UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Date of Report (Date of earliest event reported): October 12, 1999
ALLTEL CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 1-4996 34-0868285
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(State or other jurisdiction of (Commission File Number) (I.R.S. Employer
incorporation or organization) Identification No.)
One Allied Drive, Little Rock, Arkansas 72202
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (501) 905-8000
------------------------------
Not Applicable
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(Former Name or Former Address, if Changed Since Last Report)
<PAGE>
Item 5. Other Events
On September 30, 1999, ALLTEL Corporation ("ALLTEL" or the
"Company') completed its merger with Liberty Cellular, Inc.
("Liberty"), a privately held communications company that
offers wireless, paging, long-distance and Internet services
in Kansas. Under terms of the merger agreement, the
outstanding stock of Liberty, which operates under the name
Kansas Cellular and its affiliate KINI L.C., was exchanged for
approximately 7 million shares of ALLTEL's common stock, $1
par value. In connection with this Form 8-K filing, the
Company is refiling its audited consolidated financial
statements for the years ended December 31, 1998, 1997 and
1996 to include supplemental financial information related to
its merger with Liberty (See Note 17 on page 31 of this
filing.)
The audited consolidated financial statements included in this
filing consist of the following:
(a) Report of Independent Public Accountants.
(b) Audited consolidated balance sheets as of
December 31, 1998 and 1997.
(c) Audited consolidated statements of income for the
years ended December 31, 1998, 1997 and 1996.
(d) Audited consolidated statements of cash flows for the
years ended December 31, 1998, 1997 and 1996.
(e) Audited consolidated statements of shareholders'
equity for the years ended December 31, 1998, 1997
and
1996.
(f) Notes to audited consolidated financial statements
for the years ended December 31, 1998, 1997 and
1996.
The supplemental information included in Note 17 represents
the only change to ALLTEL's consolidated financial statements
for the years ended December 31, 1998, 1997 and 1996, that had
been previously filed with the Securities and Exchange
Commission.
Exhibits.
See Exhibit Index.
2
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
ALLTEL CORPORATION
---------------------------------------------
(Registrant)
By: /s/ Jeffery R. Gardner
---------------------------------------------
Jeffery R. Gardner
Senior Vice President - Finance and Treasurer
October 12, 1999
3
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Page
Number Description of Exhibits Number
- ------- ----------------------- ------
23.1 Consent of Arthur Andersen LLP 32
27.1 Financial Data Schedule for the year ended December 31, 1998 33
99.1 Revised audited consolidated financial statements of ALLTEL
Corporation for the years ended December 31, 1998, 1997
and 1996:
(i) Report of Independent Public Accountants 6
(ii) Audited consolidated balance sheets as of December 31,
1998 and 1997 7
(iii) Audited consolidated statements of income for the
years ended December 31, 1998, 1997 and 1996 8
(iv) Audited consolidated statements of cash flows for
the years ended December 31, 1998, 1997 and 1996 9
(v) Audited consolidated statements of shareowners'
equity for the years ended December 1998, 1997
and 1996 10
(vi) Notes to audited consolidated financial statements 11-31
4
Exhibit 99.1
ALLTEL CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 1998, 1997 and 1996
TOGETHER WITH AUDITORS' REPORT
5
<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, 1998
and 1997, and the related consolidated statements of income, shareholders'
equity and cash flows for each of the three years in the period ended
December 31, 1998. 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, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
/s/ARTHUR ANDERSEN LLP
Little Rock, Arkansas,
August 12, 1999
6
<PAGE>
CONSOLIDATED BALANCE SHEETS
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For the years ended December 31,
(Dollars in thousands)
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ASSETS 1998 1997
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CURRENT ASSETS:
Cash and short-term investments $ 55,472 $ 19,683
Accounts receivable (less allowance
for doubtful accounts of $29,121
and $25,164, respectively) 776,720 723,999
Materials and supplies 10,539 14,237
Inventories 88,467 85,631
Prepaid expenses and other 49,633 37,241
---------- ----------
Total current assets 980,831 880,791
- ------------------------------------------------------------------------------
Investments 1,668,171 1,228,712
Goodwill and other intangibles 1,625,617 1,637,393
- ------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT:
Wireline 4,090,791 3,909,756
Wireless 2,658,822 2,303,215
Information services 678,244 608,953
Other 182,066 169,754
Under construction 623,415 398,063
---------- ----------
Total property, plant and equipment 8,233,338 7,389,741
Less accumulated depreciation 3,405,270 2,904,507
---------- ----------
Net property, plant and equipment 4,828,068 4,485,234
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Other assets 271,539 338,275
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TOTAL ASSETS $9,374,226 $8,570,405
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LIABILITIES AND SHAREHOLDERS' EQUITY
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CURRENT LIABILITIES:
Current maturities of long-term debt $ 55,484 $ 48,028
Accounts and notes payable 486,047 497,142
Advance payments and customer deposits 129,092 115,994
Accrued taxes 130,675 92,527
Accrued dividends 84,388 55,012
Other current liabilities 320,822 195,789
---------- ----------
Total current liabilities 1,206,508 1,004,492
- ------------------------------------------------------------------------------
Long-term debt 3,491,755 3,699,519
Deferred income taxes 933,485 710,723
Other liabilities 466,601 432,239
Preferred stock, redeemable 5,005 5,625
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SHAREHOLDERS' EQUITY:
Preferred stock 9,121 9,155
Common stock 275,137 273,411
Additional capital 846,647 801,936
Unrealized holding gain on investments 551,615 300,671
Retained earnings 1,588,352 1,332,634
---------- ----------
Total shareholders' equity 3,270,872 2,717,807
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $9,374,226 $8,570,405
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The accompanying notes are an integral part of these consolidated balance
sheets.
7
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
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For the years ended December 31,
(Dollars in thousands, except per share amounts)
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1998 1997 1996
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Revenues and Sales:
Service revenues $4,632,615 $4,033,811 $3,588,233
Product sales 561,393 511,329 651,234
---------- ---------- ----------
Total revenues and sales 5,194,008 4,545,140 4,239,467
- -------------------------------------------------------------------------------
Costs and Expenses:
Operations 2,740,273 2,377,399 2,150,110
Cost of products sold 550,580 494,537 586,651
Depreciation and amortization 707,129 635,464 570,956
Merger and integration expenses 252,000 - -
Provision to reduce carrying
value of certain assets 55,000 16,874 120,280
--------- ---------- ----------
Total costs and expenses 4,304,982 3,524,274 3,427,997
- -------------------------------------------------------------------------------
Operating Income 889,026 1,020,866 811,470
Equity earnings in unconsolidated
partnerships 114,859 92,087 77,500
Minority interest in consolidated
partnerships (102,177) (87,966) (80,073)
Other income, net 38,150 11,157 9,365
Interest expense (263,669) (261,770) (237,196)
Gain on disposal of assets and other 296,150 209,651 (2,278)
---------- ---------- ----------
Income before income taxes 972,339 984,025 578,788
Income taxes 446,864 394,644 227,532
---------- ---------- ----------
Net income 525,475 589,381 351,256
Preferred dividends 938 1,008 1,071
---------- ---------- ----------
Net income applicable to common shares $ 524,537 $ 588,373 $ 350,185
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Earnings per Share:
Basic $1.91 $2.13 $1.27
Diluted $1.89 $2.11 $1.26
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The accompanying notes are an integral part of these consolidated financial
statements.
