Alltel (NYSE:AT) produced double-digit wireless revenue and segment
income growth in the second quarter on top of strong wireless
customer additions. Alltel reported fully diluted earnings per
share under Generally Accepted Accounting Principles (GAAP) of
$1.10, which includes several one-time items and wireless
intangible amortization. Excluding these items, fully diluted
earnings per share from current businesses was 93 cents. This is
the final quarter Alltel will report results for the wireline
business, which now is part of the operations of Little Rock-based
Windstream Corp. "Our company has completed the spinoff of our
wireline business and the sale of all of our international assets,
important steps in the transformation of Alltel," said Alltel
President and CEO Scott Ford. "Alltel's wireless growth in the
second quarter was driven by continuing efforts to expand market
share and focus on delivering superior customer satisfaction, which
is reflected in a new six-year low in churn. At the same time,
Alltel is pushing ahead with key financial goals, including a $3
billion stock repurchase and a $1 billion debt reduction plan."
Among the combined highlights for the second quarter: -- Total
revenues were $2.7 billion, an 18 percent increase from a year ago.
Net income under GAAP was $429 million, up 7 percent. Net income
from current businesses was $365 million, a 24 percent increase
from a year ago. -- Wireless revenue was $1.9 billion, a 28 percent
increase from a year ago. Service revenue was $1.7 billion, a 26
percent increase. Segment income was $392 million, a 22 percent
increase. -- Alltel added 146,000 net new wireless customers, which
includes 124,000 post-pay customers and 22,000 prepay customers. In
addition, the company added 112,000 net new customers through
acquisitions of First Cellular in Southern Illinois and Virginia
Cellular. Post-pay churn was 1.47 percent, a 7 percent improvement
from a year ago. -- Average revenue per wireless customer (ARPU)
was $52.54, a 4 percent increase. Data revenue per customer was
$3.26, a 61 percent increase, and now represents more than 6
percent of total ARPU. -- Wireline revenue was $581 million, down 2
percent from the previous year. Segment income was $235 million, up
9 percent from a year ago. The wireline business added 40,000 net
broadband customers. -- Equity free cash flow from current
businesses was $336 million, a 32 percent increase. Net cash
provided from operations was $431 million. This quarter the company
also is reporting pro-forma results for the new, all-wireless
Alltel. These pro-forma results present Alltel as if both the
spinoff of the wireline business and the acquisition of Western
Wireless had occurred on Jan. 1, 2005. The results include the
wireless business, the communications support services retained by
the company after the spinoff and the operations of Western
Wireless. On a pro-forma basis, revenues were $1.95 billion, up 9
percent, and operating income was $389 million, a 6 percent
increase. Alltel began the quarter by launching "My Circle," an
exclusive feature that gives customers the ability to select up to
10 numbers they can call for free. Customers on select rate plans
can choose any combination of wireless, home and office numbers
located anywhere in the U.S., regardless of local phone company or
wireless carrier. Also in the quarter, Alltel signed a 10-year,
voice and data roaming agreement with Sprint that became effective
July 1, expanding Alltel's high-speed data network nationwide. In
addition, Alltel extended for two years, through 2012, its roaming
agreement with Cingular Wireless. Alltel operates America's largest
wireless network, which delivers voice and advanced data services
nationwide to more than 11 million customers. Headquartered in
Little Rock, Arkansas, Alltel is a Forbes 500 company with annual
revenues of $8 billion. 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 the pending
acquisition of Midwest Wireless; the risks associated with the
integration of acquired businesses; adverse changes in the terms
and conditions of the wireless roaming agreements of Alltel; the
potential for adverse changes in the ratings given to Alltel's debt
securities by nationally accredited ratings organizations; 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) 2006 2005 Amount % ---- ---- ------ - UNDER
GAAP: Revenues and sales: Wireless $1,859,118 $1,455,312 $403,806
28 Wireline 580,933 595,071 (14,138) (2) Communications support
services 286,682 261,230 25,452 10 Total business segments
2,726,733 2,311,613 415,120 18 Less intercompany eliminations
53,062 51,507 1,555 3 Total revenues and sales $2,673,671
$2,260,106 $413,565 18 Segment income: Wireless $ 392,129 $ 321,619
$ 70,510 22 Wireline 235,379 215,296 20,083 9 Communications
support services 30,979 11,572 19,407 168 Total segment income
658,487 548,487 110,000 20 Less: corporate expenses (A) 54,649
26,247 28,402 108 integration expenses and other charges 11,987 -
11,987 - Total operating income $ 591,851 $ 522,240 $ 69,611 13
Operating margin (B): Wireless 21.1% 22.1% (1.0%) (5) Wireline
40.5% 36.2% 4.3% 12 Communications support services 10.8% 4.4% 6.4%
145 Consolidated 22.1% 23.1% (1.0%) (4) Net income $ 428,903 $
402,061 $ 26,842 7 Earnings per share: Basic $1.10 $1.28 $(.18)
(14) Diluted $1.10 $1.27 $(.17) (13) Weighted average common
shares: Basic 388,752 314,475 74,277 24 Diluted 390,463 315,837
74,626 24 FROM CURRENT BUSINESSES (NON-GAAP) (C): Operating income
$ 648,579 $ 536,934 $111,645 21 Operating margin (B) 24.3% 23.8%
.5% 2 Net income $ 364,773 $ 293,102 $ 71,671 24 Earnings per
share: Basic $.94 $.93 $.01 1 Diluted $.93 $.93 $ - - PRO FORMA
FROM CURRENT BUSINESSES (NON-GAAP) (D): Revenues and sales
$1,945,232 $1,788,073 $157,159 9 Operating income $ 388,572 $
368,168 $ 20,404 6 (A) Corporate expenses include amortization
expense related to intangible assets recorded in connection with
the acquisition of wireless properties. Corporate expenses for the
six months ended June 30, 2005 also include 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 discontinued operations,
amortization expense related to intangible assets recorded in
connection with the acquisition of wireless properties, 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 expenses, costs associated with
Hurricane Katrina, a change in accounting for operating leases and
integration expenses and other charges. (D) Pro forma from current
businesses excludes the items listed in Note C above and also gives
effect to the spin-off of Alltel's wireline business to its
stockholders completed on July 17, 2006 and includes the operating
results of Western Wireless as if the spin-off and acquisition of
Western Wireless occurred on January 1, 2005. ALLTEL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME UNDER GAAP-Page 2 (In thousands,
except per share amounts) THREE MONTHS ENDED ------------------
June 30, June 30, 2006 2005 ---- ---- Revenues and sales: Service
revenues $2,334,559 $1,989,264 Product sales 339,112 270,842 Total
revenues and sales 2,673,671 2,260,106 Costs and expenses: Cost of
services 762,335 660,945 Cost of products sold 384,669 308,065
Selling, general, administrative and other 510,931 420,536
Depreciation and amortization 411,898 348,320 Integration expenses
and other charges 11,987 - Total costs and expenses 2,081,820
1,737,866 Operating income 591,851 522,240 Equity earnings in
unconsolidated partnerships 15,399 15,214 Minority interest in
consolidated partnerships (11,482) (18,918) Other income, net
21,140 7,976 Interest expense (90,623) (76,343) Gain on exchange or
disposal of assets and other 176,639 188,273 Income from continuing
operations before income taxes 702,924 638,442 Income taxes 265,424
236,381 Income from continuing operations 437,500 402,061 Income
(loss) from discontinued operations (net of income taxes) (8,597) -
