AT Atlantic Power Corporation

Alltel (NYSE: AT) achieved solid results in the second quarter, driven by wireless growth and profitability. Fully diluted earnings per share under Generally Accepted Accounting Principles (GAAP) was $1.27, including gains from the sale of Fidelity National Financial Inc. stock owned by Alltel and the exchange of partnership interests in connection with the acquisition of wireless properties from Cingular. The gains were offset partially by debt prepayment costs associated with the early retirement of a $450 million bond. Fully diluted earnings per share from current businesses was 90 cents, a 6 percent increase compared with a year ago. Among the highlights for the second quarter: -- Total revenues were $2.3 billion, an 11 percent increase from a year ago. Net income under GAAP was $402 million, a 53 percent increase. Net income from current businesses was $284 million, an 8 percent increase from a year ago. -- Wireless revenue was $1.5 billion, a 16 percent increase from a year ago. Segment income was $307 million, a 17 percent increase. -- Average revenue per wireless customer was $50.55, a 6 percent increase year-over-year and the highest ARPU in 5 years, driven by improvements in data revenue and quality customer growth. Post-pay churn was 1.58 percent, which was flat year-over-year. -- Wireline revenue was $595 million, down 2 percent from the previous year. Segment income was $215 million, an 8 percent decline. The company added 36,000 broadband customers, bringing its total broadband customer base to 319,000. Average revenue per wireline customer was $66.83, a 1 percent increase. -- Equity free cash flow from current businesses was $260 million. Net cash provided from operations was $465 million. "Alltel's wireless business delivered another strong performance, demonstrated by our industry-leading ARPU growth," said Scott Ford, Alltel president and CEO. "We are very pleased with the way our business has performed over the first half of the year and excited about the prospects for continued growth with the completion of the Western Wireless merger." Alltel is a customer-focused communications company with more than 15 million customers in 36 states and nearly $10 billion in annual revenues. Alltel claims the protection of the safe-harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to uncertainties that could cause actual future events and results to differ materially from those expressed in the forward-looking statements. These forward-looking statements are based on estimates, projections, beliefs, and assumptions and are not guarantees of future events and results. Actual future events and results may differ materially from those expressed in these forward-looking statements as a result of a number of important factors. Representative examples of these factors include (without limitation) adverse changes in economic conditions in the markets served by Alltel; the extent, timing, and overall effects of competition in the communications business; material changes in the communications industry generally that could adversely affect vendor relationships with equipment and network suppliers and customer relationships with wholesale customers; changes in communications technology; the risks associated with pending acquisitions and dispositions and the integration of acquired businesses, including the integration of Western Wireless and the disposition of the Irish assets; the uncertainties related to any discussions or negotiations regarding the sale of any of the international assets, including the Austrian business; adverse changes in the terms and conditions of the wireless roaming agreements of Alltel; the uncertainties related to Alltel's strategic investments; the effects of litigation; and the effects of federal and state legislation, rules, and regulations governing the communications industry. In addition to these factors, actual future performance, outcomes, and results may differ materially because of more general factors including (without limitation) general industry and market conditions and growth rates, economic conditions, and governmental and public policy changes. Alltel, NYSE: AT www.alltel.com -0- *T ALLTEL CORPORATION CONSOLIDATED HIGHLIGHTS BUSINESS SEGMENTS AND OTHER CONSOLIDATED FINANCIAL INFORMATION (In thousands, except per share amounts) THREE MONTHS ENDED ------------------ Increase June 30, June 30, (Decrease) 2005 2004 Amount % ---- ---- ------ - UNDER GAAP: Revenues and sales: Wireless $1,455,312 $1,253,082 $202,230 16 Wireline 595,071 609,632 (14,561) (2) Communications support services 261,230 229,179 32,051 14 Total business segments 2,311,613 2,091,893 219,720 11 Less intercompany eliminations 51,507 49,829 1,678 3 Total revenues and sales $2,260,106 $2,042,064 $218,042 11 Segment income: Wireless $ 306,925 $ 261,615 $ 45,310 17 Wireline 215,296 234,357 (19,061) (8) Communications support services 11,572 20,896 (9,324) (45) Total segment income 533,793 516,868 16,925 3 Less: corporate expenses (A) 11,553 9,058 2,495 28 restructuring and other charges - - - - Total operating income $ 522,240 $ 507,810 $ 14,430 3 Operating margin (B): Wireless 21.1% 20.9% .2% 1 Wireline 36.2% 38.4% (2.2%) (6) Communications support services 4.4% 9.1% (4.7%) (52) Consolidated 23.1% 24.9% (1.8%) (7) Net income $ 402,061 $ 262,528 $139,533 53 Earnings per share: Basic $1.28 $.85 $.43 51 Diluted $1.27 $.85 $.42 49 Weighted average common shares: Basic 314,475 308,188 6,287 2 Diluted 315,837 