8
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
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For the years ended December 31,
(Dollars in thousands) 1998 1997 1996
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<S> <C> <C> <C>
Cash Provided from Operations:
Net income $ 525,475 $ 589,381 $ 351,256
Adjustments to reconcile net income to
net cash provided from operations:
Depreciation and amortization 707,129 635,464 570,956
Merger and integration expenses and
provision to reduce carrying value
of certain assets, gain on disposal
of assets and other 54,830 (109,741) 74,197
Other, net (20,980) 93,887 85,268
Increase in deferred income taxes 72,828 41,523 83,386
Changes in operating assets and liabilities:
Accounts receivable (95,479) (137,077) (76,841)
Inventories and materials and supplies 1,062 6,558 (15,225)
Accounts payable (11,283) 13,297 181,939
Other current liabilities (441) 45,288 (24,765)
Other, net 13,953 2,837 (40,358)
---------- ---------- ----------
Net cash provided from operations 1,247,094 1,181,417 1,189,813
- ----------------------------------------------------------------------------------------
Cash Flows from Investing Activities:
Additions to property, plant and equipment (868,578) (826,886) (763,824)
Additions to capitalized software
development costs (90,136) (74,225) (78,319)
Additions to other intangible assets - (146,526) -
Additions to investments (17,254) (124,295) (44,263)
Purchase of property, net of cash acquired (55,073) (112,852) (352,533)
Proceeds from the sale of investments 308,443 189,759 30,371
Proceeds from the return on investments 58,324 13,878 16,786
Proceeds from the sale of assets - 202,300 38,687
Other, net (54,790) (86,707) (63,044)
---------- ---------- ----------
Net cash used in investing activities (719,064) (965,554) (1,216,139)
- ----------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Dividends on preferred and common stock (240,384) (206,312) (198,095)
Reductions in long-term debt (312,156) (42,647) (1,642,468)
Purchase of common stock - (212,012) (79,126)
Preferred stock redemptions and purchases (545) (873) (704)
Distributions to minority investors (92,788) (45,063) (35,426)
Contributions from minority investors - - 5,636
Long-term debt issued 107,304 282,611 1,948,874
Common stock issued 46,328 11,688 3,619
---------- ---------- ----------
Net cash (used in) provided from
financing activities (492,241) (212,608) 2,310
- ----------------------------------------------------------------------------------------
Increase (decrease) in cash and
short-term investments 35,789 3,255 (24,016)
Cash and Short-term Investments:
Beginning of the year 19,683 16,428 40,444
---------- ---------- ----------
End of the year $ 5,472 $ 19,683 $ 16,428
- ----------------------------------------------------------------------------------------
Supplemental Cash Flow Disclosures:
Interest paid $ 250,079 $ 250,360 $ 202,478
Income taxes paid $ 294,911 $ 270,635 $ 206,282
- ----------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in thousands)
- ----------------------------------------------------------------------------------------------------------------------------------
Unrealized
Preferred Common Additional Holding Gain Retained
Stock Stock Capital on Investments Earnings Total
--------- -------- ---------- -------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $9,241 $275,651 $641,799 $208,681 $ 802,261 $1,937,633
- ----------------------------------------------------------------------------------------------------------------------------------
Net income - - - - 351,256 351,256
Other comprehensive income, net of tax:
Unrealized holding gains on investments
arising during the period (See Note 13) - - - 143,186 - 143,186
------ -------- --------- --------- --------- ----------
Comprehensive income - - - 143,186 351,256 494,442
------ -------- --------- --------- --------- ----------
Acquisition of subsidiaries - 4,810 145,503 - - 150,313
Employee plans, net - 439 3,180 - - 3,619
Conversion of preferred stock and debentures (43) 28 100 - - 85
Repurchase of stock - (2,480) (76,646) - - (79,126)
Capital contributions by Sprint Corporation
in connection with spinoff of a subsidiary - - 253,160 - - 253,160
Other, net - - 867 - - 867
Dividends:
Common - - - - (200,315) (200,315)
Preferred - - - - (1,071) (1,071)
------ -------- --------- --------- --------- ----------
Balance at December 31, 1996 $9,198 $278,448 $967,963 $351,867 $ 952,131 $2,559,607
- ----------------------------------------------------------------------------------------------------------------------------------
Net income - - - - 589,381 589,381
Other comprehensive loss, net of tax:
Unrealized holding gains on investments,
net of reclassification
adjustments (See Note 13) - - - (51,196) - (51,196)
------ -------- --------- --------- --------- ----------
Comprehensive income - - - (51,196) 589,381 538,185
------ -------- --------- --------- --------- ----------
Acquisition of subsidiaries - 872 26,348 - - 27,220
Employee plans, net - 618 11,070 - - 11,688
Conversion of preferred stock and
debentures (43) 67 266 - - 290
Repurchase of stock - (6,594) (205,418) - - (212,012)
Other, net - - 1,707 - - 1,707
Dividends:
Common - - - - (207,870) (207,870)
Preferred - - - - (1,008) (1,008)
------ -------- --------- --------- ---------- ----------
Balance at December 31, 1997 $9,155 $273,411 $801,936 $300,671 $1,332,634 $2,717,807
- ----------------------------------------------------------------------------------------------------------------------------------
Net income - - - - 525,475 525,475
Other comprehensive income, net of tax:
Unrealized holding gains on investments,
net of reclassification
adjustments (See Note 13) - - - 250,944 - 250,944
------ -------- --------- --------- --------- -----------
Comprehensive income - - - 250,944 525,475 776,419
------ -------- --------- --------- --------- -----------
Employee plans, net - 1,703 44,625 - - 46,328
Conversion of preferred stock and debentures (34) 23 86 - - 75
Dividends:
Common - - - - (268,819) (268,819)
Preferred - - - - (938) (938)
------ -------- --------- --------- --------- ----------
Balance at December 31, 1998 $9,121 $275,137 $846,647 $551,615 $1,588,352 $3,270,872
- ----------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies:
Description of Business - 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 and information processing
management services and advanced application software. (See Note 15 for
information regarding ALLTEL's business segments.)
Basis of Presentation - ALLTEL prepares its consolidated financial
statements in accordance with generally accepted accounting principles, which
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.
The consolidated financial statements include the accounts of ALLTEL, its
subsidiary companies and majority-owned partnerships. Investments in 20% to
50% owned entities and all unconsolidated partnerships are accounted for
using the equity method. Investments in less than 20% owned entities and in
which the Company does not exercise significant influence over operating and
financial policies are accounted for under the cost method. All intercompany
transactions, except those with certain affiliates described below, have been
eliminated in the consolidated financial statements. Certain prior-year
amounts have been reclassified to conform with the 1998 financial statement
presentation.
Service revenues consist of local service, network access, long-distance
and miscellaneous wireline operating revenues, wireless access and network
usage revenues, information services' data processing and software
maintenance revenues. Product sales primarily consist of the product
distribution and directory publishing operations and information services'
software licensing revenues and equipment sales.
Transactions with Certain Affiliates - ALLTEL Supply, Inc. sells equipment
and materials to wireline subsidiaries of the Company ($185.7 million in
1998, $115.8 million in 1997 and $109.2 million in 1996) as well as to other
affiliated and non-affiliated communications companies and related industries.
The cost of equipment and materials sold to the wireline 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 ($118.9 million in 1998, $103.9
million in 1997 and $103.2 million in 1996) in addition to other affiliated and
non-affiliated companies. Directory publishing services are provided to the
wireline subsidiaries by ALLTEL Publishing Corporation ("Publishing"). Wireline
revenues and sales include directory royalties received from Publishing ($34.5
million in 1998, $33.5 million in 1997 and $32.2 million in 1996). These
intercompany transactions have not been eliminated because the directory
royalties received from Publishing and the prices charged by the supply and
information services subsidiaries are included in the wireline subsidiaries'
rate base and/or are recovered through the regulatory process.
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.
11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
Cash and Short-term Investments - Cash and short-term investments consist
of highly liquid investments with original maturities of three months or less.
Inventories - Inventories are stated at the lower of cost or market value.
Cost is determined using the first-in, first-out method of valuation.
Investments - Investments in equity securities are recorded at fair value
in accordance with Statement of Financial Accounting Standards No. 115 (See
Note 3.) Investments in unconsolidated partnerships are accounted for using
the equity method (See Note 4.) All other investments are accounted for using
the cost method. Investments were as follows at December 31:
- --------------------------------------------------------------------------------
(Thousands)
-------------------------
1998 1997
- --------------------------------------------------------------------------------
Equity securities $ 965,738 $ 575,501
Investments in unconsolidated partnerships 633,989 580,029
Other cost investments 68,444 73,182
---------- ----------
$1,668,171 $1,228,712
- --------------------------------------------------------------------------------
Investments in unconsolidated partnerships include the excess of the purchase
price over the underlying net book value of wireless partnerships of $299.9
million and $300.7 million as of December 31, 1998 and 1997, respectively.
Amortization expense for the years ended December 31, 1998, 1997 and 1996 was
$7.2 million, $6.5 million and $5.8 million, respectively, and is included in
equity earnings in unconsolidated partnerships in the accompanying consolidated
statements of income.
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. The Company has acquired identifiable
intangible assets through its acquisitions of interests in various wireless
systems and acquisitions of wireline properties. The cost of acquired entities
is allocated to identifiable assets at the date of the acquisition, and the
excess of the total purchase price over the amounts assigned to identifiable
assets is recorded as goodwill. Intangible assets related to the acquisition of
entities in which the Company does not have a controlling interest are included
in investments in unconsolidated partnerships. At December 31, 1998 and 1997,
goodwill, net of amortization, was $1,462.8 million and $1,483.4 million,
respectively. Amortization expense amounted to $44.4 million in 1998,
$44.7 million in 1997 and $39.6 million in 1996.
Other intangibles consist of the cost of Personal Communications Services
("PCS") licenses and capitalized interest. The PCS licenses are amortized
upon commencement of operations on a straight-line basis over 40 years. At
December 31, 1998 and 1997, other intangibles, net of amortization, were
$162.8 million and $153.9 million, respectively. Amortization expense amounted
to $260,000 in 1998. 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. If not fully
recoverable from projected undiscounted cash flows, an impairment loss would be
recognized for the difference between the carrying value of the intangible asset
and its estimated fair value based on discounted net future cash flows.