Net income 428,903 402,061 Preferred dividends 21 24 Net income
applicable to common shares $ 428,882 $ 402,037 Basic earnings per
share: Income from continuing operations $1.12 $1.28 Income (loss)
from discontinued operations (.02) - Net income $1.10 $1.28 Diluted
earnings per share: Income from continuing operations $1.12 $1.27
Income (loss) from discontinued operations (.02) - Net income $1.10
$1.27 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) 2006 2005 Amount % ---- ---- ------ - UNDER
GAAP: Revenues and sales: Wireless $3,616,508 $2,807,321 $809,187
29 Wireline 1,156,368 1,188,703 (32,335) (3) Communications support
services 537,610 485,935 51,675 11 Total business segments
5,310,486 4,481,959 828,527 18 Less intercompany eliminations
97,079 95,870 1,209 1 Total revenues and sales $5,213,407
$4,386,089 $827,318 19 Segment income: Wireless $ 747,684 $ 606,951
$140,733 23 Wireline 461,945 429,797 32,148 7 Communications
support services 52,460 23,474 28,986 123 Total segment income
1,262,089 1,060,222 201,867 19 Less: corporate expenses (A) 109,533
68,714 40,819 59 integration expenses and other charges 31,512 -
31,512 - Total operating income $1,121,044 $ 991,508 $129,536 13
Operating margin (B): Wireless 20.7% 21.6% (.9%) (4) Wireline 39.9%
36.2% 3.7% 10 Communications support services 9.8% 4.8% 5.0% 104
Consolidated 21.5% 22.6% (1.1%) (5) Net income $ 726,310 $ 715,065
$ 11,245 2 Earnings per share: Basic $1.87 $2.32 $(.45) (19)
Diluted $1.86 $2.31 $(.45) (19) Weighted average common shares:
Basic 387,760 308,317 79,443 26 Diluted 389,958 309,653 80,305 26
FROM CURRENT BUSINESSES (NON-GAAP) (C): Operating income $1,242,789
$1,039,770 $203,019 20 Operating margin (B) 23.8% 23.7% .1% - Net
income $ 684,875 $ 556,867 $128,008 23 Earnings per share: Basic
$1.77 $1.81 $(.04) (2) Diluted $1.76 $1.80 $(.04) (2) PRO FORMA
FROM CURRENT BUSINESSES (NON-GAAP) (D): Revenues and sales
$3,788,465 $3,444,961 $343,504 10 Operating income $ 736,808 $
688,376 $ 48,432 7 (A) Corporate expenses include amortization
expense related to intangible assets recorded in connection with
the acquisition of wireless properties. Corporate expenses for the
six months ended June 30, 2005 also include 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 discontinued operations,
amortization expense related to intangible assets recorded in
connection with the acquisition of wireless properties, 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 expenses, costs associated with
Hurricane Katrina, a change in accounting for operating leases and
integration expenses and other charges. (D) Pro forma from current
businesses excludes the items listed in Note C above and also gives
effect to the spin-off of Alltel's wireline business to its
stockholders completed on July 17, 2006 and includes the operating
results of Western Wireless as if the spin-off and acquisition of
Western Wireless occurred on January 1, 2005. ALLTEL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME UNDER GAAP-Page 2 (In thousands,
except per share amounts) SIX MONTHS ENDED ---------------- June
30, June 30, 2006 2005 ---- ---- Revenues and sales: Service
revenues $4,582,278 $3,887,526 Product sales 631,129 498,563 Total
revenues and sales 5,213,407 4,386,089 Costs and expenses: Cost of
services 1,494,060 1,287,205 Cost of products sold 740,462 589,838
Selling, general, administrative and other 1,009,890 828,001
Depreciation and amortization 816,439 689,537 Integration expenses
and other charges 31,512 - Total costs and expenses 4,092,363
3,394,581 Operating income 1,121,044 991,508 Equity earnings in
unconsolidated partnerships 28,331 25,957 Minority interest in
consolidated partnerships (25,377) (37,265) Other income, net
33,022 128,711 Interest expense (179,597) (163,032) Gain on
exchange or disposal of assets and other 176,639 188,273 Income
from continuing operations before income taxes 1,154,062 1,134,152
Income taxes 436,983 419,087 Income from continuing operations
717,079 715,065 Income (loss) from discontinued operations (net of
income taxes) 9,231 - Net income 726,310 715,065 Preferred
dividends 42 48 Net income applicable to common shares $ 726,268 $
715,017 Basic earnings per share: Income from continuing operations
$1.85 $2.32 Income (loss) from discontinued operations .02 - Net
income $1.87 $2.32 Diluted earnings per share: Income from
continuing operations $1.84 $2.31 Income (loss) from discontinued
operations .02 - Net income $1.86 $2.31 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, 2006 (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
$2,334,559 $ - $2,334,559 Product sales 339,112 - 339,112 Total
revenues and sales 2,673,671 - 2,673,671 Costs and expenses: Cost
of services 762,335 2,235 (B) 764,570 Cost of products sold 384,669
- 384,669 Selling, general, administrative and other 510,931 -
510,931 Depreciation and amortization 411,898 (46,976) (A) 364,922
Integration expenses and other charges 11,987 (11,987) (C) - Total
costs and expenses 2,081,820 (56,728) 2,025,092 Operating income
591,851 56,728 648,579 Equity earnings in unconsolidated
partnerships 15,399 - 15,399 Minority interest in consolidated
partnerships (11,482) - (11,482) Other income, net 21,140 - 21,140
Interest expense (90,623) - (90,623) Gain on exchange or disposal
of assets and other 176,639 (176,639) (D) - Income from continuing
operations before income taxes 702,924 (119,911) 583,013 Income
taxes 265,424 (47,184) (I) 218,240 Income from continuing
operations 437,500 (72,727) 364,773 Income (loss) from discontinued
operations (net of income taxes) (8,597) 8,597 (J) - Net income
428,903 (64,130) 364,773 Preferred dividends 21 - 21 Net income
applicable to common shares $ 428,882 $(64,130) $ 364,752 Basic
earnings per share: Income from continuing operations $1.12 $(.18)
$.94 Income (loss) from discontinued operations (.02) .02 - Net
income $1.10 $(.16) $.94 Diluted earnings per share: Income from
continuing operations $1.12 $(.19) $.93 Income (loss) from
discontinued operations (.02) .02 - Net income $1.10 $(.17) $.93
See notes on pages 7 and 8 for a description of the line items
marked (A) - (J). 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,
2006 (In thousands, except per share amounts) Segment Information
Corporate ------------------------------------ Operations
Communications and Support Intercompany Wireless Wireline Services
Eliminations -------- -------- -------- ------------ Revenues and
sales: Service revenues $1,726,285 $570,600 $ 87,636 $(49,962)
Product sales 132,833 10,333 199,046 (3,100) Total revenues and
sales 1,859,118 580,933 286,682 (53,062) Costs and expenses: Cost
of services 573,700 173,372 60,965 (43,467) Cost of products sold
213,775 8,339 171,727 (9,172) Selling, general, administrative and
other 424,229 63,175 15,704 7,823 Depreciation and amortization
255,285 100,668 7,307 1,662 Integration expenses and other charges
- - - - Total costs and expenses 1,466,989 345,554 255,703 (43,154)
Operating income $ 392,129 $235,379 $ 30,979 $ (9,908) 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, 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 (14,694) (A) 333,626
Integration expenses and other charges - - - Total costs and
expenses 1,737,866 (14,694) 1,723,172 Operating income 522,240
14,694 536,934 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) (F) - Income from continuing operations
before income taxes 638,442 (173,579) 464,863 Income taxes 236,381
(64,620) (I) 171,761 Income from continuing operations 402,061
(108,959) 293,102 Income (loss) from discontinued operations (net
of income taxes) - - - Net income 402,061 (108,959) 293,102
Preferred dividends 24 - 24 Net income applicable to common shares
$ 402,037 $ (108,959) $ 293,078 Basic earnings per share: Income
from continuing operations $1.28 $(.35) $.93 Income (loss) from
discontinued operations - - - Net income $1.28 $(.35) $.93 Diluted
