UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
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or
( )TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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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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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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Common Stock New York and Pacific
$2.06 No Par Cumulative Convertible
Peferred Stock New York and Pacific
Securities registered pursuant to Section 12(g) of the Act:
NONE
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. (X)
Aggregate market value of voting stock held by non-affiliates as of
February 29, 2000 - $18,281,386,792
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Common shares outstanding, February 29, 2000 - 315,196,324
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DOCUMENTS INCORPORATED BY REFERENCE
Document Incorporated Into
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Portions of the annual report to stockholders
for the year ended December 31, 1999 Parts I, II and IV
Proxy statement for the 2000 Annual Meeting
of stockholders Part III
The Exhibit Index is located on pages 25 to 30.
<PAGE>
ALLTEL Corporation
Form 10-K, Part I
Item 1. Business
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THE COMPANY
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GENERAL
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ALLTEL Corporation ("ALLTEL" or the "Company") is a customer-focused information
technology company that provides wireline and wireless communications and
information services. The Company owns subsidiaries that provide wireless and
wireline local, long-distance, network access and Internet services, wide-area
paging service and information processing management services and advanced
application software. Telecommunications products are warehoused and sold by the
Company's distribution subsidiary. A subsidiary also publishes telephone
directories for affiliates and other independent telephone companies. The
Company is incorporated in the state of Delaware.
FORWARD-LOOKING STATEMENTS
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This Form 10-K and future filings by the Company on Form 10-Q and Form 8-K and
future oral and written statements by the Company and its management may
include, certain forward-looking statements, including (without limitation)
statements with respect to anticipated future operating and financial
performance, growth opportunities and growth rates, acquisition and divestitive
opportunities, 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; and the risks associated
with relatively large, multi-year contracts in the Company's information
services business. In addition to these factors, actual future performance,
outcomes and results may differ materially because of other, more general,
factors including (without limitation) general industry and market conditions
and growth rates, domestic and international economic conditions, governmental
and public policy changes and the continued availability of financing in the
amounts, at the terms and on the conditions necessary to support the Company's
future business.
1
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ALLTEL Corporation
Form 10-K, Part I
Item 1. Business
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THE COMPANY (continued)
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AGREEMENT - EXCHANGE OF WIRELESS ASSETS
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On January 31, 2000, ALLTEL, Bell Atlantic Corporation ("Bell Atlantic"), GTE
Corporation ("GTE") and Vodafone Airtouch signed agreements to exchange wireless
properties in 13 states. Upon the closing of the transactions, Bell Atlantic and
GTE will transfer to ALLTEL interests in 27 wireless markets in Alabama,
Arizona, Florida, Ohio, New Mexico, Texas and South Carolina, representing about
14 million potential customers ("POPs") and more than 1.5 million wireless
customers. ALLTEL will transfer to Bell Atlantic or GTE interests in 42 wireless
markets in Illinois, Indiana, Iowa, Nevada, New York and Pennsylvania,
representing 6.3 million POPs and more than 700,000 customers. ALLTEL will also
transfer certain of its minority investments in unconsolidated wireless
properties, representing approximately 2.6 million POPs. In addition to the
transfer of wireless assets, ALLTEL will also pay approximately $600 million in
cash. Following the completion of the transactions, ALLTEL will have a total of
46 million cellular POPs and almost 5.8 million wireless customers. The
transactions are expected to be completed by mid-2000.
As part of this transaction, the companies also signed a new reciprocal roaming
agreement, which will allow their customers to roam on each other's networks at
reduced rates across a footprint that covers almost 95 percent of the U.S.
population. Using a common digital technology called CDMA, the companies,
through this agreement, will have the nation's largest standardized digital
wireless network.
ACQUISITIONS
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In September 1999, ALLTEL completed its mergers with Liberty Cellular, Inc.
("Liberty") and its affiliate, KINI L.C. Liberty, which prior to the merger
operated under the name "Kansas Cellular", provided wireless, long-distance and
Internet services in Kansas to approximately 200,000 communications customers.
In July 1999, ALLTEL completed its merger with Aliant Communications Inc.
("Aliant"), a communications company which provided wireless, wireline, paging,
long-distance and Internet services in Nebraska to more than 600,000
communications customers.
In January 1999, the Company completed its merger with Standard Group, Inc.
("Standard"), a communications company which served more than 71,000 customer
lines in northeast Georgia. The customer lines acquired are in areas adjacent to
the Company's other wireline exchanges in Georgia and increased ALLTEL's total
wireline customers in the state to more than 550,000. The transaction also
included Standard's cable television operations, which served approximately
30,000 customers. Including this acquisition, the Company currently provides
cable television service to approximately 35,000 customers in Georgia and
Missouri. These cable television properties are not significant to the ongoing
operations of ALLTEL.
During 1999, the Company acquired a 100 percent ownership interest in a wireless
services business serving the Dothan, Alabama Metropolitan Service Area ("MSA"),
representing approximately 135,000 cellular POPs. The Company also purchased 100
percent ownership interests in a wireless services business serving a Colorado
Rural Service Area ("RSA") representing approximately 75,000 cellular POPs, and
a wireless services business serving an Illinois RSA representing more than
200,000 cellular POPs. In addition, the Company increased its ownership interest
to 100 percent in the Richmond, Virginia market, representing approximately
835,000 cellular POPs, through the exchange of its minority interest investment
in a partnership serving the Orlando, Florida market.
2
<PAGE>
ALLTEL Corporation
Form 10-K, Part I
Item 1. Business
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THE COMPANY (continued)
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ACQUISITIONS (continued)
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To expand its information services business, the Company also completed the
acquisitions of ACE Software Sciences ("ACE"), Advanced Information Resources,
Limited ("AIR"), Corporate Solutions International ("CSI"), and Southern Data
Systems ("Southern Data") during 1999. ACE produces mortgage servicing software
that will enhance ALLTEL's current mortgage servicing software products. AIR, a
privately held software and services company, provides wholesale commercial
lending software to large global financial institutions. CSI, a privately held
company headquartered in Atlanta, Georgia, developed a consumer loan origination
system, which when combined with the Company's other loan processing software
products, will allow ALLTEL to provide a state-of-the-art loan origination
solution to current and prospective clients in the financial services industry.
Southern Data, a privately held company also headquartered in Atlanta, provides
a full array of application software and services to the community banking
market.
In July 1998, the Company completed its merger with 360 Communications
Company ("360"), a wireless communications company, which served more
than 2.6 million customers in 15 states. Through this merger, ALLTEL
significantly expanded its wireless presence and enhanced its ability to deliver
bundled communications services across its geographically focused markets.
During 1998, the Company acquired a 100 percent ownership interest in two
Georgia RSAs, representing approximately 181,000 cellular POPs. In addition, the
Company increased its ownership interest in wireless properties in North
Carolina and Texas.
In October 1997, the Company acquired Georgia Telephone Corporation, which
served more than 6,700 customer lines in southwest Georgia. The customer lines
acquired are in areas adjacent to the Company's wireline exchanges in Georgia
and are located within the Company's current wireless service area.
During 1997, the Company increased its ownership to 100 percent in two Alabama
RSAs, representing approximately 260,000 cellular POPs. In addition, the Company
and BellSouth Corporation ("BellSouth") combined their interests in two
partnerships that own and control cellular licenses and operations in Richmond,
Virginia and Orlando, Florida. Also in 1997, the Company acquired minority
interests in 16 of its controlled markets, which increased its ownership
interest to 100 percent in ten of those markets.
In 1996, the Company acquired Independent Cellular Network, Inc. ("ICN"). ICN
owned and operated cellular systems serving more than 140,000 customers in Ohio,
Kentucky, Pennsylvania and West Virginia.
During 1995, ALLTEL entered into a joint venture with BellSouth Mobility, Inc.
involving cellular properties in five states. As a result of this joint venture,
ALLTEL owned a majority interest in the Columbia and Florence, South Carolina
market, owned a minority interest in the Greensboro, North Carolina market and a
North Carolina RSA, and no longer owned a majority interest in the Jackson,
Mississippi market. ALLTEL also completed an exchange of certain assets in a
West Virginia RSA and an Oklahoma RSA for certain assets in a Georgia RSA and a
North Carolina RSA owned by United States Cellular Corp. ("U.S. Cellular"). The
Company also purchased U.S. Cellular's 20 percent interest in the Fort Smith,
Arkansas MSA, increasing ALLTEL's ownership in that MSA to 100 percent.
In May 1995, ALLTEL Information Services, Inc. ("Information Services")
acquired Vertex Business Systems, Inc. ("Vertex"), a provider of international
banking software products and services. Vertex, headquartered in New York, has
clients located in Europe, Asia and the United States.
3
<PAGE>
ALLTEL Corporation
Form 10-K, Part I
Item 1. Business
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THE COMPANY (continued)
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DISPOSITIONS
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During 1998, the Company sold its 27.9 percent ownership interest in a cellular
partnership serving the Omaha, Nebraska market for approximately $18 million in
cash.
In May 1997, the Company sold its wire and cable subsidiary, HWC Distribution
Corp. ("HWC") to Code, Hennessy & Simmons, Inc., an investment firm, for
approximately $45 million in cash. HWC was one of two companies that comprised
ALLTEL's product distribution operations.
In January 1997, the Company sold the healthcare portion of its information
services business to Integrated Healthcare Solutions, Inc. for approximately
$154 million consisting of cash and shares of preferred stock. During 1998, the
preferred stock was converted into common stock representing a 15 percent
interest in a publicly held company, Eclipsys Corporation.
In 1995, the Company completed the sale of certain of its cable television
properties to Citizens Utilities Company. These cable television properties
served approximately 6,800 customers in Arizona, California, New Mexico and
Utah. The Company also completed in 1995 the sale of its cable television
properties in Texas, which served approximately 7,200 customers.
In 1995, Information Services sold all of the assets related to its check
processing operations, including substantially all of the customer contracts.
MANAGEMENT
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The Company's staff at its headquarters and regional offices supervise,
coordinate and assist subsidiaries in management activities, investor relations,
acquisitions, corporate planning, tax planning, treasury management, insurance,
and technical research. They also coordinate the financing program for all of
the Company's operations.
EMPLOYEES
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At December 31, 1999, the Company had 24,440 employees. Some of the employees of
the Company's wireline subsidiaries are part of collective bargaining units.
OPERATING SEGMENTS
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ALLTEL is organized based on the products and services that it offers. Under
this organizational structure, the Company operates in two principal areas:
communications and information services. The Company's communications operations
consist of its wireless, wireline and emerging businesses segments. Emerging
businesses consist of the Company's key new product offerings and include the
Company's long-distance, competitive local exchange carrier ("CLEC"), Internet
access, Personal Communications Services ("PCS"), and network management
operations. The Company also sells telecommunications products and publishes
telephone directories. For financial information about ALLTEL's operating
segments, refer to pages 53-56 of the Company's 1999 Annual Report to
Stockholders, which is incorporated herein by reference.
4
<PAGE>
ALLTEL Corporation
Form 10-K, Part I
Item 1. Business
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COMMUNICATIONS SERVICES
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As previously discussed, the Company completed several strategic acquisitions in
1999 designed to strengthen its communications business and to expand its
geographic presence in Alabama, Colorado, Georgia, Kansas and Nebraska. These
acquisitions, along with the merger with 360 completed in 1998,
significantly expanded ALLTEL's wireless business and enhanced its ability to
provide bundled communications services to its customers. ALLTEL operates its
communications businesses as a single operation capable of delivering to
customers one-stop shopping for a full range of communications products and
services including wireless and wireline (local and long-distance), paging and
Internet services. In 1999, the Company also expanded its local competitive
access service offerings to residential and business customers in 26 markets in
6 states, and during 2000, ALLTEL plans to expand its CLEC service into 17
additional markets in Alabama, Georgia, Missouri and South Carolina.
WIRELESS OPERATIONS
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At December 31, 1999, the Company provided wireless communications service to
more than 5 million customers in 25 states. One measure of a wireless
communications market's potential is the market's population times the percent
of a company's ownership interest of the wireless operations in that market.
ALLTEL owns a majority interest in wireless operations in 67 MSAs, representing
approximately 23.5 million wireless POPs, and the Company owns a majority
interest in 133 RSAs, representing approximately 15.8 million wireless POPs. In
addition, ALLTEL owns a minority interest in more than 80 other wireless
communications markets including the New York, New York; Chicago, Illinois and
Houston, Texas MSAs. At December 31, 1999, ALLTEL's penetration rate (number of
customers as a percentage of the total population in the Company's service
areas) was 12.8 percent.
As previously discussed, ALLTEL through the exchange of wireless properties with
Bell Atlantic and GTE will further expand its wireless business. Upon completion
of the asset exchange, ALLTEL will have nearly 6 million wireless customers and
own a majority interest in more than 46 million wireless POPs.
PRODUCT OFFERINGS AND PRICING
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ALLTEL seeks to stimulate additional usage, increase penetration and improve
customer retention rates through creative pricing strategies. The Company
creates local and expanded service territories designed to meet customer needs
and respond to prevailing market and competitive conditions. Monthly rate plans
are designed to attract users from all market segments. These plans typically
consist of a fixed monthly rate for network access, a package of airtime minutes
included in the monthly rate and a per minute rate for airtime used in excess of
the included minutes. Customers who frequently use wireless service generally
prefer rate plans with a higher than average fixed monthly rate, a larger
package of included minutes and a lower than average per minute airtime rate.
Conversely, customers who use wireless service less frequently prefer a lower
monthly fixed rate and will pay a higher per minute airtime rate. The Company
also provides custom calling features to enhance its product offering. These
features include call waiting, call forwarding, three-way calling, no-answer
transfer and voicemail.
ALLTEL has entered into roaming agreements with other domestic wireless
companies. These roaming agreements provide ALLTEL's customers with the
capability to use their wireless telephones while traveling outside the
Company's service territories. As a result of these roaming agreements, ALLTEL
customers, with few exceptions, can place and receive calls from anywhere within
the United States. Roaming rates have been gradually decreasing, which has
resulted in increased roaming volumes and overall network usage.
5
<PAGE>
ALLTEL Corporation
Form 10-K, Part I
Item 1. Business
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WIRELESS OPERATIONS (continued)
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PRODUCT OFFERINGS AND PRICING (continued
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Primarily as a result of increased usage of ALLTEL's network facilities, average
revenue per customer per month increased slightly in 1999 to $48, as compared to
$47 for 1998. ALLTEL expects average monthly revenue per customer to continue to
be affected by decreased roaming revenue rates and continued penetration into
lower market usage segments.
As previously discussed, ALLTEL, Bell Atlantic, GTE and Vodafone Airtouch signed
reciprocal roaming agreements, which will allow customers of these companies to
roam on each other's networks at reduced rates across a footprint that covers
almost 95 percent of the U.S. population. These roaming agreements will enable
ALLTEL to provide its customers with cost-effective, expanded calling plans.
DISTRIBUTION AND MARKETING
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ALLTEL utilizes four methods of distributing its wireless products and services
in each of its markets. These methods include Company retail stores, Company
retail kiosks, dealers and direct sales representatives. The development of
multiple distribution channels in each of its markets enables the Company to
provide effective and extensive marketing of its products and services and to
reduce its reliance on any single distribution source. ALLTEL continues to
expand its retail channels. Dealer and direct sales channels remain important
components of the Company's overall distribution strategy, with the primary
objective for all channels being to produce the best combination of lower
customer acquisition costs and higher customer retention rates.
ALLTEL currently conducts its retail operations through over 825 Company retail
locations strategically located in smaller local and neighborhood retail
centers, as well as in large shopping malls to capitalize on favorable
demographics and retail traffic patterns. The Company's retail focus is to
attract new customers and to promote customer retention by providing new
customers with extensive assistance from dedicated sales representatives with
the various services that ALLTEL provides. Many retail locations provide vehicle
installation services and while-you-wait wireless telephone troubleshooting and
repair. For ALLTEL, the incremental cost of obtaining a customer through a
Company retail store is the lowest of any distribution channel.
ALLTEL also partners with large national retail stores to sell wireless products
and services directly through its own kiosks. The Company stations retail sales
representatives at kiosks in large retailers to take advantage of high traffic
generated by the retailers, to reduce the cost of the sale, and to ensure
customers receive proper training in the use of wireless equipment and services.
Existing customers can purchase wireless telephone accessories, pay bills or
inquire about ALLTEL's services and features while in retail stores or at
kiosks. Through dedicated customer service at its retail stores and kiosks, the
Company's goal is to build customer loyalty and increase the retention rate of
new and existing customers.
The Company has entered into dealer agreements with several large electronics
retailers and discounters in its markets. ALLTEL also contracts with local
dealers who operate on a smaller scale and may offer other wireless services
like paging. In exchange for a commission payment, these dealers solicit
customers for the Company's wireless service. The commission payment is subject
to chargeback provisions if the customer fails to maintain service for a
specified period of time. This arrangement increases store traffic and sales
volume for the dealers, and provides a valuable source of new customers for the
Company. ALLTEL actively supports its dealers with regular training and
promotional support.
6
<PAGE>
ALLTEL Corporation
Form 10-K, Part I
Item 1. Business
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WIRELESS OPERATIONS (continued)
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DISTRIBUTION AND MARKETING (continued)
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ALLTEL's direct sales force focuses its efforts on business customers with high
wireless telephone usage and multiple lines of service. This channel produces
the lowest churn and highest revenue per customer compared with any other
distribution channel.
Maintaining low customer churn rates is a primary goal of the Company,
particularly as new competitors enter the marketplace. Lower churn contributes
directly to reducing the cost to acquire new customers, since fewer new
customers are needed to meet growth targets. The Company experienced an average
monthly churn rate in its wireless service areas of 2.20 percent and 2.07
percent for the years ended December 31, 1999 and 1998, respectively. These
churn rates were comparable to industry averages.
COMPETITION
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Cellular carriers face competition from a second carrier licensed to provide
wireless cellular communications services in the same geographic area, from
resellers who buy bulk wireless services from one of the two cellular licensees
and resell it to their customers, and from providers of PCS and other enhanced
mobile services. PCS services generally consist of wireless two-way
communications services for voice, data and other transmissions employing
digital technology. There can be a minimum of three and maximum of six broadband
PCS licensed providers in any given area. During the past two years, PCS
providers have begun operations within ALLTEL's wireless markets, and the
Company expects more PCS providers to begin operating within its markets during
2000. ALLTEL has prepared for this competitive environment by enhancing its
networks, expanding its service territories and local calling areas,
restructuring rates, and offering new products and services. ALLTEL intends to
capitalize on its position as an incumbent wireless service provider by
providing high capacity networks, strong distribution channels and superior
customer service.
ALLTEL believes that its networks have sufficient capacity to handle new
customer growth in the near term. The Company intends to meet any capacity
requirements through frequency planning, network organization and the deployment
of additional network infrastructure. As of December 31, 1999, ALLTEL was
providing wireless digital service in 31 of its largest markets. ALLTEL plans to
continue its transition to digital technology on a market-by-market basis.
Digital technology improves call quality, lengthens the battery life of wireless
telephones and offers improved customer call privacy.
REGULATION
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The Company is subject to regulation by the Federal Communications Commission
("FCC") as a provider of wireless communications services. The FCC has
promulgated rules governing the construction and operation of wireless
communications systems and licensing and technical standards for the provision
of wireless communications service. The FCC also regulates wireless service
resale practices and the terms under which certain ancillary services may be
provided through wireless facilities.
The Telecommunications Act of 1996 (the "96 Act") provides wireless carriers
numerous opportunities to compete with local exchange telephone companies,
including the opportunity to provide local telephony services and to be
compensated by other telecommunications carriers for calls terminated on the
wireless carriers' networks. Wireless carriers are not subject to the enhanced
interconnection, resale, unbundling and other obligations that the 96 Act
imposed on the local exchange companies.
7
<PAGE>
ALLTEL Corporation
Form 10-K, Part I
Item 1. Business
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WIRELESS OPERATIONS (continued)
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REGULATION (continued)
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The FCC has found that wireless carriers should not be classified as local
exchange carriers unless the FCC makes a finding that such treatment is
warranted. The 96 Act limits the imposition on wireless carriers of equal access
requirements without a detailed FCC rulemaking. In addition, the 1993 Omnibus
Budget Reconciliation Act preempted most state regulation of wireless carriers.
Accordingly, wireless carriers' services are likely to continue to be minimally
regulated for the foreseeable future.
PAGING
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ALLTEL provides paging services to approximately 258,000 customers on both a
facilities-based and resale basis. The Company operates wide-area
computer-driven paging networks in Arkansas, Florida and Ohio. At December 31,
1999, ALLTEL provided paging service to approximately 24,000 customers through
its facilities-based network. The Company also resells paging services in other
ALLTEL wireless service areas to approximately 234,000 customers.
WIRELINE OPERATIONS
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The Company's wireline operations consist of subsidiaries that are incumbent
local exchange carriers ("ILECs"), and as such, provide local telephone service
to more than 2.4 million customers primarily located in rural areas in 15
states. The wireline subsidiaries also offer facilities for private line, data
transmission and other communications services.
LOCAL SERVICE - REGULATION
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Prior to 1996, the Company's wireline subsidiaries provided local telephone
service under exclusive franchises granted by state regulatory commissions and
subject to regulation by those regulatory commissions. These regulatory
commissions have had primary jurisdiction over various matters including local
and intrastate toll rates, quality of service, the issuance of securities,
depreciation rates, the disposition of public utility property, the issuance of
debt, and the accounting systems used by those subsidiaries. The FCC has
historically had primary jurisdiction over the interstate toll and access rates
of these companies and issues related to interstate telephone service.
The 96 Act substantially modified certain aspects of the states' and the FCC's
jurisdictions in the regulation of local exchange telephone companies. The 96
Act prohibits state legislative or regulatory restrictions or barriers to entry
regarding the provision of local telephone service. The 96 Act also requires
ILECs to interconnect with the networks of other telecommunications carriers,
unbundle services into network elements, offer their telecommunications services
at wholesale rates to allow resale of those services, and allow other
telecommunications carriers to locate their equipment on the premises of the
incumbent local exchange carriers. The 96 Act requires all local exchange
telephone companies to compensate one another for the transport and termination
of calls on one anothers' networks.
The Company's local exchange subsidiaries are rural telephone companies and are
exempt from certain of the foregoing obligations unless, in connection with a
bona fide request, a state regulatory commission removes that exemption.
8
<PAGE>
ALLTEL Corporation
Form 10-K, Part I
Item 1. Business
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WIRELINE OPERATIONS (continued)
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LOCAL SERVICE - REGULATION (continued)
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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 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 considered
first by the U.S. Eighth Circuit Court of Appeals and then by the U.S. Supreme
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. 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 were consistent with the 96 Act. Other issues
were remanded to the FCC.
In response to the Supreme Court's decision, the FCC issued a decision on
November 5, 1999, outlining how it would interpret the "necessary" and "impair"
standards set forth in the 96 Act and which specific network elements it would
require ILECs to unbundle as a result of its interpretation of those standards.
The FCC reaffirmed that ILECs must provide unbundled access to six of the
original seven network elements that it required to be unbundled. The six
network elements consist of loops, including loops used to provide high-capacity
and advanced telecommunications services; network interface devices; local
circuit switching; dedicated and shared transport; signaling and call-related
databases; and operations support systems. Access to ILEC operator and directory
assistance services was the one network element that the FCC omitted. The FCC
also imposed on ILECs the obligation to unbundle other network elements
including access to sub-loops or portions of sub-loops, fiber optic loops and
transport. The FCC declined to impose any obligations on ILECs to provide
unbundled access to packet switching or to digital subscriber line access
multiplexers. The FCC also began a rulemaking regarding the ability of carriers
to use certain unbundled network elements as a substitute for the ILEC's special
access services.
On October 21, 1999, the FCC adopted two orders now on appeal involving
universal service funding. In the first order, the FCC completed development of
the cost model that will be used to estimate non-rural ILECs' forward-looking
costs of providing telephone service. In the second order, the FCC adopted a
methodology that uses the costs generated by the cost model to calculate the
appropriate level of support for non-rural carriers serving rural areas. Under
the new funding mechanism, high-cost support will be targeted to the highest
cost wire center within the state and support will be portable. That is, when a
non-rural ILEC loses a customer to a competitor, the competitor may receive the
universal service high-cost support for service provided to that customer. Under
the new funding mechanism, seven states (Alabama, Kentucky, Maine, Mississippi,
Vermont, West Virginia, and Wyoming) will receive high-cost support of
approximately $255 million. The new high-cost support mechanism should ensure
that rates are reasonably comparable on average among states, while the states
will continue to ensure that rates are reasonably comparable within their
borders. The FCC reiterated that the high-cost support mechanism for rural
carriers is not scheduled to be revised until January 1, 2001, at the earliest.
The FCC also clarified its interpretation of the definition of a "rural
telephone company" under the Act to refer to the legal entity that provides
local exchange services. By May 1, 2000, states are required to establish
different rates for pricing interconnection and unbundled network elements in at
least three defined geographic areas within the state to reflect geographic cost
differences.
9
<PAGE>
ALLTEL Corporation
Form 10-K, Part I
Item 1. Business
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WIRELINE OPERATIONS (continued)
-------------------
LOCAL SERVICE - REGULATION (continued)
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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. Once the FCC's regulations for rural carriers are
finalized, the Company, will assess the impact, if any, the new rules will have
on the amount of universal service funding it receives.
Periodically, the Company's local exchange subsidiaries receive requests from
wireless communications providers for renegotiation of existing transport and
termination agreements. In these cases, the Company's local exchange
subsidiaries renegotiate the appropriate terms and conditions in compliance with
the 96 Act. The Company's local exchange subsidiaries have also executed
contracts for transport and termination services with CLECs.
During 1999, some of the Company's local exchange subsidiaries were subject to
certain regulatory commission orders designed to reduce earnings levels. These
orders did not materially affect the results of operations of the Company.
Certain states in which the Company's local exchange subsidiaries operate have
adopted alternatives to rate-of-return regulation, either through legislative or
regulatory commission actions. The Company has elected alternative regulation
for certain of its local exchange subsidiaries in Alabama, Arkansas, Florida,
Georgia, Kentucky, North Carolina and Texas. The Company also has an alternative
regulation application pending in Pennsylvania. As a result of its election of
alternative regulation in North Carolina, the Company agreed not to exercise its
rural exemption status under the '96 Act. The Company continues to evaluate
alternative regulation for its other local exchange subsidiaries.
LOCAL SERVICE - COMPETITION
- ---------------------------
ALLTEL's local exchange subsidiaries have not experienced significant
competition in their service areas to date. As a result of the passage of the 96
Act, the Supreme Court's decision affirming FCC jurisdiction in the local
competition arena, and state telecommunications reform legislation, during the
next several years, the Company's local exchange subsidiaries could begin to
experience increased competition. Sources of competition to ALLTEL's local
exchange business include, but are not limited to, resellers of local exchange
services, large end users installing their own networks, interexchange carriers,
satellite transmission services, cellular communications providers, cable
television companies, radio-based personal communications companies, competitive
access providers and other systems capable of completely or partially bypassing
the Company's local telephone facilities. ALLTEL cannot predict the specific
degree or effects of competition on its local exchange business, but is intent
on taking advantage of the various opportunities that competition should
provide. The Company is currently addressing potential competition by focusing
on improved customer satisfaction, reducing its costs, increasing efficiencies,
restructuring rates, offering new products, and entering new markets as a CLEC.
To date, competition has not had a significant adverse effect on the operations
of the Company's local exchange subsidiaries.
NETWORK ACCESS SERVICES
- -----------------------
Long-distance companies pay access charges to the Company's local exchange
subsidiaries for the use of their local networks to originate and terminate
their customers' long-distance calls.
10
<PAGE>
ALLTEL Corporation
Form 10-K, Part I
Item 1. Business
- ------- --------
WIRELINE OPERATIONS (continued)
-------------------
NETWORK ACCESS SERVICES - REGULATION
- ------------------------------------
The FCC instituted a rulemaking in June 1998 in which it proposed to amend the
access charge rules for rate-of-return local exchange companies in a manner
similar to that earlier adopted for price cap companies. 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 companies is expected to be addressed in a
subsequent phase of the proceeding. Once the access charge rules for
rate-of-return companies are finalized, ALLTEL will assess the impact, if any,
the new rules will have on its local exchange operations.
To date, the Company's local exchange subsidiaries have elected to remain under
rate base rate-of-return regulation with respect to interstate services. For
companies remaining under rate-of-return regulation, the FCC authorizes a
rate-of-return that local exchange companies may earn on interstate services
they provide. The currently prescribed rate of return is 11.25 percent. In
October 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 local exchange subsidiaries. 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,
although ALLTEL and other ILECs have asked the FCC to address other important
issues relating to universal service, interconnection, and access reform before
considering any represcription of the authorized return. The Company's local
exchange subsidiaries currently receive compensation from long-distance
companies for intrastate, intraLATA services through access charges or toll
settlements that are subject to state regulatory commission approval.
EMERGING BUSINESSES OPERATIONS
------------------------------
LONG-DISTANCE OPERATIONS
- ------------------------
The Company began offering long-distance telecommunications services during
1996. Long-distance services are provided on both a facilities and resale basis
by ALLTEL subsidiaries. ALLTEL provides long-distance service in all of the
states in which local exchange service is provided. In addition, ALLTEL offers
long-distance service outside its ILEC service areas. As of December 31, 1999,
ALLTEL provided long-distance service to nearly 900,000 customers.
As a long-distance service provider, ALLTEL's intrastate long-distance business
is subject to limited regulation by state regulatory commissions, and its
interstate business is subject to limited regulation by the FCC. State
regulatory commissions currently require long-distance service providers to
obtain a certificate of operating authority, and the majority of states, as well
as the FCC, also require long-distance service providers to file tariffs. Most
state regulatory commissions also require such companies to meet certain minimum
service standards.
The long-distance marketplace is extremely competitive and continues to receive
relaxed regulation from both the FCC and state regulatory commissions. To meet
the competitive demands of the long-distance industry, ALLTEL has created
several business and residential service offerings to attract potential
customers, such as volume price discounts, calling cards and simplified one rate
plans.
11
<PAGE>
ALLTEL Corporation
Form 10-K, Part I
Item 1. Business
- ------- --------
EMERGING BUSINESSES OPERATIONS (continued)
------------------------------
CLEC OPERATIONS
- ---------------
During 1999, ALLTEL offered local access telecommunications services to
residential and business customers in 26 select markets outside its ILEC
service areas in Arkansas, Florida, Nebraska, North Carolina, Pennsylvania and
Florida. As previously discussed, the Company plans to expand its CLEC service
into 17 additional markets in Alabama, Georgia, Missouri and South Carolina
during 2000. ALLTEL has received approval to provide competitive local exchange
service in 17 states. ALLTEL has negotiated interconnection agreements with the
appropriate incumbent local exchange carriers in the states where it is
currently offering CLEC service and is negotiating those arrangements in other
states. ALLTEL is installing state-of-the-art networks that will enable it to
provide services on both a facilities-based and resale basis. ALLTEL will
provide local service in combination with other services provided by
subsidiaries of the Company, including long-distance, wireless and Internet
services.
PCS, INTERNET AND NETWORK MANAGEMENT OPERATIONS
- -----------------------------------------------
ALLTEL has offered PCS in Jacksonville, Florida, since March 1998, and in the
Birmingham and Mobile, Alabama service areas, which include Tuscaloosa, Alabama
and Pensacola, Florida, since February 1999. Internet access services are
currently marketed to residential and business customers in the majority of
states in which ALLTEL provides communications services. Network management
services are currently marketed to business customers in select areas. These new
service offerings are start-up operations, and as such, are not yet significant
components of ALLTEL's communications operations.
INFORMATION SERVICES
--------------------
GENERAL
- -------
Information Services provides a wide range of information processing services
primarily to the financial services and telecommunications industries through
information processing centers that it staffs, equips and operates. Information
processing contracts are generally for a multi-year period. Information Services
also develops and markets software worldwide to financial services and
telecommunications companies operating their own information processing
departments. The principal operating units of the Company's information services
business consist of the Financial Services Division and the Telecommunications
Division.