Property, Plant and Equipment - Property, plant and equipment are stated at
original cost. Depreciation is computed using the straight-line method for
financial reporting purposes. Depreciation expense amounted to $620.1 million
in 1998, $565.7 million in 1997 and $503.3 million in 1996. The composite
depreciation rates by class of property as a percent of average depreciable
plant and equipment were:
- --------------------------------------------------------------------------------
1998 1997 1996
- --------------------------------------------------------------------------------
Wireline 6.4% 6.3% 6.2%
Wireless 10.6% 10.2% 10.1%
Information services 17.4% 17.0% 16.8%
Other 5.5% 6.2% 6.8%
- --------------------------------------------------------------------------------
12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
The Company capitalizes interest during periods of construction. Capitalized
interest during construction amounted to $23.1 million in 1998, $14.0 million
in 1997 and $7.4 million in 1996 and is included in other income, net in the
accompanying consolidated statements of income.
Revenue Recognition - Communications revenues are recognized when billed as
determined by contractual arrangements with customers 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. 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
primarily related to the information services segment totaling $91.6 million
and $185.9 million at December 31, 1998 and 1997, respectively. Included in
these unbilled receivables are amounts totaling $55.0 million and $94.5
million at December 31, 1998 and 1997, 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 plant and other assets in the accompanying
consolidated balance sheets. As of December 31, 1998 and 1997, capitalized
software development costs, net of amortization, were $259.5 million and $206.6
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 $36.5 million in 1998, $25.1 million in 1997 and $28.1
million in 1996.
The carrying value of capitalized software development costs is periodically
evaluated by the Company. If the net realizable value of the capitalized
software development costs is less than its carrying value, an impairment loss
is recognized for the difference. The determination of net realizable value
requires considerable judgment by management with respect to certain external
factors, including, but not limited to, anticipated future revenues generated
by the software, the 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 9.)
Earnings Per Share - 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 stocks and issued and unexercised stock
options. No options were excluded from the computation of diluted earnings per
share at December 31, 1998, while options to purchase approximately 2,447,000
and 1,326,000 shares of common stock at December 31, 1997 and 1996,
respectively, were excluded from the computation of diluted earnings per share
because the effect was anti-dilutive.
13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
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) 1998 1997 1996
- --------------------------------------------------------------------------------
Basic earnings per share:
Net income applicable to common shares $524,537 $588,373 $350,185
Weighted average common shares outstanding
for the year 274,305 276,590 276,637
- --------------------------------------------------------------------------------
Basic earnings per share of common stock $1.91 $2.13 $1.27
- --------------------------------------------------------------------------------
Diluted earnings per share:
Net income applicable to common shares $524,537 $588,373 $350,185
Adjustments for convertible securities:
Preferred stocks 174 206 220
Net income applicable to common shares, -------- -------- --------
assuming conversion of above securities $524,711 $588,579 $350,405
- --------------------------------------------------------------------------------
Weighted average common shares outstanding
for the year 274,305 276,590 276,637
Increase in shares which would result from:
Exercise of stock options 2,503 1,431 1,233
Conversion of convertible preferred stocks 468 523 559
Weighted average common shares, ------- ------- -------
assuming conversion of above securities 277,276 278,544 278,429
- --------------------------------------------------------------------------------
Diluted earnings per share of common stock $1.89 $2.11 $1.26
- --------------------------------------------------------------------------------
2. Merger:
On July 1, 1998, the Company completed its merger with 360 Communications
Company ("360") under a definitive merger agreement entered into on March 16,
1998. Under the terms of the merger agreement, 360 became a wholly-owned
subsidiary of the Company. In connection with the merger, each outstanding
share of 360 common stock was converted into the right to receive .74 shares
of the Company's common stock, 92.1 million common shares in the aggregate.
The merger qualified as a tax-free reorganization and has been accounted for
as a pooling-of-interests. Accordingly, the accompanying consolidated financial
statements have been restated to include the accounts and results of operations
of 360 for all periods presented. The combined results include certain
eliminations and reclassification adjustments to conform the accounting and
financial reporting policies of ALLTEL and 360. Separate and combined results
of operations are as follows:
- --------------------------------------------------------------------------------
(Unaudited)
Six Months For the Years Ended
Ended June 30, December 31,
-------------- ------------------------
(In thousands) 1998 1997 1996
- --------------------------------------------------------------------------------
Revenues and sales:
ALLTEL $1,781,454 $3,263,563 $3,192,418
360 753,448 1,347,172 1,095,872
Eliminations and
reclassifications (46,454) (65,595) (48,823)
---------- ---------- ----------
Combined $2,488,448 $4,545,140 $4,239,467
- --------------------------------------------------------------------------------
Net income:
ALLTEL $ 320,449 $ 507,886 $ 291,737
360 81,239 81,495 59,519
---------- ---------- ----------
Combined $ 401,688 $ 589,381 $ 351,256
- --------------------------------------------------------------------------------
14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
Summarized financial information for 360 was as follows for the years
ended December 31:
- ----------------------------------------------------------------------------
(Thousands)
-----------------------------------------
1998 1997 1996
- ----------------------------------------------------------------------------
Revenues and sales $1,602,095 $1,347,172 $1,095,872
---------- ---------- ----------
Operations 846,929 772,172 624,859
Cost of products sold 104,929 116,456 104,327
Depreciation and amortization 205,284 184,702 146,841
Merger and integration expenses 136,579 - -
---------- ---------- ----------
Total operating expenses 1,293,721 1,073,330 876,027
---------- ---------- ---------
Operating income 308,374 273,842 219,845
Interest expense (132,517 (131,589) (106,364)
Other income, net 41,750 13,071 3,867
---------- ---------- ----------
Income before income taxes 217,607 155,324 117,348
Income taxes 136,870 73,829 57,829
---------- ---------- ----------
Net income $ 80,737 $ 81,495 $ 59,519
- ----------------------------------------------------------------------------
December 31,
------------------------
1998 1997
- ----------------------------------------------------------------------------
Assets:
Current assets $ 248,519 $ 230,167
Non-current assets 2,789,432 2,711,757
---------- ----------
Total assets $3,037,951 $2,941,924
- ----------------------------------------------------------------------------
Liabilities and equity:
Current liabilities $ 868,723 $ 367,211
Long-term liabilities 1,478,277 1,892,164
Minority interests in consolidated partnerships 165,718 173,248
Equity 525,233 509,301
---------- ----------
Total liabilities and equity $3,037,951 $2,941,924
- ----------------------------------------------------------------------------
Prior to March 7, 1996, 360 was a subsidiary of Sprint Corporation ("Sprint").
On March 7, 1996, Sprint effected a tax-free spinoff of 360 to Sprint
shareholders. In conjunction with the spinoff, 360 repaid $1.4 billion of
intercompany debt to Sprint, and Sprint contributed the remaining intercompany
debt, net of receivables from affiliates, to 360 as additional paid-in capital.
In addition, a recapitalization of 360's common stock was effected pursuant to
which 360 split its 10 shares of issued and outstanding common stock into 116.7
million new shares of common stock to allow for the pro rata distribution of
360 stock to Sprint shareholders. This distribution was effected as a tax-free
dividend.
3. 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 was
$1,668.2 million in 1998 and $1,228.7 million in 1997 based on quoted market
prices and the carrying value of investments for which there were no quoted
market prices. The fair value of the Company's long-term debt, after deducting
current maturities, was estimated to be $3,723.8 million in 1998 and $3,804.6
million in 1997 compared to a carrying value of $3,491.8 million in 1998 and
$3,699.5 million in 1997. The fair value estimates were based on the overall
weighted rates and maturities of the Company's long-term debt compared to rates
and terms currently available in the long-term financing markets. The fair value
of the Company's redeemable preferred stock was estimated to be $22.3 million in
1998 and $17.5 million in 1997 compared to a carrying amount of $5.0 million in
15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
1998 and $5.6 million in 1997. The fair value estimates were 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 was 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, as a separate component of shareholders' equity. The
Company had unrealized gains, net of tax, on investments in equity securities of
$551.6 million, $300.7 million and $351.9 million at December 31, 1998, 1997 and
1996, respectively, principally derived from ALLTEL's investment in MCI
WorldCom, Inc. common stock. 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. During 1998 and 1997, the
Company sold a portion of its investment in MCI WorldCom, Inc. common stock.
(See Note 11.)