309,082 6,755 2 Annual dividend rate per common share $1.52 $1.48 $.04 3 FROM CURRENT BUSINESSES (NON-GAAP) (C): Operating income $ 522,240 $ 507,810 $ 14,430 3 Operating margin (B) 23.1% 24.9% (1.8%) (7) Net income $ 284,022 $ 262,528 $ 21,494 8 Earnings per share: Basic $.90 $.85 $.05 6 Diluted $.90 $.85 $.05 6 (A) Corporate expenses for the six months ended June 30, 2005 primarily includes $19.8 million related to the effects of a change in accounting for operating leases with scheduled rent increases. (B) Operating margin is calculated by dividing segment income by the corresponding amount of segment revenues and sales. (C) Current businesses excludes the effects of a special cash dividend received on the Company's investment in Fidelity National Financial, Inc. common stock, gain on the exchange or disposal of assets, debt prepayment costs, a change in accounting for operating leases and restructuring and other charges. ALLTEL CORPORATION CONSOLIDATED STATEMENTS OF INCOME UNDER GAAP-Page 2 (In thousands, except per share amounts) THREE MONTHS ENDED ------------------ June 30, June 30, 2005 2004 ---- ---- Revenues and sales: Service revenues $1,989,264 $1,825,894 Product sales 270,842 216,170 Total revenues and sales 2,260,106 2,042,064 Costs and expenses: Cost of services 660,945 584,189 Cost of products sold 308,065 256,055 Selling, general, administrative and other 420,536 372,859 Depreciation and amortization 348,320 321,151 Restructuring and other charges - - Total costs and expenses 1,737,866 1,534,254 Operating income 522,240 507,810 Equity earnings in unconsolidated partnerships 15,214 15,926 Minority interest in consolidated partnerships (18,918) (21,651) Other income, net 7,976 2,875 Interest expense (76,343) (86,543) Gain on exchange or disposal of assets and other 188,273 - Income before income taxes 638,442 418,417 Income taxes 236,381 155,889 Net income 402,061 262,528 Preferred dividends 24 26 Net income applicable to common shares $ 402,037 $ 262,502 Earnings per share: Basic $1.28 $.85 Diluted $1.27 $.85 ALLTEL CORPORATION CONSOLIDATED HIGHLIGHTS BUSINESS SEGMENTS AND OTHER CONSOLIDATED FINANCIAL INFORMATION (In thousands, except per share amounts) SIX MONTHS ENDED ---------------- Increase June 30, June 30, (Decrease) 2005 2004 Amount % ---- ---- ------ - UNDER GAAP: Revenues and sales: Wireless $2,807,321 $2,437,568 $369,753 15 Wireline 1,188,703 1,209,098 (20,395) (2) Communications support services 485,935 448,229 37,706 8 Total business segments 4,481,959 4,094,895 387,064 9 Less intercompany eliminations 95,870 91,659 4,211 5 Total revenues and sales $4,386,089 $4,003,236 $382,853 10 Segment income: Wireless $ 578,480 $ 472,538 $105,942 22 Wireline 429,797 462,543 (32,746) (7) Communications support services 23,474 37,343 (13,869) (37) Total segment income 1,031,751 972,424 59,327 6 Less: corporate expenses (A) 40,243 18,031 22,212 123 restructuring and other charges - 51,765 (51,765) (100) Total operating income $ 991,508 $ 902,628 $ 88,880 10 Operating margin (B): Wireless 20.6% 19.4% 1.2% 6 Wireline 36.2% 38.3% (2.1%) (5) Communications support services 4.8% 8.3% (3.5%) (42) Consolidated 22.6% 22.5% .1% - Net income $ 715,065 $ 452,371 $262,694 58 Earnings per share: Basic $2.32 $1.46 $.86 59 Diluted $2.31 $1.46 $.85 58 Weighted average common shares: Basic 308,317 309,750 (1,433) - Diluted 309,653 310,683 (1,030) - FROM CURRENT BUSINESSES (NON-GAAP) (C): Operating income $1,011,299 $ 954,393 $ 56,906 6 Operating margin (B) 23.1% 23.8% (.7%) (3) Net income $ 539,306 $ 484,027 $ 55,279 11 Earnings per share: Basic $1.75 $1.56 $.19 12 Diluted $1.74 $1.56 $.18 12 (A) Corporate expenses for the six months ended June 30, 2005 primarily includes $19.8 million related to the effects of a change in accounting for operating leases with scheduled rent increases. (B) Operating margin is calculated by dividing segment income by the corresponding amount of segment revenues and sales. (C) Current businesses excludes the effects of a special cash dividend received on the Company's investment in Fidelity National Financial, Inc. common stock, gain on the exchange or disposal of assets, debt prepayment costs, a change in accounting for operating leases and restructuring and other charges. ALLTEL CORPORATION CONSOLIDATED STATEMENTS OF INCOME UNDER GAAP-Page 2 (In thousands, except per share amounts) SIX MONTHS ENDED ---------------- June 30, June 30, 2005 2004 ---- ---- Revenues and sales: Service revenues $3,887,526 $3,591,472 Product sales 498,563 411,764 Total revenues and sales 4,386,089 4,003,236 Costs and expenses: Cost of services 1,287,205 1,144,960 Cost of products sold 589,838 513,338 Selling, general, administrative and other 828,001 748,052 Depreciation and amortization 689,537 642,493 Restructuring and other charges - 51,765 Total costs and expenses 3,394,581 3,100,608 Operating income 991,508 902,628 Equity earnings in unconsolidated partnerships 25,957 29,178 Minority interest in consolidated partnerships (37,265) (37,222) Other income, net 128,711 7,488 Interest expense (163,032) (178,279) Gain on exchange or disposal of assets and other 188,273 - Income before income taxes 1,134,152 723,793 Income taxes 419,087 271,422 Net income 715,065 452,371 Preferred dividends 48 53 Net income applicable to common shares $ 715,017 $ 452,318 Earnings per share: Basic $2.32 $1.46 Diluted $2.31 $1.46 ALLTEL CORPORATION RECONCILIATION OF RESULTS OF OPERATIONS UNDER GAAP TO RESULTS OF OPERATIONS FROM CURRENT BUSINESSES (NON-GAAP)-Page 3 for the three months ended June 30, 2005 (In thousands, except per share amounts) Items Results of Results Excluded from Operations of Operations Current from Current Under GAAP Businesses Businesses ---------- ---------- ---------- Revenues and sales: Service revenues $1,989,264 $ - $1,989,264 Product sales 270,842 - 270,842 Total revenues and sales 2,260,106 - 2,260,106 Costs and expenses: Cost of services 660,945 - 660,945 Cost of products sold 308,065 - 308,065 Selling, general, administrative and other 420,536 - 420,536 Depreciation and amortization 348,320 - 348,320 Restructuring and other charges - - - Total costs and expenses 1,737,866 - 1,737,866 Operating income 522,240 - 522,240 Equity earnings in unconsolidated partnerships 15,214 - 15,214 Minority interest in consolidated partnerships (18,918) - (18,918) Other income, net 7,976 - 7,976 Interest expense (76,343) - (76,343) Gain on exchange or disposal of assets and other 188,273 (188,273) (A) - Income before income taxes 638,442 (188,273) 450,169 Income taxes 236,381 (70,234) (E) 166,147 Net income 402,061 (118,039) 284,022 Preferred dividends 24 - 24 Net income applicable to common shares $ 402,037 $(118,039) $ 283,998 Earnings per share: Basic $1.28 $(.38) $.90 Diluted $1.27 $(.37) $.90 See notes on page 7 for a description of the line items marked (A) - (E). ALLTEL CORPORATION RECONCILIATION OF RESULTS OF OPERATIONS UNDER GAAP TO RESULTS OF OPERATIONS FROM CURRENT BUSINESSES (NON-GAAP)-Page 3 for the three months ended June 30, 2005 (In thousands, except per share amounts) Segment Information Corporate ------------------------------------ Operations Communications and Support Intercompany Wireless Wireline Services Eliminations -------- -------- -------- ------------ Revenues and sales: Service revenues $1,371,089 $584,016 $ 77,772 $(43,613) Product sales 84,223 11,055 183,458 (7,894) Total revenues and sales 1,455,312 595,071 261,230 (51,507) Costs and expenses: Cost of services 453,806 182,667 62,776 (38,304) Cost of products sold 150,278 9,001 161,399 (12,613) Selling, general, administrative and other 331,743 62,662 16,982 9,149 Depreciation and amortization 212,560 125,445 8,501 1,814 Restructuring and other charges - - - - Total costs and expenses 1,148,387 379,775 249,658 (39,954) Operating income $ 306,925 $215,296 $ 11,572 $(11,553) ALLTEL CORPORATION RECONCILIATION OF RESULTS OF OPERATIONS UNDER GAAP TO RESULTS OF OPERATIONS FROM CURRENT BUSINESSES (NON-GAAP)-Page 4 for the three months ended June 30, 2004 (In thousands, except per share amounts) Items Results of Results Excluded from Operations of Operations Current from Current Under GAAP Businesses Businesses ---------- ---------- ---------- Revenues and sales: Service revenues $1,825,894 $ - $1,825,894 Product sales 216,170 - 216,170 Total revenues and sales 2,042,064 - 2,042,064 Costs and expenses: Cost of services 584,189 - 584,189 Cost of products sold 256,055 - 256,055 Selling, general, administrative and other 372,859 - 372,859 Depreciation and amortization 321,151 - 321,151 Restructuring and other charges - - - Total costs and expenses 1,534,254 - 1,534,254 Operating income 507,810 - 507,810 Equity earnings in unconsolidated partnerships 15,926 - 15,926 Minority interest in consolidated partnerships (21,651) - (21,651) Other income, net 2,875 - 2,875 Interest expense (86,543) - (86,543) Gain on exchange or disposal of assets and other - - - Income before income taxes 418,417 - 418,417 Income taxes 155,889 - 155,889 Net income 262,528 - 262,528 Preferred dividends 26 - 26 Net income applicable to common shares $ 262,502 $ - $ 262,502 Earnings per share: Basic $.85 $ - $.85 Diluted $.85 $ - $.85 See notes on page 7 for a description of the line items marked (A) - (E). ALLTEL CORPORATION RECONCILIATION OF RESULTS OF OPERATIONS UNDER GAAP TO RESULTS OF OPERATIONS FROM CURRENT BUSINESSES (NON-GAAP)-Page 4 for the three months ended June 30, 2004 (In thousands, except per share amounts) Segment Information Corporate ------------------------------------ Operations Communications and Support Intercompany Wireless Wireline Services Eliminations -------- -------- -------- ------------ Revenues and sales: Service revenues $1,183,549 $599,567 $ 84,583 $(41,805) Product sales 69,533 10,065 144,596 (8,024) Total revenues and sales 1,253,082 609,632 229,179 (49,829) Costs and expenses: Cost of services 382,060 178,599 58,679 (35,149) Cost of products sold 135,048 7,158 127,799 (13,950) Selling, general, administrative and other 293,009 60,908 13,050 5,892 Depreciation and amortization 181,350 128,610 8,755 2,436 Restructuring and other charges - - - - Total costs and expenses 991,467 375,275 208,283 (40,771) Operating income $ 261,615 $234,357 $ 20,896 $ (9,058) ALLTEL CORPORATION RECONCILIATION OF RESULTS OF OPERATIONS UNDER GAAP TO RESULTS OF OPERATIONS FROM CURRENT BUSINESSES (NON-GAAP)-Page 5 for the six months ended June 30, 2005 (In thousands, except per share amounts) Items Results of Results Excluded from Operations of Operations Current from Current Under GAAP Businesses Businesses ---------- ---------- ---------- Revenues and sales: Service revenues $3,887,526 $ - $3,887,526 Product sales 498,563 - 498,563 Total revenues and sales 4,386,089 - 4,386,089 Costs and expenses: Cost of services 1,287,205 (19,791) (B) 1,267,414 Cost of products sold 589,838 - 589,838 Selling, general, administrative and other 828,001 - 828,001 Depreciation and amortization 689,537 - 689,537 Restructuring and other charges - - - Total costs and expenses 3,394,581 (19,791) 3,374,790 Operating income 991,508 19,791 1,011,299 Equity earnings in unconsolidated partnerships 25,957 - 25,957 Minority interest in consolidated partnerships (37,265) - (37,265) Other income, net 128,711 (111,036) (C) 17,675 Interest expense (163,032) - (163,032) Gain on exchange or disposal of assets and other 188,273 (188,273) (A) - Income before income taxes 1,134,152 (279,518) 854,634 Income taxes 419,087 (103,759) (E) 315,328 Net income 715,065 (175,759) 539,306 Preferred dividends 48 - 48 Net income applicable to common shares $ 715,017 $(175,759) $ 539,258 Earnings per share: Basic $2.32 $(.57) $1.75 Diluted $2.31 $(.57) $1.74 See notes on page 7 for a description of the line items marked (A) - (E). ALLTEL CORPORATION RECONCILIATION OF RESULTS OF OPERATIONS UNDER GAAP TO RESULTS OF OPERATIONS FROM CURRENT BUSINESSES (NON-GAAP)-Page 5 for the six months ended June 30, 2005 (In thousands, except per share amounts) Segment Information Corporate ------------------------------------ Operations Communications and Support Intercompany Wireless Wireline Services Eliminations -------- -------- -------- ------------ Revenues and sales: Service revenues $2,645,466 $1,167,831 $155,614 $(81,385) Product sales 161,855 20,872 330,321 (14,485) Total revenues and sales 2,807,321 1,188,703 485,935 (95,870) Costs and expenses: Cost of services 859,479 363,691 119,119 (74,875) Cost of products sold 299,084 15,999 294,459 (19,704) Selling, general, administrative and other 654,220 126,468 31,910 15,403 Depreciation and amortization 416,058 252,748 16,973 3,758 Restructuring and other charges - - - - Total costs and expenses 2,228,841 758,906 462,461 (75,418) Operating income $ 578,480 $ 429,797 $ 23,474 $(20,452) ALLTEL CORPORATION RECONCILIATION OF RESULTS OF OPERATIONS UNDER GAAP TO RESULTS OF OPERATIONS FROM CURRENT BUSINESSES (NON-GAAP)-Page 6 for the six months ended June 30, 2004 (In thousands, except per share amounts) Items Results of Results Excluded from Operations of Operations Current from Current Under GAAP Businesses Businesses ---------- ---------- ---------- Revenues and sales: Service revenues $3,591,472 $ - $3,591,472 Product sales 411,764 - 411,764 Total revenues and sales 4,003,236 - 4,003,236 Costs and expenses: Cost of services 1,144,960 - 1,144,960 Cost of products sold 513,338 - 513,338 Selling, general, administrative and other 748,052 - 748,052 Depreciation and amortization 642,493 - 642,493 Restructuring and other charges 51,765 (51,765) (D) - Total costs and expenses 3,100,608 (51,765) 3,048,843 Operating income 902,628 51,765 954,393 Equity earnings in unconsolidated partnerships 29,178 - 29,178 Minority interest in consolidated partnerships (37,222) - (37,222) Other income, net 7,488 - 7,488 Interest expense (178,279) - (178,279) Gain on exchange or disposal of assets and other - - - Income before income taxes 723,793 51,765 775,558 Income taxes 271,422 20,109 (E) 291,531 Net income 452,371 31,656 484,027 Preferred dividends 53 - 53 Net income applicable to common shares $ 452,318 $ 31,656 $ 483,974 Earnings per share: Basic $1.46 $.10 $1.56 Diluted $1.46 $.10 $1.56 See notes on page 7 for a description of the line items marked (A) - (E). ALLTEL CORPORATION RECONCILIATION OF RESULTS OF OPERATIONS UNDER GAAP TO RESULTS OF OPERATIONS FROM CURRENT BUSINESSES (NON-GAAP)-Page 6 for the six months ended June 30, 2004 (In thousands, except per share amounts) Segment Information Corporate ------------------------------------ Operations Communications and Support Intercompany Wireless Wireline Services Eliminations -------- -------- -------- ------------ Revenues and sales: Service revenues $2,299,053 $1,191,100 $178,338 $(77,019) Product sales 138,515 17,998 269,891 (14,640) Total revenues and sales 2,437,568 1,209,098 448,229 (91,659) Costs and expenses: Cost of services 737,802 351,470 124,638 (68,950) Cost of products sold 279,598 12,313 242,667 (21,240) Selling, general, administrative and other 588,751 121,828 26,280 11,193 Depreciation and amortization 358,879 260,944 17,301 5,369 Restructuring and other charges - - - - Total costs and expenses 1,965,030 746,555 410,886 (73,628) Operating income $ 472,538 $ 462,543 $ 37,343 $(18,031) ALLTEL CORPORATION NOTES TO RECONCILIATIONS OF RESULTS OF OPERATIONS UNDER GAAP TO RESULTS OF OPERATIONS FROM CURRENT BUSINESSES (NON-GAAP)-Page 7 As disclosed in the ALLTEL Corporation ("Alltel" or the "Company") Form 8-K filed on August 4, 2005, Alltel has presented in this earnings release results of operations from current businesses which exclude the effects of a special cash dividend received on the Company's investment in Fidelity National Financial, Inc. ("Fidelity National") common stock, gain on exchange or disposal of assets, termination fees associated with the early retirement of long-term debt, a change in accounting for certain operating leases and restructuring and other charges. Alltel's purpose for excluding items from the current business measures is to focus on Alltel's true earnings capacity associated with providing telecommunication services. Management believes the items excluded from the current business measures are related to strategic activities or other events, specific to the time and opportunity available, and, accordingly, should be excluded when evaluating the trends of the Company's operations. Alltel believes that presenting the current business measures assists investors in assessing the true business performance