UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-4996
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ALLTEL CORPORATION
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(Exact name of registrant as specified in its charter)
DELAWARE 34-0868285
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(State or other jurisdiction of (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
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days.
YES X NO
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Number of common shares outstanding as of June 30, 1999:
281,749,246
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The Exhibit Index is located at sequential page 20.
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<PAGE>
ALLTEL CORPORATION
FORM 10-Q
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
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The following consolidated financial statements of ALLTEL Corporation
and subsidiaries, included in the interim report of ALLTEL Corporation to its
stockholders for the periods ended June 30, 1999 and 1998, a copy of which is
attached hereto, are incorporated herein by reference:
Consolidated Statements of Income - for the three, six and twelve
months ended June 30, 1999 and 1998.
Consolidated Balance Sheets - June 30, 1999 and 1998 and
December 31, 1998.
Consolidated Statements of Cash Flows - for the six and twelve
months ended June 30, 1999 and 1998.
2
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ALLTEL CORPORATION
FORM 10-Q
PART I - FINANCIAL STATEMENTS
Item 2. Management's Discussion and Analysis of Financial Condition and
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Results of Operations
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GENERAL
The following is a discussion and analysis of the historical results of
operations and financial condition of ALLTEL Corporation ("ALLTEL" or the
"Company"). This discussion should be read in conjunction with the unaudited
consolidated financial statements, including the notes thereto, for the interim
periods ended June 30, 1999 and 1998, and the Company's Annual Report on Form
10-K, as amended for the year ended December 31, 1998.
Forward-Looking Statements
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This Management's Discussion and Analysis of Financial Condition and Results
of Operations includes, and future filings by the Company on Form 10-K, Form
10-Q and Form 8-K and future oral and written statements by the Company and its
management may include, certain forward-looking statements, including (without
limitation) statements with respect to anticipated future operating and
financial performance, growth opportunities and growth rates, acquisition and
divestitive opportunities, Year 2000 compliance and other similar forecasts and
statements of expectation. Words such as "expects," "anticipates," "intends,"
"plans," "believes," "seeks," "estimates", and "should", and variations of these
words and similar expressions, are intended to identify these forward-looking
statements. Forward-looking statements by the Company and its management are
based on estimates, projections, beliefs and assumptions of management and are
not guarantees of future performance. The Company disclaims any obligation to
update or revise any forward-looking statement based on the occurrence of future
events, the receipt of new information, or otherwise.
Actual future performance, outcomes and results may differ materially from
those expressed in forward-looking statements made by the Company and its
management as a result of a number of important factors. Representative examples
of these factors include (without limitation) rapid technological developments
and changes in the telecommunications and information services industries;
ongoing deregulation (and the resulting likelihood of significantly increased
price and product/service competition) in the telecommunications industry as a
result of the Telecommunications Act of 1996 and other similar federal and state
legislation and the federal and state rules and regulations enacted pursuant to
that legislation; regulatory limitations on the Company's ability to change its
pricing for communications services; the possible future unavailability of
Statement of Financial Accounting Standards No. 71 to the Company's wireline
subsidiaries; continuing consolidation in certain industries, such as banking,
served by the Company's information services business; the risks associated with
relatively large, multi-year contracts in the Company's information services
business; and higher than anticipated expenditures associated with the Company's
Year 2000 efforts. In addition to these factors, actual future performance,
outcomes and results may differ materially because of other, more general,
factors including (without limitation) general industry and market conditions
and growth rates, domestic and international economic conditions, governmental
and public policy changes and the continued availability of financing in the
amounts, at the terms and on the conditions necessary to support the Company's
future business.
3
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COMPLETION OF MERGERS
On July 2, 1999, ALLTEL completed its merger with Aliant Communications,
Inc. ("Aliant") under a definitive merger agreement entered into on
December 18, 1998. Aliant provides wireless, wireline, paging, long-distance
and Internet services in Nebraska. Under 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 and Aliant 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 merger will be restated to reflect the merger
transaction. Supplemental financial information for the interim periods ended
June 30, 1999 and 1998 is disclosed in Note 8 to the unaudited consolidated
financial statements included in Exhibit 19 to this Form 10-Q.
In January 1999, ALLTEL completed its merger with Standard Group, Inc.
("Standard"). The merger was accounted for as a pooling of interests; however,
prior period financial information has not been restated, since Standard's
operations are not significant to ALLTEL's consolidated financial statements.
On July 1, 1998, ALLTEL completed its merger with 360 Communications
Company ("360"). The merger was accounted for as a pooling of interests;
and accordingly, all prior period financial information has been restated to
include the 360 operations. See Note 2 to the unaudited consolidated
financial statements for additional information regarding this merger
transaction. As further discussed below, results for the twelve months ended
June 30, 1999 were affected by merger and integration expenses and other
non-recurring and unusual items.
OVERVIEW-CONSOLIDATED RESULTS OF OPERATIONS
Revenues and sales increased $165.5 million or 13 percent, $349.5 million or
14 percent and $727.3 million or 15 percent in the three, six and twelve month
periods ended June 30, 1999, respectively. Operating income increased $80.7
million or 27 percent, $146.0 million or 25 percent in the three and six month
periods and decreased $86.5 million or 8 percent in the twelve month period
ended June 30, 1999, respectively. Operating income for the twelve month period
of 1999 was affected by merger and integration expenses and other non-recurring
charges to reduce the carrying value of certain assets. Adjusted to exclude the
merger and integration expenses and asset write-downs, operating income would
have increased $220.5 million or 20 percent in the twelve month period ended
June 30, 1999.
Net income decreased $43.9 million or 19 percent, $44.9 million or 11
percent and $203.6 million or 30 percent in the three, six and twelve months
ended June 30, 1999, respectively. Basic earnings per share decreased 21
percent, 13 percent and 31 percent, while diluted earnings per share decreased
20 percent, 14 percent and 30 percent in the three, six and twelve month periods
ended June 30, 1999, respectively. Reported net income and earnings per share
include the effects of the merger and integration expenses, asset write-downs
and gains realized from the sale of certain investments. Excluding the impact of
the non-recurring and unusual items in each period, net income would have
increased $46.3 million or 32 percent, $85.7 million or 32 percent and $134.9
million or 25 percent, while both basic and diluted earnings per share would
have increased 29 percent, 28 percent and 24 percent in the three, six and
twelve month periods ended June 30, 1999, respectively.
4
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Net income and earnings per share adjusted for all non-extraordinary,
non-recurring and unusual items are summarized in the following table:
<TABLE>
<CAPTION>
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Three Months Ended Six Months Ended Twelve Months Ended
June 30, June 30, June 30,
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(Dollars in thousands,
except per share amounts) 1999 1998 1999 1998 1999 1998
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<S> <C> <C> <C> <C> <C> <C>
Net income, as reported $190,148 $234,017 $356,830 $401,688 $480,617 $684,219
Non-recurring and unusual items, net of tax:
Merger and integration expenses - - - - 200,995 -
Provision to reduce carrying
value of certain assets - - - - 33,605 -
Gain on disposal of assets - (90,189) - (130,537) (49,233) (153,106)
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Net income, as adjusted $190,148 $143,828 $356,830 $271,151 $665,984 $531,113
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Basic earnings per share, as reported $.67 $.85 $1.27 $1.46 $1.73 $2.49
Non-recurring and unusual items, net of tax:
Merger and integration expenses - - - - .72 -
Provision to reduce carrying
value of certain assets - - - - .12 -
Gain on disposal of assets - (.33) - (.47) (.18) (.56)
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Basic earnings per share, as adjusted $.67 $.52 $1.27 $ .99 $2.39 $1.93
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Diluted earnings per share, as reported $.67 $.84 $1.25 $1.45 $1.71 $2.46
Non-recurring and unusual items, net of tax:
Merger and integration expenses - - - - .71 -
Provision to reduce carrying
value of certain assets - - - - .12 -
Gain on disposal of assets - (.32) - (.47) (.18) (.55)
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Diluted earnings per share, as adjusted $.67 $.52 $1.25 $ .98 $2.36 $1.91
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</TABLE>
The net income and earnings per share impact of the non-recurring and unusual
items has been presented as supplemental information only. The non-recurring and
unusual items reflected in the above table are discussed in reference to the
caption in the consolidated statements of income in which they are reported.
Merger and Integration Expenses
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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, employee-related
expenses of $48.7 million and integration costs of $171.8 million. 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 related
to a customer billing system with no alternative future use, $50 million of
costs associated with the early termination of certain service obligations,
branding and signage costs of $20.7 million, an $18 million write-down in the
carrying value of certain assets resulting from a revised Personal Communication
Services ("PCS") deployment plan, and other integration costs of $23.1 million.
The estimated cost of contract termination primarily relates to a long-term
contract with an outside vendor for customer billing services to be provided to
the 360 operations continuing through 2006, under which the Company is currently
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
5
<PAGE>
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's best estimate of the 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.
As a result of its integration efforts, ALLTEL expects to realize synergies
through a reduction in operating expenses of $80 million in 1999 and $100
million in 2000. Of the total synergies expected to be realized each year,
ALLTEL estimates 40 percent of the cost savings will result from a reduction in
duplicative salaries and employee benefits, 20 percent from a reduction in
variable network expenses, 20 percent from volume purchase discounts, 10 percent
from a reduction in branding and advertising costs and 10 percent from a
reduction in information technology expenses. At June 30, 1999, the Company's
remaining unpaid liability related to its merger and integration efforts was
$68.8 million, consisting of $50 million of contract termination fees, $14.9
million of employee-related expenses and $3.9 million of other integration
costs. Cash outlays for the remaining employee-related expenses and other
integration costs are expected to be completed by the end of 1999. The Company
also expects to finalize amounts payable with respect to certain contract
termination fees by the end of 1999. Funding for the unpaid merger and
integration liability will be internally financed from operating cash flows.
(See Note 3 to the interim unaudited consolidated financial statements for
additional information regarding the merger and integration expenses).
Provision to Reduce Carrying Value of Certain Assets
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During the third quarter of 1998, the Company recorded a $55 million
non-recurring operating expense 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 and will purchase certain software usage
rights and processing services from ALLTEL for an interim period.
Gain on Disposal of Assets
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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.
("MCI WorldCom") common stock. The gain increased net income $49.2 million in
the twelve month period ended June 30, 1999.
During the second quarter of 1998, the Company recorded a pretax gain of
$148.2 million resulting from the sale of a portion of its investment in MCI
WorldCom, Inc. common stock. This gain increased net income $90.2 million in the
three month period ended June 30, 1998.