4. Investments in Unconsolidated Partnerships:
The Company has investments in 52 wireless partnerships in which it holds a
minority ownership interest. The interest owned in each unconsolidated
partnership ranges from approximately 1% to 49%. Unaudited condensed combined
financial information for investments in unconsolidated partnerships was as
follows for the years ended December 31:
- ----------------------------------------------------------------------------
(Thousands)
--------------------------------------
1998 1997 1996
- ----------------------------------------------------------------------------
Revenues and sales $3,120,715 $2,779,253 $2,706,525
---------- ---------- ----------
Operations 1,664,365 1,660,192 1,603,794
Cost of products sold 152,128 81,234 97,691
Depreciation and amortization 358,850 298,653 281,126
---------- ---------- ----------
Total operating expenses 2,175,343 2,040,079 1,982,611
---------- ---------- ----------
Operating income 945,372 739,174 723,914
Non-operating income (expense) (18,414) 12,622 883
---------- ---------- ----------
Income before cumulative effects
of changes in accounting
principles 926,958 751,796 724,797
Cumulative effects of changes in
accounting principles, net - (19,278) -
---------- ---------- ----------
Net income $ 926,958 $ 732,518 $ 724,797
- ----------------------------------------------------------------------------
December 31,
------------------------
1998 1997
- ----------------------------------------------------------------------------
Assets:
Current assets $ 634,073 $ 609,737
Non-current assets 2,432,535 2,287,621
---------- ----------
Total assets $3,066,608 $2,897,358
- ----------------------------------------------------------------------------
Liabilities and equity:
Current liabilities $ 49,602 $ 276,276
Long-term liabilities 19,166 15,025
Equity 2,997,840 2,606,057
---------- ----------
Total liabilities and equity $3,066,608 $2,897,358
- ----------------------------------------------------------------------------
16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
5. Debt:
Long-term debt, after deducting current maturities, was as follows at
December 31:
- -------------------------------------------------------------------------------
(Thousands)
------------------------
1998 1997
---- ----
Debentures and notes, without collateral,
Weighted rate 7.3% in 1998 and 1997
Weighted maturity 9 years in 1998 and 10
years in 1997 $2,584,869 $2,512,312
Revolving credit agreements,
Weighted rate 5.7% in 1998 and 6.5% in 1997
Weighted maturity 5 years in 1998 and 1997 578,520 847,920
Rural Telephone Bank and Federal Financing Bank notes,
Weighted rate 7.7% in 1998 and 1997
Weighted maturity 16 years in 1998 and 1997 252,240 255,006
Rural Utilities Service notes,
Weighted rate 4.6% in 1998 and 4.5% in 1997
Weighted maturity 16 years in 1998 and 1997 57,498 61,917
First mortgage bonds and collateralized notes,
Weighted rate 8.0% in 1998 and 8.4% in 1997
Weighted maturity 4 years in 1998 and 1997 12,778 15,864
Industrial revenue bonds,
Weighted rate 5.4% in 1998 and 1997
Weighted maturity 9 years in 1998 and 10
years in 1997 5,850 6,500
---------- ----------
Total long-term debt $3,491,755 $3,699,519
- -------------------------------------------------------------------------------
Weighted rate 7.0% 7.1%
Weighted maturity 9.0 years 9.5 years
- -------------------------------------------------------------------------------
The Company has a $1 billion revolving credit agreement, which has a
termination date of October 1, 2003, with provision for annual extensions. It
is the Company's intention to continue to renew this agreement. The revolving
credit agreement provides for a variety of pricing options. In connection with
its merger with 360, in July 1998, the Company repaid all borrowings outstanding
under a separate $1 billion revolving credit facility of 360.
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
$1,634.0 million at December 31, 1998. Certain properties have been pledged as
collateral on $328.4 million of obligations.
Interest expense on long-term debt amounted to $262.9 million in 1998,
$260.6 million in 1997 and $235.8 million in 1996. Maturities and sinking fund
requirements for the four years after 1999 for long-term debt outstanding,
excluding the revolving credit agreement, as of December 31, 1998, were $45.5
million, $48.5 million, $48.4 million and $490.4 million for the years 2000
through 2003, respectively.
17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
6. Common Stock:
There are 1 billion shares of $1 par value common stock authorized of which
275,136,743 and 273,410,553 shares were outstanding at December 31, 1998 and
1997, respectively. At December 31, 1998, the Company had 26,030,940 common
shares reserved for issuance in connection with convertible preferred stock
(828,812) and stock options (25,202,128).
The Company has stock-based compensation plans. Under these plans, 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 to officers and other key employees
under all stock options plans in effect at December 31, 1998 is 26,736,688
shares. Fixed options granted under the stock option plans generally become
exercisable in one to five years 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 in 1997, 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 weighted average assumptions:
- ------------------------------------------------------------------------------
1998 1997 1996
- ------------------------------------------------------------------------------
Expected life 5.2 years 5.6 years 5.5 years
Expected volatility 23.8% 21.6% 23.8%
Dividend yield 1.9% 2.9% 2.0%
Risk-free interest rate 5.5% 6.2% 6.1%
- ------------------------------------------------------------------------------
18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
The following is a summary of stock options outstanding, granted, exercised,
forfeited and expired under the Company's stock-based compensation plans:
- --------------------------------------------------------------------------------
Weighted Average Price
Shares Per Share
--------------------- -------------------------------
1998 1997 1996 1998 1997 1996
- --------------------------------------------------------------------------------
Outstanding at beginning
of period 9,645,180 6,526,562 5,659,152 $28.68 $24.75 $22.28
Granted 2,842,420 4,411,398 1,459,214 40.50 32.75 31.75
Exercised (1,827,967) (892,854) (436,588) 24.00 20.30 14.95
Forfeited (566,343) (354,892) (155,216) 33.90 28.67 27.93
Expired (10,553) (45,034) - 38.99 25.79 -
---------- --------- --------- ------ ------ ------
Outstanding at end
of period 10,082,737 9,645,180 6,526,562 $32.55 $28.68 $24.75
- --------------------------------------------------------------------------------
Exercisable at end
of period 3,637,202 3,814,026 3,628,833 $26.24 $23.56 $21.55
Non-vested at end
of period:
Fixed 6,189,035 5,544,654 2,897,729
Performance-based 256,500 286,500 -
Weighted average fair
value of stock options
granted during
the year $10.21 $7.56 $8.93
- --------------------------------------------------------------------------------
The following is a summary of stock options outstanding as of December 31,
1998:
- --------------------------------------------------------------------------------
Options Outstanding Options Exercisable
- ----------------------------------------------------- -----------------------
Weighted Weighted Weighted
Average Average Average
Remaining Exercise Exercise
Range of Number of Contractual Price Number of Price
Exercise Prices Options Life Per Share Options Per Share
- --------------- --------- ----------- --------- --------- ---------
$11.41 - $16.12 294,446 1.8 years $13.95 294,446 $13.95
$20.00 - $26.94 1,649,428 5.1 years 23.64 1,308,957 22.83
$27.12 - $32.52 3,945,482 5.6 years 30.99 1,979,918 30.02
$33.88 - $41.81 2,252,041 8.8 years 34.62 42,041 35.41
$43.13 - $52.94 1,941,340 9.2 years 43.75 11,840 45.27
--------- --------- ----- --------- ------
10,082,737 6.8 years $32.55 3,637,202 $26.24
- -------------------------------------------------------------------------------
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 $2.8 million in 1998 and $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 and earnings per share would have been reduced to the
following pro forma amounts for the years ended December 31:
19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
- --------------------------------------------------------------------------------
(Dollars in thousands, except per share amounts) 1998 1997 1996
- --------------------------------------------------------------------------------
Net income:
As reported $525,475 $589,381 $351,256
Pro forma $516,798 $583,749 $346,985
Basic earnings per share:
As reported $1.91 $2.13 $1.27
Pro forma $1.88 $2.11 $1.25
Diluted earnings per share:
As reported $1.89 $2.11 $1.26
Pro forma $1.86 $2.09 $1.24
- --------------------------------------------------------------------------------
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 may be
granted each year.
7. Employee Benefit Plans and Postretirement Benefits Other Than Pensions:
The Company has a trusteed, non-contributory defined benefit pension plan which
provides retirement benefits for eligible employees of the Company. Assets of
the plan include common stock of the Company amounting to $37.7 million and
$25.3 million at December 31, 1998 and 1997, respectively. Pension (credit)
expense, including provision for executive compensation agreements, totaled
$(8.1) million in 1998, $(5.3) million in 1997 and $0.6 million in 1996.
The Company provides postretirement healthcare and life insurance benefits
for eligible employees. Employees share in the cost of these benefits. The
Company funds the accrued costs of these plans as benefits are paid.
Postretirement expense totaled $4.2 million in 1998, $4.1 million in 1997 and
$4.3 million in 1996.