The Financial Services Division markets software and services that have been
developed and improved continuously and are designed to fulfill substantially
all of the retail and wholesale information processing and management
information requirements of financial institutions. In addition, the Financial
Services Division also provides data processing and related computer software
and systems to financial institutions originating and/or servicing single family
mortgage loans. This division's software products and processing services,
combined with its team of consultants, are intended to offer a cost-effective
alternative to the extensive technical support staff and the enlarged group of
mortgage bankers which would otherwise have to be assembled in-house by each
customer. The Financial Services Division's on-line systems automate processing
functions required in the origination of mortgage loans, the management of such
loans while in inventory before they are sold in the secondary market, and their
subsequent servicing.
The Telecommunications Division is primarily engaged in the development and
marketing of billing services and customer care software, including its
state-of-the-art Virtuoso II billing and customer care product, to local
telephone, wireless and PCS companies. In addition, the Telecommunications
Division provides data processing and outsourcing services to both wireline and
wireless telecommunications service providers.
12
<PAGE>
ALLTEL Corporation
Form 10-K, Part I
Item 1. Business
- ------- --------
INFORMATION SERVICES (continued)
--------------------
CUSTOMERS
- ---------
The Financial Services Division's primary markets for its financial products and
services are the nation's commercial banks and savings institutions and
financial institutions throughout the world. Financial software and services are
also marketed to credit unions and to financial institutions originating or
servicing single family mortgage loans. These financial institutions, which
include many of the largest servicers of residential mortgages, are located
throughout the United States. In total, nearly 21 million mortgage loans
representing over $2 trillion are processed using the Financial Services
Division's software.
The Telecommunications Division's primary markets for its telecommunications
products and services consist of the top 40 telephone companies and the top 50
cellular companies in the United States, and certain PCS companies in the United
States, and approximately 100 international telecommunications companies. The
roll out of the wireless companies that will operate within the PCS spectrum
bandwidths in the United States has significantly increased the potential
customer base of the Telecommunications Division.
COMPETITION
- -----------
The Financial Services Division's competition primarily comes from "in-house"
bank information processing departments and other companies engaged in active
competition for financial institution outsourcing contracts. Numerous large
financial institutions provide information processing for smaller institutions
in their respective geographic areas, along with other companies that perform
such services for small institutions. The Telecommunications Division also faces
strong competition from internal information technology departments. In
addition, there are also other information services companies that provide
information processing and management services to the telecommunications
industry.
The Company competes in each of its markets by providing a high level of service
and support. Information Services substantially relies upon and vigorously
enforces contract and trade secret laws and internal non-disclosure safeguards
to protect the proprietary nature of its computer software and service
methodologies.
REGULATION AND EXAMINATION
- --------------------------
The Financial Services Division is regulated by the federal agencies that have
supervisory authority over banking, thrift, and credit union operations. The
Financial Services Division is also classified as one of 12 national vendors
that, as a result of their market share, process a significant portion of the
financial industry's assets. These industry leaders are also examined by the
federal Financial Institutions Examination Council on an ongoing basis.
Information Services' management practices, policies, procedures, standards, and
overall financial condition are components of these reviews.
In addition to these corporate examinations, individual processing sites are
subject to examination, as if they were departments of their respective clients,
by federal and state regulators, as well as the clients' internal audit
departments and their independent auditing firms. The same standards of
performance are applied to those information processing centers as are applied
to the client financial institutions. Reports of the individual data center
performance are furnished to the Board of Directors of Information Services and
to the Board of Directors of the examined client.
13
<PAGE>
ALLTEL Corporation
Form 10-K, Part I
Item 1. Business
- ------- --------
INFORMATION SERVICES (continued)
--------------------
REGULATION AND EXAMINATION (continued)
- --------------------------
The supervisory agencies include applicable state banking departments, the
Federal Deposit Insurance Corporation, the Office of Thrift Supervision, the
Office of the Comptroller of the Currency, the Board of Governors of the Federal
Reserve System, and the National Credit Union Administration. Information
Services' processing contracts include a commitment to install all necessary
changes in its computer software that are required by changes in regulations.
The Company operates transmitters at the network's information processing
facility hub and operates very small aperture technology ("VSAT") earth stations
at numerous customer locations. Prior to initiation, construction or operation
of the transmitters used in a VSAT satellite network, operators of these
transmitters are required by the Communications Act of 1934 to be authorized by
the FCC. The FCC grants licenses to VSAT operators for a predetermined number of
earth stations that may be placed at unspecified locations in the United States.
The Company holds five VSAT licenses to operate its domestic earth station
satellite network, consisting of one 8.1m license for its VSAT hub located in
Jacksonville, Florida and four other VSAT licenses ranging from 1.0m to 2.4m.
Three of the VSAT licenses, including the 8.1m license, were renewed during 1997
and will expire in 2007, while the remaining two VSAT licenses will expire in
2003.
PRODUCT DEVELOPMENT AND SUPPORT
- -------------------------------
In the past five years, Information Services has spent approximately $543
million ($107 million in 1999) on mainframe and client/server software design
and development. Information Services has developed and continues to develop
products that are utilized in a UNIX based environment, including the
Telecommunications Division's Virtuoso II billing and customer care product.
Changes in regulatory requirements of both state and federal authorities,
increasing competition, and the development of new products and markets create
the need to continually update or modify existing software and systems offered
to customers. Information Services intends to continue to maintain, improve, and
expand the functions and capabilities of its software products over the next
several years.
OTHER OPERATIONS
----------------
PRODUCT DISTRIBUTION
- --------------------
During 1999, the Company's product distribution subsidiary, ALLTEL Supply, Inc.,
changed its name to ALLTEL Communications Products, Inc. ("Communications
Products"). Headquartered in Atlanta, Georgia, Communications Products operates
9 warehouses and 23 counter-sales showrooms across the United States and is a
major distributor of telecommunications equipment and materials. Communications
Products supplies equipment to affiliated and non-affiliated communications
companies, business systems suppliers, railroads, governments, and retail and
industrial companies.
Communications Products offers more than 50,000 products for sale. Certain of
these products are inventoried including single and multi-line telephone sets,
local area networks, switching equipment modules, interior cable, pole line
hardware, and various other telecommunications supply items. The Company has not
encountered any material shortages or delays in delivery of products from their
suppliers.
14
<PAGE>
ALLTEL Corporation
Form 10-K, Part I
Item 1. Business
- ------- --------
OTHER OPERATIONS (continued)
----------------
PRODUCT DISTRIBUTION (continued)
- --------------------
Communications Products experiences substantial competition throughout its sales
territories from other distribution companies and from direct sales by
manufacturers. Competition is based primarily on quality, product availability,
service, price, and technical assistance. Since other competitors offer similar
products, Communications Products differentiates itself from competitors by
providing value-added services. The services include offering expert technical
assistance, maintaining extensive inventories in strategically located
warehouses and counter-sales showrooms to facilitate single supplier sourcing
and "just-in-time" delivery, maintaining a full range of alternative product
lines, and by providing staging, assembly and other services. The Company is
continually evaluating and implementing policies and strategies, which will meet
customer expectations and position Communications Products in the market as a
quality customer-focused distributor.
DIRECTORY PUBLISHING
- --------------------
ALLTEL Publishing coordinates advertising, sales, printing, and distribution for
358 telephone directory contracts in 33 states. Under terms of an agreement with
GTE Directories, ALLTEL Publishing provides all directory publishing services
including contract management, production and marketing. As subcontractor, GTE
Directories provides directory sales and printing services through a separate
contract with ALLTEL Publishing.
INVESTMENTS
-----------
MCI WORLDCOM, INC.
- ------------------
The Company currently owns less than a 1 percent interest in MCI WorldCom, Inc.
("MCI Worldcom'), a publicly held company. MCI WorldCom is a large long-distance
company in the United States and is a full service provider of international
telecommunications and specialized broadcasting services. During 1999, 1998 and
1997, the Company sold a portion of its investment in MCI WorldCom.
APEX GLOBAL INFORMATION SERVICES, INC.
- --------------------------------------
The Company has a $15 million investment representing an approximate 8 percent
ownership interest in Apex Global Information Services, Inc., a non-publicly
traded global provider of Internet access services.
ECLIPSYS CORPORATION
- --------------------
The Company currently owns an approximate 4 percent ownership interest in
Eclipsys Corporation ("Eclipsys"), a publicly traded healthcare information
technology company. During 1999, the Company sold a portion of its investment in
Eclipsys.
HORIZON TELECOM, INC.
- ---------------------
In February 2000, ALLTEL sold its investment in Horizon Telecom, Inc., a
communications company serving approximately 37,000 telephone access lines in
Ohio.
HUGHES ISPAT LIMITED
- --------------------
The Company has an approximate $25 million investment in Hughes Ispat Limited
("HIL"), a limited liability company in India. HIL has received a license to
provide communications services in the state of Maharashtra, India. HIL began
operations during 1999. As a result of its investment, the Company owns
approximately a 13 percent interest in HIL. Francis X. Frantz, Executive Vice
President-External Affairs, is a member of HIL's Board of Directors.
15
<PAGE>
ALLTEL Corporation
Form 10-K, Part I
Item 2. Properties
- ------- ----------
WIRELINE PROPERTY
- -----------------
The Company's wireline subsidiaries own property in their respective operating
territories which consists primarily of land and buildings, central office
equipment, telephone lines, and related equipment. The telephone lines include
aerial and underground cable, conduit, poles and wires. Central office equipment
includes digital switches and peripheral equipment. The gross investment by
category in wireline property as of December 31, 1999, was as follows:
(Thousands)
Wireline Plant in Service:
Land $ 18,202
Buildings and leasehold improvements 222,968
Central office equipment 1,371,732
Outside plant 3,497,337
Furniture, fixtures, vehicles and other 84,307
----------
Total $5,194,546
==========
Certain properties of the Company and its wireline subsidiaries are pledged as
collateral for long-term debt.
OTHER PROPERTY
- --------------
Other properties of the Company in service consist primarily of property, plant
and equipment used in providing wireless communications services, information
services and product distribution operations. The total investment by category
for the non-wireline operations of the Company as of December 31, 1999, was as
follows:
(Thousands)
Land $ 206,350
Buildings and leasehold improvements 590,906
Wireless plant and equipment 2,767,857
Data processing equipment 503,201
Computer software 260,500
Furniture, fixtures, vehicles and other 233,793
----------
Total $4,562,607
==========
All of the Company's property is in good condition and is suitable for its
intended purposes.
16
<PAGE>
ALLTEL Corporation
Form 10-K, Part II
Item 3. Legal Proceedings
- ------- -----------------
In July 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 Company appealed the Georgia PSC
order and received a favorable decision from the Superior Court of Fulton
County, Georgia (the "Superior Court"). The Georgia PSC appealed the Superior
Court's decision, and in 1997, the Georgia Court of Appeals reversed the
Superior Court's decision. The Company petitioned the Georgia Supreme Court
requesting that the Georgia Court of Appeals decision be reversed. In October
1998, the Georgia Supreme Court upheld the Appellate Court's ruling that the
Georgia PSC had the authority to order the rate reductions. The case was
returned to the Superior Court for it to rule on the issues it had not
previously decided. In April 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 December 31, 1999, the maximum possible liability to the Company related to
this case is $84 million, plus interest at 7 percent accruing to July 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. (See Note 14 to the Consolidated Financial
Statements, page 53 of ALLTEL's 1999 Annual Report to Stockholders which is
incorporated herein by reference, for additional information related to this
matter.)
The Company is party to various other legal proceedings arising from the
ordinary course of business. Although the ultimate resolution of these various
proceedings cannot be determined at this time, management of the Company does
not believe that such proceedings, individually or in the aggregate, will have a
material adverse effect on the future results of operations or financial
condition of the Company.
To the knowledge of the Company's management, no other material legal
proceedings, either private or governmental, are contemplated or threatened.
Item 4. Submission of Matters to a Vote of Security Holders
- ------- ---------------------------------------------------
No matters were submitted to the security holders for a vote during the fourth
quarter of 1999.
17
<PAGE>
ALLTEL Corporation
Form 10-K, Part II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
- ------- -----------------------------------------------------------------
Matters
-------
The outstanding shares of ALLTEL's Common Stock are listed and traded on the
New York Stock Exchange and the Pacific Exchange and trade under the symbol AT.
The following table reflects the range of high, low and closing prices of
ALLTEL's Common Stock as reported by Dow Jones & Company, Inc. for each quarter
in 1999 and 1998:
Dividend
Year Qtr. High Low Close Declared
---- ---- ---- --- ----- --------
1999 4th 91 13/16 69 13/16 82 11/16 $.320
3rd 75 65 5/8 70 3/8 $.305
2nd 74 9/16 62 3/8 71 1/2 $.305
1st 67 1/2 56 5/16 62 3/8 $.305
1998 4th 61 3/8 44 59 13/16 $.305
3rd 48 38 1/4 47 1/8 $.290
2nd 46 1/2 39 7/16 46 1/2 $.290
1st 48 13/16 39 9/16 43 11/16 $.290
As of February 29, 2000, the approximate number of stockholders of common stock
including an estimate for those holding shares in brokers' accounts was 271,000.
Item 6. Selected Financial Data
- ------- -----------------------
For information pertaining to Selected Financial Data of ALLTEL Corporation,
refer to page 40 of ALLTEL's 1999 Annual Report to Stockholders, which is
incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
- ------- -----------------------------------------------------------------------
of Operations
--------------
For information pertaining to Management's Discussion and Analysis of Financial
Condition and Results of Operations of ALLTEL Corporation, refer to pages 29-38
of ALLTEL's 1999 Annual Report to Stockholders, which is incorporated herein by
reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
- -------- ----------------------------------------------------------
For information pertaining to the Company's market risk disclosures, refer to
page 38 of ALLTEL's 1999 Annual Report to Stockholders, which is
incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
- ------- -------------------------------------------
For information pertaining to Financial Statements and Supplementary Data of
ALLTEL Corporation, refer to pages 39 and 41-57 of ALLTEL's 1999 Annual Report
to Stockholders, which is incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
- ------- ----------------------------------------------------------------
Financial Disclosure
--------------------
During the two most recent fiscal years or the subsequent interim period up to
the date of this Form 10-K, there were no disagreements with the Company's
independent certified public accountants on any matter of accounting principles
or practices, financial statement disclosures or auditing scope or procedures.
In addition, none of the "kinds of events" described in item 304(a)(1)(v)(A),
(B), (C) and (D) of Regulation S-K have occurred.
18
<PAGE>
ALLTEL Corporation
Form 10-K, Part III
Item 10. Directors and Executive Officers of the Registrant
- -------- --------------------------------------------------
For information pertaining to Directors of ALLTEL Corporation refer to "Election
of Directors" in ALLTEL's Proxy Statement for its 2000 Annual Meeting of
Stockholders, which is incorporated herein by reference. Executive officers of
the Company are as follows:
Name Age Position
---- --- --------
Joe T. Ford 62 Chairman and Chief Executive Officer
Dennis E. Foster 59 Vice Chairman
Scott T. Ford 37 President and Chief Operating Officer
Kevin L. Beebe 40 Group President - Communications
Michael T. Flynn 51 Group President - Communications
Jeffrey H. Fox 37 Group President - Information Services
Francis X. Frantz 46 Executive Vice President - External Affairs,
General Counsel and Secretary
Jeffery R. Gardner 40 Senior Vice President - Chief Financial Officer
John S. Haley 44 Senior Vice President - Chief Technology Officer
Keith A. Kostuch 37 Senior Vice President - Strategic Planning
Frank A. O'Mara 39 Vice President - Human Resources
David A. Gatewood 42 Controller
John M. Mueller 50 Treasurer
There are no arrangements between any officer and any other person pursuant to
which he was selected as an officer.
Except for Dennis E. Foster, Scott T. Ford, Kevin L. Beebe, Jeffrey H. Fox,
Jeffery R. Gardner, Keith A. Kostuch and Frank A. O'Mara each of the officers
named above has been employed by ALLTEL or a subsidiary for the last five years.
Prior to joining ALLTEL in October 1999, Mr. Kostuch served as Vice President
and Director with The Boston Consulting Group, Inc. ("BCG"). In his role with
BCG, Mr. Kostuch specialized in strategic and corporate development, including
mergers and acquisitions. Prior to joining ALLTEL in 1997, Mr. O'Mara served as
legal counsel for KIM Sports Management.
Prior to joining ALLTEL in July 1998, Messrs. Foster, Beebe and Gardner were
executive officers of 360. Mr. Foster was President and Chief Executive Officer
of 360 since February 1996. Mr. Foster had been elected President of 360 in
March 1993. Mr. Foster also served as President and Chief Operating Officer of
the Cellular and Wireless Division of Sprint Corporation from March 1993 to
January 1996. Mr. Beebe was Executive Vice President-Operations of 360 since
February 1996. Mr. Beebe joined 360 in February 1994 as Vice President-Marketing
and Administration, and in February 1995, he became Vice President-Operations.
Mr. Gardner was Senior Vice President-Finance of 360since July 1997. Mr. Gardner
served as President of 360's Mid-Atlantic regional operations from February 1994
to June 1997.
Prior to joining ALLTEL in January 1996, Scott T. Ford served as Assistant to
the Chairman of Stephens Group, Inc. of Little Rock, Arkansas. Scott T. Ford is
the son of Joe T. Ford. Prior to joining ALLTEL in 1996, Mr. Fox served as Vice
President at Stephens Group, Inc. of Little Rock, Arkansas.
19
<PAGE>
ALLTEL Corporation
Form 10-K, Part III
Item 11. Executive Compensation
- -------- ----------------------
For information pertaining to Executive Compensation, refer to "Management
Compensation" in ALLTEL's Proxy Statement for its 2000 Annual Meeting of
Stockholders, which is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- -------- --------------------------------------------------------------
For information pertaining to beneficial ownership of ALLTEL securities, refer
to "Security Ownership of Certain Beneficial Owners and Management" in ALLTEL's
Proxy Statement for its 2000 Annual Meeting of Stockholders, which is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
- -------- ----------------------------------------------
For information pertaining to Certain Relationships and Related Transactions,
refer to "Certain Transactions" in ALLTEL's Proxy Statement for its 2000 Annual
Meeting of Stockholders, which is incorporated herein by reference.
Form 10-K, Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
- ------- ---------------------------------------------------------------
(a) The following documents are filed as a part of this report:
1. Financial Statements:
--------------------
The following Consolidated Financial Statements of ALLTEL
Corporation and subsidiaries, included in the annual report of
ALLTEL Corporation to its stockholders for the year ended
December 31, 1999, are incorporated herein by reference:
Annual Report
Page Number
-------------
Report of Independent Public Accountants 39
Consolidated Statements of Income -
for the years ended December 31, 1999, 1998 and 1997 41
Consolidated Balance Sheets - December 31, 1999 and 1998 42-43
Consolidated Statements of Cash Flows -
for the years ended December 31, 1999, 1998 and 1997 44
Consolidated Statements of Shareholders' Equity -
for the years ended December 31, 1999, 1998 and 1997 45
Notes to Consolidated Financial Statements 46-57
Form 10-K
2. Financial Statement Schedules: Page Number
----------------------------- -----------
Report of Independent Public Accountants 23
Schedule II. Valuation and Qualifying Accounts 24
3. Exhibits:
--------
See "Exhibit Index" located on page 25-30 of this document.
20
<PAGE>
ALLTEL Corporation
Form 10-K, Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K,
- ------- ----------------------------------------------------------------
(continued):
(b) Reports on Form 8-K:
Current Report on Form 8-K dated January 7, 2000, reporting under Item 7,
Financial Statements and Exhibits, ALLTEL filed restated audited financial
statements for the three years in the period ended December 31, 1998, to
reflect the Company's September 30, 1999 mergers with Liberty Cellular, Inc.
and its affiliate, KINI L.C., and the Company's July 2, 1999 merger with
Aliant Communications Inc. The mergers had been accounted for as
poolings-of-interests.
Current Report on Form 8-K dated January 31, 2000, reporting under Item 5,
Other Events, the Company's Press Release announcing the agreements between
ALLTEL, Bell Atlantic, GTE and Vodafone Airtouch to exchange wireless
properties in 13 states.
No other reports on Form 8-K were filed during the fourth quarter of 1999.
Separate condensed financial statements of ALLTEL Corporation have been omitted
since the Company meets the tests set forth in Regulation S-X Rule 4-08(e)(3).
All other schedules are omitted since the required information is not present or
is not present in amounts sufficient to require submission of the schedule, or
because the information required is included in the consolidated financial
statements and notes thereto.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ALLTEL Corporation
------------------
Registrant
By /s/ Joe T. Ford
-------------------------------------------------
Joe T. Ford, Chairman and Chief Executive Officer Date: March 3, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By /s/ Jeffery R. Gardner
-------------------------------------------------
Jeffery R. Gardner, Senior Vice President - Date: March 3, 2000
Chief Financial Officer
(Principal Financial Officer)
* Joe T. Ford, Chairman, Chief Executive Officer
and Director
* Dennis E. Foster, Vice Chairman and Director
* Scott T. Ford, President, Chief Operating Officer
and Director
By /s/ Jeffery R. Gardner
----------------------
* David A. Gatewood, Controller * (Jeffery R. Gardner,
(Prinicipal Accounting Officer) Attorney-in-fact)
Date: March 3, 2000
* John R. Belk, Director
* Lawrence L. Gellerstedt III, Director
* Charles H. Goodman, Director
* W. W. Johnson, Director
* Emon A. Mahony, Jr., Director
* John P. McConnell, Director
* Josie C. Natori, Director
* Frank E. Reed, Director
* Ronald Townsend, Director
* William H. Zimmer, Director
22
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
ALLTEL Corporation:
We have audited in accordance with generally accepted auditing standards, the
financial statements included in ALLTEL Corporation's Annual Report to
stockholders incorporated by reference in this Form 10-K, and have issued our
report thereon dated February 1, 2000. Our audit was made for the purpose of
forming an opinion on those statements taken as a whole. The schedule on page 24
is the responsibility of the company's management and is presented for purposes
of complying with the Securities and Exchange Commission's rules and is not part
of the basic financial statements. This schedule has been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
/s/ARTHUR ANDERSEN LLP
Little Rock, Arkansas,
February 1, 2000
23
<PAGE>
<TABLE>
ALLTEL CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(Dollars in Thousands)
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Additions
---------------------------
Balance at Charged Charged Balance at
Beginning to Cost and to Other Deductions End of
Description of Period Expenses Accounts Describe Period
----------- --------- -------- -------- -------- --------
Allowance for doubtful accounts,
customers and others:
For the years ended:
December 31, 1999 $30,207 $ 97,659 $ - $ 92,849 (A) $35,017
December 31, 1998 $26,221 $ 77,621 $ 72 $ 73,707 (A) $30,207
December 31, 1997 $29,122 $ 68,012 $ (227) $ 70,686 (A) $26,221
Valuation allowance for deferred tax assets:
For the years ended:
December 31, 1999 $15,347 $ (3,643) $ - $ - $11,704
December 31, 1998 $19,562 $ (4,215) $ - $ - $15,347
December 31, 1997 $10,149 $ (1,478) $10,891 $ - $19,562
Accrued liabilities related to merger
and integration expenses and other
charges:
For the years ended:
December 31, 1999 $91,281 $ 90,520 (B) $ - $115,328 (C) $66,473
December 31, 1998 $ - $252,000 (D) $ - $160,719 (E) $91,281
Notes:
------
(A) Accounts charged off net of recoveries of amounts previously written off.
(B) During the third quarter of 1999, the Company recorded merger and integration expenses and other charges related to the
closing of its mergers with Aliant Communications Inc., Liberty Cellular, Inc., its affiliate KINI L.C., Advanced
Information Resources, Limited and Southern Data Systems and with certain loss contingencies and other restructuring
activities.
(C) Includes cash outlay of $105,562 for expenses paid for as of December 31, 1999 and a non-cash charge of $9,766 resulting
from write-downs in the carrying value of certain in-process software development assets with no alternative future use
or functionality and capitalized leasehold improvements related to leased facilities abandoned by the Company.
(D) During the third quarter of 1998, the Company recorded merger and integration expenses related to the closing of its
merger with 360 Communications Company.
(E) Includes cash outlay of $85,919 for expenses paid for as of December 31, 1998 and a non-cash charge of $74,800 resulting
from the write-down in the carrying value of certain in-process software development assets with no alternative future
use or functionality and a write-down in the carrying value of certain assets resulting from the immediate abandonment
of the buildout of three PCS markets.
(F) See Note 9 on pages 51-52 of ALLTEL's 1999 Annual Report to Stockholders, which is incorporated herein by reference, for
additional information regarding the merger and integration expenses and other charges recorded by the Company in 1999
in 1998.
</TABLE>
24
<PAGE>
EXHIBIT INDEX
Number and Name Page
- --------------- ----
(3)(a) Amended and Restated Certificate of Incorporation of *
ALLTEL Corporation (incorporated herein by reference
to Exhibit B to Proxy Statement, dated March 9, l990).
(a)(1) Amendment No. 1 to Amended and Restated Certificate of *
Incorporation of ALLTEL Corporation (incorporated herein
by reference to Annex F of ALLTEL Corporation Registration
Statement (File No. 333-51915) on Form S-4 dated May 6,
1998).
(b) By-Laws of ALLTEL Corporation (As amended as of January 29, *
1998). (incorporated herein by reference to Exhibit 3(b) to
Form 10-K for the fiscal year ended December 31, 1997).
(4)(a) Rights Agreement dated as of January 30, l997, between *
ALLTEL Corporation and First Union National Bank of North
Carolina (incorporated herein by reference to Form 8-K
dated February 3, l997, filed with the Commission on
February 4, l997).
(b) The Company agrees to provide to the Commission, upon --
request, copies of any agreement defining rights of
long-term debt holders.
(10)(a)(1) Executive Compensation Agreement and amendments thereto *
by and between the Company and Joe T. Ford (incorporated
herein by reference to Exhibit 10(b) to Form 10-K for the
fiscal year ended December 31, 1983).
(a)(2) Modification to Executive Compensation Agreement by and *
between the Company and Joe T. Ford effective as of
January 1, 1987 (incorporated herein by reference to
Exhibit 10(b)(2) to Form 10-K for the fiscal year ended
December 31, 1986).
(a)(3) Modification to Executive Compensation Agreement by and *
between ALLTEL Corporation and Joe T. Ford, effective as
of January 1, 1991 (incorporated herein by reference to
Exhibit 10 of ALLTEL Corporation Registration Statement
(File No. 33-44736) on Form S-4 dated December 23, 1991).
(a)(4) Split-dollar Life Insurance Agreement by and between the *
Corporation and Joe T. Ford effective as of March 1,
1994 (incorporated herein by reference to Exhibit 10(a)(4)
to Form 10-K for the fiscal year ended December 31, 1994).
(b) Amended and Restated Employment Agreement by and between *
the Company and Dennis E. Foster1994 (incorporated herein
by reference to Exhibit 10(b) to Form 10-K for the fiscal
year ended December 31, 1998).
(c)(1) Change in Control Agreement by and between the Company and *
Scott T. Ford effective as of April 25, 1996 (incorporated
herein by reference to Exhibit 10(c)(6) to Form 10-Q for the
period ended June 30, 1996).
(c)(2) Change in Control Agreement by and between the Company and *
Kevin L. Beebe effective as of July 23, 1998(incorporated
herein by reference to Exhibit 10(c)(2) to Form 10-K for the
fiscal year ended December 31, 1998).
* Incorporated herein by reference as indicated.
25
<PAGE>
EXHIBIT INDEX, Continued
- -------------
Number and Name Page
- --------------- ----
(10)(c)(3) Change in Control Agreement by and between the Company *
and Michael T. Flynn effective as of July 23, 1998.
(incorporated herein by reference to Exhibit 10(c)(3)
to Form 10-K for the fiscal year ended December 31, 1998).
(c)(4) Change in Control Agreement by and between the Company *
and Jeffrey H. Fox effective as of January 30, 1997.
(incorporated herein by reference to Exhibit 10(c)(4)
to Form 10-K for the fiscal year ended December 31, 1998).
(c)(5) Change in Control Agreement by and between the Company *
and Francis X. Frantz effective as of October 24, 1994
(incorporated herein by reference to Exhibit 10(c)(4)
to Form 10-K for the fiscal year ended December 31, 1994).
(c)(6) Change in Control Agreement by and between the Company and *
Jeffrey R. Gardner effective as of January 28, 1999
(incorporated herein by reference to Exhibit 10(c)(8) to
Form 10-K for the fiscal year ended December 31, 1998).
(d)(1) Split-dollar Life Insurance Agreement by and between the *
Company and Francis X. Frantz effective as of March 1,
1994 (incorporated herein by reference to Exhibit 10(d)(2)
to Form 10-K for the fiscal year ended December 31, 1994).
(e)(1) ALLTEL Corporation Supplemental Executive Retirement Plan, *
effective October 24, 1994 (incorporated herein by
reference to Exhibit 10(e)(1) to Form 10-K for the fiscal
year ended December 31, 1994).
(f)(1) ALLTEL Corporation 1998 Management Deferred Compensation Plan, *
effective June 23, 1998 (incorporated herein by reference to
Exhibit 10(f)(5) to Form 10-Q for the period ended June 30,
1998).
(f)(2) ALLTEL Corporation 1998 Directors' Deferred Compensation Plan, *
effective June 23, 1998 (incorporated herein by reference to
Exhibit 10(f)(6) to Form 10-Q for the period ended June 30,
1998).
(g)(1) ALLTEL Corporation 1975 Incentive Stock Option Plan (as *
amended and restated effective July 26, 1988)
(incorporated herein by reference to Exhibit 10(i) to Form
10-K for the fiscal year ended December 31, 1988).
(g)(2) ALLTEL Corporation 1991 Stock Option Plan (incorporated *
herein by reference to Exhibit A to Proxy Statement,
dated March 8, 1991).
(g)(3) ALLTEL Corporation l994 Stock Option Plan for Employees *
(incorporated herein by reference to Exhibit A to Proxy
Statement dated March 4, l994).
(g)(4) ALLTEL Corporation l994 Stock Option Plan for Nonemployee *
Directors (incorporated herein by reference to Exhibit B
to Proxy Statement dated March 4, l994).
(g)(5) First Amendment to ALLTEL Corporation l994 Stock Option Plan *
for Nonemployee Directors (incorporated herein by reference
to Exhibit 10(g)(5) to Form 10-K for the fiscal year ended
December 31, 1996).
* Incorporated herein by reference as indicated.
26
<PAGE>
EXHIBIT INDEX, Continued
Number and Name Page
- --------------- ----
(10)(g)(6) ALLTEL Corporation l998 Equity Incentive Plan (incorporated *
herein by reference to Annex G of ALLTEL Corporation
Registration Statement (File No. 333-51915) on Form S-4
dated May 6, 1998).
(h) Systematics, Inc. 1981 Incentive Stock Option Plan and *
Amendment No. 1 thereto (incorporated herein by reference to
Form S-8 (File No. 33-35343) of ALLTEL Corporation filed with
the Commission on June 11, 1990).
(h)(1) Amended and Restated 360 Communications Company *
1996 Equity Incentive Plan (incorporated herein by
reference to Form S-8 (File No. 333-88923) of ALLTEL
Corporation filed with the Commission on October 13,
1999).
(h)(2) Lincoln Telecommunications Company 1989 Stock and *
Incentive Stock Plan (incorporated herein by reference
to Form S-8 (File No. 333-88907) of ALLTEL Corporation
filed with the Commission on October 13, 1999).
(i) ALLTEL Corporation Performance Incentive Compensation Plan *
as amended, effective January 1, 1993 (Exhibit 10(i) to
Form SE dated February 17, 1993).
(i)(1) Amendment No. 1 to ALLTEL Corporation Performance *
Incentive Compensation Plan (January 1, 1993
Restatement), amendment effective January 29, 1998,
(incorporated herein by reference to Exhibit 10(i)(1) to
Form 10-K for the fiscal year ended December 31, 1997).