In addition to including the second quarter gain, the six month period of
1998 also includes a pretax gain of $36.6 million primarily from the sale of a
portion of ALLTEL's investment in MCI WorldCom common stock and a pretax gain of
$30.5 million from the sale of its ownership interest in a cellular partnership
serving the Omaha, Nebraska market. The gains from these transactions increased
net income $130.5 million in the six month period ended June 30, 1998. In
addition to including the gains recorded in both the first and second quarters
of 1998, the twelve month period ended June 30, 1998 also includes a pretax gain
of $34.4 million primarily related to the sale of ALLTEL's investment in a
software company. The gains from all of these transactions increased net income
$153.1 million in the twelve month period ended June 30, 1998.
6
<PAGE>
RESULTS OF OPERATIONS BY BUSINESS SEGMENT
<TABLE>
<CAPTION>
Communications-Wireless Operations
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Three Months Ended Six Months Ended Twelve Months Ended
June 30, June 30, June 30,
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(Dollars in thousands) 1999 1998 1999 1998 1999 1998
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<S> <C> <C> <C> <C> <C> <C>
Revenues and sales $638,692 $538,932 $1,221,514 $1,020,570 $2,338,105 $1,972,832
Operating income $222,793 $153,701 $ 403,195 $ 274,916 $ 731,892 $ 528,060
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</TABLE>
Wireless revenues and sales increased $99.8 million or 19 percent, $200.9
million or 20 percent and $365.3 million or 19 percent for the three, six and
twelve month periods ended June 30, 1999, respectively. Operating income
increased $69.1 million or 45 percent, $128.3 million or 47 percent and $203.8
million or 39 percent for the three, six and twelve month periods of 1999,
respectively. During the past twelve month period, customer growth remained
strong as the number of wireless customers grew to 4,296,147 from 3,742,431, an
increase of 553,716 customers or 15 percent. During the first six months of
1999, ALLTEL increased its ownership interest in the Richmond, Va. market to
50.1 percent, purchased wireless properties in Alabama and Colorado and acquired
a majority ownership interest in a wireless property in Illinois. These
transactions accounted for approximately 140,000 of the overall increase in
wireless customers that occurred during the past twelve month period. Including
the effect of acquisitions, ALLTEL placed more than 863,000 gross units in
service during the first six months of 1999, compared to approximately 661,000
gross units for the same period of 1998. Overall, the Company's market
penetration rate (number of customers as a percent of the total population in
ALLTEL's service areas) increased to 12.2 percent as of June 30, 1999. Customer
churn (average monthly rate of customer disconnects) increased slightly in all
periods of 1999 and was 2.1 percent, 2.2 percent and 2.2 percent for the three,
six and twelve months ended June 30, 1999, respectively, compared to 1.9
percent, 2.0 percent and 2.1 percent for the same periods in 1998.
Wireless revenues and sales increased in all periods primarily due to the
growth in wireless customers. Increases in local airtime, roaming and
long-distance revenues, reflecting higher volumes of network usage, also
contributed to the growth in revenues and sales in all periods. The acquisitions
of wireless properties in Alabama and Colorado and the additional ownership
interests acquired in Richmond, Va. and Illinois accounted for approximately
$21.4 million of the increase in revenues and sales in the three month period
and $35.9 million of the increases in revenues and sales in the six and twelve
month periods of 1999, respectively. The increased usage of the Company's
network facilities boosted the average revenue per customer per month for the
second quarter of 1999 to $50 compared to $49 for the second quarter of 1998.
Average revenue per customer per month was $49 for the six and twelve months
ended June 30, 1999, compared to $47 for the same two periods of 1998. Growth in
average revenue per customer per month continues to be affected by decreased
roaming rates and continued penetration into lower-usage market segments. The
Company expects these industry-wide trends to continue. In addition, the growth
rate of new customers is expected to decline as the Company's wireless customer
base grows. Accordingly, future revenue growth will be dependent upon ALLTEL's
success in maintaining customer growth in existing markets, increasing customer
usage of the Company's network and providing customers with enhanced products
and services.
The growth in operating income for all periods of 1999 primarily reflects
the increases in revenues and sales noted above. Reduced losses realized on the
sale of wireless equipment and reductions in customer service-related expenses
also contributed to the growth in operating income in all periods. Partially
offsetting these increases in operating income in all periods were increases in
selling and marketing costs, including advertising and sales commissions,
consistent with the overall growth in revenues and sales. Increased depreciation
and amortization expense consistent with the growth in wireless plant in
service, and increased data processing charges and other network-related
expenses consistent with the growth in customers and network traffic also
affected operating income growth in all periods. The reduction in customer
service-related expenses reflect cost savings realized as a result of the merger
with 360 and the elimination of certain duplicative salaries and other
employee benefit costs.
7
<PAGE>
The cost to acquire a new wireless customer represents sales, marketing and
advertising costs and losses on equipment sales for each new customer added.
Cost to acquire a new wireless customer was $341, $314 and $283 for the three,
six and twelve month periods ended June 30, 1999, respectively, compared to
$311, $304 and $288 for the same periods of 1998. The increases in the cost to
acquire a new customer in the three and six month periods of 1999 reflect
increased advertising, commissions and other selling and marketing costs noted
above, partially offset by reduced losses on equipment sales and the reduction
in customer service-related costs, previously discussed. The decrease in the
cost to acquire a new customer in the twelve month period of 1999 reflects
reduced losses on equipment sales, the reduction in customer service-related
costs, as well as distributing costs over a larger number of customers acquired
when compared to the corresponding prior year period. Although ALLTEL intends to
continue to utilize its large dealer network, the Company has expanded its
internal sales distribution channels to include its own retail stores and kiosks
located in shopping malls and other retail outlets. Incremental sales costs at a
Company retail store or kiosk are significantly lower than commissions paid to
national dealers. Accordingly, ALLTEL intends to manage the costs of acquiring
new customers by continuing to expand and enhance its internal distribution
channels.
<TABLE>
<CAPTION>
Communications-Wireline Operations
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Three Months Ended Six Months Ended Twelve Months Ended
June 30, June 30, June 30,
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(Dollars in thousands) 1999 1998 1999 1998 1999 1998
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<S> <C> <C> <C> <C> <C> <C>
Local service $167,645 $144,401 $324,409 $284,659 $ 623,257 $ 559,707
Network access and
long-distance 175,452 158,421 348,413 314,750 666,733 626,832
Miscellaneous 21,925 22,093 49,731 45,382 96,836 91,916
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Total revenues and sales $365,022 $324,915 $722,553 $644,791 $1,386,826 $1,278,455
Operating income $130,675 $114,454 $260,661 $232,358 $ 499,867 $ 466,094
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</TABLE>
Wireline revenues and sales increased $40.1 million or 12 percent, $77.8
million or 12 percent and $108.4 million or 8 percent for the three, six and
twelve months ended June 30, 1999, respectively. Wireline operating income
increased $16.2 million or 14 percent, $28.3 million or 12 percent and $33.8
million or 7 percent for the three, six and twelve month periods ended June 30,
1999, respectively.
Local service revenues increased $23.2 million or 16 percent, $39.8 million
or 14 percent and $63.6 million or 11 percent in the three, six and twelve month
periods ended June 30, 1999, respectively. Customer access lines, excluding
access lines acquired from Standard, increased 6 percent during the past twelve
month period, including the sales of residential and second access lines. The
acquisition of Standard accounted for $11.8 million of the increase in local
service revenues in the three month period of 1999 and accounted for $16.6
million of the increases in local service revenues in both the six and twelve
month periods of 1999, respectively. Revenues from custom calling and other
enhanced services increased $4.4 million, $7.3 million and $14.0 million in the
three, six and twelve month periods ended June 30, 1999, respectively, also
contributing to the overall growth in local service revenues in all periods.
Network access and long-distance revenues increased $17.0 million or 11
percent, $33.7 million or 11 percent and $39.9 million or 6 percent in the
three, six and twelve month periods ended June 30, 1999, respectively. The
acquisition of Standard accounted for $11.1 million of the increase in network
access and long-distance revenues in the three month period of 1999 and
accounted for $25.2 million of the increases in network access and long-distance
revenues in both the six and twelve month periods of 1999, respectively. Higher
volumes of access usage and growth in customer access lines also contributed to
the increases in network access and long-distance revenues in all periods of
1999. The increases in network access and long-distance revenues attributable to
the Standard acquisition, growth in customer access lines and increased access
usage were partially offset by a reduction in intrastate toll revenues.
8
<PAGE>
Miscellaneous revenues decreased slightly in the three month period and
increased $4.3 million or 10 percent and $4.9 million or 5 percent for the six
and twelve month periods ended June 30, 1999, respectively. The acquisition of
Standard accounted for $3.7 million of the increases in miscellaneous revenues
in the six and twelve month periods of 1999. Increases in directory advertising
and equipment rental revenues also contributed to the growth in miscellaneous
revenues for the six and twelve month periods of 1999.
As more fully discussed in Note 7 to the unaudited consolidated financial
statements, 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 Company appealed the Georgia PSC
order. In November 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
ordering the rate reductions. 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 in July 1997,
the Georgia Court of Appeals (the "Appellate Court") reversed the Superior
Court's decision. The Company appealed to the Georgia Supreme Court, and 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 conduct the
rate proceeding. The case was returned to the Superior Court for it to rule on
the issues it had not previously decided. On April 6, 1999, the Superior Court
found that with respect to the July 1996 order, the Georgia PSC did not provide
ALLTEL with sufficient notice of the charges against the Company, did not
provide ALLTEL a fair opportunity to present its case and respond to the
charges, and failed to satisfy its burden of proving that ALLTEL's rates were
unjust and unreasonable. Further, the Superior Court found that the July 1996
order was an unlawful attempt to retroactively reduce ALLTEL's rates and certain
statutory revenue recoveries. For each of these independent reasons, the
Superior Court vacated and reversed the July 1996 order and remanded the case
with instructions to dismiss the case. The Georgia PSC appealed the Superior
Court's April 1999 decision. The Company remains confident that it will
ultimately prevail in this case, and as such, has not implemented any revenue
reductions or established any reserves for refund related to this matter at this
time.
Growth in operating income for all periods of 1999 primarily reflects the
increases in wireline operating revenues and sales, partially offset by
increases in network-related expenses, depreciation and amortization, data
processing charges and other general and administrative expenses. The
acquisition of Standard accounted for $10.0 million of the increase in operating
income in the three month period of 1999 and accounted for $19.8 million of the
increases in operating income in both the six and twelve month periods of 1999,
respectively. Network-related expenses, data processing charges and other
general and administrative expenses increased in all periods primarily due to
the growth in wireline customers and network usage, while depreciation and
amortization expense increased in all periods primarily due to growth in
wireline plant in service.
