upon surrender thereof so
assigned or endorsed. The person registered on the books of the Corporation as
the owner of any stock shall conclusively be deemed to have capacity to
exercise all rights of ownership and shall be exclusively entitled as the
owner of such stock to receive dividends and to vote as such owner in respect
thereof, and the Corporation shall not be affected or bound by any notice,
actual or constructive, to the contrary other than the delivery to the
Corporation or any duly appointed Transfer Agent of the Corporation of a
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certified copy of an order, judgment or decree of a court of competent
jurisdiction within or without the State of Delaware. It shall be the duty of
every stockholder to notify the Corporation of his Post Office address.
ARTICLE XXIII
LOSS OF STOCK CERTIFICATES
No stock certificate shall be issued in place of any certificate
alleged to have been lost, stolen or destroyed except upon the production of
such evidences of the loss, theft or destruction and upon indemnification of
the Corporation and its transfer agents to such extent and in such manner as
the Board of Directors may from time to time prescribe or require.
ARTICLE XXIV
SEAL
The seal of the Corporation shall consist of a flat-faced, circular
die with the name of the Corporation and such other words as may be approved
by the Board of Directors cut or engraved thereon, but failure to affix such
seal shall not affect the validity of any instrument duly executed on behalf of
the Corporation by its authorized officers.
ARTICLE XXV
BOOKS AND RECORDS
Unless otherwise expressly required by the laws of Delaware, the
books and records of the Corporation may be kept outside of the State of
Delaware at such places as may be designated from time to time by the Board of
Directors.
ARTICLE XXVI
AMENDMENTS
These Bylaws may be amended or repealed, and new Bylaws may be made,
by the Board of Directors or by the affirmative vote of the holders of stock
entitling them to exercise a majority of the voting power on such proposal at
any meeting of the stockholders.
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AMENDMENT NO. 1
TO
ALLTEL CORPORATION
EXECUTIVE DEFERRED COMPENSATION PLAN
This Amendment No. 1 to ALLTEL Corporation Executive Deferred Compensation
Plan, (the Plan ), is effective as of January 29, 1998.
1. Article V is amended by adding at the end thereof a new section
to provide as follows:
8. Payment of Certain Accounts. Notwithstanding any Prior Plan
Provisions or any other provision herein to the contrary (including
the immediately preceding Section 7), in accordance with such
procedures as the CEO or his designate shall in his sole discretion
establish or approve, a person identified in Schedule 1 to the Plan
(a "Schedule 1 Participant") shall be paid by the Company the
"Payment Amount" set forth with respect to the Schedule 1 Participant
on Schedule 1 (less applicable withholding) on or about
February 28, 1998 in lieu of all other amounts that would otherwise
be paid in accordance with the Plan to the Schedule 1 Participant
after December 31, 1997 attributable to deferral elections of the
Schedule 1 Participant made prior to January 1, 1998, subject,
however, to the consent of the Schedule 1 Participant.
2. Schedule 1 in the form immediately following these resolutions is
added to the Plan following Exhibit C.
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AMENDMENT NO. 1
TO
ALLTEL CORPORATION
PERFORMANCE INCENTIVE COMPENSATION PLAN
(As Amended and Restated as of January 1, 1993)
This Amendment No. 1 to ALLTEL Corporation Performance Incentive
Compensation Plan, as amended and restated as of January 1, 1993 (the Plan ),
is effective as of January 29, 1998.
Article VII of the Plan, titled DEFERRAL OF AWARDS, is hereby amended to
provide as follows:
Notwithstanding the foregoing, no deferrals of Awards for any Plan
Year beginning on or after January 1, 1998 shall occur hereunder;
payment of those Awards may, however, be deferred under any other
plan or arrangement of the Company according to the terms and
conditions and to the extent (if any) provided thereunder.
Article III of the Plan, titled ADMINISTRATION, is hereby amended to
provide as follows:
"On or about March 1 of each year, the Company shall prepare and
deliver to each Participant who has deferred all or a portion of an
Award in accordance with Section VII a statement regarding the
deferred amount of the Award."