of the Company by clarifying for investors the effects that certain items such as asset sales, restructuring expenses and other business consolidation costs arising from past acquisition and restructuring activities had on the Company's GAAP consolidated results of operations. The Company uses results from current businesses as management's primary measure of the performance of its business segments. Alltel management, including the chief operating decision-maker, uses the current business measures consistently for all purposes, including internal reporting purposes, the evaluation of business objectives, opportunities and performance and the determination of management compensation. As the Company evaluates segment performance based on segment income, which is computed as revenues and sales less operating expenses, the special cash dividend, gain on the exchange or disposal of assets, debt prepayment costs, the effects of the change in accounting for operating leases and restructuring and other charges have not been allocated to the business segments. In addition, none of the non-operating items such as equity earnings in unconsolidated partnerships, minority interest expense, other income, net, interest expense and income taxes have been allocated to the segments. (A) On April 15, 2005, Alltel and Cingular Wireless LLC completed the exchange of certain wireless assets. In connection with this transaction, Alltel recorded a pretax gain of $127.5 million. On April 6, 2005, Alltel recorded a pretax gain of $75.8 million from the sale of all of its shares of Fidelity National common stock. In addition, on April 8, 2005, Alltel retired all of its issued and outstanding 7.50 percent senior notes due March 1, 2006, representing an aggregate principal amount of $450.0 million. Concurrent with the debt retirement, Alltel also terminated the related pay variable/receive fixed, interest rate swap agreement that had been designated as a fair value hedge against the $450.0 million senior notes. In connection with the early termination of the debt and interest rate swap agreement, Alltel incurred net pretax termination fees of approximately $15.0 million. (B) Effective January 1, 2005, Alltel changed its accounting for operating leases with scheduled rent increases. Certain of the Company's operating lease agreements for cell sites and for office and retail locations include scheduled rent escalations during the initial lease term and/or during succeeding optional renewal periods. Previously, the Company had not recognized the scheduled increases in rent expense on a straight-line basis in accordance with the provisions of Statement of Financial Accounting Standards No. 13, "Accounting for Leases" and Financial Accounting Standards Board Technical Bulletin No. 85-3, "Accounting for Operating Leases with Scheduled Rent Increases". The effects of this change, which are included in corporate expenses, were not material to the Company's previously reported consolidated results of operations, financial position or cash flows. (C) On March 9, 2005, Fidelity National declared a special $10 per share cash dividend to Fidelity National stockholders. The special cash dividend was received by Alltel on March 28, 2005. (D) The Company announced its plans to reorganize its operating structure and exit its competitive local exchange carrier operations in the Jacksonville, Florida market. In connection with these activities, the Company recorded a restructuring charge of $29.3 million consisting of severance and employee benefit costs related to a planned workforce reduction, employee relocation costs, lease termination and other restructuring-related costs. The Company also recorded a $2.3 million reduction in the liabilities associated with various restructuring activities initiated prior to 2003. In addition, the Company recorded a write-down of $24.8 million in the carrying value of certain corporate and regional facilities to fair value in conjunction with the proposed leasing or sale of those facilities. (E) Tax-related effect of the items discussed in Notes A - D above. ALLTEL CORPORATION SUPPLEMENTAL OPERATING INFORMATION-Page 8 (Dollars in thousands, except per customer amounts) THREE MONTHS ENDED ------------------ Increase June 30, June 30, (Decrease) 2005 2004 Amount % ---- ---- ------ - Wireless: Controlled POPs 66,401,653 61,313,088 5,088,565 8 Customers 9,067,508 8,336,473 731,035 9 Penetration rate 13.7% 13.6% .1% 1 Average customers 9,040,259 8,255,983 784,276 9 Gross customer additions: Internal 593,045 650,149 (57,104) (9) Acquired 212,530 - 212,530 - Total 805,575 650,149 155,426 24 Net customer additions: Internal 53,693 155,307 (101,614) (65) Acquired 212,530 - 212,530 - Total 266,223 155,307 110,916 71 Customer acquisition costs: Cost of products sold $ 62,516 $ 77,345 $(14,829) (19) Selling and marketing expenses 198,938 177,939 20,999 12 Less product sales 51,046 51,787 (741) (1) Total $210,408 $203,497 $ 6,911 3 Cost to acquire a new customer (A) $355 $313 $42 13 Cash costs: Cost of services $453,806 $382,060 $ 71,746 19 Cost of products sold 150,278 135,048 15,230 11 Selling, general, administrative and other 331,743 293,009 38,734 13 Less product sales 84,223 69,533 14,690 21 Total 851,604 740,584 111,020 15 Less customer acquisition costs 210,408 203,497 6,911 3 Total $641,196 $537,087 $104,109 19 Cash cost per unit per month, excluding customer acquisition costs (B) $23.64 $21.68 $1.96 9 Revenues: Service revenues $1,371,089 $1,183,549 $187,540 16 Less wholesale revenues 112,227 91,673 20,554 22 Retail revenues $1,258,862 $1,091,876 $166,986 15 Average revenue per customer per month (C) $50.55 $47.79 $2.76 6 Retail revenue per customer per month (D) $46.42 $44.08 $2.34 5 Retail minutes of use per customer per month (E) 593 490 103 21 Postpay churn 1.58% 1.57% .01% 1 Total churn 1.99% 2.00% (.01%) (1) Service revenue operating margin (F) 22.4% 22.1% .3% 1 Capital expenditures (G) $283,166 $198,937 $84,229 42 (A) Cost to acquire a new customer is calculated by dividing the sum of the GAAP reported cost of products sold and sales and marketing expenses (included within "Selling, general, administrative and other") less product sales, as reported in the Consolidated Statements of Income, by the number of internal gross customer additions in the period. Customer acquisition costs exclude amounts related to the Company's customer retention efforts. (B) Cash cost per unit per month, excluding customer acquisition costs, is calculated by dividing the sum of the GAAP reported cost of services, cost of products sold, selling, general, administrative and other expenses less product sales, as reported in the Consolidated Statements of Income, less customer acquisition costs, by the number of average customers for the period. (C) Average revenue per customer per month is calculated by dividing wireless service revenues by average customers for the period. (D) Retail revenue per customer per month is calculated by dividing wireless retail revenues (service revenues less wholesale revenues) by average customers for the period. (E) Retail minutes of use per customer per month represents the average monthly minutes that Alltel's customers use on both the Company's network and while roaming on other carriers' networks. (F) Service revenue operating margin is calculated by dividing wireless segment income by wireless service revenues. (G) Includes capitalized software development costs. ALLTEL CORPORATION SUPPLEMENTAL OPERATING INFORMATION-Page 9 (Dollars in thousands, except per customer amounts) THREE MONTHS ENDED ------------------ Increase June 30, June 30, (Decrease) 2005 2004 Amount % ---- ---- ------ - Wireline: Customers 2,953,000 3,066,081 (113,081) (4) Average customers 2,967,986 3,079,609 (111,623) (4) Broadband customers 319,315 194,534 124,781 64 Net broadband additions 36,189 20,045 16,144 81 Average revenue per customer per month (H) $66.83 $65.99 $.84 1 Capital expenditures (G) $85,354 $77,748 $7,606 10 Communications support services: Long-distance customers 1,779,813 1,717,603 62,210 4 Capital expenditures (G) $3,376 $3,223 $153 5 Consolidated: Equity free cash flow (I) $260,277 $303,584 $(43,307) (14) Capital expenditures (G) $372,065 $280,095 $91,970 33 Total assets $17,914,892 $16,462,064 $1,452,828 9 (G) Includes capitalized software development costs. (H) Average revenue per customer per month is calculated by dividing total wireline revenues by average customers for the period. (I) Equity free cash flow is calculated as the sum of net income from current businesses plus depreciation and amortization less capital expenditures which includes capitalized software development costs as indicated in Note G. ALLTEL CORPORATION SUPPLEMENTAL OPERATING INFORMATION-Page 8 (Dollars in thousands, except per customer amounts) SIX MONTHS ENDED ---------------- Increase June 30, June 30, (Decrease) 2005 2004 Amount % ---- ---- ------ - Wireless: Average customers 8,869,945 8,171,753 698,192 9 Gross customer additions: Internal 1,262,749 1,387,534 (124,785) (9) Acquired 266,491 - 266,491 - Total 1,529,240 1,387,534 141,706 10 Net customer additions: Internal 174,530 313,048 (138,518) (44) Acquired 266,491 - 266,491 - Total 441,021 313,048 127,973 41 Customer acquisition costs: Cost of products sold $132,213 $164,137 $(31,924) (19) Selling and marketing expenses 383,930 363,812 20,118 6 Less product sales 100,905 104,109 (3,204) (3) Total $415,238 $423,840 $ (8,602) (2) Cost to acquire a new customer (A) $329 $305 $24 8 Cash costs: Cost of services $ 859,479 $ 737,802 $121,677 16 Cost of products sold 299,084 279,598 19,486 7 Selling, general administrative and other 654,220 588,751 65,469 11 Less product sales 161,855 138,515 23,340 17 Total 1,650,928 1,467,636 183,292 12 Less customer acquisition costs 415,238 423,840 (8,602) (2) Total $1,235,690 $1,043,796 $191,894 18 Cash cost per unit per month, excluding customer acquisition costs (B) $23.22 $21.29 $1.93 9 Revenues: Service revenues $2,645,466 $2,299,053 $346,413 15 Less wholesale revenues 203,293 174,342 28,951 17 Retail revenues $2,442,173 $2,124,711 $317,462 15 Average revenue per customer per month (C) $49.71 $46.89 $2.82 6 Retail revenue per customer per month (D) $45.89 $43.33 $2.56 6 Retail minutes of use per customer per month (E) 571 461 110 24 Postpay churn 1.65% 1.75% (.10%) (6) Total churn 2.05% 2.20% (.15%) (7) Service revenue operating margin (F) 21.9% 20.6% 1.3% 6 Capital expenditures (G) $473,742 $326,533 $147,209 45 (A) Cost to acquire a new customer is calculated by dividing the sum of the GAAP reported cost of products sold and sales and marketing expenses (included within "Selling, general, administrative and other") less product sales, as reported in the Consolidated Statements of Income, by the number of internal gross customer additions in the period. Customer acquisition costs exclude amounts related to the Company's customer retention efforts. (B) Cash cost per unit per month, excluding customer