ALLTEL's wireline subsidiaries follow the accounting for regulated
enterprises prescribed by Statement of Financial Accounting Standards No. 71,
"Accounting for the Effects of Certain Types of Regulation" ("SFAS 71"). If
ALLTEL's wireline subsidiaries no longer qualified for the provisions of SFAS
71, the accounting impact to the Company would be an extraordinary non-cash
charge to operations of an amount that could be material. Criteria that would
give rise to the discontinuance of SFAS 71 include (1) increasing competition
that restricts the wireline subsidiaries' ability to establish prices to recover
specific costs and (2) significant change in the manner in which rates are set
by regulators from cost-based regulation to another form of regulation. The
Company periodically reviews these criteria to ensure the continuing application
of SFAS 71 is appropriate. As a result of the passage of the Telecommunications
Act of 1996 (the "96 Act") and state telecommunications reform legislation,
ALLTEL's wireline subsidiaries could begin to experience increased competition
in their local service areas. To date, competition has not had a significant
adverse effect on the operations of ALLTEL's wireline subsidiaries.
9
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In 1996, the FCC issued regulations implementing the local competition
provisions of the 96 Act. These regulations established pricing rules for state
regulatory commissions to follow with respect to entry by competing carriers
into the local, intrastate markets of incumbent local exchange carriers
("ILECs") and addressed interconnection, unbundled network elements and resale
rates. The FCC's authority to adopt such pricing rules, including permitting new
entrants to "pick and choose" among the terms and conditions of approved
interconnection agreements, was challenged in federal court by various ILECs and
state regulatory commissions. In 1997, the U.S. Eighth Circuit Court of Appeals
(the "Eighth Circuit Court") vacated the FCC's pricing rules, finding, among
other matters, that the FCC had exceeded its jurisdiction in establishing
pricing rules for intrastate communications services. The Eighth Circuit Court
also ruled that ILECs are not required by the 96 Act to recombine network
elements purchased by requesting carriers on an unbundled basis. The FCC asked
the U.S. Supreme Court ("Supreme Court") to review two interconnection decisions
of the Eighth Circuit Court. In January 1999, the Supreme Court ruled that the
FCC had the jurisdiction to carry out certain local competition provisions of
the 96 Act. These provisions include designing a pricing methodology for states
to follow in determining rates to be charged by ILECs to competitors for
interconnection services and network elements, adopting rules regarding states'
review of pre-existing interconnection agreements between ILECs and other
carriers and adopting rules relating to dialing parity and standards for
granting exemptions to rural ILECs. As part of its ruling, the Supreme Court
reinstated the FCC's "pick and choose" rule. The Supreme Court remanded a
portion of the decision to the Eighth Circuit Court for it to rule on certain
issues that it had not previously decided, such as whether the FCC's pricing
rules are consistent with the 96 Act. Other issues were remanded to the FCC for
further rulemaking.
As a result of the Supreme Court's decision upholding the FCC's jurisdiction
over interstate and intrastate toll dialing parity requirements, the FCC
established a revised schedule for ILEC submission of intraLATA dialing parity
plans. The Company's ILECs have submitted their plans or requested suspension by
the states of those requirements. The FCC also began a further rulemaking on
how, in light of the Supreme Court's decision, it should interpret the
"necessary" and "impair" standards set forth in the 96 Act and which specific
network elements it should require ILECs to unbundle as a result of its
interpretation of those standards.
In May 1997, the FCC issued regulations applicable to local exchange
carriers ("LECs") relating to access charge reform and universal service. The
access charge reform regulations are applicable mainly to price cap regulated
local exchange companies. Aliant, which ALLTEL recently acquired, formerly was
subject to price cap regulation; however, the FCC has granted ALLTEL a waiver to
operate Aliant on a rate-of-return basis. ALLTEL expects to transition Aliant to
rate-of-return regulation by July 2000. ALLTEL's other wireline subsidiaries are
not price cap regulated companies, and, accordingly, the access charge
regulations, with few exceptions, are not currently applicable to them. However,
the FCC instituted a rulemaking in June 1998 in which it proposed to amend the
access charge rules for rate-of-return LECs in a manner similar to that earlier
adopted for price cap LECs. The FCC's proposal involves the modification of the
transport rate structure, the reallocation of costs in the transport
interconnection charge and amendments to reflect changes necessary to implement
universal service. The issue of additional pricing flexibility for
rate-of-return LECs is expected to be addressed in a subsequent phase of the
proceeding. Once the access charge rules for rate-of-return LECs are finalized,
ALLTEL will assess the impact, if any, the new rules will have on its wireline
operations.
The FCC recently requested comment on proposed inputs to its universal
service proxy model. The proxy model will be used to determine the
forward-looking costs for non-rural companies with respect to their universal
service funding. At the same time, the FCC also requested comment on whether it
should change its procedures for distinguishing rural and non-rural companies
for purposes of universal service funding. Based upon ALLTEL's review of the
FCC's current regulations concerning the universal service subsidy, it is
unlikely that material changes in the universal service funding for ALLTEL's
rural rate-of-return wireline subsidiaries will occur prior to 2001. In 2001,
the universal service subsidy may change from being based on actual costs to
being based on a proxy model for ALLTEL's rural rate-of-return subsidiaries.
Since the FCC has not yet determined the content of any such proxy model, the
impact, if any, of this change in the universal service funding for ALLTEL's
wireline subsidiaries cannot be determined at this time. ALLTEL continues to
10
<PAGE>
evaluate the impact of the FCC's universal service orders on its other
telecommunications operations. Certain aspects of the original universal service
decision were appealed to the U.S. Fifth Circuit Court of Appeals ("Fifth
Circuit Court"). On July 30, 1999, the Fifth Circuit Court ruled on these
appeals and affirmed most of the FCC's decision regarding implementation of the
high cost support system. The Fifth Circuit Court, however, reversed both the
FCC's requirement that ILECs recover their universal service contributions from
access charges and the blanket prohibition on additional state eligibility
requirements for carriers receiving high cost support. The Fifth Circuit Court
also concluded that the FCC exceeded its jurisdiction by assessing carrier
contributions to the schools and libraries program based on their combined
interstate and intrastate revenues and by asserting its authority to do the same
with respect to carrier contributions to the high cost fund.
On October 5, 1998, the FCC began a proceeding to consider a represcription
of the authorized rate-of-return for the interstate access services of
approximately 1,300 ILECs, including ALLTEL's wireline subsidiaries. The
currently prescribed rate-of-return is 11.25 percent. The purpose of the FCC's
proceeding is to determine whether the prescribed rate-of-return corresponds to
current market conditions and whether the rate should be changed. A decision by
the FCC related to this matter may be issued later this year.
On March 31, 1999, the FCC released an order designed to facilitate the
development of competition in the advanced services market. The FCC determined
that ILECs must make available to requesting competitive local exchange carriers
("CLECs") the use of shared collocation arrangements. Competitiors must also be
able to collocate all equipment used for interconnection and/or access to
unbundled network elements even when that equipment includes a switching or
enhanced services function. This decision has been appealed by certain ILECs to
the U.S. Court of Appeals, Washington, D.C. Circuit. The FCC also issued a
further rulemaking to determine whether the FCC should mandate line sharing
nationally by ILECs in order that CLECs may provide data or advanced services
over those lines.
Because resolution of the regulatory matters discussed above that are
currently under FCC or judicial review is uncertain and regulations to implement
other provisions of the 96 Act have yet to be issued, ALLTEL cannot predict at
this time the specific effects, if any, that the 96 Act and its implementing
regulations will have on its wireline operations.
<TABLE>
<CAPTION>
Communications-Emerging Businesses Operations
- ---------------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended Twelve Months Ended
June 30, June 30, June 30,
--------------------- ---------------------- ----------------------
(Dollars in thousands) 1999 1998 1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues and sales $ 44,286 $ 21,541 $ 83,335 $ 40,635 $142,647 $ 72,771
Operating loss $(11,611) $(11,440) $(23,740) $(17,169) $(51,447) $(27,815)
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Emerging businesses consist of the Company's long-distance, CLEC, Internet
access, network management and Personal Communications Services ("PCS")
operations. Long-distance and Internet access services are currently marketed to
residential and business customers in the majority of states in which ALLTEL
provides communications services. During 1998, ALLTEL began offering its CLEC
and network management services to business customers in select markets. During
1999, ALLTEL expanded its CLEC product offering to include residential customers
in certain areas. The Company plans to expand its CLEC operations into eight
additional markets in North Carolina and Virginia later this year. ALLTEL has
offered PCS in Jacksonville, Fla., since March 1998 and in the Birmingham and
Mobile, Ala. service areas since February 1999.
Emerging businesses' revenues and sales increased $22.7 million or 106
percent, $42.7 million or 105 percent and $69.9 million or 96 percent for the
three, six and twelve month periods ended June 30, 1999. The increases in
revenues and sales in all periods primarily reflect growth in the long-distance
and CLEC operations, primarily driven by growth in ALLTEL's customer base for
these services. Long-distance revenues increased $12.2 million, $23.2 million
and $34.9 million, while CLEC revenues increased $3.8 million, $7.3 million and
11
<PAGE>
$14.6 million in the three, six and twelve month periods ended June 30, 1999,
respectively. Operating losses sustained by emerging businesses increased $0.2
million or 1 percent, $6.6 million or 38 percent and $23.6 million or 85 percent
for the three, six and twelve month periods of 1999, respectively, primarily due
to the start-up nature of these operations.
<TABLE>
Information Services Operations
- ------------------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended Twelve Months Ended
June 30, June 30, June 30,
--------------------- --------------------- -------------------------
(Dollars in thousands) 1999 1998 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues and sales $313,850 $297,191 $619,248 $564,052 $1,216,964 $1,072,456
Operating income $ 43,286 $ 39,367 $ 83,738 $ 76,192 $ 170,197 $ 151,862
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
Information services' revenues and sales increased $16.7 million or 6
percent, $55.2 million or 10 percent and $144.5 million or 13 percent for the
three, six and twelve month periods ended June 30, 1999, respectively. Operating
income increased $3.9 million or 10 percent, $7.5 million or 10 percent and
$18.3 million or 12 percent for the three, six and twelve month periods ended
June 30, 1999, respectively.
Revenues and sales increased in all periods of 1999, primarily due to growth
in the financial services and telecommunications outsourcing operations,
reflecting volume growth in existing data processing contracts and the addition
of new outsourcing agreements. Financial services, including the residential
lending and international operations, produced revenue increases of $6.1
million, $21.5 million and $88.7 million, while telecommunications revenues
increased $13.8 million, $39.7 million and $62.8 million in the three, six and
twelve month periods ended June 30, 1999, respectively. Revenues earned from new
contracts accounted for approximately $6 million, $20 million and $39 million of
the overall increases in revenues and sales in the three, six and twelve month
periods of 1999, respectively. The growth in telecommunications revenues and
sales in all periods primarily resulted from additional billings to affiliates
reflecting the Company's recent acquisitions. The increases in revenues and
sales in all periods were partially offset by a reduction in software licensing
fees and by lost revenues resulting from contract terminations due primarily to
the merger and consolidation activity in the domestic financial services market.