earnings per share: Income from continuing operations $1.27 $(.34)
$.93 Income (loss) from discontinued operations - - - Net income
$1.27 $(.34) $.93 See notes on pages 7 and 8 for a description of
the line items marked (A) - (J). 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, 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 197,866 125,445 8,501 1,814
Integration expenses and other charges - - - - Total costs and
expenses 1,133,693 379,775 249,658 (39,954) Operating income $
321,619 $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 5 for the six
months ended June 30, 2006 (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
$4,582,278 $ - $4,582,278 Product sales 631,129 - 631,129 Total
revenues and sales 5,213,407 - 5,213,407 Costs and expenses: Cost
of services 1,494,060 2,235 (B) 1,496,295 Cost of products sold
740,462 - 740,462 Selling, general, administrative and other
1,009,890 - 1,009,890 Depreciation and amortization 816,439
(92,468) (A) 723,971 Integration expenses and other charges 31,512
(31,512) (E) - Total costs and expenses 4,092,363 (121,745)
3,970,618 Operating income 1,121,044 121,745 1,242,789 Equity
earnings in unconsolidated partnerships 28,331 - 28,331 Minority
interest in consolidated partnerships (25,377) - (25,377) Other
income, net 33,022 - 33,022 Interest expense (179,597) - (179,597)
Gain on exchange or disposal of assets and other 176,639 (176,639)
(D) - Income from continuing operations before income taxes
1,154,062 (54,894) 1,099,168 Income taxes 436,983 (22,690) (I)
414,293 Income from continuing operations 717,079 (32,204) 684,875
Income (loss) from discontinued operations (net of income taxes)
9,231 (9,231) (J) - Net income 726,310 (41,435) 684,875 Preferred
dividends 42 - 42 Net income applicable to common shares $ 726,268
$(41,435) $ 684,833 Basic earnings per share: Income from
continuing operations $1.85 $(.08) $1.77 Income (loss) from
discontinued operations .02 (.02) - Net income $1.87 $(.10) $1.77
Diluted earnings per share: Income from continuing operations $1.84
$(.08) $1.76 Income (loss) from discontinued operations .02 (.02) -
Net income $1.86 $(.10) $1.76 See notes on pages 7 and 8 for a
description of the line items marked (A) - (J). 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, 2006 (In thousands, except per share amounts)
Segment Information Corporate
-------------------------------------- Operations Communications
and Support Intercompany Wireless Wireline Services Eliminations
-------- -------- -------- ------------ Revenues and sales: Service
revenues $3,365,083 $1,136,445 $172,590 $(91,840) Product sales
251,425 19,923 365,020 (5,239) Total revenues and sales 3,616,508
1,156,368 537,610 (97,079) Costs and expenses: Cost of services
1,111,539 349,246 118,818 (83,308) Cost of products sold 418,205
15,692 319,376 (12,811) Selling, general, administrative and other
837,335 125,234 32,236 15,085 Depreciation and amortization 501,745
204,251 14,720 3,255 Integration expenses and other charges - - - -
Total costs and expenses 2,868,824 694,423 485,150 (77,779)
Operating income $ 747,684 $ 461,945 $ 52,460 $(19,300) 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, 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) (H) 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 (28,471)
(A) 661,066 Integration expenses and other charges - - - Total
costs and expenses 3,394,581 (48,262) 3,346,319 Operating income
991,508 48,262 1,039,770 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) (G) 17,675 Interest expense (163,032) - (163,032) Gain on
exchange or disposal of assets and other 188,273 (188,273) (F) -
Income from continuing operations before income taxes 1,134,152
(251,047) 883,105 Income taxes 419,087 (92,849) (I) 326,238 Income
from continuing operations 715,065 (158,198) 556,867 Income (loss)
from discontinued operations (net of income taxes) - - - Net income
715,065 (158,198) 556,867 Preferred dividends 48 - 48 Net income
applicable to common shares $ 715,017 $ (158,198) $ 556,819 Basic
earnings per share: Income from continuing operations $2.32 $(.51)
$1.81 Income (loss) from discontinued operations - - - Net income
$2.32 $(.51) $1.81 Diluted earnings per share: Income from
continuing operations $2.31 $(.51) $1.80 Income (loss) from
discontinued operations - - - Net income $2.31 $(.51) $1.80 See
notes on pages 7 and 8 for a description of the line items marked
(A) - (J). 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, 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 387,587 252,748 16,973 3,758 Integration expenses and
other charges - - - - Total costs and expenses 2,200,370 758,906
462,461 (75,418) Operating income $ 606,951 $ 429,797 $ 23,474
$(20,452) 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 2, 2006,
Alltel has presented in this earnings release results of operations
from current businesses which exclude the effects of discontinued
operations, amortization expense related to intangible assets
recorded in connection with the acquisition of wireless properties,
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 integration expenses
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's 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 expenses, costs associated with Hurricane
Katrina, the effects of the change in accounting for operating
leases and integration expenses and other charges have not been
allocated to the business segments. Wireless segment income also
excludes amortization expense related to acquired intangible
assets. 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) Eliminates the effects of
amortization expense related to intangible assets recorded in
connection with the acquisition of wireless properties. (B) The
Company recorded a $2.2 million reduction in its allowance for
doubtful accounts to reflect lower than expected write-offs from
service interruptions and customer displacement attributable to the
effects of Hurricane Katrina. The additional bad debt expense was
originally recorded in the third quarter of 2005. (C) On December
9, 2005, Alltel announced that it would spin off its wireline
telecommunications business to its stockholders and merge it with
Valor Communications Group, Inc ("Valor"). In connection with the
spin-off and merger, Alltel incurred $12.0 million of incremental
costs primarily consisting of employee benefit costs, consulting
and legal fees. (D) During 2005, federal legislation was enacted
which included provisions to dissolve and liquidate the assets of
the Rural Telephone Bank ("RTB"). In connection with the
dissolution and liquidation, during April 2006, the RTB redeemed
all outstanding shares of its Class C stock. As a result, Alltel
received liquidating cash distributions of $198.7 million in
exchange for its $22.1 million investment in RTB Class C stock. (E)
The Company incurred $10.8 million of integration expenses related
to its acquisition completed on August 1, 2005 of Western Wireless
Corporation ("Western Wireless"). These expenses consisted of $8.3
million of rebranding costs and $2.5 million of system conversion
and other integration costs. In connection with the spin-off of its
wireline business, Alltel incurred $20.7 million of incremental
costs consisting of employee benefit costs, consulting and legal
fees. (F) 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. (G) 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. ALLTEL
CORPORATION NOTES TO RECONCILIATIONS OF RESULTS OF OPERATIONS UNDER
GAAP TO RESULTS OF OPERATIONS FROM CURRENT BUSINESSES
(NON-GAAP)-Page 8 (H) 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 ("SFAS") No. 13, "Accounting for
Leases" and Financial Accounting Standards Board ("FASB") 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. (I) Tax-related effect of the items discussed in Notes
A - H above. (J) Eliminates the effects of discontinued operations.