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AMENDMENT NO. 2
TO
ALLTEL CORPORATION
LONG-TERM INCENTIVE COMPENSATION PLAN
(As Amended and Restated as of January 1, 1993)
This Amendment No. 2 to ALLTEL Corporation Long-Term Performance
Incentive Compensation Plan, as amended and restated as of January 1, 1993
(the Plan ), is effective as of January 29, 1998.
Article XII of the Plan, titled DEFERRAL OF AWARDS, is hereby amended
to provide as follows:
Notwithstanding the foregoing, no deferrals of Awards for any
Performance Measurement Period ending after December 31, 1997 shall
occur hereunder; payment of those Awards may, however, be deferred
under any other plan or arrangement of the Company according to the
terms and conditions and to the extent (if any) provided thereunder.
Article III of the plan, titled ADMINISTRATION, is hereby amended to
provide as follows:
"On or about March 1 of each year, the Company shall prepare and
deliver to each Participant who has deferred all or a portion of an
Award in accordance with Section VII a statement regarding the
deferred amount of the Award."
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AMENDMENT NO. 10
TO
ALLTEL CORPORATION PENSION PLAN
(January 1, 1994 Restatement)
WHEREAS, ALLTEL Corporation (the "Company") maintains the ALLTEL
Corporation Pension Plan, as amended and restated effective January 1, 1994,
and subsequently further amended, (the "Plan"); and
WHEREAS, the Company desires further to amend the Plan;
NOW, THEREFORE, the Company hereby amends the Plan in the respects
hereinafter set forth.
1. Effective as of January 31, 1997, Section 13 of the Plan is
amended by adding the following Section 13.26 thereto:
13.26 Employees of Frontier Cellular of Alabama, Inc.
(a) Effective Date - January 31, 1997.
(b) Account - None.
(c) Minimum Normal Retirement Pension - None.
(d) Minimum Early Retirement Pension - None.
(e) Minimum Disability Retirement Pension - None.
(f) Minimum Deferred Vested Pension - None.
(g) Minimum Death Benefit - None.
(h) Prior Plan Offset - Not Applicable.
(i) Provision Relative to Section 401(a)(12) of the Code - Not
Applicable.
(j) Miscellaneous - See APPENDIX AA - SPECIAL PROVISIONS APPLICABLE TO
CERTAIN EMPLOYEES OF FRONTIER CELLULAR OF ALABAMA, INC. which
follows immediately hereafter.
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APPENDIX AA
SPECIAL PROVISIONS APPLICABLE TO CERTAIN EMPLOYEES
OF
FRONTIER CELLULAR OF ALABAMA, INC.
Effective as of January 31, 1997, certain employees of Frontier Cellular of
Alabama, Inc. ("Frontier Cellular") became employees of the Controlled Group.
Notwithstanding any other provision of the Plan, the Plan is modified as set
forth below with respect to active employees of Frontier Cellular who became
employees of the Controlled Group on January 31, 1997.
A. Section 1.07 is modified by adding to the definition thereof the following:
1.07AA "Basic Compensation" shall include only amounts earned after
January 30, 1997.
B. Section 1.14 is modified by adding to the definition thereof the following:
1.14AA "Compensation" shall include only amounts earned after
January 30, 1997.
C. Section 1.37(g) is modified as follows:
1.37(g)AA Vesting Service
(a) A Participant's eligibility for benefits under the Plan
shall be determined by his period of Vesting Service, in
accordance with the following:
(i) Service Prior to January 31, 1997: An Employee's
period(s) of employment with Frontier Cellular prior
to January 31, 1997, shall be counted as Vesting
Service to the extent that such periods would have
counted under the Plan if such employment had been
with the Company.
(ii) Service From and After January 31, 1997: In
accordance with the provisions of Section 1.37(g).
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D. Section 1.37(d) is modified as follows:
1.37(d)AA Benefit Service
(a) The amount of the benefit payable to or on behalf of a
Participant shall be determined on the basis of his
Benefit Service, in accordance with the following:
(i) Benefit Service Prior to January 31, 1997: None.
(ii) Benefit Service From and After January 31, 1997: In
accordance with the provisions of Section 1.37(d).