(j) ALLTEL Corporation Long-Term Performance Incentive *
Compensation Plan, as amended and restated effective
January 1, 1993 (Exhibit 10(j) to Form SE dated February
17, 1993).
(j)(1) Amendment No. 1 to ALLTEL Corporation Long-Term Performance *
Incentive Compensation Plan as amended and restated effective
January 1, 1993, (incorporated herein by reference to
Exhibit 10(j)(1) to Amendment No. 1 to Form 10-K for the
fiscal year ended December 31, 1993).
(j)(2) Amendment No. 2 to ALLTEL Corporation Long-Term *
Performance Incentive Compensation Plan (January 1, 1993
Restatement), effective January 29, 1998, (incorporated
herein by reference to Exhibit 10(j)(2) to Form 10-K for
the fiscal year ended December 31, 1997).
(k) ALLTEL Corporation Pension Plan (January 1, 1994 *
Restatement) (incorporated herein by reference to
Exhibit 10(k) to Form 10-K for the fiscal year ended
December 31, 1994).
(k)(1) Amendment No. 1 to ALLTEL Corporation Pension Plan *
(January 1, 1994 Restatement) (incorporated herein by
reference to Exhibit 10(k)(1) to Form 10-Q for the period
ended March 31, 1995).
* Incorporated herein by reference as indicated.
27
<PAGE>
EXHIBIT INDEX, Continued
- -------------
Number and Name Page
- --------------- ----
(10)(k)(2) Amendments No. 2 and 3 to ALLTEL Corporation Pension Plan *
(January 1, 1994 Restatement) (incorporated herein by
reference to Exhibit 10(k)(2) to Form 10-Q for the period
ended June 30, 1995).
(k)(3) Amendments No. 4 and 5 to ALLTEL Corporation Pension Plan *
(January 1, 1994 Restatement) (incorporated herein by
reference to Exhibit 10(k)(3) to Form 10-K for the fiscal
year ended December 31, 1995).
(k)(4) Amendments No. 6 and 7 to ALLTEL Corporation Pension Plan *
(January 1, 1994 Restatement) (incorporated herein by reference
to Exhibit 10(k)(4) to Form 10-Q for the period ended
September 30, 1996).
(k)(5) Amendments No. 8 and 9 to ALLTEL Corporation Pension Plan *
(January 1, 1994 Restatement) (incorporated herein by reference
to Exhibit 10(k)(5) to Form 10-Q for the period ended
March 31, 1997).
(k)(6) Amendment No. 10 to ALLTEL Corporation Pension Plan *
(January 1, 1994 Restatement) (incorporated herein by reference
to Exhibit 10(k)(6) to Form 10-K for the fiscal year ended
December 31, 1997).
(k)(7) Amendments No. 11 and 12 to ALLTEL Corporation Pension Plan *
(January 1, 1994 Restatement) (incorporated herein by reference
to Exhibit 10(k)(7) to Form 10-K for the fiscal year ended
December 31, 1997).
(k)(8) Amendment No. 13 to ALLTEL Corporation Pension Plan *
(January 1, 1994 Restatement) (incorporated herein by reference
to Exhibit 10(k)(8) to Form 10-Q for the period ended
September 30, 1999).
(k)(9) Amendment No. 14 to ALLTEL Corporation Pension Plan 85
(January 1, 1994 Restatement).
(l) ALLTEL Corporation Profit-Sharing Plan (January 1, 1994 *
Restatement) (incorporated herein by reference to
Exhibit 10(l) to Form 10-K for the fiscal year ended
December 31, 1994).
(l)(1) Amendments No. 1 and 2 to ALLTEL Corporation Profit-Sharing *
Plan (January 1, 1994 Restatement) (incorporated herein by
reference to Exhibit 10(l)(1) to Form 10-Q for the period
ended June 30, 1995).
(l)(2) Amendments No. 3 and 4 to ALLTEL Corporation Profit-Sharing *
Plan (January 1, 1994 Restatement) (incorporated herein by
reference to Exhibit 10(l)(2) to Form 10-K for the fiscal year
ended December 31, 1995).
(l)(3) Amendment No. 5 to ALLTEL Corporation Profit-Sharing Plan *
(January 1, 1994 Restatement) (incorporated herein by reference
to Exhibit 10(l)(3) to Form 10-Q for the period ended
September 30, 1996).
* Incorporated herein by reference as indicated.
28
<PAGE>
EXHIBIT INDEX, Continued
- -------------
Number and Name Page
- --------------- ----
(10)(l)(4) Amendment No. 6 to ALLTEL Corporation Profit-Sharing Plan *
(January 1, 1994 Restatement) (incorporated herein by reference
to Exhibit 10(l)(4) to Form 10-Q for the period ended March 31,
1997).
(l)(5) Amendment No. 7 to ALLTEL Corporation Profit-Sharing Plan *
(January 1, 1994 Restatement) (incorporated herein by reference
to Exhibit 10(l)(5) to Form 10-K for the fiscal year ended
December 31, 1997).
(l)(6) Amendment No. 8 to ALLTEL Corporation Profit-Sharing Plan *
(January 1, 1994 Restatement) (incorporated herein by reference
to Exhibit 10(l)(6) to Form 10-Q for the period ended March 31,
1998).
(l)(7) Amendments No. 9 and 10 to ALLTEL Corporation Profit-Sharing *
Plan (January 1, 1994 Restatement) (incorporated herein by
reference to Exhibit 10(l)(7) to Form 10-K for the fiscal year
ended December 31, 1998).
(l)(8) Amendment No. 11 to ALLTEL Corporation Profit-Sharing Plan *
(January 1, 1994 Restatement) (incorporated herein by reference
to Exhibit 10(l)(8) to Form 10-Q for the period ended June 30,
1999).
(l)(9) Amendment No. 12 to ALLTEL Corporation Profit-Sharing Plan *
(January 1, 1994 Restatement) (incorporated herein by reference
to Exhibit 10(l)(9) to Form 10-Q for the period ended
September 30, 1999).
(l)(10) Amendment No. 13 to ALLTEL Corporation Profit-Sharing Plan 92
(January 1, 1994 Restatement).
(m) ALLTEL Corporation Benefit Restoration Plan (January 1, *
1996 Restatement). (incorporated herein by reference to
Exhibit 10(m) to Form 10-K for the fiscal year ended
December 31, 1995).
(n) Amended and Restated ALLTEL Corporation Supplemental *
Medical Expense Reimbursement Plan (incorporated herein
by reference to Exhibit 10(p) to Form 10-K for the fiscal
year ended December 31, 1990).
(o) ALLTEL Corporation Thrift Plan (January 1, 1994 Restatement) *
(incorporated herein by reference to Exhibit 10(p) to Form
10-K for the fiscal year ended December 31, 1994).
(o)(1) Amendments No. 1 and 2 to ALLTEL Corporation Thrift Plan *
(January 1, 1994 Restatement) (incorporated herein by
reference to Exhibit 10(p)(1) to Form 10-Q for the period
ended June 30, 1995).
(o)(2) Amendment No. 3 ALLTEL Corporation Thrift Plan (January 1, *
1994 Restatement) (incorporated herein by reference to
Exhibit 10(o)(2) to Form 10-K for the fiscal year ended
December 31, 1995).
* Incorporated herein by reference as indicated.
29
<PAGE>
EXHIBIT INDEX, Continued
- -------------
Number and Name Page
- --------------- ----
(10)(o)(3) Amended and Restated Amendment No. 4 and Amendment No. 5 *
to ALLTEL Corporation Thrift Plan (January 1, 1994 Restatement)
(incorporated herein by reference to Exhibit 10(o)(3) to Form
10-K for the fiscal year ended December 31, 1996).
(o)(4) Amendment No. 6 to ALLTEL Corporation Thrift Plan (January 1, *
1994 Restatement) (incorporated herein by reference to
Exhibit 10(o)(4) to Form 10-Q for the period ended
March 31, 1997).
(o)(5) Amendment No. 7 to ALLTEL Corporation Thrift Plan (January 1, *
1994 Restatement) (incorporated herein by reference to
Exhibit 10(o)(5) to Form 10-K for the fiscal year ended
December 31, 1997).
(o)(6) Amendments No. 8 and 9 to ALLTEL Corporation Thrift Plan *
(January 1, 1994Restatement) (incorporated herein by reference
to Exhibit 10(o)(6) to Form 10-Q for the period ended
March 31, 1998).
(o)(7) Amendments No. 10, 11 and 12 to ALLTEL Corporation Thrift Plan *
(January 1, 1994 Restatement) (incorporated herein by reference
to Exhibit 10(o)(7) to Form 10-K for the fiscal year ended
December 31, 1998).
(o)(8) Amendments No. 13 and 14 to ALLTEL Corporation Thrift Plan *
(January 1, 1994 Restatement) (incorporated herein by reference
to Exhibit 10(o)(9) to Form 10-Q for the period ended
September 30, 1999).
(o)(9) Amendments No. 15 and 16 to ALLTEL Corporation Thrift Plan 100
(January 1, 1994 Restatement).
(11) Statement re computation of per share earnings. 31
(13) Annual report to stockholders for the year ended 35
December 31, 1999. Such report, except for the portions
incorporated by reference herein, is furnished for the
information of the Commission and is not "filed" as part
of this report.
(21) Subsidiaries of ALLTEL Corporation. 32
(23) Consent of Arthur Andersen LLP. 83
(24) Powers of attorney. 84
(27) Financial Data Schedule for the year ended 107
December 31, 1999.
(99)(a) Annual report on Form 11-K for the ALLTEL Corporation --
Thrift Plan for the year ended December 31, 1999, will be
filed by amendment.
* Incorporated herein by reference as indicated.
30
<TABLE>
EXHIBIT 11
ALLTEL CORPORATION
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(Dollars and Shares in Thousands, except per share amounts)
For the Years Ended December 31, 1999 1998 1997 1996 1995
- -------------------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net income applicable to common shares $782,745 $601,879 $651,248 $405,430 $369,577
Adjustments for convertible securities:
Preferred stocks 173 174 206 220 236
-------- -------- -------- -------- --------
Net income applicable to common shares,
assuming conversion of above securities $782,918 $602,053 $651,454 $405,650 $369,813
======== ======== ======== ======== ========
Weighted average common shares
outstanding for the year 312,841 305,344 307,884 308,160 305,253
Increase in shares which would result from:
Exercise of stock options 3,529 2,551 1,454 1,270 1,350
Conversion of convertible preferred stocks 444 468 523 559 603
------- ------- ------- ------- -------
Weighted average common shares,
assuming conversion of above securities 316,814 308,363 309,861 309,989 307,206
======= ======= ======= ======= =======
Earnings per share of common stock:
Basic $2.50 $1.97 $2.12 $1.32 $1.21
===== ===== ===== ===== =====
Diluted $2.47 $1.95 $2.10 $1.31 $1.20
===== ===== ===== ===== =====
</TABLE>
31
EXHIBIT 21
ALLTEL Corporation
Subsidiaries of the Registrant
State of
COMMUNICATIONS COMPANIES Incorporation
- ------------------------ -------------
ALLTEL Alabama, Inc. Alabama
ALLTEL Arkansas, Inc. Arkansas
ALLTEL Carolina, Inc. North Carolina
ALLTEL Communications, Inc. Delaware
ALLTEL Communications Group, Inc. Delaware
ALLTEL Communications Services Corporation Ohio
ALLTEL Florida, Inc. Florida
ALLTEL Georgia, Inc. Georgia
ALLTEL Georgia Communications Corp. Georgia
ALLTEL Kentucky, Inc. Kentucky
ALLTEL Mississippi, Inc. Mississippi
ALLTEL Missouri, Inc. Missouri
ALLTEL Mobile Communications, Inc. Delaware
ALLTEL Mobile Communications of the Carolinas, Inc. North Carolina
ALLTEL New York, Inc. New York
ALLTEL Ohio, Inc. Ohio
ALLTEL Oklahoma, Inc. Arkansas
ALLTEL Pennsylvania, Inc. Pennsylvania
ALLTEL South Carolina, Inc. South Carolina
ALLTEL Wireless Holdings, L.L.C. Delaware
360 Communications Company Delaware
360 Communications Company Investment Company Delaware
360 Communications Company Investment Company of Delaware Delaware
360 Communications Company Investment Company of Florida Delaware
360 Communications Company Investment Company of Greensboro North Carolina
360 Communications Company of Alabama Delaware
360 Communications Company of Charlottsville Virginia
360 Communications Company of Florida Delaware
360 Communications Company of Hickory No. 1 Delaware
360 Communications Company of Indiana No. 1 Delaware
360 Communications Company of Iowa Delaware
360 Communications Company of Lynchburg Virginia
360 Communications Company of Missouri No. 1 Delaware
360 Communications Company of Nebraska Delaware
360 Communications Company of New Mexico Delaware
360 Communications Company of North Carolina No. 1 Delaware
360 Communications Company of Ohio No. 1 Delaware
360 Communications Company of Ohio No. 2 Delaware
360 Communications Company of Ohio No. 3 Delaware
360 Communications Company of Ohio No. 4 Delaware
360 Communications Company of Pennsylvania No. 1 Delaware
360 Communications Company of Pennsylvania No. 2 Delaware
360 Communications Company of Pennsylvania No. 3 Delaware
360 Communications Company of Petersburg Virginia
32
<PAGE>
EXHIBIT 21
ALLTEL Corporation
Subsidiaries of the Registrant, continued
State of
COMMUNICATIONS COMPANIES: (continued) Incorporation
- ------------------------------------- -------------
360 Communications Company of South Carolina No. 1 Delaware
360 Communications Company of South Carolina No. 2 Delaware
360 Communications Company of Tennessee No. 1 Delaware
360 Communications Company of Tennessee No. 2 Delaware
360 Communications Company of Texas No. 1 Delaware
360 Communications Company of Texas No. 2 Delaware
360 Communications Company of Texas No. 3 Delaware
360 Communications Company of Virginia Virginia
360 Communications Company of Virginia No. 1 Virginia
360 Long Distance, Inc. Iowa
360 Paging, Inc. Delaware
360 Telephone Company of North Carolina Delaware
Aliant Cellular, Inc. Nebraska
Aliant Communications Co. Delaware
Aliant Communications Inc. Nebraska
Aliant Midwest, Inc. Nebraska
Aliant Network Services, Inc. Nebraska
Aliant Systems, Inc. Nebraska
Aliant Wireless Holdings, Inc. Nebraska
Centel Cellular Company of Laredo Delaware
Empire Cellular, Inc. Kansas
Georgia ALLTEL Communicon Co. Illinois
Georgia ALLTELCOM Co. Indiana
Georgia ALLTEL Telecom Inc. Michigan
Georgia Telephone Corporation Georgia
KIN Network, Inc. Kansas
KINI L.C. Kansas
Liberty Cellular, Inc. Kansas
Oklahoma ALLTEL, Inc. Oklahoma
Petersburg Cellular Telephone Company, Inc. Virginia
Plant Cellular RSA 14, Inc. Georgia
RCTC Wholesale Corporation Virginia
Richmond Cellular Telephone Company Virginia
Standard Group, Inc. Georgia
Standard Telephone Company Georgia
Sugar Land Telephone Company Texas
Telcom Group, Inc. Georgia
TeleSpectrum, Inc. Kansas
TeleSpectrum of Virginia, Inc. Virginia
Teleview, Inc. Georgia
Texas ALLTEL, Inc. Texas
Trinet, Inc. Georgia
Virginia Metronet, Inc. Delaware
The Western Reserve Telephone Company Ohio
Wireless Telecom, Inc. Georgia
33
<PAGE>
EXHIBIT 21
ALLTEL Corporation
Subsidiaries of the Registrant, continued
Country or
State of
OTHER COMPANIES: Incorporation
- ---------------- -------------
ALLTEL Communications Products, Inc. Ohio
ALLTEL Communications Products International, Inc. Ohio
ALLTEL Corporate Services, Inc. Delaware
ALLTEL Distribution, Inc. Delaware
ALLTEL Holding, Inc. Delaware
ALLTEL International Holdings, Inc. Delaware
ALLTEL Investments, Inc. Nevada
ALLTEL Management Corporation Delaware
ALLTEL Mauritius Holdings, Inc. Delaware
ALLTEL Publishing Corporation Ohio
ALLTEL Publishing Listing Management Corporation Pennsylvania
CP National Corporation California
Control Communications Industries, Inc. Delaware
Dynalex, Inc. California
Full Circle Insurance Limited Bermuda
Ocean Technology, Inc. California
OTI International, Inc. California
ALLTEL Information Services, Inc. Arkansas
ALLTEL Information Services International, Ltd. Delaware
ALLTEL Information Services International Holdings, Inc. Delaware
ALLTEL Information Services Limited United Kingdom
ALLTEL Information Services Canada Limited Canada
ALLTEL Information Services (France) SARL France
ALLTEL Information Services (Germany) GmbH Germany
ALLTEL Information Services (Greece) S.A. Greece
ALLTEL Information Services (Hong Kong) Limited Hong Kong
ALLTEL Information (India) Private Limited India
ALLTEL Information (Mauritius) Inc. Mauritius
ALLTEL Information Services (Netherlands) B.V. Amsterdam
ALLTEL Information Services (New Zealand) Limited New Zealand
ALLTEL Information Services (Poland) Sp. Z.o.o. Poland
ALLTEL Information Services (Thailand) Limited Thailand
ALLTEL International Limited (Jamaica) Jamaica
ALLTEL International Resource Management, Inc. Delaware
ALLTEL Servicios de Informacion (Costa Rica) S.A. Costa Rica
ALLTEL Wholesale Banking Solutions, Inc. New York
34
EXHIBIT 13
PORTIONS OF ANNUAL REPORT TO STOCKHOLDERS
FOR THE YEAR ENDED DECEMBER
31, 1999 (incorporated by
reference into this filing)
Annual Report Form 10-K
Page Number Page Number
Management's Discussion and Analysis of
Financial Condition and Results of Operations 29-38 36-55
Report of Independent Public Accountants 39 56
Selected Financial Data 40 57
Consolidated Statements of Income 41 58
Consolidated Balance Sheets 42-43 59-60
Consolidated Statements of Cash Flow 44 61
Consolidated Statements of Shareholders' Equity 45 62
Notes to Consolidated Financial Statements 46-57 63-82
35
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
- --------------------------------------------------------------------------
Operations
- ----------
1999 marked a year in which ALLTEL Corporation ("ALLTEL" or the "Company")
achieved solid financial results while continuing to enter new
telecommunications markets. Through strategic acquisitions, ALLTEL expanded its
market presence and currently offers wireless and wireline local, long-distance,
network access and Internet services to customers in 25 states. Operating
results reflect strong market demand for the Company's communications services
as highlighted by the strong performance of ALLTEL's wireless and wireline
businesses.
Completion of Mergers
- ---------------------
On September 30, 1999, ALLTEL completed mergers with Liberty Cellular, Inc.
("Liberty"), which operates under the name Kansas Cellular, and its affiliate
KINI L.C. under definitive merger agreements entered into on June 22, 1999.
Under terms of the merger agreements, the outstanding stock of Liberty and the
outstanding ownership units of KINI L.C. were exchanged for approximately 7.0
million shares of ALLTEL's common stock. On July 2, 1999, the Company completed
its merger with Aliant Communications Inc. ("Aliant") under a definitive merger
agreement entered into on December 18, 1998. 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.
Each of these mergers qualified as a tax-free reorganization and has been
accounted for as a pooling-of-interests. Accordingly, all prior-period financial
information included in this Annual Report has been restated to include the
accounts and results of operations of Aliant, Liberty and KINI L.C. The
consolidated financial statements presented include certain eliminations and
reclassifications to conform the accounting and financial reporting policies of
ALLTEL, Aliant, Liberty and KINI L.C.
In January 1999, the Company completed a merger with Standard Group,
Inc. ("Standard"), a communications company serving customers in Georgia. To
expand its information services business, the Company also completed mergers
with Advanced Information Resources, Limited ("AIR") and Southern Data Systems
("Southern Data") in September 1999. In connection with these mergers,
approximately 6.5 million shares of ALLTEL common stock were issued. All three
mergers qualified as tax-free reorganizations and were accounted for as
poolings-of-interests. Prior-period financial information has not been restated
since the operations of the three acquired companies are not significant to
ALLTEL's consolidated financial statements on either a separate or aggregate
basis. The accompanying consolidated financial statements include the accounts
and results of operations of Standard, AIR and Southern Data from the date of
acquisition. (See Note 2 to the consolidated financial statements for additional
information regarding the merger transactions.)
Consolidated Results of Operations
- ----------------------------------
Revenues and sales increased $675.5 million or 12 percent in 1999, $719.8
million or 15 percent in 1998 and $343.6 million or 8 percent in 1997. Operating
income increased $499.2 million or 49 percent in 1999, decreased $103.3 million
or 9 percent in 1998 and increased $220.2 million or 24 percent in 1997. Growth
in revenues and sales in 1998 and 1997 was affected by the May 1997 sale of the
Company's wire and cable subsidiary, HWC Distribution Corp. ("HWC"), and the
January 1997 sale of information services' healthcare operations. In addition to
these dispositions, operating income growth for all three years was also
affected by merger and integration expenses and other charges. Adjusted to
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exclude the results from operations for the asset dispositions and to exclude
the impact of the merger and integration expenses and other charges, revenues
and sales would have increased $762.7 million or 16 percent in 1998 and $572.4
million or 13 percent in 1997, and operating income would have increased $282.7
million or 21 percent in 1999, $188.3 million or 16 percent in 1998, and $125.7
million or 12 percent in 1997.
Net income increased $180.5 million or 30 percent in 1999, decreased
$49.4 million or 8 percent in 1998 and increased $245.8 million or 60 percent in
1997. Basic and diluted earnings per share both increased 27 percent in 1999,
decreased 7 percent in 1998 and increased 61 percent in 1997. Reported net
income and earnings per share include the effects of the asset dispositions,
merger and integration expenses and other charges, as well as several
non-recurring and unusual items further discussed below. Excluding the impact in
each year of the asset dispositions and the non-recurring and unusual items, net
income would have increased $162.4 million or 25 percent in 1999, $118.2 million
or 22 percent in 1998 and $67.4 million or 14 percent in 1997, and basic and
diluted earnings per share would have increased 22 percent and 21 percent,
respectively in 1999, increased 23 percent and 22 percent, respectively in 1998,
and both would have increased 14 percent in 1997.
ALLTEL Performance from Operations
- ----------------------------------
(Two pie charts depicting the following information)
Total Revenues and Sales
- ------------------------
Wireless $2,743,251
Wireline $1,677,457
Emerging business $ 280,250
Information Services $1,245,503
Other operations $ 579,818
- ------------------------------------------------
Total revenues and sales $6,302,271(A)
- ------------------------------------------------
(A) - in thousands, net of intercompany eliminations
Total Operating Income
- ----------------------
Communications $1,458,301
Information services $ 175,316
Other operations $ 21,561
- ------------------------------------------------
Total operating income $1,615,627(B)
- ------------------------------------------------
(B) - in thousands includes corporate expenses and merger and integration and
other charges
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Operating income, net income and earnings per share adjusted for the
asset dispositions, and the non-extraordinary, non-recurring and unusual items
are summarized in the following tables:
<TABLE>
- ------------------------------------------------------------------------------------------------------
(Thousands, except per share amounts) 1999 1998 1997
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating income, as reported $1,525,107 $1,025,927 $1,129,191
Disposition of wire and cable operations - - (1,416)
Non-recurring and unusual items:
Merger and integration expenses
and other charges 90,520 252,000 -
Provision to reduce carrying value
of certain assets - 55,000 16,874
---------- ---------- ----------
Operating income, as adjusted $1,615,627 $1,332,927 $1,144,649
- -------------------------------------------------------------------------------------------------------
Net income, as reported $ 783,634 $ 603,127 $ 652,481
Disposition of wire and cable operations - - (838)
Non-recurring and unusual items, net of tax:
Merger and integration expenses
and other charges 66,044 200,995 -
Provision to reduce carrying value
of certain assets - 33,605 11,744
Gain on disposal of assets (27,185) (179,770) (121,485)
Termination fees on early
retirement of long-term debt - 2,097 -
---------- ---------- ----------
Net income, as adjusted $ 822,493 $ 660,054 $541,902
- -------------------------------------------------------------------------------------------------------
Basic Diluted
------------------------- ---------------------------
1999 1998 1997 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------
Earnings per share, as reported $2.50 $1.97 $2.12 $2.47 $1.95 $2.10
Non-recurring and unusual items, net of tax:
Merger and integration expenses
and other charges .21 .66 - .20 .65 -
Provision to reduce carrying value
of certain assets - .11 .04 - .11 .04
Gain on disposal of assets (.08) (.59) (.40) (.08) (.58) (.39)
Termination fees on early
retirement of long-term debt - .01 - - .01 -
----- ----- ----- ----- ----- -----
Earnings per share, as adjusted $2.63 $2.16 $1.76 $2.59 $2.14 $1.75
- -----------------------------------------------------------------------------------------------------------
</TABLE>
The operating income, net income and earnings per share impact of the
asset dispositions and the non-recurring and unusual items have been presented
as supplemental information only. The non-recurring and unusual items reflected
in the above tables are discussed below in reference to the caption in the
consolidated statements of income in which they are reported.
Merger and Integration Expenses and Other Charges
- -------------------------------------------------
During the third quarter of 1999, the Company recorded a pretax charge of $90.5
million in connection with its mergers with Aliant, Liberty, AIR and Southern
Data and with certain loss contingencies and other restructuring activities. The
merger and integration expenses total $73.4 million and consist of professional
and financial advisors' fees of $24.4 million, severance and employee-related
expenses of $15.4 million and other integration costs of $33.6 million. The
other integration costs include $12.5 million of lease termination costs, $10.2
million of costs associated with the early termination of certain service
obligations, and a $4.6 million write-down in the carrying value of certain
in-process and other software development assets that have no future alternative
use or functionality. The other integration costs also include branding and
signage costs of $4.1 million and other expenses of $2.2 million incurred in the
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third quarter. The lease termination costs consist of a cancellation fee of $7.3
million to terminate the Company's contractual commitment to lease building
space previously occupied by the former 360 Communications Company
("360") operations acquired in 1998, a $4.1 million write-off of
capitalized leasehold improvements and $1.1 million in other disposal costs. The
contract termination fees include $5.2 million related to long-term contracts
with an outside vendor for customer billing services to be provided to the
Aliant and Liberty operations. As part of its integration plan, ALLTEL will
convert both the Aliant and Liberty operations to its own internal billing
system. Conversion of the Liberty operations was completed in November 1999, and
conversion of the Aliant operations will be completed by June 2000. The Company
also recorded an additional $5.0 million charge to reflect the actual cost of
terminating its contract with Convergys Corporation ("Convergys") for customer
billing services to be provided to the former 360 operations. In
September 1999, ALLTEL and Convergys agreed to a final contract termination fee
of $55.0 million, of which $50.0 million was recorded in 1998, as discussed
below. Through December 31, 1999, the Company had paid $30.0 million of the
termination fee with the remaining payments due in installments through 2001. In
addition to the termination fee, the Company will continue to pay Convergys for
processing customer accounts until all customers are switched to ALLTEL's
billing system, which is expected to be completed in 2001. Payments for the
continuing processing services will be expensed as incurred.
In connection with management's plan to reduce costs and improve
operating efficiencies, the Company recorded a restructuring charge of $17.1
million consisting of $10.8 million in severance and employee benefit costs
related to a planned workforce reduction and $6.3 million in lease termination
costs related to the consolidation of certain operating locations. The lease
termination costs represent the minimum estimated contractual commitments over
the next one to four years for leased facilities that the Company has abandoned.
In 1998, the Company recorded transaction costs and one-time charges
totaling $252.0 million on a pretax basis related to the closing of its merger
with 360. The merger and integration expenses included 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
integration costs included 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 included a $60.0 million
write-down in the carrying value of certain in-process software development
assets, $50.0 million of costs associated with the early termination of certain
service obligations, branding and signage costs of $20.7 million, an $18.0
million write-down in the carrying value of certain assets resulting from a
revised Personal Communications Services ("PCS") deployment plan, and other
integration costs of $23.1 million. The estimated cost of contract termination
was related to a long-term contract with Convergys for billing services to be
provided to the 360 operations. The $50.0 million of costs recorded
represented the present value of the estimated profit to the vendor over the
remaining term of the contract and was the Company's best estimate of the cost
of terminating the contract prior to the expiration of its term. As previously
noted, the Company and Convergys agreed upon a termination fee of $55.0 million.
The $18.0 million write-down in the carrying value of certain PCS-related assets
included approximately $15.0 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, ALLTEL elected not to
continue to complete construction of its PCS network in these three markets. The
remaining $3.0 million of the PCS-related write-down represented cell site lease
termination fees.
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<PAGE>
At December 31, 1999, the remaining unpaid liability related to the
Company's merger and integration and restructuring activities was $66.5 million
consisting of contract termination fees of $29.9 million, severance and
employee-related expenses of $26.7 million, lease cancellation and termination
costs of $5.8 million, and other integration costs of $4.1 million. Of the
remaining contract termination fees, $24.9 million will be paid in 2000 and $5.0
million in 2001. Cash outlays for the remaining employee-related expenses,
contract and lease termination fees and the other integration costs are expected
to be completed by September 2000. Funding for the unpaid merger and integration
and restructuring liability will be internally financed from operating cash
flows. As a result of its integration and restructuring efforts, ALLTEL expects
to realize savings through a reduction in operating expenses of approximately
$128 million in 2000. Of the total savings expected to be realized, 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. (See Note 9 to the consolidated
financial statements for additional information regarding the merger and
integration expenses and other charges).
Provision to Reduce Carrying Value of Certain Assets
- ----------------------------------------------------
During the third quarter of 1998, the Company recorded a $55.0 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 ("Bell Atlantic"), GTE re-evaluated its billing and customer care
requirements, modified its billing conversion plans and is purchasing certain
processing services from ALLTEL for an interim period. During 1997, ALLTEL
recorded a pretax write-down of $16.9 million to reflect the fair value less
cost to sell its wire and cable subsidiary, HWC. (See Note 10 to the
consolidated financial statements for additional information regarding these
charges).
Gain on Disposal of Assets and Other
- ------------------------------------
During the fourth quarter of 1999, ALLTEL recorded a pretax gain of $43.1
million from the sale of a portion of its investment in MCI WorldCom, Inc. ("MCI
WorldCom") common stock. During 1998, the Company recorded pretax gains of
$265.7 million from the sale of a portion of its investment in MCI WorldCom
common stock. The Company also recorded a pretax gain of $30.5 million resulting
from the sale of its ownership interest in an unconsolidated partnership. In
addition, the Company incurred termination fees of $3.5 million related to the
early retirement of long-term debt.
During 1997, ALLTEL recorded a pretax gain of $156.0 million from the
sale of a portion of its investment in MCI WorldCom common stock. In addition,
the Company recorded a pretax gain of $34.4 million primarily related to the
sale of its investment in a software company, a pretax gain of $16.2 million
from the sale of information services' healthcare operations, and a pretax gain
of $3.0 million from the sale of its ownership interests in two unconsolidated
partnerships. (See Note 11 to the consolidated financial statements for
additional information regarding these non-recurring and unusual items.)
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<PAGE>
Results of Operations by Business Segment
Communications-Wireless Operations
- ------------------------------------------------------------------
(Dollars in millions) 1999 1998 1997
- ------------------------------------------------------------------
Revenues and sales $2,743.3 $2,339.8 $1,986.8
Operating income $ 886.5 $ 674.6 $ 506.9
Total customers 5,018,614 4,452,049 3,824,094
Market penetration rate 12.8% 11.4% 10.2%
Churn 2.2% 2.1% 2.0%
- ------------------------------------------------------------------
Wireless revenues and sales increased $403.5 million or 17 percent in 1999,
$353.0 million or 18 percent in 1998 and $319.9 million or 19 percent in 1997.