As a condition of receiving approval for the Western Wireless
acquisition from the Department of Justice and the Federal
Communications Commission, Alltel agreed to divest certain wireless
operations of Western Wireless in 16 markets in Arkansas, Kansas
and Nebraska. In December 2005, Alltel completed an exchange of
wireless properties with United States Cellular Corporation that
included a substantial portion of the divestiture requirements
related to the merger. In the first quarter of 2006, Alltel
completed the required divestitures with the sale of the remaining
property in Arkansas. During 2005, Alltel completed the sales of
international operations in Georgia, Ghana and Ireland acquired
from Western Wireless. During the second quarter of 2006, Alltel
completed the sales of the remaining international operations
acquired from Western Wireless in Austria, Bolivia, Cote d'Ivoire,
Haiti, and Slovenia. As a result, the acquired international
operations and interests of Western Wireless and the 16 markets to
be divested in Arkansas, Kansas and Nebraska have been classified
as discontinued operations in the accompanying consolidated
financial statements. ALLTEL CORPORATION SUPPLEMENTAL OPERATING
INFORMATION-Page 9 (Dollars in thousands, except per customer
amounts) THREE MONTHS ENDED ------------------ Increase June 30,
June 30, (Decrease) 2006 2005 Amount % ---- ---- ------ - Wireless:
Controlled POPs 78,000,811 66,401,653 11,599,158 17 Customers
11,085,145 9,067,508 2,017,637 22 Penetration rate 14.2% 13.7% .5%
4 Average customers 10,951,268 9,040,259 1,911,009 21 Gross
customer additions: Internal 770,589 593,045 177,544 30 Acquired
112,095 212,530 (100,435) (47) Total 882,684 805,575 77,109 10 Net
customer additions: Internal 145,985 53,693 92,292 172 Acquired
112,095 212,530 (100,435) (47) Total 258,080 266,223 (8,143) (3)
Customer acquisition costs: Cost of products sold $ 96,886 $ 62,516
$ 34,370 55 Selling and marketing expenses 263,896 198,938 64,958
33 Less product sales 72,621 51,046 21,575 42 Total $ 288,161 $
210,408 $ 77,753 37 Cost to acquire a new customer (A) $374 $355
$19 5 Cash costs: Cost of services $ 573,700 $ 453,806 $119,894 26
Cost of products sold 213,775 150,278 63,497 42 Selling, general,
administrative and other 424,229 331,743 92,486 28 Less product
sales 132,833 84,223 48,610 58 Total 1,078,871 851,604 227,267 27
Less customer acquisition costs 288,161 210,408 77,753 37 Total $
790,710 $ 641,196 $149,514 23 Cash cost per unit per month,
excluding customer acquisition costs (B) $24.07 $23.64 $.43 2
Revenues: Service revenues $1,726,285 $1,371,089 $355,196 26 Less
wholesale revenues 163,592 112,227 51,365 46 Retail revenues
$1,562,693 $1,258,862 $303,831 24 Average revenue per customer per
month (C) $52.54 $50.55 $1.99 4 Retail revenue per customer per
month (D) $47.57 $46.42 $1.15 2 Retail minutes of use per customer
per month (E) 638 593 45 8 Postpay churn 1.47% 1.58% (.11%) (7)
Total churn 1.91% 1.99% (.08%) (4) Service revenue operating margin
(F) 22.7% 23.5% (.8%) (3) Capital expenditures (G) $290,785
$283,166 $7,619 3 (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 10 (Dollars in thousands, except per customer
amounts) THREE MONTHS ENDED ------------------ Increase June 30,
June 30, (Decrease) 2006 2005 Amount % ---- ---- ------ - Wireline:
Customers 2,831,668 2,953,000 (121,332) (4) Average customers
2,847,709 2,967,986 (120,277) (4) Broadband customers 481,684
319,315 162,369 51 Net broadband additions 40,209 36,189 4,020 11
Average revenue per customer per month (H) $68.00 $66.83 $1.17 2
Capital expenditures (G) $93,177 $85,354 $7,823 9 Communications
support services: Long-distance customers 1,761,667 1,779,813
(18,146) (1) Capital expenditures (G) $4,130 $3,376 $754 22
Consolidated: Equity free cash flow (I) $335,824 $254,663 $81,161
32 Capital expenditures (G) $393,871 $372,065 $21,806 6 Total
assets $23,933,548 $17,914,892 $6,018,656 34 (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
9 (Dollars in thousands, except per customer amounts) SIX MONTHS
ENDED ---------------- Increase June 30, June 30, (Decrease) 2006
2005 Amount % ---- ---- ------ - Wireless: Average customers
10,838,881 8,869,945 1,968,936 22 Gross customer additions:
Internal 1,576,043 1,262,749 313,294 25 Acquired 112,095 266,491
(154,396) (58) Total 1,688,138 1,529,240 158,898 10 Net customer
additions: Internal 310,726 174,530 136,196 78 Acquired 112,095
266,491 (154,396) (58) Total 422,821 441,021 (18,200) (4) Customer
acquisition costs: Cost of products sold $ 192,024 $ 132,213 $
59,811 45 Selling and marketing expenses 517,565 383,930 133,635 35
Less product sales 137,842 100,905 36,937 37 Total $ 571,747 $
415,238 $156,509 38 Cost to acquire a new customer (A) $363 $329
$34 10 Cash costs: Cost of services $1,111,539 $ 859,479 $252,060
29 Cost of products sold 418,205 299,084 119,121 40 Selling,
general administrative and other 837,335 654,220 183,115 28 Less
product sales 251,425 161,855 89,570 55 Total 2,115,654 1,650,928
464,726 28 Less customer acquisition costs 571,747 415,238 156,509
38 Total $1,543,907 $1,235,690 $308,217 25 Cash cost per unit per
month, excluding customer acquisition costs (B) $23.74 $23.22 $.52
2 Revenues: Service revenues $3,365,083 $2,645,466 $719,617 27 Less
wholesale revenues 314,595 203,293 111,302 55 Retail revenues
$3,050,488 $2,442,173 $608,315 25 Average revenue per customer per
month (C) $51.74 $49.71 $2.03 4 Retail revenue per customer per
month (D) $46.91 $45.89 $1.02 2 Retail minutes of use per customer
per month (E) 620 571 49 9 Postpay churn 1.56% 1.65% (.09%) (5)
Total churn 1.95% 2.05% (.10%) (5) Service revenue operating margin
(F) 22.2% 22.9% (.7%) (3) Capital expenditures (G) $446,904
$473,742 $(26,838) (6) (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 10 (Dollars in thousands, except per customer
amounts) SIX MONTHS ENDED ---------------- Increase June 30, June
30, (Decrease) 2006 2005 Amount % ---- ---- ------ - Wireline:
Average customers 2,859,863 2,981,080 (121,217) (4) Net broadband
additions 83,988 75,990 7,998 11 Average revenue per customer per
month (H) $67.39 $66.46 $.93 1 Capital expenditures (G) $155,365
$158,424 $(3,059) (2) Communications support services: Capital
expenditures (G) $6,563 $5,619 $944 17 Consolidated: Equity free
cash flow (I) $794,120 $579,906 $214,214 37 Capital expenditures
(G) $614,726 $638,027 $(23,301) (4) (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 11
(In thousands) ASSETS June 30, December 31, 2006 2005 ---- ----
CURRENT ASSETS: Cash and short-term investments $ 2,531,357 $