The components of the pension and postretirement expense (credit) were
as follows for the years ended December 31:
- --------------------------------------------------------------------------------
(Thousands)
----------------------------------------------------
Postretirement
Pension Benefits Benefits
------------------------- -----------------------
1998 1997 1996 1998 1997 1996
- --------------------------------------------------------------------------------
Benefits earned during
the year $11,263 $10,415 $12,589 $ 70 $ 387 $ 427
Interest cost on benefit
obligation 25,655 24,401 23,597 3,023 2,817 2,868
Amortization of transition
(asset) obligation (1,183) (1,183) (1,183) 976 976 976
Amortization of prior
service (credit) cost (1,117) (1,117) (1,117) 40 40 40
Recognized net actuarial
(gain) loss (3,378) (2,979) (702) 111 (155) -
Expected return on plan
assets (39,303) (34,864) (32,607) - - -
------- ------- ------- ------ ------ ------
Net periodic (credit)
expense $(8,063) $(5,327) $ 577 $4,220 $4,065 $4,311
- --------------------------------------------------------------------------------
20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
The following table presents a summary of plan assets, projected benefit
obligation and funded status of the plans at December 31:
- --------------------------------------------------------------------------------
(Thousands)
------------------------------------------------
Pension Benefits Postretirement Benefits
--------------------- -----------------------
1998 1997 1998 1997
- --------------------------------------------------------------------------------
Fair value of plan assets at
beginning of year $444,326 $394,533 $ - $ -
Employer contributions - - 4,549 5,675
Participant contributions - - 2,354 2,500
Actual return on plan assets 61,572 65,702 - -
Benefits paid (17,561) (15,909) (6,903) (8,175)
-------- ------- ------- -------
Fair value of plan assets
at end of year 488,337 444,326 - -
- --------------------------------------------------------------------------------
Projected benefit obligation
at beginning of year 352,405 313,878 46,646 38,392
Benefits earned 11,263 10,415 70 387
Interest cost on projected
benefit obligation 25,655 24,401 3,023 2,817
Participant contributions - - 2,354 2,500
Actuarial loss 25,823 19,620 6,644 10,725
Benefits paid (17,561) (15,909) (6,903) (8,175)
-------- ------- ------- --------
Projected benefit obligation
at end of year 397,585 352,405 51,834 46,646
- --------------------------------------------------------------------------------
Plan assets in excess of
(less than) projected
benefit obligation 90,752 91,921 (51,834) (46,646)
Unrecognized actuarial
(gain) loss (41,581) (50,665) 9,573 4,333
Unrecognized prior service
(credit) cost (2,081) (3,198) 633 235
Unrecognized net transition
(asset) obligation (5,917) (7,100) 13,662 14,638
-------- ------- -------- --------
Prepaid (accrued) benefit cost $ 41,173 $ 30,958 $(27,966) $(27,440)
- --------------------------------------------------------------------------------
Actuarial assumptions used to calculate the projected benefit obligations
were as follows for the years ended December 31:
- --------------------------------------------------------------------------------
Pension Benefits Postretirement Benefits
--------------------- -----------------------
1998 1997 1998 1997
---- ---- ---- ----
Discount rate 6.75% 7.25% 6.75% 7.25%
Expected return on plan assets 8.50% 9.00% - -
Rate of compensation increase 5.00% 5.00% - -
Healthcare cost trend rate - - 8.00% 9.00%
- --------------------------------------------------------------------------------
The healthcare cost trend rate is expected to decrease on a graduated basis
to an ultimate rate of 6 percent in the year 2000. A one percent change in
the assumed healthcare cost trend rate for each future year would affect the
postretirement benefit cost by approximately $190,000 for the year ended
December 31, 1998, and the postretirement benefit obligation as of December 31,
1998, by approximately $3.5 million.
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
annually by the Company's Board of Directors. Profit-sharing expense amounted
to $19.4 million in 1998, $22.8 million in 1997 and $20.4 million in 1996.
The Company also sponsors employee savings plans under section 401(k) of the
Internal Revenue Code. The plans cover substantially all full-time employees,
except bargaining unit employees. Employees may elect to contribute to the plans
a portion of their eligible pretax compensation up to certain limits as
specified by the plans. The Company also makes annual contributions to the
plans. Amounts contributed by the Company to the plans amounted to $10.5 million
in 1998, $14.4 million in 1997 and $14.7 million in 1996.
21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
8. Lease Commitments:
Minimum rental commitments for all non-cancelable operating leases, consisting
principally of leases for office space, office equipment, real estate and tower
space, were as follows as of December 31, 1998:
- --------------------------------------------------------------------------------
(Thousands)
-----------
Year Amount
- --------------------------------------------------------------------------------
1999 $ 54,234
2000 43,812
2001 37,466
2002 30,164
2003 20,912
Thereafter 76,525
--------
Total $263,113
- --------------------------------------------------------------------------------
Rental expense totaled $54.9 million in 1998, $47.3 million in 1997 and $44.4
million in 1996.
9. Merger and Integration Expenses:
During the third quarter of 1998, the Company recorded transaction costs and
one-time charges totaling $252 million on a pretax basis related to the closing
of its merger with 360. The merger and integration expenses include professional
and financial advisors' fees of $31.5 million, severance and employee-related
expenses of $48.7 million and integration costs of $171.8 million. The Company's
merger and integration plan, as approved by ALLTEL's Board of Directors,
provides for a reduction of 521 employees, primarily in the corporate support
functions, to be substantially completed by the first quarter of 1999. As of
December 31, 1998, the Company had paid $16.8 million in severance and employee-
related expenses and 144 out of the total 521 employee reductions had been
completed. The integration costs include several adjustments resulting from the
redirection of a number of strategic initiatives based on the merger with 360
and ALLTEL's expanded wireless presence. These adjustments include a $60 million
write-down in the carrying value of certain in-process software development
assets, $50 million of costs associated with the early termination of certain
service obligations, branding and signage costs of $20.7 million, a $18 million
write-down in the carrying value of certain assets resulting from a revised PCS
deployment plan, and other integration costs of $23.1 million.
The estimated cost of contract termination primarily relate to a long-term
contract continuing until 2006 with an outside vendor for customer billing
services to be provided to the 360 operations, under which the Company currently
is paying approximately $45 million per year. As part of its integration plan,
the Company will convert the 360 operations to its own internal billing system
during the period of two years following July 1, 1998. In December 1998, the
foregoing vendor filed a declaratory judgment suit against the Company
requesting a ruling that the Company did not have the right to terminate the
contract. The Company is disputing the vendor's position and has filed a
counterclaim against the vendor for breach of contract. The $50 million of costs
recorded represent the Company best estimated cost of terminating the billing
services contract with the outside vendor prior to the expiration of its term.
The $50 million amount is the present value of the estimated profit to the
vendor over the remaining term of the contract. The $18 million write-down in
the carrying value of certain PCS-related assets include approximately $15
million related to cell site acquisition and improvement costs and capitalized
labor and engineering charges that were incurred during the initial construction
phase of the PCS buildout in three markets. As a result of the merger with 360,
the Company elected not to continue to complete construction of its PCS network
in these three markets. The remaining $3 million of the PCS-related write-down
represents cell site lease termination fees.
The Company expects to complete its integration plan by the end of 1999. The
major actions steps of the plan include: (1) the immediate stoppage of further
development of a customer billing system which has no alternative use or
functionality, (2) the immediate negotiation with a vendor of an early
termination of a customer billing contract, and (3) the immediate abandonment of
the PCS buildout in three markets.
22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
The following is a summary of activity related to the Company's merger and
integration accrual:
- --------------------------------------------------------------------------------
(Millions)
- --------------------------------------------------------------------------------
Total merger and integration costs $252.0
Cash outlays (85.9)
Non-cash write-down of assets (74.8)
------
Accrued reserve balance at December 31, 1998 $ 91.3
- --------------------------------------------------------------------------------
The merger and integration expenses decreased net income $201.0 million.
10. Provision to Reduce Carrying Value of Certain Assets:
During the third quarter, the Company recorded a non-recurring operating expense
associated with a contingency reserve on an unbilled receivable of $55 million
related to its contract with GTE Corporation ("GTE"). This expense represents a
reduction in the cumulative gross margin earned under the GTE contract. Due to
its pending merger with Bell Atlantic Corporation, GTE has re-evaluated its
billing and customer care requirements and modified its billing conversion
plans. This charge decreased net income $33.6 million.
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. This write-down resulted in a
decrease in net income of $11.7 million for the year ended December 31, 1997.
In 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. These write-downs resulted in a decrease in net income of $72.7
million for the year ended December 31, 1996.
11. Gain on Disposal of Assets and Other:
During the third quarter of 1998, the Company recorded a pretax gain of $80.9
million from the sale of a portion of its investment in MCI WorldCom, Inc.
common stock. Proceeds from this sale amounted to $87.6 million. This
transaction increased net income $49.2 million. During the second quarter of
1998, the Company recorded a pretax gain of $148.2 million from the sale of a
portion of its investment in MCI WorldCom, Inc. common stock. Proceeds from this
sale amounted to $162.6 million. This transaction increased net income $90.2
million. During the first quarter of 1998, the Company recorded a pretax gain of
$36.6 million primarily from the sale of a portion of its investment in MCI
WorldCom, Inc. common stock. Proceeds from the sale of stock amounted to $40.7
million. In addition, the Company recorded a pretax gain of $30.5 million from
the sale of its ownership interest in a cellular partnership serving the Omaha,
Neb. market. The gains from these first quarter transactions resulted in an
increase of $40.4 million in net income.
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 MCI 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
23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
$16.2 million from the sale of information services' healthcare operations; and
the Company recorded a pretax gain of $3.0 million from the divestiture of its
ownership interests in two unconsolidated partnerships. These transactions
resulted in an increase of $121.5 million in net income for the year ended
December 31, 1997.
In 1996, the Company recorded a pretax gain of $15.3 million from the
sale of wireline properties in Nevada to Citizens Utilities Company. 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. These transactions resulted in a decrease in net income of $1.5
million for the year ended December 31, 1996.