Operating income increased $211.9 million or 31 percent in 1999, $167.7 million
or 33 percent in 1998 and $96.9 million or 24 percent in 1997. Customer growth
continued, as the number of customers increased 13 percent over 1998, compared
to annual growth rates in customers of 16 percent in 1998 and 19 percent in
1997. During 1999, ALLTEL purchased wireless properties in Alabama and Colorado
and acquired a majority ownership interest in a wireless property in Illinois.
In addition, the Company also increased its ownership interest in the Richmond,
Va., market to 100 percent through the exchange of its minority interest
investment in the Orlando, Fla., market. These transactions accounted for
approximately 140,000 of the overall increase in wireless customers that
occurred during 1999. Including the effects of the acquisitions, ALLTEL placed
1,893,000 gross units in service in 1999, compared to 1,695,000 units in 1998
and 1,450,000 units in 1997. While the rate of customer growth has declined, the
overall market penetration rate (number of customers as a percentage of the
total population in ALLTEL's service areas) has increased.
Wireless revenues and sales increased in all periods primarily due to
the growth in ALLTEL's customer base. Increases in local airtime, roaming and
long-distance revenues, reflecting higher volumes of network usage and the
acquisition of new wireless properties and increased ownership interests in
existing wireless properties, 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 $80.2 million of the increase in revenues
and sales in 1999. As a result of the increased usage in the Company's network
facilities, average monthly revenue per customer increased slightly in 1999 and
1998 to $48 and $47, respectively. Average monthly revenue per customer was $46
for 1997, a decline of 8 percent from 1996. The decline in average monthly
revenue per customer in 1997 was primarily due to the migration of existing
customers to lower rate plans, increased penetration into lower-usage market
segments and a reduction in roaming revenue rates. During 1997, as a result of
competition in its service areas, ALLTEL increased its offering of monthly
service plans, which had lower base access rates and included more packaged
airtime minutes. The Company expects average monthly revenue per customer will
continue to be affected by the industry-wide trends of decreased roaming revenue
rates and continued penetration into lower-usage market segments. 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.
Operating income increased in all periods primarily due to the growth
in revenues and sales. A reduction in customer service-related expenses and
reduced losses realized on the sale of wireless equipment also contributed to
the growth in operating income for 1999. The reduction in customer
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<PAGE>
service-related expenses reflects cost savings realized from the merger with
360 and the elimination of certain duplicative salaries and other
employee benefit costs. Partially offsetting the increase in operating income
for 1999 attributable to revenue growth, lower customer service expenses and
improved margins from equipment sales were increases in selling and marketing
costs, including advertising and sales commissions, reflecting expanded
competition in ALLTEL's service areas from other wireless service providers.
Increased data processing charges and other network-related expenses consistent
with the growth in customers and network traffic also affected operating income
growth in 1999. In addition to revenue growth, operating income for 1998 and
1997 also reflects improved margins realized on the sale of wireless equipment,
reductions in branding and other advertising costs and declines in losses
sustained from fraud. The reduction in branding and other advertising costs in
1998 reflects savings realized as a result of the merger with 360, as
ALLTEL ceased promotion of the 360 brand name. Branding and other
advertising costs declined in 1997 due to a decrease in promotional activities.
Growth in operating income in 1998 and 1997 was also affected by increases in
sales commissions, customer service-related expenses and general and
administrative expenses consistent with the overall growth in revenues and
sales. Losses sustained from fraud decreased in all periods primarily due to the
Company's continuing efforts to control unauthorized usage of its customers'
wireless telephone numbers that results in unbillable fraudulent roaming
activity. Depreciation and amortization expense also increased in all periods
primarily due to growth in wireless plant in service.
The cost to acquire a new wireless customer represents sales, marketing
and advertising costs and the net equipment cost for each new customer added.
The cost to acquire a new wireless customer was $309, $290 and $281 for 1999,
1998 and 1997, respectively. The increase in 1999 reflects increased
advertising, commissions and other selling and marketing costs noted above.
Increased equipment costs consistent with the migration of customers to
higher-priced digital phones also contributed to the increase in 1999. The
increase in cost to acquire a new customer for 1998 reflects increased
commissions paid to national dealers, resulting from increased sales from
external distribution channels, partially offset by reductions in branding and
other advertising costs, as noted above. The cost to acquire a new customer
decreased in 1997 primarily due to reduced branding and advertising costs, as
well as the effect of distributing costs over a larger number of customers
acquired when compared to the corresponding prior-year period. Although the
Company intends to continue to utilize its large dealer network, ALLTEL 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.
Communications-Wireline Operations
- ----------------------------------------------------------------------------
(Dollars in millions) 1999 1998 1997
- ----------------------------------------------------------------------------
Local service $ 770.2 $ 681.0 $ 624.5
Network access and long-distance 779.0 698.6 678.3
Miscellaneous 128.3 119.6 113.5
-------- -------- --------
Total revenues and sales $1,677.5 $1,499.2 $1,416.3
Operating income $ 619.1 $ 530.6 $ 506.2
Access lines in service 2,433,092 2,181,859 2,062,877
- ----------------------------------------------------------------------------
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Wireline revenues and sales increased $178.3 million or 12 percent in 1999,
$82.9 million or 6 percent in 1998 and $74.7 million or 6 percent in 1997.
Operating income increased $88.5 million or 17 percent in 1999, $24.4 million or
5 percent in 1998 and $44.6 million or 10 percent in 1997. As previously noted,
ALLTEL acquired Standard in January 1999. The acquisition of Standard accounted
for $98.8 million and $42.0 million, respectively, of the overall increases in
ALLTEL's wireline revenues and sales and operating income in 1999. Customer
access lines, excluding access lines acquired from Standard, increased 6 percent
in 1999, reflecting increased sales of residential and second access lines.
Customer access lines also grew 6 percent in 1998 and 1997.
Local service revenues increased $89.2 million or 13 percent in 1999,
$56.5 million or 9 percent in 1998 and $62.5 million or 11 percent in 1997. The
increases in local service revenues in all periods reflect growth in both
customer access lines and custom calling and other enhanced services revenues.
The acquisition of Standard accounted for $33.4 million of the increase in local
service revenues in 1999. Local service revenues for 1997 reflect the expansion
of local calling areas in North Carolina and Georgia, which reclassified certain
revenues from network access and long-distance revenues to local service
revenues. Future access line growth is expected to result from population growth
in the Company's service areas, from sales of second access lines and through
strategic acquisitions.
Network access and long-distance revenues increased $80.4 million or 12
percent in 1999, $20.3 million or 3 percent in 1998 and $4.9 million or 1
percent in 1997. The acquisition of Standard accounted for $58.1 million of the
overall increase in network access and long-distance revenues in 1999. Network
access and long-distance revenues also increased in 1999 and 1998 as a result of
higher volumes of network usage and growth in customer access lines, partially
offset by a reduction in intrastate toll revenues. The increase in 1997
primarily reflects higher volumes of access usage, partially offset by the
reclassification of certain revenues to local service revenues, as previously
discussed, and a reduction in intrastate toll rates in Nebraska.
Total wireline operating expenses increased $89.8 million or 9 percent
in 1999, $58.5 million or 6 percent in 1998 and $30.1 million or 3 percent in
1997. The acquisition of Standard accounted for $56.8 million of the overall
increase in wireline operating expenses in 1999. Operating expenses for all
periods also reflect increases in network-related expenses, depreciation and
amortization, data processing charges and other general and administrative
expenses. Network-related expenses, data processing charges and other general
and administrative expenses increased primarily due to the growth in wireline
customers, while depreciation and amortization expense increased primarily due
to growth in wireline plant in service. Operating expenses for 1997 also include
additional costs incurred by ALLTEL in consolidating its customer service
operations.
Regulatory Matters-Wireline Operations
- --------------------------------------
ALLTEL's wireline subsidiaries, except for the former Aliant operations, follow
the accounting for regulated enterprises prescribed by Statement of Financial
Accounting Standards ("SFAS") No. 71, "Accounting for the Effects of Certain
Types of Regulation." 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
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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.
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 considered first by the U.S. Eighth Circuit
Court of Appeals (the "Eighth Circuit Court") and then by the U.S. Supreme Court
("Supreme 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. 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 were consistent with the 96 Act. Other issues
were remanded to the FCC.
In response to the Supreme Court's decision, the FCC issued a decision
on November 5, 1999, outlining how it would interpret the "necessary" and
"impair" standards set forth in the 96 Act and which specific network elements
it would require ILECs to unbundle as a result of its interpretation of those
standards. The FCC reaffirmed that ILECs must provide unbundled access to six of
the original seven network elements that it required to be unbundled. The six
network elements consist of loops, including loops used to provide high-capacity
and advanced telecommunications services; network interface devices; local
circuit switching; dedicated and shared transport; signaling and call-related
databases; and operations support systems. Access to ILEC operator and directory
assistance services was the one network element that the FCC omitted. The FCC
also imposed on ILECs the obligation to unbundle other network elements
including access to sub-loops or portions of sub-loops, fiber optic loops and
transport. The FCC declined to impose any obligations on ILECs to provide
unbundled access to packet switching or to digital subscriber line access
multiplexers. The FCC also began a rulemaking regarding the ability of carriers
to use certain unbundled network elements as a substitute for the ILEC's special
access services.
On October 21, 1999, the FCC adopted two orders involving universal
service. In the first order, the FCC completed development of the cost model
that will be used to estimate non-rural ILECs' forward-looking costs of
providing telephone service. In the second order, the FCC adopted a methodology
that uses the costs generated by the cost model to calculate the appropriate
level of support for non-rural carriers serving rural areas. Under the new
funding mechanism, high-cost support will be targeted to the highest cost wire
center within the state and support will be portable. That is, when a non-rural
ILEC loses a customer to a competitor, the competitor may receive the universal
service high-cost support for service provided to that customer. Under the new
funding mechanism, seven states (Alabama, Kentucky, Maine, Mississippi, Vermont,
West Virginia and Wyoming) will receive high-cost support of approximately $255
million. The new high-cost support mechanism should ensure that rates are
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<PAGE>
reasonably comparable on average among states, while the states will continue to
ensure that rates are reasonably comparable within their borders. The FCC
reiterated that the high-cost support mechanism for rural carriers is not
scheduled to be revised until January 1, 2001, at the earliest.
The FCC also clarified its interpretation of the definition of a "rural
telephone company" under the 96 Act to refer to the legal entity that provides
local exchange services. By May 1, 2000, states are required to establish
different rates for pricing interconnection and unbundled network elements in at
least three defined geographic areas within the state to reflect geographic cost
differences. 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 wireline subsidiaries.
Periodically, the Company's wireline subsidiaries receive requests from
wireless communications providers for renegotiation of existing transport and
termination agreements. In these cases, the Company's wireline subsidiaries
renegotiate the appropriate terms and conditions in compliance with the 96 Act.
The Company's wireline subsidiaries have executed contracts for transport and
termination services with Competitive Local Exchange Carriers ("CLECs").
During 1999, some of ALLTEL's wireline operations were subject to
certain regulatory commission orders designed to reduce earnings levels. These
orders did not materially affect the results of operations of the Company's
wireline subsidiaries. Certain states in which the Company's wireline
subsidiaries operate have adopted alternatives to rate-of-return regulation,
either through legislative or regulatory commission actions. The Company has
elected alternative regulation for certain of its wireline subsidiaries in
Alabama, Arkansas, Florida, Georgia, Kentucky, North Carolina and Texas. The
Company also has an alternative regulation application pending in Pennsylvania.
The Company continues to evaluate alternative regulation for its other wireline
subsidiaries.
The FCC instituted a rulemaking in June 1998 in which it proposed to
amend the access charge rules for rate-of-return Local Exchange Carriers
("LECs") in a manner similar to that adopted earlier 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 Company's wireline subsidiaries have elected to remain under rate
base rate-of-return regulation with respect to interstate services. For
companies remaining under rate-of-return regulation, the FCC authorizes a
rate-of-return that telephone companies may earn on interstate services they
provide. In October 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.
However, ALLTEL and other ILECs have asked the FCC to address other important
issues relating to universal service, interconnection and access reform before
considering any represcription of the authorized rate-of-return. The Company's
wireline subsidiaries currently receive compensation from long-distance
companies for intrastate, intraLATA services through access charges or toll
settlements that are subject to state regulatory commission approval.
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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.
Communications-Emerging Businesses Operations
- ------------------------------------------------------------
(Millions) 1999 1998 1997
- ------------------------------------------------------------
Revenues and sales $280.3 $167.3 $100.8
Operating loss $(47.2) $(38.0) $(16.4)
- ------------------------------------------------------------
Emerging businesses consist of the Company's long-distance, CLEC, Internet
access, network management and 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. In
1998, ALLTEL began offering CLEC and network management services to business
customers in select markets. In 1999, ALLTEL expanded its CLEC product offering
to include residential customers in certain markets in Arkansas, Florida,
Nebraska, North Carolina, Pennsylvania and Virginia. The Company plans to expand
its CLEC operations into additional markets in Alabama, Georgia, Missouri and
South Carolina during 2000. PCS has been offered in Jacksonville, Fla., since
March 1998 and in the Birmingham and Mobile, Ala., markets since February 1999.
Revenues and sales increased in 1999 due to growth in the
long-distance, CLEC and Internet operations, primarily driven by growth in
ALLTEL's customer base for these services. Long-distance, CLEC and Internet
revenues increased in 1999 by $51.8 million, $18.2 million and $16.6 million,
respectively. Revenues and sales from emerging businesses increased in 1998 and
1997 primarily due to growth in the long-distance operations. The start-up of
the CLEC and PCS operations also contributed to the overall growth in revenues
and sales from emerging businesses in 1998. The operating losses sustained by
emerging businesses in each year reflect the start-up nature of these
operations.
Information Services Operations
- ------------------------------------------------------------
(Millions) 1999 1998 1997
- ------------------------------------------------------------
Revenues and sales $1,245.5 $1,161.8 $974.2
Operating income $ 75.3 $ 162.7 $144.9
- ------------------------------------------------------------
Information services revenues and sales increased $83.7 million or 7 percent in
1999, $187.6 million or 19 percent in 1998 and $14.1 million or 1 percent in
1997. Growth in revenues and sales for 1997 was impacted by the sale of
healthcare operations completed in January 1997. Excluding the sold healthcare
operations, information services revenues and sales would have increased $123.7
million or 15 percent in 1997. Operating income increased $12.7 million or 8
percent in 1999, $17.7 million or 12 percent in 1998 and $4.6 million or 3
percent in 1997.
Revenues and sales increased in 1999 primarily due to growth in the
telecommunication outsourcing operations, reflecting volume growth in existing
data processing contracts. Telecommunication revenues and sales increased in
1999 primarily as a result of additional billings to affiliates, reflecting the
Company's recent acquisitions. Financial services, including the residential
lending and international operations, produced modest revenue growth in 1999, as
revenues earned from new and existing contracts were offset by reduced revenues
from selected large customers and contract terminations. These reduced revenue
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streams primarily reflect the merger and consolidation activity in the domestic
financial services industry. Revenues and sales increased in 1998 primarily due
to growth in the financial services, international and telecommunication
outsourcing operations. Excluding the impact of the sold healthcare operations,
revenues and sales increased in 1997 primarily due to growth in the financial
services and telecommunication businesses. The increases in revenues and sales
for 1998 and 1997 reflect volume growth in existing data processing contracts,
the addition of new outsourcing agreements and additional software maintenance
and service revenues. Revenues and sales growth in both 1998 and 1997 was also
affected by lost operations from contract terminations due to the merger and
consolidation activity in the domestic financial services industry and
reductions in revenues collected for early termination of facilities management
contracts.
The increase in operating income in 1999 primarily reflects the growth
in revenues and sales noted above, partially offset by lower margins realized by
the international financial services business and by the loss of higher margin
operations due to contract terminations. Operating income for 1999 also includes
an unfavorable cumulative margin adjustment of $4.6 million related to one
outsourcing agreement accounted for under the percentage-of-completion method.
Operating income increased in 1998 primarily due to the growth in revenues and
sales noted above, additional fees collected from the early termination of
contracts and improved profit margins realized from the international financial
services businesses, partially offset by lower margins realized by the
telecommunication operations. Telecommunication operating margins decreased due
to higher operating costs, including depreciation and amortization expense.
Depreciation and amortization expense increased in 1998 primarily due to the
acquisition of additional data processing equipment and an increase in
amortization of internally developed software. Operating income for 1997
reflects the growth in revenues and sales noted above, as well as improved
profit margins realized from the international financial services business,
partially offset by the loss of operations due to the sale of the healthcare
business. Growth in operating income for 1997 was adversely affected by start-up
and product development costs associated with several new business initiatives
designed to expand the Company's service offerings in existing markets. Growth
in operating income for 1997 was affected by the loss of higher-margin
operations due to contract terminations, reductions in fees collected on the
early termination of facilities management contracts and an increase in
operating costs corresponding with the growth in revenues and sales.
Other Operations
- --------------------------------------------------------
(Millions) 1999 1998 1997
- --------------------------------------------------------
Revenues and sales $579.8 $601.3 $478.9
Operating income $ 21.6 $ 25.9 $ 21.9
- --------------------------------------------------------
Other operations consist of the Company's product distribution and directory
publishing operations. Revenues and sales decreased $21.5 million or 4 percent
in 1999, increased $122.4 million or 26 percent in 1998 and decreased $111.0
million or 19 percent in 1997. Operating income decreased $4.3 million or 17
percent in 1999, increased $4.0 million or 18 percent in 1998 and decreased
$12.1 million or 35 percent in 1997. Growth in revenues and sales and operating
income for 1998 and 1997 was affected by the sale of the HWC operations
completed in May 1997. Excluding the sold HWC operations, revenues and sales
would have increased $165.3 million or 38 percent in 1998 and $3.2 million or 1
percent in 1997, and operating income would have increased $5.5 million or 27
percent in 1998 and would have decreased $5.8 million or 22 percent in 1997.
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The decrease in revenues and sales in 1999 was attributable to the
product distribution operations, as sales of telecommunications and data
products decreased $34.0 million from 1998. The decrease in product distribution
revenues and sales reflects a decrease of $52.2 million in affiliate sales,
partially offset by increased retail sales and sales to non-affiliates. Sales to
affiliates declined primarily due to a change in reporting intercompany
transactions with the wireless subsidiaries. Beginning in 1999, these
intercompany transactions were recorded at cost as inventory transfers.
Partially offsetting the reduction in product distribution revenues and sales
was growth in directory publishing revenues, which increased $12.5 million from
1998, reflecting an increase in the number of directory contracts published.
Revenues and sales increased in 1998 primarily due to growth in 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 $140.0 million in 1998,
reflecting additional purchases by the Company's wireless subsidiaries as a
result of the merger with 360 and expansion of product lines to include
wireless equipment. The increase in revenues and sales in 1998 attributable to
the product distribution operations was partially offset by decreases in
directory publishing revenues, primarily due to the loss of one large contract.
The decrease in revenues and sales for 1997 primarily resulted from the sale of
HWC and a decrease in directory publishing revenues due to a reduction in the
number of directory contracts published. Sales of telecommunications and data
products increased $21.1 million in 1997, primarily reflecting increased sales
to affiliated and non-affiliated customers and additional retail sales of these
products at the Company's counter showrooms.
The changes in other operations operating income for 1999 and 1998
primarily reflect the changes in revenues and sales noted above. Growth in
operating income for both 1999 and 1998 continued to be affected by lower gross
profit margins realized by the product distribution operations, resulting from
lower margins earned on affiliated sales and increased competition from other
distributors and direct sales by manufacturers. Operating income decreased in
1997 primarily due to the decrease in revenues and sales noted above. Lower
gross profit margins realized on the sale of telecommunications and data
products, reflecting increased competition and a reduction in product cost
rebates received from vendors, also impacted operating income growth in 1997. In
addition, increased selling expenses incurred by the Company to open several new
counter showroom facilities also impacted operating income growth in 1997.
Interest Expense
- ----------------
Interest expense increased $1.8 million or 1 percent in 1999, $3.5 million or 1
percent in 1998 and $24.1 million or 10 percent in 1997. The increase in
interest expense in 1999 reflects the issuance of $300 million of debentures in
April 1999, while the increase in interest expense in 1998 reflects the
issuances of $100 million of unsecured notes in January 1998 and $100 million of
unsecured notes in April 1998. The increases in interest expense in 1999 and
1998 attributable to the issuance of additional debt were partially offset by
decreases in each year in the average borrowings outstanding and the weighted
average borrowing rates applicable to ALLTEL's revolving credit agreement. The
increase in interest expense in 1997 reflects the issuance of $200 million of
debentures completed in March 1997 and the issuance of $122 million of
subordinated promissory notes issued in November 1996 in connection with an
acquisition.
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Income Taxes
- ------------
Income tax expense increased $45.5 million or 9 percent in 1999, $67.8 million
or 16 percent in 1998 and $171.7 million or 65 percent in 1997. Income tax
expense for all periods includes 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 year,
income tax expense would have increased $96.7 million or 21 percent in 1999,
$108.2 million or 31 percent in 1998 and $40.3 million or 13 percent in 1997,
consistent with the overall growth in ALLTEL's earnings from continuing
operations before non-recurring and unusual items.
Average Common Shares Outstanding
- ---------------------------------
The average number of common shares outstanding increased 2 percent in 1999,
primarily due to the additional shares issued in connection with the Standard,
AIR and Southern Data acquisitions. During 1999, 6,515,000 shares were issued in
connection with the above acquisitions, common shares issued through stock
option plans amounted to 1,694,000 shares, and preferred stock and debentures
were converted into 34,000 shares. The average number of common shares
outstanding decreased 1 percent in 1998, primarily due to the Company's
repurchase of its common stock in 1997. During 1998, common shares issued
through stock option plans amounted to 1,741,000 shares, and preferred stock and
debentures were converted into 23,000 shares. These increases were partially
offset by the Company's repurchase on the open market of 405,000 of its common
shares. The average number of common shares outstanding decreased slightly in
1997. During 1997, 872,000 shares were issued in connection with acquisitions,
common shares issued through stock option plans amounted to 722,000 shares, and
preferred stock and debentures were converted into 67,000 shares. These
increases were offset by the Company's repurchase on the open market of
6,851,000 of its common shares.
Financial Condition, Liquidity and Capital Resources
- ------------------------------------------------------------------------
(Millions, except per share amounts) 1999 1998 1997
- ------------------------------------------------------------------------
Cash flows from (used in):
Operating activities $1,500.0 $1,405.8 $ 1,270.8
Investing activities (1,061.4) (864.6) (1,005.9)
Financing activities (510.1) (507.6) (264.4)
-------- -------- ---------
Change in cash and
short-term investments $ (71.5) $ 33.6 $ 0.5
- ------------------------------------------------------------------------
Total capital structure $8,028.9 $7,396.7 $ 6,982.1
Percent equity to total capital 52.4% 49.2% 43.9%
Interest coverage ratio 5.92x 5.02x 4.25x
Book value per share $13.38 $11.84 $9.99
- ------------------------------------------------------------------------
Cash Flows from Operations
- --------------------------
Cash provided from operations continues to be ALLTEL's primary source of funds.
The increases in cash provided from operations for 1999 and 1998 primarily
reflect growth in operating income of the Company before non-recurring and
unusual charges. The increases in cash provided from operations resulting from
earnings growth in 1999 and 1998 were partially offset by changes in working
capital requirements, including timing differences in the payment of accounts
payable and additional income tax payments associated with gains realized from
the sale of MCI WorldCom common stock.
Cash Flows from Investing Activities
- ------------------------------------
Capital expenditures continued to be ALLTEL's primary use of capital resources.
Capital expenditures were $1,006.5 million in 1999, $998.0 million in 1998 and
$899.7 million in 1997. Capital expenditures increased in 1999 and 1998,
primarily due to construction of additional network facilities and deployment of
digital wireless technology in select markets. Capital expenditures increased in
1997 primarily due to the start-up construction of ALLTEL's PCS network. During
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each of the past three years, the Company financed the majority of its capital
expenditures through internally generated funds. Capital expenditures were
incurred to continue to modernize and upgrade ALLTEL's communications network,
to construct additional network facilities to provide PCS and digital wireless
service and to offer other communications services, including long-distance,
Internet and CLEC services. Capital expenditures are forecast at approximately
$995 million for 2000 and are expected to be funded primarily from internally
generated funds.
Cash outlays for the acquisition of property in 1999 were $99.9
million. This amount is net of cash acquired of approximately $24.1 million
received in the Standard acquisition and principally consists 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, the Company paid $12.1 million for the remaining
ownership interest in a wireless property in Nebraska in which the Company
already owned a controlling interest. Cash outlays in 1998 for the purchase of
property were $81.1 million, principally consisting of $34.6 million for the
acquisition of two wireless properties in Georgia and $43.6 million for the
purchase of additional ownership interests in wireless properties in Nebraska,
North Carolina and Texas. Cash flows from investing activities for 1997 include
total cash outlays of $113.2 million for various acquisitions, including a
wireline property in Georgia, two wireless properties in Alabama and the
purchase of additional ownership interests in 16 wireless properties in which
the Company owns a controlling interest. Cash flows from investing activities
for 1997 also include a total cash outlay of $134.0 million for additional
investments in cellular partnerships in which the Company owns a minority
interest, including an $80 million investment in a cellular partnership serving
the Orlando, Fla., and Richmond, Va., markets. In addition, in 1997, ALLTEL paid
$146.5 million for the acquisition of PCS licensing rights for 73 markets in 12
states.
Cash flows from investing activities for 1999, 1998 and 1997 include
proceeds from the sale of investments of $45.0 million, $326.1 million and
$195.9 million, respectively. These amounts include proceeds of $45.0 million,
$288.2 million and $185.9 million, respectively, received from the sale of a
portion of ALLTEL's investment in MCI WorldCom common stock. In addition, cash
proceeds from the sale of investments in 1998 include $20.2 million from the
sale of the Company's ownership interest in a wireless partnership. Cash flows
from investing activities for 1997 include proceeds of $202.3 million received
from the sale of assets, principally consisting of three non-strategic
operations. In September 1997, the Company received cash proceeds of $48.7
million in connection with the sale of an investment in a software company. In
May 1997, ALLTEL completed the sale of HWC for approximately $45.0 million in
cash; and in January 1997, the Company received cash proceeds of $104.9 million
in connection with the sale of its healthcare operations. The proceeds from the
sales of investments and other assets 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 ALLTEL.
Common and preferred dividend payments amounted to $378.2 million in 1999,
$272.1 million in 1998 and $236.0 million in 1997. The increases in each year
primarily reflect growth in the annual dividend rates on ALLTEL's common stock.
In addition, dividend payments on common shares in 1999 also reflect the
additional common shares issued and outstanding as a result of the mergers with
Aliant, Liberty and Standard. In October 1999, ALLTEL's Board of Directors
approved a 5 percent increase in the quarterly common stock dividend rate from
$.305 to $.32 per share. This action raised the annual dividend rate to $1.28
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per share and marked the 39th consecutive year in which ALLTEL has increased its
common stock dividend. In addition to reflecting an increase in the annual
dividend rate, dividend payments on common shares also increased in 1998 as a
result of additional shares outstanding due to the merger with 360.
Under a share repurchase program, the Company repurchased 6.9 million of its
shares at a total cost of $218.6 million in 1997. Distributions to minority
investors were $113.3 million in 1999, $102.8 million in 1998 and $45.1 million
in 1997. The increase in distributions in each year reflects the improved
operating results of the wireless properties managed by ALLTEL.
Currently, the Company has a $1 billion line of credit under a
revolving credit agreement. Borrowings outstanding under this agreement at
December 31, 1999 were $341.1 million compared to $578.5 million outstanding at
December 31, 1998. The weighted average interest rate on borrowings outstanding
under the revolving credit agreement at December 31, 1999, was 6.1 percent. At
December 31, 1997, ALLTEL and 360 had separate lines of credit under
revolving credit agreements. Total borrowings outstanding under these agreements
at December 31, 1997, were $847.9 million. Upon completion of its merger with
360, ALLTEL refinanced the borrowings outstanding under 360's
revolving credit agreement (approximately $495 million) through ALLTEL's
existing credit facilities, and 360's revolving credit agreement was
terminated. Additional borrowings under the revolving credit agreements in 1997
were incurred primarily to fund the stock repurchase program and to acquire the
PCS licensing rights. As previously noted, proceeds from the sales of MCI
WorldCom common stock, the HWC and healthcare operations and the sale of
investments in a software company were used primarily to reduce borrowings
outstanding under the revolving credit agreements in 1998 and 1997.
Long-term debt issued was $298.2 million in 1999, $244.2 million in
1998 and $295.6 million in 1997, while retirements of long-term debt amounted to
$344.5 million in 1999, $414.0 million in 1998 and $73.3 million in 1997. In
March 1999, ALLTEL filed a shelf registration statement with the Securities and
Exchange Commission ("SEC") providing for the issuance of up to $500 million in
the 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. In
January 1998, the Company issued $100 million of 6.65 percent notes and in April
1998, a subsidiary issued $100 million of 6.75 percent notes. These two debt
issues represent substantially all the long-term debt issued in 1998. The
proceeds from the subsidiary debt issue were used primarily to retire two debt
issues totaling $76.0 million. Long-term debt issued in 1997 includes the net
increase in revolving credit agreement borrowings from December 31, 1996, and
the issuance of $200 million of 7.6 percent notes. The net reduction in
revolving credit agreement borrowings from December 31, 1998 and 1997, represent
the majority of the long-term debt retired in 1999 and 1998, respectively.
Scheduled long-term debt retirements, net of the revolving credit agreement
activity, amounted to $107.1 million in 1999, $68.6 million in 1998 and $73.3
million in 1997. ALLTEL's bond ratings with Moody's Investors Service and
Standard & Poor's Corporation were A2 and A-, respectively, unchanged from
December 31, 1998. In June 1999, Duff & Phelps Credit Rating Company assigned to
ALLTEL an initial bond rating of A. (See Note 5 to the consolidated financial
statements for additional information regarding the Company's long-term debt.)
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The Company believes it has adequate internal and external capital
resources available to finance its ongoing operating requirements including
capital expenditures, business development and the payment of dividends. ALLTEL
has access to the capital markets, including the private placement market,
public issuance and the Rural Utilities Service financing programs for wireline
companies. The Company and its subsidiaries expect these sources to continue to
be available for future borrowings.
Legal Proceedings
- -----------------
As more fully discussed in Note 14 to the 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 in October 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.
The Company is party to various other legal proceedings arising from
the ordinary course of business. Although the ultimate resolution of these
various proceedings cannot be determined at this time, management of the Company
does not believe that such proceedings, individually or in the aggregate, will
have a material adverse effect on the future results of operations or financial
condition of the Company. In addition, management is currently not aware of any
environmental matters, which in the aggregate would have a material adverse
effect on the financial condition or results of operations of the Company.
Year 2000 Compliance
- --------------------
The Company began its Year 2000 efforts several years ago with the primary
objective of achieving Year 2000 compliance of the Company's critical internal
computer systems and infrastructure, and certain software systems and services
that the Company provides to its customers and for which the Company is
responsible. The Company established and implemented a company-wide Year 2000
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Program Office to coordinate and monitor the Company's Year 2000 readiness
activities and a Year 2000 Project Office for each major business division to
address and resolve potential and specific Year 2000 issues for those portions
of the Company's business.
The Company experienced no significant internal interruption of
business as a result of the rollover to the Year 2000. In addition, ALLTEL has
not received any written notification from its customers that the Company caused
any of its customers to incur a significant interruption of business as a result
of the rollover to the Year 2000.
The Company estimated the total cost of its Year 2000 efforts to be
approximately $80 million, and as of December 31, 1999, the Company had incurred
Year 2000 costs of approximately $80 million. The Company capitalized and
subsequently will 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 were not incremental, but rather
represented 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 was obligated to do so, the Company treated
those costs as contract costs and did not include them in the Company's Year
2000 costs. The Company believes, based on available information, that any
additional Year 2000-related costs will not have a material adverse effect on
its results of operations.