989,153 Accounts receivable (less allowance for doubtful accounts
of $81,200 and $84,750, respectively) 1,093,654 1,077,207
Inventories 160,874 232,634 Prepaid expenses and other 187,206
115,179 Assets held for sale - 1,951,240 Total current assets
3,973,091 4,365,413 Investments 365,865 358,412 Goodwill 9,067,133
8,677,251 Other intangibles 2,214,018 2,179,107 PROPERTY, PLANT AND
EQUIPMENT: Land 313,546 298,593 Buildings and improvements
1,242,984 1,211,359 Wireline 7,020,996 6,942,039 Wireless 7,062,730
6,852,565 Information processing 1,266,769 1,187,192 Other 541,297
530,333 Under construction 525,786 475,453 Total property, plant
and equipment 17,974,108 17,497,534 Less accumulated depreciation
9,976,118 9,433,951 Net property, plant and equipment 7,997,990
8,063,583 Other assets 315,451 369,335 TOTAL ASSETS $23,933,548
$24,013,101 ALLTEL CORPORATION CONSOLIDATED BALANCE SHEETS UNDER
GAAP-Page 11 (In thousands) LIABILITIES AND SHAREHOLDERS' EQUITY
June 30, December 31, 2006 2005 ---- ---- CURRENT LIABILITIES:
Current maturities of long-term debt $ 1,594,121 $ 205,117 Accounts
payable 583,265 645,443 Advance payments and customer deposits
243,978 240,499 Accrued taxes 384,538 174,693 Accrued dividends
150,070 147,841 Accrued interest 102,322 102,512 Current deferred
income taxes - 339,014 Other current liabilities 199,186 255,425
Liabilities related to assets held for sale - 294,364 Total current
liabilities 3,257,480 2,404,908 Long-term debt 4,262,808 5,782,890
Deferred income taxes 1,894,228 1,860,904 Other liabilities 907,482
948,962 SHAREHOLDERS' EQUITY: Preferred stock 260 278 Common stock
389,551 383,613 Additional paid-in capital 5,483,997 5,339,321
Unrealized holding gain on investments 38,028 22,297 Foreign
currency translation adjustment - (2,841) Retained earnings
7,699,714 7,272,769 Total shareholders' equity 13,611,550
13,015,437 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $23,933,548
$24,013,101 ALLTEL CORPORATION CONSOLIDATED STATEMENTS OF CASH
FLOWS UNDER GAAP-Page 12 (In thousands) THREE MONTHS ENDED
------------------ June 30, June 30, 2006 2005 ---- ---- Net Cash
Provided from Operations: Net income $ 428,903 $ 402,061
Adjustments to reconcile net income to net cash provided from
operations: Income (loss) from discontinued operations 8,597 -
Depreciation and amortization 411,898 348,320 Provision for
doubtful accounts 69,951 49,744 Non-cash portion of gain on
exchange or disposal of assets and other (107,573) (202,185) Change
in deferred income taxes (12,072) 25,401 Other, net (15,468)
(2,443) Changes in operating assets and liabilities, net of the
effects of acquisitions and dispositions: Accounts receivable
(139,661) (122,360) Inventories 34,053 (10,956) Accounts payable
61,401 (48,905) Other current liabilities (262,970) 14,027 Other,
net (46,440) 12,239 Net cash provided from operations 430,619
464,943 Cash Flows from Investing Activities: Additions to
property, plant and equipment (384,465) (356,277) Additions to
capitalized software development costs (9,406) (15,788) Additions
to investments - (129) Purchases of property, net of cash acquired
(186,850) (171,897) Proceeds from the sale of assets - 36,162
Proceeds from the sale of investments 199,921 350,769 Proceeds from
the return on investments 13,445 15,238 Other, net (7,461) 82 Net
cash used in investing activities (374,816) (141,840) Cash Flows
from Financing Activities: Dividends on preferred and common stock
(149,415) (114,989) Repayments of long-term debt (114) (451,039)
Distributions to minority investors (8,483) (14,266) Excess tax
benefits from stock option exercises 1,282 - Long-term debt issued
- - Conversion of convertible debt - - Common stock issued 33,688
1,396,481 Net cash provided from (used in) financing activities
(123,042) 816,187 Net cash provided from discontinued operations
1,718,529 - Effect of exchange rate changes on cash and short-term
investments (6,464) - Increase in cash and short-term investments
1,644,826 1,139,290 Cash and Short-term Investments: Beginning of
the period 886,531 888,372 End of the period $2,531,357 $2,027,662
ALLTEL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS UNDER
GAAP-Page 12 (In thousands) SIX MONTHS ENDED ---------------- June
30, June 30, 2006 2005 ---- ---- Net Cash Provided from Operations:
Net income $ 726,310 $ 715,065 Adjustments to reconcile net income
to net cash provided from operations: Income (loss) from
discontinued operations (9,231) - Depreciation and amortization
816,439 689,537 Provision for doubtful accounts 123,608 90,659
Non-cash portion of gain on exchange or disposal of assets and
other (107,573) (202,185) Change in deferred income taxes 9,463
6,281 Other, net (4,250) 11,116 Changes in operating assets and
liabilities, net of the effects of acquisitions and dispositions:
Accounts receivable (130,417) (105,833) Inventories 72,795 (2,295)
Accounts payable (59,107) (31,295) Other current liabilities
(229,343) 100,617 Other, net (44,958) (28,067) Net cash provided
from operations 1,163,736 1,243,600 Cash Flows from Investing
Activities: Additions to property, plant and equipment (598,174)
(611,139) Additions to capitalized software development costs
(16,552) (26,888) Additions to investments - (882) Purchases of
property, net of cash acquired (645,781) (223,732) Proceeds from
the sale of assets - 36,162 Proceeds from the sale of investments
199,921 353,445 Proceeds from the return on investments 22,372
20,388 Other, net (8,383) 3,103 Net cash used in investing
activities (1,046,597) (449,543) Cash Flows from Financing
Activities: Dividends on preferred and common stock (297,152)
(220,720) Repayments of long-term debt (858) (452,913)
Distributions to minority investors (20,293) (27,009) Excess tax
benefits from stock option exercises 3,209 - Long-term debt issued
- 50,000 Conversion of convertible debt (59,848) - Common stock
issued 88,584 1,399,313 Net cash provided from (used in) financing
activities (286,358) 748,671 Net cash provided from discontinued
operations 1,717,302 - Effect of exchange rate changes on cash and
short-term investments (5,879) - Increase in cash and short-term
investments 1,542,204 1,542,728 Cash and Short-term Investments:
Beginning of the period 989,153 484,934 End of the period
$2,531,357 $2,027,662 ALLTEL CORPORATION RECONCILIATIONS OF RESULTS
OF OPERATIONS UNDER GAAP TO RESULTS OF OPERATIONS FROM CURRENT
BUSINESSES (NON-GAAP)-Page 13 (In thousands) THREE MONTHS ENDED
------------------ June 30, June 30, 2006 2005 ---- ---- Net cash
provided from operations $ 430,619 $ 464,943 Adjustments to