12. Income Taxes:
Income tax expense was as follows:
- ----------------------------------------------------------------------------
(Thousands)
------------------------------
1998 1997 1996
- ----------------------------------------------------------------------------
Federal $394,303 $343,460 $181,246
State and other 52,561 51,184 46,286
-------- -------- --------
$446,864 $394,644 $227,532
- ----------------------------------------------------------------------------
The federal income tax expense consists of the following:
- ----------------------------------------------------------------------------
(Thousands)
-------------------------------
1998 1997 1996
- ----------------------------------------------------------------------------
Currently payable $373,176 $242,809 $158,089
Deferred 24,887 105,574 32,090
Investment tax credit amortized (3,760) (4,923) (8,933)
-------- -------- --------
$394,303 $343,460 $181,246
- ----------------------------------------------------------------------------
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:
- ----------------------------------------------------------------------------
1998 1997 1996
- ----------------------------------------------------------------------------
Statutory income tax rates 35.0% 35.0% 35.0%
Increase (decrease):
Investment tax credit (0.4) (0.5) (1.5)
State income taxes, net of federal benefit 3.5 3.4 5.2
Amortization of intangibles 1.4 1.3 1.9
Merger and integration expenses 4.5 - -
Other items 2.0 0.9 (1.3)
---- ----- -----
Effective income tax rates 46.0% 40.1% 39.3%
- ----------------------------------------------------------------------------
24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
The significant components of the Company's net deferred income tax
liability were as follows at December 31:
- --------------------------------------------------------------------------------
(Thousands)
-------------------
1998 1997
- -------------------------------------------------------------------------------
Property, plant and equipment $558,312 $539,856
Capitalized computer software 110,547 80,466
Unrealized holding gain on investments 335,871 196,634
Operating loss carryforwards (20,805) (39,200)
Other, net (65,787) (86,595)
-------- --------
918,138 691,161
Valuation allowance 15,347 19,562
-------- --------
Total $933,485 $710,723
- --------------------------------------------------------------------------------
At December 31, 1998 and 1997, total deferred tax assets were $216.8
million and $275.8 million, respectively, and total deferred tax liabilities
were $1,150.3 million and $986.5 million, respectively.
As of December 31, 1998 and 1997, the Company had available tax benefits
associated with federal and state operating loss carryforwards of $20.8
million and $39.2 million, respectively, which expire annually in varying
amounts to 2012. The valuation allowance primarily represents tax benefits of
certain state operating loss carryforwards and other deferred tax assets which
may expire unutilized.
13. Other Comprehensive Income:
In 1997, the Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards No. 130 "Reporting Comprehensive Income" ("SFAS
130"). As required, the Company adopted the provisions of SFAS 130 in its
year-end 1998 financial statements and has reclassified its prior-year financial
statements to conform to SFAS 130's presentation requirements. For the Company,
other comprehensive income consists of unrealized holding gains on its
investments in equity securities, principally consisting of its investment in
MCI WorldCom, Inc. common stock. The components of other comprehensive income
were as follows for the years ended December 31:
- --------------------------------------------------------------------------------
(Thousands)
--------------------------------
1998 1997 1996
- -------------------------------------------------------------------------------
Unrealized holding gains arising in
the period $ 679,262 $ 69,449 $225,008
Income tax expense 266,873 32,540 81,822
--------- --------- --------
412,389 36,909 143,186
--------- --------- --------
Less: reclassification adjustments
for gains included in net
income for the period (265,644) (155,993) -
Income tax expense 104,199 67,888 -
--------- -------- --------
(161,445) (88,105) -
--------- -------- --------
Other comprehensive income (loss) before tax 413,618 (86,544) 225,008
Income tax expense (benefit) 162,674 (35,348) 81,822
--------- -------- --------
Other comprehensive income (loss) $ 250,944 $(51,196) $143,186
- --------------------------------------------------------------------------------
25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
14. Litigation-Claims and Assessments:
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 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 (the "Appellate Court") 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 Appellate Court's decision be reversed.
On October 5, 1998, the Georgia Supreme Court, in a 4-3 decision, upheld the
Appellate Court's ruling that the Georgia PSC had the authority to order the
rate reductions. The case has been returned to the Superior Court for a hearing
on the merits, which will provide ALLTEL the opportunity to challenge the
Georgia PSC's order by asserting a number of additional federal and state
constitutional and other legal grounds.
At December 31, 1998, the maximum possible liability to the Company related
to this case is $60 million plus interest at 7 percent from July 1, 1996. Since
the Company believes that it will prevail in this case, the Company has not
implemented any revenue reductions or established any reserves for refund
related to this matter at this time.
15. Business Segments:
In 1997, the FASB issued Statement of Financial Accounting Standards No. 131
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS
131"), which requires reporting segment information consistent with the way
management internally disaggregates an entity's operations to assess performance
and to allocate resources. As required, the Company adopted the provisions of
SFAS 131 in its year-end 1998 financial statements and has restated its
prior-year segment information to conform to SFAS 131's requirements.
ALLTEL disaggregates its business operations based upon differences in
products and services. The Company's communications operations consist of its
wireless, wireline and emerging businesses segments. Wireless communications and
paging services are provided in 22 states in four major markets: Southeast,
Mid-Atlantic, Midwest and West. The Company's wireline subsidiaries provide
primary local service and network access in 14 states. Emerging businesses
include the Company's long-distance, local competitive access, Internet access,
network management and PCS operations. Long-distance and Internet access
services are marketed in 22 states. The Company is currently providing local
competitive access, PCS and network management services in select areas within
its geographically focused communications markets. Information services provides
information processing, outsourcing services and application software primarily
to financial and telecommunications customers. The principal markets for
information services' products and services are commercial banks, financial
institutions and telecommunications companies in the United States and major
international markets. Other operations consist of the Company's product
distribution and directory publishing operations. Corporate items represent
general corporate expenses, headquarters facilities and equipment, investments,
goodwill and other non-recurring and unusual items not allocated to the
segments.
The accounting policies used in measuring segment assets and operating
results are the same as those described in Note 1. The non-recurring and unusual
items discussed in Notes 9, 10 and 11 are not allocated to the segments and are
included in corporate operations. The Company evaluates performance of the
segments based on segment operating income, excluding non-recurring and unusual
items. The Company accounts for intersegment sales at current market prices or
in accordance with regulatory requirements.
26
<PAGE>
Information about the Company's business segments was as follows for the year
ended December 31, 1998:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Communications
-------------------------------------------
(Dollars in Emerging Information Other Total Corporate Intercompany Consolidated
thousands) Wireless Wireline Businesses Total Services Operations Segments Operations Eliminations Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues and sales
from unaffiliated
customers:
Domestic $2,137,161 $1,274,597 $ 99,947 $3,511,705 $ 850,841 $338,115 $4,700,661 $ - $ - $4,700,661
International - - - - 154,300 - 154,300 - - 154,300
---------- ---------- -------- ---------- ---------- -------- ---------- ---------- ---------- ----------
2,137,161 1,274,597 99,947 3,511,705 1,005,141 338,115 4,854,961 - - 4,854,961
Intersegment
revenues
and sales - 34,467 - 34,467 156,627 263,235 454,329 - (115,282)a 339,047
---------- --------- -------- ---------- ---------- -------- ---------- ---------- ---------- ----------
Total revenues
and sales 2,137,161 1,309,064 99,947 3,546,172 1,161,768 601,350 5,309,290 - (115,282) 5,194,008
---------- --------- -------- ---------- ---------- -------- ---------- ---------- ---------- ----------
Operating
expenses 1,241,443 583,217 135,337 1,959,997 860,385 573,685 3,394,067 12,068 (115,282)a 3,290,853
Depreciation and
amortization 292,105 254,283 9,486 555,874 138,732 1,739 696,345 10,784 - 707,129
Merger and
integration
expenses - - - - - - - 252,000 - 252,000
Provision to
reduce carrying
value of
certain assets - - - - - - - 55,000 - 55,000
---------- ---------- -------- ---------- ---------- -------- ---------- ---------- ---------- ----------
Total costs
and expenses 1,533,548 837,500 144,823 2,515,871 999,117 575,424 4,090,412 329,852 (115,282) 4,304,982
---------- ---------- -------- ---------- ---------- -------- ---------- ---------- ---------- ----------
Operating income
(loss) 603,613 471,564 (44,876) 1,030,301 162,651 25,926 1,218,878 (329,852) - 889,026
Equity earnings in
unconsolidated
partnerships 114,859 - - 114,859 - - 114,859 - - 114,859
Minority interest
in consolidated
partnerships (102,177) - - (102,177) - - (102,177) - - (102,177)
Other income, net 20,099 4,374 2,331 26,804 10,646 235 37,685 465 - 38,150
Interest expense (158,262) (54,598) (10,941) (223,801) (12,268) (1,259) (237,328) (26,341) - (263,669)
Gain on disposal
of assets
and other - - - - - - - 296,150 - 296,150
---------- ---------- --------- ----------- ---------- -------- ---------- ---------- ---------- ----------
Income before
income taxes 478,132 421,340 (53,486) 845,986 161,029 24,902 1,031,917 (59,578) - 972,339
Income tax
expense
(benefit) 214,054 152,138 (20,637) 345,555 67,602 9,631 422,788 24,076 - 446,864
---------- ---------- -------- ---------- ---------- -------- ---------- ---------- ---------- ----------
Net income
(loss) $ 264,078 $ 269,202 $(32,849) $ 500,431 $ 93,427 $ 15,271 $ 609,129 $ (83,654) $ - $ 525,475
- ------------------------------------------------------------------------------------------------------------------------------------
Assets $4,193,579 $2,784,218 $132,112 $7,109,909 $ 872,845 $179,850 $8,162,604 $1,258,385b $ (46,763)c $9,374,226
Investments in
unconsolidated
partnerships $ 633,989 $ - $ - $ 633,989 $ - $ - $ 633,989 $ - $ - $ 633,989
Capital
expenditures $ 303,567 $ 280,782 $143,332 $ 727,681 $ 111,257 $ 1,489 $ 840,427 $ 28,151 $ - $ 868,578
- -----------------------------------------------------------------------------------------------------------------------------------
<FN>
Notes:
a)Elimination of intersegment revenues and sales. See "Transactions with Certain Affiliates" in Note 1 for a discussion of
intersegment revenues and sales not eliminated in preparing the consolidated financial statements.
b)Corporate assets consist of headquarters fixed assets ($141,432), investments ($954,601), goodwill ($104,259) and other assets
($58,093) not allocated to the segments.
c)Elimination of intersegment receivables.