Agreement to Exchange Certain Wireless Assets
- ---------------------------------------------
As further discussed in Note 15 to the consolidated financial statements, on
January 31, 2000, ALLTEL, Bell Atlantic, GTE and Vodafone Airtouch signed
agreements to exchange wireless properties in 13 states. Upon the closing of the
transactions, Bell Atlantic and GTE will transfer to ALLTEL interests in 27
wireless markets in Alabama, Arizona, Florida, Ohio, New Mexico, Texas and South
Carolina, representing about 14 million POPs and more than 1.5 million wireless
customers. ALLTEL will transfer to Bell Atlantic or GTE interests in 42 wireless
markets in Illinois, Indiana, Iowa, Nevada, New York and Pennsylvania,
representing approximately 6.3 million POPs and more than 700,000 customers.
ALLTEL will also transfer certain of its minority investments in unconsolidated
wireless properties, representing approximately 2.6 million POPs. In addition to
the transfer of wireless assets, ALLTEL will also pay approximately $600 million
in cash. The Company expects to finance the cash payment through use of its
existing revolving credit facilities or issuance of long-term debt. Following
the completion of the transactions, ALLTEL will have a total of 46 million
cellular POPs and almost 5.8 million wireless customers. The companies expect to
complete the transactions by mid-2000.
The companies also signed a new national roaming agreement, which will
allow their customers to roam on each other's networks at reduced rates across a
footprint that covers almost 95 percent of the U.S. population. Using a common
digital technology called CDMA, the companies will form the nation's largest
standardized digital wireless network.
Recently Issued Accounting Pronouncements
- -----------------------------------------
In December 1999, the SEC issued Staff Accounting Bulletin ("SAB") 101, "Revenue
Recognition in Financial Statements," which provides additional guidance in
applying generally accepted accounting principles for revenue recognition in
consolidated financial statements. To conform its revenue recognition policies
to be consistent with the provisions of SAB 101, the Company will change its
method of recognizing wireless access revenues in 2000. Previously, monthly
non-refundable wireless access revenues were recognized when billed in
accordance with contractual arrangements with customers. Effective January 1,
2000, the Company now recognizes wireless access revenues over the period in
which the corresponding services are provided. Because ALLTEL bills its
customers on a cycle basis throughout the month, this change in accounting
results in the deferral of approximately 15 days of wireless access revenue. The
Company is currently evaluating the impact, if any, that SAB 101 may have on its
other communications revenue recognition policies. The impact of the change in
recognizing wireless access revenues along with any other changes in revenue
recognition will first be reported as a cumulative effect of a change in
accounting in ALLTEL's interim unaudited consolidated financial statements for
the periods ended March 31, 2000. The impact of this accounting change will be
material to net income in 2000. However, there is no impact to the Company's
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cash flow from operations as a result of this change. It is anticipated that
this change in accounting would not have been material to the Company's
previously reported consolidated results of operations, financial position or
cash flows, if adopted in prior periods.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133, "Accounting for Derivative Instruments and for Hedging
Activities." 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. The FASB recently issued SFAS 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.
Market Risk
- -----------
The Company is exposed to market risk from changes in marketable equity security
prices and from changes in interest rates on its credit facility and long-term
debt obligations that impact the fair value of these obligations. The Company's
financial instruments are described further in Notes 3 and 5 to the consolidated
financial statements. The Company has estimated its market risk using
sensitivity analysis. Market risk has been defined as the potential change in
fair value of a financial instrument due to a hypothetical adverse change in
market prices or interest rates. Fair value for investments was determined using
quoted market prices, if available, or the carrying amount of the investment if
no quoted market price was available. Fair value of long-term debt obligations
was determined based on a discounted cash flow analysis, using the overall
weighted rates and maturities of these obligations compared to terms and rates
currently available in the long-term markets. The results of the sensitivity
analysis are discussed below. Actual results may differ.
At December 31, 1999 and 1998, investments of the Company are recorded
at fair value of $1,594.0 million and $1,675.8 million, respectively. Marketable
equity securities, consisting principally of the Company's investment in MCI
WorldCom common stock, amounted to $1,006.2 million and $967.8 million and
included unrealized holding gains of $594.1 million and $548.7 million at
December 31, 1999 and 1998, respectively. A hypothetical 10 percent decrease in
quoted market prices would result in a $100.6 million and $96.8 million decrease
in the fair value of these securities at December 31, 1999 and 1998,
respectively.
The Company has no material future earnings or cash flow exposures from
changes in interest rates on its long-term debt obligations, as substantially
all of the Company's long-term debt obligations are fixed rate obligations. At
December 31, 1999 and 1998, the fair value of the Company's long-term debt was
estimated to be $3,536.1 million and $3,912.8 million, respectively. A
hypothetical increase of 70 basis points (10 percent of the Company's overall
weighted average borrowing rate) would result in an approximate $133.8 million
and $135.5 million decrease in the fair value of the Company's long-term debt at
December 31, 1999 and 1998, respectively. Conversely, a hypothetical decrease of
70 basis points would result in an approximate $144.2 million and $101.5 million
38
54
<PAGE>
increase in the fair value of the Company's long-term debt at December 31, 1999
and 1998, respectively.
Although the Company conducts business in foreign countries, the
international operations are not material to the Company's operations, financial
condition and liquidity. Additionally, the foreign currency translation gains
and losses were not material to the Company's results of operations for the
years ended December 31, 1999 and 1998. Accordingly, the Company is not
currently subject to material foreign currency exchange rate risk from the
effects that exchange rate movements of foreign currency would have on the
Company's future costs or on future cash flows it would receive from its foreign
subsidiaries. To date, the Company has not entered into any significant foreign
currency forward exchange contracts or other derivative financial instruments to
hedge the effects of adverse fluctuations in foreign currency exchange rates.
The Company is evaluating the future use of such financial instruments.
Forward-Looking Statements
- --------------------------
This Management's Discussion and Analysis of Financial Condition and Results of
Operations includes, and future filings by the Company on Form 10-K, Form 10-Q
and Form 8-K and future oral and written statements by the Company and its
management may include, certain forward-looking statements, including (without
limitation) statements with respect to anticipated future operating and
financial performance, growth opportunities and growth rates, acquisition and
divestitive opportunities, and other similar forecasts and statements of
expectation. Words such as "expects," "anticipates," "intends," "plans,"
"believes," "seeks," "estimates" and "should," and variations of these words and
similar expressions, are intended to identify these forward-looking statements.
Forward-looking statements by the Company and its management are based on
estimates, projections, beliefs and assumptions of management and are not
guarantees of future performance. The Company disclaims any obligation to update
or revise any forward-looking statement based on the occurrence of future
events, the receipt of new information, or otherwise.
Actual future performance, outcomes and results may differ materially
from those expressed in forward-looking statements made by the Company and its
management as a result of a number of important factors. Representative examples
of these factors include (without limitation) rapid technological developments
and changes in the telecommunications and information services industries;
ongoing deregulation (and the resulting likelihood of significantly increased
price and product/service competition) in the telecommunications industry as a
result of the 96 Act 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 accounting under
SFAS 71 for the Company's wireline subsidiaries; continuing consolidation in
certain industries, such as banking, served by the Company's information
services business; and the risks associated with relatively large, multi-year
contracts in the Company's information services business. In addition to these
factors, actual future performance, outcomes and results may differ materially
because of other, more general, factors including (without limitation) general
industry and market conditions and growth rates, domestic and international
economic conditions, governmental and public policy changes and the continued
availability of financing in the amounts, at the terms and on the conditions
necessary to support the Company's future business.
38
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<PAGE>
Report of Independent Public Accountants
To the Shareholders of ALLTEL Corporation:
We have audited the accompanying consolidated balance sheets of ALLTEL
Corporation (a Delaware corporation) and subsidiaries as of December 31, 1999
and 1998, and the related consolidated statements of income, shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of ALLTEL Corporation
and subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
/s/ARTHUR ANDERSEN LLP
Little Rock, Arkansas,
February 1, 2000
39
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<PAGE>
<TABLE>
Selected Financial Data
- ---------------------------------------------------------------------------------------------------------------------------
For the years ended December 31,
(Thousands, except per share amounts) 1999 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues and Sales:
Service revenues $5,680,149 $5,051,269 $4,382,319 $3,898,430 $3,505,657 $3,044,684
Product sales 622,122 575,526 524,639 664,914 670,534 682,342
---------- --------- ---------- ---------- ---------- ----------
Total revenues and sales 6,302,271 5,626,795 4,906,958 4,563,344 4,176,191 3,727,026
- ---------------------------------------------------------------------------------------------------------------------------
Costs and Expenses:
Operating expenses 4,686,644 4,293,868 3,760,893 3,534,052 3,284,277 2,944,967
Merger and integration
expenses and other charges 90,520 252,000 - - - -
Provision to reduce carrying
value of certain assets - 55,000 16,874 120,280 - -
---------- --------- ---------- ---------- ---------- ----------
Total costs and expenses 4,777,164 4,600,868 3,777,767 3,654,332 3,284,277 2,944,967
- ---------------------------------------------------------------------------------------------------------------------------
Operating Income 1,525,107 1,025,927 1,129,191 909,012 891,914 782,059
Non-operating income, net 42,849 64,657 22,506 13,116 15,912 (4,033)
Interest expense (280,175) (278,375) (274,917) (250,841) (287,492) (246,160)
Gain on disposal of assets,
write-down of assets and other 43,071 292,672 209,651 (2,278) 4,907 (54,157)
---------- --------- ---------- ---------- ---------- ----------
Income before income taxes 1,330,852 1,104,881 1,086,431 669,009 625,241 477,709
Income taxes 547,218 501,754 433,950 262,283 254,281 191,307
---------- --------- ---------- ---------- ---------- ----------
Net income 783,634 603,127 652,481 406,726 370,960 286,402
Preferred dividends 889 1,248 1,233 1,296 1,383 1,457
---------- --------- ---------- ---------- ---------- ----------
Net income applicable to
common shares $782,745 $601,879 $651,248 $405,430 $369,577 $284,945
- ---------------------------------------------------------------------------------------------------------------------------
Earnings per Share:
Basic $2.50 $1.97 $2.12 $1.32 $1.21 $.94
Diluted $2.47 $1.95 $2.10 $1.31 $1.20 $.93
Dividends per common share $1.235 $1.175 $1.115 $1.055 $.98 $.90
Weighted average common shares:
Basic 312,841 305,344 307,884 308,160 305,253 302,854
Diluted 316,814 308,363 309,861 309,989 307,206 305,326
Total assets $10,774,203 $10,155,454 $9,232,007 $8,799,641 $7,672,798 $6,960,099
Total shareholders' equity $4,205,737 $3,632,032 $3,051,995 $2,865,217 $2,218,735 $1,841,533
Total redeemable preferred
stock and long-term debt $3,751,904 $3,683,631 $3,859,840 $3,639,281 $3,485,874 $3,339,393
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
Notes: A. Net income for 1999 includes a pretax gain of $43.1 million from the sale of MCI WorldCom common stock. The gain
increased net income by $27.2 million or $.08 per share. Net income also includes a pretax charge of $90.5 million in
connection with the closing of the Company's mergers with Aliant Communications Inc.; Liberty Cellular, Inc. and its
affiliate KINI L.C.; Advanced Information Resources Limited; and Southern Data Systems and with certain loss
contingencies and other restructuring activities. These charges decreased net income $66.0 million or $.21 per share.
(See Notes 9 and 11.)
B. Net income for 1998 includes pretax gains of $296.2 million from the sale of certain investments, principally
consisting of MCI WorldCom common stock. These gains increased net income by $179.8 million or $.59 per share. Net
income also includes $252.0 million of merger and integration expenses related to the closing of the merger with
360 Communications Company. These merger and integration expenses decreased net income $201.0 million or $.66
per share. Net income also includes a pretax charge of $55.0 million resulting from changes in a customer care and
billing contract with a major customer and termination fees of $3.5 million incurred due to the early retirement of
long-term debt. These charges decreased net income $35.7 million or $.12 per share. (See Notes 9, 10 and 11.)
C. Net income for 1997 includes pretax gains of $209.6 million from the sale of certain investments, principally
consisting of MCI WorldCom common stock and from the sale of the Company's healthcare operations. These gains increased
net income by $121.5 million or $.40 per share. Net income also includes a pretax write-down of $16.9 million to
reflect the fair value less cost to sell the Company's wire and cable operations. This write-down decreased net income
$11.7 million or $.04 per share. (See Notes 10 and 11.)
D. Net income for 1996 includes pretax write-downs of $120.3 million to adjust the carrying value of certain software and
other assets. The write-downs decreased net income $72.7 million or $.23 per share.
E. Net income for 1995 includes pretax gains of $49.8 million from the sale of certain wireline properties, partially
offset by termination fees of $14.0 million incurred due to the early retirement of long-term debt and by an additional
pretax write-down of $5.0 million in the carrying value of the Company's check processing operations. In addition, the
Company incurred a pretax charge of $25.9 million related to the discontinuance of regulatory accounting by a
subsidiary. These transactions increased net income $3.3 million or $.01 per share.
F. Net income for 1994 includes a pretax write-down of $54.2 million to reflect the estimated net realizable value of the
Company's community banking and check processing operations. The write-down decreased net income by $32.2 million or
$.11 per share.
</FN>
</TABLE>
40
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<PAGE>
<TABLE>
Consolidated Statements of Income
- -------------------------------------------------------------------------------------------------------------
For the years ended December 31,
(Thousands, except per share amounts) 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues and Sales:
Service revenues $5,680,149 $5,051,269 $4,382,319
Product sales 622,122 575,526 524,639
---------- ---------- ----------
Total revenues and sales 6,302,271 5,626,795 4,906,958
- -------------------------------------------------------------------------------------------------------------
Costs and Expenses:
Operations 3,225,676 2,957,960 2,560,078
Cost of products sold 598,796 561,359 501,719
Depreciation and amortization 862,172 774,549 699,096
Merger and integration expenses and other charges 90,520 252,000 -
Provision to reduce carrying value of certain assets - 55,000 16,874
---------- ---------- ----------
Total costs and expenses 4,777,164 4,600,868 3,777,767
- -------------------------------------------------------------------------------------------------------------
Operating Income 1,525,107 1,025,927 1,129,191
Equity earnings in unconsolidated partnerships 105,025 114,859 92,087
Minority interest in consolidated partnerships (116,647) (104,485) (87,966)
Other income, net 54,471 54,283 18,385
Interest expense (280,175) (278,375) (274,917)
Gain on disposal of assets and other 43,071 292,672 209,651
---------- ---------- ----------
Income before income taxes 1,330,852 1,104,881 1,086,431
Income taxes 547,218 501,754 433,950
---------- ---------- ----------
Net income 783,634 603,127 652,481
Preferred dividends 889 1,248 1,233
Net income applicable to common shares $ 782,745 $ 601,879 $ 651,248
- -------------------------------------------------------------------------------------------------------------
Earnings per Share:
Basic $2.50 $1.97 $2.12
Diluted $2.47 $1.95 $2.10
- -------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
41
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<PAGE>
Consolidated Balance Sheets
- --------------------------------------------------------------------------------
December 31,
(Thousands)
- --------------------------------------------------------------------------------
Assets 1999 1998
- --------------------------------------------------------------------------------
Current Assets:
Cash and short-term investments $ 17,595 $ 89,065
Accounts receivable (less allowance for doubtful
accounts of $35,017 and $30,207, respectively) 922,159 843,129
Materials and supplies 15,130 20,067
Inventories 148,292 98,443
Prepaid expenses and other 64,003 51,857
---------- ----------
Total current assets 1,167,179 1,102,561
- --------------------------------------------------------------------------------
Investments 1,594,029 1,675,792
Goodwill and other intangibles 1,997,315 1,824,225
- --------------------------------------------------------------------------------
Property, Plant and Equipment:
Wireline 5,194,546 4,629,308
Wireless 3,545,778 2,935,172
Information services 775,532 678,244
Other 241,297 182,066
Under construction 533,854 652,726
----------- ---------
Total property, plant and equipment 10,291,007 9,077,516
Less accumulated depreciation 4,556,462 3,814,390
---------- ----------
Net property, plant and equipment 5,734,545 5,263,126
- --------------------------------------------------------------------------------
Other assets 281,135 289,750
- --------------------------------------------------------------------------------
Total Assets $10,774,203 $10,155,454
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated balance
sheets.
42
59
<PAGE>
- ------------------------------------------------------------------------------
Liabilities and Shareholders' Equity 1999 1998
- ------------------------------------------------------------------------------
Current Liabilities:
Current maturities of long-term debt $ 71,222 $ 81,012
Accounts and notes payable 508,045 564,399
Advance payments and customer deposits 117,915 143,573
Accrued taxes 88,723 91,535
Accrued dividends 101,607 90,804
Other current liabilities 306,455 330,518
----------- -----------
Total current liabilities 1,193,967 1,301,841
- ------------------------------------------------------------------------------
Long-term debt 3,750,413 3,678,626
Deferred income taxes 1,056,921 1,001,143
Other liabilities 565,674 536,807
Preferred stock, redeemable 1,491 5,005
- ------------------------------------------------------------------------------
Shareholders' Equity:
Preferred stock 562 9,121
Common stock 314,258 306,015
Additional capital 973,356 919,021
Unrealized holding gain on investments 594,130 548,723
Retained earnings 2,323,431 1,849,152
------------ -----------
Total shareholders' equity 4,205,737 3,632,032
- ------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $10,774,203 $10,155,454
- ------------------------------------------------------------------------------
43
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<PAGE>
<TABLE>
Consolidated Statements of Cash Flows
- ------------------------------------------------------------------------------------------------------------------------------
For the years ended December 31,
(Thousands) 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Provided from Operations:
Net income $ 783,634 $ 603,127 $ 652,481
Adjustments to reconcile net income to net cash
provided from operations:
Depreciation and amortization 862,172 774,549 699,096
Merger and integration expenses and other charges,
provision to reduce carrying value of certain assets,
gain on disposal of assets and other 38,859 56,927 (109,741)
Other, net 60,455 21,428 56,423
Increase in deferred income taxes 78,426 81,079 42,773
Changes in operating assets and liabilities, net of
effects of acquisitions:
Accounts receivable (111,950) (150,078) (147,206)
Inventories and materials and supplies (41,557) (2,295) 4,976
Accounts payable (113,514) 892 26,036
Other current liabilities (130,683) 3,018 47,732
Other, net 74,187 17,201 (1,811)
----------- ---------- -----------
Net cash provided from operations 1,500,029 1,405,848 1,270,759
- ------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities:
Additions to property, plant and equipment (1,006,475) (998,004) (899,723)
Additions to capitalized software development costs (45,092) (90,136) (74,225)
Additions to other intangible assets - - (146,526)
Additions to investments (26,088) (34,625) (134,037)
Purchase of property, net of cash acquired (99,946) (81,102) (113,213)
Proceeds from the sale of investments 45,021 326,066 195,903
Proceeds from the return on investments 87,854 58,324 50,336
Proceeds from the sale of assets - - 202,300
Other, net (16,643) (45,115) (86,687)
----------- ---------- -----------
Net cash used in investing activities (1,061,369) (864,592) (1,005,872)
- ------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Dividends on preferred and common stock (378,176) (272,091) (236,004)
Reductions in long-term debt (344,527) (413,969) (73,280)
Purchase of common stock - (15,113) (218,617)
Preferred stock redemptions and purchases (11,915) (5,044) (873)
Contributions from minority investors - 10,000 -
Distributions to minority investors (113,294) (102,788) (45,063)
Long-term debt issued 298,174 244,164 295,611
Common stock issued 39,608 47,225 13,832
----------- ---------- -----------
Net cash used in financing activities (510,130) (507,616) (264,394)
- ------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and short-term investments (71,470) 33,640 493
Cash and Short-term Investments:
Beginning of the year 89,065 55,425 54,932
----------- ---------- -----------
End of the year $ 17,595 $ 89,065 $ 55,425
- ------------------------------------------------------------------------------------------------------------------------------
Supplemental Cash Flow Disclosures:
Interest paid, net of amounts capitalized $ 243,357 $ 239,351 $ 248,834
Income taxes paid $ 454,547 $ 339,703 $ 312,085
- ------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
44
61
<PAGE>
<TABLE>
Consolidated Statements of Shareholders' Equity
- ----------------------------------------------------------------------------------------------------------------------------------
Unrealized
Preferred Common Additional Holding Gain Retained
(Thousands) Stock Stock Capital on Investments Earnings Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $ 9,198 $309,846 $1,058,494 $351,867 $1,135,812 $2,865,217
- ----------------------------------------------------------------------------------------------------------------------------------
Net income - - - - 652,481 652,481
Other comprehensive loss, net of tax:
Unrealized holding gains on investments,
net of reclassification adjustments (See Note 13) - - - (51,196) - 51,196)
------- -------- ---------- -------- ---------- ----------
Comprehensive income - - - (51,196) 652,481 601,285
------- -------- ---------- -------- ---------- ----------
Acquisition of subsidiaries - 872 26,348 - - 27,220
Employee plans, net - 722 13,110 - - 13,832
Conversion of preferred stock and debentures (43) 67 266 - - 290
Repurchase of stock - (6,851) (211,766) - - (218,617)
Other, net - - 1,707 - - 1,707
Dividends:
Common - - - - (237,706) (237,706)
Preferred - - - - (1,233) (1,233)
------- -------- ---------- -------- ---------- ----------
Balance at December 31, 1997 $ 9,155 $304,656 $ 888,159 $300,671 $1,549,354 $3,051,995
- ----------------------------------------------------------------------------------------------------------------------------------
Net income - - - - 603,127 603,127
Other comprehensive income, net of tax:
Unrealized holding gains on investments,
net of reclassification adjustments (See Note 13) - - - 248,052 - 248,052
------- -------- ---------- -------- ---------- ----------
Comprehensive income - - - 248,052 603,127 851,179
------- -------- ---------- -------- ---------- ----------
Employee plans, net - 1,741 45,484 - - 47,225
Conversion of preferred stock and debentures (34) 23 86 - - 75
Repurchase of stock - (405) (14,708) - - (15,113)
Dividends:
Common - - - - (302,081) (302,081)
Preferred - - - - (1,248) (1,248)
------- -------- ---------- -------- ---------- ----------
Balance at December 31, 1998 $ 9,121 $306,015 $919,021 $548,723 $1,849,152 $3,632,032
- ----------------------------------------------------------------------------------------------------------------------------------
Net income - - - - 783,634 783,634
Other comprehensive income, net of tax:
Unrealized holding gains on investments,
net of reclassification adjustments (See Note 13) - - - 45,407 - 45,407
------- -------- ---------- -------- ---------- ----------
Comprehensive income - - - 45,407 783,634 829,041
------- -------- ---------- -------- ---------- ----------
Acquisition of subsidiaries - 6,515 16,297 - 80,496 103,308
Employee plans, net - 1,694 37,914 - - 39,608
Conversion of preferred stock and debentures (39) 34 124 - - 119
Redemption of preferred stock (8,520) - - - - (8,520)
Dividends:
Common - - - - (388,962) (388,962)
Preferred - - - - (889) (889)
------- -------- ---------- -------- ---------- ----------
Balance at December 31, 1999 $ 562 $314,258 $ 973,356 $594,130 $2,323,431 $4,205,737
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
45
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<PAGE>
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies:
------------------------------------------
Description of Business -- ALLTEL Corporation ("ALLTEL" or the "Company")
-----------------------
is a customer-focused information technology company that provides wireline and
wireless communications and information services. The Company owns subsidiaries
that provide wireless and wireline local, long-distance, network access and
Internet services, and information processing management services and advanced
application software. (See Note 16 for information regarding ALLTEL's business
segments.)
Basis of Presentation -- ALLTEL prepares its consolidated financial
---------------------
statements in accordance with generally accepted accounting principles, which
requires management to make estimates and assumptions that affect the reported
amounts of assets, liabilities, revenues and expenses and disclosure of
contingent assets and liabilities. The estimates and assumptions used in the
accompanying consolidated financial statements are based upon management's
evaluation of the relevant facts and circumstances as of the date of the
financial statements. Actual results may differ from the estimates and
assumptions used in preparing the accompanying consolidated financial
statements.
The consolidated financial statements include the accounts of ALLTEL, its
subsidiary companies and majority-owned partnerships. Investments in 20% to 50%
owned entities and all unconsolidated partnerships are accounted for using the
equity method. Investments in less than 20% owned entities and in which the
Company does not exercise significant influence over operating and financial
policies are accounted for under the cost method. All intercompany transactions,
except those with certain affiliates described below, have been eliminated in
the consolidated financial statements. Certain prior-year amounts have been
reclassified to conform with the 1999 financial statement presentation.
Service revenues consist of wireless access and network usage revenues,
local service, network access, Internet access, long-distance and miscellaneous
wireline operating revenues, information services' data processing and software
maintenance revenues. Product sales primarily consist of the product
distribution and directory publishing operations and information services'
software licensing revenues and equipment sales.
Transactions with Certain Affiliates -- ALLTEL Communications Products,
------------------------------------
Inc. sells equipment and materials to wireline subsidiaries of the Company
($180.3 million in 1999, $185.7 million in 1998 and $115.8 million in 1997), as
well as to other affiliated and non- affiliated communications companies and
related industries. The cost of equipment and materials sold to the wireline
subsidiaries is included, principally, in wireline plant in the consolidated
financial statements. ALLTEL Information Services Inc. provides the data
processing services for the Company's wireline operations ($105.9 million in
1999, $118.9 million in 1998 and $103.9 million in 1997), in addition to other
affiliated and non-affiliated companies. Directory publishing services are
provided to the wireline subsidiaries by ALLTEL Publishing Corporation
("Publishing"). Wireline revenues and sales include directory royalties received
from Publishing ($35.4 million in 1999, $34.5 million in 1998 and $33.5 million
in 1997). These intercompany transactions have not been eliminated because the
directory royalties received from Publishing and the prices charged by the
communications products and information services subsidiaries are included in
the wireline subsidiaries (excluding the former Aliant Communications Inc.
("Aliant") operations) rate base and/or are recovered through the regulatory
process.
Regulatory Accounting -- The Company's wireline subsidiaries, except for
---------------------
the former Aliant operations, follow the accounting for regulated enterprises
prescribed by Statement of Financial Accounting Standards ("SFAS") No. 71,
"Accounting for the Effects of Certain Types of Regulation." This accounting
recognizes the economic effects of rate regulation by recording costs and a
return on investment as such amounts are recovered through rates authorized by
regulatory authorities. Accordingly, SFAS 71 requires the Company's wireline
subsidiaries to depreciate wireline plant over useful lives as approved by
regulators, which could be longer than the useful lives that would otherwise be
determined by management. SFAS 71 also requires deferral of certain costs and
obligations based upon approvals received from regulators to
46
63
<PAGE>
permit recovery of such amounts in future years. The Company's wireline
subsidiaries periodically review the applicability of SFAS 71 based on the
developments in their current regulatory and competitive environments.
Cash and Short-term Investments -- Cash and short-term investments
-------------------------------
consist of highly liquid investments with original maturities of three months or
less.
Inventories -- Inventories are stated at the lower of cost or market
-----------
value. Cost is determined primarily using either an average original cost or
first-in, first-out method of valuation.
Investments -- Investments in equity securities are recorded at fair
-----------
value in accordance with SFAS No. 115 (See Note 3.) Investments in
unconsolidated partnerships are accounted for using the equity method (See Note
4.) All other investments are accounted for using the cost method. Investments
were as follows at December 31:
- ------------------------------------------------------------------------------
(Thousands)
----------------------------
1999 1998
- ------------------------------------------------------------------------------
Equity securities $1,006,193 $ 967,787
Investments in unconsolidated partnerships 490,773 634,176
Other cost investments 97,063 73,829
---------- ----------
$1,594,029 $1,675,792
- ------------------------------------------------------------------------------
Investments in unconsolidated partnerships include the excess of the
purchase price paid over the underlying net book value of wireless partnerships
of $220.3 million and $299.9 million as of December 31, 1999 and 1998,
respectively. Amortization expense for the years ended December 31, 1999, 1998
and 1997 was $7.0 million, $7.2 million and $6.5 million, respectively, and is
included in equity earnings from unconsolidated partnerships in the accompanying
consolidated statements of income.
Goodwill and Other Intangibles -- Goodwill represents the excess of
------------------------------
cost over the fair value of net assets acquired and is amortized on a
straight-line basis for periods up to 40 years. The Company has acquired
identifiable intangible assets through its acquisitions of interests in various
wireless systems and acquisitions of wireline properties. The cost of acquired
entities is allocated to identifiable assets at the date of the acquisition, and
the excess of the total purchase price over the amounts assigned to identifiable
assets is recorded as goodwill. Intangible assets related to the acquisition of
entities in which the Company does not have a controlling interest are included
in investments in unconsolidated partnerships. At December 31, 1999 and 1998,
goodwill, net of amortization, was $1,739.2 million and $1,577.3 million,
respectively. Amortization expense amounted to $57.1 million in 1999, $48.9
million in 1998 and $47.8 million in 1997.
Other intangibles primarily consist of the cost of Personal
Communications Services ("PCS") licenses including capitalized interest,
franchise rights, cellular licenses, customer lists and trained workforce. The
PCS licenses are amortized upon commencement of operations. Of the total cost
capitalized related to PCS licenses, $34.4 million and $17.5 million was subject
to amortization at December 31, 1999 and 1998, respectively. Amortization of all
intangible assets is computed on a straight-line basis over the periods
specified below. Amortization expense for other intangibles amounted to $7.8
million in 1999, $8.4 million in 1998 and $6.9 million in 1997. Other
intangibles were as follows at December 31:
- -----------------------------------------------------------------------
(Thousands)
Amortization Period 1999 1998
- -----------------------------------------------------------------------
PCS licenses 40 years $171,135 $163,073
Franchise rights 25 years 79,501 66,455
Cellular licenses 40 years 22,227 20,967
Customer lists 5-13 years 7,000 6,732
Trained workforce 14 years 5,800 5,800
Other 25-40 years 3,615 143
-------- --------
289,278 263,170
Accumulated amortization (31,188) (16,244)
-------- --------
Total other intangibles $258,090 $246,926
- -----------------------------------------------------------------------
46
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<PAGE>
The carrying value of goodwill and other intangibles is periodically
evaluated by the Company for the existence of impairment on the basis of whether
the intangible assets are fully recoverable from projected undiscounted net cash
flows of the related business unit. If not fully recoverable from projected
undiscounted cash flows, an impairment loss would be recognized for the
difference between the carrying value of the intangible asset and its estimated
fair value based on discounted net future cash flows.
Property, Plant and Equipment -- Property, plant and equipment are
-----------------------------
stated at original cost. Depreciation is computed using the straight-line method
for financial reporting purposes. Depreciation expense amounted to $754.1
million in 1999, $680.7 million in 1998 and $619.3 million in 1997. The
composite depreciation rates by class of property as a percent of average
depreciable plant and equipment were:
- ------------------------------------------------
1999 1998 1997
- ------------------------------------------------
Wireline 7.3% 6.7% 6.4%
Wireless 10.2% 10.4% 10.4%
Information services 16.8% 17.4% 17.0%
Other 4.2% 5.5% 6.2%
- ------------------------------------------------
The Company capitalizes interest during periods of construction.
Capitalized interest during construction amounted to $29.8 million in 1999,
$23.5 million in 1998 and $14.3 million in 1997 and is included in other income,
net in the accompanying consolidated statements of income.
Revenue Recognition -- Communications revenues are recognized when
-------------------
billed as determined by contractual arrangements with customers and are
primarily derived from usage of the Company's networks and facilities or under
revenue-sharing arrangements with other telecommunications carriers.
(Management's Discussion and Analysis should be read regarding a prospective
change in revenue recognition for certain communications revenues.) Information
services revenues consist of data processing revenue recognized as services are
performed, software licensing revenue recognized when delivery of the software
occurs, and software maintenance revenue recognized ratably over the maintenance
period. Certain long-term contracts are accounted for using the
percentage-of-completion method. Under this method, revenue and profit are
recognized throughout the term of the contract, based upon estimates of the
total costs to be incurred and revenues to be generated throughout the term of
the contract. Changes in estimates for revenues, costs and profits are
recognized in the period in which they are determinable. Due to the uncertainty
of these estimates, it is reasonably possible that these estimates could change
in the near term, and the change could be material to the accompanying
consolidated financial statements. For all other operations, revenue is
recognized when products are delivered or services are rendered to customers.