E. Section 1.37(f) is modified as follows:
1.37(f)AA Eligibility Year of Service
(a) A Participant's Eligibility Years of Service under the
Plan shall be determined in accordance with the following:
(i) Service Prior to January 31, 1997: An Employee's
period(s) of employment with Frontier Cellular prior
to January 31, 1997, shall be counted as Eligibility
Years of Service to the extent that such periods
would have counted under the Plan if such employment
had been with the Company.
(ii) Service From and After January 31, 1997: In
accordance with the provisions of Section 1.37(f).
2. Effective as of September 30, 1997, Section 13 of the Plan
is amended by adding the following Section 13.27 thereto:
13.27 Employees of Georgia Telephone Corporation
(a) Effective Date - September 30, 1997.
(b) Account - None.
(c) Minimum Normal Retirement Pension - None.
(d) Minimum Early Retirement Pension - None.
(e) Minimum Disability Retirement Pension - None.
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(f) Minimum Deferred Vested Pension - None.
(g) Minimum Death Benefit - None.
(h) Prior Plan Offset - Not Applicable.
(i) Provision Relative to Section 401(a)(12) of the Code - Not
Applicable.
(j) Miscellaneous - See APPENDIX BB - SPECIAL PROVISIONS APPLICABLE TO
CERTAIN EMPLOYEES OF GEORGIA TELEPHONE CORPORATION which follows
immediately hereafter.
4
81
<PAGE>
APPENDIX BB
SPECIAL PROVISIONS APPLICABLE TO CERTAIN EMPLOYEES
OF
GEORGIA TELEPHONE CORPORATION
Effective as of September 30, 1997, certain employees of Georgia Telephone
Corporation ("Georgia Telephone") became employees of the Controlled Group.
Notwithstanding any other provision of the Plan, the Plan is modified as set
forth below with respect to active employees of Georgia Telephone who became
employees of the Controlled Group on September 30, 1997.
A. Section 1.07 is modified by adding to the definition thereof the following:
1.07BB "Basic Compensation" shall include only amounts earned (as an
Employee of an Employer) after September 29, 1997.
B. Section 1.14 is modified by adding to the definition thereof the following:
1.14BB "Compensation" shall include only amounts earned (as an
Employee of an Employer) after September 29, 1997.
C. Section 1.37(g) is modified as follows:
1.37(g)BB Vesting Service
(a) A Participant's eligibility for benefits under the Plan
shall be determined by his period of Vesting Service, in
accordance with the following:
(i) Service Prior to September 30, 1997: An Employee's
period(s) of employment with Georgia Telephone prior
to September 30, 1997, shall be counted as Vesting
Service to the extent that such periods would have
counted under the Plan if such employment had been
with the Company.
(ii) Service From and After September 30, 1997: In
accordance with the provisions of Section 1.37(g).
5
82
<PAGE>
D. Section 1.37(d) is modified as follows:
1.37(d)BB Benefit Service
(a) The amount of the benefit payable to or on behalf of a
Participant shall be determined on the basis of his
Benefit Service, in accordance with the following:
(i) Benefit Service Prior to September 30, 1997: None.
(ii) Benefit Service From and After September 30, 1997:
In accordance with the provisions of Section
1.37(d).
E. Section 1.37(f) is modified as follows:
1.37(f)BB Eligibility Year of Service
(a) A Participant's Eligibility Years of Service under the
Plan shall be determined in accordance with the following:
(i) Service Prior to September 30, 1997: An Employee's
period(s) of employment with Georgia Telephone prior
to September 30, 1997, shall be counted as
Eligibility Years of Service to the extent that such
periods would have counted under the Plan if such
employment had been with the Company.
(ii) Service From and After September 30, 1997: In
accordance with the provisions of Section 1.37(f).
IN WITNESS WHEREOF, the Company, by its duly authorized officer, has
caused this Amendment to be executed on this 24th day of October, 1997.
ALLTEL CORPORATION
By: /s/John L. Comparin
Title: V.P. Human Resources and Administration
6
83
AMENDMENT NO. 7
TO
ALLTEL CORPORATION PROFIT-SHARING PLAN
(January 1, 1994 Restatement)
WHEREAS, ALLTEL Corporation (the "Company") maintains the ALLTEL
Corporation Profit-Sharing Plan, as amended and restated effective
January 1, 1994, and subsequently further amended, (the "Plan"); and
WHEREAS, the Company desires further to amend the Plan;
NOW, THEREFORE, the Company hereby amends the Plan in the respects
hereinafter set forth.