</FN>
</TABLE>
27
<PAGE>
Information about the Company's business segments was as follows for the year
ended December 31, 1997:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Communications
-------------------------------------------
(Dollars in Emerging Information Other Total Corporate Intercompany Consolidated
thousands) Wireless Wireline Businesses Total Services Operations Segments Operations Eliminations Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues and
sales from
unaffiliated
customers:
Domestic $1,838,544 $1,200,472 $ 52,002 $3,091,018 $ 730,386 $355,605 $4,177,009 $ - $ - $4,177,009
International - - - - 114,918 - 114,918 - - 114,918
---------- ---------- -------- ---------- ---------- -------- ---------- ----------- ---------- ----------
1,838,544 1,200,472 52,002 3,091,018 845,304 355,605 4,291,927 - - 4,291,927
Intersegment
revenues
and sales - 33,496 - 33,496 128,847 123,317 285,660 - (32,447)a 253,213
---------- --------- -------- ---------- ---------- -------- ---------- ----------- ---------- ----------
Total revenues
and sales 1,838,544 1,233,968 52,002 3,124,514 974,151 478,922 4,577,587 - (32,447) 4,545,140
---------- --------- -------- ---------- ---------- -------- ---------- ----------- ---------- ----------
Operating
expenses 1,111,042 542,144 72,856 1,726,042 716,907 454,922 2,897,871 6,512 (32,447)a 2,871,936
Depreciation and
amortization 267,049 241,839 1,295 510,183 112,316 2,068 624,567 10,897 - 635,464
Provision to
reduce carrying
value of
certain assets - - - - - - - 16,874 - 16,874
---------- ---------- -------- ---------- ---------- -------- ---------- ----------- ---------- ----------
Total costs
and expenses 1,378,091 783,983 74,151 2,236,225 829,223 456,990 3,522,438 34,283 (32,447) 3,524,274
---------- ---------- -------- ---------- ---------- -------- ---------- ----------- ---------- ----------
Operating income
(loss) 460,453 449,985 (22,149) 888,289 144,928 21,932 1,055,149 (34,283) - 1,020,866
Equity earnings in
unconsolidated
partnerships 92,087 - - 92,087 - - 92,087 - - 92,087
Minority interest
in consolidated
partnerships (87,966) - - (87,966) - - (87,966) - - (87,966)
Other income
expense 6,751 2,557 865 10,173 (1,152) (21) 9,000 2,157 - 11,157
Interest expense (155,436) (54,626) (1,702) (211,764) (12,330) (782) (224,876) (36,894) - (261,770)
Gain on disposal
of assets
and other - - - - - - - 209,651 - 209,651
---------- ---------- -------- ---------- ---------- -------- ---------- ----------- ---------- ----------
Income before
income taxes 315,889 397,916 (22,986) 690,819 131,446 21,129 843,394 140,631 - 984,025
Income tax
expense
(benefit) 130,737 141,087 (3,317) 268,507 55,400 7,530 331,437 63,207 - 394,644
---------- ---------- -------- ---------- ---------- -------- ---------- ----------- ---------- ----------
Net income
(loss) $ 185,152 $ 256,829 $(19,669) $ 422,312 $ 76,046 $ 13,599 $ 511,957 $ 77,424 $ - $ 589,381
- ------------------------------------------------------------------------------------------------------------------------------------
Assets $3,990,529 $2,744,745 $ 39,343 $6,774,617 $ 809,242 $129,973 $7,713,832 $ 874,718b $ (18,145)c $8,570,405
Investments in
unconsolidated
partnerships $ 580,029 $ - $ - $ 580,029 $ - $ - $ 580,029 $ - $ - $ 580,029
Capital
expenditures $ 372,975 $ 271,305 $ 66,915 $ 711,195 $ 87,937 $ 1,620 $ 800,752 $ 26,134 $ - $ 826,886
- -----------------------------------------------------------------------------------------------------------------------------------
<FN>
Notes:
a)Elimination of intersegment revenues and sales. See "Transactions with Certain Affiliates" in Note 1 for a discussion of
intersegment revenues and sales not eliminated in preparing the consolidated financial statements.
b)Corporate assets consist of headquarters fixed assets ($116,532), investments ($628,912), goodwill ($107,930) and other assets
($21,344) not allocated to the segments.
c)Elimination of intersegment receivables.
</FN>
</TABLE>
28
<PAGE>
Information about the Company's business segments was as follows for the year
ended December 31, 1996:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Communications
-------------------------------------------
(Dollars in Emerging Information Other Total Corporate Intercompany Consolidated
thousands) Wireless Wireline Businesses Total Services Operations Segments Operations Eliminations Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues and
sales
from unaffiliated
customers:
Domestic $1,544,537 $1,135,231 $ 10,221 $2,689,989 $ 741,476 $470,066 $3,901,531 $ - $ - $3,901,531
International - - - - 93,338 - 93,338 - - 93,338
---------- ---------- -------- ---------- ---------- -------- ---------- ----------- ---------- ----------
1,544,537 1,135,231 10,221 2,689,989 834,814 470,066 3,994,869 - - 3,994,869
Intersegment
revenues
and sales - 32,177 - 32,177 125,261 119,874 277,312 - (32,714)a 244,598
---------- --------- -------- ---------- ---------- -------- ---------- ----------- ---------- ----------
Total revenues
and sales 1,544,537 1,167,408 10,221 2,722,166 960,075 589,940 4,272,181 - (32,714) 4,239,467
---------- ---------- -------- ---------- ---------- -------- ---------- ----------- ---------- ----------
Operating
expenses 958,869 530,037 19,403 1,508,309 706,817 552,626 2,767,752 1,723 (32,714)a 2,736,761
Depreciation and
amortization 215,440 228,054 15 443,509 112,911 3,347 559,767 11,189 - 570,956
Provision to
reduce carrying
value of
certain assets - - - - - - - 120,280 - 120,280
---------- ---------- -------- ---------- ---------- -------- ---------- ----------- ---------- ----------
Total costs
and expenses 1,174,309 758,091 19,418 1,951,818 819,728 555,973 3,327,519 133,192 (32,714) 3,427,997
---------- ---------- -------- ---------- ---------- -------- ---------- ----------- ---------- ----------
Operating income
(loss) 370,228 409,317 (9,197) 770,348 140,347 33,967 944,662 (133,192) - 811,470
Equity earnings in
unconsolidated
partnerships 77,500 - - 77,500 - - 77,500 - - 77,500
Minority interest
in consolidated
partnerships (80,073) - - (80,073) - - (80,073) - - (80,073)
Other income
expense 1,232 3,857 - 5,089 (1,132) (153) 3,804 5,561 - 9,365
Interest expense (123,030) (55,025) (138) (178,193) (17,728) (1,027) (196,948) (40,248) - (237,196)
Gain on disposal
of assets
and other - - - - - - - (2,278) - (2,278)
---------- ---------- -------- ---------- ---------- -------- ---------- ----------- ---------- ----------
Income before
income taxes 245,857 358,149 (9,335) 594,671 121,487 32,787 748,945 (170,157) - 578,788
Income tax
expense
(benefit) 108,011 125,862 (2,023) 231,850 50,666 11,864 294,380 (66,848) - 227,532
---------- ---------- -------- ---------- ---------- -------- ---------- ----------- ---------- ----------
Net income
(loss) $ 137,846 $ 232,287 $ (7,312) $ 362,821 $ 70,821 $ 20,923 $ 454,565 $ (103,309) $ - $ 351,256
- ------------------------------------------------------------------------------------------------------------------------------------
Assets $3,581,312 $2,680,116 $ 1,505 $6,262,933 $ 786,662 $192,513 $7,242,108 $ 939,503b $ (13,437)c $8,168,174
Investments in
unconsolidated
partnerships $ 449,184 $ - $ - $ 449,184 $ - $ - $ 449,184 $ - $ - $ 449,184
Capital
expenditures $ 395,055 $ 278,119 $ 1,503 $ 674,677 $ 83,530 $ 1,066 $ 759,273 $ 4,551 $ - $ 763,824
- -----------------------------------------------------------------------------------------------------------------------------------
<FN>
Notes:
a)Elimination of intersegment revenues and sales. See "Transactions with Certain Affiliates" in Note 1 for a discussion of
intersegment revenues and sales not eliminated in preparing the consolidated financial statements.
b)Corporate assets consist of headquarters fixed assets ($95,615), investments ($715,440), goodwill ($96,161) and other assets
($32,287) not allocated to the segments.
c)Elimination of intersegment receivables.