Included in accounts receivable and other assets are unbilled
receivables primarily related to the information services segment totaling
$105.6 million and $91.6 million at December 31, 1999 and 1998, respectively.
Included in these unbilled receivables are amounts totaling $54.9 million and
$55.0 million at December 31, 1999 and 1998, respectively, which represent costs
and estimated earnings in excess of billings related to long-term contracts
accounted for under the percentage-of-completion method.
Computer Software Development Costs -- For the Company's information
-----------------------------------
services operations, research and development expenditures related to internally
developed computer software are charged to expense as incurred. The development
costs of software to be marketed are charged to expense until technological
feasibility is established. After that time, the remaining software development
costs are capitalized and recorded in other assets in the accompanying
consolidated balance sheets. Software development costs incurred in the
application development stage of internal use software are capitalized and
recorded in plant in the accompanying consolidated balance sheets. As of
December 31, 1999 and 1998, total capitalized software development costs, net of
amortization, were $295.8 million and $282.9 million, respectively. Amortization
of the capitalized amounts is computed on a product-by-product basis using the
straight-line method over the remaining estimated economic life of the product,
generally three to six years for software to be marketed. Internal use software
is amortized over various periods not exceeding ten years. Amortization expense
47
65
<PAGE>
amounted to $43.2 million in 1999, $36.5 million in 1998 and $25.1 million in
1997.
The carrying value of capitalized software development costs to be
marketed is periodically evaluated by the Company. If the net realizable value
of the capitalized software development costs is less than its carrying value,
an impairment loss is recognized for the difference. The determination of net
realizable value requires considerable judgment by management with respect to
certain external factors, including, but not limited to, anticipated future
revenues generated by the software, the estimated economic life of the software
and changes in software and hardware technologies. Accordingly, it is reasonably
possible that estimates of anticipated future revenues generated by the
software, the remaining economic life of the software, or both, could be reduced
in the near term, materially impacting the carrying value of capitalized
software development costs.
Earnings Per Share -- Basic earnings per share of common stock was
------------------
determined by dividing net income applicable to common shares by the weighted
average number of common shares outstanding during each year. Diluted earnings
per share reflects the potential dilution that could occur assuming conversion
or exercise of all outstanding preferred stocks and issued and unexercised stock
options. No options were excluded from the computation of diluted earnings per
share at December 31, 1998, while options to purchase approximately 155,000 and
2,447,000 shares of common stock at December 31, 1999 and 1997, respectively,
were excluded from the computation of diluted earnings per share because the
effect of including them was anti-dilutive.
A reconciliation of the net income and numbers of shares used in
computing basic and diluted earnings per share was as follows:
- -----------------------------------------------------------------------------
(Thousands, except per share amounts) 1999 1998 1997
- -----------------------------------------------------------------------------
Basic earnings per share:
Net income applicable to common shares $782,745 $601,879 $651,248
Weighted average common shares
outstanding for the year 312,841 305,344 307,884
- -----------------------------------------------------------------------------
Basic earnings per share of common stock $2.50 $1.97 $2.12
- -----------------------------------------------------------------------------
Diluted earnings per share:
Net income applicable to common shares $782,745 $601,879 $651,248
Adjustments for convertible securities:
Preferred stocks 173 174 206
-------- -------- --------
Net income applicable to common shares,
assuming conversion of above securities $782,918 $602,053 $651,454
- -----------------------------------------------------------------------------
Weighted average common shares
outstanding for the year 312,841 305,344 307,884
Increase in shares which would result from:
Exercise of stock options 3,529 2,551 1,454
Conversion of convertible preferred stocks 444 468 523
-------- -------- --------
Weighted average common shares, assuming
conversion of the above securities 316,814 308,363 309,861
- -----------------------------------------------------------------------------
Diluted earnings per share of common stock $2.47 $1.95 $2.10
- -----------------------------------------------------------------------------
2. Mergers:
-------
On September 30, 1999, the Company completed mergers with Liberty Cellular, Inc.
("Liberty") and its affiliate KINI L.C. under definitive merger agreements
entered into on June 22, 1999. Under terms of the merger agreements, the
outstanding stock of Liberty, which operates under the name Kansas Cellular, and
the outstanding ownership units of KINI L.C. were exchanged for approximately
7.0 million shares of ALLTEL's common stock. On July 2, 1999, the Company
completed its merger with 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 mergers qualified as
tax-free reorganizations and have been accounted for as poolings-of-interests.
47
66
<PAGE>
The accompanying consolidated financial statements have been restated
to include the accounts and results of operations of Aliant, Liberty and KINI
L.C. for all periods prior to the mergers. The combined operating results of
ALLTEL, Aliant, Liberty and KINI L.C. include certain eliminations and
reclassification adjustments to conform the accounting and financial reporting
policies of the companies.
Separate and combined results of operations for certain periods prior
to the mergers are as follows:
- -------------------------------------------------------------------------------
(Unaudited)
Six Months For the Years Ended
Ended June 30, December 31,
-------------- -------------------
(Thousands) 1999 1998 1997
- -------------------------------------------------------------------------------
Revenues and sales:
ALLTEL, as reported $2,837,950 $5,194,008 $4,545,140
Aliant 182,892 338,007 286,328
Liberty and KINI L.C. 59,526 110,178 92,134
Eliminations and reclassifications (3,255) (15,398) (16,644)
---------- ---------- ----------
Combined $3,077,113 $5,626,795 $4,906,958
- -------------------------------------------------------------------------------
Net Income:
ALLTEL, as reported $ 356,830 $ 525,475 $ 589,381
Aliant 32,955 58,059 53,039
Liberty and KINI L.C. 9,966 19,593 10,061
---------- ---------- ----------
Combined $ 399,751 $ 603,127 $ 652,481
- -------------------------------------------------------------------------------
In January 1999, the Company completed a merger with Standard Group,
Inc. ("Standard"). In September 1999, the Company also completed mergers with
Advanced Information Resources, Limited ("AIR") and Southern Data Systems
("Southern Data"). In connection with the mergers, approximately 6.5 million
shares of ALLTEL common stock were issued. All three mergers qualified as
tax-free reorganizations and were accounted for as poolings-of-interests. Prior
period financial information has not been restated, since the operations of the
three acquired companies are not significant to ALLTEL's consolidated financial
statements on either a separate or aggregate basis. The accompanying
consolidated financial statements include the accounts and results of operations
of Standard, AIR and Southern Data from the date of acquisition.
On July 1, 1998, the Company completed its merger with 360
Communications Company ("360") under a definitive merger agreement
entered into on March 16, 1998. Under the terms of the merger agreement,
360 became a wholly-owned subsidiary of the Company. In connection with
the merger, each outstanding share of 360 common stock was converted
into the right to receive .74 shares of the Company's common stock, 92.1 million
common shares in the aggregate. The merger qualified as a tax-free
reorganization and was accounted for as a pooling-of-interests.
In connection with the mergers discussed above, the Company recorded
merger and integration expenses and other charges in 1999 and 1998. (See Note
9.)
3. Financial Instruments and Investment Securities:
-----------------------------------------------
The carrying amount of cash and short-term investments approximates fair value
due to the short maturity of the instruments. The fair value of investments was
$1,594.0 million in 1999 and $1,675.8 million in 1998 based on quoted market
prices and the carrying value of investments for which there were no quoted
market prices. The fair value of the Company's long-term debt, after deducting
current maturities, was estimated to be $3,536.1 million in 1999 and $3,912.8
million in 1998 compared to a carrying value of $3,750.4 million in 1999 and
$3,678.6 million in 1998. The fair value estimates were based on the overall
weighted rates and maturities of the Company's long-term debt compared to rates
and terms currently available in the long-term financing markets. The fair value
of the Company's redeemable preferred stock was estimated to be $24.2 million in
1999 and $22.3 million in 1998 compared to a carrying amount of $1.5 million in
1999 and $5.0 million in 1998. The fair value estimates were based on the
conversion of the Series D convertible redeemable preferred stock to common
stock of the Company and the carrying value of the Series A redeemable preferred
stock for which there is no quoted market price. During 1999, the Company
redeemed all of the outstanding shares of the Series A redeemable preferred
stock. The fair value of all other financial instruments was estimated by
management to approximate the carrying value.
48
67
<PAGE>
Equity securities owned by the Company have been classified as
available-for-sale and are reported at fair value, with unrealized gains and
losses reported, net of tax, as a separate component of shareholders' equity.
The Company had unrealized gains, net of tax, on investments in equity
securities of $594.1 million, $548.7 million and $300.7 million at December 31,
1999, 1998 and 1997, respectively, principally derived from ALLTEL's investment
in MCI WorldCom, Inc. ("MCI WorldCom") common stock. The unrealized gains,
including the related tax impact, are non-cash items and accordingly have been
excluded from the accompanying consolidated statements of cash flows. During
1999, 1998 and 1997, the Company sold a portion of its investment in MCI
WorldCom common stock. (See Note 11.)
4. Investments in Unconsolidated Partnerships:
------------------------------------------
At December 31, 1999, the Company has investments in 51 wireless partnerships in
which it holds a minority ownership interest. The interest owned in each
unconsolidated partnership ranges from approximately 1% to 49%. Unaudited,
condensed, combined financial information for investments in unconsolidated
partnerships was as follows for the years ended December 31:
- -------------------------------------------------------------------------------
(Thousands)
-----------------------------------
1999 1998 1997
- -------------------------------------------------------------------------------
Revenues and sales $3,568,972 $3,120,715 $2,811,724
Operations 2,030,982 1,664,365 1,673,913
Cost of products sold 209,741 152,128 83,674
Depreciation and amortization 374,948 358,850 303,225
---------- ---------- ----------
Total operating expenses 2,615,671 2,175,343 2,060,812
Operating income 953,301 945,372 750,912
Non-operating income (expense) (9,666) (18,414) 1,202
---------- ---------- ----------
Income before cumulative effects
of changes in accounting principles 943,635 926,958 752,114
Cumulative effects of changes in
accounting principles, net - - (19,278)
---------- ---------- ----------
Net income $ 943,635 $ 926,958 $ 732,836
- -------------------------------------------------------------------------------
December 31,
----------------------
1999 1998
- -------------------------------------------------------------------------------
Assets:
Current assets $ 834,466 $ 634,073
Non-current assets 2,308,365 2,432,535
---------- ----------
Total assets $3,142,831 $3,066,608
- -------------------------------------------------------------------------------
Liabilities and equity:
Current liabilities $ 264,497 $ 49,602
Long-term liabilities 16,681 19,166
Equity 2,861,653 2,997,840
---------- ----------
Total liabilities and equity $3,142,831 $3,066,608
- -------------------------------------------------------------------------------
48
68
<PAGE>
5. Debt:
----
Long-term debt, after deducting current maturities, was as follows at
December 31:
- -------------------------------------------------------------------------------
(Thousands)
1999 1998
- -------------------------------------------------------------------------------
Debentures and notes, without collateral,
Weighted rate 7.2% in 1999 and 7.3% in 1998
Weighted maturity 11 years in 1999 and 10 years in 1998 $2,977,931 $2,698,683
Revolving credit agreement,
Weighted rate 6.1% in 1999 and 5.7% in 1998
Weighted maturity 5 years in 1999 and 1998 341,050 578,520
Rural Telephone Bank and Federal Financing Bank notes,
Weighted rate 7.4% in 1999 and 7.7% in 1998
Weighted maturity 15 years in 1999 and 16 years in 1998 296,840 252,240
First mortgage bonds and collateralized notes,
Weighted rate 6.0% in 1999 and 6.3% in 1998
Weighted maturity 7 years in 1999 and 1998 65,564 85,835
Rural Utilities Service notes,
Weighted rate 4.8% in 1999 and 4.6% in 1998
Weighted maturity 15 years in 1999 and 16 years in 1998 63,828 57,498
Industrial revenue bonds,
Weighted rate 5.2% in 1999 and 5.4% in 1998
Weighted maturity 8 years in 1999 and 9 years in 1998 5,200 5,850
---------- ----------
Total long-term debt $3,750,413 $3,678,626
- --------------------------------------------------------------------------------
Weighted rate 7.1% 7.0%
Weighted maturity 11 years 10 years
- --------------------------------------------------------------------------------
The Company has a $1 billion revolving credit agreement, which has a
termination date of October 1, 2004, with provision for annual extensions. It is
the Company's intention to continue to renew this agreement. The revolving
credit agreement provides for a variety of pricing options.
The indentures and agreements, as amended, provide, among other things,
for various restrictions on the payment of dividends by the Company. Retained
earnings unrestricted as to the payment of dividends by the Company amounted to
$2,067.5 million at December 31, 1999. Certain properties have been pledged as
collateral on $431.4 million of obligations.
Interest expense on long-term debt amounted to $278.9 million in 1999,
$277.6 million in 1998 and $273.7 million in 1997. At December 31, 1998 and
1999, accrued interest on long-term debt was $60.3 million and $54.4 million,
respectively. Maturities and sinking fund requirements for the four years after
2000 for long-term debt outstanding, excluding the revolving credit agreement,
as of December 31, 1999, were $61.9 million, $61.8 million, $504.3 million and
$652.4 million for the years 2001 through 2004, respectively.
6. Common Stock:
------------
There are 1 billion shares of $1 par value common stock authorized of which
314,257,977 and 306,014,857 shares were outstanding at December 31, 1999 and
1998, respectively. At December 31, 1999, the Company had 24,070,312 common
shares reserved for issuance in connection with stock options (23,274,216
shares) and convertible preferred stock (796,096 shares).
The Company has stock-based compensation plans. Under these plans, the
Company may grant fixed and performance-based incentive and non-qualified stock
options to officers and other key employees. The maximum number of shares of the
Company's common stock that may be issued to officers and other key employees
under all stock option plans in effect at December 31, 1999 is 26,615,611
shares. Fixed options granted under the stock option plans generally become
exercisable in one to five years from the date of grant. Certain fixed options
granted in 1997 become exercisable in equal increments over a six-year period
beginning three years from the date of grant. Performance-based options were
granted in 1997, and such options become exercisable one year from the date in
which certain performance goals related to operating income growth and return on
invested capital are achieved for the four most recent consecutive calendar
quarters. Four separate levels of performance goal targets have been
established, each specifying different minimum growth and return rates.
49
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<PAGE>
Depending upon which of the four performance goal target levels is attained,
25%, 50%, 75% or 100% of the option award will vest and become exercisable.
Under the 1994 Stock Option Plan for Non-employee Directors (the
"Directors' Plan"), the Company grants fixed, non-qualified stock options to
directors for up to 1,000,000 shares of common stock. Under the Directors' Plan,
directors receive a one-time grant to purchase 10,000 shares of common stock.
Directors are also granted each year, on the date of the annual meeting of
stockholders, an option to purchase a specified number of shares of common stock
(currently 5,500 shares). Options granted under the Directors' Plan become
exercisable the day immediately preceding the date of the first annual meeting
of stockholders following the date of grant.
For all plans, the exercise price of the option equals the market value
of the Company's common stock on the date of grant. For fixed stock options, the
maximum term for each option granted is 10 years. Any performance-based option
that remains unvested as of January 29, 2003, will expire.
The fair value of each stock option granted was estimated using the
Black-Scholes option-pricing model and the following weighted average
assumptions:
- --------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
Expected life 5.1 years 5.2 years 5.6 years
Expected volatility 22.0% 24.0% 21.6%
Dividend yield 1.9% 1.9% 2.9%
Risk-free interest rate 4.8% 5.4% 6.2%
- --------------------------------------------------------------------------------
The following is a summary of stock options outstanding, granted,
exercised, forfeited and expired under the Company's stock-based compensation
plans:
- --------------------------------------------------------------------------------
Weighted
Average Price
Shares Per Share
----------------------- -------------------------------
1999 1998 1997 1999 1998 1997
- --------------------------------------------------------------------------------
Outstanding at beginning
of period 10,226,979 9,744,398 6,657,438 $32.53 $28.65 $24.70
Granted 3,429,000 2,889,320 4,442,720 65.16 40.50 32.73
Exercised (1,827,493) (1,829,843) (953,313) 27.35 24.00 20.19
Forfeited (1,014,269) (566,343) (357,413) 43.62 33.90 28.64
Expired - (10,553) (45,034) - 38.99 25.79
---------- ---------- --------- ------ ------ ------
Outstanding at
end of period 10,814,217 10,226,979 9,744,398 $42.71 $32.53 $28.65
- --------------------------------------------------------------------------------
Exercisable at
end of period 3,186,683 3,643,826 3,822,526 $29,47 $26.24 $23.56
Non-vested at
end of period:
Fixed 7,465,159 6,326,653 5,635,372
Performance-based 162,375 256,500 286,500
Weighted average fair
value of stock options
granted during the year $15.25 $10.49 $7.66
- --------------------------------------------------------------------------------
49
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<PAGE>
The following is a summary of stock options outstanding as of
December 31, 1999:
- ----------------------------------------------------------------------------
Options Outstanding Options Exercisable
- -------------------------------------------------- -----------------------
Weighted Weighted Weighted
Average Average Average
Number Remaining Exercise Number Exercise
Range of of Contractual Price of Price
Exercise Prices Options Life Per Share Options Per Share
- ----------------------------------------------------------------------------
$11.41 - $20.00 591,552 1.8 years $18.83 591,552 $18.83
$20.23 - $29.48 1,379,567 4.7 years 27.75 1,233,896 27.85
$30.00 - $33.88 2,106,250 7.0 years 31.89 929,587 31.78
$34.50 - $41.81 1,915,855 7.8 years 34.75 69,855 38.86
$43.06 - $57.06 1,877,493 8.3 years 45.25 356,293 44.23
$64.56 - $73.31 2,943,500 9.2 years 65.82 5,500 70.75
---------- --------- ------ --------- ------
10,814,217 7.4 years $42.71 3,186,683 $29.47
- ----------------------------------------------------------------------------
The Company applies the provisions of Accounting Principles Board
Opinion No. 25 and related interpretations in accounting for its stock-based
compensation plans. Accordingly, the Company does not record compensation
expense for any of the fixed stock options granted. For performance-based
options, compensation expense is recognized over the expected vesting period of
the options and is adjusted for changes in the number of options expected to
vest and the market value of the Company's common stock. Compensation expense
(credit) for the performance-based options amounted to $(0.5) million in 1999,
$2.8 million in 1998 and $0.5 million in 1997. Had compensation expense for
options granted been determined on the basis of the fair value of the awards at
the date of grant, consistent with the methodology prescribed by SFAS No. 123,
the Company's net income and earnings per share would have been reduced to the
following pro forma amounts for the years ended December 31:
- -------------------------------------------------------------------------------
(Thousands, except per share amounts) 1999 1998 1997
- -------------------------------------------------------------------------------
Net income:
As reported $783,634 $603,127 $652,481
Pro forma $770,453 $594,164 $646,703
Basic earnings per share:
As reported $2.50 $1.97 $2.12
Pro forma $2.46 $1.94 $2.10
Diluted earnings per share:
As reported $2.47 $1.95 $2.10
Pro forma $2.43 $1.92 $2.08
- -------------------------------------------------------------------------------
The pro forma amounts presented above may not be representative of the
future effects on reported net income and earnings per share since the pro forma
compensation expense is allocated over the periods in which options become
exercisable, and new option awards may be granted each year.
7. Employee Benefit Plans and Postretirement Benefits Other Than Pensions:
----------------------------------------------------------------------
The Company has trusteed, non-contributory defined benefit pension plans, which
provide retirement benefits for eligible employees of the Company. Assets of the
plans include common stock of the Company amounting to $61.3 million and $43.8
million at December 31, 1999 and 1998, respectively. Pension credit, including
provision for executive compensation agreements, totaled $(2.8) million in 1999,
$(9.2) million in 1998 and $(6.4) million in 1997.
The Company provides postretirement healthcare and life insurance
benefits for eligible employees. Employees share in the cost of these benefits.
The Company funds the accrued costs of these plans as benefits are paid.
Postretirement expense totaled $11.4 million in 1999, $10.0 million in 1998 and
$8.8 million in 1997.
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<PAGE>
The components of the pension and postretirement expense (credit) were
as follows for the years ended December 31:
- -------------------------------------------------------------------------------
(Thousands)
-----------------------------------------------------
Pension Benefits Postretirement Benefits
-----------------------------------------------------
1999 1998 1997 1999 1998 1997
- -------------------------------------------------------------------------------
Benefits earned
during the year $ 21,250 $ 14,523 $ 14,173 $ 1,002 $ 485 $ 940
Interest cost on
benefit obligation 40,836 38,935 36,130 8,426 7,844 6,886
Amortization of transition
(asset) obligation (2,616) (2,616) (2,616) 976 976 976
Amortization of prior
service (credit) cost (334) (538) (538) 169 169 153
Recognized net actuarial
(gain) loss (3,723) (3,572) (3,943) 842 482 (170)
Expected return on
plan assets (58,255) (55,976) (49,562) - - -
-------- -------- -------- ------- ------ ------
Net periodic (credit)
expense $ (2,842)$ (9,244) $ (6,356) $11,415 $9,956 $8,785
- -------------------------------------------------------------------------------
The following table presents a summary of plan assets, projected
benefit obligation and funded status of the plans at December 31:
- -------------------------------------------------------------------------------
(Thousands)
-----------------------------------------------
Pension Benefits Postretirement Benefits
- -------------------------------------------------------------------------------
1999 1998 1999 1998
Fair value of plan assets
at beginning of year $ 744,418 $688,011 $ - $ -
Employer contributions - - 8,064 8,464
Participant contributions - - 2,186 2,354
Actual return on plan assets 120,839 88,398 - -
Benefits paid (33,352) (31,991) (10,250) (10,818)
--------- -------- -------- ---------
Fair value of plan assets
at end of year 831,905 744,418 - -
- -------------------------------------------------------------------------------
Projected benefit obligation
at beginning of year 595,472 526,482 116,840 108,958
Benefits earned 21,250 14,523 1,002 485
Interest cost on projected
benefit obligation 40,836 38,935 8,426 7,844
Participant contributions - - 2,186 2,354
Plan amendments (1,978) 2,488 - -
Actuarial (gain) loss (65,534) 45,035 (1,405) 8,017
Benefits paid (33,352) (31,991) (10,250) (10,818)
--------- --------- -------- ---------
Projected benefit obligation
at end of year 556,694 595,472 116,799 116,840
- -------------------------------------------------------------------------------
Plan assets in excess of
(less than) projected
benefit obligation 275,211 148,946 (116,799) (116,840)
Unrecognized actuarial
(gain) loss (237,512) (116,560) 26,074 23,736
Unrecognized prior service cost 4,671 6,314 2,136 2,305
Unrecognized net transition
(asset) obligation (8,658) (11,275) 12,687 13,662
--------- -------- -------- ---------
Prepaid (accrued) benefit cost $ 33,712 $ 27,425 $(75,902) $ (77,137)
- -------------------------------------------------------------------------------
Actuarial assumptions used to calculate the projected benefit
obligations were as follows for the years ended December 31:
- -----------------------------------------------------------------------------
Pension Benefits Postretirement Benefits
---------------- -----------------------
1999 1998 1999 1998
- -----------------------------------------------------------------------------
Discount rate 7.8% 6.9% 7.8% 7.5%
Expected return on plan assets 8.5% 8.5% - -
Rate of compensation increase 5.2% 5.2% - -
Healthcare cost trend rate - - 7.0% 9.1%
- -----------------------------------------------------------------------------
The healthcare cost trend rate is expected to decrease on a graduated
basis to an ultimate rate of 6 percent in the year 2000. A one percent change in
the assumed healthcare cost trend rate for each future year would affect the
postretirement benefit cost by approximately $0.6 million for the year ended
December 31, 1999. A one percent increase in the assumed healthcare cost trend
rate would increase the postretirement benefit obligation as of December 31,
1999, by approximately $7.8 million, while a one percent decrease in the rate
would reduce the postretirement benefit obligation as of December 31, 1999, by
approximately $6.7 million.
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<PAGE>
The Company has a non-contributory defined contribution plan in the
form of profit-sharing arrangements for eligible employees, except bargaining
unit employees. The amount of profit-sharing contributions to the plan is
determined annually by the Company's Board of Directors. Profit-sharing expense
amounted to $34.1 million in 1999, $19.4 million in 1998 and $22.8 million in
1997.
The Company also sponsors employee savings plans under section 401(k)
of the Internal Revenue Code. The plans cover substantially all full-time
employees, except bargaining unit employees. Employees may elect to contribute
to the plans a portion of their eligible pretax compensation up to certain
limits as specified by the plans. The Company also makes annual contributions to
the plans. Expense recorded by the Company related to these plans amounted to
$15.9 million in 1999, $11.4 million in 1998 and $15.3 million in 1997.
8. Lease Commitments:
-----------------
Minimum rental commitments for all non-cancelable operating leases, consisting
principally of leases for office space, office equipment, real estate and tower
space, were as follows as of December 31, 1999:
- -----------------------------------------------
Year (Thousands)
- -----------------------------------------------
2000 $ 58,919
2001 46,695
2002 35,214
2003 25,915
2004 19,826
Thereafter 91,642
--------
Total $278,211
- -----------------------------------------------
Rental expense totaled $71.4 million in 1999, $71.3 million in 1998 and
$60.6 million in 1997.
9. Merger and Integration Expenses and Other Charges:
-------------------------------------------------
During the third quarter of 1999, the Company recorded a pretax charge in
connection with its mergers with Aliant, Liberty and its affiliate KINI L.C.,
AIR and Southern Data and with certain loss contingencies and other
restructuring activities. The following is a summary of the significant
components included in this charge:
- -----------------------------------------------
(Thousands)
Merger and integration costs $73,410
Restructuring charge 17,110
-------
Total pretax charge $90,520
- -----------------------------------------------
The merger and integration expenses include professional and financial
advisors' fees of $24.4 million, severance and employee-related expenses of
$15.4 million and other integration costs of $33.6 million. The Company's merger
and integration plan, as approved by ALLTEL's Board of Directors, provides for a
reduction of 200 employees of Aliant and Liberty, primarily in the corporate
support functions, to be substantially completed by the third quarter of 2000.
As of December 31, 1999, the Company had paid $7.2 million in severance and
employee-related expenses and 34 of the total 200 employee reductions had been
completed. The other integration costs include $12.5 million of lease
termination costs, $10.2 million of costs associated with the early termination
of certain service obligations, and a $4.6 million write-down in the carrying
value of certain in-process and other software development assets that have no
future alternative use or functionality. Also included are other integration
costs incurred in the third quarter consisting of branding and signage costs of
$4.1 million and other expenses of $2.2 million.
The lease termination costs include a cancellation fee of $7.3 million
representing the negotiated settlement to terminate the Company's contractual
commitment to lease building space previously occupied by the former 360
operations. The lease termination costs also include a $4.1 million write-off of
capitalized leasehold improvements and $1.1 million in other disposal costs.
51
73
<PAGE>
The contract termination fees include $5.2 million related to long-term
contracts with an outside vendor for customer billing services to be provided to
the Aliant and Liberty operations. As part of its integration plan, the Company
will convert both the Aliant and Liberty operations to its own internal billing
system. Conversion of the Liberty operations was completed in November 1999, and
conversion of the Aliant operations will be completed by June 2000. The $5.2
million amount represents the termination fee specified in the contracts and
will be paid by June 2000. The Company also recorded an additional $5.0 million
charge to reflect the actual cost of terminating its contract with Convergys
Corporation ("Convergys") for customer billing services to be provided to the
former 360 operations. On September 14, 1999, the Company and Convergys
agreed to a final contract termination fee of $55.0 million, of which $50.0
million of termination costs were recorded in the third quarter of 1998, as
discussed below. The two companies had been in litigation since late last year
over ALLTEL's claimed right to seek early termination of its multi-year contract
with Convergys so that ALLTEL could transition all the customers processed by
Convergys to its own billing system. In addition to the termination fee, the
Company will continue to pay Convergys for processing customer accounts until
all customers are switched to ALLTEL's billing system, which is expected to be
completed in 2001. Payments for the continuing processing services will be
expensed as incurred.
In connection with management's plan to reduce costs and improve
operating efficiencies, the Company recorded a restructuring charge consisting
of $10.8 million in severance and employee benefit costs related to a planned
workforce reduction and $6.3 million in lease termination costs related to the
consolidation of certain operating locations. The restructuring plan, which will
result in the elimination of approximately 308 employees in the Company's
wireline operations support functions, will be completed by September 2000. As
of December 31, 1999, the Company had paid $1.0 million in severance and
employee-related expenses and 34 of the total 308 employee reductions had been
completed. The lease termination costs represent the minimum contractual
commitments over the next one to four years for leased facilities the Company
has abandoned.
During the third quarter of 1998, the Company recorded transaction
costs and one-time charges totaling $252.0 million on a pretax basis related to
the closing of its merger with 360. The merger and integration expenses
included 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, provided for a reduction of 521 employees, primarily in the
corporate support functions. As of December 31, 1999, the Company had paid $40.0
million in severance and employee-related expenses and substantially all of the
521 employee reductions had been completed. The integration costs included
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 included a $60.0 million write-down in the carrying
value of certain in-process software development assets, $50.0 million of costs
associated with the early termination of certain service obligations, branding
and signage costs of $20.7 million, an $18.0 million write-down in the carrying
value of certain assets resulting from a revised PCS deployment plan and other
integration costs of $23.1 million.
The estimated cost of contract termination was related to a long-term
contract continuing through 2006 with Convergys for customer billing services to
be provided to the 360 operations. The $50.0 million of costs recorded
represented the present value of the estimated profit to the vendor over the
remaining term of the contract and was the Company's best estimate of the cost
of terminating the billing services contract prior to the expiration of its
term. As previously noted, in September 1999, the Company and Convergys agreed
upon a termination fee of $55.0 million. The $18.0 million write-down in the
carrying value of certain PCS-related assets includes approximately $15.0
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 $3.0 million of the
PCS-related write-down represents cell site lease termination fees.
51
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<PAGE>
The major action steps of the 360 merger and integration plan
included: (1) the immediate stoppage of further development of a customer
billing system, which had 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 liabilities
associated with the Company's merger and integration expenses and other charges
at December 31:
- -------------------------------------------------------------------------------
(Thousands)
--------------------------
1999 1998
---- ----
Balance, beginning of year $ 91,281 $ -
Merger and integration expenses and other charges 90,520 252,000
Non-cash write-down of assets (9,766) (74,800)
Cash outlays (105,562) (85,919)
--------- --------
Balance, end of year $ 66,473 $ 91,281
- -------------------------------------------------------------------------------
At December 31, 1999, the remaining unpaid liability related to the
Company's merger and integration and restructuring activities consists of
contract termination fees of $29.9 million, severance and employee-related
expenses of $26.7 million, lease cancellation and termination costs of $5.8
million and other integration costs of $4.1 million.
The merger and integration expenses and other charges decreased net
income for the periods ended December 31, 1999 and 1998, $66.0 million and
$201.0 million, respectively.
10. Provision to Reduce Carrying Value of Certain Assets:
----------------------------------------------------
During the third quarter of 1998, the Company recorded a non-recurring
operating expense associated with a contingency reserve on an unbilled
receivable of $55.0 million related to its contract with GTE Corporation
("GTE"). Due to its pending merger with Bell Atlantic Corporation, GTE has
re-evaluated its billing and customer care requirements, modified its billing
conversion plans and is purchasing certain processing services from ALLTEL for
an interim period. This charge decreased net income by $33.6 million.
In 1997, the Company recorded a pretax write-down of $16.9 million to
reflect the fair value less cost to sell its product distribution segment's wire
and cable subsidiary, HWC Distribution Corp. ("HWC"). The sale of HWC was
completed in May 1997. This write-down resulted in a decrease in net income of
$11.7 million for the year ended December 31, 1997.