acquisition costs, is calculated by dividing the sum of the GAAP reported cost of services, cost of products sold, selling, general, administrative and other expenses less product sales, as reported in the Consolidated Statements of Income, less customer acquisition costs, by the number of average customers for the period. (C) Average revenue per customer per month is calculated by dividing wireless service revenues by average customers for the period. (D) Retail revenue per customer per month is calculated by dividing wireless retail revenues (service revenues less wholesale revenues) by average customers for the period. (E) Retail minutes of use per customer per month represents the average monthly minutes that Alltel's customers use on both the Company's network and while roaming on other carriers' networks. (F) Service revenue operating margin is calculated by dividing wireless segment income by wireless service revenues. (G) Includes capitalized software development costs. ALLTEL CORPORATION SUPPLEMENTAL OPERATING INFORMATION-Page 9 (Dollars in thousands, except per customer amounts) SIX MONTHS ENDED ---------------- Increase June 30, June 30, (Decrease) 2005 2004 Amount % ---- ---- ------ - Wireline: Average customers 2,981,080 3,085,391 (104,311) (3) Net broadband additions 75,990 41,506 34,484 83 Average revenue per customer per month (H) $66.46 $65.31 $1.15 2 Capital expenditures (G) $158,424 $155,109 $3,315 2 Communications support services: Capital expenditures (G) $5,619 $4,912 $707 14 Consolidated: Equity free cash flow (I) $590,816 $631,196 $(40,380) (6) Capital expenditures (G) $638,027 $495,324 $142,703 29 (G) Includes capitalized software development costs. (H) Average revenue per customer per month is calculated by dividing total wireline revenues by average customers for the period. (I) Equity free cash flow is calculated as the sum of net income from current businesses plus depreciation and amortization less capital expenditures which includes capitalized software development costs as indicated in Note G. ALLTEL CORPORATION CONSOLIDATED BALANCE SHEETS UNDER GAAP-Page 10 (In thousands) ASSETS June 30, December 31, 2005 2004 ---- ---- CURRENT ASSETS: Cash and short-term investments $ 2,027,662 $ 484,934 Accounts receivable (less allowance for doubtful accounts of $55,010 and $53,606, respectively) 928,967 912,665 Inventories 159,938 156,785 Prepaid expenses and other 89,153 62,383 Total current assets 3,205,720 1,616,767 Investments 207,119 804,861 Goodwill 5,151,945 4,875,718 Other intangibles 1,380,758 1,306,140 PROPERTY, PLANT AND EQUIPMENT: Land 280,448 278,084 Buildings and improvements 1,147,101 1,134,824 Wireline 6,824,900 6,735,748 Wireless 6,057,450 5,763,965 Information processing 1,099,127 1,048,446 Other 495,390 489,936 Under construction 492,460 385,283 Total property, plant and equipment 16,396,876 15,836,286 Less accumulated depreciation 8,853,510 8,288,195 Net property, plant and equipment 7,543,366 7,548,091 Other assets 425,984 452,159 TOTAL ASSETS $17,914,892 $16,603,736 ALLTEL CORPORATION CONSOLIDATED BALANCE SHEETS UNDER GAAP-Page 10 (In thousands) LIABILITIES AND SHAREHOLDERS' EQUITY June 30, December 31, 2005 2004 ---- ---- CURRENT LIABILITIES: Current maturities of long-term debt $ 222,832 $ 224,958 Accounts payable 422,379 448,161 Advance payments and customer deposits 219,444 219,338 Accrued taxes 286,251 158,197 Accrued dividends 124,620 105,922 Accrued interest 106,214 120,259 Other current liabilities 169,306 183,523 Total current liabilities 1,551,046 1,460,358 Long-term debt 4,953,949 5,352,422 Deferred income taxes 1,632,913 1,715,119 Other liabilities 922,015 947,172 SHAREHOLDERS' EQUITY: Preferred stock 305 307 Common stock 327,320 302,268 Additional paid-in capital 1,577,438 197,902 Unrealized holding gain on investments - 153,926 Foreign currency translation adjustment 482 482 Retained earnings 6,949,424 6,473,780 Total shareholders' equity 8,854,969 7,128,665 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $17,914,892 $16,603,736 ALLTEL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS UNDER GAAP-Page 11 (In thousands) THREE MONTHS ENDED ------------------ June 30, June 30, 2005 2004 ---- ---- Net Cash Provided from Operations: Net income $ 402,061 $ 262,528 Adjustments to reconcile net income to net cash provided from operations: Depreciation and amortization 348,320 321,151 Provision for doubtful accounts 49,744 46,168 Non-cash portion of gain on exchange or disposal of assets and other (202,185) - Non-cash portion of restructuring and other charges - - Increase in deferred income taxes 25,401 73,781 Other, net (2,443) 2,735 Changes in operating assets and liabilities, net of the effects of acquisitions and dispositions: Accounts receivable (122,360) (70,014) Inventories (10,956) 20,372 Accounts payable (48,905) (279) Other current liabilities 14,027 54,837 Other, net 12,239 (14,634) Net cash provided from operations 464,943 696,645 Cash Flows from Investing Activities: Additions to property, plant and equipment (356,277) (273,333) Additions to capitalized software development costs (15,788) (6,762) Additions to investments (129) (1,469) Purchases of property, net of cash acquired (171,897) - Proceeds from the sale of assets 36,162 - Proceeds from the sale of investments 350,769 - Proceeds from the return on investments 15,238 16,660 Other, net 82 1,622 Net cash used in investing activities (141,840) (263,282) Cash Flows from Financing Activities: Dividends on preferred and common