The domestic financial services industry continues to experience consolidation
due to mergers.
The increases in operating income in all periods primarily reflect the
growth in revenues and sales noted above, partially offset by lower margins
realized by the international financial services business and by lost operations
due to contract terminations. The lower margins attributable to the
international financial services operations primarily resulted from a $4.6
million cumulative margin adjustment recorded in the second quarter related to
one outsourcing agreement accounted for under the percentage-of-completion
method. Operating income for the twelve month period also reflects lower margins
realized by the telecommunications operations, primarily resulting from
increased depreciation and amortization expense and increased software
maintenance and other operating costs. Depreciation and amortization expense
increased in the twelve month period primarily due to the acquisition of
additional data processing equipment and due to an increase in amortization of
internally developed software.
<TABLE>
<CAPTION>
Other Operations
- ----------------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended Twelve Months Ended
June 30, June 30, June 30,
--------------------- ----------------------- ---------------------
(Dollars in thousands) 1999 1998 1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues and sales $143,997 $141,447 $261,061 $246,562 $615,849 $463,254
Operating income $ 6,064 $ 7,130 $ 10,314 $ 12,267 $ 23,973 $ 21,268
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
Other operations consist of the Company's product distribution and directory
publishing operations. Revenues and sales increased $2.6 million or 2 percent,
$14.5 million or 6 percent and $152.6 million or 33 percent for the three, six
and twelve month periods ended June 30, 1999, respectively. Operating income
decreased $1.1 million or 15 percent, decreased $2.0 million or 16 percent and
increased $2.7 million or 13 percent for the three, six and twelve month periods
ended June 30, 1999, respectively.
Revenues and sales increased in the three month period due to growth in
directory publishing revenues reflecting an increase in the number of
directories published. Compared to the corresponding periods of 1998, four,
eight and fifteen additional directories were published in the three, six and
twelve month periods ended June 30, 1999, respectively. As a result of these
additional directories, publishing revenues increased $2.5 million, $4.0 million
and $6.6 million in the three, six and twelve month periods of 1999,
respectively. In addition to the growth in the directory publishing operations,
revenues and sales for the six and twelve month periods of 1999 also reflect
increased sales of telecommunications and data products to both affiliated and
non-affiliated customers, including increased retail sales of these products at
the Company's counter showrooms. Sales to affiliates increased $7.4 million and
$131.8 million in the six and twelve month periods ended June 30, 1999. The
increases in affiliate sales were primarily due to additional purchases made by
the Company's wireless subsidiaries, reflecting the merger with 360 and
the expansion of ALLTEL Supply's product lines to include wireless equipment.
The decreases in other operations' operating income for the three and six
month periods of 1999 primarily reflect lower gross profit margins realized by
ALLTEL Supply on affiliated sales, as well as increased competition from other
distributors and from direct sales by manufacturers. The increase in other
operations' operating income for the twelve month period of 1999 primarily
reflects the growth in revenues and sales noted above, partially offset by the
lower gross profit margins realized by ALLTEL Supply on its revenues and sales,
as previously discussed.
<TABLE>
<CAPTION>
Corporate Expenses
- --------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended Twelve Months Ended
June 30, June 30, June 30,
------------------ ------------------ --------------------
(Dollars in thousands) 1999 1998 1999 1998 1999 1998
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Corporate operating expenses $9,851 $2,519 $15,588 $5,966 $ 32,474 $17,962
Merger and integration expenses - - - - 252,000 -
Provision to reduce carrying
value of certain assets - - - - 55,000 -
------ ------ ------- ------ -------- -------
Total corporate expenses $9,851 $2,519 $15,588 $5,966 $339,474 $17,962
- --------------------------------------------------------------------------------------------------------------
</TABLE>
As indicated in the above table, corporate expenses for the twelve month
period of 1999 include the $252 million of merger and integration expenses and
the $55 million charge related to changes in GTE's customer care and billing
contract, as previously discussed. Excluding the impact of the merger and
integration expenses and asset write-downs, corporate expenses would have
increased $7.3 million or 291 percent, $9.6 million or 161 percent and $14.5
million or 81 percent for the three, six and twelve month periods ended June 30,
1999. Net of the merger and integration expenses and asset write-downs, the
increases in corporate expenses in all periods of 1999 reflect increases in
employee benefit costs and depreciation and amortization expense.
OTHER FINANCIAL STATEMENT ITEMS
Interest Expense
- ----------------
Interest expense decreased slightly in the three month period, and decreased
$1.9 million or 1 percent and $4.8 million or 2 percent for the six and twelve
month periods ended June 30, 1999, respectively. The decreases in interest
expense in all periods reflect decreases in the weighted average borrowing rates
applicable to ALLTEL's revolving credit agreement.
13
<PAGE>
Income Taxes
- ------------
Income tax expense decreased $18.3 million or 12 percent, $11.3 million or
4 percent and $8.8 million or 2 percent for the three, six and twelve month
periods ended June 30, 1999, respectively. The decreases in income tax expense
in each period primarily reflects the tax-related impact of the merger and
integration expenses and the other non-recurring and unusual items previously
discussed. Excluding the impact on tax expense of these items in each period,
income tax expense would have increased $39.6 million or 42 percent, $73.4
million or 41 percent and $128.5 million or 37 percent in the three, six and
twelve month periods ended June 30, 1999, respectively, consistent with the
overall growth in the Company's earnings from continuing operations before
non-recurring and unusual items. In addition, the Company's effective tax rate
has increased to 41.5 percent, primarily due to adjustments in deferred tax
balances at certain subsidiaries and lower tax credits related to ALLTEL's
international operations.
Average Common Shares Outstanding
- ---------------------------------
The average number of common shares outstanding increased 3 percent in the
three and six month periods and increased 1 percent in the twelve month period
ended June 30, 1999, respectively. The increases in all periods primarily
reflect the additional shares issued in January 1999 in connection with the
Standard acquisition.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
ALLTEL's total capital structure was $7.4 billion at June 30, 1999,
reflecting 50 percent common and preferred equity and 50 percent debt. This
compares to a capital structure of $6.8 billion at December 31, 1998, reflecting
48 percent common and preferred equity and 52 percent debt. The Company has
adequate internal and external resources available to finance its ongoing
operating requirements, including capital expenditures, business development and
the payment of dividends.
Cash Flows from Operations
- --------------------------
Cash provided from operations continues to be the Company's primary source
of liquidity. Cash provided from operations was $508.0 million and $1,217.4
million for the six and twelve month periods ended June 30, 1999, respectively,
compared to $537.6 million and $1,325.0 million for the same periods in 1998.
The decreases in both the six and twelve month periods reflect changes in
working capital requirements, including the timing of payment of accounts
payable, partially offset by growth in the earnings of the Company, excluding
the effects of all non-recurring and unusual items.
Cash Flows from Investing Activities
- ------------------------------------
Capital expenditures continued to be ALLTEL's primary use of capital
resources. Capital expenditures for the six and twelve month periods of 1999
were $365.3 million and $895.2 million, respectively, compared to $338.7 million
and $829.8 million for the same periods in 1998. During the past two-year
period, the Company funded the majority of its capital expenditures through
internally generated funds. Capital expenditures were incurred to continue to
modernize and upgrade ALLTEL's telecommunications network and to expand into
existing information services markets. In addition, capital expenditures were
incurred to construct additional network facilities to provide PCS and digital
wireless service and to offer other communications services, including
long-distance, Internet and local competitive access services. Capital
expenditures are forecast at approximately $850 million for 1999, which are
expected to be funded primarily from internally generated funds.
14
<PAGE>
Cash outlays for the acquisition of property for the six and twelve month
periods of 1999 were $83.1 million and $117.6 million, respectively. These
amounts are net of cash acquired of approximately $24.1 million received in the
Standard acquisition and principally consist of cash outlays of $46.5 million
for a wireless property in Colorado, $30.6 million for a wireless property in
Illinois, and $20.0 million for a wireless property in Alabama. In addition to
these acquisitions, cash outlays for the twelve months ended June 30, 1999,
include $34.6 million related to the purchase of two wireless properties in
Georgia. The six month period of 1998 includes cash outlays of $20.5 million for
the purchase of additional ownership interests in wireless properties in which
the Company owns a controlling interest. In addition, the twelve month period of
1998 also includes cash outlays of $48.6 million for additional investments in
wireless properties in which the Company owns a minority interest.
Cash flows from investing activities also include proceeds from the sale of
investments and other assets. During the twelve month period ended June 30,
1999, ALLTEL received proceeds of $87.6 million from the sale of a portion of
its investment in MCI WorldCom common stock. Proceeds from the sale of
investments were $220.9 million for both the six and twelve month periods ended
June 30, 1998, and principally consist of $200.7 million of proceeds received
from additional sales of MCI WorldCom common stock. In addition, cash flows from
investing activities for the twelve month period of 1998 includes proceeds of
$50.3 million from the sale of assets, principally consisting of $48.7 million
received from the sale of an investment in a software company completed in
September 1997. The proceeds received in each period from these asset sales were
used primarily to reduce borrowings under the Company's revolving credit
agreement.
Cash Flows from Financing Activities
Dividend payments remain a significant use of capital resources for the
Company. Common and preferred dividend payments for the six and twelve month
periods ended June 30, 1999 were $172.5 million and $305.6 million,
respectively, compared to $107.3 million and $210.4 million for the same periods
in 1998. The increases in dividend payments in both periods primarily reflect
the additional ALLTEL common shares issued and outstanding due to the mergers
with 360 and Standard, as well as growth in the annual dividend rate on
ALLTEL's common stock. Distributions to minority investors were $34.5 million
and $88.2 million for the six and twelve months ended June 30, 1999,
respectively, compared to $39.1 million and $67.1 million for the same periods
in 1998. The increase in distributions for the twelve month period reflects the
improved operating results of the wireless properties managed by the Company.
Cash flows from financing activities for the twelve months ended June 30, 1998
include a cash outlay of $154.9 million for the repurchase by the Company of 4.6
million of its common shares completed prior to January 1, 1998.