11. Gain on Disposal of Assets and Other:
------------------------------------
During the fourth quarter of 1999, the Company recorded a pretax gain of $43.1
million from the sale of a portion of its investment in MCI WorldCom common
stock. Proceeds from this sale amounted to $45.0 million. This transaction
increased net income $27.2 million.
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
common stock. Proceeds from this sale amounted to $87.6 million. This
transaction increased net income $49.2 million. During the second quarter of
1998, the Company recorded a pretax gain of $148.2 million from the sale of a
portion of its investment in MCI WorldCom common stock. Proceeds from this sale
amounted to $162.6 million. The Company also incurred termination fees of $3.5
million related to the early retirement of long-term debt. These transactions
increased net income $88.1 million. During the first quarter of 1998, the
Company recorded a pretax gain of $36.6 million primarily from the sale of a
portion of its investment in MCI WorldCom common stock. Proceeds from the sale
of stock amounted to $40.7 million. In addition, the Company recorded a pretax
gain of $30.5 million from the sale of its ownership interest in a cellular
partnership serving the Omaha, Neb., market. The gains from these first quarter
transactions resulted in an increase of $40.4 million in net income.
52
75
<PAGE>
In 1997, the Company recorded a pretax gain of $34.4 million primarily
related to the sale of its investment in a software company. The Company also
recorded a pretax gain of $156.0 million from the sale of a portion of its
investment in MCI WorldCom common stock. Proceeds from the sale of this stock
amounted to $185.9 million. In addition, the Company recorded a pretax gain of
$16.2 million from the sale of information services' healthcare operations; and
the Company recorded a pretax gain of $3.0 million from the divestiture of its
ownership interests in two unconsolidated partnerships. The net income impact
from these transactions resulted in an increase of $121.5 million in net income
for the year ended December 31, 1997.
12. Income Taxes:
------------
Income tax expense was as follows:
- -------------------------------------------------------------------------------
(Thousands)
1999 1998 1997
----------------------------------------
Federal $474,622 $438,336 $376,407
State and other 72,596 63,418 57,543
-------- -------- --------
$547,218 $501,754 $433,950
- -------------------------------------------------------------------------------
The federal income tax expense consists of the following:
- -------------------------------------------------------------------------------
(Thousands)
1999 1998 1997
--------------------------------------
Currently payable $428,859 $409,794 $275,398
Deferred 48,894 32,827 106,652
Investment tax credit amortized (3,131) (4,285) (5,643)
-------- -------- --------
$474,622 $438,336 $376,407
- -------------------------------------------------------------------------------
Deferred income tax expense results principally from temporary
differences between depreciation expense for income tax purposes and
depreciation expense recorded in the financial statements. Deferred tax balances
are adjusted to reflect tax rates, based on currently enacted tax laws, that
will be in effect in the years in which the temporary differences are expected
to reverse. For the Company's regulated operations, the adjustment in deferred
tax balances for the change in tax rates is reflected as regulatory assets or
liabilities. These regulatory assets and liabilities are amortized over the
lives of the related depreciable asset or liability concurrent with recovery in
rates.
Differences between the federal income tax statutory rates and
effective income tax rates, which include both federal and state income taxes,
were as follows:
- -------------------------------------------------------------------------------
1999 1998 1997
Statutory income tax rates 35.0% 35.0% 35.0%
Increase (decrease):
Investment tax credit (0.2) (0.4) (0.5)
State income taxes, net of
federal benefit 3.6 3.7 3.5
Amortization of intangibles 1.2 1.3 1.3
Merger and integration expenses 0.7 4.0 -
Other items 0.8 1.8 0.7
----- ----- -----
Effective income tax rates 41.1% 45.4% 40.0%
- -------------------------------------------------------------------------------
The significant components of the Company's net deferred income tax
liability were as follows at December 31:
(Thousands)
----------------------------
1999 1998
- -------------------------------------------------------------------------------
Property, plant and equipment $ 534,745 $ 547,893
Capitalized computer software 118,986 110,547
Unrealized holding gain on investments 338,983 333,963
Operating loss carryforwards (15,144) (20,922)
Other, net 67,647 14,315
---------- ---------
1,045,217 985,796
Valuation allowance 11,704 15,347
- -------------------------------------------------------------------------------
Total $1,056,921 $1,001,143
- -------------------------------------------------------------------------------
52
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<PAGE>
At December 31, 1999 and 1998, total deferred tax assets were $270.9
million and $228.7 million, respectively, and total deferred tax liabilities
were $1,327.8 million and $1,229.8 million, respectively.
As of December 31, 1999 and 1998, the Company had available tax
benefits associated with federal and state operating loss carryforwards of $15.1
million and $20.9 million, respectively, which expire annually in varying
amounts to 2012. The valuation allowance primarily represents tax benefits of
certain state operating loss carryforwards and other deferred tax assets, which
may expire unutilized.
13. Other Comprehensive Income:
--------------------------
For the Company, other comprehensive income consists of unrealized holding gains
on its investments in equity securities, principally consisting of its
investment in MCI WorldCom common stock. The components of other comprehensive
income were as follows for the years ended December 31:
- -------------------------------------------------------------------------------
(Thousands)
-------------------------------
1999 1998 1997
- -------------------------------------------------------------------------------
Unrealized holding gains arising in the period $ 83,543 $ 674,461 $ 69,449
Income tax expense 10,951 264,964 32,540
-------- ---------- ---------
72,592 409,497 36,909
-------- ---------- ---------
Less: reclassification adjustments
for gains included in net
income for the period (43,071) (265,644) (155,993)
Income tax expense 15,886 104,199 67,888
-------- ---------- ---------
(27,185) (161,445) (88,105)
-------- ---------- ---------
Other comprehensive income
(loss) before tax 40,472 408,817 (86,544)
Income tax (benefit) expense (4,935) 160,765 (35,348)
-------- -------- ---------
Other comprehensive income (loss) $ 45,407 $248,052 $ (51,196)
- -------------------------------------------------------------------------------
14. Litigation-Claims and Assessments:
---------------------------------
On July 12, 1996, the Georgia Public Service Commission ("Georgia PSC") issued
an order requiring that ALLTEL's wireline subsidiaries which operate within its
jurisdiction reduce their annual network access charges by $24 million,
prospectively, effective July 1, 1996. The Georgia PSC's action was in response
to the Company's election to move from a rate-of-return method of pricing to an
incentive rate structure, as provided by a 1995 Georgia telecommunications law.
The Company appealed the Georgia PSC order. On November 6, 1996, the Superior
Court of Fulton County, Georgia, (the "Superior Court") rendered its decision
and reversed the Georgia PSC order, finding, among other matters, that the
Georgia PSC had exceeded its authority by conducting a rate proceeding after the
Company's election of alternative regulation.
The Superior Court did not rule on a number of other assertions made by
the Company as grounds for reversal of the Georgia PSC order. The Georgia PSC
appealed the Superior Court's decision, and on July 3, 1997, the Georgia Court
of Appeals reversed the Superior Court's decision. On August 5, 1997, the
Company filed a petition for writ of certiorari with the Georgia Supreme Court
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.
53
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<PAGE>
At December 31, 1999, the maximum possible liability to the Company
related to this case is $84.0 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.
The Company is party to various other legal proceedings arising from
the ordinary course of business. Although the ultimate resolution of these
various proceedings cannot be determined at this time, management of the Company
does not believe that such proceedings, individually or in the aggregate, will
have a material adverse effect on the future results of operations or financial
condition of the Company.
15. Subsequent Event - Exchange of Wireless Assets:
----------------------------------------------
On January 31, 2000, ALLTEL, Bell Atlantic, GTE and Vodafone Airtouch signed
agreements to exchange wireless properties in 13 states. Upon the closing of the
transactions, Bell Atlantic and GTE will transfer to ALLTEL interests in 27
wireless markets in Alabama, Arizona, Florida, Ohio, New Mexico, Texas and South
Carolina, representing about 14 million POPs and more than 1.5 million wireless
customers. ALLTEL will transfer to Bell Atlantic or GTE interests in 42 wireless
markets in Illinois, Indiana, Iowa, Nevada, New York and Pennsylvania,
representing approximately 6.3 million POPs and more than 700,000 customers.
ALLTEL will also transfer certain of its minority investments in unconsolidated
wireless properties, representing approximately 2.6 million POPs. In addition to
the transfer of wireless assets, ALLTEL will also pay approximately $600 million
in cash. The transactions are valued at approximately $2.9 billion. ALLTEL will
account for the acquisition as a purchase. Upon completion of the transactions,
ALLTEL expects to recognize goodwill of approximately $1.0 billion and a pretax
gain of $1.2 billion in its consolidated financial statements. Following the
completion of the transactions, ALLTEL will have a total of 46 million cellular
POPs and almost 5.8 million wireless customers. The companies expect to complete
the transactions by mid-2000.
16. Business Segments:
-----------------
ALLTEL disaggregates its business operations based upon differences in products
and services. The Company's communications operations consist of its wireless,
wireline and emerging businesses segments. Wireless communications and paging
services are provided in 25 states in five major markets: Northern, Southeast,
Mid-Atlantic, Central and Southwest. The Company's wireline subsidiaries provide
primary local service and network access in 15 states. Emerging businesses
include the Company's long-distance, local competitive access, Internet access,
network management and PCS operations. Long-distance and Internet access
services are marketed in 25 states. The Company is currently providing local
competitive access, PCS and network management services in select areas within
its geographically focused communications markets. Information services provides
information processing, outsourcing services and application software primarily
to financial and telecommunications customers. The principal markets for
information services' products and services are commercial banks, financial
institutions and telecommunications companies in the United States and major
international markets. Other operations consist of the Company's product
distribution and directory publishing operations. Corporate operations represent
general corporate expenses, headquarters facilities and equipment, investments,
goodwill and other non-recurring and unusual items not allocated to the
segments.
The accounting policies used in measuring segment assets and operating
results are the same as those described in Note 1. The non-recurring and unusual
items discussed in Notes 9, 10 and 11 are not allocated to the segments and are
included in corporate operations. The Company evaluates performance of the
segments based on segment operating income, excluding non-recurring and unusual
items. The Company accounts for intersegment sales at current market prices or
in accordance with regulatory requirements.
53
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<PAGE>
Information about the Company's business segments was as follows for the year
ended December 31, 1999:
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------------------
Communications
--------------------------------------------
Emerging Information Other Total Corporate Intercompany Consolidated
(Thousands) Wireless Wireline Businesses Total Services Operations Segments Operations Eliminations Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues and sales
from unaffiliated
customers:
Domestic $2,743,251 $1,621,427 $269,825 $4,634,503 $ 822,049 $368,782 $5,825,334 $ - $ - $5,825,334
Inter-
national - - - - 155,300 - 155,300 - - 155,300
---------- ---------- -------- ---------- ---------- -------- ---------- ---------- ---------- ----------
2,743,251 1,621,427 269,825 4,634,503 977,349 368,782 5,980,634 - - 5,980,634
Intersegment
revenues
and sales - 56,030 10,425 66,455 268,15 211,036 545,645 - (224,008)A 321,637
---------- ---------- -------- ---------- ---------- -------- ---------- ---------- ---------- ----------
Total
revenues
and sales 2,743,251 1,677,457 280,250 4,700,958 1,245,503 579,818 6,526,279 - (224,008) 6,302,271
---------- ---------- -------- ---------- ---------- -------- ---------- ---------- ---------- ----------
Operating
expenses 1,505,471 734,658 300,093 2,540,222 926,069 557,048 4,023,339 25,141 (224,008)A 3,824,472
Depreciation
and
amortization 351,302 323,735 27,398 702,435 144,118 1,209 847,762 14,410 - 862,172
Merger and
integration
expenses
and other
charges - - - - - - - 90,520 - 90,520
---------- ---------- -------- ---------- ---------- -------- ---------- ---------- ---------- ----------
Total costs
and
expenses 1,856,773 1,058,393 327,491 3,242,657 1,070,187 558,257 4,871,101 130,071 (224,008) 4,777,164
---------- ---------- -------- ---------- ---------- -------- ---------- ---------- ---------- ----------
Operating
income (loss) 886,478 619,064 (47,241) 1,458,301 175,316 21,561 1,655,178 (130,071) - 1,525,107
Equity earnings
in
unconsolidated
partnerships 105,025 - - 105,025 - - 105,025 - - 105,025
Minority
interest in
consolidated
partnerships (116,647) - - (116,647) - - (116,647) - - (116,647)
Other income,
net 18,344 6,210 7,172 31,726 17,157 546 49,429 5,042 - 54,471
---------- ---------- -------- ---------- ---------- -------- ---------- ---------- ---------- ----------
Total
non-operating
income, net 6,722 6,210 7,172 20,104 17,157 546 37,807 5,042 - 42,849
---------- ---------- -------- ---------- ---------- -------- ---------- ---------- ---------- ----------
Interest
expense (174,782) (67,138) (25,067) (266,987) (9,664) (1,412) (278,063) (2,112) - (280,175)
Gain on
disposal
of assets
and other - - - - - - - 43,071 - 43,071
---------- ---------- -------- ---------- ---------- -------- ---------- ---------- ---------- ----------
Income (loss)
before
income taxes 718,418 558,136 (65,136) 1,211,418 182,809 20,695 1,414,922 (84,070) - 1,330,852
Income tax
expense
(benefit) 303,997 204,717 (25,009) 483,705 75,184 8,014 566,903 (19,685) - 547,218
---------- ---------- -------- ---------- ---------- -------- ---------- ---------- ---------- ----------
Net income
(loss) $ 414,421 $353,419 $(40,127) $ 727,713 $ 107,625 $ 12,681 $ 848,019 $ (64,385) $ - $ 783,634
- -----------------------------------------------------------------------------------------------------------------------------------
Assets $4,790,170 $3,171,539 $436,829 $8,398,538 $ 883,613 $259,370 $9,541,521 $1,351,664B $(118,982)C $10,774,203
Investments in
unconsolidated
partnerships $ 490,773 $ - $ - $ 490,773 $ - $ - $ 490,773 $ - $ - $ 490,773
Capital
expenditures $ 350,668 $ 352,866 $118,322 $ 821,856 $ 94,665 $ 979 $ 917,500 $ 88,975 $ - $ 1,006,475
- -----------------------------------------------------------------------------------------------------------------------------------
Notes: A. Elimination of intersegment revenues and sales. See `Transactions with Certain Affiliates" in Note 1 for a discussion
of intersegment revenues and sales not eliminated in preparing the consolidated financial statements.
B. Corporate assets consist of headquarters fixed assets ($216,767), investments ($1,019,580), goodwill ($102,068) and
other assets ($13,249) not allocated to the segments.
C. Elimination of intersegment receivables.
</TABLE>
54
79
<PAGE>
Information about the Company's business segments was as follows for the year
ended December 31, 1998:
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------------------
Communications
--------------------------------------------
Emerging Information Other Total Corporate Intercompany Consolidated
(Thousands) Wireless Wireline Businesses Total Services Operations Segments Operations Eliminations Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues and sales from
unaffiliated customers:
Domestic $2,339,756 $1,448,817 $155,919 $3,944,492 $ 850,841 $338,115 $5,133,448 $ - $ - $5,133,448
Inter-
national - - - - 154,300 - 154,300 - - 154,300
---------- ---------- -------- ---------- ---------- -------- ---------- ---------- --------- -----------
2,339,756 1,448,817 155,919 3,944,492 1,005,141 338,115 5,287,748 - - 5,287,748
Intersegment
revenues and
sales - 50,390 11,399 61,789 156,627 263,235 481,651 - (142,604)A 339,047
---------- ---------- -------- ---------- ---------- -------- ---------- ---------- --------- -----------
Total revenues
and sales 2,339,756 1,499,207 167,318 4,006,281 1,161,768 601,350 5,769,399 - (142,604) 5,626,795
---------- ---------- -------- ---------- ---------- -------- ---------- ---------- --------- -----------
Operating
expenses 1,345,568 679,109 191,108 2,215,785 860,385 573,685 3,649,855 12,068 (142,604)A 3,519,319
Depreciation and
amortization 319,582 289,525 14,187 623,294 138,732 1,739 763,765 10,784 - 774,549
Merger and
integration
expenses - - - - - - - 252,000 - 252,000
Provision to
reduce
carrying value
of certain
assets - - - - - - - 55,000 - 55,000
---------- ---------- -------- ---------- ---------- -------- ---------- ---------- --------- -----------
Total costs
and
expenses 1,665,150 968,634 205,295 2,839,079 999,117 575,424 4,413,620 329,852 (142,604) 4,600,868
---------- ---------- -------- ---------- ---------- -------- ---------- ---------- --------- -----------
Operating
income
(loss) 674,606 530,573 (37,977) 1,167,202 162,651 25,926 1,355,779 (329,852) - 1,025,927
Equity
earnings in
unconsolidated
partnerships 114,859 - - 114,859 - - 114,859 - - 114,859
Minority
interest in
consolidated
partnerships (104,485) - - (104,485) - - (104,485) - - (104,485)
Other income,
net 29,570 10,506 2,861 42,937 10,646 235 53,818 465 - 54,283
---------- ---------- -------- ---------- ---------- -------- ---------- ---------- --------- -----------
Total
non-operating
income, net 39,944 10,506 2,861 53,311 10,646 235 64,192 465 - 64,657
---------- ---------- -------- ---------- ---------- -------- ---------- ---------- --------- -----------
Interest expense (162,725) (62,804) (12,978) (238,507) (12,268) (1,259) (252,034) (26,341) - (278,375)
Gain on disposal
of assets and
other - - - - - - - 292,672 - 292,672
---------- ---------- -------- ---------- ---------- -------- ---------- ---------- --------- -----------
Income (loss)
before
income taxes 551,825 478,275 (48,094) 982,006 161,029 24,902 1,167,937 (63,056) - 1,104,881
Income tax
expense
(benefit) 241,314 179,074 (18,562) 401,826 67,602 9,631 479,059 22,695 - 501,754
---------- ---------- -------- ---------- ---------- -------- ---------- ---------- --------- -----------
Net income
(loss) $ 310,511 $ 299,201 $(29,532) $ 580,180 $ 93,427 $ 15,271 $ 688,878 $ (85,751) $ - $603,127
- -----------------------------------------------------------------------------------------------------------------------------------
Assets $4,611,493 $3,079,993 $217,047 $7,908,533 $ 872,845 $179,850 $8,961,228 $1,258,385B $ (64,159)C $10,155,454
Investments in
unconsolidated
partnerships $ 634,176 $ - $ - $ 634,176 $ - $ - $ 634,176 $ - $ - $ 634,176
Capital
expenditures $ 363,384 $ 319,145 $174,578 $ 857,107 $ 111,257 $ 1,489 $ 969,853 $ 28,151 $ - $998,004
- -----------------------------------------------------------------------------------------------------------------------------------
Notes: A. Elimination of intersegment revenues and sales. See "Transactions with Certain Affiliates" in Note 1 for a discussion
of intersegment revenues and sales not eliminated in preparing the consolidated financial statements.
B. Corporate assets consist of headquarters fixed assets ($141,432), investments ($954,601), goodwill ($104,259) and
other assets ($58,093) not allocated to the segments.
C. Elimination of intersegment receivables.
</TABLE>
55
80
<PAGE>
Information about the Company's business segments was as follows for the year
ended December 31, 1997:
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
Communications
-------------------------------------------
Emerging Information Other Total Corporate Intercompany Consolidated
(Thousands) Wireless Wireline Businesses Total Services Operations Segments Operations Eliminations Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues and sales
from unaffiliated
customers:
Domestic $1,986,807 $1,371,203 $ 94,826 $3,452,836 $730,386 $355,605 $4,538,827 $ - $ - $4,538,827
Inter-
national - - - - 114,918 - 114,918 - - 114,918
---------- ---------- -------- ---------- -------- -------- ---------- -------- -------- ----------
1,986,807 1,371,203 94,826 3,452,836 845,304 355,605 4,653,745 - - 4,653,745
Intersegment
revenues and
sales - 45,069 5,944 51,013 128,847 123,317 303,177 - (49,964)A 253,213
---------- ---------- -------- ---------- -------- -------- ---------- -------- -------- ----------
Total
revenues
and sales 1,986,807 1,416,272 100,770 3,503,849 974,151 478,922 4,956,922 - (49,964) 4,906,958
---------- ---------- -------- ---------- -------- -------- ---------- -------- -------- ----------
Operating
expenses 1,188,922 631,608 112,890 1,933,420 716,907 454,922 3,105,249 6,512 (49,964)A 3,061,797
Depreciation and
amortization 291,010 278,505 4,300 573,815 112,316 2,068 688,199 10,897 - 699,096
Provision to
reduce
carrying
value of
certain assets - - - - - - - 16,874 - 16,874
---------- ---------- -------- ---------- -------- -------- ---------- -------- -------- ----------
Total costs
and expenses 1,479,932 910,113 117,190 2,507,235 829,223 456,990 3,793,448 34,283 (49,964) 3,777,767
---------- ---------- -------- ---------- -------- -------- ---------- -------- -------- ----------
Operating
income
(loss) 506,875 506,159 (16,420) 996,614 144,928 21,932 1,163,474 (34,283) - 1,129,191
Equity earnings
in
unconsolidated
partnerships 92,087 - - 92,087 - - 92,087 - - 92,087
Minority
interest in
consolidated
partnerships (87,966) - - (87,966) - - (87,966) - - (87,966)
Other income,
net 7,628 8,576 1,197 17,401 (1,152) (21) 16,228 2,157 - 18,385
---------- ---------- -------- ---------- -------- -------- ---------- -------- -------- ----------
Total
non-operating
income, net 11,749 8,576 1,197 21,522 (1,152) (21) 20,349 2,157 - 22,506
---------- ---------- -------- ---------- -------- -------- ---------- -------- -------- ----------
Interest
expense (158,710) (62,614) (3,587) (224,911) (12,330) (782) (238,023) (36,894) - (274,917)
Gain on disposal
of assets and
other - - - - - - - 209,651 - 209,651
---------- ---------- -------- ---------- -------- -------- ---------- -------- -------- ----------
Income (loss)
before
income taxes 359,914 452,121 (18,810) 793,225 131,446 21,129 945,800 140,631 - 1,086,431
Income tax
expense
(benefit) 142,988 166,498 (1,673) 307,813 55,400 7,530 370,743 63,207 - 433,950
---------- ---------- -------- ---------- -------- -------- ---------- -------- -------- ----------
Net income
(loss) $ 216,926 $ 285,623 $(17,137) $ 485,412 $ 76,046 $ 13,599 $ 575,057 $ 77,424 $ - $ 652,481
- ------------------------------------------------------------------------------------------------------------------------------------
Assets $4,317,819 $3,031,494 $ 92,979 $7,442,292 $809,242 $129,973 $8,381,507 $874,718B $(24,218)C $9,232,007
Investments in
unconsolidated
partnerships $ 629,527 $ - $ - $ 629,527 $ - $ - $ 629,527 $ - $ - $ 629,527
Capital
expenditures $ 396,670 $ 308,076 $ 79,286 $ 784,032 $ 87,937 $ 1,620 $ 873,589 $ 26,134 $ - $ 899,723
- ------------------------------------------------------------------------------------------------------------------------------------
Notes: A. Elimination of intersegment revenues and sales. See "Transactions with Certain Affiliates" in Note 1 for a discussion
of intersegment revenues and sales not eliminated in preparing the consolidated financial statements.
B. Corporate assets consist of headquarters fixed assets ($116,532), investments ($628,912), goodwill ($107,930) and
other assets ($21,344) not allocated to the segments.
C. Elimination of intersegment receivables.
</TABLE>
56
81
<PAGE>
17. Quarterly Financial Information -- (Unaudited):
------------------------------- -----------
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
(Thousands, except per share amounts) 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Total 4th 3rd 2nd 1st Total 4th 3rd 2nd 1st
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues and sales $6,302,271 $1,596,763 $1,628,395 $1,593,360 $1,483,753 $5,626,795 $1,487,028 $1,446,379 $1,414,093 $1,279,295
Operating income $1,525,107 $ 390,429 $ 338,507 $ 422,769 $ 373,402 $1,025,927 $ 335,603 $ 51,495 $ 337,655 $ 301,174
Net income (loss) $ 783,634 $ 233,472 $ 150,349 $ 213,269 $ 186,544 $ 603,127 $ 174,082 $ (7,405) $ 252,110 $ 184,340
Preferred dividends 889 215 215 227 232 1,248 228 239 485 296
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss)
applicable
to common shares $ 782,745 $ 233,257 $ 150,134 $ 213,042 $ 186,312 $ 601,879 $ 173,854 $ (7,644) $ 251,625 $ 184,044
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings (loss)
per share:
Basic $2.50 $.74 $.48 $.68 $.60 $1.97 $.57 $(.03) $.82 $.60
Diluted $2.47 $.73 $.47 $.67 $.59 $1.95 $.56 $(.02) $.82 $.60
- ------------------------------------------------------------------------------------------------------------------------------------
Notes: A. During the fourth quarter of 1999, the Company recorded a pretax gain of $43.1 million from the sale of a portion of
its investment in MCI WorldCom common stock. This transaction increased net income $27.2 million or $.08 per share.
(See Note 11.)
B. Third quarter 1999 operating income includes a pretax charge of $90.5 million in connection with the closing of the
Company's mergers with Aliant, Liberty, KINI L.C., AIR and Southern Data and with certain loss contingencies and other
restructuring activities. These charges decreased net income $66.0 million or $.21 per share. (See Note 9.)
C. Third quarter 1998 operating income includes transaction costs and one-time charges totaling $252.0 million related to
the closing of the merger with 360. These transaction and one-time charges decreased net income $201.0 million
or $.66 per share. The Company also recorded a pretax charge of $55.0 million resulting from changes in a customer
care and billing contract with a major customer. This charge decreased net income $33.6 million or $.11 per share. In
addition, the Company recorded a pretax gain of $80.9 million from the sale of a portion of its investment in MCI
WorldCom common stock. This gain increased net income by $49.2 million or $.16 per share. (See Notes 9, 10 and 11.)
D. Second quarter 1998 net income includes a pretax gain of $148.2 million from the sale of a portion of the Company's
investment in MCI WorldCom common stock. The Company also incurred termination fees of $3.5 million related to the
early retirement of long-term debt. These transactions increased net income $88.1 million or $.29 per share.
(See Note 11.)
E. First quarter 1998 net income includes a pretax gain of $36.6 million primarily from the sale of a portion of the
Company's investment in MCI WorldCom common stock. In addition, the Company recorded a pretax gain of $30.5 million
from the sale of its ownership interest in one unconsolidated partnership. These gains increased net income by $40.4
million or $.13 per share. (See Note 11.)
F. In the opinion of management, all adjustments necessary for a fair presentation of results for each period have been
included.
</TABLE>
57
82
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
ALLTEL Corporation:
As independent public accountants, we hereby consent to the incorporation of our
report dated February 1, 2000 incorporated by reference in this Form 10-K, into
ALLTEL Corporation's previously filed Registration Statements, File Nos.
333-68243,333-76485, 333-85395, 2-99523, 33-35343, 33-48476, 33-54175,
33-56291, 33-65199, 33-88907, 333-88923 and 333-90167.
/s/Arthur Andersen LLP
Little Rock, Arkansas
March 3, 2000
83
Exhibit 24
United States
Securities and Exchange Commission
Washington, D.C. 20549
Re: ALLTEL Corporation
Commission File No. 1-4996
1934 Act Filings on Form 10-K
Authorized Representatives
Gentlemen:
The above Company is the issuer of securities registered under Section 12
of the Securities Exchange Act of 1934 (The "Act"). Each of the persons
signing his name below confirms, as of the date appearing opposite his
signature, that each of the "Authorized Representatives" named below is
authorized on his behalf to sign and submit to the Securities and Exchange
Commission such filings on Form 10-K as are required by the Act. Each person so
signing also confirms the authority of each of the Authorized Representatives to
do and perform on his behalf, any and all acts and things requisite or necessary
to assure compliance by the signing person with the Form 10-K requirements. The
authority confirmed herein shall remain in effect as to each person signing his
name below until such time as the Commission shall receive from such person a
written communication terminating or modifying the authority. Each person
signing his name below expressly revokes all authority heretofore given or
executed by him with respect to such filings under the Act.
Authorized Representatives
Scott T. Ford
Francis X. Frantz
Jeffery R. Gardner
Date
/s/ David A. Gatewood 03/01/00
----------------------------------------------------
84
AMENDMENT NO. 14
TO
ALLTEL CORPORATION PENSION PLAN
(January 1, 1994 Restatement)
WHEREAS, ALLTEL Corporation (the "Company") maintains the ALLTEL
Corporation Pension Plan, as amended and restated effective January 1, 1994, and
as 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, effective as set forth herein, in the respects hereinafter set forth.
1. Effective as of January 1, 1999, Section 13 of the
Plan is amended by adding the following Section 13.31thereto:
13.31 Employees of 360 Communications Company and its
---------------------------------------------------------
Predecessors.
-------------
(a) Effective Date - January 1, 1999.
--------------
(b) Account - None.
-------
(c) Minimum Normal Retirement Pension - None.
---------------------------------
(d) Minimum Early Retirement Pension - None.
--------------------------------
(e) Minimum Disability Retirement Pension - None.
-------------------------------------
(f) Minimum Deferred Vested Pension - None.
-------------------------------
(g) Minimum Death Benefit - None.
---------------------
(h) Prior Plan Offset - Not Applicable.
-----------------
(i) Provision Relative to Section 401(a)(12) of the Code - Not
--------------------------------------------------------
Applicable.
(j) Miscellaneous - See APPENDIX FF - SPECIAL PROVISIONS
APPLICABLE TO CERTAIN EMPLOYEES OF 360 COMMUNICATIONS
COMPANY AND ITS PREDECESSORS which follows immediately
hereafter.
-1-
85
<PAGE>
APPENDIX FF
SPECIAL PROVISIONS APPLICABLE TO CERTAIN EMPLOYEES
OF
360COMMUNICATIONS COMPANY AND ITS PREDECESSORS
Notwithstanding any other provision of the Plan, effective January 1, 1999, the
Plan is modified as set forth below with respect to any employee who is in
employment of the Controlled Group covered under the Plan on or after January 1,
1999 and who is listed in Attachment I to this Appendix FF.
A. Section 1.07 is modified by adding to the definition thereof the
following:
1.07FF "Basic Compensation" shall include only amounts that
constitute
"Basic Compensation" for Plan Years beginning on or after
January 1, 1999.
B. Section 1.14 is modified by adding to the definition thereof the
following:
1.14FF "Compensation" shall include only amounts that constitute
"Compensation" for Plan Years beginning on or after
January 1, 1999.
C. Section 1.37(g) is modified as follows:
1.37(g)FF Vesting Service
(a) A Participant's eligibility for benefits under
the Plan shall be determined by his period of
Vesting Service, in accordance with the
following:
(i) Service Prior to January 1, 1999:
(A) Service Prior to January 1, 1976:
The period, or the aggregate of the
periods, listed with respect to the
Participant on Attachment I to this
Appendix FF, stated as years and
completed months
(B) Service From and After January 1,
1976 and Prior to January 1, 1999:
-2-
86
<PAGE>
The Participant shall be credited
with Vesting Service with respect to
each period set forth with respect
to the Participant on Attachment I
to this Appendix FF. determined as
though the Participant had been
continuously during each such
period an Employee of the Controlled
Group and had been credited with ten
(10) Hours of Service for each day
of employment during such
periods(s).
(ii) Service From and After January 1, 1999: In
accordance with the provisions of
Section 1.37(g).
(iii) Notwithstanding any other provision of the
Plan, there shall be no duplication of
Vesting Service (or Vesting Years of
Service) by reason of any restoration of,
crediting of, or granting of service in
in respect of any single period or
otherwise.
D. Section 1.37(d) is modified as follows:
1.37(d)FF Benefit Service
(a) The amount of the benefit payable to or on behalf of
a Participant shall be determined on the basis of
his Benefit Service, in accordance with the
following:
(i) Benefit Service Prior to January 1, 1999:
None.