stock (114,989) (115,811) Reductions in long-term debt (451,039) (251,456) Distributions to minority investors (14,266) (16,509) Preferred stock redemptions - (82) Long-term debt issued - - Repurchases of common stock - - Common stock issued 1,396,481 797 Net cash provided from (used in) financing activities 816,187 (383,061) Effect of exchange rate changes on cash and short-term investments - (316) Increase in cash and short-term investments 1,139,290 49,986 Cash and Short-term Investments: Beginning of the period 888,372 637,432 End of the period $2,027,662 $ 687,418 ALLTEL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS UNDER GAAP-Page 11 (In thousands) SIX MONTHS ENDED ---------------- June 30, June 30, 2005 2004 ---- ---- Net Cash Provided from Operations: Net income $ 715,065 $ 452,371 Adjustments to reconcile net income to net cash provided from operations: Depreciation and amortization 689,537 642,493 Provision for doubtful accounts 90,659 88,766 Non-cash portion of gain on exchange or disposal of assets and other (202,185) - Non-cash portion of restructuring and other charges - 25,569 Increase in deferred income taxes 6,281 145,924 Other, net 11,116 (159) Changes in operating assets and liabilities, net of the effects of acquisitions and dispositions: Accounts receivable (105,833) (65,539) Inventories (2,295) 25,802 Accounts payable (31,295) (75,310) Other current liabilities 100,617 39,873 Other, net (28,067) (31,612) Net cash provided from operations 1,243,600 1,248,178 Cash Flows from Investing Activities: Additions to property, plant and equipment (611,139) (480,538) Additions to capitalized software development costs (26,888) (14,786) Additions to investments (882) (2,526) Purchases of property, net of cash acquired (223,732) - Proceeds from the sale of assets 36,162 - Proceeds from the sale of investments 353,445 - Proceeds from the return on investments 20,388 36,946 Other, net 3,103 (4,231) Net cash used in investing activities (449,543) (465,135) Cash Flows from Financing Activities: Dividends on preferred and common stock (220,720) (231,300) Reductions in long-term debt (452,913) (252,950) Distributions to minority investors (27,009) (32,683) Preferred stock redemptions - (82) Long-term debt issued 50,000 - Repurchases of common stock - (243,033) Common stock issued 1,399,313 6,724 Net cash provided from (used in) financing activities 748,671 (753,324) Effect of exchange rate changes on cash and short-term investments - (65) Increase in cash and short-term investments 1,542,728 29,654 Cash and Short-term Investments: Beginning of the period 484,934 657,764 End of the period $2,027,662 $ 687,418 ALLTEL CORPORATION RECONCILIATIONS OF RESULTS OF OPERATIONS UNDER GAAP TO RESULTS OF OPERATIONS FROM CURRENT BUSINESSES (NON-GAAP)-Page 12 (In thousands) THREE MONTHS ENDED ------------------ June 30, June 30, 2005 2004 ---- ---- Net cash provided from operations $ 464,943 $ 696,645 Adjustments to reconcile to net income under GAAP: Depreciation and amortization expense (348,320) (321,151) Provision for doubtful accounts (49,744) (46,168) Non-cash portion of gain on exchange or disposal of assets and other 202,185 - Non-cash portion of restructuring and other charges - - Change in deferred income taxes (25,401) (73,781) Other non-cash changes, net 2,443 (2,735) Changes in operating assets and liabilities, net of the effects of acquisitions and dispositions 155,955 9,718 Net income under GAAP 402,061 262,528 Adjustments to reconcile to net income from current businesses: Restructuring and other charges, net of tax - - Gain on exchange or disposal of assets and other, net of tax (118,039) - Special dividend received on Fidelity National common stock, net of tax - - Change in accounting for operating leases, net of tax - - Net income from current businesses 284,022 262,528 Adjustments to reconcile to equity free cash flow from current businesses: Depreciation and amortization expense 348,320 321,151 Capital expenditures (372,065) (280,095) Equity free cash flow from current businesses $ 260,277 $ 303,584 ALLTEL CORPORATION RECONCILIATIONS OF RESULTS OF OPERATIONS UNDER GAAP TO RESULTS OF OPERATIONS FROM CURRENT BUSINESSES (NON-GAAP)-Page 12 (In thousands) SIX MONTHS ENDED ---------------- June 30, June 30, 2005 2004 ---- ---- Net cash provided from operations $1,243,600 $1,248,178 Adjustments to reconcile to net income under GAAP: Depreciation and amortization expense (689,537) (642,493) Provision for doubtful accounts (90,659) (88,766) Non-cash portion of gain on exchange or disposal of assets and other 202,185 - Non-cash portion of restructuring and other charges - (25,569) Change in deferred income taxes (6,281) (145,924) Other non-cash changes, net (11,116) 159 Changes in operating assets and liabilities, net of the effects of acquisitions and dispositions 66,873 106,786 Net income under GAAP 715,065 452,371 Adjustments to reconcile to net income from current businesses: Restructuring and other charges, net of tax - 31,656 Gain on exchange or disposal of assets and other, net of tax (118,039) - Special dividend received on Fidelity National common stock, net of tax (69,812) - Change in accounting for operating leases, net of tax 12,092 - Net income from current businesses 539,306 484,027 Adjustments to reconcile to equity free cash flow from current businesses: Depreciation and amortization expense 689,537 642,493 Capital expenditures (638,027) (495,324) Equity free cash flow from current businesses $ 590,816 $ 631,196 *T