</FN>
</TABLE>
29
<PAGE>
16. QUARTERLY FINANCIAL INFORMATION - (Unaudited):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997
(Dollars in thousands,----------------------------------------------------------------- -------------------------------------------
except for per
share amounts) Total 4th 3rd 2nd 1st Total 4th 3rd 2nd 1st
- ------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues and sales $5,194,008 $1,373,393 $1,332,167 $1,304,130 $1,184,318 $4,545,140 $1,182,269 $1,145,509 $1,141,717 $1,075,645
Operating income $ 889,026 $ 302,784 $ 13,644 $ 300,693 $ 271,905 $1,020,866 $ 272,682 $ 276,227 $ 248,019 $ 223,938
Net income (loss) $ 525,475 $ 151,762 $ (27,975) $ 234,017 $ 167,671 $ 589,381 $ 131,588 $ 150,943 $ 195,697 $ 111,153
Preferred dividends 938 228 239 231 240 1,008 243 251 256 258
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------
Net income (loss)
applicable to
common shares $ 524,537 $ 151,534 $ (28,214) $ 233,786 $ 167,431 $ 588,373 $ 131,345 $ 150,692 $ 195,441 $ 110,895
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings per share:
Basic $1.91 $.55 $(.10) $.85 $.61 $2.13 $.48 $.55 $.70 $.40
Diluted $1.89 $.55 $(.10) $.84 $.61 $2.11 $.47 $.54 $.70 $.40
- ------------------------------------------------------------------------------------------------------------------------------------
From current
businesses(1):
Revenues and sales $5,194,008 $1,373,393 $1,332,167 $1,304,130 $1,184,318 $4,502,293 $1,182,269 $1,145,509 $1,130,400 $1,044,115
Operating income $1,196,026 $ 302,784 $ 320,644 $ 300,693 $ 271,905 $1,036,324 $ 272,682 $ 276,227 $ 264,573 $ 222,842
Net income $ 580,305 $ 151,762 $ 157,392 $ 143,828 $ 127,323 $ 478,802 $ 131,588 $ 128,374 $ 119,155 $ 99,685
Basic earnings
per share $2.11 $.55 $.57 $.52 $.47 $1.73 $.48 $.46 $.43 $.36
Diluted earnings
per share $2.09 $.55 $.57 $.52 $.46 $1.72 $.47 $.46 $.43 $.36
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
1)Excludes the sold wire and cable operations, merger and integration expenses and provision to reduce carrying value of certain
assets, gain on disposal of assets and other.
Notes: A. Third quarter 1998 operating income includes transaction costs and one-time charges totaling $252 million related to the
closing of the merger with 360. These transaction and one-time charges decreased net income $201.0 million or $.73 per
share. The Company also recorded a pretax charge of $55 million resulting from changes in a customer care and billing
contract with a major customer. This charge decreased net income $33.6 million or $.12 per share. In addition, the Company
recorded a pretax gain of $80.9 million from the sale of a portion of its investment in MCI WorldCom, Inc. common stock.
This gain increased net income by $49.2 million or $.18 per share. (See Notes 9, 10 and 11.)
B. Second quarter 1998 net income includes a pretax gain of $148.2 million from the sale of a portion of the Company's
investment in MCI WorldCom, Inc. common stock. This gain increased net income $90.2 million or $.33 per share.
(See Note 11.)
C. First quarter 1998 net income includes a pretax gain of $36.6 million primarily from the sale of a portion of the
Company's investment in MCI WorldCom, Inc. common stock. In addition, the Company recorded a pretax gain of $30.5 million
from the sale of its ownership interest in one unconsolidated partnership. These gains increased net income by
$40.4 million or $.14 per share. (See Note 11.)
D. 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 approximately $.09 per share.
(See Note 11.)
E. 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. This write-down decreased net income $11.7 million or $.04 per share. In
addition, the Company recorded a pretax gain of $156.0 million from the sale of a portion of its investment in MCI
WorldCom, Inc. common stock. This gain increased net income by $88.1 million or $.31 per share. (See Notes 10 and 11.)
F. First quarter 1997 net income includes a pretax gain of $16.2 million from the sale of information services' healthcare
operations. In addition, the Company recorded a pretax gain of $3.0 million from the divestiture of its ownership
interests in two unconsolidated partnerships. These transactions increased net income by $10.8 million or $.04 per share.
(See Note 11.)
G. In the opinion of management, all adjustments necessary for a fair presentation of results for each period have been
included.
</FN>
</TABLE>
30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
17. Subsequent Event - Completion of Mergers (Unaudited):
On September 30, 1999, ALLTEL completed its merger with Liberty Cellular, Inc.
("Liberty") under a definitive merger agreement entered into on June 22, 1999.
Under terms of the merger agreement, the outstanding stock of Liberty, which
operates under the name Kansas Cellular and its affiliate KINI L.C., was
exchanged for approximately 7 million shares of ALLTEL's common stock, $1 par
value. The merger qualified as a tax-free reorganization and has been accounted
for as a pooling of interests.
On July 2, 1999, ALLTEL completed its merger with Aliant Communications, Inc.
("Aliant") under a definitive merger agreement entered into on December 18,
1998. Under the terms of the merger agreement, Aliant became a wholly-owned
subsidiary of ALLTEL, and each outstanding share of Aliant common stock was
converted into the right to receive .67 shares of ALLTEL common stock, 23.9
million common shares in the aggregate. The merger qualified as a tax-free
reorganization and has been accounted for as a pooling of interests.
Post-merger financial statements reporting the combined operating results of
ALLTEL, Aliant and Liberty will first be presented as of and for the interim
periods ended September 30, 1999 and 1998. Annual and interim financial
statements of ALLTEL for periods prior to the mergers will be restated to
reflect the merger transactions. The following supplemental financial
information presents the combined operating results of ALLTEL, Aliant and
Liberty and includes certain eliminations and reclassification adjustments to
conform the accounting and financial reporting policies of the three companies.
Separate and combined results of operations are as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Six Months For the Years Ended
Ended June 30, December 31,
------------- ----------------------------------------
(In thousands) 1999 1998 1997 1996
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues and sales:
ALLTEL, as reported $2,837,950 $5,194,008 $4,545,140 $4,239,467
Aliant 182,892 338,007 286,328 264,225
Liberty 59,526 110,178 92,134 75,348
Eliminations and reclassifications (3,255) (15,398) (16,644) (15,696)
---------- ---------- ---------- ----------
Combined $3,077,113 $5,626,795 $4,906,958 $4,563,344
- -----------------------------------------------------------------------------------------------
Net income:
ALLTEL, as reported $ 356,830 $ 525,475 $ 589,381 $ 351,256
Aliant 32,955 58,059 53,039 44,954
Liberty 9,966 19,593 10,061 10,516
---------- ---------- ---------- ----------
Combined $ 399,751 $ 603,127 $ 652,481 $ 406,726
- -----------------------------------------------------------------------------------------------
Combined earnings per share:
Basic $1.28 $1.97 $2.12 $1.32
Diluted $1.26 $1.95 $2.10 $1.31
- -----------------------------------------------------------------------------------------------
</TABLE>
31
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
ALLTEL Corporation:
As independent public accountants, we hereby consent to the incorporation of our
reports included in this Form 8-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
Little Rock, Arkansas
October 12, 1999
32
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA
FROM THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS
CONTAINED IN THE COMPANY'S FORM 8-K AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000065873
<NAME> ALLTEL CORPORATION
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 55,472
<SECURITIES> 0
<RECEIVABLES> 776,720
<ALLOWANCES> 29,121
<INVENTORY> 88,467
<CURRENT-ASSETS> 980,831
<PP&E> 8,233,338
<DEPRECIATION> 3,405,270
<TOTAL-ASSETS> 9,374,226
<CURRENT-LIABILITIES> 1,206,508
<BONDS> 3,491,755
5,005
9,121
<COMMON> 275,137
<OTHER-SE> 2,986,614
<TOTAL-LIABILITY-AND-EQUITY> 9,374,226
<SALES> 561,393
<TOTAL-REVENUES> 5,194,008
<CGS> 550,580
<TOTAL-COSTS> 4,304,982
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 55,000
<INTEREST-EXPENSE> 263,669
<INCOME-PRETAX> 972,339
<INCOME-TAX> 446,864
<INCOME-CONTINUING> 525,475
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 524,537
<EPS-BASIC> 1.91
<EPS-DILUTED> 1.89
</TABLE>