1. Effective as of January 19, 1997, Section 9.04 of the Plan is
amended by adding a new subsection (i) at the end thereof to provide as
follows:
(i) In determining Years of Eligibility Service for an Employee who was
an employee of OnBank & Trust Company ("OnBank") immediately prior
to January 19, 1997, and became an Employee on January 19, 1997, the
Employee's period or periods of employment with OnBank prior to
January 19, 1997 that would have been taken into account under the
Plan if such period or periods of employment were service with a
member of the Controlled Group, shall be counted as Years of
Eligibility Service. Notwithstanding any other provision of the
Plan, there shall be no duplication of Years of Eligibility Service
under the Plan by reason of service (or hours of service) in respect
of any single period or otherwise.
2. Effective as of April 1, 1997, Section 9.04 of the Plan is
amended by adding a new subsection (j) at the end thereof to provide as
follows:
(j) In determining Years of Eligibility Service for an Employee who was
an employee of City National Bank ("City National") immediately
prior to April 1, 1997, and became an Employee on April 1, 1997, the
Employee's period or periods of employment with City National prior
to April 1, 1997 that would have been taken into account under the
Plan if such period or periods of employment were service with a
member of the Controlled Group, shall be counted as Years of
Eligibility Service. Notwithstanding any other provision of the
Plan, there shall be no duplication of Years of Eligibility Service
under the Plan by reason of service (or hours of service) in respect
of any single period or otherwise.
3. Effective as of September 16, 1997, Section 9.04 of the Plan is
amended by adding a new subsection (k) at the end thereof to provide as
follows:
84
<PAGE>
(k) In determining Years of Eligibility Service for an Employee who was
an employee of City National Bank ("City National") immediately
prior to September 16, 1997, and became an Employee on
September 16, 1997, the Employee's period or periods of employment
with City National prior to September 16, 1997 that would have been
taken into account under the Plan if such period or periods of
employment were service with a member of the Controlled Group, shall
be counted as Years of Eligibility Service. Notwithstanding any
other provision of the Plan, there shall be no duplication of Years
of Eligibility Service under the Plan by reason of service (or hours
of service) in respect of any single period or otherwise.
4. Effective as of October 1, 1997, Section 9.04 of the Plan is
amended by adding a new subsection (l) at the end thereof to provide as
follows:
(l) In determining Years of Eligibility Service for an Employee who was
an employee of Eclipsys Corporation or Eclipsys Solutions
Corporation (collectively, "Eclipsys") immediately prior to
October 1, 1997, and became an Employee on October 1, 1997, pursuant
to the assignment entered into by and between Eclipsys Solutions
Corporation, Eclipsys Corporation, and ALLTEL Information Services,
Inc. on September 18, 1997, the Employee's period or periods of
employment with Eclipsys prior to October 1, 1997 that would have
been taken into account under the Plan if such period or periods of
employment were service with a member of the Controlled Group, shall
be counted as Years of Eligibility Service. Notwithstanding any
other provision of the Plan, there shall be no duplication of Years
of Eligibility Service under the Plan by reason of service (or hours
of service) in respect of any single period or otherwise.
5. Effective as of January 19, 1997, Section 9.05 of the Plan is
amended by adding a new subsection (j) at the end thereof to provide as
follows:
(j) In determining Years of Vesting Service for an Employee who was an
employee of OnBank & Trust Company ("OnBank") immediately prior to
January 19, 1997, and became an Employee on January 19, 1997, the
Employee's period or periods of employment with OnBank prior to
January 19, 1997, that would have been taken into account under the
Plan if such period or periods of employment were service with a
member of the Controlled Group, shall be counted as Years of Vesting
Service. Notwithstanding any other provision of the Plan, there
shall be no duplication of Years of Vesting Service under the Plan
by reason of service (or hours of service) in respect of any single
period or otherwise.