The Company has a $1 billion line of credit under a revolving credit
agreement. Borrowings outstanding under this agreement at June 30, 1999 were
$405.7 million, compared to $578.5 million that were outstanding at December 31,
1998. Borrowings outstanding under this agreement at June 30, 1998 were $588.9
million. The weighted average interest rate on borrowings outstanding under the
revolving credit agreement at June 30, 1999, was 5.8 percent. In March 1999,
ALLTEL filed a shelf registration statement with the Securities and Exchange
Commission providing for the issuance of up to $500 million in aggregate initial
offering price of unsecured debt securities. In April 1999, ALLTEL issued $300
million of 6.8 percent debentures due May 1, 2029, under this shelf registration
statement. The net proceeds of $298.2 million were used to reduce borrowings
outstanding under the revolving credit agreement. The $300 million debentures,
net of issuance costs, represents all of the long-term debt issued in the first
six months of 1999, and substantially all of the long-term debt issued in the
twelve month period ended June 30, 1999. The net decreases in revolving credit
borrowings from both December 31, 1998 and June 30, 1998 represent the majority
of long-term debt retired during the six and twelve months ended June 30, 1999,
respectively. Scheduled long-term debt retirements, net of the revolving credit
agreement activity, amounted to $48.9 million and $65.7 million for the six and
twelve month periods of 1999, respectively, compared to $25.9 million and $24.6
million for the same periods of 1998.
15
<PAGE>
Year 2000 Compliance
- --------------------
The Year 2000 issue affects the Company's internal computer systems and
infrastructure, as well as certain software, systems and services that the
Company provides to its customers. The Company began its Year 2000 efforts
several years ago with the primary objective of achieving Year 2000 compliance
of the Company's critical computer systems, infrastructure, and software,
systems and services that the Company provides to its customers and for which
the Company is responsible. As of the date of this filing, the Company has
achieved compliance for these critical internal computer systems, infrastructure
and software, systems and services, except with regard to the recent
acquisitions discussed below.
The Company's Year 2000 plan consists of eight phases: (i) Awareness;
(ii) Inventory; (iii) Third-Party Strategies; (iv) Risk Assessment;
(v) Planning; (vi) Remediation; (vii) Testing; and (viii) Implementation. Except
with regard to the recent acquisitions discussed below, as of the date of this
filing, the Company has completed all phases of the Year 2000 plan for the
Company's critical internal computer systems and software, systems and services
that the Company provides to its customers and for which the Company is
responsible. Additionally, the Company has completed all phases of the Year 2000
plan for the Company's critical infrastructure, except for internal
infrastructure acquired in recent acquisitions.
During the first quarter of 1999, the Company acquired Standard and Durango
Cellular Telephone Company ("Durango"). As previously discussed on July 2, 1999,
the Company completed its acquisition of Aliant. The Company is in the process
of applying the Year 2000 methodology described above to Standard's, Durango's
and Aliant's critical internal computer systems and infrastructure, as well as
critical software, systems and services provided to customers. As of the date of
this filing, the Company has completed the Awareness, Inventory, Third-Party
Strategies, Risk Assessment and Planning phases for Standard's and Durango's
critical internal computer systems, infrastructure and software, systems and
services provided to customers. The Company plans to complete the Remediation,
Testing and Implementation phases for those critical internal computer systems,
infrastructure and software, systems and services prior to August 31, 1999.
Prior to its acquisition by ALLTEL, Aliant had completed the Awareness,
Inventory, Third-Party Strategies, Risk Assessment and Planning phases and had
commenced the Remediation, Testing and Implementation phases. For Aliant's
critical internal computer systems, infrastructure and software, systems and
services that are provided to customers and for which the Company is
responsible, the Company plans to complete the Remediation phase by
September 30, 1999 and the Testing and the Implementation phases by
October 30, 1999. Aliant constitutes approximately 7 percent of the Company's
wireless customers and approximately 12 percent of the Company's wireline
access lines.
As part of its Year 2000 plan, the Company implemented a third party
management process and contacted its critical vendors and suppliers and other
third parties upon which the Company depends regarding their plans for making
their products, services and systems Year 2000 compliant. The Company's ability
to achieve Year 2000 compliance and meet its target completion dates is
dependent upon Year 2000 efforts of its vendors and suppliers. The Company is
also dependent upon other third parties who provide essential services (such as
utilities, interexchange carriers, etc.) to make their critical systems Year
2000 compliant in a timely manner. Generally, the Company does not have the
ability to test those systems for Year 2000 compliance and, instead, must rely
on the third parties' representations.
Contingency planning to maintain and restore service in the event of a
natural disaster, power failure, or software related interruption has long been
part of the Company's standard business practices. The Company is working to
leverage this experience in the development and implementation of its Year 2000
contingency plans that assess the potential for business disruption in various
scenarios. Those contingency plans address possible, but unlikely, "worst case"
scenarios involving the interruption of telecommunications and information
16
<PAGE>
technology services and/or interruption of customer billing, operating and other
information systems, and provide for key-operation back-up and alternative
solutions for recovery. The Company has developed contingency plans for its
critical systems and plans to augment, modify and test those contingency plans
throughout 1999, as appropriate.
The Company estimates the total cost of its Year 2000 efforts to be
approximately $80 million. As of June 30, 1999, ALLTEL has incurred
approximately $67 million of the total amount. The Company has and will
capitalize and subsequently amortize approximately one-half of the total Year
2000 cost, including costs relating to the remediation of the Company's software
products. Some of the Company's Year 2000 costs are not incremental, but rather
represent the redeployment of existing resources. As for the estimated costs
associated with making the Company's customers' systems Year 2000 compliant in
those situations where the Company is obligated to do so, the Company has
treated those costs as contract costs and has not included them in the Company's
Year 2000 costs. The Company continues to evaluate the estimated costs
associated with its Year 2000 efforts based on actual experience. The Company
believes, based on available information, that its Year 2000 costs will not have
a material adverse effect on its results of operations.
The above information is based on the Company's current best estimates using
numerous assumptions of future events. Given the complexity of the Year 2000
issues and possible unidentified risks, actual results may vary from those
anticipated and discussed above.
Other Financial Information
- ---------------------------
During the first six months of 1999, there were no material changes in the
market risks discussed in the Company's Annual Report on Form 10-K, as amended
for the year ended December 31, 1998.
On June 22, 1999, ALLTEL announced a definitive merger agreement 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., will be exchanged
for 7 million shares of ALLTEL common stock. The Company expects to account for
this transaction, which is valued at approximately $600 million, as a
pooling of interests. The merger is subject to regulatory and other approvals.
ALLTEL expects the merger to be completed by October 31, 1999.
Recently Issued Accounting Pronouncements
- -----------------------------------------
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and for Hedging Activities", ("SFAS 133"). This Statement
establishes accounting and reporting standards requiring that every derivative
instrument be recorded on the balance sheet as either an asset or liability
measured at fair value. SFAS 133 requires that changes in a derivative's fair
value be recognized currently in earnings unless specific hedge accounting
criteria are met. As issued, SFAS 133 would have been effective for fiscal years
beginning after June 15, 1999. The FASB recently issued Statement of Financial
Accounting Standards No. 137, which deferred the effective date of SFAS 133
until fiscal years beginning after June 15, 2000. As ALLTEL does not have
significant derivative financial instruments, the Company does not expect the
adoption of SFAS 133 to have a material impact on its reported earnings and/or
other comprehensive income.
17
<PAGE>
ALLTEL CORPORATION
FORM 10-Q
Part II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
- ------ ---------------------------------------------------
The Company's 1999 Annual Meeting of Stockholders was held on
April 22, 1999. At the meeting, the following item was submitted
to a vote of stockholders:
The election of five directors, constituting the class of the
Company's Board of Directors, who will serve a three-year term
expiring at the 2002 Annual Meeting of Stockholders:
Nominee Votes For Votes Withheld
------- ----------- --------------
John R. Belk 244,894,188 3,937,140
Charles H. Goodman 244,921,190 3,910,138
W.W. Johnson 244,862,955 3,968,373
Frank E. Reed 244,924,818 3,906,510
William H. Zimmer 244,876,767 3,954,561
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) See the exhibits specified on the Index of Exhibits located at
Page 20.
(b) Reports on Form 8-K:
Current Report on Form 8-K dated April 21, 1999, reporting under
Item 5, Other Events, the Company's Press Release announcing its
first quarter results from operations.
Current Report on Form 8-K dated July 2, 1999, reporting under
Item 2, Acquisition or Disposition of Assets, the Company's
Press Release announcing that ALLTEL and Aliant Communications,
Inc. ("Aliant") had completed their merger. Historical financial
statements of Aliant are not required to be filed pursuant to
Rule 3-05 of Regulation S-X. In addition, pro forma financial
information is not required to be filed pursuant to Article 11
of Regulation S-X.
No other reports on Form 8-K have been filed during the quarter
for which this report is filed.
18
<PAGE>
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ALLTEL CORPORATION
---------------------------------------------
(Registrant)
/s/ Jeffery R. Gardner
---------------------------------------------
Jeffery R. Gardner
Senior Vice President - Finance and Treasurer
(Principal Accounting Officer)
August 12, 1999
19
<PAGE>
ALLTEL CORPORATION
FORM 10-Q
INDEX OF EXHIBITS
Form 10-Q Sequential
Exhibit No. Description Page No.
- ----------- ----------- ----------
(10)(l)(8) Amendment No. 11 to ALLTEL Corporation 32
Profit-Sharing Plan (January 1, 1994 Restatement)
(19) Interim Report to Stockholders and 21 - 31
Notes to Unaudited Consolidated Financial
Statements for the periods ended June 30, 1999
and 1998
(27) Financial Data Schedule 34
for the six months ended June 30, 1999
20
Exhibit 19
1999 Second Quarter Interim Report
June 30, 1999
The Power to Simplify
To ALLTEL Stockholders:
ALLTEL reported record second quarter results from current businesses, including
a 13 percent increase in revenues from the previous year to $1.5 billion and a
29 percent increase in earnings per share to $.67.
Among the highlights from current businesses in the second quarter:
o Net income and operating income grew 32 percent and 27 percent,
respectively, from a year ago, to $190 million and $381 million.
o Revenues and operating income for ALLTEL's wireless business increased
19 percent and 45 percent, respectively, from last year, to $639 million
and $223 million.
o ALLTEL's wireless operating income and cash flow margins increased to 35
percent and 47 percent, respectively.
o Revenues and operating income for ALLTEL's wireline business, including
the Standard Group acquisition, increased 12 percent and 14 percent,
respectively, from the same quarter last year to $365 million and $131
million.
o ALLTEL's wireline operating income and cash flow margins increased to 36
percent and 55 percent, respectively.
o With the completion of a merger with Nebraska-based Aliant Communications
in July, ALLTEL now has almost 8 million communications customers in 24
states.
o ALLTEL Information Services reported its sixth straight quarter of double
digit operating income growth.
We are particularly pleased with the record second quarter results, which
were achieved during a quarter when we completed and announced several key
acquisitions in our communications business and continued to introduce new
services to our markets.
Our communications business continued its successful strategy of expanding
geographically focused markets. One year after the 360 Communications merger -
the largest transaction in our company's history - we announced and completed
several additional acquisitions. These include the completion of a merger with
Aliant Communications, a pending merger with Liberty Cellular in Kansas and the
acquisition of wireless operations in the Dothan, Ala., and Durango, Colo.