reconcile to net income under GAAP: Income (loss) from discontinued
operations (8,597) - Depreciation and amortization expense
(411,898) (348,320) Provision for doubtful accounts (69,951)
(49,744) Non-cash portion of gain on exchange or disposal of assets
and other 107,573 202,185 Change in deferred income taxes 12,072
(25,401) Other non-cash changes, net 15,468 2,443 Changes in
operating assets and liabilities, net of the effects of
acquisitions and dispositions 353,617 155,955 Net income under GAAP
428,903 402,061 Adjustments to reconcile to net income from current
businesses: Amortization expense related to acquired wireless
intangible assets, net of tax 28,704 9,080 Reversal of excess bad
debt reserve related to Hurricane Katrina, net of tax (1,366) -
Integration expenses and other charges, net of tax 7,508 - Gain on
exchange or disposal of assets and other, net of tax (107,573)
(118,039) Special dividend received on Fidelity National common
stock, net of tax - - Change in accounting for operating leases,
net of tax - - Income (loss) from discontinued operations 8,597 -
Net income from current businesses 364,773 293,102 Adjustments to
reconcile to equity free cash flow from current businesses:
Depreciation and amortization expense from current businesses
364,922 333,626 Capital expenditures (393,871) (372,065) Equity
free cash flow from current businesses $ 335,824 $ 254,663 ALLTEL
CORPORATION RECONCILIATIONS OF RESULTS OF OPERATIONS UNDER GAAP TO
RESULTS OF OPERATIONS FROM CURRENT BUSINESSES (NON-GAAP)-Page 13
(In thousands) SIX MONTHS ENDED ---------------- June 30, June 30,
2006 2005 ---- ---- Net cash provided from operations $1,163,736
$1,243,600 Adjustments to reconcile to net income under GAAP:
Income (loss) from discontinued operations 9,231 - Depreciation and
amortization expense (816,439) (689,537) Provision for doubtful
accounts (123,608) (90,659) Non-cash portion of gain on exchange or
disposal of assets and other 107,573 202,185 Change in deferred
income taxes (9,463) (6,281) Other non-cash changes, net 4,250
(11,116) Changes in operating assets and liabilities, net of the
effects of acquisitions and dispositions 391,030 66,873 Net income
under GAAP 726,310 715,065 Adjustments to reconcile to net income
from current businesses: Amortization expense related to acquired
wireless intangible assets, net of tax 56,503 17,561 Reversal of
excess bad debt reserve related to Hurricane Katrina, net of tax
(1,366) - Integration expenses and other charges, net of tax 20,232
- Gain on exchange or disposal of assets and other, net of tax
(107,573) (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 Income (loss) from
discontinued operations (9,231) - Net income from current
businesses 684,875 556,867 Adjustments to reconcile to equity free
cash flow from current businesses: Depreciation and amortization
expense from current businesses 723,971 661,066 Capital
expenditures (614,726) (638,027) Equity free cash flow from current
businesses $ 794,120 $ 579,906 ALLTEL CORPORATION SUPPLEMENTAL
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET- Page 14
as of June 30, 2006 (Dollars in thousands) Pro Forma Adjustments
----------------------------- Distribution of Transfer of Wireline
Shared Alltel, Business Assets as Reported (A) (B) ----------- ---
--- Assets Cash and short-term investments $ 2,531,357 $ (4,896) $
- Note receivable from Spinco - - - Other current assets 1,441,734
(371,782) - Total current assets 3,973,091 (376,678) - Investments
365,865 (1,400) - Goodwill 9,067,133 (1,247,937) - Other
intangibles 2,214,018 (313,672) - Property, plant and equipment,
net 7,997,990 (3,021,338) (7,565) Other assets 315,451 (233,157) -
Total Assets $23,933,548 $(5,194,182) $(7,565) Liabilities and
Shareholders' Equity Current maturities of long-term debt $
1,594,121 $ (22,123) $ - Other current liabilities 1,663,359
(293,171) - Total current liabilities 3,257,480 (315,294) -
Long-term debt 4,262,808 (238,684) - Deferred income taxes
1,894,228 (772,955) (2,870) Other liabilities 907,482 (181,405) -
Shareholders' equity: Preferred stock 260 - - Common stock 389,551
- - Additional paid-in capital 5,483,997 (3,685,844) (4,695)
Unrealized holding gain on investments 38,028 - - Foreign currency
translation adjustment - - - Retained earnings 7,699,714 - - Total
shareholders' equity 13,611,550 (3,685,844) (4,695) Total
Liabilities and Shareholders' Equity $23,933,548 $(5,194,182)
$(7,565) See notes on pages 17 and 18 for a description of the line
items marked (A) - (D). ALLTEL CORPORATION SUPPLEMENTAL UNAUDITED
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET- Page 14 as of June
30, 2006 (Dollars in thousands) Pro Forma Adjustments
---------------------------- Receipt of Special Cash Exchange of
Dividend and Spinco Debt Debt Securities for Securities Alltel Debt
From Spinco Securities (C) (D) Pro forma --- --- --------- Assets
Cash and short-term investments $2,275,082 $ - $ 4,801,543 Note
receivable from Spinco 1,703,170 (1,703,170) - Other current assets
- - 1,069,952 Total current assets 3,978,252 (1,703,170) 5,871,495
Investments - - 364,465 Goodwill - - 7,819,196 Other intangibles -
- 1,900,346 Property, plant and equipment, net - - 4,969,087 Other
assets - - 82,294 Total Assets $3,978,252 $(1,703,170) $21,006,883
Liabilities and Shareholders' Equity Current maturities of
long-term debt $ - $ (685,082) $ 886,916 Other current liabilities
- - 1,370,188 Total current liabilities - (685,082) 2,257,104
Long-term debt - (988,540) 3,035,584 Deferred income taxes - -
1,118,403 Other liabilities - - 726,077 Shareholders' equity:
Preferred stock - - 260 Common stock - - 389,551 Additional paid-in
capital 3,978,252 - 5,771,710 Unrealized holding gain on
investments - - 38,028 Foreign currency translation adjustment - -
- Retained earnings - (29,548) 7,670,166 Total shareholders' equity
3,978,252 (29,548) 13,869,715 Total Liabilities and Shareholders'
Equity $3,978,252 $(1,703,170) $21,006,883 See notes on pages 17
and 18 for a description of the line items marked (A) - (D). ALLTEL
CORPORATION SUPPLEMENTAL UNAUDITED PRO FORMA SELECTED FINANCIAL
INFORMATION FROM CURRENT BUSINESSES-Page 15 (Dollars in thousands)
For the three months ended June 30, 2006
---------------------------------------- Pro Forma Adjustments
--------------------- Operating Add Back Results Distribution of
Corporate from of Wireline Overhead Current Business Expenses
Businesses (E) (F) Pro Forma ---------- --- --- --------- Revenues
and sales: Service revenues $2,334,559 $(600,431) $ - $1,734,128