2
85
<PAGE>
6. Effective as of April 1, 1997, Section 9.05 of the Plan is
amended by adding a new subsection (k) at the end thereof to provide as
follows:
(k) In determining Years of Vesting Service for an Employee who was an
employee of City National Bank ("City National") immediately prior
to April 1, 1997, and became an Employee on April 1, 1997, the
Employee's period or periods of employment with City National prior
to April 1, 1997, that would have been taken into account under the
Plan if such period or periods of employment were service with a
member of the Controlled Group, shall be counted as Years of Vesting
Service. Notwithstanding any other provision of the Plan, there
shall be no duplication of Years of Vesting Service under the Plan
by reason of service (or hours of service) in respect of any single
period or otherwise.
7. Effective as of September 16, 1997, Section 9.05 of the Plan is
amended by adding a new subsection (l) at the end thereof to provide as
follows:
(l) In determining Years of Vesting Service for an Employee who was an
employee of City National Bank ("City National") immediately prior
to September 16, 1997, and became an Employee on September 16, 1997,
the Employee's period or periods of employment with City National
prior to September 16, 1997, that would have been taken into account
under the Plan if such period or periods of employment were service
with a member of the Controlled Group, shall be counted as Years of
Vesting Service. Notwithstanding any other provision of the Plan,
there shall be no duplication of Years of Vesting Service under the
Plan by reason of service (or hours of service) in respect of any
single period or otherwise.
8. Effective as of October 1, 1997, Section 9.05 of the Plan is
amended by adding a new subsection (m) at the end thereof to provide as
follows:
(m) In determining Years of Vesting Service for an Employee who was an
employee of Eclipsys Corporation or Eclipsys Solutions Corporation
(collectively, "Eclipsys") immediately prior to October 1, 1997, and
became an Employee on October 1, 1997, pursuant to the assignment
entered into by and between Eclipsys Solutions Corporation, Eclipsys
Corporation, and ALLTEL Information Services, Inc. on
September 18, 1997, the Employee's period or periods of employment
with Eclipsys prior to October 1, 1997, that would have been taken
into account under the Plan if such period or periods of employment
were service with a member of the Controlled Group, shall be
counted as Years of Vesting Service. Notwithstanding any other
provision of the Plan, there shall be no duplication of Years of
3
86
<PAGE>
Vesting Service under the Plan by reason of service (or hours of
service) in respect of any single period or otherwise.
IN WITNESS WHEREOF, the Company, by its duly authorized officer, has
caused this Amendment to be executed on this 24th day of October, 1997.
ALLTEL CORPORATION
By: /s/John L. Comparin
Title: V.P. Human Resources and Administration
4
87
AMENDMENT NO. 7
TO
ALLTEL CORPORATION THRIFT PLAN
(January 1, 1994 Restatement)
WHEREAS, ALLTEL Corporation (the "Company") maintains the ALLTEL
Corporation Thrift Plan, as amended and restated effective January 1, 1994, and
subsequently further amended, (the "Plan"); and
WHEREAS, the Company desires further to amend the Plan;
NOW, THEREFORE, the Company hereby amends the Plan in the respects
hereinafter set forth:
1. Effective as of January 19, 1997, Section 9.04 of the Plan is
amended by adding a new subsection (j) at the end thereof to provide as
follows:
(j) In determining Years of Eligibility Service for an Employee who was
an employee of OnBank & Trust Company ("OnBank") immediately prior
to January 19, 1997, and became an Employee on January 19, 1997, the
Employee's period or periods of employment with OnBank prior to
January 19, 1997 that would have been taken into account under the
Plan if such period or periods of employment were service with a
member of the Controlled Group, shall be counted as Years of
Eligibility Service. Notwithstanding any other provision of the
Plan, there shall be no duplication of Years of Eligibility Service
under the Plan by reason of service (or hours of service) in respect
of any single period or otherwise.