Our successful competitive local exchange carrier operation in Little Rock
announced its largest contract - a multi-year agreement to serve about 20,000
access lines for the Arkansas state government.
Based on this successful model, we announced plans to expand local service
to eight additional markets in North Carolina and Virginia later this year. We
also introduced Southern Advantage, our largest local wireless calling area
ever, which extends from central Virginia to the Florida panhandle.
Our information services business continued to advance its leadership
position in the financial services and telecommunications industries in the
second quarter. ALLTEL Information Services signed a number of new contracts or
contract renewals with clients including Regions Financial Corp., FirstMerit
Corp. and Chittenden Corp. We also recently announced a new contract with
BancWest Corp.
And we continued to add enhancements to our mortgage software products and
Virtuoso suite of products for the wireless industry, creating greater value for
our customers.
The quarter's strong results continue to validate the strategies we have
chosen for our communications and information services businesses - as well as
our ability to successfully execute those strategies.
Board Declares Dividends
ALLTEL's Board of Directors declared regular quarterly dividends on the
Company's common stock. The 30.5 cent dividend is payable October 4, 1999 to
stockholders of record as of September 10, 1999.
Regular quarterly dividends were also declared on all series of the
Company's preferred stock. Preferred dividends are payable September 15, 1999 to
stockholders of record as of August 27, 1999.
/s/ Joe Ford
Joe T. Ford,
Chairman and Chief Executive Officer
July 22, 1999
21
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Three Months Six Months Twelve Months
Ended June 30, Ended June 30, Ended June 30,
------------------------ ------------------------- --------------------------
(Dollars in thousands,
except per share amounts) 1999 1998 1999 1998 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES AND SALES:
Service revenues $1,320,999 $1,150,008 $2,561,744 $2,220,709 $4,973,650 $4,314,415
Product sales 148,589 154,122 276,206 267,739 569,860 501,811
---------- ---------- ---------- ---------- ---------- ----------
Total revenues and sales 1,469,588 1,304,130 2,837,950 2,488,448 5,543,510 4,816,226
- -----------------------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES:
Operations 755,826 699,429 1,472,597 1,326,184 2,886,686 2,543,774
Cost of products sold 139,608 132,207 263,654 242,889 571,345 476,607
Depreciation and amortization 192,798 171,801 383,119 346,777 743,471 674,338
Merger and integration expenses - - - - 252,000 -
Provision to reduce carrying
value of certain assets - - - - 55,000 -
---------- ---------- ---------- ---------- ---------- ----------
Total costs and expenses 1,088,232 1,003,437 2,119,370 1,915,850 4,508,502 3,694,719
- -----------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME 381,356 300,693 718,580 572,598 1,035,008 1,121,507
Equity earnings in unconsolidated
partnerships 29,647 25,526 59,971 50,127 124,703 99,705
Minority interest in consolidated
partnerships (34,777) (27,057) (64,841) (48,438) (118,580) (92,998)
Other income, net 13,978 5,095 26,863 9,059 55,954 17,343
Interest expense (65,981) (65,998) (130,877) (132,756) (261,790) (266,607)
Gain on disposal of assets and other - 148,159 - 215,249 80,901 249,662
---------- ---------- ---------- ---------- ---------- ----------
Income before income taxes 324,223 386,418 609,696 665,839 916,196 1,128,612
Income taxes 134,075 152,401 252,866 264,151 435,579 444,393
---------- ---------- ---------- ---------- ---------- ----------
Net income 190,148 234,017 356,830 401,688 480,617 684,219
Preferred dividends 227 231 459 471 926 965
---------- ---------- ---------- ---------- ---------- ----------
Net income applicable to
common shares $ 189,921 $ 233,786 $ 356,371 $ 401,217 $ 479,691 $ 683,254
- -----------------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE:
Basic $.67 $.85 $1.27 $1.46 $1.73 $2.49
Diluted $.67 $.84 $1.25 $1.45 $1.71 $2.46
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Six Months Twelve Months
Ended June 30, Ended June 30,
----------------------- ------------------------
(Dollars in thousands) 1999 1998 1999 1998
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET CASH PROVIDED FROM OPERATIONS $ 507,970 $ 537,617 $1,217,447 $1,324,950
- -----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (365,300) (338,663) (895,214) (829,822)
Purchase of property, net of cash acquired (83,090) (20,543) (117,620) (69,103)
Additions to capitalized software development costs (20,814) (45,878) (65,072) (87,281)
Additions to investments (10,481) (13,887) (13,848) (54,523)
Proceeds from the sale of investments - 220,892 87,551 220,892
Proceeds from the return on investments 52,460 18,683 92,101 29,102
Proceeds from the sale of assets - - - 50,342
Other, net (16,682) (7,519) (63,954) (60,206)
--------- --------- ---------- ----------
Net cash used in investing activities (443,907) (186,915) (976,056) (800,599)
- -----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends on preferred and common stock (172,511) (107,274) (305,621) (210,352)
Reductions in long-term debt (221,724) (284,929) (248,951) (169,421)
Purchase of common stock - - - (154,872)
Distributions to minority investors (34,532) (39,086) (88,234) (67,088)
Preferred stock redemptions and purchases (498) (518) (525) (898)
Long term debt issued 298,174 99,257 306,221 74,187
Common stock issued 28,197 12,122 62,403 17,466
--------- --------- ---------- ----------
Net cash used in financing activities (102,894) (320,428) (274,707) (510,978)
- -----------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and short-term investments (38,831) 30,274 (33,316) 13,373
CASH AND SHORT-TERM INVESTMENTS:
Beginning of the period 55,472 19,683 49,957 36,584
--------- --------- ---------- ----------
End of the period $ 16,641 $ 49,957 $ 16,641 $ 49,957
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
23
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
- --------------------------------------------------------------------------------------------------------------------------
June 30, December 31, June 30,
ASSETS 1999 1998 1998
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and short-term investments $ 16,641 $ 55,472 $ 49,957
Accounts receivable (less allowance for doubtful
accounts of $28,944, $29,121 and $26,495, respectively) 836,038 776,720 751,265
Materials and supplies 15,439 10,539 19,425
Inventories 104,041 88,467 71,820
Prepaid expenses and other 61,351 49,633 40,742
---------- ---------- ----------
Total current assets 1,033,510 980,831 933,209
- --------------------------------------------------------------------------------------------------------------------------
Investments 1,837,490 1,668,171 1,377,177
Goodwill and other intangibles 1,718,998 1,625,617 1,624,336
- --------------------------------------------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT:
Wireline 4,424,181 4,090,791 3,999,381
Wireless 2,950,905 2,658,822 2,462,495
Information services 739,850 678,244 666,004
Other 178,700 182,066 180,336
Under construction 589,230 623,415 391,719
---------- ---------- ----------
Total property, plant and equipment 8,882,866 8,233,338 7,699,935
Less accumulated depreciation 3,820,292 3,405,270 3,159,894
---------- ---------- ----------
Net property, plant and equipment 5,062,574 4,828,068 4,540,041
- --------------------------------------------------------------------------------------------------------------------------
Other assets 300,307 271,539 372,697
- --------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $9,952,879 $9,374,226 $8,847,460
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
June 30, December 31, June 30,
LIABILITIES AND SHAREHOLDERS' EQUITY 1999 1998 1998
- --------------------------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES:
Current maturities of long-term debt $ 51,422 $ 55,484 $ 47,950
Accounts and notes payable 371,739 486,047 383,245
Advance payments and customer deposits 110,843 129,092 136,481
Accrued taxes 108,638 130,675 170,261
Accrued dividends 86,713 84,388 55,491
Other current liabilities 273,728 320,822 158,795
---------- ---------- ----------
Total current liabilities 1,003,083 1,206,508 952,223
- --------------------------------------------------------------------------------------------------------------------------
Long-term debt 3,677,547 3,491,755 3,517,776
Deferred income taxes 1,068,460 933,485 823,359
Other liabilities 519,742 466,601 437,754
Preferred stock, redeemable 4,455 5,005 5,128
- --------------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY:
Preferred stock 9,105 9,121 9,134
Common stock 281,750 275,137 274,224
Additional capital 888,826 846,647 819,734
Unrealized holding gain on investments 649,093 551,615 381,556
Retained earnings 1,850,818 1,588,352 1,626,572
---------- ---------- ----------
Total shareholders' equity 3,679,592 3,270,872 3,111,220
- --------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $9,952,879 $9,374,226 $8,847,460
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
24
<PAGE>
<TABLE>
HIGHLIGHTS (UNAUDITED)
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30, Twelve Months Ended June 30,
----------------------------------- --------------------------------- ---------------------------------
(Dollars in thousands, % Increase % Increase % Increase
except per share amounts) 1999 1998 (Decrease) 1999 1998 (Decrease) 1999 1998 (Decrease)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FROM CURRENT BUSINESSES:
Revenues and sales:
Wireless $ 638,692 $ 538,932 19 $1,221,514 $1,020,570 20 $2,338,105 $1,972,832 19
Wireline 365,022 324,915 12 722,553 644,791 12 1,386,826 1,278,455 8
Emerging businesses 44,286 21,541 106 83,335 40,635 105 142,647 72,771 96
---------- ---------- ---------- ---------- ---------- ----------
Total communications 1,048,000 885,388 18 2,027,402 1,705,996 19 3,867,578 3,324,058 16
Information services 313,850 297,191 6 619,248 564,052 10 1,216,964 1,072,456 13
Other operations 143,997 141,447 2 261,061 246,562 6 615,849 463,254 33
---------- ---------- ---------- ---------- ---------- ----------
Total business segments 1,505,847 1,324,026 14 2,907,711 2,516,610 16 5,700,391 4,859,768 17
Less: intercompany
eliminations 36,259 19,896 82 69,761 28,162 148 156,881 43,542 260
---------- ---------- ---------- ---------- ---------- ----------
Total revenues and sales $1,469,588 $1,304,130 13 $2,837,950 $2,488,448 14 $5,543,510 $4,816,226 15
- ------------------------------------------------------------------------------------------------------------------------------------
Operating income (loss):
Wireless $ 222,793 $ 153,701 45 $ 403,195 $ 274,916 47 $ 731,892 $ 528,060 39
Wireline 130,675 114,454 14 260,661 232,358 12 499,867 466,094 7
Emerging businesses (11,611) (11,440) (1) (23,740) (17,169) (38) (51,447) (27,815) (85)
---------- ---------- ---------- ---------- ---------- ----------
Total communications 341,857 256,715 33 640,116 490,105 31 1,180,312 966,339 22
Information services 43,286 39,367 10 83,738 76,192 10 170,197 151,862 12
Other operations 6,064 7,130 (15) 10,314 12,267 (16) 23,973 21,268 13
---------- ---------- ---------- ---------- ---------- ----------
Total business segments 391,207 303,212 29 734,168 578,564 27 1,374,482 1,139,469 21
Corporate expenses 9,851 2,519 291 15,588 5,966 161 32,474 17,962 81
---------- ---------- ---------- ---------- ---------- ----------
Total operating income $ 381,356 $ 300,693 27 $ 718,580 $ 572,598 25 $1,342,008 $1,121,507 20
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 190,148 $ 143,828 32 $ 356,830 $ 271,151 32 $ 665,984 $ 531,113 25
Basic earnings per share $.67 $.52 29 $1.27 $.99 28 $2.39 $1.93 24
Diluted earning per share $.67 $.52 29 $1.25 $.98 28 $2.36 $1.91 24
- ------------------------------------------------------------------------------------------------------------------------------------
AS REPORTED:
Revenues and sales $1,469,588 $1,304,130 13 $2,837,950 $2,488,448 14 $5,543,510 $4,816,226 15
Operating income $ 381,356 $ 300,693 27 $ 718,580 $ 572,598 25 $1,035,008 $1,121,507 (8)
Net income $ 190,148 $ 234,017 (19) $ 356,830 $ 401,688 (11) $ 480,617 $ 684,219 (30)
Basic earnings per share $.67 $.85 (21) $1.27 $1.46 (13) $1.73 $2.49 (31)
Diluted earning per share $.67 $.84 (20) $1.25 $1.45 (14) $1.71 $2.46 (30)
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted average
common shares 281,600,000 274,177,000 3 281,160,000 274,002,000 3 277,863,000 274,718,000 1
Current annual dividend
rate per common share $1.22 $1.16 5
Capital expenditures $ 193,256 $ 205,773 (6) $ 365,300 $ 338,663 8 $ 895,215 $ 829,822 8
Total assets $9,952,879 $8,847,460 12
Wireless customers 4,296,147 3,742,431 15
Wireline customers 2,063,242 1,847,007 12
Long-distance customers 640,137 427,108 50
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
Current businesses excludes the merger and integration expenses, provision to reduce carrying value of certain assets, and gain on
disposal of assets.