Product sales 339,112 (128,008) - 211,104 Total revenues and sales
2,673,671 (728,439) - 1,945,232 Costs and expenses: Cost of
services 764,570 (188,358) - 576,212 Cost of products sold 384,669
(101,318) - 283,351 Selling, general, administrative and other
510,931 (78,292) 1,870 434,509 Depreciation and amortization
364,922 (102,334) - 262,588 Total costs and expenses 2,025,092
(470,302) 1,870 1,556,660 Operating income $ 648,579 $(258,137)
$(1,870) $ 388,572 Operating results from current businesses have
been reconciled to operating results under GAAP on pages 3 and 5 of
this earnings release. See notes on pages 17 and 18 for a
description of the line items marked (E) - (F). ALLTEL CORPORATION
SUPPLEMENTAL UNAUDITED PRO FORMA SELECTED FINANCIAL INFORMATION
FROM CURRENT BUSINESSES-Page 15 (Dollars in thousands) For the six
months ended June 30, 2006 --------------------------------------
Pro Forma Adjustments --------------------- Operating Add Back
Results Distribution of Corporate from of Wireline Overhead Current
Business Expenses Businesses (E) (F) Pro Forma ---------- --- ---
--------- Revenues and sales: Service revenues $4,582,278
$(1,199,002) $ - $3,383,276 Product sales 631,129 (225,940) -
405,189 Total revenues and sales 5,213,407 (1,424,942) - 3,788,465
Costs and expenses: Cost of services 1,496,295 (377,299) -
1,118,996 Cost of products sold 740,462 (184,414) - 556,048
Selling, general, administrative and other 1,009,890 (156,662)
6,977 860,205 Depreciation and amortization 723,971 (207,563) -
516,408 Total costs and expenses 3,970,618 (925,938) 6,977
3,051,657 Operating income $1,242,789 $ (499,004) $(6,977) $
736,808 Operating results from current businesses have been
reconciled to operating results under GAAP on pages 3 and 5 of this
earnings release. See notes on pages 17 and 18 for a description of
the line items marked (E) - (F). ALLTEL CORPORATION SUPPLEMENTAL
UNAUDITED PRO FORMA SELECTED FINANCIAL INFORMATION FROM CURRENT
BUSINESSES-Page 16 (Dollars in thousands) For the three months
ended June 30, 2005 ---------------------------------------- Pro
Forma Adjustments --------------------- Operating Add Back Results
Distribution of Corporate from of Wireline Overhead Current
Business Expenses Western Businesses (E) (F) Wireless ----------
--- --- -------- Revenues and sales: Service revenues $1,989,264
$(610,104) $ - $247,082 Product sales 270,842 (124,051) - 15,040
Total revenues and sales 2,260,106 (734,155) - 262,122 Costs and
expenses: Cost of services 660,945 (205,388) - 69,223 Cost of
products sold 308,065 (100,482) - 26,681 Selling, general,
administrative and other 420,536 (78,811) 9,055 56,647 Depreciation
and amortization 333,626 (127,329) - 47,137 Total costs and
expenses 1,723,172 (512,010) 9,055 199,688 Operating income $
536,934 $(222,145) $(9,055) $ 62,434 Operating results from current
businesses have been reconciled to operating results under GAAP on
pages 4 and 6 of this earnings release. See notes on pages 17 and
18 for a description of the line items marked (E) - (F). ALLTEL
CORPORATION SUPPLEMENTAL UNAUDITED PRO FORMA SELECTED FINANCIAL
INFORMATION FROM CURRENT BUSINESSES-Page 16 (Dollars in thousands)
For the three months ended June 30, 2005 ------------- Pro Forma
------------- Revenues and sales: Service revenues $1,626,242
Product sales 161,831 Total revenues and sales 1,788,073 Costs and
expenses: Cost of services 524,780 Cost of products sold 234,264
Selling, general, administrative and other 407,427 Depreciation and
amortization 253,434 Total costs and expenses 1,419,905 Operating
income $ 368,168 Operating results from current businesses have
been reconciled to operating results under GAAP on pages 4 and 6 of
this earnings release. See notes on pages 17 and 18 for a
description of the line items marked (E) - (F). ALLTEL CORPORATION
SUPPLEMENTAL UNAUDITED PRO FORMA SELECTED FINANCIAL INFORMATION
FROM CURRENT BUSINESSES-Page 16 (Dollars in thousands) For the six
months ended June 30, 2005 --------------------------------------
Pro Forma Adjustments --------------------- Operating Add Back
Results Distribution of Corporate from of Wireline Overhead Current
Business Expenses Western Businesses (E) (F) Wireless ----------
--- --- -------- Revenues and sales: Service revenues $3,887,526
$(1,227,626) $ - $472,052 Product sales 498,563 (216,188) - 30,634
Total revenues and sales 4,386,089 (1,443,814) - 502,686 Costs and
expenses: Cost of services 1,267,414 (406,063) - 130,701 Cost of
products sold 589,838 (179,951) - 53,386 Selling, general,
administrative and other 828,001 (156,795) 18,587 115,157
Depreciation and amortization 661,066 (256,485) - 91,729 Total
costs and expenses 3,346,319 (999,294) 18,587 390,973 Operating
income $1,039,770 $ (444,520) $(18,587) $111,713 Operating results
from current businesses have been reconciled to operating results
under GAAP on pages 4 and 6 of this earnings release. See notes on
pages 17 and 18 for a description of the line items marked (E) -
(F). ALLTEL CORPORATION SUPPLEMENTAL UNAUDITED PRO FORMA SELECTED
FINANCIAL INFORMATION FROM CURRENT BUSINESSES-Page 16 (Dollars in
thousands) For the six months ended June 30, 2005 ------------- Pro
Forma ------------- Revenues and sales: Service revenues $3,131,952
Product sales 313,009 Total revenues and sales 3,444,961 Costs and
expenses: Cost of services 992,052 Cost of products sold 463,273
Selling, general, administrative and other 804,950 Depreciation and
amortization 496,310 Total costs and expenses 2,756,585 Operating
income $ 688,376 Operating results from current businesses have
been reconciled to operating results under GAAP on pages 4 and 6 of
this earnings release. See notes on pages 17 and 18 for a
description of the line items marked (E) - (F). ALLTEL CORPORATION
NOTES TO SUPPLEMENTAL UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL INFORMATION-Page 17 The supplemental unaudited pro forma
condensed consolidated financial information presented on pages 14
to 16 of this earnings release gives effect to the spin-off of the
wireline telecommunications business of Alltel to its stockholders
that was completed on July 17, 2006. The spin-off included the
majority of Alltel's communications support services, including
directory publishing, information technology outsourcing services,
retail long distance and the wireline sales portion of
communications products. As a result, Alltel's historical results
of operations have been adjusted on a pro forma basis to reflect
the wireline business as a discontinued operation. On the
distribution date, Alltel contributed the assets and liabilities of