2. Effective as of April 1, 1997, Section 9.04 of the Plan is
amended by adding a new subsection (k) at the end thereof to provide as
follows:
(k) In determining Years of Eligibility Service for an Employee who was
an employee of City National Bank ("City National") immediately
prior to April 1, 1997, and became an Employee on April 1, 1997, the
Employee's period or periods of employment with City National prior
to April 1, 1997 that would have been taken into account under the
Plan if such period or periods of employment were service with a
member of the Controlled Group, shall be counted as Years of
Eligibility Service. Notwithstanding any other provision of the
Plan, there shall be no duplication of Years of Eligibility Service
under the Plan by reason of service (or hours of service) in respect
of any single period or otherwise.
3. Effective as of September 16, 1997, Section 9.04 of the Plan is
amended by adding a new subsection (l) at the end thereof to provide as
follows:
88
<PAGE>
(l) In determining Years of Eligibility Service for an Employee who was
an employee of City National Bank ("City National") immediately
prior to September 16, 1997, and became an Employee on September 16,
1997, the Employee's period or periods of employment with City
National prior to September 16, 1997 that would have been taken into
account under the Plan if such period or periods of employment were
service with a member of the Controlled Group, shall be counted as
Years of Eligibility Service. Notwithstanding any other provision
of the Plan, there shall be no duplication of Years of Eligibility
Service under the Plan by reason of service (or hours of service)
in respect of any single period or otherwise.
4. Effective as of October 1, 1997, Section 9.04 of the Plan is
amended by adding a new subsection (m) at the end thereof to provide as
follows:
(m) In determining Years of Eligibility Service for an Employee who was
an employee of Eclipsys Corporation or Eclipsys Solutions
Corporation (collectively, "Eclipsys") immediately prior to
October 1, 1997, and became an Employee on October 1, 1997, pursuant
to the assignment entered into by and between Eclipsys Solutions
Corporation, Eclipsys Corporation and ALLTEL Information Services,
Inc. on September 18, 1997, the Employee's period or periods of
employment with Eclipsys prior to October 1, 1997 that would have
been taken into account under the Plan if such period or periods of
employment were service with a member of the Controlled Group, shall
be counted as Years of Eligibility Service. Notwithstanding any
other provision of the Plan, there shall be no duplication of Years
of Eligibility Service under the Plan by reason of service (or hours
of service) in respect of any single period or otherwise.
5. Effective as of the date of execution hereof, paragraph (1) of
Section 1.11 of the Plan is amended to provide as follows:
(1) an Employee covered by a collective bargaining agreement between an
Employer and a representative of such Employee that does not
specifically provide for coverage under the Plan; provided, however,
that if an Employee ceases to be covered by a collective bargaining
agreement (other than by a transfer of employment) such an Employee
shall not become an Eligible Employee unless coverage under the
Plan is specifically extended to such an Employee by an amendment
to the Plan,
6. Effective from and after the date of execution hereof, Section
1.37 of the Plan is amended to provide as follows:
1.37 Trust Agreement
The agreement between the Company and the Trustee establishing or
maintaining the ALLTEL Corporation Thrift Plan Trust, as amended
2
89
<PAGE>
from time to time.
IN WITNESS WHEREOF, the Company, by its duly authorized officer, has
caused this Amendment to be executed on this 24th day of October, 1997.
ALLTEL CORPORATION
By: /s/John L. Comparin
Title: V.P. Human Resources and Administration
3
90
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
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> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 16,212
<SECURITIES> 0
<RECEIVABLES> 560,928
<ALLOWANCES> 18,562
<INVENTORY> 51,277
<CURRENT-ASSETS> 665,844
<PP&E> 5,530,694
<DEPRECIATION> 2,340,242
<TOTAL-ASSETS> 5,633,445
<CURRENT-LIABILITIES> 637,281
<BONDS> 1,874,172
5,625
9,155
<COMMON> 183,673
<OTHER-SE> 2,015,678
<TOTAL-LIABILITY-AND-EQUITY> 5,633,445
<SALES> 562,656
<TOTAL-REVENUES> 3,263,563
<CGS> 362,164
<TOTAL-COSTS> 2,516,539
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 16,874
<INTEREST-EXPENSE> 130,181
<INCOME-PRETAX> 828,701
<INCOME-TAX> 320,815
<INCOME-CONTINUING> 507,886
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 507,886
<EPS-PRIMARY> 2.72
<EPS-DILUTED> 2.70
</TABLE>