Emerging businesses includes the long-distance, local competitive access, Internet access, network management and PCS operations.
</FN>
</TABLE>
25
<PAGE>
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. Financial Statement Presentation:
The consolidated financial statements at June 30, 1999 and 1998 and for
the three, six and twelve month periods then ended are unaudited and
reflect all adjustments (consisting only of normal recurring adjustments)
which are, in the opinion of management, necessary for a fair presentation
of the financial position and operating results for the interim periods.
2. Merger:
On July 1, 1998, ALLTEL 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 ALLTEL, and each outstanding share of 360
common stock was converted into the right to receive .74 shares of ALLTEL
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. The accompanying interim financial statements have
been restated to include the accounts and results 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 for certain interim periods are as follows:
<TABLE>
<CAPTION>
Three Months Six Months Twelve Months
Ended Ended Ended
June 30, June 30, June 30,
1998 1998 1998
(In thousands, except per share amounts) ---- ---- ----
----------------------------------------
<S> <C> <C> <C>
Revenues and sales:
ALLTEL $ 934,492 $1,781,454 $3,443,832
360 398,613 753,448 1,453,512
Eliminations and reclassifications (28,975) (46,454) (81,118)
---------- ---------- ----------
Combined $1,304,130 $2,488,448 $4,816,226
========== ========== ==========
Net income:
ALLTEL $ 196,898 $ 320,449 $ 552,737
360 37,119 81,239 131,482
Eliminations and reclassifications - - -
---------- ---------- ----------
Combined $ 234,017 $ 401,688 $ 684,219
========== ========== ==========
Combined earnings per share:
Basic $.85 $1.46 $2.49
Diluted $.84 $1.45 $2.46
</TABLE>
3. 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 completed
by the end of 1999. As of June 30, 1999, the Company had paid $33.8
million in severance and employee-related expenses and 469 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, an $18 million
write-down in the carrying value of certain assets resulting from a
revised Personal Communication Services ("PCS") deployment plan, and other
integration costs of $23.1 million.
26
<PAGE>
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
3. Merger and Integration Expenses (continued):
The estimated cost of contract termination primarily relates to a
long-term contract continuing through 2006 with an outside vendor for
customer billing services to be provided to the 360 operations, under
which the Company currently is paying $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's best estimate of the 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 action 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. The following is a
summary of activity related to the Company's merger and integration
accrual:
(In Millions)
-------------
Total merger and integration costs $ 252.0
Cash outlays (108.4)
Noncash write-down of assets (74.8)
-------
Accrued reserve balance at June 30, 1999 $ 68.8
=======
The merger and integration expenses decreased net income $201.0 million.
4. Comprehensive Income:
Comprehensive income was as follows for the three, six and twelve month
periods ended June 30:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended Twelve Months Ended
--------------------- --------------------- ---------------------
(Dollars in thousands) 1999 1998 1999 1998 1999 1998
---------------------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net income $190,148 $ 234,017 $356,830 $ 401,688 $480,617 $ 684,219
-------- --------- -------- --------- -------- ---------
Other comprehensive income (loss):
Unrealized holding gains (losses) on
investments arising during the period (30,707) 77,596 160,073 319,263 520,072 282,541
Income tax expense (benefit) (12,294) 31,495 62,595 126,101 203,367 113,042
-------- --------- -------- --------- -------- ---------
(18,413) 46,101 97,478 193,162 316,705 169,499
-------- --------- -------- --------- -------- ---------
Less: reclassification adjustments
for gains included in net income - (148,159) - (184,743) (80,901) (184,743)
Income tax expense - 58,116 - 72,466 31,733 72,466
-------- --------- -------- --------- -------- ---------
- (90,043) - (112,277) (49,168) (112,277)
-------- --------- -------- --------- -------- ---------
Other comprehensive income
(loss) before tax (30,707) (70,563) 160,073 134,520 439,171 97,798
Income tax expense (benefit) (12,294) (26,621) 62,595 53,635 171,634 40,576
-------- --------- -------- --------- -------- ---------
Other comprehensive income (18,413) (43,942) 97,478 80,885 267,537 57,222
-------- --------- -------- --------- -------- ---------
Comprehensive income $171,735 $ 190,075 $454,308 $ 482,573 $748,154 $741,441
======== ========= ======== ========= ======== =========
</TABLE>
27
<PAGE>
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
5. Earnings per Share:
A reconciliation of the net income and number of shares used in computing
basic and diluted earnings per share for the three, six and twelve month
periods ended June 30, 1999 and 1998 was as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended Twelve Months Ended
--------------------- ----------------------- ----------------------
(In thousands, except per share amounts) 1999 1998 1999 1998 1999 1998
---------------------------------------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per share:
Net income applicable to
common shares $189,921 $233,786 $356,371 $401,217 $479,691 $683,254
Weighted average common shares
outstanding for the period 281,600 274,177 281,160 274,002 277,863 274,718
-------- -------- -------- -------- -------- --------
Basic earnings per share $.67 $.85 $1.27 $1.46 $1.73 $2.49
==== ==== ===== ===== ===== =====
Diluted earnings per share:
Net income applicable to
common shares $189,921 $233,786 $356,371 $401,217 $479,691 $683,254
Adjustments for convertible securities:
Preferred stock dividends 44 38 88 84 178 184
-------- -------- -------- -------- -------- --------
Net income applicable to common
shares assuming conversion $189,965 $233,824 $356,459 $401,301 $479,869 $683,438
-------- -------- -------- -------- -------- --------
Weighted average common shares
outstanding for the period 281,600 274,177 281,160 274,002 277,863 274,718
Increase in shares resulting from:
Exercise of stock options 3,490 2,407 3,476 2,463 2,997 2,057
Conversion of preferred stocks 448 470 452 473 457 490
-------- -------- -------- -------- -------- --------
Weighted average common shares
outstanding assuming conversion 285,538 277,054 285,088 276,938 281,317 277,265
-------- -------- -------- -------- -------- --------
Diluted earnings per share $.67 $.84 $1.25 $1.45 $1.71 $2.46
==== ==== ===== ===== ===== =====
</TABLE>
28
<PAGE>
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
6. Business Segment Information:
ALLTEL disaggregates its business operations based on differences in
products and services. The Company evaluates performance based on segment
operating income, excluding non-recurring and unusual items. Segment
operating results for the three, six and twelve month periods ended
June 30, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended Twelve Months Ended
------------------------ ------------------------ ------------------------
(Dollars in thousands) 1999 1998 1999 1998 1999 1998
---------------------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Revenues and Sales from
External Customers:
Wireless $ 638,692 $ 538,932 $1,221,514 $1,020,570 $2,338,105 $1,972,832
Wireline 356,194 316,314 704,984 627,740 1,351,841 1,244,442
Emerging businesses 44,286 21,541 83,335 40,635 142,647 72,771
---------- ---------- ---------- ---------- ---------- ----------
Total communications 1,039,172 876,787 2,009,833 1,688,945 3,832,593 3,290,045
Information services 245,563 252,881 488,822 485,964 1,007,999 929,796
Other operations 93,747 89,062 171,916 164,865 345,166 324,347
---------- ---------- ---------- ---------- ---------- ----------
Total business segments $1,378,482 $1,218,730 $2,670,571 $2,339,774 $5,185,758 $4,544,188
========== ========== ========== ========== ========== ==========
Intersegment Revenues
and Sales:
Wireless $ - $ - $ - $ - $ - $ -
Wireline 8,828 8,601 17,569 17,051 34,985 34,013
Emerging businesses - - - - - -
---------- ---------- ---------- ---------- ---------- ----------
Total communications 8,828 8,601 17,569 17,051 34,985 34,013
Information services 68,287 44,310 130,426 78,088 208,965 142,660
Other operations 50,250 52,385 89,145 81,697 270,683 138,907
---------- ---------- ---------- ---------- ---------- ----------
Total business segments $ 127,365 $ 105,296 $ 237,140 $ 176,836 $ 514,633 $ 315,580
========== ========== ========== ========== ========== ==========
Total Revenues and Sales:
Wireless $ 638,692 $ 538,932 $1,221,514 $1,020,570 $2,338,105 $1,972,832
Wireline 365,022 324,915 722,553 644,791 1,386,826 1,278,455
Emerging businesses 44,286 21,541 83,335 40,635 142,647 72,771
---------- ---------- ---------- ---------- ---------- ----------
Total communications 1,048,000 885,388 2,027,402 1,705,996 3,867,578 3,324,058
Information services 313,850 297,191 619,248 564,052 1,216,964 1,072,456
Other operations 143,997 141,447 261,061 246,562 615,849 463,254
---------- ---------- ---------- ---------- ---------- ----------
Total business segments 1,505,847 1,324,026 2,907,711 2,516,610 5,700,391 4,859,768
Less: intercompany
eliminations 36,259 19,896 69,761 28,162 156,881 43,542
---------- ---------- ---------- ---------- ---------- ----------
Total revenues and sales $1,469,588 $1,304,130 $2,837,950 $2,488,448 $5,543,510 $4,816,226
========== ========== ========== ========== ========== ==========
Operating Income (Loss):
Wireless $ 222,793 $ 153,701 $ 403,195 $ 274,916 $ 731,892 $ 528,060
Wireline 130,675 114,454 260,661 232,358 499,867 466,094
Emerging businesses (11,611) (11,440) (23,740) (17,169) (51,447) (27,815)
---------- ---------- ---------- --------- ---------- ----------
Total communications 341,857 256,715 640,116 490,105 1,180,312 966,339