its wireline business to ALLTEL Holding Corp. ("Spinco"), a wholly
owned subsidiary of Alltel, in exchange for: (i) all of the shares
of common stock of Spinco, (ii) the payment of a special dividend
of approximately $2.3 billion and (iii) the distribution by Spinco
to Alltel of Spinco debt securities of approximately $1.7 billion,
which Alltel exchanged for certain of the Company's outstanding
debt securities. Alltel also transferred to Spinco approximately
$260.8 million of long-term debt that had been issued by the
Company's wireline subsidiaries. Alltel distributed the shares of
common stock of Spinco on a pro rata basis to its shareholders of
record as of July 12, 2006 in a ratio of one Spinco share for each
share of Alltel common stock held. Immediately after the
consummation of the spin off, Spinco merged with and into Valor
Communications Group, Inc. ("Valor"), with Valor continuing as the
surviving corporation. As a result of the merger, all of the issued
and outstanding shares of Spinco common stock were converted into
the right to receive an aggregate number of shares of common stock
of Valor. Valor issued in the aggregate approximately 403 million
shares of common stock to Alltel stockholders pursuant to the
merger, or 1.0339267 shares of Valor common stock for each share of
Spinco common stock outstanding as of the effective time of the
merger. Upon completion of the merger, Alltel stockholders owned
approximately 85 percent of the outstanding equity interests of the
surviving corporation, which is named Windstream Corporation, and
the stockholders of Valor owned the remaining 15 percent of such
equity interests. The unaudited pro forma condensed consolidated
balance sheet as of June 30, 2006 gives effect to the spin-off as
if it had occurred on June 30, 2006. The unaudited pro forma
selected financial information for the three and six months ended
June 30, 2006 and 2005 give effect to the spin-off as if it had
occurred on January 1, 2005. In addition, the unaudited pro forma
selected financial information for the three and six months ended
June 30, 2005 have been adjusted to include the operating results
of Western Wireless as if the acquisition occurred on January 1,
2005. The pro forma adjustments described in these notes to the
selected unaudited pro forma financial information are based on the
best information available and assumptions that management believes
are reasonable. The pro forma adjustments may differ from those
that will be calculated to report the wireline business as a
discontinued operation in Alltel's future filings. The unaudited
pro forma condensed consolidated financial information is for
illustrative and informational purposes only and is not intended to
represent or be indicative of what Alltel's results of operations
or financial position would have been had the spin-off occurred on
the dates indicated. The unaudited pro forma condensed consolidated
financial information also should not be considered representative
of Alltel's future results of operations or financial position. (A)
This adjustment is to eliminate the assets, liabilities, and equity
associated with the wireline business. (B) This adjustment is to
reflect the transfer to Spinco of certain assets and liabilities
related to the operations of Spinco's business that were previously
utilized or incurred on a shared basis with Alltel's wireless
business. Immediately prior to the spin-off, Alltel transferred
property, plant and equipment (net book value of $7.6 million)
along with the associated deferred income taxes ($2.9 million). (C)
This adjustment is to reflect (1) the receipt in cash of a special
dividend from Spinco of approximately $2.3 billion and (2) the
distribution by Spinco to Alltel of certain Spinco debt securities
consisting of $1,746.0 million aggregate principal amount of 8.625
percent senior notes due 2016 (the "Spinco Securities"). The Spinco
Securities were issued at a discount and sold in an underwritten
private placement offering. At the date of distribution to Alltel,
the Spinco Securities had a carrying value of $1,703.2 million (par
value of $1,746.0 million less discount of $42.8 million). ALLTEL
CORPORATION NOTES TO SUPPLEMENTAL UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION-Page 18 (D) In connection with
the spin-off transaction, Alltel entered into an exchange agreement
(the "Exchange Agreement"), with J.P. Morgan Securities Inc. and
Merrill Lynch, Pierce, Fenner & Smith Inc. (together, the
"Investment Banks"), and Spinco. Pursuant to the terms of the
Exchange Agreement, Alltel agreed to transfer the Spinco Securities
to the Investment Banks, in equal amounts, in exchange for the
transfer by the Investment Banks to Alltel of all or a portion of
the $1.0 billion aggregate principal amount of Alltel's commercial
paper held by the Investment Banks and all or a portion of the
$686.6 million aggregate principal amount of Alltel's 4.656 percent
notes due May 17, 2007 held by the Investment Banks. On July 17,
2006, following the completion of the spin-off transaction, Alltel
and the Investment Banks completed the exchange of debt securities
pursuant to the terms of the Exchange Agreement. The Alltel debt
securities exchanged consisted of $988.5 million of outstanding
commercial paper borrowings and $685.1 million of Alltel's 4.656
percent notes due May 17, 2007. The fair value of the Alltel debt
obligations transferred by the Investment Banks to Alltel had an
agreed upon fair market value of approximately $1,673.4 million on
the date of the debt exchange. This adjustment is to reflect the
exchange of the Spinco debt securities received by Alltel for
outstanding Alltel debt securities held by the Investment Banks. As
part of the Exchange Agreement with the Investment Banks, Alltel
incurred approximately $29.8 million of costs related to the
exchange of its debt securities and realized a gain of
approximately $0.2 million upon completion of the debt exchange.
(E) This adjustment is to eliminate the results of operations
associated with the wireline business. (F) This adjustment is to
add back to Alltel's continuing operations general corporate
overhead expenses previously allocated to the wireline business in
accordance with Emerging Issues Task Force Issue No. 87-24
"Allocation of Interest to Discontinued Operations". Except for the
$260.8 million of long-term debt directly related to the wireline
business, no other interest expense was allocated to the wireline
operations for the periods presented. *T
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