(ii) Benefit Service From and After January 1,
1999: In accordance with the provisions
of Section 1.37(d).
E. Section 1.37(f) is modified as follows:
1.37(f)FF Eligibility Year of Service
(a) A Participant's Eligibility Years of Service under
the Plan shall be determined in accordance with the
following:
(i) Service Prior to January 1, 1999: The
-3-
87
<PAGE>
Participant shall be credited with
Eligibility Years of Service with respect
to each period set forth with respect to
the Participant on Attachment I to this
Appendix FF determined as though the
Participant had been credited with ten
(10) Hours of Service for each day of
employment during such period(s).
(ii) Service From and After January 1, 1999:
In accordance with the provisions of
Section 1.37(f).
(iii) Notwithstanding any other provision of the
Plan, there shall be no duplication of
Eligibility Years of Service under the
Plan by reason of any restoration of,
crediting of, or granting of service in
respect of any single period or otherwise.
2. Effective as of July 2, 1999, Section 13 of the Plan is
amended by adding the following Section 13.32 thereto:
13.32 Employees of Aliant Communications Inc.and its subsidiaries
-----------------------------------------------------------
(a) Effective Date - July 2, 1999.
--------------
(b) Account - None.
-------
(c) Minimum Normal Retirement Pension - None.
---------------------------------
(d) Minimum Early Retirement Pension - None.
--------------------------------
(e) Minimum Disability Retirement Pension - None.
-------------------------------------
(f) Minimum Deferred Vested Pension - None.
-------------------------------
(g) Minimum Death Benefit - None.
---------------------
(h) Prior Plan Offset - Not Applicable.
-----------------
(i) Provision Relative to Section 401(a)(12) of the Code - Not
----------------------------------------------------------
Applicable.
-----------
(j) Miscellaneous - See APPENDIX GG - SPECIAL PROVISIONS
-------------
APPLICABLE TO CERTAIN EMPLOYEES OF ALIANT COMMUNICATIONS INC.
-4-
88
<PAGE>
AND ITS SUBSIDIARIES which follows immediately hereafter.
APPENDIX GG
SPECIAL PROVISIONS APPLICABLE TO CERTAIN EMPLOYEES
OF
ALIANT COMMUNICATIONS INC. AND ITS SUBSIDIARIES
Effective July 2, 1999, certain employees of Aliant Communications Inc. and its
subsidiaries became employees of the Controlled Group.
Notwithstanding any other provision of the Plan, effective July 2, 1999, the
Plan is modified as set forth below with respect to any employee who is in
employment of the Controlled Group covered under the Plan on or after July 2,
1999, and who, on or before July 1, 1999, had service credited for vesting
purposes under the Plan for Employees' Pensions of Aliant Communications Co.
A. Section 1.07 is modified by adding to the definition thereof the
following:
1.07GG "Basic Compensation" shall include only amounts earned (as an
Employee of an Employer) after July 1, 1999.
B. Section 1.14 is modified by adding to the definition thereof the
following:
1.14GG "Compensation" shall include only amounts earned (as an Employee
of an Employer) after July 1, 1999.
C. Section 1.37(g) is modified as follows:
1.37(g)GG Vesting Service
---------------
(a) A Participant's eligibility for benefits under the
Plan shall be determined by his period of Vesting
Service, in accordance with the following:
(i) Service Prior to January 1, 1999: An Employee's
period(s) of employment prior to January 1,
1999, shall be counted as Vesting Service to
the extent of the number of whole one-year
periods that are credited as of December 31,
1998, to such Employee under the provisions of
the Plan for Employees' Pensions of Aliant
Communications Co. as in effect from time to
-5-
89
<PAGE>
time (the "Aliant Plan") as "Continuous
Service," as such term is defined in the Aliant
Plan.
(ii) Service From January 1, 1999, to July 1, 1999:
For purposes of determining a Vesting Year of
Service for the Plan Year ending December 31,
1999, an Employee shall be credited for the
Plan Year ending December 31, 1999, with a
number of Hours of Service equal to the number
of "Hours of Service," as defined in the Plan
for Employees' Pensions of Aliant
Communications Co. as in effect on December 31,
1999, (the "Pre-2000 Aliant Plan"), credited
to such Employee under the Pre-2000 Aliant Plan
for purposes of determining "Continuous
Service," as defined in the Pre-2000 Aliant
Plan, with respect to the period beginning
January 1, 1999, and ending July 1, 1999.
(iii) Service From and After July 2, 1999: In
accordance with the provisions of
Section 1.37(g).
(iv) Notwithstanding any other provision of the
Plan, there shall be no duplication of Vesting
Service (or Vesting Years of Service) by reason
of any restoration of, crediting of, or
granting of service in respect of any single
period or otherwise.
D. Section 1.37(d) is modified as follows:
1.37(d)GG Benefit Service
---------------
(a) The amount of the benefit payable to or on behalf of
a Participant shall be determined on the basis of his
Benefit Service, in accordance with the following:
(i) Benefit Service Prior to July 2, 1999: None.
(ii) Benefit Service From and After July 2, 1999: In
accordance with the provisions of
Section 1.37(d).
-6-
90
<PAGE>
E. Section 1.37(f) is modified as follows:
1.37(f)GG Eligibility Year of Service
---------------------------
(a) A Participant's Eligibility Years of Service under
the Plan shall be determined in accordance with the
following:
(i) Service Prior to July 2, 1999: With respect to
periods of employment occurring prior to
July 2, 1999, an Employee shall receive credit
under the Plan for purposes of Eligibility
Service for service similarly credited for
purposes of eligibility to participate under
the Plan for Employees' Pensions of Aliant
Communications Co. as in effect as of the
relevant time (the "Aliant Plan") in the same
manner as provided in Section 1.37(g)GG(a)(i)
and (ii), modified, however, to reflect that
both the Plan and the Aliant Plan determined
eligibility service using the hours method and
a computation period that adjusts from the
first anniversary of employment to the plan
year.
(ii) Service From and After July 2, 1999: In
accordance with the provisions of
Section 1.37(f).
(iii) Notwithstanding any other provision of the
Plan, there shall be no duplication of
Eligibility Years of Service by reason of any
restoration of, crediting of, or granting of
service in respect of any single period or
otherwise.
IN WITNESS WHEREOF, the Company, by its duly authorized officer, has
caused this Amendment to be executed on this 29 day of December, 1999.
ALLTEL CORPORATION
By: /s/Joe T. Ford
--------------------------------------------
Title:
-7-
91
AMENDMENT NO. 13
TO
ALLTEL CORPORATION PROFIT-SHARING PLAN
(January 1, 1994 Restatement)
WHEREAS, ALLTEL Corporation (the "Company") maintains the ALLTEL
Corporation Profit-Sharing Plan, as amended and restated effective January 1,
1994, and subsequently further amended, (the "Plan"); and
WHEREAS, the Company desires further to amend the Plan;
NOW, THEREFORE, the Company hereby amends the Plan in the respects
hereinafter set forth.
1. Effective as of September 16, 1999, Section 9.04 of the
Plan is amended by adding a new subsection (z) at the end thereof to provide
as follows:
(z) In determining Years of Eligibility Service for an
Employee who was an employee of Advanced Information
Resources, LTD. ("AIR") immediately prior to
September 16, 1999, and became an Employee on
September 16, 1999, the Employee's period or periods of
employment with AIR prior to September 16, 1999 that
would have been taken into account under the Plan if such
period or periods of employment were service with a
member of the Controlled Group, shall be counted as Years
of Eligibility Service. Notwithstanding any other
provision of the Plan, there shall be no duplication of
Years of Eligibility Service under the Plan by reason of
service (or hours of service) in respect of any single
period or otherwise.
2. Effective as of October 25, 1999, Section 9.04 of the Plan is
amended by adding a new subsection (aa) at the end thereof to provide as
follows:
(aa) In determining Years of Eligibility Service for an
Employee who was an employee of ACE USA Software Sciences
("ACE") immediately prior to October 25, 1999, and became
an Employee on October 25, 1999, the Employee's period or
periods of employment with ACE prior to October 25, 1999
that would have been taken into account under the Plan if
such period or periods of employment were service with a
member of the Controlled Group, shall be counted as Years
of Eligibility Service. Notwithstanding any other
provision of the Plan, there shall be no duplication of
Years of Eligibility Service under the Plan by reason of
service (or hours of service) in respect of any single
period or otherwise.
92
<PAGE>
3. Effective as of November 11, 1999, Section 9.04 of the Plan is
amended by adding a new subsection (bb) at the end thereof to provide as
follows:
(bb) In determining Years of Eligibility Service for an
Employee who was an employee of ACE USA Software Sciences
("ACE") immediately prior to November 11, 1999, and
became an Employee on November 11, 1999, the Employee's
period or periods of employment with ACE prior to
November 11, 1999 that would have been taken into account
under the Plan if such period or periods of employment
were service with a member of the Controlled Group, shall
be counted as Years of Eligibility Service.
Notwithstanding any other provision of the Plan, there
shall be no duplication of Years of Eligibility Service
under the Plan by reason of service (or hours of service)
in respect of any single period or otherwise.
4. Effective as of January 1, 2000, Section 9.04 of the Plan is
amended by adding a new subsection (cc) at the end thereof to provide as
follows:
(cc) In determining Years of Eligibility Service for an
Employee who was an employee of Southern Data Systems,
Inc. ("SDS") immediately prior to October 1, 1999,
and became an Employee on October 1, 1999, and who was an
Employee on January 1, 2000, the Employee's period or
periods of employment with SDS prior to October 1, 1999
that would have been taken into account under the Plan if
such period or periods of employment were service with a
member of the Controlled Group, shall be counted as Years
of Eligibility Service. Notwithstanding any other
provision of the Plan, there shall be no duplication of
Years of Eligibility Service under the Plan by reason of
service (or hours of service) in respect of any single
period or otherwise.
5. Effective as of January 1, 2000, Section 9.04 of the Plan is
amended by adding a new subsection
(dd) at the end thereof to provide as follows:
(dd) In determining Years of Eligibility Service for an
Employee who was an employee of WestGroup Management
Resources, Inc.("WestGroup") immediately prior to
December 20, 1999, and became an Employee on December 20,
1999, and who was an Employee on January 1, 2000, the
Employee's period or periods of employment with WestGroup
prior to December 20, 1999 that would have been taken
into account under the Plan if such period or periods of
employment were service with a member of the Controlled
Group, shall be counted as Years of Eligibility Service.
Notwithstanding any other provision of the Plan, there
shall be no duplication of Years of Eligibility Service
2
93
<PAGE>
under the Plan by reason of service (or hours of service)
in respect of any single period or otherwise.
6. Effective as of September 16, 1999, Section 9.05 of the Plan is
amended by adding a new subsection (z) at the end thereof to provide as follows:
(z) In determining Years of Vesting Service for an Employee
who was an employee of Advanced Information Resources,
LTD. ("AIR") immediately prior to September 16, 1999, and
became an Employee on September 16, 1999, the Employee's
period or periods of employment with AIR prior to
September 16, 1999 that would have been taken into
account under the Plan if such period or periods of
employment were service with a member of the Controlled
Group, shall be counted as Years of Vesting Service.
Notwithstanding any other provision of the Plan, there
shall be no duplication of Years of Vesting Service under
the Plan by reason of service (or hours of service) in
respect of any single period or otherwise.
7. Effective as of October 25, 1999, Section 9.05 of the Plan is
amended by adding a new subsection (aa) at the end thereof to provide as
follows:
(aa) In determining Years of Vesting Service for an Employee who
was an employee of ACE USA Software Sciences ("ACE")
immediately prior to October 25, 1999, and became an
Employee on October 25, 1999, the Employee's period or
periods of employment with ACE prior to October 25, 1999
that would have been taken into account under the Plan if
such period or periods of employment were service with a
member of the Controlled Group, shall be counted as Years of
Vesting Service. Notwithstanding any other provision of the
Plan, there shall be no duplication of Years of Vesting
Service under the Plan by reason of service (or hours of
service) in respect of any single period or otherwise.
8. Effective as of November 11, 1999, Section 9.05 of the Plan is
amended by adding a new subsection (bb) at the end thereof to
provide as follows:
(bb) In determining Years of Vesting Service for an Employee who
was an employee of ACE USA Software Sciences ("ACE")
immediately prior to November 11, 1999, and became an
Employee on November 11, 1999, the Employee's period or
periods of employment with ACE prior to November 11, 1999
that would have been taken into account under the Plan if
such period or periods of employment were service with a
member of the Controlled Group, shall be counted as Years of
Vesting Service. Notwithstanding any other provision of the
3
94
<PAGE>
Plan, there shall be no duplication of Years of Vesting
Service under the Plan by reason of service (or hours of
service) in respect of any single period or otherwise.
9. Effective as of January 1, 2000, Section 9.05 of the Plan is
amended by adding a new subsection (cc) at the end thereof to
provide as follows:
(cc) In determining Years of Vesting Service for an Employee who
was an employee of Southern Data Systems, Inc. ("SDS")
immediately prior to October 1, 1999, and became an Employee
on October 1, 1999, and who was an Employee on January 1,
2000, the Employee's period or periods of employment with
SDS prior to October 1, 1999 that would have been taken into
account under the Plan if such period or periods of
employment were service with a member of the Controlled
Group, shall be counted as Years of Vesting Service.
Notwithstanding any other provision of the Plan, there shall
be no duplication of Years of Vesting Service under the Plan
by reason of service (or hours of service) in respect of any
single period or otherwise.
10. Effective as of January 1, 2000, Section 9.05 of the Plan is
amended by adding a new subsection (dd) at the end thereof to
provide as follows:
(dd) In determining Years of Vesting Service for an Employee
who was an employee of WestGroup Management Resources,
Inc. ("WestGroup") immediately prior to December 20,
1999, and became an Employee on December 20, 1999, and
who was an Employee on January 1, 2000, the Employee's
period or periods of employment with WestGroup prior to
December 20, 1999 that would have been taken into account
under the Plan if such period or periods of employment
were service with a member of the Controlled Group, shall
be counted as Years of Vesting Service. Notwithstanding
any other provision of the Plan, there shall be no
duplication of Years of Vesting Service under the Plan by
reason of service (or hours of service) in respect of any
single period or otherwise.
11. Effective as of September 16, 1999, Section 13.05 of the Plan
is amended by adding a new subsection (kk) at the end thereof to provide as
follows:
(kk) Each person who
(i) was an active employee of Advanced Information
Resources, LTD. and became an Employee on
September 16, 1999;
4
95
<PAGE>
(ii) met the eligibility requirements to become a
Participant on or before the last day of the 1999
Plan Year; and
(iii) is not otherwise eligible for an allocation of
Employer Contribution for the 1999 Plan Year under
Section 13.04;
shall receive an allocation of Employer Contribution for
the 1999 Plan Year as provided in this subsection (kk),
if the Participant is credited with at least such number
of Hours of Service as the number determined by
multiplying 1,000 by a fraction the numerator of which is
the number of days of employment with the Controlled
Group completed by the Participant in the 1999 Plan Year
and the denominator of which is three hundred sixty-five
(365). Subject to the last sentence of Section 13.01, the
portion of Employer Contribution assigned to the Region
including such Participants shall be specified on the
Schedule for the 1999 Plan Year and shall be allocated
among the Participants in such Region as provided in
Section 13.04, but without regard to the requirement that
a Participant have a Year of Participation.
Notwithstanding the provisions of Section 13.04, any
Participant who would receive an allocation of Employer
Contribution under this subsection (kk) but for his
transfer of employment prior to December 31, 1999, shall
be deemed to be in the Region including the Participants
eligible under this subsection (kk) for the 1999 Plan
Year.
12. Effective as of October 25, 1999, Section 13.05 of the Plan is
amended by adding a new subsection (ll) at the end thereof to provide as
follows:
(ll) Each person who
(i) was an active employee of ACE USA Software Sciences
and became an Employee on October 25, 1999;
(ii) met the eligibility requirements to become a
Participant on or before the last day of the 1999
Plan Year; and
(iii) is not otherwise eligible for an allocation of
Employer Contribution for the 1999 Plan Year under
Section 13.04;
shall receive an allocation of Employer Contribution for
the 1999 Plan Year as provided in this subsection (ll),
if the Participant is credited with at least such number
of Hours of Service as the number determined by
multiplying 1,000 by a fraction the numerator of which is
the number of days of employment with the Controlled
5
96
<PAGE>
Group completed by the Participant in the 1999 Plan Year
and the denominator of which is three hundred sixty-five
(365). Subject to the last sentence of Section 13.01, the
portion of Employer Contribution assigned to the Region
including such Participants shall be specified on the
Schedule for the 1999 Plan Year and shall be allocated
among the Participants in such Region as provided in
Section 13.04, but without regard to the requirement that
a Participant have a Year of Participation.
Notwithstanding the provisions of Section 13.04, any
Participant who would receive an allocation of Employer
Contribution under this subsection (ll) but for his
transfer of employment prior to December 31, 1999, shall
be deemed to be in the Region including the Participants
eligible under this subsection (ll) for the 1999 Plan
Year.
13. Effective as of November 11, 1999, Section 13.05 of the Plan is
amended by adding a new subsection (mm) at the end thereof to provide as
follows:
(mm) Each person who
(i) was an active employee of ACE USA Software Sciences
and became an Employee on November 11, 1999;
(ii) met the eligibility requirements to become a
Participant on or before the last day of the 1999
Plan Year; and
(iii) is not otherwise eligible for an allocation of
Employer Contribution for the 1999 Plan Year under
Section 13.04;
shall receive an allocation of Employer Contribution for
the 1999 Plan Year as provided in this subsection (mm),
if the Participant is credited with at least such number
of Hours of Service as the number determined by
multiplying 1,000 by a fraction the numerator of which is
the number of days of employment with the Controlled
Group completed by the Participant in the 1999 Plan Year
and the denominator of which is three hundred sixty-five
(365). Subject to the last sentence of Section 13.01, the
portion of Employer Contribution assigned to the Region
including such Participants shall be specified on the
Schedule for the 1999 Plan Year and shall be allocated
among the Participants in such Region as provided in
Section 13.04, but without regard to the requirement that
a Participant have a Year of Participation.
Notwithstanding the provisions of Section 13.04, any
Participant who would receive an allocation of Employer
Contribution under this subsection (mm) but for his
transfer of employment prior to December 31, 1999, shall
6
97
<PAGE>
be deemed to be in the Region including the Participants
eligible under this subsection (mm) for the 1999 Plan
Year.
14. Effective as of December 1, 1999, Section 13.05 of the Plan is
amended by adding a new subsection (nn) at the end thereof to provide as
follows:
(nn) Each person who
(i) was an active employee of BancWest Corporation of
Honolulu, Hawaii and became an Employee on
December 1, 1999;
(ii) met the eligibility requirements to become a
Participant on or before the last day of the 1999
Plan Year; and
(iii) is not otherwise eligible for an allocation of
Employer Contribution for the 1999 Plan Year under
Section 13.04;
shall receive an allocation of Employer Contribution for
the 1999 Plan Year as provided in this subsection (nn),
if the Participant is credited with at least such number
of Hours of Service as the number determined by
multiplying 1,000 by a fraction the numerator of which is
the number of days of employment with the Controlled
Group completed by the Participant in the 1999 Plan Year
and the denominator of which is three hundred sixty-five
(365). Subject to the last sentence of Section 13.01, the
portion of Employer Contribution assigned to the Region
including such Participants shall be specified on the
Schedule for the 1999 Plan Year and shall be allocated
among the Participants in such Region as provided in
Section 13.04, but without regard to the requirement that
a Participant have a Year of Participation.
Notwithstanding the provisions of Section 13.04, any
Participant who would receive an allocation of Employer
Contribution under this subsection (nn) but for his
transfer of employment prior to December 31, 1999, shall
be deemed to be in the Region including the Participants
eligible under this subsection (nn) for the 1999 Plan
Year.
7
98
<PAGE>
IN WITNESS WHEREOF, the Company, by its duly authorized officer, has
caused this Amendment to be executed on this 29 day of December, 1999.
ALLTEL CORPORATION
By: /s/Joe T. Ford
-----------------------------------
Title:
8
99
AMENDMENT NO. 15
TO
ALLTEL CORPORATION THRIFT PLAN
(January 1, 1994 Restatement)
WHEREAS, ALLTEL Corporation (the "Company") maintains the ALLTEL
Corporation Thrift Plan, as amended and restated effective January 1, 1994, and
subsequently further amended, (the "Plan"); and
WHEREAS, the Company desires further to amend the Plan;
NOW, THEREFORE, the Company hereby amends the Plan in the respects
hereinafter set forth:
1. Effective as of September 16, 1999, Section 9.04 of the Plan is
amended by adding a new subsection (w) at the end thereof to provide as follows:
(w) In determining Years of Eligibility Service for an Employee who
was an employee of Advanced Information Resources, LTD. ("AIR")
immediately prior to September 16, 1999, and became an Employee on
September 16, 1999, the Employee's period or periods of employment
with AIR prior to September 16, 1999 that would have been taken
into account under the Plan if such period or periods of
employment were service with a member of the Controlled Group,
shall be counted as Years of Eligibility Service. Notwithstanding
any other provision of the Plan, there shall be no duplication of
Years of Eligibility Service under the Plan by reason of service
(or hours of service) in respect of any single period or
otherwise.
2. Effective as of October 25, 1999, Section 9.04 of the Plan is
amended by adding a new subsection (x) at the end thereof to provide as
follows:
(x) In determining Years of Eligibility Service for an Employee who
was an employee of ACE USA Software Sciences ("ACE") immediately
prior to October 25, 1999, and became an Employee on October 25,
1999, the Employee's period or periods of employment with ACE
prior to October 25, 1999 that would have been taken into account
under the Plan if such period or periods of employment were
service with a member of the Controlled Group, shall be counted as
Years of Eligibility Service. Notwithstanding any other provision
of the Plan, there shall be no duplication of Years of Eligibility
Service under the Plan by reason of service (or hours of service)
in respect of any single period or otherwise.
100
<PAGE>
3. Effective as of November 11, 1999, Section 9.04 of the Plan is
amended by adding a new subsection (y) at the end thereof to provide as follows:
(y) In determining Years of Eligibility Service for an Employee who
was an employee of ACE USA Software Sciences ("ACE") immediately
prior to November 11, 1999, and became an Employee on November 11,
1999, the Employee's period or periods of employment with ACE
prior to November 11, 1999 that would have been taken into account
under the Plan if such period or periods of employment were
service with a member of the Controlled Group, shall be counted as
Years of Eligibility Service. Notwithstanding any other provision
of the Plan, there shall be no duplication of Years of Eligibility
Service under the Plan by reason of service (or hours of service)
in respect of any single period or otherwise.
4. Effective as of January 1, 2000, Section 9.04 of the Plan is
amended by adding a new subsection (z) at the end thereof to provide as follows:
(z) In determining Years of Eligibility Service for an Employee who
was an employee of Southern Data Systems, Inc. ("SDS") immediately
prior to October 1, 1999, and became an Employee on October 1,
1999, and who was an Employee on January 1, 2000, the Employee's
period or periods of employment with SDS prior to October 1, 1999
that would have been taken into account under the Plan if such
period or periods of employment were service with a member of the
Controlled Group, shall be counted as Years of Eligibility
Service. Notwithstanding any other provision of the Plan, there
shall be no duplication of Years of Eligibility Service under the
Plan by reason of service (or hours of service) in respect of any
single period or otherwise.
5. Effective as of January 1, 2000, Section 9.04 of the Plan is amended
by adding a new subsection (aa) at the end thereof to provide as follows:
(aa) In determining Years of Eligibility Service for an Employee who
was an employee of WestGroup Management Resources, Inc.
("WestGroup") immediately prior to December 20, 1999, and became
an Employee on December 20, 1999, and who was an Employee on
January 1, 2000, the Employee's period or periods of employment
with WestGroup prior to December 20, 1999 that would have been
taken into account under the Plan if such period or periods of
employment were service with a member of the Controlled Group,
shall be counted as Years of Eligibility Service. Notwithstanding
any other provision of the Plan, there shall be no duplication of
2
101
<PAGE>
Years of Eligibility Service under the Plan by reason of service
(or hours of service) in respect of any single period or
otherwise.
6. Effective as of September 16, 1999, Section 13.11 of the Plan is
amended by adding a new subsection (cc) at the end of thereof to provide as
follows:
(cc) Each person who
(i) was an active employee of Advanced Information Resources, LTD.
and became an Employee on September 16, 1999;
(ii) met the eligibility requirements to become a Participant as
provided in subsection (b) of Section 10.01 on or before the
last day of the 1999 Plan Year; and
(iii) is not otherwise eligible for an allocation of the Employer
Qualified Nonelective Contribution for the 1999 Plan Year under
Section 13.04;
shall receive an allocation of the Employer Qualified Nonelective
Contribution for the 1999 Plan Year, as provided in this subsection
(cc) if the Participant is credited with at least such number of Hours
of Service as the number determined by multiplying 1,000 by a fraction
the numerator of which is the number of days of employment with the
Controlled Group completed by the Participant in the 1999 Plan Year and
the denominator of which is three hundred sixty-five (365). Such a
Participant shall receive an allocation of the Employer Qualified
Nonelective Contribution as provided in Section 13.04, but without
regard to the requirement that a Participant have a Year of
Participation.
7. Effective as of October 25, 1999, Section 13.11 of the Plan is
amended by adding a new subsection (dd) at the end of thereof to provide as
follows:
(dd) Each person who
(i) was an active employee of ACE USA Software Sciences and became an
Employee on October 25, 1999;
(ii) met the eligibility requirements to become a Participant as
provided in subsection (b) of Section 10.01 on or before the last
day of the 1999 Plan Year; and
(iii) is not otherwise eligible for an allocation of the Employer
Qualified Nonelective Contribution for the 1999 Plan Year under
Section 13.04;
3
102
<PAGE>
shall receive an allocation of the Employer Qualified Nonelective
Contribution for the 1999 Plan Year, as provided in this subsection
(dd) if the Participant is credited with at least such number of Hours
of Service as the number determined by multiplying 1,000 by a fraction
the numerator of which is the number of days of employment with the
Controlled Group completed by the Participant in the 1999 Plan Year and
the denominator of which is three hundred sixty-five (365). Such a
Participant shall receive an allocation of the Employer Qualified
Nonelective Contribution as provided in Section 13.04, but without
regard to the requirement that a Participant have a Year of
Participation.
8. Effective as of November 11, 1999, Section 13.11 of the Plan is
amended by adding a new subsection (ee) at the end of thereof to provide as
follows:
(ee) Each person who
(i) was an active employee of ACE USA Software Sciences and became an
Employee on November 11, 1999;
(ii) met the eligibility requirements to become a Participant as
provided in subsection (b) of Section 10.01 on or before the last
day of the 1999 Plan Year; and
(iii) is not otherwise eligible for an allocation of the Employer
Qualified Nonelective Contribution for the 1999 Plan Year under
Section 13.04;
shall receive an allocation of the Employer Qualified Nonelective
Contribution for the 1999 Plan Year, as provided in this subsection
(ee) if the Participant is credited with at least such number of Hours
of Service as the number determined by multiplying 1,000 by a fraction
the numerator of which is the number of days of employment with the
Controlled Group completed by the Participant in the 1999 Plan Year and
the denominator of which is three hundred sixty-five (365). Such a
Participant shall receive an allocation of the Employer Qualified
Nonelective Contribution as provided in Section 13.04, but without
regard to the requirement that a Participant have a Year of
Participation.
9. Effective as of December 1, 1999, Section 13.11 of the Plan is
amended by adding a new subsection (ff) at the end of thereof to provide as
follows:
(ff) Each person who
4
103
<PAGE>
(i) was an active employee of BancWest Corporation of Honolulu,
Hawaii and became an Employee on December 1, 1999;
(ii) met the eligibility requirements to become a Participant as
provided in subsection (b) of Section 10.01 on or before the last
day of the 1999 Plan Year; and
(iii) is not otherwise eligible for an allocation of the Employer
Qualified Nonelective Contribution for the 1999 Plan Year under
Section 13.04;
shall receive an allocation of the Employer Qualified Nonelective
Contribution for the 1999 Plan Year, as provided in this subsection
(ff) if the Participant is credited with at least such number of Hours
of Service as the number determined by multiplying 1,000 by a fraction
the numerator of which is the number of days of employment with the
Controlled Group completed by the Participant in the 1999 Plan Year and
the denominator of which is three hundred sixty-five (365). Such a
Participant shall receive an allocation of the Employer Qualified
Nonelective Contribution as provided in Section 13.04, but without
regard to the requirement that a Participant have a Year of
Participation.
IN WITNESS WHEREOF, the Company, by its duly authorized officer, has
caused this Amendment to be executed on this 29 day of December, 1999.
ALLTEL CORPORATION
By: /s/Joe T. Ford
---------------------------------------
Title:
5
104
<PAGE>
AMENDMENT NO. 16
TO
ALLTEL CORPORATION THRIFT PLAN
(January 1, 1994 Restatement)
WHEREAS, ALLTEL Corporation (the "Company") maintains the ALLTEL
Corporation Thrift Plan, as amended and restated effective January 1, 1994, and
subsequently further amended, (the "Plan"); and
WHEREAS, the Company desires further to amend the Plan;
NOW, THEREFORE, the Company hereby amends the Plan in the respects
hereinafter set forth:
1. Effective with respect to periods beginning on and after January 1,
2000, Section 1.11 is amended by adding at the end thereof the following:
Notwithstanding the foregoing provisions of this Section 1.11, an
Employee who is to be permitted to participate in the Plan pursuant to
that certain Agreement between ALLTEL Corporation and International
Brotherhood of Electrical Workers and Communications Workers of America
(the "Agreement") shall become an Eligible Employee effective January
1, 2000, or as soon thereafter as practicable, as determined by the
Company, and shall not be excluded from the definition of Eligible
Employee by paragraph (1) of this Section 1.11 for periods with respect
to which the Agreement so provides.
2. Effective with respect to periods beginning on and after January 1,
2000, Article XIII is amended by adding a new Section 13.12 at the end thereof
to provide as follows:
13.12 Overriding Provisions Regarding Collective Bargaining
-----------------------------------------------------
Agreements.
-----------
Notwithstanding any other provision of this Article XIII or
any other provision of Plan to the contrary, an Employee who
is covered by a collective bargaining agreement between an
Employer and a representative of such Employee shall not
receive any allocation(s) of Employer Qualified Nonelective
Contribution(s), Basic Employer Matching Contribution(s),
Additional Employer Matching Contribution(s), or any other
Employer Contribution(s) (to the extent the Plan provides any
other Employer Contribution(s)), except to the extent (if any)
105
<PAGE>
specifically provided for in such collective bargaining
agreement.
IN WITNESS WHEREOF, the Company, by its duly authorized officer, has
caused this Amendment to be executed on this 29 day of December, 1999.
ALLTEL CORPORATION
By: /s/Joe T. Ford
-------------------------------------
Title:
-2-
106
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM THE COMPANY'S ANNUAL
REPORT TO STOCKHOLDERS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<CIK> 0000065873
<NAME> ALLTEL CORPORATION
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 17,595
<SECURITIES> 0
<RECEIVABLES> 922,159
<ALLOWANCES> 35,017
<INVENTORY> 148,292
<CURRENT-ASSETS> 1,167,179
<PP&E> 10,291,007
<DEPRECIATION> 4,556,462
<TOTAL-ASSETS> 10,774,203
<CURRENT-LIABILITIES> 1,193,967
<BONDS> 3,750,413
1,491
562
<COMMON> 314,258
<OTHER-SE> 3,890,917
<TOTAL-LIABILITY-AND-EQUITY> 10,774,203
<SALES> 622,122
<TOTAL-REVENUES> 6,302,271
<CGS> 598,796
<TOTAL-COSTS> 4,777,164
<OTHER-EXPENSES> 90,520
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 280,175
<INCOME-PRETAX> 1,330,852
<INCOME-TAX> 547,218
<INCOME-CONTINUING> 783,634
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 783,634
<EPS-BASIC> 2.50
<EPS-DILUTED> 2.47
</TABLE>