Information services 43,286 39,367 83,738 76,192 170,197 151,862
Other operations 6,064 7,130 10,314 12,267 23,973 21,268
---------- ---------- ---------- ---------- ---------- ----------
Total business segments 391,207 303,212 734,168 578,564 1,374,482 1,139,469
Corporate operations (9,851) (2,519) (15,588) (5,966) (32,474) (17,962)
Merger and integration costs - - - - (252,000) -
Provision to reduce carrying
value of certain assets - - - - (55,000) -
---------- ---------- ----------- ---------- ---------- ----------
Total corporate expenses (9,851) (2,519) (15,588) (5,966) (339,474) (17,962)
---------- ---------- ----------- ---------- ---------- ----------
Total operating income $ 381,356 $ 300,693 $ 718,580 $ 572,598 $1,035,008 $1,121,507
========== ========== =========== ========== ========== ==========
</TABLE>
29
<PAGE>
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
6. Business Segment Information, (continued):
Segment assets as of June 30, 1999 and 1998 were as follows:
(In thousands)
------------------------
1999 1998
---- ----
Wireless $4,250,513 $4,006,343
Wireline 2,961,043 2,787,687
Emerging businesses 288,782 57,646
---------- ----------
Total communications 7,500,338 6,851,676
Information services 869,444 860,914
Other operations 213,250 158,619
---------- ----------
Total business segments 8,583,032 7,871,209
Add: Corporate assets not
allocated to segments:
Headquarters fixed assets,
net of accumulated depreciation 182,112 125,037
Investments 1,140,710 744,587
Goodwill, net of amortization 103,427 106,429
Other assets 33,495 37,807
Less: elimination of intersegment receivables (89,897) (37,609)
---------- ----------
Consolidated assets $9,952,879 $8,847,460
========== ==========
7. 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 reversed the Superior Court's decision. On
August 5, 1997, the Company filed with the Georgia Supreme Court a
petition for writ of certiorari requesting that the Georgia Court of
Appeals' decision be reversed. On October 5, 1998, the Georgia Supreme
Court, in a 4-3 decision, upheld the Georgia Court of Appeals' ruling that
the Georgia PSC had the authority to conduct the rate proceeding. The case
was returned to the Superior Court for it to rule on the issues it had not
previously decided. On April 6, 1999, the Superior Court found that with
respect to the July 1996 order, the Georgia PSC did not provide ALLTEL
with sufficient notice of the charges against the Company, did not provide
ALLTEL a fair opportunity to present its case and respond to the charges,
and failed to satisfy its burden of proving that ALLTEL's rates were
unjust and unreasonable. Further, the Superior Court found that the July
1996 order was an unlawful attempt to retroactively reduce ALLTEL's rates
and certain statutory revenue recoveries. For each of these independent
reasons, the Superior Court vacated and reversed the July 1996 order and
remanded the case with instructions to dismiss the case. The Georgia PSC
appealed the Superior Court's April 1999 decision.
At June 30, 1999, the maximum possible liability to the Company related to
this case is $72 million, plus interest at 7 percent accruing 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.
30
<PAGE>
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
8. Subsequent Event - Completion of Merger:
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 and Aliant 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 merger will be restated to
reflect the merger transaction. The following supplemental financial
information presents the combined operating results of ALLTEL and Aliant
and includes certain eliminations and reclassification adjustments to
conform the accounting and financial reporting policies of the two
companies. Separate and combined results of operations for the interim
periods ended June 30, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended Twelve Months Ended
------------------------- ------------------------- -------------------------
(Dollars in thousands) 1999 1998 1999 1998 1999 1998
---------------------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Revenues and sales:
ALLTEL $1,469,588 $1,304,130 $2,837,950 $2,488,448 $5,543,510 $4,816,226
Aliant 93,127 86,044 182,892 161,154 359,745 308,658
Eliminations and
reclassifications (477) (1,977) (1,881) (3,926) (5,943) (8,955)
---------- ---------- ---------- ---------- ---------- ----------
Combined $1,562,238 $1,388,197 $3,018,961 $2,645,676 $5,897,312 $5,115,929
========== ========== ========== ========== ========== ==========
Net income:
ALLTEL $ 190,148 $ 234,017 $ 356,830 $ 401,688 $ 480,617 $ 684,219
Aliant 17,650 12,279 32,955 25,397 65,617 53,270
Eliminations and
reclassifications - - - - - -
---------- ---------- ---------- ---------- ---------- ----------
Combined $ 207,798 $ 246,296 $ 389,785 $ 427,085 $ 546,234 $ 737,489
========== ========== ========== ========== ========== ==========
Combined earnings per share:
Basic $.68 $.82 $1.28 $1.43 $1.80 $2.46
Diluted $.67 $.82 $1.26 $1.42 $1.78 $2.44
</TABLE>
31
AMENDMENT NO. 11
TO
ALLTEL CORPORATION PROFIT-SHARING PLAN
(January 1, 1994 Restatement)
WHEREAS, ALLTEL Corporation (the "Company") maintains the
ALLTEL Corporation Profit-Sharing Plan, as amended and restated effective
January 1, 1994 and subsequently further amended (the "Plan"); and
WHEREAS, the Company desires further to amend the Plan;
NOW, THEREFORE, BE IT RESOLVED, that the Company hereby amends
the Plan in the respects hereinafter set forth:
Effective with respect to periods beginning on and after
April 22, 1999, Section 11.01 of the Plan is amended to provide as follows:
11.01 Composition of Trust Fund
-------------------------
All amounts contributed to the Plan, as increased or decreased
by income, expenditure, appreciation and depreciation, shall
constitute a single fund known as the Trust Fund. The Trust
Fund shall be invested in an Investment Fund A and a
Guaranteed Principal Investment Fund in accordance with the
following:
(a) The assets of Investment Fund A shall be invested in
accordance with the provisions of the Trust
Agreement, except that notwithstanding the provisions
of the Trust Agreement:
(1) 20% of the annual Employer Contribution to
the Plan allocable to Investment Fund A
shall be invested in the ALLTEL Corporation
Common Stock Fund (as described in the Trust
Agreement and the Trust Agreement for ALLTEL
Corporation Master Trust) (the "ALLTEL Stock
Fund") if as of the end of the Plan Year
immediately preceding the date on which such
Employer Contribution is made the value of
the assets of Investment Fund A invested in
the ALLTEL Stock Fund did not exceed 35% of
the total value of the assets of Investment
Fund A.
(2) The investment of assets of Investment Fund
A in the ALLTEL Stock Fund existing as of
April 22, 1999 shall not be reduced by
investment allocation(s) of assets of
Investment Fund A from the ALLTEL Stock Fund
to any other investment fund(s) (and all
dividends, distributions, and proceeds with
respect to assets invested in the ALLTEL
Stock Fund shall be allocated to the ALLTEL
Stock Fund) or by the charging of payments
and disbursements from the Trust to the
<PAGE>
ALLTEL Stock Fund, except: (A) to the extent
that allocation of the investment of assets
of Investment Fund A from the ALLTEL Stock
Fund to any other investment fund(s) or
charging of payments and disbursements from
the Trust to the ALLTEL Stock Fund does not
reduce the amount of the assets of
Investment Fund A invested in the ALLTEL
Stock Fund to less than approximately 35% of
the total value of the assets of Investment
Fund A; (B) payment of the cost of
acquisition, sale, or exchange (including
brokerage costs) of any security or other
property held in the ALLTEL Stock Fund shall
be charged to the ALLTEL Stock Fund; (C)
administrative expenses of the Plan and
Trust shall be charged against the ALLTEL
Stock Fund to the extent directed by the
Pension Investment Committee; and (D) to the
extent that the Pension Investment Committee
determines that current payments and
disbursements from the Trust allocable to
Investment Fund A will exceed the amount of
assets of Investment Fund A that are not
invested in the ALLTEL Stock Fund.
Notwithstanding the foregoing, the investment of
assets in Investment Fund A shall be subject to
limitations under ERISA and Section 401(a) of the
Code and regulations issued thereunder.
(b) The assets of the Guaranteed Principal Investment
Fund shall be invested in accordance with the Trust
Agreement, except that notwithstanding the
provisions of the Trust Agreement the assets of the
Guaranteed Principal Fund shall be invested
(directly or indirectly) in certificates of
deposits, time deposit accounts, money market
funds, guaranteed investment contracts or similar
investments designed to protect the principal
invested therein.
The interest of each Participant or Beneficiary under the Plan
in Investment Fund A or in the Guaranteed Principal Investment
Fund, as applicable, shall be an undivided interest.
IN WITNESS WHEREOF, the Company, by its duly authorized
officer, has caused this Amendment to be executed on this 23rd day of
April, 1999
ALLTEL CORPORATION
By:/s/John L. Comparin
--------------------------------
Title: Sr. V.P. Human Resources
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE SECOND
QUARTER REPORT TO STOCKHOLDERS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH REPORT.
</LEGEND>
<CIK> 0000065873
<NAME> ALLTEL CORPORATION
<MULTIPLIER>1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 16,641
<SECURITIES> 0
<RECEIVABLES> 836,038
<ALLOWANCES> 28,944
<INVENTORY> 104,041
<CURRENT-ASSETS> 1,033,510
<PP&E> 8,882,866
<DEPRECIATION> 3,820,292
<TOTAL-ASSETS> 9,952,879
<CURRENT-LIABILITIES> 1,003,083
<BONDS> 3,677,547
4,455
9,105
<COMMON> 281,750
<OTHER-SE> 3,388,737
<TOTAL-LIABILITY-AND-EQUITY> 9,952,879
<SALES> 276,206
<TOTAL-REVENUES> 2,837,950
<CGS> 263,654
<TOTAL-COSTS> 2,119,370
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 130,877
<INCOME-PRETAX> 609,696
<INCOME-TAX> 252,866
<INCOME-CONTINUING> 356,830
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 356,371
<EPS-BASIC> 1.27
<EPS-DILUTED> 1.25
</TABLE>
